Edgar Filing: Hilltop Holdings Inc.

hth_Current folio_10Q

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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, 2016

☐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 October 27, 2016 was 98,539,056.

Table of Contents

HILLTOP HOLDINGS INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2016

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	58

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	94

Item 4.	Controls and Procedures	96


PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	97

Item 1A.	Risk Factors	97

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	97

Item 6.	Exhibits	98

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(Unaudited)


	September 30,		December 31,
	2016		2015
Assets
Cash and due from banks	$	528,519	$	652,036
Federal funds sold		40,419		17,409
Securities purchased under agreements to resell		138,284		105,660
Assets segregated for regulatory purposes		173,840		158,613
Securities:
Trading, at fair value		402,104		214,146
Available for sale, at fair value (amortized cost of $551,827 and $670,003, respectively)		563,720		673,706
Held to maturity, at amortized cost (fair value of $369,746 and $331,468, respectively)		365,934		332,022
		1,331,758		1,219,874

Loans held for sale		1,673,069		1,533,678
Non-covered loans, net of unearned income		5,674,655		5,220,040
Allowance for non-covered loan losses		(52,625)		(45,415)
Non-covered loans, net		5,622,030		5,174,625

Covered loans, net of allowance of $729 and $1,532, respectively		292,031		378,762
Broker-dealer and clearing organization receivables		1,340,617		1,362,499
Premises and equipment, net		190,645		200,618
FDIC indemnification asset		73,351		91,648
Covered other real estate owned		61,988		99,090
Other assets		657,805		565,813
Goodwill		251,808		251,808
Other intangible assets, net		47,112		54,868
Total assets	$	12,423,276	$	11,867,001

Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing	$	2,232,813	$	2,235,436
Interest-bearing		4,797,772		4,717,247
Total deposits		7,030,585		6,952,683

Broker-dealer and clearing organization payables		1,251,839		1,338,305
Short-term borrowings		1,265,022		947,373
Securities sold, not yet purchased, at fair value		164,633		130,044
Notes payable		313,313		238,716
Junior subordinated debentures		67,012		67,012
Other liabilities		481,504		454,743
Total liabilities		10,573,908		10,128,876
Commitments and contingencies (see Notes 12 and 13)
Stockholders' equity:
Hilltop stockholders' equity:
Common stock, $0.01 par value, 125,000,000 shares authorized; 98,540,676 and 98,896,184 shares issued and outstanding, respectively		985		989
Additional paid-in capital		1,570,025		1,577,270
Accumulated other comprehensive income		8,039		2,629
Retained earnings		266,048		155,475
Deferred compensation employee stock trust, net		900		1,034
Employee stock trust (15,496 and 22,196 shares, at cost, respectively)		(309)		(443)
Total Hilltop stockholders' equity		1,845,688		1,736,954
Noncontrolling interests		3,680		1,171
Total stockholders' equity		1,849,368		1,738,125
Total liabilities and stockholders' equity	$	12,423,276	$	11,867,001

See accompanying notes.

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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,
	2016		2015		2016		2015
Interest income:
Loans, including fees	$	97,590	$	111,315	$	287,591	$	295,670
Securities borrowed		9,037		10,116		22,952		29,809
Securities:
Taxable		5,935		6,262		19,136		19,538
Tax-exempt		1,518		1,683		4,692		4,981
Other		1,183		1,169		3,248		3,878
Total interest income		115,263		130,545		337,619		353,876

Interest expense:
Deposits		3,996		3,719		11,872		11,934
Securities loaned		6,954		7,110		17,857		21,505
Short-term borrowings		1,497		1,189		3,974		3,356
Notes payable		2,793		2,524		7,993		5,482
Junior subordinated debentures		673		605		1,973		1,785
Other		180		187		543		544
Total interest expense		16,093		15,334		44,212		44,606

Net interest income		99,170		115,211		293,407		309,270
Provision for loan losses		3,990		5,593		36,273		8,438
Net interest income after provision for loan losses		95,180		109,618		257,134		300,832

Noninterest income:
Net realized gains on securities		—		—		—		4,403
Net gains from sale of loans and other mortgage production income		175,412		137,303		469,721		405,023
Mortgage loan origination fees		26,807		22,647		71,417		58,194
Net insurance premiums earned		38,747		41,196		117,201		121,081
Securities commissions and fees		39,722		39,070		118,481		123,201
Investment and securities advisory fees and commissions		31,129		27,667		84,302		82,254
Bargain purchase gain		—		—		—		81,289
Other		42,641		28,586		116,716		75,270
Total noninterest income		354,458		296,469		977,838		950,715

