On Friday, Hilltop Holdings Inc. (HTH) filed its 10-K to report results for the quarter ending December 31, 2011. For the fourth quarter of 2011, net income attributable to common stockholders increased to $5.0 million or 9 cents per share from $1.0 million or 2 cents per share in the year-ago period. Earnings per share also surpassed the Zacks Consensus Estimate of 2 cents.
Results benefited from modest underwriting profitability, premiums growth, net realized gains and investment income that drove the top line. However, this growth was offset by higher-than-expected expenses, which in turn hampered the combined ratio and resulted in operating cash outflow.
During the reported quarter, Hilltop’s total revenue was $40.4 million, escalating 21.3% from $33.3 million in the year-ago quarter, and exceeding the Zacks Consensus Estimate of $39.0 million. The upswing was primarily attributable to a $6.0 million increase in net premiums earned, a $1.0 million accretion in net investment income and $0.1 million rise in other income.
Meanwhile, total expenses inched up 0.3% year over year to $32.6 million, primarily due to higher loss and loss adjustment expenses, which were partially offset by reduced policy acquisition and other underwriting expenses.
Highlights of Full-Year 2011
For full-year 2011, Hilltop reported operating net loss of $6.5 million or 12 cents per share against $0.5 million or breaking even on per share basis. However, loss per share came in below the Zacks Consensus Estimate of a loss of 19 cents per share.
Total revenue escalated 15.6% over 2010 to $152.2 million in 2011, and topped the Zacks Consensus Estimate of $151.0 million. However, total expenses surged 22.8% year over year to $163.7 million, while total combined ratio deteriorated to 106.2% in 2011 from 96.5% in 2010. Excluding catastrophic events, combined ratios for 2011 and 2010 stood at 90.9% and 86.0%, respectively, yet higher than management’s target of 85.0%.
Financials
Additionally, as on December 31, 2011, Hilltop had cash and cash equivalents of $578.5 million (down from $649.4 million as on December 31, 2010) and investments worth $224.2 million as compared with $149.0 million at the end of 2010.
Total shareholders’ equity stood at $655.4 million at the end of 2011, up from $653.1 million at 2010-end. Total assets reduced to $925.4 million at the end of 2011 from $939.6 at 2010-end, while total liabilities decreased to $270.0 million from $286.6 million at the end of 2010.
Furthermore, as on December 31, 2011, cash used in operating activities was $3.3 million as compared with cash provided by operating activities of $9.9 million as on December 31, 2010.
While Hilltop remains sufficiently liquid, we believe management will probably deploy the excess capital in acquiring other insurance businesses to expand their operations and further improve 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. 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.
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