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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-31987

Hilltop Holdings Inc.

(Exact name of registrant as specified in its charter)

Maryland

84-1477939

(State or other jurisdiction of incorporation or

(I.R.S. Employer Identification No.)

organization)

6565 Hillcrest Avenue

Dallas, TX

75205

(Address of principal executive offices)

(Zip Code)

(214) 855-2177

(Registrant’s telephone number, including area code)

Securities registered pursuant to section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

HTH

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   No 

The number of shares of the registrant's common stock outstanding at April 23, 2021 was 82,260,548.

Table of Contents

HILLTOP HOLDINGS INC.

FORM 10-Q

FOR THE QUARTER ENDED March 31, 2021

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets

3

Consolidated Statements of Operations

4

Consolidated Statements of Comprehensive Income

5

Consolidated Statements of Stockholders’ Equity

6

Consolidated Statements of Cash Flows

7

Notes to Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

42

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

84

Item 4.

Controls and Procedures

87

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

88

Item 1A.

Risk Factors

88

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

88

Item 6.

Exhibits

89

2

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(Unaudited)

March 31,

December 31,

 

    

2021

    

2020

 

Assets

Cash and due from banks

$

1,564,489

$

1,062,560

Federal funds sold

 

396

 

386

Assets segregated for regulatory purposes

273,393

290,357

Securities purchased under agreements to resell

106,342

80,319

Securities:

Trading, at fair value

 

528,712

 

694,255

Available for sale, at fair value, net (amortized cost of $1,715,428 and 1,435,919, respectively)

 

1,715,406

 

1,462,205

Held to maturity, at amortized cost, net (fair value of $311,402 and $326,671, respectively)

300,088

311,944

Equity, at fair value

189

140

 

2,544,395

2,468,544

Loans held for sale

 

2,538,986

 

2,788,386

Loans held for investment, net of unearned income

 

7,810,657

 

7,693,141

Allowance for credit losses

 

(144,499)

 

(149,044)

Loans held for investment, net

 

7,666,158

 

7,544,097

Broker-dealer and clearing organization receivables

 

1,596,817

 

1,404,727

Premises and equipment, net

 

213,304

 

211,595

Operating lease right-of-use assets

101,055

 

105,757

Mortgage servicing rights

142,125

143,742

Other assets

 

648,895

 

555,983

Goodwill

 

267,447

 

267,447

Other intangible assets, net

 

19,035

 

20,364

Total assets

$

17,682,837

$

16,944,264

Liabilities and Stockholders' Equity

Deposits:

Noninterest-bearing

$

4,031,181

$

3,612,384

Interest-bearing

 

7,701,598

 

7,629,935

Total deposits

 

11,732,779

 

11,242,319

Broker-dealer and clearing organization payables

 

1,546,227

 

1,368,373

Short-term borrowings

 

676,652

 

695,798

Securities sold, not yet purchased, at fair value

97,055

79,789

Notes payable

 

401,713

 

381,987

Operating lease liabilities

120,339

 

125,450

Junior subordinated debentures

 

67,012

 

67,012

Other liabilities

 

595,045

 

632,889

Total liabilities

 

15,236,822

 

14,593,617

Commitments and contingencies (see Notes 14 and 15)

Stockholders' equity:

Hilltop stockholders' equity:

Common stock, $0.01 par value, 125,000,000 shares authorized; 82,260,548 and 82,184,893 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

823

 

822

Additional paid-in capital

 

1,319,518

 

1,317,929

Accumulated other comprehensive income

 

3,486

 

17,763

Retained earnings

1,094,727

 

986,792

Deferred compensation employee stock trust, net

752

 

771

Employee stock trust (6,060 and 6,930 shares, at cost, at March 31, 2021 and December 31, 2020, respectively)

(121)

 

(138)

Total Hilltop stockholders' equity

 

2,419,185

 

2,323,939

Noncontrolling interests

 

26,830

 

26,708

Total stockholders' equity

 

2,446,015

 

2,350,647

Total liabilities and stockholders' equity

$

17,682,837

$

16,944,264

See accompanying notes.

