Hilltop Holdings Inc.
) filed its 10-Q to report results for the quarter ending
September 30, 2012. For the third-quarter 2012, the company's net
loss attributable to common stockholders stood at $4.1 million or
7 cents per share, deteriorating from an income of $0.25 million
or nil per share in the year-ago period. Loss per share also
lagged the Zacks Consensus Estimate of earnings of 1 cent.
Results reflected higher premiums and investment income
although deteriorated net realized gains limited top-line growth,
whereas higher expenses adversely affected the combined ratio and
bottom line. Particularly, higher-than-expected underwriting
along with loss and loss adjustment expenses (LAE) expenses
resulted in operating cash outflow and underwriting loss during
the reported quarter.
During the reported quarter, Hilltop's total revenue was $42.8
million, climbing 5.5% from $40.6 million in the year-ago
quarter, also breezing past the Zacks Consensus Estimate of $42.0
million. The year-over-year upswing was primarily attributable to
a 7.9% increase in net premiums earned of $37.7 million and net
investment income grew 4.6% to $3.3 million. Other income
improved 7.9% year over year to $1.9 million, while net realized
investment gains plunged to $0.008 million from $0.81 million in
the year-ago period.
Meanwhile, total expenses hiked 17.1% year over year to $48.8
million, primarily due to a 17.5% increase in policy acquisition
and other underwriting expenses coupled with 26.7% surge in LAE.
These were partially offset by a 27.2% dip in general and
administration expenses and reduced depreciation and amortization
expense, along with slightly lower interest expenses.
Subsequently, higher LAE and operating expenses swayed
Hilltop's combined ratio to deteriorate to 114.2% in the reported
quarter from 99.6% in the year-ago quarter. Excluding
catastrophic events, combined ratios for the third quarters of
2012 and 2011 would have been 96.1% and 89.3%, respectively.
As on September 30, 2012, Hilltop had cash and cash
equivalents of $574.2 million (down from $578.5 million as on
December 31, 2011) and investments worth $215.8 million (compared
with $224.2 million at the end of 2011).
Total shareholder's equity stood at $640.8 million at the end
of the reported quarter, down from $655.4 million at 2011-end.
Total assets also dipped to $915.5 million at the end of the
reported quarter from $925.4 at 2011-end, while total liabilities
increased to $274.7 million from $270.0 million at the end of
Furthermore, as on September 30, 2012, operating cash outflow
stood at $13.4 million against $4.0 million at the end of the
year-ago quarter. At September 2012-end, Hilltop had a deposit in
custody for various investments in State Insurance Departments
with carrying values of $9.4 million. No shares were repurchased
during the reported quarter.
Moreover, Hilltop's agreement to acquire U.S.-based financial
services company - PlainsCapital Corp. - for about $536.9 million
awaits the regulatory approval, although it has been sanctioned
by the board of both the companies. The deal was inked in May
While Hilltop remains sufficiently liquid, we believe
management will probably deploy the excess capital for acquiring
other insurance businesses, as evident from the proposed
PlainsCapital acquisition. The company's expanded distribution is
also driving growth of existing insurance products and should
further improve the top line. However, the company's future
performance will be dependent to a great extent upon the prudent
deployment of its reserves, even as the sole dependence on
subsidiary NLASCO continues to restrict its long-term growth.
Additionally, higher expenses, low interest rate and persistent
economic volatility continue to mar investment and fundamental
Overall, we believe that Hilltop should continue to tread
ahead with its strategic approach in order to reduce expenses and
capitalize on the opportunities that the markets provide on
stabilization. The company should also be able to strengthen its
competitive position amid arch-rivals -
American Realty Capital Trust Inc.
Granite Re Inc.
) - once the markets rebound to improve pricing and reverse the
Hence, given the long-term growth potential, we maintain a
long-term Neutral recommendation on the stock, although current
volatility warrants a Zacks Rank #2, which also implies a
short-term Buy rating.
AMER REALTY CAP (ARCT): Free Stock Analysis
HILLTOP HLDGS (HTH): Free Stock Analysis
To read this article on Zacks.com click here.