OREANDA-NEWS. Fitch Ratings has affirmed the long-term Issuer Default Ratings (IDRs) at 'BBB' and short-term IDRs at 'F2' for Hilltop Holdings Inc. (Hilltop) and PlainsCapital Bank. The Rating Outlook is Stable. A full list of rating actions is provided at the end of this release.

The ratings are supported by Hilltop's diverse business model for a bank of its size, experienced and consistent management team, solid capital position, and PlainsCapital Bank's historically stable operating performance. Key rating constraints include Hilltop's heavy reliance on income generated from mortgage banking and weak liquidity profile relative to Fitch-rated midtier bank peers.

The rating action follows a periodic review of the midtier regional banking group, which includes BankUnited Inc. (BKU), BOK Financial Corp. (BOKF), Cathay General Bancorp (CATY), East West Bancorp (EWBC), First Republic Bank (FRC), First Horizon National Corp. (FHN), First National of Nebraska Inc. (FNNI), Fulton Financial Corp. (FULT), Hilltop Holdings, Inc. (HTH), Synovus Financial Corp. (SNV), TCF Financial Corp. (TCB), Trustmark Corp. (TRMK), UMB Financial Corp. (UMBF) and Wintrust Financial Corp. (WTFC).

Company-specific rating rationales for the other banks are published separately, and for further discussion of the midtier regional bank sector in general, refer to the special report titled 'US Banks: Midtier Regional Bank Periodic Review,' to be published shortly.

KEY RATING DRIVERS
IDRS, VIABILITY RATINGS AND SENIOR DEBT
Hilltop's business model and revenue mix are diverse, which Fitch views as a positive rating factor. Hilltop is atypical for a financial institution of its size in that it holds, in addition to its core banking business (PlainsCapital Bank), a niche investment bank (Hilltop Securities), a national mortgage banking platform (PrimeLending), and a property and casualty insurance subsidiary (National Lloyds). Specifically, Fitch sees the presence of Hilltop Securities and PrimeLending as positive influences on Hilltop's company profile, as both subsidiaries provide business and geographic diversity that complements the company's core banking business. Fitch considers National Lloyds to be neutral to the overall rating owing to its historically lackluster performance relative to the rest of the group, and sees no discernible strategic fit within the Hilltop family of companies.

Fitch believes Hilltop has an excellent management team and considers it a key credit strength. The chairman and largest shareholder, Gerald Ford, is a well-known and well-respected figure in the industry. Fitch also considers the management team of PlainsCapital Bank to be deep and stable with a number of PlainsCapital's senior managers having worked at the bank almost since its inception in 1987.

Hilltop's ratings are also supported by solid capital levels. Regulatory capital ratios are above well-capitalized standards and peer averages with tangible common equity and Tier 1 risk-based capital ratios at 11.6% and 18.9%, respectively, at third quarter 2015 (3Q15). Fitch views Hilltop's current levels of capital as a ratings strength given the bank's relatively low risk profile and historical net charge-off trends.

Hilltop's ratings are further supported by strong asset quality trends. PlainsCapital Bank's nonperforming asset and net charge-off ratios have historically remained below midtier peer group averages, which Fitch attributes to the company's generally conservative underwriting standards. Excluding assets covered by FDIC loss-sharing agreements, nonperforming asset levels have decreased in recent years and remain below midtier peer group averages. PlainsCapital's loan book is also fairly well-diversified across both product and industry, but Hilltop's asset quality profile is somewhat limited by its concentrated geographic exposure to Texas.

While Fitch recognizes that Hilltop's revenue mix is more diversified than that of a similarly sized bank, the bank's revenues are predominately driven by mortgage banking income, which Fitch believes is an inherently volatile revenue source. As of YTD Sept. 30, 2015, gains from the sale of originated loans represented roughly 31% of Hilltop's consolidated revenues. In light of the variability of loan sale gains as well as their substantial contribution to the company's total revenues, Hilltop's 'BBB' rating incorporates its reliance on mortgage banking. Fitch views this reliance as both a limitation to the company's earnings profile as well as an overall ratings constraint.

Fitch considers Hilltop's liquidity profile to be weak relative to midtier peers. Its loan-to-deposit and wholesale funding ratios are noticeably higher than comparably sized banks. Additionally, Hilltop's funding costs tend to be higher compared to midtier peers. Fitch recognizes that these characteristics are largely explained by the company's substantial mortgage banking and broker-dealer activities and that Hilltop's funding structure would appear stronger if adjusted to remove loans held for sale. Nevertheless, Fitch believes Hilltop's liquidity profile is constrained by the bank's origination-heavy business model.

