10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2013

oTRANSITION 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 organization)	(I.R.S. Employer Identification No.)
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 x  No o

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 x  No o

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 o	Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

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

The number of shares of the registrant’s common stock outstanding at May 3, 2013 was 83,955,870.

HILLTOP HOLDINGS INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2013

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	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	55
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 6.	Exhibits	55

2

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	March 31,			December 31,
	2013			2012
	(Unaudited)
Assets
Cash and due from banks	$	588,838		$	722,039
Federal funds sold and securities purchased under agreements to resell	23,691			4,421
Securities:
Trading, at fair value	60,769			90,113
Available for sale, at fair value (amortized cost of $1,132,701 and $978,502, respectively)	1,146,505			990,953
	1,207,274			1,081,066
Loans held for sale	1,242,322			1,401,507
Loans, net of unearned income	3,248,367			3,152,396
Allowance for loan losses	(16,637		)	(3,409		)
Loans, net	3,231,730			3,148,987
Broker-dealer and clearing organization receivables	187,833			145,564
Insurance premiums receivable	24,924			24,615
Deferred policy acquisition costs	20,301			19,812
Reinsurance receivable, net of uncollectible amounts	18,210			18,567
Premises and equipment, net	111,894			111,381
Other assets	233,033			277,398
Goodwill	251,808			253,770
Other intangible assets, net	75,052			77,738
Total assets	$	7,216,910		$	7,286,865
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing	$	249,678		$	323,367
Interest-bearing	4,508,760			4,377,094
Total deposits	4,758,438			4,700,461
Broker-dealer and clearing organization payables	250,280			187,990
Reserve for losses and loss adjustment expenses	32,070			34,012
Unearned insurance premiums	84,032			82,598
Short-term borrowings	576,730			728,250
Notes payable	140,747			141,539
Junior subordinated debentures	67,012			67,012
Other liabilities	129,016			198,453
Total liabilities	6,038,325			6,140,315
Commitments and contingencies (see Notes 9 and 10)
Stockholders’ equity:
Hilltop Holdings 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, respectively	114,068			114,068
Common stock, $0.01 par value, 100,000,000 shares authorized; 83,487,340 shares issued and outstanding, respectively	835			835
Additional paid-in capital	1,304,771			1,304,707
Accumulated other comprehensive income	8,973			8,094
Accumulated deficit	(250,838		)	(283,208		)
Total Hilltop Holdings stockholders’ equity	1,177,809			1,144,496
Noncontrolling interest	776			2,054
Total stockholders’ equity	1,178,585			1,146,550
Total liabilities and stockholders’ equity	$	7,216,910		$	7,286,865

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,
	2013		2012
Interest income:
Loans, including fees	$	64,886	$	—
Securities:
Taxable	5,863		3,355
Tax-exempt	1,347		—
Federal funds sold and securities purchased under agreements to resell	21		—
Interest-bearing deposits with banks	333		—
Other	2,105		—
Total interest income	74,555		3,355
Interest expense:
Deposits	3,450		—
Short-term borrowings	513		—
Notes payable	2,322		2,139
Junior subordinated debentures	608		—
Other	450		—
Total interest expense	7,343		2,139
Net interest income	67,212		1,216
Provision for loan losses	13,005		—
Net interest income after provision for loan losses	54,207		1,216
Noninterest income:
Net gains from sale of loans and other mortgage production income	127,596		—
Mortgage loan origination fees	18,893		—
Net insurance premiums earned	37,473		35,155
Investment and securities advisory fees and commissions	22,009		—
Other	7,356		1,732
Total noninterest income	213,327		36,887
Noninterest expense:
Employees’ compensation and benefits	116,190		2,226
Loss and loss adjustment expenses	21,185		22,542
Policy acquisition and other underwriting expenses	10,803		10,901
Occupancy and equipment, net	19,412		244
Other	47,401		1,644
Total noninterest expense	214,991		37,557
Income before income taxes	52,543		546
Income tax expense	19,170		203
Net income	33,373		343
Less: Net income attributable to noncontrolling interest	300		—
Income attributable to Hilltop Holdings	33,073		343
Dividends on preferred stock	703		—
Income applicable to Hilltop Holdings common stockholders	$	32,370	$	343
Earnings per common share:
Basic	$	0.39	$	0.01
Diluted	$	0.39	$	0.01
Weighted average share information:
Basic	83,487		56,499
Diluted	83,743		56,555

See accompanying notes.

4

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2013		2012
Net income	$	33,373	$	343
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale, net of tax of $473 and $(1,831)	879		(3,401		)
Comprehensive income (loss)	34,252		(3,058		)
Less: comprehensive income attributable to noncontrolling interest	300		—
Comprehensive income (loss) applicable to Hilltop Holdings	$	33,952	$	(3,058	)

See accompanying notes.

5

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)

												Accumulated						Total
									Additional			Other						Hilltop Holdings						Total
	Preferred Stock			Common Stock					Paid-in			Comprehensive			Accumulated			Stockholders’			Noncontrolling			Stockholders’
	Shares	Amount		Shares		Amount			Capital			Income			Deficit			Equity			Interest			Equity
Balance, December 31, 2011	—	$	—	56,501		$	565		$	918,192		$	13,983		$	(277,357	)	$	655,383		$	—		$	655,383
Net income	—	—		—		—			—			—			343			343			—			343
Other comprehensive loss	—	—		—		—			—			(3,401		)	—			(3,401		)	—			(3,401		)
Common stock issued to board members	—	—		1		—			12			—			—			12			—			12
Repurchase and retirement of common stock	—	—		(141	)	(1		)	(1,161		)	—			—			(1,162		)	—			(1,162		)
Stock-based compensation expense	—	—		—		—			122			—			—			122			—			122
Balance, March 31, 2012	—	$	—	56,361		$	564		$	917,165		$	10,582		$	(277,014	)	$	651,297		$	—		$	651,297
Balance, December 31, 2012	114	$	114,068	83,487		$	835		$	1,304,707		$	8,094		$	(283,208	)	$	1,144,496		$	2,054		$	1,146,550
Net income	—	—		—		—			—			—			33,073			33,073			300			33,373
Other comprehensive income	—	—		—		—			—			879			—			879			—			879
Stock-based compensation expense	—	—		—		—			64			—			—			64			—			64
Dividends on preferred stock	—	—		—		—			—			—			(703		)	(703		)	—			(703		)
Cash distributions to noncontrolling interest	—	—		—		—			—			—			—			—			(1,578		)	(1,578		)
Balance, March 31, 2013	114	$	114,068	83,487		$	835		$	1,304,771		$	8,973		$	(250,838	)	$	1,177,809		$	776		$	1,178,585

See accompanying notes.

6

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2013			2012
Operating Activities
Net income	$	33,373		$	343
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses	13,005			—
Depreciation, amortization and accretion, net	(9,548		)	339
Deferred income taxes	(7,067		)	174
Other, net	85			179
Net change in securities purchased under resale agreements	(3,254		)	—
Net change in trading securities	29,344			—
Net change in prepaid FDIC assessments	625			—
Net change in broker-dealer and clearing organization receivables	(77,077		)	—
Net change in assets segregated for regulatory purposes	19,000			—
Net change in other assets	27,937			(1,481		)
Net change in broker-dealer and clearing organization payables	34,075			—
Net change in loss and loss adjustment expense reserve	(1,942		)	3,026
Net change in unearned insurance premiums	1,434			2,135
Net change in other liabilities	(56,899		)	(2,161		)
Net gains from sale of loans	(127,596		)	—
Loans originated for sale	(3,025,709		)	—
Proceeds from loans sold	3,310,115			—
Net cash provided by operating activities	159,901			2,554
Investing Activities
Proceeds from sales, maturities and principal reductions of securities available for sale	53,759			2,345
Purchases of securities available for sale	(209,507		)	(2,556		)
Net change in loans	(41,872		)	—
Purchases of premises and equipment and other assets	(5,041		)	(62		)
Proceeds from sales of premises and equipment and other real estate owned	3,880			—
Net cash received for Federal Home Loan Bank and Federal Reserve Bank stock	6,702			—
Net cash used in investing activities	(192,079		)	(273		)
Financing Activities
Net change in deposits	68,948			—
Net change in short-term borrowings	(151,520		)	—
Payments on notes payable	(792		)	—
Payments to repurchase common stock	—			(1,162		)
Net cash distributed to noncontrolling interest	(1,578		)	—
Other, net	(65		)	—
Net cash used in financing activities	(85,007		)	(1,162		)
Net change in cash and cash equivalents	(117,185		)	1,119
Cash and cash equivalents, beginning of period	726,460			578,520
Cash and cash equivalents, end of period	$	609,275		$	579,639
Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	8,313		$	3,667
Cash paid for income taxes, net of refunds	$	2,205		$	—
Supplemental Schedule of Non-Cash Activities
Conversion of loans to other real estate owned	$	284		$	—

See accompanying notes.

7

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Summary of Significant Accounting and Reporting Policies

Nature of Operations

Hilltop Holdings Inc. (“Hilltop” or the “Company”) is a holding company that endeavors to make acquisitions or effect business combinations. In connection with this strategy, on November 30, 2012, Hilltop became a financial holding company registered under the Bank Holding Company Act of 1956, as amended by the Gramm-Leach-Bliley Act of 1999, and acquired PlainsCapital Corporation pursuant to an agreement and plan of merger whereby PlainsCapital Corporation merged with and into our wholly owned subsidiary (the “Merger”), which survived the Merger under the name “PlainsCapital Corporation” (“PlainsCapital”).

PlainsCapital is a financial holding company, headquartered in Dallas, Texas, that provides, through its subsidiaries, an array of financial products and services. In addition to traditional banking services, PlainsCapital provides residential mortgage lending, investment banking, public finance advisory, wealth and investment management, treasury management, capital equipment leasing, fixed income sales, asset management, and correspondent clearing services. Certain disclosures within the notes to consolidated financial statements are specific to financial products and services of PlainsCapital and its subsidiaries and, therefore include information at March 31, 2013 and December 31, 2012 and relating to the three months ended March 31, 2013.

Prior to the consummation of the Merger, Hilltop’s primary operations were limited to providing fire and homeowners insurance to low value dwellings and manufactured homes primarily in Texas and other areas of the southern United States through Hilltop’s wholly owned property and casualty insurance holding company, NLASCO, Inc. (“NLASCO”).

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), and in conformity with the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, these financial statements contain all adjustments (consisting primarily of normal recurring accruals) necessary for a fair statement of the results of the interim periods presented. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. Results for interim periods are not necessarily indicative of results to be expected for a full year or any future period.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates regarding the allowance for loan losses, the fair values of financial instruments, reserves for losses and loss adjustment expenses, the mortgage loan indemnification liability and the potential impairment of assets are particularly subject to change.

The presentation of Hilltop’s historical consolidated financial statements has been modified and certain items in the prior period financial statements have been reclassified to conform to the current period presentation, which is more consistent with that of a financial institution that provides an array of financial products and services.

Hilltop owns 100% of the outstanding stock of PlainsCapital. PlainsCapital owns 100% of the outstanding stock of PlainsCapital Bank (the “Bank”) and 100% of the membership interest in PlainsCapital Equity, LLC. The Bank owns 100% of the outstanding stock of PrimeLending, a PlainsCapital Company (“PrimeLending”), PNB Aero Services, Inc. and PCB-ARC, Inc. The Bank has a 100% membership interest in First Southwest Holdings, LLC (“First Southwest”) and PlainsCapital Securities, LLC, as well as a 51% voting interest in PlainsCapital Insurance Services, LLC.

8

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Hilltop also owns 100% of NLASCO, which operates through its wholly owned subsidiaries, National Lloyds Insurance Company (“NLIC”) and American Summit Insurance Company (“ASIC”).

PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC, the controlling and sole managing member of PrimeLending Ventures, LLC (“Ventures”). Through a series limited liability company structure, Ventures establishes one or more separate operating divisions with select business partners, such as home builders, to originate residential mortgage loans.

The principal subsidiaries of First Southwest are First Southwest Company (“FSC”), a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority (“FINRA”), and First Southwest Asset Management, Inc., a registered investment advisor under the Investment Advisors Act of 1940.

The consolidated financial statements include the accounts of the above-named entities. All significant intercompany transactions and balances have been eliminated. Noncontrolling interests have been recorded for minority ownership in entities that are not wholly owned and are presented in compliance with the provisions of Noncontrolling Interest in Subsidiary Subsections of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

PlainsCapital also owns 100% of the outstanding common stock of PCC Statutory Trusts I, II, III and IV (the “Trusts”), which are not included in the consolidated financial statements under the requirements of the Variable Interest Entities Subsections of the ASC, because the primary beneficiaries of the Trusts are not within the consolidated group.

2. PlainsCapital Acquisition

After the close of business on November 30, 2012, Hilltop acquired PlainsCapital Corporation in a stock and cash transaction. PlainsCapital Corporation merged with and into Meadow Corporation, a wholly owned subsidiary of Hilltop, with Meadow Corporation continuing as the surviving entity under the name “PlainsCapital Corporation”. Based on Hilltop’s closing stock price on November 30, 2012, the total purchase price was $813.5 million, consisting of 27.1 million shares of common stock, $311.8 million in cash and the issuance of 114,068 shares of Hilltop Non-Cumulative Perpetual Preferred Stock, Series B. The fair market value of assets acquired, excluding goodwill, totaled $6.5 billion, including $3.2 billion of loans, $730.8 million of investment securities and $70.7 million of identifiable intangibles. The fair market value of the liabilities assumed was $5.9 billion, including $4.5 billion of deposits.

The Merger was accounted for using the purchase method of accounting, and accordingly, purchased assets, including identifiable intangible assets, and assumed liabilities were recorded at their respective acquisition date fair values. The Company initially recorded $230.1 million of goodwill in connection with the Merger, representing the inherent long-term value expected from the business opportunities created from combining PlainsCapital with Hilltop. The amount of goodwill recorded in connection with the Company’s acquisition of PlainsCapital Corporation is not deductible for tax purposes. The Company used significant estimates and assumptions to value the identifiable assets acquired and liabilities assumed. The purchase date valuations are considered preliminary and are subject to change for up to one year after the acquisition date. During the three months ended March 31, 2013, the Company reduced goodwill related to the PlainsCapital acquisition by $2.0 million for a purchase accounting adjustment related to the valuation of a capital lease obligation.

The operations acquired in the Merger have been included in Hilltop’s financial results since December 1, 2012. The following table presents pro forma results for the three months ended March 31, 2012 had the acquisition taken place on January 1, 2011 (in thousands). The pro forma financial information combines the historical results of Hilltop and PlainsCapital Corporation and includes the estimated impact of purchase accounting adjustments. The purchase accounting adjustments reflect the impact of recording the acquired loans at fair value, including the estimated accretion of the purchase discount on the loan portfolio and related adjustments to PlainsCapital’s provision for loan losses. Accretion estimates were based on the acquisition date purchase discount on the loan portfolio, as it was not practicable to determine the amount of discount that would have been recorded based on economic conditions that existed on January 1, 2011. The pro forma results do not include any potential operating cost savings as a result of the Merger. Further, certain

9

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

costs associated with any restructuring or integration activities are also not reflected in the pro forma results. Pro forma results include the acquisition-related merger and restructuring charges incurred during the period. The pro forma results are not indicative of what would have occurred had the acquisition taken place on the indicated date.

	Three Months Ended
	March 31, 2012
Net interest income	$	53,542
Other revenues	186,993
Net income	22,687

3. Fair Value Measurements

Fair Value Measurements and Disclosures

Hilltop determines fair values in compliance with The Fair Value Measurements and Disclosures Topic of the ASC (the “Fair Value Topic”). The Fair Value Topic defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. The Fair Value Topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Fair Value Topic assumes that transactions upon which fair value measurements are based occur in the principal market for the asset or liability being measured. Further, fair value measurements made under the Fair Value Topic exclude transaction costs and are not the result of forced transactions.

The Fair Value Topic creates a fair value hierarchy that classifies fair value measurements based upon the inputs used in valuing the assets or liabilities that are the subject of fair value measurements. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs, as indicated below.

·Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.

·Level 2 Inputs: Observable inputs other than Level 1 prices. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, prepayment speeds, default rates, credit risks, loss severities, etc.), and inputs that are derived from or corroborated by market data, among others.

·Level 3 Inputs: Unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. Level 3 inputs include pricing models and discounted cash flow techniques, among others.

Fair Value Option

Hilltop has elected to measure substantially all of PrimeLending’s mortgage loans held for sale and certain time deposits at fair value under the provisions of the Fair Value Option. Hilltop elected to apply the provisions of the Fair Value Option to these items so that it would have the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Hilltop determines the fair value of the financial instruments accounted for under the provisions of the Fair Value Option in compliance with the provisions of the Fair Value Topic of the ASC discussed above.

At March 31, 2013, the aggregate fair value of PrimeLending’s mortgage loans held for sale accounted for under the Fair Value Option was $1.24 billion, while the unpaid principal balance of those loans was $1.20 billion. At December 31, 2012, the aggregate fair value of PrimeLending’s mortgage loans held for sale accounted for under the Fair Value Option

10

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

was $1.40 billion, while the unpaid principal balance of those loans was $1.36 billion. The interest component of fair value is reported as interest income on loans in the accompanying consolidated statements of operations.

Hilltop holds a number of financial instruments that are measured at fair value on a recurring basis, either by the application of Fair Value Option or other authoritative pronouncements. The fair values of those instruments are determined primarily using Level 2 inputs. Those inputs include quotes from mortgage loan investors and derivatives dealers, data from independent pricing services and rates paid in the brokered certificate of deposit market.

The following tables present information regarding financial assets and liabilities measured at fair value on a recurring basis (in thousands).

	Level 1		Level 2		Level 3		Total
March 31, 2013	Inputs		Inputs		Inputs		Fair Value
Cash and cash equivalents	$	612,529	$	—	$	—	$	612,529
Trading securities	—		60,769		—		60,769
Available for sale securities	21,961		1,065,743		58,801		1,146,505
Loans held for sale	—		1,241,578		—		1,241,578
Derivative assets	—		22,600		—		22,600
Mortgage servicing asset	—		—		4,430		4,430
Time deposits	—		1,066		—		1,066
Trading liabilities	—		52		—		52
Derivative liabilities	—		7,481		—		7,481
	Level 1		Level 2		Level 3		Total
December 31, 2012	Inputs		Inputs		Inputs		Fair Value
Cash and cash equivalents	$	726,460	$	—	$	—	$	726,460
Trading securities	—		90,113		—		90,113
Available for sale securities	20,428		914,248		56,277		990,953
Loans held for sale	—		1,400,737		—		1,400,737
Derivative assets	—		15,697		—		15,697
Mortgage servicing asset	—		—		2,080		2,080
Time deposits	—		1,073		—		1,073
Trading liabilities	—		3,164		—		3,164
Derivative liabilities	—		1,080		—		1,080

The following tables include a roll forward for those financial instruments measured at fair value using Level 3 inputs (in thousands).

							Total Gains or Losses
							(Realized or Unrealized)
	Balance at								Included in Other
	Beginning of						Included in		Comprehensive			Balance at
	Period		Purchases		Issuances		Net Income (Loss)		Income (Loss)			End of Period
Three months ended March 31, 2013
Available for sale securities	$	56,277	$	—	$	—	$	—	$	2,524		$	58,801
Mortgage servicing asset	2,080		—		2,125		225		—			4,430
Total	$	58,357	$	—	$	2,125	$	225	$	2,524		$	63,231
Three months ended March 31, 2012
Available for sale securities	$	60,377	$	—	$	—	$	—	$	(3,817	)	$	56,560
Total	$	60,377	$	—	$	—	$	—	$	(3,817	)	$	56,560

11

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

All net unrealized gains (losses) in the table above are reflected in the accompanying consolidated financial statements. The unrealized gains (losses) relate to financial instruments still held at March 31, 2013. The available for sale securities noted in the tables above reflect Hilltop’s note receivable and warrant with SWS Group, Inc. (“SWS”) as discussed in Note 4 to the consolidated financial statements.

Hilltop’s note receivable is valued using a cash flow model that estimates yield based on comparable securities in the market. The interest rate used to discount cash flows is the most significant unobservable input. An increase or decrease in the discount rate would result in an increase or decrease in the fair value measurement of the note receivable.

The warrant is valued utilizing a binomial model. The underlying SWS common stock price and its related volatility, an unobservable input, are the most significant inputs into the model and, therefore, decreases or increases to the stock price would result in a significant change in the fair value measurement of the warrant.

