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Hilltop Holdings deploying excess capital to build Houston footprint

Hilltop Holdings Inc. is looking to strengthen its foothold in Houston by deploying excess capital with an all-cash deal.

The Dallas-based company announced Feb. 13 it is buying Bank of River Oaks for $85 million. The deal, expected to close in the third quarter, will tack on three additional branches, giving its subsidiary, PlainsCapital Bank, five locations in the Houston area.

The transaction will leave the company with ample excess capital for additional M&A, President and Co-CEO Jeremy Ford said on a Feb. 14 investors call.

The company has more than $500 million in excess capital, and has been in the market for a transaction "for some time now," Raymond James analyst Michael Rose noted. "While pleased with tonight's announcement, and a step in the right direction to deploy said excess capital, we continue to see difficulties for the bank to deploy the remaining capital in all-cash transactions," he wrote.

Piper Jaffray's Brett Rabatin wrote Hilltop's tangible common equity ratio will decline to 11.8% from 12.4% following the transaction. He said while he is positive on the deal, "investors may hope for additional capital deployment over the next year."

Ford said despite being one of Houston's smaller banks, Bank of River Oaks has "the most potential," giving Hilltop an experienced banking team capable of driving future growth in the company's "most underpenetrated market."

"We would be open to and interested in other opportunities in Houston," Co-CEO Alan White added. "And frankly, we think now we have the right leadership and organization to be able to really handle that."

He said Houston's economy is "bouncing back" from the impacts of Hurricane Harvey, and Hilltop will leverage a number relationships that Bank of River Oaks "couldn't handle."

Ford also said the deal will allow Hilltop to acquire attractive loan and deposit relationships, particularly commercial loans and non-interest-bearing deposits.

Despite the target's location, the deal is not expected to help grow Hilltop's energy portfolio. "There may be a few [energy] relationships they have, but no," White said in response to an analyst question. "We're going to grow off of commercial business, off of healthcare business and private banking."