3

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

Three Months Ended March 31,

    

2021

    

2020

Interest income:

Loans, including fees

$

104,277

$

111,168

Securities borrowed

28,972

13,327

Securities:

Taxable

 

10,251

 

15,695

Tax-exempt

 

2,102

 

1,610

Other

 

1,321

 

3,075

Total interest income

 

146,923

 

144,875

Interest expense:

Deposits

 

7,741

 

15,124

Securities loaned

25,486

11,277

Short-term borrowings

 

2,013

 

4,744

Notes payable

 

4,797

 

2,418

Junior subordinated debentures

 

562

 

850

Other

 

642

 

126

Total interest expense

 

41,241

 

34,539

Net interest income

 

105,682

 

110,336

Provision for (reversal of) credit losses

 

(5,109)

 

34,549

Net interest income after provision for (reversal of) credit losses

 

110,791

 

75,787

Noninterest income:

Net gains from sale of loans and other mortgage production income

 

267,080

 

150,486

Mortgage loan origination fees

 

43,155

 

28,554

Securities commissions and fees

 

38,314

 

40,069

Investment and securities advisory fees and commissions

27,695

 

23,180

Other

 

41,341

 

29,424

Total noninterest income

 

417,585

 

271,713

Noninterest expense:

Employees' compensation and benefits

 

270,353

 

196,356

Occupancy and equipment, net

 

24,429

 

19,522

Professional services

 

13,585

 

14,798

Other

 

58,295

 

51,225

Total noninterest expense

 

366,662

 

281,901

Income from continuing operations before income taxes

 

161,714

 

65,599

Income tax expense

 

37,770

 

15,148

Income from continuing operations

123,944

50,451

Income from discontinued operations, net of income taxes

3,151

Net income

 

123,944

 

53,602

Less: Net income attributable to noncontrolling interest

 

3,599

 

3,966

Income attributable to Hilltop

$

120,345

$

49,636

Earnings per common share:

Basic:

Earnings from continuing operations

$

1.46

$

0.51

Earnings from discontinued operations

0.04

$

1.46

$

0.55

Diluted:

Earnings from continuing operations

$

1.46

$

0.51

Earnings from discontinued operations

0.04

$

1.46

$

0.55

Weighted average share information:

Basic

 

82,169

 

90,509

Diluted

 

82,657

 

90,550

See accompanying notes.

4

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

Three Months Ended March 31,

    

2021

    

2020

Net income

$

123,944

$

53,602

Other comprehensive income:

Change in fair value of cash flow and fair value hedges, net of tax of $505 and $(933), respectively

6,035

(3,200)

Net unrealized gains (losses) on securities available for sale, net of tax of $(5,974) and $3,726, respectively

 

(20,241)

 

12,605

Reclassification adjustment for gains (losses) included in net income, net of tax of $(21) and $34, respectively

 

(71)

 

115

Comprehensive income

 

109,667

 

63,122

Less: comprehensive income attributable to noncontrolling interest

 

3,599

 

3,966

Comprehensive income applicable to Hilltop

$

106,068

$

59,156

See accompanying notes.

5

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)

    

   

   

Accumulated

   

   

Deferred

   

    

    

   

Total

   

   

Additional

Other

Compensation

Employee

Hilltop

Total

Common Stock

Paid-in

Comprehensive

Retained

Employee Stock

Stock Trust

Stockholders’

Noncontrolling

Stockholders’

Shares

Amount

Capital

Income

Earnings

Trust, Net

Shares

Amount

Equity

Interest

Equity

Balance, December 31, 2019

90,641

$

906

$

1,445,233

$

11,419

$

644,860

$

776

8

$

(155)

$

2,103,039

$

25,757

$

2,128,796

Net income

49,636

49,636

3,966

53,602

Other comprehensive income

9,520

9,520

9,520

Stock-based compensation expense

3,642

3,642

3,642

Common stock issued to board members

10

146

146

146

Issuance of common stock related to share-based awards, net

158

2

(471)

(469)

(469)

Repurchases of common stock

(701)

(7)

(11,249)

(3,701)

(14,957)

(14,957)

Dividends on common stock ($0.09 per share)

(8,158)

(8,158)