The mortgage servicing asset is valued by projecting net servicing cash flows, which are then discounted to estimate the fair value. The fair value of the mortgage servicing asset is impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees, servicing costs and underlying portfolio characteristics.

The Company had no transfers between Levels 1 and 2 during the periods presented.

The following table presents the changes in fair value for instruments that are reported at fair value under the Fair Value Option (in thousands).

	Changes in Fair Value for Assets and Liabilities Reported at Fair Value under Fair Value Option
	Three Months Ended March 31, 2013								Three Months Ended March 31, 2012
				Other		Total					Other		Total
	Net Gains from			Noninterest		Changes in			Net Gains from		Noninterest		Changes in
	Sale of Loans			Income		Fair Value			Sale of Loans		Income		Fair Value
Loans held for sale	$	(5,438	)	$	—	$	(5,438	)	$	—	$	—	$	—
Other assets	2,350			—		2,350			—		—		—
Time deposits	—			8		8			—		—		—

Hilltop also determines the fair value of certain assets and liabilities on a non-recurring basis. Facts and circumstances may dictate a fair value measurement when there is evidence of impairment. Assets and liabilities measured on a non-recurring basis include the items discussed below.

Impaired Loans — Hilltop reports impaired loans at fair value through specific allowances within the allowance for loan losses. Hilltop acquired impaired, or purchased credit impaired (“PCI”) loans with a fair value of $172.9 million at acquisition. The fair value of PCI loans was determined using Level 3 inputs, including estimates of expected cash flows that incorporated assumptions regarding default rates, loss severity rates assuming default, prepayment speeds and estimated collateral values. At March 31, 2013, PCI loans with a carrying amount of $157.0 million had been reduced by specific allowances within the allowance for loan losses of $0.4 million, resulting in a reported fair value of $156.6 million.

Other Real Estate Owned — Hilltop reports other real estate owned at fair value less estimated cost to sell. Any excess of recorded investment over fair value less cost to sell is charged against the allowance for loan losses when property is initially transferred to other real estate owned. Subsequent to the initial transfer to other real estate owned, downward valuation adjustments are charged against earnings. Hilltop primarily determines fair value using Level 2 inputs consisting of independent appraisals. At March 31, 2013, the estimated fair value of other real estate owned was $7.5 million.

The Fair Value of Financial Instruments Subsection of the ASC requires disclosure of the fair value of financial assets and liabilities, including the financial assets and liabilities previously discussed. The methods for determining estimated fair value for financial assets and liabilities is described in detail in Note 3 to the consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on March 15, 2013.

12

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The following tables present the carrying values and estimated fair values of financial instruments (in thousands).

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
March 31, 2013	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and short-term investments	$	612,529	$	612,529	$	—	$	—	$	612,529
Securities	1,207,274		21,961		1,126,512		58,801		1,207,274
Loans held for sale	1,242,322		—		1,242,322		—		1,242,322
Loans, net	3,231,730		—		—		3,267,917		3,267,917
Broker-dealer and clearing organization receivables	187,833		—		187,833		—		187,833
Fee award receivable	18,091		—		18,091		—		18,091
Cash surrender value of life insurance policies	24,171		—		24,171		—		24,171
Interest rate swaps, interest rate lock commitments and forward purchase commitments	22,600		—		22,600		—		22,600
Mortgage servicing asset	4,430		—		—		4,430		4,430
Accrued interest receivable	17,428		—		17,428		—		17,428
Financial liabilities:
Deposits	4,758,438		—		4,762,428		—		4,762,428
Broker-dealer and clearing organization payables	250,280		—		250,280		—		250,280
Other trading liabilities	52		—		52		—		52
Short-term borrowings	576,730		—		576,730		—		576,730
Debt	207,759		—		215,886		—		215,886
Commitments to sell mortgage-backed securities	7,481		—		7,481		—		7,481
Accrued interest payable	3,385		—		3,385		—		3,385

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
December 31, 2012	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and short-term investments	$	726,460	$	726,460	$	—	$	—	$	726,460
Securities	1,081,066		20,428		1,004,361		56,277		1,081,066
Loans held for sale	1,401,507		—		1,401,507		—		1,401,507
Loans, net	3,148,987		—		—		3,148,987		3,148,987
Broker-dealer and clearing organization receivables	145,564		—		145,564		—		145,564
Fee award receivable	18,467		—		18,467		—		18,467
Cash surrender value of life insurance policies	24,086		—		24,086		—		24,086
Interest rate swaps, interest rate lock commitments and
forward purchase commitments	15,697		—		15,697		—		15,697
Mortgage servicing asset	2,080		—		—		2,080		2,080
Accrued interest receivable	16,541		—		16,541		—		16,541
Financial liabilities:
Deposits	4,700,461		—		4,698,848		—		4,698,848
Broker-dealer and clearing organization payables	187,990		—		187,990		—		187,990
Other trading liabilities	3,164		—		3,164		—		3,164
Short-term borrowings	728,250		—		728,250		—		728,250
Debt	208,551		—		217,092		—		217,092
Commitments to sell mortgage-backed securities	1,080		—		1,080		—		1,080
Accrued interest payable	4,400		—		4,400		—		4,400

13

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

4. Securities

The amortized cost and fair value of available for sale securities are summarized as follows (in thousands).

			Gross		Gross
	Amortized		Unrealized		Unrealized
March 31, 2013	Cost		Gains		Losses			Fair Value
U.S. Treasury securities	$	7,159	$	118	$	(3	)	$	7,274
U.S. government agencies:
Bonds	630,725		1,527		(956		)	631,296
Residential mortgage-backed securities	16,927		426		(150		)	17,203
Collateralized mortgage obligations	165,520		411		(243		)	165,688
Corporate debt securities	72,811		7,016		—			79,827
States and political subdivisions	166,057		416		(3,090		)	163,383
Commercial mortgage-backed securities	991		81		—			1,072
Equity securities	19,423		2,537		—			21,960
Note receivable	41,020		3,745		—			44,765
Warrant	12,068		1,969		—			14,037
Totals	$	1,132,701	$	18,246	$	(4,442	)	$	1,146,505

			Gross		Gross
	Amortized		Unrealized		Unrealized
December 31, 2012	Cost		Gains		Losses			Fair Value
U.S. Treasury securities	$	7,046	$	141	$	(2	)	$	7,185
U.S. government agencies:
Bonds	524,888		1,663		(314		)	526,237
Residential mortgage-backed securities	18,473		490		(70		)	18,893
Collateralized mortgage obligations	97,812		191		(79		)	97,924
Corporate debt securities	79,716		7,461		—			87,177
States and political subdivisions	177,701		196		(2,138		)	175,759
Commercial mortgage-backed securities	1,001		72		—			1,073
Equity securities	19,289		1,139		—			20,428
Note receivable	40,508		3,652		—			44,160
Warrant	12,068		49		—			12,117
Totals	$	978,502	$	15,054	$	(2,603	)	$	990,953

Included within the available for sale equity securities are 1,475,387 shares of SWS common stock. Furthermore, the available for sale securities include a senior unsecured loan to SWS in July 2011 in a principal amount of $50.0 million pursuant to a credit agreement, which loan bears interest at a rate of 8.0% per annum, is prepayable by SWS subject to certain conditions after three years, and has a maturity of five years. SWS issued Hilltop a warrant to purchase 8,695,652 shares of SWS common stock, $0.10 par value per share, exercisable at a price of $5.75 per share subject to anti-dilution adjustments. If the warrant was fully exercised, Hilltop would beneficially own 24.6% of SWS.

14

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Information regarding available for sale securities that were in an unrealized loss position is shown in the following table (dollars in thousands).

	March 31, 2013					December 31, 2012
	Number of			Unrealized		Number of				Unrealized
	Securities	Fair Value		Losses		Securities		Fair Value		Losses
U.S. treasury securities:
Unrealized loss for less than twelve months	3	$	4,482	$	3	$	2	$	2,427	$	2
Unrealized loss for twelve months or longer	1	399		—		—		—		—
	4	4,881		3		2		2,427		2
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	21	340,047		956		14		236,305		314
Unrealized loss for twelve months or longer	—	—		—		—		—		—
	21	340,047		956		14		236,305		314
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	3	9,900		150		7		12,279		70
Unrealized loss for twelve months or longer	—	—		—		—		—		—
	3	9,900		150		7		12,279		70
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	9	83,102		243		8		38,887		79
Unrealized loss for twelve months or longer	—	—		—		—		—		—
	9	83,102		243		8		38,887		79
States and political subdivisions:
Unrealized loss for less than twelve months	199	131,527		3,090		225		156,664		2,138
Unrealized loss for twelve months or longer	—	—		—		—		—		—
	199	131,527		3,090		225		156,664		2,138
Total available for sale:
Unrealized loss for less than twelve months	235	569,058		4,442		256		446,562		2,603
Unrealized loss for twelve months or longer	1	399		—		—		—		—
	236	$	569,457	$	4,442	256		$	446,562	$	2,603

During the three months ended March 31, 2013 and 2012, the Company did not record any other-than-temporary impairments. While all of the investments are monitored for potential other-than-temporary impairment, our analysis and experience indicate that these investments generally do not present a great risk of other-than-temporary-impairment, as fair value should recover over time. Factors considered in the Company’s analysis include the reasons for the unrealized loss position, the severity and duration of the unrealized loss position, credit worthiness, and forecasted performance of the investee. While some of the securities held in the investment portfolio have decreased in value since the date of acquisition, the severity of loss and the duration of the loss position are not believed to be significant enough to warrant other-than-temporary impairment of the securities. The Company does not intend, nor is it likely that the Company will be required, to sell these securities before the recovery of the cost basis. Therefore, management does not believe any other-than-temporary impairments exist at March 31, 2013.

15

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties. The amortized cost and fair value of securities, excluding trading and available for sale equity securities, at March 31, 2013, are shown by contractual maturity below (in thousands).

	Amortized
	Cost		Fair Value
Due in one year or less	$	25,874	$	26,150
Due after one year through five years	82,885		87,836
Due after five years through ten years	45,284		48,011
Due after ten years	722,709		719,783
	876,752		881,780
Residential mortgage-backed securities	16,927		17,203
Collateralized mortgage obligations	165,520		165,688
Commercial mortgage-backed securities	991		1,072
	$	1,060,190	$	1,065,743

FSC realized a net loss from its trading securities portfolio of $1.0 million during the three months ended March 31, 2013, which is recorded as a component of other noninterest income within the consolidated statement of operations.

Securities with a carrying amount of $783.0 million and $635.2 million (with a fair value of $786.7 million and $633.4 million) at March 31, 2013 and December 31, 2012, respectively, were pledged to secure public and trust deposits, federal funds purchased and securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

At both March 31, 2013 and December 31, 2012, NLASCO had investments on deposit in custody for various state insurance departments with carrying values of $9.3 million.

5. Loans and Allowance for Loan Losses

Loans summarized by category are as follows (in thousands).

	March 31,			December 31,
	2013			2012
Commercial and industrial	$	1,705,208		$	1,660,293
Real estate	1,237,352			1,184,914
Construction and land development	279,374			280,483
Consumer	26,433			26,706
	3,248,367			3,152,396
Allowance for loan losses	(16,637		)	(3,409		)
Total loans, net of allowance	$	3,231,730		$	3,148,987

PlainsCapital has lending policies in place with the goal of establishing an asset portfolio that will provide a return on stockholders’ equity sufficient to maintain capital to assets ratios that meet or exceed established regulatory guidelines. Loans are underwritten with careful consideration of the borrower’s financial condition, the specific purpose of the loan, the primary sources of repayment and any collateral pledged to secure the loan.

16

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Underwriting procedures address financial components based on the size or complexity of the credit. The financial components include but are not limited to current and projected global cash flows, shock analysis and/or stress testing, and trends in appropriate balance sheet and statement of operations ratios. Collateral analysis includes a complete description of the collateral, as well as determining values, monitoring requirements, loan to value ratios, concentration risk, appraisal requirements and other information relevant to the collateral being pledged. Guarantor analysis includes liquidity and global cash flow analysis based on the significance the guarantors are expected to serve as secondary repayment sources. PlainsCapital’s underwriting standards are governed by adherence to its loan policy. The loan policy provides for specific guidelines by portfolio segment, including commercial and industrial, real estate, construction and land development, and consumer loans. Within each individual portfolio segment, permissible and impermissible loan types are explicitly outlined. Within the loan types, minimum requirements for the underwriting factors listed above are provided.

PlainsCapital maintains a loan review department that reviews credit risk in response to both external and internal factors that potentially impact the performance of either individual loans or the overall loan portfolio. The loan review process reviews the creditworthiness of borrowers and determines compliance with the loan policy. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel.  Results of these reviews are presented to management and the Bank’s Board of Directors.

In connection with the Merger, Hilltop acquired loans both with and without evidence of credit quality deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan losses. The following table presents the outstanding contractual balance and the carrying value of the PCI loans at March 31, 2013 and December 31, 2012 (in thousands).

	March 31,		December 31,
	2013		2012
Carrying amount	$	157,024	$	166,780
Outstanding balance	210,416		222,674

Changes in the accretable yield for the PCI loans were as follows (in thousands).

	Three Months Ended
	March 31, 2013
Balance, beginning of period	$	17,553
Increases in expected cash flows	11,996
Disposals of loans	(26		)
Accretion	(3,277		)
Balance, end of period	$	26,246

Impaired loans exhibit a clear indication that the borrower’s cash flow may not be sufficient to meet principal and interest payments, which is generally when a loan is 90 days past due unless the asset is both well secured and in the process of collection. Impaired loans include non-accrual loans, troubled debt restructurings (“TDRs”), PCI loans and partially charged-off loans.

17

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Impaired loans are summarized by class in the following tables (in thousands). There were no impaired loans at December 31, 2012, other than PCI loans, and therefore no related allowance.

	Unpaid						Total
	Contractual		Nonaccretable		Accretable		Recorded		Related
March 31, 2013	Principal Balance		Difference		Yield		Investment		Allowance
Commercial and industrial:
Secured	$	91,154	$	23,380	$	7,264	$	68,666	$	228
Unsecured	11,664		6,355		5,649		2,794		—
Real estate:
Secured by commercial properties	61,850		13,259		8,031		51,223		156
Secured by residential properties	10,180		1,853		892		8,098		18
Construction and land development:
Residential construction loans	29		5		24		—		—
Commercial construction loans and land development	35,452		7,256		4,377		26,171		29
Consumer	87		14		9		72		—
	$	210,416	$	52,122	$	26,246	$	157,024	$	431
	Unpaid						Total
	Contractual		Nonaccretable		Accretable		Recorded
December 31, 2012	Principal Balance		Difference		Yield		Investment
Commercial and industrial:
Secured	$	91,633	$	24,982	$	6,114	$	67,967
Unsecured	12,198		8,707		472		3,419
Real estate:
Secured by commercial properties	66,736		15,816		7,294		55,519
Secured by residential properties	8,690		2,251		557		6,728
Construction and land development:
Residential construction loans	995		493		40		708
Commercial construction loans and land development	42,330		9,113		3,067		32,362
Consumer	92		16		9		77
	$	222,674	$	61,378	$	17,553	$	166,780

Average investment in impaired loans for the three months ended March 31, 2013 is summarized by class in the following table (in thousands).

Commercial and industrial:
Secured	$	68,316
Unsecured	3,107
Real estate:
Secured by commercial properties	53,371
Secured by residential properties	7,413
Construction and land development:
Residential construction loans	354
Commercial construction loans and land development	29,266
Consumer	75
	$	161,902

18

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Interest income recorded on non-accrual loans for the three months ended March 31, 2013 was nominal.

Non-accrual loans at March 31, 2013 were $3.4 million, primarily composed of real estate loans secured by residential properties that are classified as held for sale and carried at fair value, as well as lease financing receivables. At December 31, 2012, non-accrual loans were $1.8 million, all of which were real estate loans secured by residential properties that are classified as held for sale and carried at fair value. All PCI loans are considered to be performing due to the application of the accretion method.

PlainsCapital classifies loan modifications as TDRs when it concludes that it has both granted a concession to a debtor and that the debtor is experiencing financial difficulties. Loan modifications are typically structured to create affordable payments for the debtor and can be achieved in a variety of ways. PlainsCapital modifies loans by reducing interest rates and/or lengthening loan amortization schedules. PlainsCapital also reconfigures a single loan into two or more loans (“A/B Note”). The typical A/B Note restructure results in a “bad” loan which is charged off and a “good” loan or loans the terms of which comply with the Bank’s customary underwriting policies. The debt charged off on the “bad” loan is not forgiven to the debtor.

Information regarding TDRs granted for the three months ended March 31, 2013 is shown in the following table (in thousands). All TDRs granted relate to PCI loans. At March 31, 2013, PlainsCapital had no unadvanced commitments to borrowers whose loans have been restructured in troubled debt restructurings.

	Recorded Investment in Loans Modifed by
			Interest Rate		Payment Term		Total
	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	28	$	28
Unsecured	—		—		—		—
Real estate:
Secured by commercial properties	—		—		1,236		1,236
Secured by residential properties	—		—		262		262
Construction and land development:
Residential construction loans	—		—		—		—
Commercial construction loans and land development	—		—		570		570
Consumer	—		—		—		—
	$	—	$	—	$	2,096	$	2,096

19

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

An analysis of the aging of PlainsCapital’s loan portfolio is shown in the following tables (in thousands). PCI loans are considered to be performing due to the application of the accretion method.

													Accruing Loans
	Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
March 31, 2013	30-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	6,150	$	1,510	$	7,660	$	1,512,663	$	68,666	$	1,588,989	$	—
Unsecured	259		—		259		113,166		2,794		116,219		—
Real estate:
Secured by commercial properties	796		—		796		912,690		51,223		964,709		—
Secured by residential properties	1,257		108		1,365		263,180		8,098		272,643		—
Construction and land development:
Residential construction loans	—		—		—		43,174		—		43,174		—
Commercial construction loans and land development	178		—		178		209,851		26,171		236,200		—
Consumer	20		—		20		26,341		72		26,433		—
	$	8,660	$	1,618	$	10,278	$	3,081,065	$	157,024	$	3,248,367	$	—
													Accruing Loans
	Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
December 31, 2012	30-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	8,192	$	2,131	$	10,323	$	1,473,242	$	67,967	$	1,551,532	$	2,000
Unsecured	3		—		3		105,339		3,419		108,761		—
Real estate:
Secured by commercial properties	714		—		714		868,070		55,519		924,303		—
Secured by residential properties	856		—		856		253,027		6,728		260,611		—
Construction and land development:
Residential construction loans	63		—		63		47,398		708		48,169		—
Commercial construction loans and land development	—		—		—		199,952		32,362		232,314		—
Consumer	84		—		84		26,545		77		26,706		—
	$	9,912	$	2,131	$	12,043	$	2,973,573	$	166,780	$	3,152,396	$	2,000

Management tracks credit quality trends on a quarterly basis related to: (i) past due levels, (ii) non-performing asset levels, (iii) classified loan levels, (iv) net charge-offs, and (v) general economic conditions in the state and local markets.

PlainsCapital utilizes a risk grading matrix to assign a risk grade to each of the loans in its portfolio. A risk rating is assigned based on an assessment of the borrower’s management, collateral position, financial capacity, and economic factors. The general characteristics of the various risk grades are described below.

Pass — “Pass” loans present a range of acceptable risks to the Bank. Loans that would be considered virtually risk-free are rated Pass — low risk.  Loans that exhibit sound standards based on the grading factors above and present a reasonable risk to the Bank are rated Pass — normal risk.  Loans that exhibit a minor weakness in one or more of the grading criteria but still present an acceptable risk to the Bank are rated Pass — high risk.

Special Mention — A “Special Mention” asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in a deterioration of the repayment prospects for the asset and weaken the Bank’s credit position at some future date. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to require adverse classification.

Substandard — “Substandard” loans are inadequately protected by the current sound worth and paying capacity of the obligor or the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Many substandard loans are considered impaired.

PCI — “PCI” loans exhibited evidence of credit deterioration at acquisition that made it probable that all contractually required principal payments would not be collected.

20

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The following tables present the internal risk grades of loans, as previously described, in the portfolio by class (in thousands).

