Edgar Filing: Hilltop Holdings Inc.

hth_Current folio_10Q

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 September 30, 2015

☐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)

200 Crescent Court, Suite 1330
Dallas, TX		75201
(Address of principal executive offices)		(Zip Code)

(214) 855-2177

(Registrant’s telephone number, including area code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

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


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐ (Do not check if a smaller reporting company)		Smaller reporting company ☐

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 November 5, 2015 was 98,895,584.

Table of Contents

HILLTOP HOLDINGS INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2015

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	60

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	97

Item 4.	Controls and Procedures	100


PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	101

Item 1A.	Risk Factors	101

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	102

Item 6.	Exhibits	103

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(Unaudited)


	September 30,		December 31,
	2015		2014
Assets
Cash and due from banks	$	526,692	$	782,473
Federal funds sold		24,861		30,602
Securities purchased under agreements to resell		83,889		—
Assets segregated for regulatory purposes		228,251		76,013
Securities:
Trading, at fair value		292,418		65,717
Available for sale, at fair value (amortized cost of $719,212 and $924,755, respectively)		726,132		925,535
Held to maturity, at amortized cost (fair value of $308,031 and $118,345, respectively)		305,316		118,209
		1,323,866		1,109,461

Loans held for sale		1,354,107		1,309,693
Non-covered loans, net of unearned income		4,999,529		3,920,476
Allowance for non-covered loan losses		(42,989)		(37,041)
Non-covered loans, net		4,956,540		3,883,435

Covered loans, net of allowance of $1,870 and $4,611, respectively		420,547		638,029
Broker-dealer and clearing organization receivables		2,111,864		167,884
Premises and equipment, net		204,273		206,991
FDIC indemnification asset		92,902		130,437
Covered other real estate owned		106,024		136,945
Other assets		644,916		458,862
Goodwill		251,808		251,808
Other intangible assets, net		58,916		59,783
Total assets	$	12,389,456	$	9,242,416

Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing	$	2,173,890	$	2,076,385
Interest-bearing		4,646,859		4,293,507
Total deposits		6,820,749		6,369,892

Broker-dealer and clearing organization payables		2,045,604		179,042
Short-term borrowings		910,490		762,696
Securities sold, not yet purchased, at fair value		156,775		48
Notes payable		243,556		56,684
Junior subordinated debentures		67,012		67,012
Other liabilities		428,442		345,803
Total liabilities		10,672,628		7,781,177
Commitments and contingencies (see Notes 13 and 14)
Stockholders' equity:
Hilltop stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; Series B, liquidation value per share of $1,000; 114,068 shares issued and outstanding at December 31, 2014		—		114,068
Common stock, $0.01 par value, 125,000,000 shares authorized; 98,892,539 and 90,181,888 shares issued and outstanding, respectively		989		902
Additional paid-in capital		1,574,769		1,390,788
Accumulated other comprehensive income		4,592		651
Retained earnings (accumulated deficit)		134,748		(45,957)
Deferred compensation employee stock trust, net		1,182		—
Employee stock trust (29,589 shares, at cost)		(590)		—
Total Hilltop stockholders' equity		1,715,690		1,460,452
Noncontrolling interests		1,138		787
Total stockholders' equity		1,716,828		1,461,239
Total liabilities and stockholders' equity	$	12,389,456	$	9,242,416

See accompanying notes.

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Interest income:
Loans, including fees	$	111,315	$	80,719	$	295,670	$	252,667
Securities borrowed		10,116		2,078		29,809		5,420
Securities:
Taxable		6,262		7,688		19,538		22,894
Tax-exempt		1,683		1,150		4,981		3,579
Other		1,169		1,582		3,878		4,893
Total interest income		130,545		93,217		353,876		289,453

Interest expense:
Deposits		3,719		4,117		11,934		10,972
Securities loaned		7,110		1,182		21,505		2,947
Short-term borrowings		1,189		667		3,356		1,606
Notes payable		2,524		633		5,482		1,913
Junior subordinated debentures		605		594		1,785		1,765
Other		187		264		544		623
Total interest expense		15,334		7,457		44,606		19,826

Net interest income		115,211		85,760		309,270		269,627
Provision for loan losses		5,593		4,033		8,438		12,808
Net interest income after provision for loan losses		109,618		81,727		300,832		256,819

