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HOW

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, 2022

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 22, 2022 was 79,439,118.

HILLTOP HOLDINGS INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2022

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 (Loss)

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

39

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

79

Item 4.

Controls and Procedures

83

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

84

Item 1A.

Risk Factors

84

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

84

Item 6.

Exhibits

85

2

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(Unaudited)

 

March 31,

December 31,

 

2022

    

2021

Assets

Cash and due from banks

$

2,886,812

$

2,823,138

Federal funds sold

 

383

 

385

Assets segregated for regulatory purposes

128,408

221,740

Securities purchased under agreements to resell

256,991

118,262

Securities:

Trading, at fair value

 

471,763

 

647,998

Available for sale, at fair value, net (amortized cost of $1,526,614 and $2,148,635, respectively)

 

1,462,340

 

2,130,568

Held to maturity, at amortized cost, net (fair value of $949,034 and $276,296, respectively)

953,107

267,684

Equity, at fair value

225

250

 

2,887,435

 

3,046,500

Loans held for sale

 

1,643,994

 

1,878,190

Loans held for investment, net of unearned income

 

7,797,903

 

7,879,904

Allowance for credit losses

 

(91,185)

 

(91,352)

Loans held for investment, net

 

7,706,718

 

7,788,552

Broker-dealer and clearing organization receivables

 

1,610,352

 

1,672,946

Premises and equipment, net

 

198,906

 

204,438

Operating lease right-of-use assets

108,180

112,328

Mortgage servicing rights

100,475

86,990

Other assets

 

546,622

 

452,880

Goodwill

 

267,447

 

267,447

Other intangible assets, net

 

14,233

 

15,284

Total assets

$

18,356,956

$

18,689,080

Liabilities and Stockholders' Equity

Deposits:

Noninterest-bearing

$

4,694,592

$

4,577,183

Interest-bearing

 

7,972,110

 

8,240,894

Total deposits

 

12,666,702

 

12,818,077

Broker-dealer and clearing organization payables

 

1,397,836

 

1,477,300

Short-term borrowings

 

835,054

 

859,444

Securities sold, not yet purchased, at fair value

97,629

96,586

Notes payable

 

395,479

 

387,904

Operating lease liabilities

125,919

130,960

Other liabilities

 

347,742

 

369,606

Total liabilities

 

15,866,361

 

16,139,877

Commitments and contingencies (see Notes 13 and 14)

Stockholders' equity:

Hilltop stockholders' equity:

Common stock, $0.01 par value, 125,000,000 shares authorized; 79,438,610 and 78,964,978 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

794

 

790

Additional paid-in capital

 

1,275,649

 

1,274,446

Accumulated other comprehensive income (loss)

 

(80,565)

 

(10,219)

Retained earnings

1,267,415

1,257,014

Deferred compensation employee stock trust, net

744

752

Employee stock trust (5,234 and 5,749 shares, at cost, at March 31, 2022 and December 31, 2021, respectively)

(104)

(115)

Total Hilltop stockholders' equity

 

2,463,933

 

2,522,668

Noncontrolling interests

 

26,662

 

26,535

Total stockholders' equity

 

2,490,595

 

2,549,203

Total liabilities and stockholders' equity

$

18,356,956

$

18,689,080

See accompanying notes.

3

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

Three Months Ended March 31,

    

2022

    

2021

Interest income:

Loans, including fees

$

90,408

$

104,277

Securities borrowed

8,817

28,972

Securities:

Taxable

 

15,581

 

10,251

Tax-exempt

 

2,419

 

2,102

Other

 

2,312

 

1,321

Total interest income

 

119,537

 

146,923

Interest expense:

Deposits

 

4,193

 

7,741

Securities loaned

7,472

25,486

Short-term borrowings

 

2,045

 

2,013

Notes payable

 

4,437

 

4,797

Junior subordinated debentures

 

 

562

Other

 

1,399

 

642

Total interest expense

 

19,546

 

41,241

Net interest income

 

99,991

 

105,682

Provision for (reversal of) credit losses

 

115

 

(5,109)

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

 

99,876

 

110,791

Noninterest income:

Net gains from sale of loans and other mortgage production income

 

110,894

 

267,080

Mortgage loan origination fees

 

32,062

 

43,155

Securities commissions and fees

 

37,146

 

38,314

Investment and securities advisory fees and commissions

29,705

 

27,695

Other

 

6,621

 

41,341

Total noninterest income

 

216,428

 

417,585

Noninterest expense:

Employees' compensation and benefits

 

200,019

 

270,353

Occupancy and equipment, net

 

24,766

 

24,429

Professional services

 

10,063

 

13,585

Other

 

51,502

 

58,295

Total noninterest expense

 

286,350

 

366,662

Income before income taxes

 

29,954

 

161,714

Income tax expense

 

5,815

 

37,770

Net income

 

24,139

 

123,944

Less: Net income attributable to noncontrolling interest

 

1,889

 

3,599

Income attributable to Hilltop

$

22,250

$

120,345

Earnings per common share:

Basic

$

0.28

$

1.46

Diluted

$

0.28

$

1.46

Weighted average share information:

Basic

 

79,114

 

82,169

Diluted

 

79,356

 

82,657

See accompanying notes.