March 31, 2013	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,510,466	$	2,759	$	7,098	$	68,666	$	1,588,989
Unsecured	113,223		81		121		2,794		116,219
Real estate:
Secured by commercial properties	913,486		—		—		51,223		964,709
Secured by residential properties	264,437		—		108		8,098		272,643
Construction and land development:
Residential construction loans	43,174		—		—		—		43,174
Commercial construction loans and land development	209,581		—		448		26,171		236,200
Consumer	26,361		—		—		72		26,433
	$	3,080,728	$	2,840	$	7,775	$	157,024	$	3,248,367

December 31, 2012	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,476,420	$	2,515	$	4,630	$	67,967	$	1,551,532
Unsecured	105,142		200		—		3,419		108,761
Real estate:
Secured by commercial properties	868,784		—		—		55,519		924,303
Secured by residential properties	253,883		—		—		6,728		260,611
Construction and land development:
Residential construction loans	47,461		—		—		708		48,169
Commercial construction loans and land development	199,952		—		—		32,362		232,314
Consumer	26,629		—		—		77		26,706
	$	2,978,271	$	2,715	$	4,630	$	166,780	$	3,152,396

The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses inherent in the existing portfolio of loans. Management has responsibility for determining the level of the allowance for loan losses, subject to review by the Audit Committee of our Board of Directors and the Directors’ Loan Review Committee of the Bank’s Board of Directors.

It is management’s responsibility at the end of each quarter, or more frequently as deemed necessary, to analyze the level of the allowance for loan losses to ensure that it is appropriate for the estimated credit losses in the portfolio consistent with the Interagency Policy Statement on the Allowance for Loan and Lease Losses and the Receivables and Contingencies Topics of the ASC. Estimated credit losses are the probable current amount of loans that the Company will be unable to collect given facts and circumstances as of the evaluation date. When management determines that a loan or portion thereof is uncollectible, the loan, or portion thereof, is charged off against the allowance for loan losses. Any subsequent recovery of charged-off loans is added back to the allowance for loan losses. As a result of the Merger on November 30, 2012, PlainsCapital’s loan portfolio is now designated into two populations, acquired and originated loans. The allowance for loan losses is calculated separately for the acquired and originated loans.

Originated Loans

The Company has developed a methodology that seeks to determine an allowance within the scope of the Receivables and Contingencies Topics of the ASC. Each of the loans that has been determined to be impaired is within the scope of the Receivables Topic and is individually evaluated for impairment using one of three impairment measurement methods as of the evaluation date: (1) the present value of expected future discounted cash flows on the loan, (2) the loan’s observable market price, or (3) the fair value of the collateral if the loan is collateral dependent. Specific reserves are provided in the estimate of the allowance based on the measurement of impairment under these three methods, except for collateral dependent loans, which require the fair value method. All non-impaired loans are within the scope of the Contingencies Topic. Estimates of loss for the Contingencies Topic are calculated based on historical loss experience by

21

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

loan portfolio segment adjusted for changes in trends, conditions, and other relevant factors that affect repayment of loans as of the evaluation date. While historical loss experience provides a reasonable starting point for the analysis, historical losses, or recent trends in losses, are not the sole basis upon which to determine the appropriate level for the allowance for loan losses. Management considers recent qualitative or environmental factors that are likely to cause estimated credit losses associated with the existing portfolio to differ from historical loss experience, including but not limited to: changes in lending policies and procedures; changes in underwriting standards; changes in economic and business conditions and developments that affect the collectability of the portfolio; the condition of various market segments; changes in the nature and volume of the portfolio and in the terms of loans; changes in lending management and staff; changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans; changes in the loan review system; changes in the value of underlying collateral for collateral-dependent loans; and any concentrations of credit and changes in the level of such concentrations.

The loan review program is designed to identify and monitor problem loans by maintaining a credit grading process, ensuring that timely and appropriate changes are made to the loans with assigned risk grades and coordinating the delivery of the information necessary to assess the appropriateness of the allowance for loan losses. Loans are evaluated for impairment when: (i) payments on the loan are delayed, typically by 90 days or more (unless the loan is both well secured and in the process of collection), (ii) the loan becomes classified, (iii) the loan is being reviewed in the normal course of the loan review scope, or (iv) the loan is identified by the servicing officer as a problem.

Homogenous loans, such as consumer installment loans, residential mortgage loans and home equity loans, are not individually reviewed and are generally risk graded at the same levels. The risk grade and reserves are established for each homogenous pool of loans based on the expected net charge-offs from current trends in delinquencies, losses or historical experience and general economic conditions. At March 31, 2013 and December 31, 2012, there were no material delinquencies in these types of loans.

Acquired Loans

Purchased loans acquired in a business combination are recorded at their estimated fair value on their purchase date and with no carryover of the related allowance for loan losses. Performing acquired loans are subsequently evaluated for any required allowance at each reporting date. An allowance for loan losses is calculated using a methodology similar to that described above for originated loans. The allowance as determined for each loan is compared to the remaining fair value discount for that loan. If greater, the excess is recognized as an addition to the allowance through a provision for loan losses. If less than the discount, no additional allowance is recorded. Charge-offs and losses first reduce any remaining fair value discount for the loan and once the discount is depleted, losses are applied against the allowance established for that loan.

For acquired impaired loans, cash flows expected to be collected are recast at each reporting date for each loan. These evaluations require the continued use and updating of key assumptions and estimates such as default rates, loss severity given default and prepayment speed assumptions, similar to those used for the initial fair value estimate. Management judgment must be applied in developing these assumptions. If expected cash flows for a loan decreases, an increase in the allowance for loan losses is made through a charge to the provision for loan losses. If expected cash flows for a loan increase, any previously established allowance for loan losses is reversed and any remaining difference increases the accretable yield which will be taken into income over the remaining life of the loan.

The allowance is subject to regulatory examinations and determinations as to appropriateness, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance.

22

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Changes in the allowance for loan losses for the three months ended March 31, 2013, distributed by portfolio segment, are shown below (in thousands).

	Commercial and Industrial			Real Estate			Construction and Land Development		Consumer			Total
Balance, beginning of period	$	1,845		$	977		$	582	$	5		$	3,409
Provision charged to operations	6,911			2,437			3,597		60			13,005
Loans charged off	(438		)	(31		)	—		(56		)	(525		)
Recoveries on charged off loans	494			139			107		8			748
Balance, end of period	$	8,812		$	3,522		$	4,286	$	17		$	16,637

The loan portfolio was distributed by portfolio segment and impairment methodology as shown below (in thousands).

March 31, 2013	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
Loans individually evaluated for impairment	$	1,507	$	108	$	—	$	—	$	1,615
Loans collectively evaluated for impairment	1,632,241		1,177,923		253,203		26,361		3,089,728
PCI Loans individually evaluated for impairment	71,460		59,321		26,171		72		157,024
	$	1,705,208	$	1,237,352	$	279,374	$	26,433	$	3,248,367

December 31, 2012	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment	1,588,907		1,122,667		247,413		26,629		2,985,616
PCI Loans individually evaluated for impairment	71,386		62,247		33,070		77		166,780
	$	1,660,293	$	1,184,914	$	280,483	$	26,706	$	3,152,396

The allowance for loan losses was distributed by portfolio segment and impairment methodology as shown below (in thousands).

March 31, 2013	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment	8,584		3,348		4,257		17		16,206
PCI Loans individually evaluated for impairment	228		174		29		—		431
	$	8,812	$	3,522	$	4,286	$	17	$	16,637

December 31, 2012	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment	1,845		977		582		5		3,409
PCI Loans individually evaluated for impairment	—		—		—		—		—
	$	1,845	$	977	$	582	$	5	$	3,409

23

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

6. Deposits

Deposits are summarized as follows (in thousands).

	March 31, 2013		December 31, 2012
Noninterest-bearing demand	$	249,678	$	323,367
Interest-bearing:
NOW accounts		138,591		106,562
Money market		2,326,046		2,357,109
Brokered - money market		264,715		263,193
Demand		54,087		75,308
Savings		185,812		180,367
Time		1,286,950		1,175,432
Brokered - time		252,559		219,123
	$	4,758,438	$	4,700,461

7. Short-term Borrowings

Short-term borrowings are summarized as follows (in thousands).

	March 31, 2013		December 31, 2012
Federal funds purchased	$	301,775	$	269,625
Securities sold under agreements to repurchase	113,955		85,725
Federal Home Loan Bank (FHLB) notes	—		250,000
Short-term bank loans	161,000		122,900
	$	576,730	$	728,250

Federal funds purchased and securities sold under agreements to repurchase generally mature daily, on demand, or on some other short-term basis. The Bank and FSC execute transactions to sell securities under agreements to repurchase with both customers and broker-dealers. Securities involved in these transactions are held by the Bank, FSC or the dealer.

Information concerning federal funds purchased and securities sold under agreements to repurchase is shown in the following tables (dollars in thousands).

	Three Months Ended March 31, 2013
Average balance during the period	$	328,521
Average interest rate during the period	0.21		%

	March 31, 2013			December 31, 2012
Average interest rate at end of period	0.18		%	0.22		%
Securities underlying the agreements at end of period
Carrying value	$	139,817		$	122,153
Estimated fair value	$	139,890		$	122,435

24

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Federal Home Loan Bank (“FHLB”) notes mature over terms not exceeding 365 days and are collateralized by FHLB Dallas stock, nonspecified real estate loans and certain specific commercial real estate loans. Other information regarding FHLB notes is shown in the following tables (dollars in thousands).

	Three Months Ended March 31, 2013
Average balance during the period	$	34,174
Average interest rate during the period	0.09		%

	March 31, 2013	December 31, 2012
Average interest rate at end of period	—	0.07	%

FSC uses short-term bank loans periodically to finance securities owned, customers’ margin accounts and underwriting activities. Interest on the borrowings varies with the federal funds rate. The weighted average interest rate on the borrowings at March 31, 2013 and December 31, 2012 was 1.15% and 1.16%, respectively.

8. Income Taxes

Hilltop applies an estimated annual effective rate to interim period pre-tax income to calculate the income tax provision for the quarter, in accordance with the principal method prescribed by the accounting guidance established for computing income taxes in interim periods. The Company’s effective rate was 36.5% and 37.2% for the three months ended March 31, 2013 and 2012, respectively.

GAAP requires the measurement of uncertain tax positions. Uncertain tax positions are the difference between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for accounting purposes. There were no uncertain tax positions at March 31, 2013 and 2012. The Company does not anticipate any significant liabilities for uncertain tax positions to arise in the next twelve months.

Hilltop files income tax returns in U.S. federal and several U.S. state jurisdictions. The Company is subject to tax audits in numerous jurisdictions in the U.S. until the applicable statute of limitations expires. Excluding those entities acquired as a part of the PlainsCapital Merger, Hilltop has been examined by U.S. tax authorities for U.S. federal income tax years prior to 2010, and is under no federal or state tax audits at March 31, 2013. PlainsCapital has been examined by U.S. tax authorities for U.S. federal income tax years prior to 2010, and is under no federal or state tax audits at March 31, 2013.

9. Commitments and Contingencies

Legal Matters

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.

Hilltop and its subsidiaries are defendants in various legal matters arising in the normal course of business. Management believes that the ultimate liability, if any, arising from these matters will not materially affect our consolidated financial condition, results of operations or cash flows taken as a whole.

25

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Other Contingencies

The mortgage origination segment may be responsible for errors or omissions relating to its representations and warranties that each loan sold meets certain requirements, including representations as to underwriting standards and the validity of certain borrower representations in connection with the loan. If determined to be at fault, the mortgage origination segment either repurchases the affected loan from the investor or reimburses the investor’s losses (a “make-whole” payment). The mortgage origination segment has established an indemnification liability for such probable losses based upon, among other things, the level of current unresolved repurchase requests, the volume of estimated probable future repurchase requests, our ability to cure the defects identified in the repurchase requests, and the severity of the estimated loss upon repurchase. At March 31, 2013 and December 31, 2012, the indemnification reserve totaled $19.7 million and $19.0 million, respectively. The provision for indemnification losses was $0.9 million for the three months ended March 31, 2013. Although management considers this reserve to be appropriate, there can be no assurance that the reserve will prove to be appropriate over time to cover ultimate losses, primarily due to unanticipated adverse changes in the economy and historical loss patterns, discrete events adversely affecting specific borrowers or industries, and/or actions taken by institutions or investors. The impact of such matters will be considered in the reserving process when known.

10. Financial Instruments with Off-Balance Sheet Risk

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit that involve varying degrees of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. Such financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received. The contract amounts of those instruments reflect the extent of involvement (and therefore the exposure to credit loss) the Bank has in particular classes of financial instruments.

Commitments to extend credit are agreements to lend to a customer provided that the terms established in the contract are met. Commitments generally have fixed expiration dates and may require payment of fees. Because some commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.

In the aggregate, the Bank had outstanding unused commitments to extend credit of $1.0 billion at March 31, 2013 and outstanding standby letters of credit of $35.0 million at March 31, 2013.

The Bank uses the same credit policies in making commitments and standby letters of credit as it does for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary, in these transactions is based on management’s credit evaluation of the borrower. Collateral held varies but may include real estate, accounts receivable, marketable securities, interest-bearing deposit accounts, inventory, and property, plant and equipment.

In the normal course of business, FSC executes, settles, and finances various securities transactions that may expose FSC to off-balance sheet risk in the event that a customer or counterparty does not fulfill its contractual obligations. Examples of such transactions include the sale of securities not yet purchased by customers or for the account of FSC, clearing agreements between FSC and various clearinghouses and broker-dealers, secured financing arrangements that involve pledged securities, and when-issued underwriting and purchase commitments.

26

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

11. Regulatory Matters

Bank

The Bank and Hilltop are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a direct, material effect on the consolidated financial statements. The regulations require us to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the companies to maintain minimum amounts and ratios (set forth in the following table) of Tier 1 capital (as defined in the regulations) to total average assets (as defined), and minimum ratios of Tier 1 and total capital (as defined) to risk-weighted assets (as defined). The Tier 1 capital (to average assets) ratio at December 31, 2012 was calculated using the average assets for the month of December 2012.

A comparison of the Bank’s and Hilltop’s actual capital amounts and ratios to the minimum requirements is as follows (dollars in thousands).

	March 31, 2013
	Required				Actual
	Amount		Ratio		Amount		Ratio
Bank:
Tier 1 capital (to average assets)	$	248,671	4	%	$	572,965	9.22	%
Tier 1 capital (to risk-weighted assets)	187,655		4	%	572,965		12.21	%
Total capital (to risk-weighted assets)	375,309		8	%	590,484		12.59	%
Hilltop:
Tier 1 capital (to average assets)	$	270,976	4	%	$	906,947	13.39	%
Tier 1 capital (to risk-weighted assets)	199,239		4	%	906,947		18.21	%
Total capital (to risk-weighted assets)	398,478		8	%	925,608		18.58	%

	December 31, 2012
	Required				Actual
	Amount		Ratio		Amount		Ratio
Bank:
Tier 1 capital (to average assets)	$	245,495	4	%	$	542,307	8.84	%
Tier 1 capital (to risk-weighted assets)	183,308		4	%	542,307		11.83	%
Total capital (to risk-weighted assets)	366,615		8	%	546,598		11.93	%
Hilltop:
Tier 1 capital (to average assets)	$	266,514	4	%	$	871,379	13.08	%
Tier 1 capital (to risk-weighted assets)	196,670		4	%	871,379		17.72	%
Total capital (to risk-weighted assets)	393,340		8	%	875,670		17.81	%

To be considered “adequately capitalized” (as defined) under the regulatory framework for prompt corrective action, the Bank must maintain minimum Tier 1 capital to total average assets and Tier 1 capital to risk-weighted assets ratios of 4%, and a total capital to risk-weighted assets ratio of 8%. Based on the actual capital amounts and ratios shown in the previous tables, the Bank’s ratios place it in the “well capitalized” (as defined) capital category under the regulatory framework for prompt corrective action.

27

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The minimum required capital amounts and ratios for the “well capitalized” category are summarized as follows (dollars in thousands).

	March 31, 2013
	Required				Actual
	Amount		Ratio		Amount		Ratio
Bank:
Tier 1 capital (to average assets)	$	310,839	5	%	$	572,965	9.22	%
Tier 1 capital (to risk-weighted assets)	281,482		6	%	572,965		12.21	%
Total capital (to risk-weighted assets)	469,136		10	%	590,484		12.59	%

	December 31, 2012
	Required				Actual
	Amount		Ratio		Amount		Ratio
Bank:
Tier 1 capital (to average assets)	$	306,869	5	%	$	542,307	8.84	%
Tier 1 capital (to risk-weighted assets)	274,961		6	%	542,307		11.83	%
Total capital (to risk-weighted assets)	458,269		10	%	546,598		11.93	%

Financial Advisory

Pursuant to the net capital requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), FSC has elected to determine its net capital requirements using the alternative method. Accordingly, FSC is required to maintain minimum net capital, as defined in Rule 15c3-1, equal to the greater of $250,000 or 2% of aggregate debit balances, as defined in Rule 15c3-3. At March 31, 2013, FSC had net capital of $42.1 million; the minimum net capital requirement was $3.5 million; net capital maintained by FSC was 24% of aggregate debits; and net capital in excess of the minimum requirement was $38.6 million.

Under certain conditions, FSC may be required to segregate cash and securities in a special reserve account for the benefit of customers under Rule 15c3-3. Assets segregated under the provisions of the Exchange Act are not available for general corporate purposes. FSC was required to segregate $19.0 million in cash and securities at December 31, 2012, which are included in other assets within the consolidated balance sheet.

FSC was not required to segregate cash or securities in a special reserve account for the benefit of proprietary accounts of introducing broker-dealers at March 31, 2013 or December 31, 2012.

Mortgage Origination

As a mortgage originator, PrimeLending is subject to minimum net worth requirements established by the United States Department of Housing and Urban Development (“HUD”) and the Government National Mortgage Association (“GNMA”). On an annual basis, PrimeLending submits audited financial statements to HUD and GNMA documenting PrimeLending’s compliance with the minimum net worth requirements. In addition, PrimeLending monitors compliance on an ongoing basis and, as of March 31, 2013, PrimeLending’s net worth exceeded the amounts required by both HUD and GNMA.

Insurance

The statutory financial statements of the Company’s insurance subsidiaries, which are domiciled in the State of Texas, are presented on the basis of accounting practices prescribed or permitted by the Texas Department of Insurance. Texas has adopted the National Association of Insurance Commissioners’ statutory accounting practices as the basis of its statutory accounting practices with certain differences which are not significant to the company’s statutory equity.

28

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

A summary of statutory capital and surplus and statutory net income of each insurance subsidiary is as follows (in thousands).

	March 31,
	2013		2012
Capital and surplus:
National Lloyds Insurance Company	$	98,011	$	95,947
American Summit Insurance Company	26,111		24,953

	Three Months Ended March 31,
	2013		2012
Statutory net income:
National Lloyds Insurance Company	$	3,391	$	1,128
American Summit Insurance Company	251		93

Regulations of the Texas Department of Insurance require insurance companies to maintain minimum levels of statutory surplus to ensure their ability to meet their obligations to policyholders. At March 31, 2013, the Company’s insurance subsidiaries had statutory surplus in excess of the minimum required.

Also, the NAIC has adopted the RBC formula for insurance companies that establishes minimum capital requirements relating to insurance risk, asset credit risk, interest rate risk and business risk. The formula is used by the NAIC and certain state insurance regulators as an early warning tool to identify companies that require additional scrutiny or regulatory action. At March 31, 2013, the Company’s insurance subsidiaries’ RBC ratio exceeded the level at which regulatory action would be required.

12. Derivative Financial Instruments

Hilltop uses various derivative financial instruments to mitigate interest rate risk. The Bank’s interest rate risk management strategy involves effectively modifying the re-pricing characteristics of certain assets and liabilities so that changes in interest rates do not adversely affect the net interest margin. PrimeLending has interest rate risk relative to interest rate lock commitments (“IRLCs”) and its inventory of mortgage loans held for sale. PrimeLending is exposed to such rate risk from the time an IRLC is made to an applicant to the time the related mortgage loan is sold. To mitigate interest rate risk, PrimeLending executes forward commitments to sell mortgage-backed securities (“MBSs”). FSC uses forward commitments to both purchase and sell MBSs to facilitate customer transactions and as a means to manage risk in certain inventory positions.

