On March 11, Hilltop Holdings Inc. (HTH) filed its 10-K to report results for 2010. For fourth quarter of 2010, net income attributed to common stockholders increased to $1.0 million or 2 cents per share from $0.6 million or 1 cent per share in the year-ago period. This, however, compared unfavourably with the Zacks Consensus Estimate earnings of 5 cents per share.
Results benefited from modest premiums growth and investment income that drove the top line. However, this growth was offset by lower-than-expected net realized gains, higher-than-expected operating expenses, which in turn hampered the combined ratio and resulted in a lower-than-expected operating cash flow.
During the reported quarter, Hilltop’s total revenue was $33.3 million, marginally up from $33.2 million in the year-ago quarter but slightly down from the Zacks Consensus Estimate of $34.0 million. The year-over-year increase was primarily attributable to increase in net premiums earned of $0.7 million, net investment income of $0.6 million, partially offset by decrease in other income of $0.2 million and net realized investment gains of $1.0 million.
Total operating expenses increased 14.0% year over year to $32.5 million, primarily due to higher loss and loss adjustment expenses of $4.1 million related to increased severity in wind and hail losses.
For full year 2010, Hilltop reported net loss of $13.5 million or 24 cents per share as compared with a net loss of $12.4 million or 22 cents per share in 2009, also exceeding the Zacks Consensus Estimate of a loss of 21 cents. Total revenue increased 2.2% year over year to $131.7 million but was almost flat from the Zacks Consensus Estimate of $132.0 million. Total expenses climbed 0.8% year over year to $133.3 million.
However, Hilltop’s combined ratio improved slightly to 96.5% at 2010 end from 96.8% at the end of 2009 due to lower average loss per claim. Excluding catastrophic events, combined ratios for 2010 and 2009 would have been 86.0% and 88.2%, respectively, yet higher than management’s target of 85.0%.
Financials
Additionally, as on December 31, 2010, Hilltop had cash and cash equivalents of $649.4 million (down from $790.0 million as on December 31, 2009) and investments worth $150.0 million as compared to $130.0 million as on December 31, 2009.
Further, as on December 31, 2010, cash provided by operations was $9.9 million as compared with $18.9 million as on December 31, 2009. The decline was primarily due to increased deferred acquisition costs and decreased payable to related party.
Going forward, management of Hilltop continues to explore possible strategic investment and acquisition opportunities with its available cash. For this purpose, the company also plans to secure the additional equity or debt financing sources, if required. While Hilltop remains sufficiently liquid, we believe that the sole dependence on subsidiary NLASCO continues to restrict its long-term growth.
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