4

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(Unaudited)

Three Months Ended March 31,

    

2022

    

2021

Net income

$

24,139

$

123,944

Other comprehensive income (loss):

Change in fair value of cash flow and fair value hedges, net of tax of $2,103 and $505, respectively

21,877

6,035

Net unrealized gains (losses) on securities available for sale, net of tax of $(10,677) and $(5,974), respectively

 

(35,543)

 

(20,241)

Reclassification adjustment for gains (losses) included in net income, net of tax of $3 and $(21), respectively

 

10

 

(71)

Adjustment for unrealized losses on securities transferred from available-for sale to held-to-maturity, net of tax $(17,033) and $0, respectively

(56,690)

Comprehensive income (loss)

 

(46,207)

 

109,667

Less: comprehensive income attributable to noncontrolling interest

 

1,889

 

3,599

Comprehensive income (loss) applicable to Hilltop

$

(48,096)

$

106,068

See accompanying notes.

5

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 (Loss)

Earnings

Trust, Net

Shares

Amount

Equity

Interest

Equity

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

Balance, December 31, 2021

78,965

$

790

$

1,274,446

$

(10,219)

$

1,257,014

$

752

6

$

(115)

$

2,522,668

$

26,535

$

2,549,203

Net income

22,250

22,250

1,889

24,139

Other comprehensive loss

(70,346)

(70,346)

(70,346)

Stock-based compensation expense

5,114

5,114

5,114

Common stock issued to board members

5

152

152

152

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

469

4

(4,063)

(4,059)

(4,059)

Dividends on common stock ($0.15 per share)

(11,849)

(11,849)

(11,849)

Deferred compensation plan

(8)

(1)

11

3

3

Net cash distributed to noncontrolling interest

(1,762)

(1,762)

Balance, March 31, 2022

79,439

$

794

$

1,275,649

$

(80,565)

$

1,267,415

$

744

5

$

(104)

$

2,463,933

$

26,662

$

2,490,595

See accompanying notes.

6

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

Three Months Ended March 31,

    

2022

    

2021

Operating Activities

Net income

$

24,139

$

123,944

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for (reversal of) credit losses

 

115

 

(5,109)

Depreciation, amortization and accretion, net

 

7,709

 

5,930

Deferred income taxes

 

2,664

 

1,424

Other, net

 

5,231

 

5,775

Net change in securities purchased under agreements to resell

 

(138,729)

 

(26,023)

Net change in trading securities

 

176,235

 

165,543

Net change in broker-dealer and clearing organization receivables

 

289,274

 

(275,257)

Net change in other assets

 

(53,745)

 

(97,606)

Net change in broker-dealer and clearing organization payables

 

(129,753)

 

171,709

Net change in other liabilities

 

(20,854)

 

(13,289)

Net change in securities sold, not yet purchased

1,043

 

17,266

Proceeds from sale of mortgage servicing rights asset

 

1,876

 

52,783

Change in valuation of mortgage servicing rights asset

(8,060)

(16,865)

Net gains from sales of loans

(110,894)

 

(267,080)

Loans originated for sale

 

(3,968,559)

 

(6,960,572)

Proceeds from loans sold

4,310,942

 

7,431,243

Net cash provided by operating activities

388,634

313,816

Investing Activities

Proceeds from maturities and principal reductions of securities held to maturity

 

22,851

11,707

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

 

94,687

249,628

Purchases of securities available for sale

 

(256,887)

(531,701)

Net change in loans held for investment

 

(142,451)

(29,151)

Purchases of premises and equipment and other assets

 

(1,380)

(8,341)

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

843

867

Net cash paid to Federal Home Loan Bank and Federal Reserve Bank stock

 

(143)

(35)

Net cash used in investing activities

 

(282,480)

 

(307,026)

Financing Activities

Net change in deposits

 

(101,086)

 

496,605

Net change in short-term borrowings

 

(24,334)

 

(18,834)

Proceeds from notes payable

 

200,416

 

239,020

Payments on notes payable and junior subordinated debentures

 

(192,955)

 

(219,401)

Payments to repurchase common stock

 

 

(4,950)

Dividends paid on common stock

 

(11,849)

 

(9,865)

Net cash distributed to noncontrolling interest

(1,762)

 

(3,477)

Other, net

(4,244)

 

(913)

Net cash provided by (used in) financing activities

 

(135,814)

478,185

Net change in cash, cash equivalents and restricted cash

 

(29,660)

 

484,975

Cash, cash equivalents and restricted cash, beginning of period

 

3,045,263

 

1,353,303

Cash, cash equivalents and restricted cash, end of period

$

3,015,603

$

1,838,278

Reconciliation of Cash, Cash Equivalents and Restricted Cash to Consolidated Balance Sheets

Cash and due from banks

$

2,886,812

$

1,564,489

Federal funds sold

383

396

Assets segregated for regulatory purposes

128,408

273,393

Total cash, cash equivalents and restricted cash

$

3,015,603

$

1,838,278

Supplemental Disclosures of Cash Flow Information

Cash paid for interest

$

14,862

$

37,095

Cash paid for income taxes, net of refunds

$

1,322

$

1,622

Supplemental Schedule of Non-Cash Activities

Conversion of loans to other real estate owned

$

53

$

461

Additions to mortgage services rights