Non-Hedging Derivative Instruments and the Fair Value Option

As discussed in Note 3 to the consolidated financial statements, Hilltop has elected to measure substantially all mortgage loans held for sale at fair value under the provisions of the Fair Value Option. The election provides the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without applying complex hedge accounting provisions. The fair values of PrimeLending’s IRLCs and forward commitments are recorded in other assets or other liabilities, as appropriate, and changes in the fair values of these derivative instruments produced a net gain of $1.9 million for the three months ended March 31, 2013, which was recorded as a component of net gains from sale of loans and other mortgage production income. The fair values of FSC’s derivative instruments are recorded in other assets or other liabilities, as appropriate, and changes in the fair values of FSC’s derivatives produced a net gain of $1.8 million for the three months ended March 31, 2013, which was recorded as a component of other noninterest income.

29

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Derivative positions are presented in the following table (in thousands).

	March 31, 2013					December 31, 2012
	Notional Amount		Estimated Fair Value			Notional Amount		Estimated Fair Value
Derivative instruments:
IRLCs	$	1,082,255	$	22,435		$	968,083	$	15,150
Commitments to purchase MBSs	219,471		(806		)	165,128		466
Interest rate swaps	1,969		9			1,969		25
Commitments to sell MBSs	1,912,250		(6,519		)	1,586,930		(1,025		)

13. Balance Sheet Offsetting

Certain financial instruments, including resale and repurchase agreements, securities lending arrangements and derivatives, may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements or similar agreements. The Company has not elected to offset assets and liabilities under netting arrangements for balance sheet presentation.

The following tables present the assets and liabilities subject to an enforceable master netting arrangement, repurchase agreements, or similar agreements with offsetting rights at March 31, 2013 and December 31, 2012 (in thousands).

					Net Amounts		Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet		of Assets Presented in the Balance Sheet		Financial Instruments			Cash Collateral Pledged		Net Amount
March 31, 2013
Securities Borrowed:
Institutional Counterparties	$	130,072	$	—	$	130,072	$	(130,072	)	$	—	$	—
	$	130,072	$	—	$	130,072	$	(130,072	)	$	—	$	—
December 31, 2012
Securities Borrowed:
Institutional Counterparties	$	103,936	$	—	$	103,936	$	(103,936	)	$	—	$	—
	$	103,936	$	—	$	103,936	$	(103,936	)	$	—	$	—

						Net Amounts		Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabities		Gross Amounts Offset in the Balance Sheet			of Liabilities Presented in the Balance Sheet		Financial Instruments			Cash Collateral Pledged			Net Amount
March 31, 2013
Securities Loaned:
Institutional Counterparties	$	159,835	$	—		$	159,835	$	(159,835	)	$	—		$	—
Repurchase Agreements:
Institutional Counterparties	3,243		—			3,243		(3,243		)	—			—
Forward MBS Sale Derivatives:
Institutional Counterparties	6,872		(353		)	6,519		—			(2,224		)	4,295
	$	169,950	$	(353	)	$	169,597	$	(163,078	)	$	(2,224	)	$	4,295
December 31, 2012
Securities Loaned:
Institutional Counterparties	$	115,102	$	—		$	115,102	$	(115,102	)	$	—		$	—
Forward MBS Sale Derivatives:
Institutional Counterparties	2,000		(975		)	1,025		—			(249		)	776
	$	117,102	$	(975	)	$	116,127	$	(115,102	)	$	(249	)	$	776

30

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

14. Broker-Dealer and Clearing Organization Receivables and Payables

Broker-dealer and clearing organization receivables and payables consisted of the following (in thousands).

	March 31, 2013		December 31, 2012
Receivables:
Securities borrowed	$	130,072	$	103,936
Securities failed to deliver	49,652		33,045
Clearing organizations	8,075		8,543
Due from dealers	34		40
	$	187,833	$	145,564
Payables:
Securities loaned	$	159,836	$	115,102
Correspondents	44,632		41,414
Securities failed to receive	42,983		31,474
Clearing organizations	2,829		—
	$	250,280	$	187,990

15. Reserves for Unpaid Losses and Loss Adjustment Expenses

Information regarding the reserve for unpaid losses and losses and loss adjustment expenses (“LAE”) are as follows (in thousands).

	Three Months Ended March 31,
	2013			2012
Balance, beginning of period	$	34,012		$	44,835
Less reinsurance recoverables	(10,385		)	(25,083		)
Net balance, beginning of period	23,627			19,752
Incurred related to:
Current period	21,531			20,393
Prior periods	(346		)	2,149
Total incurred	21,185			22,542
Payments related to:
Current period	(9,734		)	(10,542		)
Prior periods	(9,024		)	(8,970		)
Total payments	(18,758		)	(19,512		)
Net balance, end of period	26,054			22,782
Plus reinsurance recoverables	6,016			25,079
Balance, end of period	$	32,070		$	47,861

The decrease in reserves at March 31, 2013, as compared to March 31, 2012 of $15.8 million is primarily due to the settlement of reserves and payment of claims related to Hurricane Ike, the 2010 Arizona storm, and the wind and hail storm in the Dallas/Ft Worth region from the 2012 accident year.

31

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

16. Reinsurance Activity

NLASCO limits the maximum net loss that can arise from large risks or risks in concentrated areas of exposure by reinsuring (ceding) certain levels of risk. Substantial amounts of business are ceded, and these reinsurance contracts do not relieve NLASCO from its obligations to policyholders. Such reinsurance includes quota share, excess of loss, catastrophe, and other forms of reinsurance on essentially all property and casualty lines of insurance. Net insurance premiums earned, losses and LAE and policy acquisition and other underwriting expenses are reported net of the amounts related to reinsurance ceded to other companies. Amounts recoverable from reinsurers related to the portions of the liability for losses and LAE and unearned insurance premiums ceded to them are reported as assets. Failure of reinsurers to honor their obligations could result in losses to NLASCO; consequently, allowances are established for amounts deemed uncollectible as NLASCO evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. At March 31, 2013, reinsurance receivables have a carrying value of $18.2 million. There was no allowance for uncollectible accounts at March 31, 2013, based on our quality requirements.

The effects of reinsurance on premiums written and earned are summarized as follows (in thousands).

	Three Months Ended March 31,
	2013						2012
	Written			Earned			Written			Earned
Premiums from direct business	$	41,857		$	40,546		$	40,741		$	38,685
Reinsurance assumed	1,754			1,630			1,437			1,359
Reinsurance ceded	(4,555		)	(4,703		)	(4,616		)	(4,889		)
Net premiums	$	39,056		$	37,473		$	37,562		$	35,155

The effects of reinsurance on incurred losses are as follows (in thousands).

	Three Months Ended March 31,
	2013			2012
Loss and LAE incurred	$	21,412		$	24,071
Reinsurance recoverables	(227		)	(1,529		)
Net loss and LAE incurred	$	21,185		$	22,542

Multi-line excess of loss coverage

For all lines of business, NLASCO has excess of loss reinsurance covering $700,000 in excess of $300,000 retention on losses on any one risk.

Catastrophic coverage

NLASCO has catastrophic excess of loss reinsurance coverage up to $170 million of losses per event in excess of $8 million retention by NLIC and $1.5 million retention by ASIC. ASIC maintains an underlying layer of coverage, providing $6.5 million in excess of its $1.5 million retention to bridge to the primary program. The reinsurance in excess of $8 million is comprised of four layers of protection: $17 million in excess of $8 million retention; $25 million in excess of $25 million loss; $50 million in excess of $50 million loss and $70 million in excess of $100 million loss. NLIC and ASIC retain no participation in any of the layers, beyond the first $8 million and $1.5 million, respectively. At March 31, 2013, total retention for any one catastrophe that affects both NLIC and ASIC is limited to $8 million in the aggregate.

32

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

17. Segment and Related Information

Hilltop has four reportable segments that are organized primarily by the core products offered to the segments’ respective customers. The banking segment includes the operations of the Bank. The operations of PrimeLending comprise the mortgage origination segment. The insurance segment is composed of NLASCO. The financial advisory segment is composed of First Southwest.

Balance sheet amounts for Hilltop and its remaining subsidiaries not discussed in the previous paragraph are included in “All Other and Eliminations.”

As discussed in Note 2 to the consolidated financial statements, the Company acquired PlainsCapital and its subsidiaries on November 30, 2012. Prior to this acquisition, Hilltop operated as a single segment through its insurance subsidiary, NLASCO, given the integrated monitoring, control and management of its fire and homeowners insurance business lines.

The following presents certain information about reportable segment revenues, operating results, goodwill and assets (in thousands).

Three Months Ended March 31, 2013	Banking		Mortgage Origination			Insurance		Financial Advisory		All Other and Eliminations			Hilltop Consolidated
Net interest income (expense)	$	67,749	$	(12,054	)	$	944	$	3,228	$	7,345		$	67,212
Provision for loan losses	12,966		—			—		39		—			13,005
Noninterest income	12,081		146,529			39,474		22,778		(7,535		)	213,327
Noninterest expense	31,975		122,680			34,568		25,958		(190		)	214,991
Income before income taxes	$	34,889	$	11,795		$	5,850	$	9	$	—		$	52,543
March 31, 2013
Goodwill	$	207,741	$	13,071		$	23,988	$	7,008	$	—		$	251,808
Total assets	$	6,105,448	$	1,403,494		$	308,471	$	642,402	$	(1,242,905	)	$	7,216,910
December 31, 2012
Goodwill	$	209,703	$	13,071		$	23,988	$	7,008	$	—		$	253,770
Total assets	$	6,195,775	$	1,548,384		$	305,699	$	592,017	$	(1,355,010	)	$	7,286,865

33

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

18. Earnings per Common Share

The following table presents the computation of basic and diluted earnings per common share (in thousands, except per share data).

	Three Months Ended March 31,
	2013			2012
Income applicable to Hilltop Holdings common stockholders	$	33,073		$	343
Dividends on preferred stock	(703		)	—
Income applicable to Hilltop Holdings common stockholders for basic earnings per common share	$	32,370		$	343
Basic shares outstanding	83,487			56,499
Diluted shares outstanding	83,743			56,555
Basic earnings per common share	$	0.39		$	0.01
Diluted earnings per common share	$	0.39		$	0.01

For each of the three months ended March 31, 2013 and 2012, the computation of diluted net earnings per common share did not include 6,208,000 equivalent shares of senior exchangeable notes as the equivalent exchange rate per share was in excess of the average stock prices for the periods presented.

19. Recently Issued Accounting Standards

Comprehensive Income (Loss)

In February 2012, the FASB issued an amendment to the Comprehensive Income Topic to improve the reporting of reclassifications out of comprehensive income (loss). The amendments require entities to present, either parenthetically on the face of the financial statements or in a single footnote, the effect of significant reclassifications out of each component of accumulated other comprehensive income (loss) by the respective line items of net income (loss) affected by the reclassification. The amendment became effective for Hilltop on January 1, 2013, and its adoption did not have any effect on the Company’s consolidated financial statements as the Company had no such reclassifications during the periods presented.

Offsetting Asset and Liabilities

In December 2011, the FASB amended the Balance Sheet Topic of the ASC to require enhanced disclosures about the nature and effect or potential effect of an entity’s rights of setoff associated with its financial and derivative instruments. In January 2013, the FASB issued an update to the amendments, which narrowed the scope of the financial instruments for which the enhanced disclosures are applicable. The amendments became effective for Hilltop on January 1, 2013, and its adoption did not have a significant effect on the Company’s financial position, results of operations or cash flows. See Note 13 to the consolidated financial statements for the disclosures required by this Topic.

20. Subsequent Event

Effective May 2, 2013, the Compensation Committee of the Board of Directors of the Company awarded certain executives and key employees a total of 465,000 restricted shares of common stock (“Restricted Stock Awards”) pursuant to the Hilltop Holdings 2012 Equity Incentive Plan. The estimated grant date fair value of the Restricted Stock Awards is $6.2 million. These Restricted Stock Awards vest on the third anniversary of the grant date and provide for accelerated vesting under certain conditions.

34

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the consolidated historical financial statements and notes appearing elsewhere in this Quarterly Report on Form 10-Q and the financial information set forth in the tables herein.

Unless the context otherwise indicates, all references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, or this MD&A, to the “Company,” “Hilltop,” “we,” “us,” “our” or “ours” or similar words are to Hilltop Holdings Inc. and its direct and indirect wholly owned subsidiaries, references to “PlainsCapital” refer to PlainsCapital Corporation (a wholly owned subsidiary of Hilltop), references to the “Bank” refer to PlainsCapital Bank (a wholly owned subsidiary of PlainsCapital), references to “First Southwest” refer to First Southwest Holdings, LLC (a wholly owned subsidiary of the Bank) and its subsidiaries as a whole, references to “FSC” refer to First Southwest Company (a wholly owned subsidiary of First Southwest), references to “PrimeLending” refer to PrimeLending, a PlainsCapital Company (a wholly owned subsidiary of the Bank) and its subsidiaries as a whole and references to “NLASCO” refer to NLASCO, Inc. (a wholly owned subsidiary of Hilltop Holdings Inc.) and its subsidiaries as a whole. In addition, unless the context otherwise requires, references to “stockholders” are to the holders of our voting securities, which consist of our Common Stock, par value $0.01 per share.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and the documents incorporated by reference into this report include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act, as amended by the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, included in this report that address results or developments that we expect or anticipate will or may occur in the future, and statements that are preceded by, followed by or include, words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “projects,” “seeks,” “should” or “would” or the negative of these words and phrases or similar words or phrases, including such things as our business strategy, our financial condition, our litigation, our efforts to make strategic acquisitions, our revenue, our liquidity and sources of funding, our capital expenditures, our products, market trends, operations and business, expectations concerning mortgage loan origination volume, expectations concerning the hiring of additional mortgage bankers, anticipated changes in our revenues or earnings, the effects of government regulation applicable to our operations, expectations concerning deposit insurance premiums, the appropriateness of our allowance for loan losses and provision for loan losses, and the collectability of loans are forward-looking statements.

These forward-looking statements are based on our beliefs, assumptions and expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If an event occurs, our business, business plan, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Certain factors that could cause actual results to differ include, among others:

·changes in the default rate of our loans and risks associated with concentration in real estate related loans;

·changes in general economic, market and business conditions in areas or markets where we compete;

·changes in the interest rate environment;

·cost and availability of capital;

·changes in state and federal laws, regulations or policies affecting one or more of our business segments, including changes in regulatory fees, deposit insurance premiums, capital requirements and the Dodd-Frank Wall Street Reform and Consumer Protection Act;

·our participation in governmental programs, including the Small Business Lending Fund;

·severe catastrophic events in our geographic area;

·failure of our insurance segment reinsurers to pay obligations under reinsurance contracts;

·changes in key management;

·approval of new, or changes in, accounting policies and practices;

35

·our ability to estimate loan losses;

·our ability to use net operating loss carry forwards to reduce future tax payments;

·competition in our banking, mortgage origination, financial advisory and insurance segments from other banks and financial institutions as well as insurance companies, mortgage bankers, investment banking and financial advisory firms, asset-based non-bank lenders and government agencies; and

·our ability to use excess cash in an effective manner.

For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ materially from those anticipated in these forward-looking statements, please refer to “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2013, and other filings we have made with the SEC. Consequently, all of the forward-looking statements made in this Quarterly Report on Form 10-Q are qualified by these cautionary statements and those risk factors, and actual results or developments anticipated by us may not be realized, or even substantially realized, and they may not have the expected consequences to, or effects on, us and our business or operations. Forward-looking statements made in this report speak as of the date of this report or as of the date specifically referenced in any such statement set forth in this report. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements in this report.

OUR GENERAL CORPORATE STRUCTURE

We are a holding company that endeavors to make acquisitions or effect business combinations. In connection with this strategy, on November 30, 2012, Hilltop acquired PlainsCapital Corporation in a stock and cash transaction, whereby PlainsCapital Corporation merged with and into Meadow Corporation, a wholly owned subsidiary of Hilltop Holdings Inc., with Meadow Corporation continuing as the surviving entity under the name “PlainsCapital Corporation” (the “Merger”). Based on Hilltop’s closing stock price on November 30, 2012, the total purchase price was $813.5 million, consisting of 27.1 million shares of common stock, $311.8 million in cash and the issuance of 114,068 shares of Hilltop Non-Cumulative Perpetual Preferred Stock, Series B (“Hilltop Series B Preferred Stock”). The fair market value of assets acquired, excluding goodwill, totaled $6.5 billion, including $3.2 billion of loans, $730.8 million of investment securities and $70.7 million of identifiable intangibles. The fair market value of the liabilities assumed was $5.9 billion, including $4.5 billion of deposits. Concurrent with the consummation of the Merger, we became a financial holding company registered under the Bank Holding Company Act of 1956, as amended by the Gramm-Leach-Bliley Act of 1999.

Prior to the consummation of the Merger, our primary operations were limited to providing fire and homeowners insurance to low value dwellings and manufactured homes primarily in Texas and other areas of the southern United States through our wholly owned property and casualty insurance holding company, NLASCO. NLASCO operates through its wholly owned subsidiaries, National Lloyds Insurance Company (“NLIC”) and American Summit Insurance Company (“ASIC”).

Following the Merger on November 30, 2012, our primary line of business is to provide business and consumer banking services from offices located throughout central, north and west Texas through our wholly owned bank subsidiary, PlainsCapital Bank (the “Bank”). The Bank’s subsidiaries have specialized areas of expertise that allow us to provide an array of financial products and services such as mortgage origination and financial advisory services.

OVERVIEW

As a result of the Merger, the operating results of Hilltop for the three months ended March 31, 2013 include the operations acquired in the Merger. Accordingly, our operating results and financial condition will not be comparable to prior periods. Additionally, the presentation of Hilltop’s historical consolidated financial statements has been modified and certain items have been reclassified to conform to current period presentation, which is more consistent with that of a financial institution that provides an array of financial products and services.

36

How We Generate Revenue

We generate revenue from net interest income and from noninterest income. Net interest income represents the difference between the income earned on our assets, including our loans and investment securities, and our cost of funds, including the interest paid on the deposits and borrowings that are used to support our assets. Net interest income is a significant contributor to our operating results. Fluctuations in interest rates, as well as the amounts and types of interest-earning assets and interest-bearing liabilities we hold, affect net interest income. We generated $67.2 million in net interest income during the three months ended March 31, 2013, compared with net interest income of $1.2 million during the three months ended March 31, 2012. The significant increase in net interest income during the first quarter of 2013 was primarily due to $67.7 million in net interest income generated by our banking segment, which we acquired as part of the Merger.

The other component of our revenue is noninterest income, which is primarily comprised of the following:

(i)Income from mortgage operations. Through our wholly owned subsidiary, PrimeLending, we generate noninterest income by originating and selling mortgage loans. During the three months ended March 31, 2013, we generated $146.5 million in net gains from the sale of loans, other mortgage production income, and mortgage loan origination fees.

(ii)Investment advisory fees and commissions and securities brokerage fees and commissions.  Through our wholly owned subsidiary, First Southwest, we provide public finance advisory and various investment banking and brokerage services. We generated $22.0 million in investment advisory fees and commissions and securities brokerage fees and commissions during the three months ended March 31, 2013.

(iii)Net insurance premiums earned.  Through our wholly owned insurance subsidiary, NLASCO, we provide fire and limited homeowners insurance for low value dwellings and manufactured homes. We generated $37.5 million and $35.2 million in net insurance premiums earned during the three months ended March 31, 2013 and 2012, respectively.

In the aggregate, we generated $213.3 million and $36.9 million in noninterest income during the three months ended March 31, 2013 and 2012, respectively. The significant increase in noninterest income during 2013 was primarily due to the inclusion of the mortgage origination and financial advisory operations that we acquired as a part of the Merger.

We also incur noninterest expenses in the operation of our businesses. Our businesses engage in labor intensive activities and, consequently, employees’ compensation and benefits represent the majority of our noninterest expenses.

Segment Information

As a result of the Merger, we have two primary operating business units, PlainsCapital (financial services and products) and NLASCO (insurance). Within the PlainsCapital unit are three primary wholly owned subsidiaries: the Bank, PrimeLending and First Southwest. Under accounting principles generally accepted in the United States (“GAAP”), our business units are comprised of four reportable business segments that are organized primarily by the core products offered to the segments’ respective customers: banking, mortgage origination, insurance and financial advisory. We anticipate that future revenues will be driven primarily from the banking and mortgage origination segments, with the remainder being generated by our insurance and financial advisory segments. Based on historical results of PlainsCapital Corporation, the relative share of total revenue provided by our banking and mortgage origination segments fluctuates depending on market conditions, and operating results for the mortgage origination segment tend to be more volatile than operating results for the banking segment.

