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Analyst Blog

On Oct 7, 2016, we issued an updated research report on Hilltop Holdings Inc. (HTH - Analyst Report) .

The Texas-based financial holding company is mainly known for its business and consumer banking services. Net premiums earned from National Lloyds Corp. (NLC) as well as net interest and non-interest income from the PlainsCapital banking and financial operations primarily make up for the company’s total revenue.

Hilltop’s inorganic growth initiatives have helped it in establishing footprint across geographies. The most significant acquisition by the company was that of PlainsCapital, This buyout not only helped the company to grow its shareholder equity, but also strengthened its revenue base. The transaction also helped Hilltop diversify its business lines. Another notable purchase by the company was that of SWS Group, which bolstered its banking operation segment in 2015.

Hilltop operates through four segments: Banking, Mortgage Origination, InsuranceandFinancial Advisory. The Mortgage Origination segment – PrimeLending – has been named one of the top 10 home purchase lenders in the United States for four straight years. The segment has consistently delivered strong revenue and earnings growth. Also, the persistently soft interest rate has come as a boon in disguise for the company as it has been able to increase its market share in the mortgage market .

The company’s strong financials is another positive. Both the liquidity and solvency of the balance sheet have led it to manage its capital efficiently. The company’s capital deployment strategies have resulted in consistent growth in the book value per share over the years.

However, the volatility of several economic parameters has adversely affected the company’s long-term growth potential. Like other banks of the Farmers Capital Bank Corporation (FFKT - Snapshot Report) , Fidelity Southern Corporation (LION - Snapshot Report) , Republic Bancorp Inc. (RBCAA - Snapshot Report) , Hilltop has also been affected by the mixed impact of  sustained low rates, higher borrowing costs and the continued narrowing of the gap between loss provisions and charge-offs

The share of liability received from the acquired companies is also a major headwind. Exposure to catastrophes is another threat for the company’s property and casualty segment.

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