Noninterest income:
Net realized gains on securities		—		—		4,403		—
Net gains from sale of loans and other mortgage production income		137,303		108,621		405,023		293,786
Mortgage loan origination fees		22,647		17,593		58,194		46,920
Net insurance premiums earned		41,196		41,821		121,081		122,917
Securities commissions and fees		39,070		6,865		123,201		20,857
Investment and securities advisory fees and commissions		27,667		17,190		82,254		46,797
Bargain purchase gain		—		—		81,289		—
Other		28,586		20,045		75,270		54,239
Total noninterest income		296,469		212,135		950,715		585,516

Noninterest expense:
Employees' compensation and benefits		200,620		126,472		583,415		357,280
Loss and loss adjustment expenses		17,335		22,629		77,436		76,241
Policy acquisition and other underwriting expenses		11,784		11,571		35,198		34,910
Occupancy and equipment, net		29,341		25,345		89,368		77,445
Other		74,422		68,727		215,878		172,709
Total noninterest expense		333,502		254,744		1,001,295		718,585

Income before income taxes		72,585		39,118		250,252		123,750
Income tax expense		25,338		14,010		58,895		44,658

Net income		47,247		25,108		191,357		79,092
Less: Net income attributable to noncontrolling interest		353		296		1,111		583

Income attributable to Hilltop		46,894		24,812		190,246		78,509
Dividends on preferred stock		—		1,426		1,854		4,278
Income applicable to Hilltop common stockholders	$	46,894	$	23,386	$	188,392	$	74,231

Earnings per common share:
Basic	$	0.47	$	0.26	$	1.89	$	0.82
Diluted	$	0.47	$	0.26	$	1.88	$	0.82

Weighted average share information:
Basic		98,676		89,711		99,297		89,709
Diluted		99,556		90,558		100,191		90,570

See accompanying notes.

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Net income	$	47,247	$	25,108	$	191,357	$	79,092
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available for sale, net of tax of $3,222, $(656), $3,847 and $16,565, respectively		5,697		(1,226)		6,755		31,136
Reclassification adjustment for gains included in net income, net of tax of $(1,589)		—		—		(2,814)		—
Comprehensive income		52,944		23,882		195,298		110,228
Less: comprehensive income attributable to noncontrolling interest		353		296		1,111		583

Comprehensive income applicable to Hilltop	$	52,591	$	23,586	$	194,187	$	109,645

See accompanying notes.

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)


									Accumulated		Retained		Deferred					Total
							Additional		Other		Earnings		Compensation		Employee			Hilltop				Total
	Preferred Stock			Common Stock			Paid-in		Comprehensive		(Accumulated		Employee Stock		Stock Trust			Stockholders’		Noncontrolling		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Income (Loss)		Deficit)		Trust, Net		Shares	Amount		Equity		Interest		Equity
Balance, December 31, 2013	114	$	114,068	90,176	$	902	$	1,388,641	$	(34,863)	$	(157,607)	$	—	—	$	—	$	1,311,141	$	781	$	1,311,922
Net income	—		—	—		—		—		—		78,509		—	—		—		78,509		583		79,092
Other comprehensive income	—		—	—		—		—		31,136		—		—	—		—		31,136		—		31,136
Stock-based compensation expense	—		—	—		—		3,316		—		—		—	—		—		3,316		—		3,316
Common stock issued to board members	—		—	7		—		162		—		—		—	—		—		162		—		162
Forfeiture of restricted common stock awards	—		—	(3)		—		(12)		—		—		—	—		—		(12)		—		(12)
Dividends on preferred stock	—		—	—		—		(4,278)		—		—		—	—		—		(4,278)		—		(4,278)
Issuance of common stock	—		—	—		—		3,001		—		—		—	—		—		3,001		—		3,001
Net cash distributed to noncontrolling interest	—		—	—		—		—		—		—		—	—		—		—		(595)		(595)
Balance, September 30, 2014	114	$	114,068	90,180	$	902	$	1,390,830	$	(3,727)	$	(79,098)	$	—	—	$	—	$	1,422,975	$	769	$	1,423,744