The banking segment includes the operations of the Bank. The banking segment primarily provides business banking and personal banking products and services and generates revenue from its portfolio of earning assets. The Bank’s results of operations are primarily dependent on net interest income, while also deriving revenue from other sources, including service charges on customer deposit accounts and trust fees. The operations of PrimeLending comprise the mortgage origination segment, which offers a variety of loan products from offices in 41 states and generates revenue predominantly from fees charged on the origination of loans and from selling these loans in the secondary market. The insurance segment includes the operations of NLASCO, which operates through its wholly owned subsidiaries, NLIC, and ASIC. Insurance segment revenues are primarily generated from net insurance premiums earned, less loss and loss

37

adjustment expenses (“LAE”) and policy acquisition and other underwriting expenses in Texas and other areas of the southern United States. The financial advisory segment generates a majority of its revenues from fees and commissions earned from investment advisory and securities brokerage services at First Southwest. The principal subsidiaries of First Southwest are FSC, a broker-dealer registered with the SEC and Financial Industry Regulatory Authority, and First Southwest Asset Management, Inc., a registered investment advisor under the Investment Advisors Act of 1940. Additional information concerning our reportable segments is presented in Note 17, Segment and Related Information, in the notes to our consolidated financial statements.

The following table presents certain information about our reportable segments operating results (in thousands).

Three Months Ended March 31, 2013	Banking		Mortgage Origination			Insurance		Financial Advisory		All Other and Eliminations			Hilltop Consolidated
Net interest income (expense)	$	67,749	$	(12,054	)	$	944	$	3,228	$	7,345		$	67,212
Provision for loan losses	12,966		—			—		39		—			13,005
Noninterest income	12,081		146,529			39,474		22,778		(7,535		)	213,327
Noninterest expense	31,975		122,680			34,568		25,958		(190		)	214,991
Income before income taxes	$	34,889	$	11,795		$	5,850	$	9	$	—		$	52,543

Our reportable segments also serve as reporting units for the purpose of testing our goodwill for impairment. We do not believe that our reporting units are currently at risk of failing the Step One impairment test prescribed in the Goodwill Subtopic of the FASB ASC.

Operating Results

The net income applicable to common stockholders for the three months ended March 31, 2013 was $32.4 million, or $0.39 per diluted share, compared to net income applicable to common stockholders of $0.3 million, or $0.01 per diluted share, for the three months ended March 31, 2012. As a result of the Merger on November 30, 2012, the net income of PlainsCapital is included in the operating results of Hilltop for the three months ended March 31, 2013. Certain items included in net income for 2013 resulted from purchase accounting associated with the Merger. The pre-tax effects of these items include net accretion on acquired earning assets and liabilities of $16.0 million offset by amortization of identifiable intangibles of $2.5 million. PlainsCapital also recorded provision for loan losses related to acquired performing loans of $8.3 million. The after tax impact of these items was to increase net income by $3.3 million.

We consider the ratios shown in the table below to be key indicators of our performance.

	Three Months Ended March 31, 2013
Performance Ratios (1):
Return on average stockholders’ equity	11.46	%
Return on average assets	1.87	%
Net interest margin (taxable equivalent) (2)	4.35	%

(1)Noted measures are typically used for measuring the performance of banking and financial institutions. Our operations prior to the acquisition of PlainsCapital are limited to our insurance operations. Therefore, noted measures for periods prior to 2013 are not useful measures and have been excluded.

(2)Taxable equivalent net interest income divided by average interest-earning assets.

On a consolidated basis, net interest income of $67.2 million increased $66.0 million for the three months ended March 31, 2013 compared with the same period in 2012 of $1.2 million. This increase was primarily due to the inclusion of the results of operations of the banking segment, which was acquired in the Merger on November 30, 2012. Net interest income during the three months ended March 31, 2012 was limited to interest income on securities and interest expense on notes payable of the insurance segment.

38

The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level, which in management’s best estimate, is necessary to absorb probable losses within the existing loan portfolio. The consolidated provision for loan losses, primarily in the banking segment, was $13.0 million for the three months ended March 31, 2013. The provision for loan losses was comprised of charges relating to newly originated loans and acquired performing loans of $12.6 million and purchased credit impaired loans of $0.4 million.

Consolidated noninterest income was $213.3 million during the three months ended March 31, 2013 compared with $36.9 million during the three months ended March 31, 2012, an increase of $176.4 million. The increase in 2013 was primarily due to the inclusion of $169.3 million in noninterest income generated from the operations of the mortgage origination and financial advisory segments, which were acquired in the Merger. Consolidated noninterest income during the three months ended March 31, 2013 also included net insurance premiums earned of $37.5 million, compared to $35.2 million for the same period in 2012.

Our consolidated noninterest expense of $215.0 million during the three months ended March 31, 2013 increased $177.4 million compared with the three months ended March 31, 2012. The increase primarily resulted from the inclusion of $180.6 million in employees’ compensation and benefits, occupancy and equipment and other expenses specifically attributable to those segments acquired as a part of the Merger. The balance of the consolidated noninterest expenses during the three months ended March 31, 2012 of $37.6 million were primarily comprised of loss and LAE and policy acquisition and other underwriting expenses specific to our insurance segment.

Income tax expense was $19.2 million and $0.2 million, reflecting an effective rate of 36.5% and 37.2%, for the three months ended March 31, 2013 and 2012, respectively. The increase in income tax expense during 2013 was primarily due the operating income generated by PlainsCapital.

Segment Results

Banking Segment

Income before income taxes for the three months ended March 31, 2013 was $34.9 million and was primarily driven by net interest income of $67.7 million, partially offset by noninterest expense of $32.0 million.

At March 31, 2013, the Bank exceeded all regulatory capital requirements with a total capital to risk weighted assets ratio of 12.59%, Tier 1 capital to risk weighted assets ratio of 12.21% and a Tier 1 capital to average assets, or leverage, ratio of 9.22%. At March 31, 2013, the Bank was also considered to be “well-capitalized” under the regulatory framework for prompt corrective action.

The taxable equivalent net interest margin for the banking segment was 5.30% for the three months ended March 31, 2013. The taxable equivalent net interest margin was impacted by accretion of discount on loans of $16.9 million, amortization of premium on acquired securities of $1.9 million and amortization of premium on acquired time deposits of $1.1 million. As a result of these items, the taxable equivalent interest margin increased by 124 basis points.

39

The table below provides additional details regarding our banking segment’s net interest income for the three months ended March 31, 2013 (dollars in thousands).

	Three Months Ended March 31, 2013
	Average Outstanding Balance			Interest Earned or Paid		Annualized Yield or Rate
Assets
Interest-earning assets
Loans, gross (1)	$	3,881,485		$	67,696	7.07	%
Investment securities - taxable	686,942			2,717		1.58	%
Investment securities - non-taxable (2)	166,552			1,429		3.43	%
Federal funds sold and securities purchased under agreements to resell	8,566			6		0.28	%
Interest-bearing deposits in other financial institutions	482,391			312		0.26	%
Other	20,112			165		3.28	%
Interest-earning assets, gross	5,246,048			72,325		5.59	%
Allowance for loan losses	(6,639		)
Interest-earning assets, net	5,239,409
Noninterest-earning assets	816,072
Total assets	$	6,055,481
Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Interest-bearing deposits	$	4,511,762		$	3,434	0.31	%
Notes payable and other borrowings	366,315			353		0.39	%
Total interest-bearing liabilities (3)	4,878,077			3,787		0.31	%
Noninterest-bearing liabilities
Noninterest-bearing deposits	248,277
Other liabilities	82,613
Total liabilities	5,208,967
Stockholders’ equity	846,514
Total liabilities and stockholders’ equity	$	6,055,481
Net interest income (2)				$	68,538
Net interest spread (2)						5.28	%
Net interest margin (2)						5.30	%

(1) Average loans include non-accrual loans.

(2) Taxable equivalent adjustments are based on a 35% tax rate. The adjustment to interest income was $0.5 million for the three months ended March 31, 2013.

(3) Excludes the allocation of interest income of $0.6 million and interest expense on Hilltop debt of $0.9 million for the three months ended March 31, 2013, respectively.

The banking segment’s net interest margin shown above exceeds our consolidated net interest margin. Our consolidated net interest margin includes the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities in the financial advisory segment, as well as the borrowing costs of Hilltop at the holding company level, both of which reduce our consolidated net interest margin. In addition, the banking segment’s interest earning assets include lines of credit extended to subsidiaries, the yields on which increase the banking segment’s net interest margin. Such yields and costs are eliminated from the consolidated financial statements.

The banking segment’s noninterest expense was $32.0 million during the three months ended March 31, 2013 and was primarily comprised of employees’ compensation and benefits, and occupancy expenses.

40

Mortgage Origination Segment

Income before income taxes was $11.8 million for the three months ended March 31, 2013, and was primarily driven by noninterest income of $146.5 million and noninterest expense of $122.7 million. Additionally, net interest expense of $12.1 million during the three months ended March 31, 2013, resulted from interest expense on a warehouse line of credit held at the Bank as well as related intercompany financing costs, partially offset by interest income earned on loans held for sale.

PrimeLending originates all of its mortgage loans through a retail channel. Mortgage loan origination volume and units for the three months ended March 31, 2013 were $3.0 billion and 14,446, respectively. Conventional, Government and Jumbo loans by dollar volume accounted for 63%, 30% and 6%, respectively, of total mortgage loan origination volume during the three months ended March 31, 2013.

The mortgage lending business is subject to variables that can impact loan origination volume, including seasonal and interest rate fluctuations. We typically experience increased loan origination volume from purchases of homes during the spring and summer, when more people tend to move and buy or sell homes. A decrease in interest rates tends to result in increased refinancings. During the three months ended March 31, 2013, home purchases and refinancings by dollar volume were 53% and 47%, respectively, of total mortgage loan origination volume.

Noninterest income of $146.5 million for the three months ended March 31, 2013 was comprised of net gains on the sale of loans and other mortgage production income, and mortgage origination fees.

Noninterest expense was $122.7 million for the three months ended March 31, 2013.  Employees’ compensation and benefits accounted for the majority of the costs incurred. Compensation that varies with the volume of mortgage loan originations and overall segment profitability comprised approximately 60% of the total employees’ compensation and benefits expense during the three months ended March 31, 2013. Unreimbursed closing costs during the three months ended March 31, 2013 were $10.2 million. PrimeLending records unreimbursed closing costs when it pays a customer’s closing costs in return for the customer choosing to accept a higher interest rate on the customer’s mortgage loan.

Insurance Segment

Income before income taxes increased to $5.9 million during the three months ended March 31, 2013 from $0.5 million during the same period in the prior year. This increase was primarily driven by improvements over the prior year in net premiums written and net premiums earned, as well as lower loss and loss adjustment expenses (“LAE”) and policy acquisition and other underwriting expenses. These year-over-year improvements contributed to a combined ratio of 88.7% for the three months ended March 31, 2013, compared with 99.6% for the three months ended March 31, 2012. The combined ratio is a measure of overall insurance underwriting profitability.

Noninterest income of $39.5 million during the three months ended March 31, 2013 included net insurance premiums earned of $37.5 million, compared to $35.2 million for the same period in 2012. The higher volume of earned premiums of $2.3 million is primarily attributable to our cumulative premium growth in homeowners products.

Direct insurance premiums written by major product line are presented in the table below (in thousands).

	Three Months Ended March 31,				Variance
	2013		2012		2013 vs 2012
Direct Insurance Premiums Written:
Homeowners	$	18,543	$	17,672	$	871
Fire	13,052		12,780		272
Mobile Home	9,083		8,110		973
Commercial	1,135		2,122		(987		)
Other	44		57		(13		)
	$	41,857	$	40,741	$	1,116

Total direct insurance premiums written increased for the three months ended March 31, 2013 compared to the same period in 2012 by $2.1 million for our three largest insurance product lines due to growth on existing insurance products. This increase was partially offset by a $1.0 million decrease related to a commercial product line that was non-renewed.

41

Net insurance premiums earned by major product line are presented in the table below (in thousands).

	Three Months Ended March 31,				Variance
	2013		2012		2013 vs 2012
Net Insurance Premiums Earned:
Homeowners	$	16,601	$	15,249	$	1,352
Fire	11,685		11,028		657
Mobile Home	8,132		6,998		1,134
Commercial	1,016		1,831		(815		)
Other	39		49		(10		)
	$	37,473	$	35,155	$	2,318

Net insurance premiums earned for the three months ended March 31, 2013 increased as compared to the same period in 2012, primarily due to the increase in net insurance premiums written of $1.5 million and a decrease in unearned insurance premiums during the three months ended March 31, 2013 compared to the same period in 2012 of $0.8 million.

Noninterest expense of $34.6 million during the three months ended March 31, 2013 includes both loss and LAE expenses and policy acquisition and other underwriting expenses, as well as other noninterest expenses. Loss and LAE for the three months ended March 31, 2013 was $21.2 million, as compared to $22.5 million for the same period in 2012. This decrease was primarily a result of decreased severity of wind and hail storms in 2013 compared to 2012 weather events. As a result, the loss and LAE ratio for the three months ended March 31, 2013 and 2012 was 56.5% and 64.1%, respectively.

Policy acquisition and other underwriting expenses encompass all expenses incurred relative to NLASCO operations, and include elements of multiple categories of expense otherwise reported as noninterest expense in the consolidated statements of operations.

Policy acquisition and other underwriting expenses were as follows (dollars in thousands).

	Three Months Ended March 31,						Variance
	2013			2012			2013 vs 2012
Amortization of deferred policy acquisition costs	$	9,614		$	9,228		$	386
Other underwriting expenses	3,025			3,687			(662		)
Total policy acquisition and other underwriting expenses	12,639			12,915			(276		)
Agency expenses	(569		)	(447		)	(122		)
Total policy acquisition and other underwriting expenses
less agency expenses	$	12,070		$	12,468		$	(398	)
Net insurance premiums earned	$	37,473		$	35,155		$	2,318
Expense ratio	32.2		%	35.5		%	-3.3		%

Total policy acquisition and other underwriting expenses, excluding agency expenses, for the three months ended March 31, 2013 were down $0.4 million due to a decrease in other underwriting expenses of $0.7 million, offset by the increase in amortization of deferred policy acquisition costs (“DAC”) of $0.4 million.

Financial Advisory Segment

The financial advisory segment’s revenues equaled its costs for the three months ended March 31, 2013. Municipal bond issuance is historically lower during the first calendar quarter. In addition, FSC incurred net losses in its trading portfolio of $1.0 million.

The majority of noninterest income for the three months ended March 31, 2013 of $22.8 million was generated from fees and commissions earned from investment advisory and securities brokerage activities of $22.0 million.

Noninterest expense was $26.0 million for the three months ended March 31, 2013.  Employees’ compensation and benefits and occupancy and equipment accounted for the majority of the costs incurred.

42

Financial Condition

The following discussion contains a more detailed analysis of our financial condition at March 31, 2013 and as compared to December 31, 2012.

Securities Portfolio

At March 31, 2013, investment securities consisted of securities of the U.S. Treasury, U.S. government and its agencies, obligations of municipalities and other political subdivisions, primarily in the State of Texas, mortgage-backed, corporate debt, and equity securities, a note receivable and a warrant. We have the ability to categorize investments as trading, available for sale, and held to maturity. Trading securities are bought and held principally for the purpose of selling them in the near term.

The banking segment’s securities portfolio plays a role in the management of our interest rate sensitivity and generates additional interest income. In addition, the securities portfolio is used to meet collateral requirements for public and trust deposits, securities sold under agreements to repurchase and other purposes. The available for sale securities portfolio serves as a source of liquidity. Historically, the Bank’s policy has been to invest primarily in securities of the U.S. government and its agencies, obligations of municipalities in the State of Texas and other high grade fixed income securities to minimize credit risk.

The securities portfolio consists of two major components: trading securities and securities available for sale. Trading securities are carried at fair value, marked to market through operations and held at the Bank and First Southwest. Securities that may be sold in response to changes in market interest rates, changes in securities’ prepayment risk, increases in loan demand, general liquidity needs and other similar factors are classified as available for sale and are carried at estimated fair value, with unrealized gains and losses recorded in accumulated other comprehensive income.

Our insurance segment’s primary investment objective is to preserve capital and manage for a total rate of return. NLASCO’s strategy is to purchase securities in sectors that represent the most attractive relative value. Our insurance segment invests the premiums it receives from policyholders until they are needed to pay policyholder claims or other expenses.

The table below summarizes our securities portfolio (in thousands).

	March 31,		December 31,
	2013		2012
Trading securities, at fair value	$	60,769	$	90,113
Securities available for sale, at fair value
U.S. Treasury securities	7,274		7,185
U.S. government agencies:
Bonds	631,296		526,237
Residential mortgage-backed securities	17,203		18,893
Collateralized mortgage obligations	165,688		97,924
Corporate debt securities	79,827		87,177
States and political subdivisions	163,383		175,759
Commercial mortgage-backed securities	1,072		1,073
Equity securities	21,960		20,428
Note receivable	44,765		44,160
Warrant	14,037		12,117
Total securities portfolio	$	1,207,274	$	1,081,066

We had net unrealized gains of $13.8 million and $12.5 million related to the available for sale investment portfolio at March 31, 2013 and December 31, 2012, respectively.

43

Loan Portfolio

Consolidated loans held for investment are detailed in the table below and classified by type (in thousands).

	Loans, excluding			PCI			Total
March 31, 2013	PCI Loans			Loans			Loans
Commercial and industrial	$	1,633,748		$	71,460		$	1,705,208
Real estate	1,178,031			59,321			1,237,352
Construction and land development	253,203			26,171			279,374
Consumer	26,361			72			26,433
Loans, gross	3,091,343			157,024			3,248,367
Allowance for loan losses	(16,206		)	(431		)	(16,637		)
Loans, net of allowance	$	3,075,137		$	156,593		$	3,231,730

	Loans, excluding			PCI		Total
December 31, 2012	PCI Loans			Loans		Loans
Commercial and industrial	$	1,588,907		$	71,386	$	1,660,293
Real estate	1,122,667			62,247		1,184,914
Construction and land development	247,413			33,070		280,483
Consumer	26,629			77		26,706
Loans, gross	2,985,616			166,780		3,152,396
Allowance for loan losses	(3,409		)	—		(3,409		)
Loans, net of allowance	$	2,982,207		$	166,780	$	3,148,987

Banking Segment

The loan portfolio constitutes the major earning asset of the banking segment and typically offers the best alternative for obtaining the maximum interest spread above the banking segment’s cost of funds. The overall economic strength of the banking segment generally parallels the quality and yield of its loan portfolio. The banking segment’s total loans, net of the allowance for loan losses, were $4.0 billion and $4.1 billion at March 31, 2013 and December 31, 2012, respectively. The banking segment’s loan portfolio includes a $1.6 billion warehouse line of credit extended to PrimeLending, of which $1.1 billion and $1.3 billion were drawn at March 31, 2013 and December 31, 2012, respectively, and is eliminated from net loans on our consolidated balance sheets.

The banking segment does not generally participate in syndicated loan transactions and has no foreign loans in its portfolio. At March 31, 2013, the banking segment’s only loan concentration (loans to borrowers engaged in similar activities) that exceeded 10% of total loans was non-construction commercial real estate loans within our real estate portfolio. At March 31, 2013, non-construction commercial real estate loans were 28.5% of total loans. The banking segment’s loan concentrations were within regulatory guidelines at March 31, 2013.

Mortgage Origination Segment

The loan portfolio of the mortgage origination segment consists of loans held for sale, primarily single-family residential mortgages funded through PrimeLending, and pipeline loans, which are loans in various stages of the application process, but not yet closed and funded. Pipeline loans may not close if potential borrowers elect in their sole discretion not to proceed with the loan application. Total loans held for sale were $1.2 billion and $1.4 billion at March 31, 2013 and December 31, 2012, respectively.

44

The components of the mortgage origination segment’s loans held for sale and pipeline loans are as follows (in thousands).