(8,158)

Deferred compensation plan

(2)

5

3

3

Adoption of accounting standards

(5,691)

(5,691)

(5,691)

Net cash distributed to noncontrolling interest

(2,701)

(2,701)

Balance, March 31, 2020

90,108

$

901

$

1,437,301

$

20,939

$

676,946

$

774

8

$

(150)

$

2,136,711

$

27,022

$

2,163,733

Balance, December 31, 2020

82,185

$

822

$

1,317,929

$

17,763

$

986,792

$

771

7

$

(138)

$

2,323,939

$

26,708

$

2,350,647

Net income

120,345

120,345

3,599

123,944

Other comprehensive loss

(14,277)

(14,277)

(14,277)

Stock-based compensation expense

4,594

4,594

4,594

Common stock issued to board members

4

147

147

147

Issuance of common stock related to share-based awards, net

222

2

(748)

(746)

(746)

Repurchases of common stock

(150)

(1)

(2,404)

(2,545)

(4,950)

(4,950)

Dividends on common stock ($0.12 per share)

(9,865)

(9,865)

(9,865)

Deferred compensation plan

(19)

(1)

17

(2)

(2)

Net cash distributed to noncontrolling interest

(3,477)

(3,477)

Balance, March 31, 2021

82,261

$

823

$

1,319,518

$

3,486

$

1,094,727

$

752

6

$

(121)

$

2,419,185

$

26,830

$

2,446,015

See accompanying notes.

6

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

Three Months Ended March 31,

    

2021

    

2020

   

Operating Activities

Net income

$

123,944

$

53,602

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Provision for (reversal of) credit losses

 

(5,109)

 

34,549

Depreciation, amortization and accretion, net

 

5,930

 

1,883

Deferred income taxes

 

1,424

 

(2,053)

Other, net

 

5,775

 

(2,410)

Net change in securities purchased under agreements to resell

 

(26,023)

 

35,675

Net change in trading securities

 

165,543

 

295,995

Net change in broker-dealer and clearing organization receivables

 

(275,257)

 

11,768

Net change in other assets

 

(97,606)

 

(243,683)

Net change in broker-dealer and clearing organization payables

 

171,709

 

(281,891)

Net change in other liabilities

 

(13,289)

 

(73,963)

Net change in securities sold, not yet purchased

17,266

 

(21,049)

Proceeds from sale of mortgage servicing rights asset

 

52,783

 

18,650

Change in valuation of mortgage servicing rights asset

(16,865)

11,030

Net gains from sales of loans

(267,080)

 

(150,486)

Loans originated for sale

 

(6,960,572)

 

(4,256,981)

Proceeds from loans sold

7,431,243

 

3,983,089

Net cash provided by (used in) operating activities for continuing operations

 

313,816

 

(586,275)

Net cash provided by operating activities for discontinued operations

3,505

Net cash provided by (used in) operating activities

313,816

(582,770)

Investing Activities

Proceeds from maturities and principal reductions of securities held to maturity

 

11,707

37,624

Proceeds from sales, maturities and principal reductions of securities available for sale

 

249,628

73,889

Purchases of securities held to maturity

 

(6,532)

Purchases of securities available for sale

 

(531,701)

(119,778)

Net change in loans held for investment

 

(29,151)

(19,692)

Purchases of premises and equipment and other assets

 

(8,341)

(17,754)

Proceeds from sales of premises and equipment and other real estate owned

867

15,350

Net cash received from (paid to) Federal Home Loan Bank and Federal Reserve Bank stock

 

(35)

18,685

Net cash used in investing activities for continuing operations

(307,026)

 

(18,208)

Net cash provided by investing activities for discontinued operations

1,794

Net cash used in investing activities

 

(307,026)

 

(16,414)

Financing Activities

Net change in deposits

 

496,605

 

850,829

Net change in short-term borrowings

 

(18,834)

 

(94,062)

Proceeds from notes payable

 

239,020

 

273,386

Payments on notes payable

 

(219,401)

 

(285,639)

Payments to repurchase common stock

 

(4,950)

 

(14,957)

Dividends paid on common stock

 

(9,865)

 

(8,158)