Noninterest expense:
Employees' compensation and benefits		225,194		200,620		625,353		583,415
Loss and loss adjustment expenses		16,055		17,335		75,225		77,436
Policy acquisition and other underwriting expenses		11,064		11,784		33,632		35,198
Occupancy and equipment, net		27,460		29,341		82,264		89,368
Other		84,360		74,422		240,213		215,878
Total noninterest expense		364,133		333,502		1,056,687		1,001,295

Income before income taxes		85,505		72,585		178,285		250,252
Income tax expense		33,017		25,338		65,879		58,895

Net income		52,488		47,247		112,406		191,357
Less: Net income attributable to noncontrolling interest		556		353		1,833		1,111

Income attributable to Hilltop		51,932		46,894		110,573		190,246
Dividends on preferred stock		—		—		—		1,854
Income applicable to Hilltop common stockholders	$	51,932	$	46,894	$	110,573	$	188,392

Earnings per common share:
Basic	$	0.53	$	0.47	$	1.12	$	1.89
Diluted	$	0.53	$	0.47	$	1.12	$	1.88

Weighted average share information:
Basic		98,490		98,676		98,367		99,297
Diluted		98,625		99,556		98,573		100,191

See accompanying notes.

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HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Net income	$	52,488	$	47,247	$	112,406	$	191,357
Other comprehensive income:
Net unrealized gains (losses) on securities available for sale, net of tax of $(420), $3,222, $3,004 and $3,847, respectively		(743)		5,697		5,410		6,755
Reclassification adjustment for gains included in net income, net of tax of $(1,589)		—		—		—		(2,814)
Comprehensive income		51,745		52,944		117,816		195,298
Less: comprehensive income attributable to noncontrolling interest		556		353		1,833		1,111

Comprehensive income applicable to Hilltop	$	51,189	$	52,591	$	115,983	$	194,187

See accompanying notes.

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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		Deficit)		Trust, Net		Shares	Amount		Equity		Interest		Equity
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	—		—	—		—		6,278		—		—		—	—		—		6,278		—		6,278
Common stock issued to board members	—		—	8		—		173		—		—		—	—		—		173		—		173
Issuance of common stock related to share-based awards, net	—		—	(19)		—		(75)		—		—		—	—		—		(75)		—		(75)
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

Balance, December 31, 2015	—	$	—	98,896	$	989	$	1,577,270	$	2,629	$	155,475	$	1,034	22	$	(443)	$	1,736,954	$	1,171	$	1,738,125
Net income	—		—	—		—		—		—		110,573		—	—		—		110,573		1,833		112,406
Other comprehensive income	—		—	—		—		—		5,410		—		—	—		—		5,410		—		5,410
Issuance of common stock	—		—	538		5		4,134		—		—		—	—		—		4,139		—		4,139
Stock-based compensation expense	—		—	—		—		7,274		—		—		—	—		—		7,274		—		7,274
Common stock issued to board members	—		—	17		—		325		—		—		—	—		—		325		—		325
Issuance of common stock related to share-based awards, net	—		—	(94)		(1)		(2,710)		—		—		—	—		—		(2,711)		—		(2,711)
Retirement of common stock	—		—	(816)		(8)		(16,268)		—		—		—	—		—		(16,276)		—		(16,276)
Deferred compensation plan	—		—	—		—		—		—		—		(134)	(7)		134		—		—		—
Net cash distributed from noncontrolling interest	—		—	—		—		—		—		—		—	—		—		—		676		676
Balance, September 30, 2016	—	$	—	98,541	$	985	$	1,570,025	$	8,039	$	266,048	$	900	15	$	(309)	$	1,845,688	$	3,680	$	1,849,368

See accompanying notes.

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2016		2015
Operating Activities
Net income	$	112,406	$	191,357
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses		36,273		8,438
Depreciation, amortization and accretion, net		(37,616)		(67,557)
Net realized gains on securities		—		(4,403)
Bargain purchase gain		—		(81,289)
Deferred income taxes		4,878		11,459
Other, net		11,661		(91)
Net change in securities purchased under agreements to resell		(32,624)		(39,148)
Net change in assets segregated for regulatory purposes		(15,227)		29,372
Net change in trading securities		(187,958)		39,367
Net change in broker-dealer and clearing organization receivables		149,674		(680,699)
Net change in FDIC Indemnification Asset		18,486		38,561
Net change in other assets		(50,760)		(90,417)
Net change in broker-dealer and clearing organization payables		(117,398)		708,838
Net change in other liabilities		32,977		3,138
Proceeds from sale of mortgage servicing rights asset		7,586		—
Net gains from sales of loans