	March 31,		December 31,
	2013		2012
Loans held for sale:
Unpaid principal balance	$	1,206,108	$	1,359,829
Fair value adjustment	35,470		40,908
	$	1,241,578	$	1,400,737
Pipeline loans:
Unpaid principal balance	$	1,082,255	$	968,083
Fair value adjustment	22,435		15,150
	$	1,104,690	$	983,233

Financial Advisory Segment

The loan portfolio of the financial advisory segment consists primarily of margin loans to customers and correspondents.  These loans are collateralized by the securities purchased or by other securities owned by the clients and, because of collateral coverage ratios, are believed to present minimal collectability exposure. Additionally, these loans are subject to a number of regulatory requirements as well as First Southwest’s internal policies. The financial advisory segment’s total loans, net of the allowance for loan losses, were $311.5 million and $277.0 million at March 31, 2013 and December 31, 2012, respectively. This increase was primarily attributable to increased borrowings in margin accounts held by First Southwest customers and correspondents.

Allowance for Loan Losses

The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses inherent in the existing portfolio of loans held for investment. Our management has responsibility for determining the level of the allowance for loan losses, subject to review by the Audit Committee of our Board of Directors and the Directors’ Loan Review Committee of the Bank’s Board of Directors.

It is our management’s responsibility at the end of each quarter, or more frequently as deemed necessary, to analyze the level of the allowance for loan losses to ensure that it is appropriate for the estimated credit losses in the portfolio consistent with the Interagency Policy Statement on the Allowance for Loan and Lease Losses and the Receivables and Contingencies Topics of the ASC. Estimated credit losses are the probable current amount of loans that we will be unable to collect given facts and circumstances as of the evaluation date. When management determines that a loan, or portion thereof, is uncollectible, the loan, or portion thereof, is charged off against the allowance for loan losses. Any subsequent recovery of charged-off loans is added back to the allowance for loan losses.

We have developed a methodology that seeks to determine an allowance within the scope of the Receivables and Contingencies Topics of the ASC. Each of the loans that has been determined to be impaired is within the scope of the Receivables Topic and is individually evaluated for impairment using one of three impairment measurement methods as of the evaluation date: (1) the present value of expected future discounted cash flows on the loan, (2) the loan’s observable market price, or (3) the fair value of the collateral if the loan is collateral dependent. Specific reserves are provided in our estimate of the allowance based on the measurement of impairment under these three methods, except for collateral dependent loans, which require the fair value method. All non-impaired loans are within the scope of the Contingencies Topic. Estimates of loss for the Contingencies Topic are calculated based on historical loss experience by loan portfolio segment adjusted for changes in trends, conditions, and other relevant factors that affect repayment of loans as of the evaluation date. While historical loss experience provides a reasonable starting point for the analysis, historical losses, or recent trends in losses, are not the sole basis upon which to determine the appropriate level for the allowance for loan losses. Management considers recent qualitative or environmental factors that are likely to cause estimated credit losses associated with the existing portfolio to differ from historical loss experience, including but not limited to: changes in lending policies and procedures; changes in underwriting standards; changes in economic and business conditions and developments that affect the collectability of the portfolio; the condition of various market segments; changes in the nature and volume of the portfolio and in the terms of loans; changes in lending management and staff; changes in the volume and severity of past due

45

loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans; changes in the loan review system; changes in the value of underlying collateral for collateral-dependent loans; and any concentrations of credit and changes in the level of such concentrations.

We design our loan review program to identify and monitor problem loans by maintaining a credit grading process, ensuring that timely and appropriate changes are made to the loans with assigned risk grades and coordinating the delivery of the information necessary to assess the appropriateness of the allowance for loan losses. Loans are evaluated for impairment when: (i) payments on the loan are delayed, typically by 90 days or more (unless the loan is both well secured and in the process of collection), (ii) the loan becomes classified, (iii) the loan is being reviewed in the normal course of the loan review scope, or (iv) the loan is identified by the servicing officer as a problem. We review on an individual basis all loan relationships over $0.5 million that exhibit probable or observed credit weaknesses, the top 25 loan relationships by dollar amount in each market we serve, and additional relationships necessary to achieve adequate coverage of our various lending markets.

Homogenous loans, such as consumer installment loans, residential mortgage loans and home equity loans, are not individually reviewed and are generally risk graded at the same levels. The risk grade and reserves are established for each homogenous pool of loans based on the expected net charge-offs from current trends in delinquencies, losses or historical experience and general economic conditions. At March 31, 2013, we had no material delinquencies in these types of loans.

The allowance is subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance. While we believe we have an appropriate allowance for our existing portfolio at March 31, 2013, additional provisions for losses on existing loans may be necessary in the future. We recorded net recoveries in the amount of $0.2 million for the three months ended March 31, 2013. Our allowance for loan losses totaled $16.6 million and $3.4 million at March 31, 2013 and December 31, 2012, respectively. The ratio of the allowance for loan losses to total loans held for investment at March 31, 2013 and December 31, 2012 was 0.51% and 0.11%, respectively.

In connection with the Merger, Hilltop acquired loans both with and without evidence of credit quality deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan losses.

Provisions for loan losses are charged to operations to record the total allowance for loan losses at a level deemed appropriate by the banking segment’s management based on such factors as the volume and type of lending it conducted, the amount of non-performing loans and related collateral security, the present level of the allowance for loan losses, the results of recent regulatory examinations, generally accepted accounting principles, general economic conditions and other factors related to the ability to collect loans in its portfolio. The provision for loan losses, primarily in the banking segment, was $13.0 million for the three months ended March 31, 2013.

46

The following table presents the activity in our allowance for loan losses for the three months ended March 31, 2013 (in thousands). Substantially all of the activity shown below occurred within the banking segment, which was acquired as a part of the Merger.

Balance, beginning of period	$	3,409
Provisions charged to operating expenses	13,005
Recoveries of loans previously charged off:
Commercial and industrial	494
Real estate	139
Construction and land development	107
Consumer	8
Total recoveries	748
Loans charged off:
Commercial and industrial	438
Real estate	31
Construction and land development	—
Consumer	56
Total charge-offs	525
Net recoveries	223
Balance, end of period	$	16,637

The distribution of the allowance for loan losses among loan types and the percentage of the loans for that type to gross loans, excluding unearned income, are presented in the table below (dollars in thousands).

	March 31, 2013				December 31, 2012
			% of				% of
			Gross				Gross
	Reserve		Loans		Reserve		Loans
Commercial and industrial	$	8,812	52.49	%	$	1,845	52.67	%
Real estate (including construction and land development)	7,808		46.69	%	1,559		46.46	%
Consumer	17		0.82	%	5		0.87	%
Total	$	16,637	100.00	%	$	3,409	100.00	%

Potential Problem Loans

Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of an obligor to continue to comply with repayment terms because of the obligor’s potential operating or financial difficulties. Management monitors these loans and reviews their performance on a regular basis. Potential problem loans contain potential weaknesses that could improve, persist or further deteriorate. If such potential weaknesses persist without improving, the loan is subject to downgrade, typically to substandard, in three to six months. At March 31, 2013, we had five credit relationships totaling $4.4 million of potential problem loans, which are assigned a grade of special mention within our risk grading matrix. At December 31, 2012, we had eight credit relationships totaling $8.7 million of potential problem loans.

47

Non-Performing Assets

The following table presents our components of non-performing assets (dollars in thousands). Non-performing assets exclude PCI loans, which are considered performing due to the application of the accretion method.

	March 31,			December 31,
	2013			2012
Loans accounted for on a non-accrual basis:
Commercial and industrial	$	1,507		$	—
Lease financing	—			—
Real estate	1,894			1,756
Construction and land development	—			—
Consumer	—			—
	$	3,401		$	1,756
Non-performing loans as a percentage of total loans	0.08		%	0.04		%
Other real estate owned	$	7,511		$	11,098
Other repossessed assets	$	470		$	557
Non-performing assets	$	11,382		$	13,411
Non-performing assets as a percentage of total assets	0.16		%	0.18		%
Loans past due 90 days or more and still accruing	$	—		$	2,000

At March 31, 2013, total non-performing assets decreased $2.0 million to $11.4 million, compared with $13.4 million at December 31, 2012, primarily due to a decrease in other real estate owned. Non-performing loans totaled $3.4 million at March 31, 2013, of which $1.5 million were lease financing receivables and $1.9 million were loans secured by residential real estate, substantially all of which were classified as loans held for sale. At December 31, 2012, non-performing loans were $1.8 million and were all secured by residential real estate and classified as loans held for sale. 

At March 31, 2013, troubled debt restructurings totaled $2.1 million and were modifications of PCI loans that are considered to be performing due to the application of the accretion method.

Other real estate owned decreased $3.6 million to $7.5 million at March 31, 2013, compared with $11.1 million at December 31, 2012. The decrease was primarily due to the disposal of two properties totaling $2.5 million. At March 31, 2013, other real estate owned included commercial properties of $6.9 million, commercial real estate property consisting of parcels of unimproved land of $0.5 million and residential lots under development of $0.1 million.

Reserve for Unpaid Losses and Loss Adjustment Expenses

At March 31, 2013 and December 31, 2012, our reserves for unpaid losses and LAE were $32.1 million and $34.0 million, respectively. The liability for insurance losses and LAE represents estimates of the ultimate unpaid cost of all losses incurred, including losses for claims that have not yet been reported. Separately for each of NLIC and ASIC and each line of business, our actuaries estimate the liability for unpaid losses and LAE by first estimating ultimate losses and LAE amounts for each year, prior to recognizing the impact of reinsurance.

Insured losses for a given accident year change in value over time as additional information on claims is received, as claim conditions change and as new claims are reported. This process is commonly referred to as loss development. To project ultimate losses and LAE, our actuaries examine the paid and reported losses and LAE for each accident year and

48

multiply these values by a loss development factor. The selected loss development factors are based upon a review of the loss development patterns indicated in the companies’ historical loss triangles and applicable insurance industry loss development factors.

The reserve analysis performed by our actuaries provides preliminary central estimates of the unpaid losses and LAE. At each quarter-end, the results of the reserve analysis are summarized and discussed with our senior management. The senior management group considers many factors in determining the amount of reserves to record for financial statement purposes. These factors include the extent and timing of any recent catastrophic events, historical pattern and volatility of the actuarial indications, the sensitivity of the actuarial indications to changes in paid and reported loss patterns, the consistency of claims handling processes, the consistency of case reserving practices, changes in our pricing and underwriting, and overall pricing and underwriting trends in the insurance market.

Borrowings

Our borrowings are shown in the table below (dollars in thousands).

	March 31, 2013				December 31, 2012
			Average				Average
	Balance		Rate Paid		Balance		Rate Paid
Short-term borrowings	$	576,730	0.41	%	$	728,250	0.33	%
Notes payable	140,747		6.66	%	141,539		5.89	%
Junior subordinated debentures	67,012		3.68	%	67,012		3.53	%
	$	784,489	1.96	%	$	936,801	1.40	%

Short-term borrowings consist of federal funds purchased, securities sold under agreements to repurchase, borrowings at the Federal Home Loan Bank (“FHLB”) and short-term bank loans. The $151.5 million decrease in short-term borrowings at March 31, 2013 compared with December 31, 2012 was due to the $250.0 million decrease in borrowings under the FHLB, which was the result of lower funding requirements due to a decrease in loans held for sale. This decrease was partially offset by increases in each of the other short-term borrowing components totaling $98.5 million. Notes payable is comprised of 7.50% Senior Exchangeable Notes at the holding company, insurance segment term notes and nonrecourse notes owed by First Southwest.

Liquidity and Capital Resources

Hilltop is a holding company whose assets primarily consist of the stock of its subsidiaries and invested assets with a combined value of $7.2 billion at March 31, 2013. Hilltop’s primary investment objectives, as a holding company, are to preserve capital and have available cash resources to utilize in making acquisitions. At March 31, 2013, the holding company had approximately $200 million in freely available cash and cash equivalents. If necessary or appropriate, we may also finance acquisitions with the proceeds from equity or debt issuances. The current short-term liquidity needs of the holding company include operating expenses, debt service and dividends on preferred stock.

Within our banking segment, liquidity refers to the measure of our ability to meet our customers’ short-term and long-term deposit withdrawals and anticipated and unanticipated increases in loan demand without penalizing earnings. Interest rate sensitivity involves the relationships between rate-sensitive assets and liabilities and is an indication of the probable effects of interest rate fluctuations on our net interest income.

Our asset and liability group is responsible for continuously monitoring our liquidity position to ensure that assets and liabilities are managed in a manner that will meet our short-term and long-term cash requirements. Funds invested in short-term marketable instruments, the continuous maturing of other interest-earning assets, cash flows from self-liquidating investments such as mortgage-backed securities and collateralized mortgage obligations, the possible sale of available for sale securities, and the ability to securitize certain types of loans provide sources of liquidity from an asset perspective. The liability base provides sources of liquidity through deposits and the maturity structure of short-term borrowed funds. For short-term liquidity needs, we utilize federal fund lines of credit with correspondent banks, securities sold under agreements to repurchase, borrowings from the Federal Reserve and borrowings under lines of credit with other financial institutions.  For intermediate liquidity needs, we utilize advances from the FHLB. To supply liquidity over the longer term, we have access to brokered certificates of deposit, term loans at the FHLB and borrowings under lines of credit with other financial institutions.

49

As a result of the Merger, the outstanding shares of PlainsCapital Corporation’s Non-Cumulative Perpetual Preferred Stock, Series C, all of which were held by the U.S. Department of the Treasury, were converted on a one-for-one basis into shares of Hilltop Series B Preferred Stock. Holders of the Hilltop Series B Preferred Stock are entitled to noncumulative cash dividends at a fluctuating dividend rate based on the Bank’s level of “qualified small business lending” (“QSBL”). The terms of our Series B Preferred Stock provide for the payment of non-cumulative dividends on a quarterly basis. The dividend rate, as a percentage of the liquidation amount, fluctuates while the Hilltop Series B Preferred Stock is outstanding based upon changes in the level of QSBL by the Bank from its historical average level of QSBL at the end of each of the four quarters end leading up to June 30, 2010 (the “Baseline”). Until March 2016, the dividend rate will generally decrease if we increase our level of QSBL from the Baseline and increase if we decrease our level of QSBL from the Baseline, subject to certain limitations described in the Certificate of Designations. The shares of Hilltop Series B Preferred Stock are senior to shares of our common stock with respect to dividends and liquidation preference, and qualifies as Tier 1 Capital for regulatory purposes. At March 31, 2013 and December 31, 2012, $114.1 million of our Series B Preferred Stock was outstanding. During the three months ended March 31, 2013, we accrued dividends of $0.7 million on the Hilltop Series B Preferred Stock.

The dividend rate on the Hilltop Series B Preferred Stock was 2.468% for the three months ended March 31, 2013. The dividend rate for the period from April 1, 2013 to June 30, 2013 increased to 4.025% due to purchase accounting adjustments related to the Merger and resulting decrease in the level of QSBL at March 31, 2013, compared to the Baseline. Subject to the approval of Treasury, we expect the dividend rate for the period from July 1, 2013 to September 30, 2013 to be 3.974%.

We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements may prompt certain actions by regulators that, if undertaken, could have a direct material adverse effect on our financial condition and results of operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

At March 31, 2013, Hilltop exceeded all regulatory capital requirements with a total capital to risk weighted assets ratio of 18.58%, Tier 1 capital to risk weighted assets ratio of 18.21% and a Tier 1 capital to average assets, or leverage, ratio of 13.39%. At March 31, 2013, the Bank was also considered to be “well-capitalized” under the regulatory framework for prompt corrective action.

Cash and cash equivalents (consisting of cash and due from banks and federal funds sold), totaled $609.3 million at March 31, 2013, a decrease of $117.2 million from $726.5 million at December 31, 2012. Deposit flows, calls of investment securities and borrowed funds, and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds.

Cash provided by operations during the three months ended March 31, 2013 was $159.9 million, an increase in cash flow of $157.3 million compared with the same period in 2012. Cash provided by operations increased primarily due to the Merger on November 30, 2012 and inclusion of operating activities of the banking, mortgage origination and financial advisory segments during the three months ended March 31, 2013.

We use cash primarily to originate loans and purchase securities for our investment portfolio. During the three months ended March 31, 2013, the amount of cash used by lending activities was $41.9 million. Cash used in our investment activities included net purchases of securities for our investment portfolio during the three months ended March 31, 2013, which were $155.7 million compared to net purchases of $0.2 million during the three months ended March 31, 2012.

Cash used in financing activities during the three months ended March 31, 2013 was $85.0 million, an increase in cash used of $83.8 million compared with the same period in 2012. The increase in cash provided was due primarily to the Merger on November 30, 2012 and the inclusion of financing activities of the banking segment for the three months ended March 31, 2013.

50

We had deposits of $4.8 billion at March 31, 2013, an increase of $58.0 million compared with December 31, 2012. Deposit flows are affected by the level of market interest rates, the interest rates and products offered by competitors, the volatility of equity markets and other factors. At March 31, 2013, money market deposits, including brokered deposits, were $2.6 billion, time deposits, including brokered deposits, were $1.5 billion, and noninterest bearing demand deposits were $249.7 million. Our 15 largest depositors, excluding our indirect wholly owned subsidiaries, First Southwest and PrimeLending, accounted for approximately 22.20% of our total deposits, and our five largest depositors, excluding First Southwest, accounted for approximately 12.92% of our total deposits at March 31, 2013. The loss of one or more of our largest customers, or a significant decline in the deposit balances due to ordinary course fluctuations related to these customers’ businesses, could adversely affect our liquidity and might require us to raise deposit rates to attract new deposits, purchase federal funds or borrow funds on a short-term basis to replace such deposits. We have not experienced any liquidity issues to date with respect to brokered deposits or our other large balance deposits, and we believe alternative sources of funding are available to more than compensate for the loss of one or more of these customers.

PrimeLending funds the mortgage loans it originates through a warehouse line of credit of up to $1.6 billion maintained with the Bank. At March 31, 2013, PrimeLending had outstanding borrowings of $1.1 billion against the warehouse line of credit. PrimeLending sells substantially all mortgage loans it originates to various investors in the secondary market with servicing released, although it may retain servicing in limited circumstances. As these mortgage loans are sold in the secondary market, PrimeLending pays down its warehouse line of credit with the Bank. In addition, PrimeLending has an available line of credit with JPMorgan Chase Bank, NA (“JPMorgan Chase”) of up to $1.0 million. At March 31, 2013, PrimeLending had no borrowings under the JPMorgan Chase line of credit.

FSC relies on its equity capital, short-term bank borrowings, interest-bearing and non-interest-bearing client credit balances, correspondent deposits, securities lending arrangements, repurchase agreement financings and other payables to finance its assets and operations. FSC has credit arrangements with three unaffiliated banks of up to $215.0 million, which are used to finance securities owned, securities held for correspondent accounts and receivables in customer margin accounts. These credit arrangements are provided on an “as offered” basis and are not committed lines of credit. At March 31, 2013, FSC had borrowed $161.0 million under these credit arrangements.

Our insurance operating subsidiary has primary investment objectives to preserve capital and manage for a total rate of return. NLASCO’s strategy is to purchase securities in sectors that represent the most attractive relative value. Bonds, cash, and short-term investments constituted $194.9 million, or 93.7%, of NLASCO’s $207.9 million in investments at March 31, 2013. NLASCO had $13.0 million, or 6.3% of its investments, in equity investments at March 31, 2013. NLASCO does not currently have any significant concentration in both direct and indirect guarantor exposure, nor any investments in subprime mortgages. NLASCO has custodial agreements with Wells Fargo, and an investment management agreement with DTF Holdings, LLC.

Impact of Inflation and Changing Prices

Our consolidated financial statements included herein have been prepared in accordance with GAAP, which presently require us to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on our operations is reflected in increased operating costs. In management’s opinion, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond our control, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of the U.S. government, its agencies and various other governmental regulatory authorities.

51

Off-Balance Sheet Arrangements; Commitments; Guarantees

In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets.

We enter into contractual loan commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of our commitments to extend credit are contingent upon customers maintaining specific credit standards until the time of loan funding. We minimize our exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. We assess the credit risk associated with certain commitments to extend credit and have recorded a liability related to such credit risk in our consolidated financial statements.

Standby letters of credit are written conditional commitments issued by us to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek recovery from the customer. Our policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.

In the normal course of business, FSC executes, settles and finances various securities transactions that may expose FSC to off-balance sheet risk in the event that a customer or counterparty does not fulfill its contractual obligations. Examples of such transactions include the sale of securities not yet purchased by customers or for the account of FSC, clearing agreements between FSC and various clearinghouses and broker-dealers, secured financing arrangements that involve pledged securities, and when-issued underwriting and purchase commitments.