LONG- AND SHORT-TERM DEPOSIT RATINGS
PlainsCapital Bank's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. Fitch believes U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating of '5' and Support Ratings Floor of 'NF' reflect Fitch's view that Hilltop and PlainsCapital Bank are not considered systemically important and, therefore, the probability of support is unlikely.

HOLDING COMPANY
The IDR and VR of Hilltop are equalized with those of its chief operating company, PlainsCapital Bank, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries.

RATING SENSITIVITIES
IDRS, VRS AND SENIOR DEBT
The bank's revenues are predominately driven by mortgage banking income; all else equal, Fitch estimates that a 10% decline in mortgage sale revenue could lower consolidated earnings by up to 20% (estimate does not incorporate positive effects from a potential decline in variable expenses). As such, Hilltop's ratings would be sensitive to mortgage volumes. However, this risk is partially mitigated because the mortgage bank originates primarily home purchases rather than refinancings. The former is less sensitive to changes in the level of interest rates than the latter and is expected to remain fairly buoyant in 2016.

Fitch places great emphasis on the continuity of senior management at Hilltop and PlainsCapital Bank. As such the ratings are sensitive to unexpected departures or changes in senior management (either at the holding company or the bank), especially if this could lead to material changes in such areas as strategy, risk appetite, and/or capital management. However, Fitch acknowledges that such risk is partially mitigated by a deep bench of seasoned executives and a culture that has resulted in historically very low managerial turnover, especially at the bank.

The ratings are sensitive to Hilltop's overall operating performance. A substantial increase in nonperforming assets or net charge-offs, adjusted for covered loans, relative to PlainsCapital Bank's historical averages could result in downward ratings pressure. Given Hilltop's concentrated exposure to Texas, unforeseen negative developments in the Texas economy leading to a material deterioration in asset quality could prompt a review of the ratings. Fitch recognizes that PlainsCapital's direct exposure to energy represents only about 4% of the bank's loan book (down significantly year-to-date), but its ratings would be sensitive to any second-order effects that lower oil prices may have on the Texas economy.

Fitch's ratings incorporate Hilltop's acquisitive growth strategy and the execution risk associated with that approach. Unforeseen and material problems arising from future acquisitions or acquisitions of businesses lacking an obvious strategic fit within Hilltop's corporate group could prompt a review of the ratings.

Fitch's ratings also incorporate Hilltop's plans to successfully integrate SWS Group. Although the transaction closed on Jan. 1, 2015, the company will continue to work on integration, particularly back-office systems, through 2016. Should significant and/or unexpected costs or problems arise preventing timely and full integration of SWS Group, this may prompt Fitch to undertake a review of the ratings.

LONG- AND SHORT-TERM DEPOSIT RATINGS
The ratings of long- and short-term deposits issued by PlainsCapital Bank are primarily sensitive to any change in the company's IDR. Should the long-term IDR be downgraded, deposit ratings could be similarly impacted.

HOLDING COMPANY
If Hilltop became undercapitalized or had regulatory prohibitions between upstreaming dividends from the bank, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the PlainsCapital Bank.

COMPANY PROFILE
Hilltop Holdings is a Texas-based financial holding company with four operating business units: PlainsCapital Bank, PrimeLending, Hilltop Securities and National Lloyds. In addition to providing traditional banking and mortgage banking services, Hilltop Holdings also provides investment banking, public finance advisory, fixed income sales, and clearing services through Hilltop Securities. National Lloyds is a property and casualty insurance holding company that provides, through its subsidiaries, fire and homeowners insurance to low-value dwellings and manufactured homes in Texas and other areas of the southern United States.

As of Sept. 30, 2015, the company had $12.4 billion in total consolidated assets. The company's stock is listed on the NYSE under the ticker HTH.

Fitch affirms the following ratings:

Hilltop Holdings
--Long-term IDR at 'BBB'; Outlook Stable;
--Short-term IDR at 'F2';
--Senior debt at 'BBB';
--Viability Rating at 'bbb';
--Support Rating at '5';
--Support Rating Floor at 'NF'.

PlainsCapital Corporation
--Long-term IDR at 'BBB'; Outlook Stable;
--Short-term IDR at 'F2';
--Viability Rating at 'bbb';
--Support Rating at '5';
--Support Rating Floor at 'NF'.

PlainsCapital Bank
--Long-term IDR at 'BBB'; Outlook Stable;
--Short-term IDR at 'F2';
--Viability Rating at 'bbb';
--Long-term deposits at 'BBB+';
--Short-term deposits at 'F2';
--Support Rating at '5';
--Support Rating Floor at 'NF'.