Balance, December 31, 2014	114	$	114,068	90,182	$	902	$	1,390,788	$	651	$	(45,957)	$	—	—	$	—	$	1,460,452	$	787	$	1,461,239
Net income	—		—	—		—		—		—		190,246		—	—		—		190,246		1,111		191,357
Other comprehensive income	—		—	—		—		—		3,941		—		—	—		—		3,941		—		3,941
Issuance of common stock	—		—	10,113		101		199,932		—		—		—	—		—		200,033		—		200,033
Stock-based compensation expense	—		—	—		—		6,220		—		—		—	—		—		6,220		—		6,220
Common stock issued to board members	—		—	8		—		173		—		—		—	—		—		173		—		173
Forfeiture of restricted common stock awards	—		—	(19)		—		(17)		—		—		—	—		—		(17)		—		(17)
Dividends on preferred stock	—		—	—		—		—		—		(1,854)		—	—		—		(1,854)		—		(1,854)
Redemption of preferred stock	(114)		(114,068)	—		—		—		—		—		—	—		—		(114,068)		—		(114,068)
Repurchase of common stock	—		—	(1,391)		(14)		(22,327)		—		(7,687)		—	—		—		(30,028)		—		(30,028)
Deferred compensation plan	—		—	—		—		—		—		—		1,182	30		(590)		592		—		592
Net cash distributed to noncontrolling interest	—		—	—		—		—		—		—		—	—		—		—		(760)		(760)
Balance, September 30, 2015	—	$	—	98,893	$	989	$	1,574,769	$	4,592	$	134,748	$	1,182	30	$	(590)	$	1,715,690	$	1,138	$	1,716,828

See accompanying notes.

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2015		2014
Operating Activities
Net income	$	191,357	$	79,092
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses		8,438		12,808
Depreciation, amortization and accretion, net		(67,557)		(63,367)
Net realized gains on securities		(4,403)		—
Bargain purchase gain		(81,289)		—
Deferred income taxes		11,459		6,418
Other, net		(91)		16,669
Net change in securities purchased under agreements to resell		(39,148)		—
Net change in assets segregated for regulatory purposes		29,372		(29,503)
Net change in trading securities		39,367		(7,256)
Net change in broker-dealer and clearing organization receivables		(680,699)		(164,497)
Net change in FDIC Indemnification Asset		38,561		41,175
Net change in other assets		(90,417)		(51,865)
Net change in broker-dealer and clearing organization payables		708,838		261,206
Net change in other liabilities		3,138		30,303
Net gains from sales of loans		(405,023)		(293,786)
Loans originated for sale		(10,628,783)		(7,954,706)
Proceeds from loans sold		10,965,234		8,067,301
Net cash used in operating activities		(1,646)		(50,008)

Investing Activities
Proceeds from maturities and principal reductions of securities held to maturity		51,838		2,821
Proceeds from sales, maturities and principal reductions of securities available for sale		599,737		152,537
Purchases of securities held to maturity		(167,284)		(123,021)
Purchases of securities available for sale		(22,769)		(48,730)
Net change in loans		16,205		106,335
Purchases of premises and equipment and other assets		(23,410)		(32,581)
Proceeds from sales of premises and equipment and other real estate owned		94,680		55,097
Proceeds from redemption of bank owned life insurance		822		—
Net cash paid for Federal Home Loan Bank and Federal Reserve Bank stock		(9,292)		(28,383)
Net cash from acquisition		41,097		—
Net cash provided by investing activities		581,624		84,075

Financing Activities
Net change in deposits		(788,907)		(633,685)
Net change in short-term borrowings		(16,446)		503,897
Proceeds from notes payable		150,078		2,000
Payments on notes payable		(37,787)		(2,643)
Redemption of preferred stock		(114,068)		—
Payments to repurchase common stock		(30,028)		—
Dividends paid on preferred stock		(3,280)		(4,194)
Net cash distributed to noncontrolling interest		(760)		(595)
Other, net		(302)		2,718
Net cash used in financing activities		(841,500)		(132,502)

Net change in cash and cash equivalents		(261,522)		(98,435)
Cash and cash equivalents, beginning of period		813,075		746,023
Cash and cash equivalents, end of period	$	551,553	$	647,588

Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	41,368	$	20,935
Cash paid for income taxes, net of refunds	$	112,282	$	19,893
Supplemental Schedule of Non-Cash Activities
Conversion of loans to other real estate owned	$	45,996	$	44,815
Common stock issued in acquisition	$	200,626	$	—

See accompanying notes.