Critical Accounting Policies and Estimates

Our accounting policies are fundamental to understanding our management’s discussion and analysis of our results of operations and financial condition. We have identified certain policies as being significant because they involve a higher degree of judgment and complexity in making certain estimates and assumptions that affect amounts reported in our consolidated financial statements. These policies relate to Allowance for Loan Losses, Reserve for Losses and Loss Adjustment Expenses, Goodwill and Identifiable Intangible Assets, Loan Indemnification Liability and Acquisition Accounting. The Company has reviewed and approved these significant accounting policies, which are further described under “Critical Accounting Policies and Estimates” and Note 1 to the Consolidated Financial Statements in the Company’s 2012 Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The disclosure is not meant to be a precise indicator of expected future losses, but rather an indicator of reasonably possible losses, and therefore our actual results may differ from any of the following projections. This forward-looking information provides an indicator of how we view and manage our ongoing market risk exposures.

We are engaged primarily in the business of investing funds obtained from deposits and borrowings in interest-earning loans and investments, and our primary component of market risk is interest rate volatility. Consequently, our earnings depend to a significant extent on our net interest income, which is the difference between interest income on loans and investments and our interest expense on deposits and borrowings. To the extent that our interest-bearing liabilities do not reprice or mature at the same time as our interest-bearing assets, we are subject to interest rate risk and corresponding fluctuations in net interest income.

Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The magnitude of the change in earnings and market value of equity resulting from interest rate changes is impacted by the time remaining to maturity on

52

fixed-rate obligations, the contractual ability to adjust rates prior to maturity, competition, the general level of interest rates and customer actions. Our objective is to measure the effect of interest rate changes on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

There are several common sources of interest rate risk that must be effectively managed if there is to be minimal impact on our earnings and capital. Repricing risk arises largely from timing differences in the pricing of assets and liabilities.  Reinvestment risk refers to the reinvestment of cash flows from interest payments and maturing assets at lower or higher rates. Basis risk exists when different yield curves or pricing indices do not change at precisely the same time or in the same magnitude such that assets and liabilities with the same maturity are not all affected equally. Yield curve risk refers to unequal movements in interest rates across a full range of maturities.

We have employed asset/liability management policies that attempt to manage our interest-earning assets and interest-bearing liabilities, thereby attempting to control the volatility of net interest income, without having to incur unacceptable levels of credit or investment risk. We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. In addition, the asset/liability management policies permit the use of various derivative instruments to manage interest rate risk or hedge specified assets and liabilities.

An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market interest rates. The management of interest rate risk is performed by analyzing the maturity and repricing relationships between interest-earning assets and interest-bearing liabilities at specific points in time (“GAP”) and by analyzing the effects of interest rate changes on net interest income over specific periods of time by projecting the performance of the mix of assets and liabilities in varied interest rate environments. Interest rate sensitivity reflects the potential effect on net interest income resulting from a movement in interest rates. A company is considered to be asset sensitive, or have a positive GAP, when the amount of its interest-earning assets maturing or repricing within a given period exceeds the amount of its interest-bearing liabilities also maturing or repricing within that time period. Conversely, a company is considered to be liability sensitive, or have a negative GAP, when the amount of its interest-bearing liabilities maturing or repricing within a given period exceeds the amount of its interest-earning assets also maturing or repricing within that time period. During a period of rising interest rates, a negative GAP would tend to affect net interest income adversely, while a positive GAP would tend to result in an increase in net interest income. During a period of falling interest rates, a negative GAP would tend to result in an increase in net interest income, while a positive GAP would tend to affect net interest income adversely. However, it is our intent to achieve a proper balance so that incorrect rate forecasts should not have a significant impact on earnings.

Interest rate sensitivity analysis presents the amount of assets and liabilities that are estimated to reprice through specified periods. The interest rate sensitivity analysis in the table below reflects changes in banking segment earnings and costs resulting from changes in assets and liabilities on March 31, 2013 that will either be repriced in accordance with market rates, mature or are estimated to mature early within the periods indicated. This is a one-day position that is continually changing and is not necessarily indicative of our position at any other time.

53

As illustrated in the table below, the banking segment is asset sensitive overall. Loans that adjust daily or monthly to the Wall Street Journal Prime rate comprise a large percentage of interest sensitive assets and are the primary cause of the banking segment’s asset sensitivity. To help neutralize interest rate sensitivity, the banking segment has kept the terms of most of its borrowings under one year (dollars in thousands).

	March 31, 2013
	3 Months or			> 3 Months to			> 1 Year to			> 3 Years to
	Less			1 Year			3 Years			5 Years			> 5 Years			Total
Interest sensitive assets:
Loans	$	2,792,942		$	382,447		$	404,695		$	152,270		$	322,961		$	4,055,315
Securities	8,635			45,176			55,248			20,592			819,147			948,798
Federal funds sold and securities purchased under agreements to resell	20,437			—			—			—			—			20,437
Other interest sensitive assets	241,037			—			—			—			—			241,037
Total interest sensitive assets	3,063,051			427,623			459,943			172,862			1,142,108			5,265,587
Interest sensitive liabilities:
Interest bearing checking	$	1,768,943		$	—		$	—		$	—		$	—		$	1,768,943
Savings	185,812			—			—			—			—			185,812
Time deposits	757,345			545,601			178,116			26,613			31,834			1,539,509
Notes payable & other borrowings	412,656			515			1,467			787			5,590			421,015
Total interest sensitive liabilities	3,124,756			546,116			179,583			27,400			37,424			3,915,279
Interest sensitivity gap	$	(61,705	)	$	(118,493	)	$	280,360		$	145,462		$	1,104,684		$	1,350,308
Cumulative interest sensitivity gap	$	(61,705	)	$	(180,198	)	$	100,162		$	245,624		$	1,350,308
Percentage of cumulative gap to total interest sensitive assets	-1.17		%	-3.42		%	1.90		%	4.66		%	25.64		%

The positive GAP in the interest rate sensitivity analysis indicates that banking segment net interest income would generally rise if rates increase. Because of inherent limitations in interest rate sensitivity analysis, the banking segment uses multiple interest rate risk measurement techniques. Simulation analysis is used to subject the current repricing conditions to rising and falling interest rates in increments and decrements of 1%, 2% and 3% to determine the effect on net interest income changes for the next twelve months. The banking segment also measures the effects of changes in interest rates on market value of equity by discounting projected cash flows of deposits and loans. Market value changes in the investment portfolio are estimated by discounting future cash flows and using duration analysis. Investment security prepayments are estimated using current market information. We believe the simulation analysis presents a more accurate picture than the GAP analysis. Simulation analysis recognizes that deposit products may not react to changes in interest rates as quickly or with the same magnitude as earning assets contractually tied to a market rate index. The sensitivity to changes in market rates varies across deposit products. Also, unlike GAP analysis, simulation analysis takes into account the effect of embedded options in the securities and loan portfolios as well as any off-balance-sheet derivatives.

The table below shows the estimated impact of increases of 1%, 2% and 3% and a decrease of 0.5% in interest rates on net interest income and on market value of portfolio equity for the banking segment at March 31, 2013 (dollars in thousands).

Change in	Changes in					Changes in
Interest Rates	Net Interest Income					Market Value of Equity
(basis points)	Amount			Percent		Amount			Percent
+300	$	(7,804	)	-3.65	%	$	(35,820	)	-3.95	%
+200	$	(9,095	)	-4.25	%	$	(22,223	)	-2.45	%
+100	$	(7,710	)	-3.61	%	$	(2,524	)	-0.28	%
-50	$	(410	)	-0.19	%	$	(35,279	)	-3.90	%

The projected changes in net interest income and market value of equity to changes in interest rates at March 31, 2013 were in compliance with established internal policy guidelines. These projected changes are based on numerous assumptions of growth and changes in the mix of assets or liabilities.

54

The historically low level of interest rates, combined with the existence of rate floors that are in effect for a significant portion of the loan portfolio, are projected to cause yields on our earning assets to rise more slowly than increases in market interest rates. As a result, in a rising interest rate environment, our interest rate margins are projected to compress until the rise in market interest rates is sufficient to allow our loan portfolio to reprice above applicable rate floors.

At March 31, 2013, total debt outstanding on our consolidated balance sheet was $140.7 million, and was comprised of approximately $83.9 million of indebtedness subject to fixed interest rates and approximately $56.8 million, or 40%, subject to variable interest rates. If LIBOR and the prime rate were to increase by one eighth of one percent (0.125%), the increase in interest expense on the variable rate debt would not have a significant impact on our future consolidated earnings or cash flows.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the supervision and participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.

Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the end the end of such period, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to the Company’s management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

We are a party to various legal actions resulting from our operating activities. These actions consist of litigation and administrative proceedings arising in the ordinary course of business, some of which are covered by liability insurance, and none of which is expected to have a material adverse effect on our consolidated financial condition, results of operations or cash flows taken as a whole.

Like other financial institutions, we are subject to various federal, state and local laws and regulations relating to environmental matters. Under these laws and regulations, we could be held liable for costs relating to environmental contamination at or from properties that secure our loan portfolio. With respect to our borrower’s properties, the potential liabilities may far exceed the original amount of the loan made by us and secured by the property.  Currently, we are not a defendant in any environmental legal proceeding.

For additional information concerning our legal proceedings, please see the discussion under the caption “Legal Proceedings” set forth in Part I, Item 3 of our Annual Report on Form 10-K.

Item 6. Exhibits

A list of exhibits filed herewith is contained in the Exhibit Index that immediately precedes such exhibits and is incorporated by reference herein.

55

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HILLTOP HOLDINGS INC.
Date: May 6, 2013	By:	/s/ Darren Parmenter
		Darren Parmenter
		Senior Vice President — Finance (Principal Financial and Accounting Officer and duly authorized officer)

56

EXHIBIT INDEX

ExhibitNumber	Description of Exhibit
10.1*	Form of Restricted Stock Award Agreement.
31.1*	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1*	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase
101.DEF**	XBRL Taxonomy Extension Definition Linkbase
101.LAB**	XBRL Taxonomy Extension Label Linkbase
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase

*Filed herewith.

**In accordance with Rule 406T of Regulation S-T, the information in this exhibit is “furnished” and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

57

EX-10.1

EXHIBIT 10.1

RESTRICTED STOCK AGREEMENT

THIS AGREEMENT, dated as of the            day of                    ,             , between Hilltop Holdings Inc., a Maryland corporation (the “Company”), and                                    (the “Participant”).

W I T N E S S E T H

In consideration of the mutual promises and covenants made herein and the mutual benefits to be derived herefrom, the parties hereto agree as follows:

1.             Grant and Vesting of Restricted Stock.

(a)           Subject to the provisions of this Agreement and to the provisions of the Hilltop Holdings Inc. 2012 Equity Incentive Plan (the “Plan”), the Company hereby grants to the Participant as of               ,            (the “Grant Date”),              Shares of Restricted Stock.  All capitalized terms used herein, to the extent not defined, shall have the meaning set forth in the Plan.

(b)           Subject to the terms and conditions of this Agreement, the Restricted Stock shall vest and no longer be subject to any restriction on the third anniversary of the Grant Date (the “Restriction Period”).

(c)           Notwithstanding the foregoing, in the event of the Participant’s Termination of Employment during the Restriction Period due to death or Disability (as defined below) or by the Company without Cause (as defined below), a prorated portion of the Shares of Restricted Stock granted hereunder shall immediately vest and no longer be subject to restriction, with such proration determined by multiplying the total number of Shares of Restricted Stock granted hereunder by a fraction, the numerator of which is the number of months during the Restriction Period that the Participant was employed, including the full month in which the Participant’s death or Disability occurs, and the denominator of which is thirty-six (36).  Except as provided in the preceding sentence, in the event of the Participant’s Termination of Employment during the Restriction Period, all Restricted Stock shall be forfeited by the Participant for no consideration effective immediately upon such termination.  For purposes of this Agreement, employment with the Company shall include employment with the Company’s Subsidiaries and those of its successors.  Nothing in this Agreement or the Plan shall confer upon the Participant any right to continue in the employ of the Company or any of its Affiliates or interfere in any way with the right of the Company or any such Affiliates to terminate the Participant’s employment at any time.

(d)           In the event of a Change of Control, to the extent not previously forfeited, the Restricted Stock shall immediately vest in full and no longer be subject to restriction.

(e)           For purposes of this Agreement, the following terms are defined as set forth below:

i.       “Cause” means any of the following: (A) the Participant shall have committed a felony or an intentional act of gross misconduct, moral turpitude, fraud, embezzlement, theft, dishonesty, misappropriation, or criminal conduct adverse to the Company, and the Company shall have determined that such act is materially harmful to the Company; (B) the Company shall have been ordered or directed by any federal or state regulatory agency with jurisdiction to terminate or suspend the Participant’s employment; (C) after being notified in writing by the Company to cease any particular activity, the Participant shall have continued such activity and the Company shall have determined that such act is materially harmful to the Company; or (D) deliberate failure on the part of the Participant (1) to perform the Participant’s principal employment duties, (2) to comply with the policies of the Company and its Affiliates in any material respect, or (3) to follow specific reasonable directions received from the Company and its Affiliates.

ii.      “Disability” means a permanent disability within the meaning of Section 22(e)(3) of the Code, excluding, for purposes of this definition, the last sentence thereof.

2.             Issuance of Shares

(a)           Shares of Restricted Stock shall be evidenced through book-entry registration.  If any certificate is issued in respect of Shares of Restricted Stock, such certificate shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, substantially in the following form:

“The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Hilltop Holdings Inc. 2012 Equity Incentive Plan and an Award Agreement.  Copies of such Plan and Agreement are on file at the offices of Hilltop Holdings Inc., 200 Crescent Court, Suite 1330, Dallas, Texas  75201.”

(b)           Subject to Section 6 (pertaining to the withholding of taxes), as soon as practicable after the Restriction Period expires or such earlier vesting date as provided in this Agreement (in each case, provided there has been no prior forfeiture of the Restricted Stock pursuant to the terms of this Agreement), the Company shall issue (or cause to be delivered) to the Participant one or more unlegended stock certificates in respect of the Restricted Stock.

3.             Nontransferability of the Restricted Stock.

During the Restriction Period, the Shares covered by the Restricted Stock shall not be transferable by the Participant by means of sale, assignment, exchange, encumbrance, pledge or otherwise.

2

4.             Rights as a Stockholder.

Except as otherwise specifically provided in this Agreement, during the Restriction Period the Participant shall have all the rights of a stockholder with respect to the Restricted Stock, including without limitation the right to vote the Restricted Stock and the right to receive any dividends with respect thereto.

5.             Adjustments.

Adjustments to the Restricted Stock (or any of the Shares covered by the Restricted Stock), if any, shall be made in accordance with Section 3 of the Plan.

6.Taxes and Withholding.

No later than the date as of which an amount with respect to any Restricted Stock first becomes includible in the gross income of the Participant or subject to withholding for federal, state, local or foreign income or employment or other tax purposes, the Participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign taxes of any kind required by applicable law and regulations to be withheld with respect to such amount.  Unless the Participant has made separate arrangements satisfactory to the Company, the Company may elect to withhold Shares deliverable upon vesting of the Restricted Shares having a fair market value (as determined by the Committee consistent with the Plan) equal to the minimum amount (and not any greater amount) of such tax liability required to be withheld in connection with such vesting of the Restricted Shares, but the Company shall not be obligated to withhold such Shares.  The obligations of the Company under this Agreement shall be conditional on compliance by the Participant with this Section 6.

7.             Notices.

All notices and other communications under this Agreement shall be in writing and shall be given by hand delivery to the other party or by facsimile, overnight courier, or registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Participant:	At the most recent address maintained by the Company in its personnel records.
If to the Company:
	Hilltop Holdings Inc.,
	200 Crescent Court, Suite 1330
	Dallas, Texas 75201
Attention:	General Counsel
Facsimile:	(214) 580-5722

or to such other address or facsimile number as any party shall have furnished to the other in writing in accordance with this Section 7.  Notice and communications shall be effective when actually received by the addressee.

3

8.             Successors and Assigns.

The terms of this Agreement shall be binding upon the Participant and upon the Participant’s heirs, executors, administrators, personal representatives, transferees and successors in interest, and upon the Company and its successors and assignees.  Notwithstanding anything to the contrary in this Agreement, neither this Agreement nor any rights granted herein shall be assignable by the Participant.

9.             Laws Applicable to Construction.

The interpretation, performance and enforcement of this Agreement shall be governed by and construed in accordance with the laws of the State of Maryland, without reference to principles of conflict of laws.  In addition to the terms and conditions set forth in this Agreement, the Restricted Stock is subject to the terms and conditions of the Plan, as it may be amended from time to time, which are hereby incorporated by reference.

10.          Severability.

The invalidity or enforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

11.          Conflicts and Interpretation.

In the event of any conflict between this Agreement and the Plan, the Plan shall control.  In the event of any ambiguity in this Agreement, or any matters as to which this Agreement is silent, the Plan shall govern including, without limitation, the provisions thereof pursuant to which the Committee has the power, among others, to (i) interpret the Plan, (ii) prescribe, amend and rescind rules and regulations relating to the Plan, and (iii) make all other determinations deemed necessary or advisable for the administration of the Plan.

12.          Amendment.

This Agreement may be amended or modified by the Committee at any time; provided that no amendment or modification that materially impairs the rights of the Participant as provided by this Agreement shall be effective unless set forth in writing signed by the parties hereto, except such an amendment made to cause the terms of this Agreement or the Restricted Stock granted hereunder to comply with applicable law (including tax law), Applicable Exchange listing standards or accounting rules.  The waiver by either party of compliance with any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.

13.          Clawback.

All Shares of Restricted Stock granted pursuant to this Agreement shall be subject to any clawback, recoupment or forfeiture provisions (i) required by law or regulation and applicable to the Company or its Subsidiaries as in effect from time to time or (ii) set forth in any policies

4

adopted or maintained by the Company or any of its Subsidiaries as in effect from time to time.

14.          Headings.

The headings of paragraphs herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any of the provisions of this Agreement.

15.          Counterparts.

This Agreement may be executed in counterparts, which together shall constitute one and the same original.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

5

IN WITNESS WHEREOF, as of the date first above written, the Company has caused this Agreement to be executed on its behalf by a duly authorized officer and the Participant has hereunto set the Participant’s hand.

	HILLTOP HOLDINGS INC.
	By:
	Name:
	Title:
Agreed and acknowledged:
PARTICIPANT
Name:

6

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Jeremy B. Ford, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Hilltop Holdings Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial  reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2013	By:	/s/ Jeremy B. Ford
		Jeremy B. Ford
		President and Chief Executive Officer

1

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Darren Parmenter, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Hilltop Holdings Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial  reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2013	By:	/s/ Darren Parmenter
		Darren Parmenter
		Senior Vice President — Finance

1

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2013 (the “Report”) of Hilltop Holdings Inc. (the “Company”), the undersigned hereby certify in their capacities as President and Chief Executive Officer, and Senior Vice President — Finance, respectively, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to their knowledge:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

Date: May 6, 2013	By:	/s/ Jeremy B. Ford
		Jeremy B. Ford
		President and Chief Executive Officer
Date: May 6, 2013	By:	/s/ Darren Parmenter
		Darren Parmenter
		Senior Vice President — Finance

The foregoing certification is furnished as an exhibit to the Report and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

1

XML

Broker-Dealer and Clearing Organization Receivables and Payables (Tables)

3 Months Ended

Mar. 31, 2013

Broker-Dealer and Clearing Organization Receivables and Payables

Schedule of broker-dealer and clearing organization receivables and payables

Broker-dealer and clearing organization receivables and payables consisted of the following (in thousands).

	March 31, 2013		December 31, 2012
Receivables:
Securities borrowed	$	130,072	$	103,936
Securities failed to deliver	49,652		33,045
Clearing organizations	8,075		8,543
Due from dealers	34		40
	$	187,833	$	145,564
Payables:
Securities loaned	$	159,836	$	115,102
Correspondents	44,632		41,414
Securities failed to receive	42,983		31,474
Clearing organizations	2,829		—
	$	250,280	$	187,990

XML

Loans and Allowance for Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Loans and Allowance for Loan Losses
Total loans	$ 3,248,367	$ 3,152,396
Allowance for loan losses	(16,637)	(3,409)
Loans, net	3,231,730	3,148,987
Commercial and industrial
Loans and Allowance for Loan Losses
Total loans	1,705,208	1,660,293
Allowance for loan losses	(8,812)	(1,845)
Real Estate
Loans and Allowance for Loan Losses
Total loans	1,237,352	1,184,914
Allowance for loan losses	(3,522)	(977)
Construction and land development
Loans and Allowance for Loan Losses
Total loans	279,374	280,483
Allowance for loan losses	(4,286)	(582)
Consumer
Loans and Allowance for Loan Losses
Total loans	26,433	26,706
Allowance for loan losses	$ (17)	$ (5)

XML

Fair Value Measurements (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Fair Value Measurements
Transfers of assets from level 1 to level 2	$ 0
Transfers of assets from level 2 to level 1	0
Transfers of liabilities from level 1 to level 2	0
Transfers of liabilities from level 2 to level 1	0
Changes in Fair Value for Assets and Liabilities Reported at Fair Value under Fair Value Option
Net Gains from Sale of Loans	127,596
Other Noninterest Income	7,356	1,732
Loans held for sale
Changes in Fair Value for Assets and Liabilities Reported at Fair Value under Fair Value Option
Net Gains from Sale of Loans	(5,438)
Total Changes in Fair Value	(5,438)
Other assets
Changes in Fair Value for Assets and Liabilities Reported at Fair Value under Fair Value Option
Net Gains from Sale of Loans	2,350
Total Changes in Fair Value	2,350
Time deposits
Changes in Fair Value for Assets and Liabilities Reported at Fair Value under Fair Value Option
Other Noninterest Income	8
Total Changes in Fair Value	$ 8

XML

Balance Sheet Offsetting (Details 2) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Total
Gross Amounts of Recognized Liabilities	$ 169,950	$ 117,102
Gross Amounts Offset in the Balance Sheets	(353)	(975)
Net Amounts of Liabilities Presented in the Balance Sheets	169,597	116,127
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(163,078)	(115,102)
Cash Collateral Pledged	(2,224)	(249)
Net Amount	4,295	776
Institutional Counterparties
Securities Loaned:
Gross Amounts of Recognized Liabilities	159,835	115,102
Net Amounts of Liabilities Presented in the Balance Sheets	159,835	115,102
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(159,835)	(115,102)
Repurchase Agreement:
Gross Amounts of Recognized Liabilities	3,243
Net Amounts of Liabilities Presented in the Balance Sheets	3,243
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(3,243)
Institutional Counterparties | Forward sales of MBSs
Derivatives:
Gross Amounts of Recognized Liabilities	6,872	2,000
Gross Amounts Offset in the Balance Sheets	(353)	(975)
Net Amounts of Liabilities Presented in the Balance Sheets	6,519	1,025
Gross Amounts Not Offset in the Balance Sheets
Cash Collateral Pledged	(2,224)	(249)
Net Amount	$ 4,295	$ 776

XML

Loans and Allowance for Loan Losses (Details 2) (Plains Capital, Acquired Impaired, USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Plains Capital | Acquired Impaired
Outstanding contractual balance and the carrying value of the PCI loans
Carrying amount	$ 157,024	$ 166,780
Outstanding balance	210,416	222,674
Changes in the accretable yield for the acquired impaired loans
Balance at the beginning of the period	17,553
Increases in expected cash flows	11,996
Disposals of loans	(26)
Accretion	(3,277)
Balance at the end of the period	$ 26,246

XML

Fair Value Measurements (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Fair Value Measurements
Aggregate fair value of PrimeLending's mortgage loans held for sale accounted for under the Fair Value Option	$ 1,240,000,000	$ 1,400,000,000
Unpaid principal balance of PrimeLending loans held for sale accounted under the fair value option	1,200,000,000	1,360,000,000
Financial assets and liabilities
Available for sale securities	1,146,505,000	990,953,000
Level 2
Financial assets and liabilities
Loans held for sale	1,242,322,000	1,401,507,000
Time deposits	4,762,428,000	4,698,848,000
Level 3
Financial assets and liabilities
Mortgage servicing asset	4,430,000	2,080,000
Total Fair Value
Financial assets and liabilities
Loans held for sale	1,242,322,000	1,401,507,000
Mortgage servicing asset	4,430,000	2,080,000
Time deposits	4,762,428,000	4,698,848,000
Recurring | Level 1
Financial assets and liabilities
Cash and cash equivalents	612,529,000	726,460,000
Available for sale securities	21,961,000	20,428,000
Recurring | Level 2
Financial assets and liabilities
Trading securities	60,769,000	90,113,000
Available for sale securities	1,065,743,000	914,248,000
Loans held for sale	1,241,578,000	1,400,737,000
Derivative assets	22,600,000	15,697,000
Time deposits	1,066,000	1,073,000
Trading liabilities	52,000	3,164,000
Derivative liabilities	7,481,000	1,080,000
Recurring | Level 3
Financial assets and liabilities
Available for sale securities	58,801,000	56,277,000
Mortgage servicing asset	4,430,000	2,080,000
Recurring | Total Fair Value
Financial assets and liabilities
Cash and cash equivalents	612,529,000	726,460,000
Trading securities	60,769,000	90,113,000
Available for sale securities	1,146,505,000	990,953,000
Loans held for sale	1,241,578,000	1,400,737,000
Derivative assets	22,600,000	15,697,000
Mortgage servicing asset	4,430,000	2,080,000
Time deposits	1,066,000	1,073,000
Trading liabilities	52,000	3,164,000
Derivative liabilities	$ 7,481,000	$ 1,080,000

XML

Loans and Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2013

Loans and Allowance for Loan Losses

Summary of loans by category

Loans summarized by category are as follows (in thousands).

	March 31,			December 31,
	2013			2012
Commercial and industrial	$	1,705,208		$	1,660,293
Real estate	1,237,352			1,184,914
Construction and land development	279,374			280,483
Consumer	26,433			26,706
	3,248,367			3,152,396
Allowance for loan losses	(16,637		)	(3,409		)
Total loans, net of allowance	$	3,231,730		$	3,148,987

Schedule of outstanding contractual balance and the carrying value of the acquired impaired loans

The following table presents the outstanding contractual balance and the carrying value of the PCI loans at March 31, 2013 and December 31, 2012 (in thousands).

	March 31,		December 31,
	2013		2012
Carrying amount	$	157,024	$	166,780
Outstanding balance	210,416		222,674

Schedule of changes in the accretable yield for the acquired impaired loans

Changes in the accretable yield for the PCI loans were as follows (in thousands).

	Three Months Ended
	March 31, 2013
Balance, beginning of period	$	17,553
Increases in expected cash flows	11,996
Disposals of loans	(26		)
Accretion	(3,277		)
Balance, end of period	$	26,246

Summary of impaired loans by class

Impaired loans are summarized by class in the following tables (in thousands)

	Unpaid						Total
	Contractual		Nonaccretable		Accretable		Recorded		Related
March 31, 2013	Principal Balance		Difference		Yield		Investment		Allowance
Commercial and industrial:
Secured	$	91,154	$	23,380	$	7,264	$	68,666	$	228
Unsecured	11,664		6,355		5,649		2,794		—
Real estate:
Secured by commercial properties	61,850		13,259		8,031		51,223		156
Secured by residential properties	10,180		1,853		892		8,098		18
Construction and land development:
Residential construction loans	29		5		24		—		—
Commercial construction loans and land development	35,452		7,256		4,377		26,171		29
Consumer	87		14		9		72		—
	$	210,416	$	52,122	$	26,246	$	157,024	$	431
	Unpaid						Total
	Contractual		Nonaccretable		Accretable		Recorded
December 31, 2012	Principal Balance		Difference		Yield		Investment
Commercial and industrial:
Secured	$	91,633	$	24,982	$	6,114	$	67,967
Unsecured	12,198		8,707		472		3,419
Real estate:
Secured by commercial properties	66,736		15,816		7,294		55,519
Secured by residential properties	8,690		2,251		557		6,728
Construction and land development:
Residential construction loans	995		493		40		708
Commercial construction loans and land development	42,330		9,113		3,067		32,362
Consumer	92		16		9		77
	$	222,674	$	61,378	$	17,553	$	166,780

Summary of average investment in impaired loans by class

Average investment in impaired loans for the three months ended March 31, 2013 is summarized by class in the following table (in thousands).

Commercial and industrial:
Secured	$	68,316
Unsecured	3,107
Real estate:
Secured by commercial properties	53,371
Secured by residential properties	7,413
Construction and land development:
Residential construction loans	354
Commercial construction loans and land development	29,266
Consumer	75
	$	161,902

Schedule of information regarding TDRs granted

	Recorded Investment in Loans Modifed by
			Interest Rate		Payment Term		Total
	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	28	$	28
Unsecured	—		—		—		—
Real estate:
Secured by commercial properties	—		—		1,236		1,236
Secured by residential properties	—		—		262		262
Construction and land development:
Residential construction loans	—		—		—		—
Commercial construction loans and land development	—		—		570		570
Consumer	—		—		—		—
	$	—	$	—	$	2,096	$	2,096

Schedule of analysis of the aging of the entity's loan portfolio

An analysis of the aging of PlainsCapital’s loan portfolio is shown in the following tables (in thousands). 

													Accruing Loans
	Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
March 31, 2013	30-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	6,150	$	1,510	$	7,660	$	1,512,663	$	68,666	$	1,588,989	$	—
Unsecured	259		—		259		113,166		2,794		116,219		—
Real estate:
Secured by commercial properties	796		—		796		912,690		51,223		964,709		—
Secured by residential properties	1,257		108		1,365		263,180		8,098		272,643		—
Construction and land development:
Residential construction loans	—		—		—		43,174		—		43,174		—
Commercial construction loans and land development	178		—		178		209,851		26,171		236,200		—
Consumer	20		—		20		26,341		72		26,433		—
	$	8,660	$	1,618	$	10,278	$	3,081,065	$	157,024	$	3,248,367	$	—
													Accruing Loans
	Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
December 31, 2012	30-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	8,192	$	2,131	$	10,323	$	1,473,242	$	67,967	$	1,551,532	$	2,000
Unsecured	3		—		3		105,339		3,419		108,761		—
Real estate:
Secured by commercial properties	714		—		714		868,070		55,519		924,303		—
Secured by residential properties	856		—		856		253,027		6,728		260,611		—
Construction and land development:
Residential construction loans	63		—		63		47,398		708		48,169		—
Commercial construction loans and land development	—		—		—		199,952		32,362		232,314		—
Consumer	84		—		84		26,545		77		26,706		—
	$	9,912	$	2,131	$	12,043	$	2,973,573	$	166,780	$	3,152,396	$	2,000

Schedule of internal risk grades of loans by class

The following tables present the internal risk grades of loans, as previously described, in the portfolio by class (in thousands).

March 31, 2013	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,510,466	$	2,759	$	7,098	$	68,666	$	1,588,989
Unsecured	113,223		81		121		2,794		116,219
Real estate:
Secured by commercial properties	913,486		—		—		51,223		964,709
Secured by residential properties	264,437		—		108		8,098		272,643
Construction and land development:
Residential construction loans	43,174		—		—		—		43,174
Commercial construction loans and land development	209,581		—		448		26,171		236,200
Consumer	26,361		—		—		72		26,433
	$	3,080,728	$	2,840	$	7,775	$	157,024	$	3,248,367

December 31, 2012	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,476,420	$	2,515	$	4,630	$	67,967	$	1,551,532
Unsecured	105,142		200		—		3,419		108,761
Real estate:
Secured by commercial properties	868,784		—		—		55,519		924,303
Secured by residential properties	253,883		—		—		6,728		260,611
Construction and land development:
Residential construction loans	47,461		—		—		708		48,169
Commercial construction loans and land development	199,952		—		—		32,362		232,314
Consumer	26,629		—		—		77		26,706
	$	2,978,271	$	2,715	$	4,630	$	166,780	$	3,152,396

Schedule of changes in the allowance for loan losses by portfolio segment

Changes in the allowance for loan losses for the three months ended March 31, 2013, distributed by portfolio segment, are shown below (in thousands).

	Commercial and Industrial			Real Estate			Construction and Land Development		Consumer			Total
Balance, beginning of period	$	1,845		$	977		$	582	$	5		$	3,409
Provision charged to operations	6,911			2,437			3,597		60			13,005
Loans charged off	(438		)	(31		)	—		(56		)	(525		)
Recoveries on charged off loans	494			139			107		8			748
Balance, end of period	$	8,812		$	3,522		$	4,286	$	17		$	16,637

Schedule of loan portfolio distributed by portfolio segment and impairment methodology

The loan portfolio was distributed by portfolio segment and impairment methodology as shown below (in thousands).

March 31, 2013	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
Loans individually evaluated for impairment	$	1,507	$	108	$	—	$	—	$	1,615
Loans collectively evaluated for impairment	1,632,241		1,177,923		253,203		26,361		3,089,728
PCI Loans individually evaluated for impairment	71,460		59,321		26,171		72		157,024
	$	1,705,208	$	1,237,352	$	279,374	$	26,433	$	3,248,367

December 31, 2012	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment	1,588,907		1,122,667		247,413		26,629		2,985,616
PCI Loans individually evaluated for impairment	71,386		62,247		33,070		77		166,780
	$	1,660,293	$	1,184,914	$	280,483	$	26,706	$	3,152,396

Schedule of allowance for loan losses distributed by portfolio segment and impairment methodology

The allowance for loan losses was distributed by portfolio segment and impairment methodology as shown below (in thousands).

March 31, 2013	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment	8,584		3,348		4,257		17		16,206
PCI Loans individually evaluated for impairment	228		174		29		—		431
	$	8,812	$	3,522	$	4,286	$	17	$	16,637

December 31, 2012	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment	1,845		977		582		5		3,409
PCI Loans individually evaluated for impairment	—		—		—		—		—
	$	1,845	$	977	$	582	$	5	$	3,409

XML

Reinsurance Activity (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Reinsurance Activity
Carrying value of reinsurance receivables	$ 18,210		$ 18,567
Allowance for uncollectible accounts	0
Written
Premiums from direct business	41,857	40,741
Reinsurance assumed	1,754	1,437
Reinsurance ceded	(4,555)	(4,616)
Net premiums, Written	39,056	37,562
Earned
Premiums from direct business	40,546	38,685
Reinsurance assumed	1,630	1,359
Reinsurance ceded	(4,703)	(4,889)
Net premiums, Earned	37,473	35,155
Effect of reinsurance on incurred losses
Loss and LAE incurred	21,412	24,071
Reinsurance recoverables	(227)	(1,529)
Net loss and LAE incurred	$ 21,185	$ 22,542

XML

Loans and Allowance for Loan Losses (Details 4) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 item
Loans and Allowance for Loan Losses
Total Modifications	2,096
A/B Note | Minimum | Plains Capital
Loans and Allowance for Loan Losses
Number of loans into which a single loan is reconfigured	2
Payment Term Extension
Loans and Allowance for Loan Losses
Total Modifications	2,096
Secured
Loans and Allowance for Loan Losses
Total Modifications	28
Secured | Payment Term Extension
Loans and Allowance for Loan Losses
Total Modifications	28
Secured by commercial properties
Loans and Allowance for Loan Losses
Total Modifications	1,236
Secured by commercial properties | Payment Term Extension
Loans and Allowance for Loan Losses
Total Modifications	1,236
Secured by residential properties
Loans and Allowance for Loan Losses
Total Modifications	262
Secured by residential properties | Payment Term Extension
Loans and Allowance for Loan Losses
Total Modifications	262
Commercial construction loans and land development
Loans and Allowance for Loan Losses
Total Modifications	570
Commercial construction loans and land development | Payment Term Extension
Loans and Allowance for Loan Losses
Total Modifications	570

XML

Earnings per Common Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Earnings per Common Share
Income applicable to Hilltop Holdings common stockholders	$ 33,073	$ 343
Dividends on preferred stock	(703)
Income applicable to Hilltop Holdings common stockholders	$ 32,370	$ 343
Basic shares outstanding	83,487,000	56,499,000
Diluted shares outstanding	83,743,000	56,555,000
Basic earnings per common share (in dollars per share)	$ 0.39	$ 0.01
Diluted earnings per common share (in dollars per share)	$ 0.39	$ 0.01
Senior exchangeable notes
Weighted-average equivalent shares excluded from diluted loss:
Weighted-average equivalent shares excluded from diluted loss	6,208,000	6,208,000

XML

Subsequent Event (Details) (Subsequent event, Restricted Stock Awards, USD $) In Millions, except Share data, unless otherwise specified	0 Months Ended
	May 02, 2013
Subsequent event | Restricted Stock Awards
Subsequent event
Number of shares awarded to certain executives and key employees	465,000
Estimated grant date fair value of awards	$ 6.2
Vesting period	3 years

XML

Broker-Dealer and Clearing Organization Receivables and Payables (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Receivables
Securities borrowed	$ 130,072	$ 103,936
Securities failed to deliver	49,652	33,045
Clearing organizations	8,075	8,543
Due from dealers	34	40
Total receivables	187,833	145,564
Payables
Securities loaned	159,836	115,102
Correspondents	44,632	41,414
Securities failed to receive	42,983	31,474
Clearing organizations	2,829
Total Payables	$ 250,280	$ 187,990

XML

Segment and Related Information

3 Months Ended

Mar. 31, 2013

Segment and Related Information

Segment and Related Information

17. Segment and Related Information

Hilltop has four reportable segments that are organized primarily by the core products offered to the segments’ respective customers. The banking segment includes the operations of the Bank. The operations of PrimeLending comprise the mortgage origination segment. The insurance segment is composed of NLASCO. The financial advisory segment is composed of First Southwest.

Balance sheet amounts for Hilltop and its remaining subsidiaries not discussed in the previous paragraph are included in “All Other and Eliminations.”

As discussed in Note 2 to the consolidated financial statements, the Company acquired PlainsCapital and its subsidiaries on November 30, 2012. Prior to this acquisition, Hilltop operated as a single segment through its insurance subsidiary, NLASCO, given the integrated monitoring, control and management of its fire and homeowners insurance business lines.

The following presents certain information about reportable segment revenues, operating results, goodwill and assets (in thousands).

Three Months Ended March 31, 2013	Banking		Mortgage Origination			Insurance		Financial Advisory		All Other and Eliminations			Hilltop Consolidated
Net interest income (expense)	$	67,749	$	(12,054	)	$	944	$	3,228	$	7,345		$	67,212
Provision for loan losses	12,966		—			—		39		—			13,005
Noninterest income	12,081		146,529			39,474		22,778		(7,535		)	213,327
Noninterest expense	31,975		122,680			34,568		25,958		(190		)	214,991
Income before income taxes	$	34,889	$	11,795		$	5,850	$	9	$	—		$	52,543
March 31, 2013
Goodwill	$	207,741	$	13,071		$	23,988	$	7,008	$	—		$	251,808
Total assets	$	6,105,448	$	1,403,494		$	308,471	$	642,402	$	(1,242,905	)	$	7,216,910
December 31, 2012
Goodwill	$	209,703	$	13,071		$	23,988	$	7,008	$	—		$	253,770
Total assets	$	6,195,775	$	1,548,384		$	305,699	$	592,017	$	(1,355,010	)	$	7,286,865

XML

Fair Value Measurements (Details 5) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Financial assets:
Securities	$ 1,207,274	$ 1,081,066
Broker-dealer and clearing organization receivables	187,833	145,564
Financial liabilities:
Broker-dealer and clearing organization payables	250,280	187,990
Level 1
Financial assets:
Cash and short-term investments	612,529	726,460
Securities	21,961	20,428
Level 2
Financial assets:
Securities	1,126,512	1,004,361
Loans held for sale	1,242,322	1,401,507
Broker-dealer and clearing organization receivables	187,833	145,564
Fee award receivable	18,091	18,467
Cash surrender value of life insurance policies	24,171	24,086
Interest rate swaps, interest rate lock commitments and forward purchase commitments	22,600	15,697
Accrued interest receivable	17,428	16,541
Financial liabilities:
Deposits	4,762,428	4,698,848
Broker-dealer and clearing organization payables	250,280	187,990
Other trading liabilities	52	3,164
Short-term borrowings	576,730	728,250
Debt	215,886	217,092
Commitments to sell mortgage-backed securities	7,481	1,080
Accrued interest payable	3,385	4,400
Level 3
Financial assets:
Securities	58,801	56,277
Loans, net	3,267,917	3,148,987
Mortgage servicing asset	4,430	2,080
Total Fair Value
Financial assets:
Cash and short-term investments	612,529	726,460
Securities	1,207,274	1,081,066
Loans held for sale	1,242,322	1,401,507
Loans, net	3,267,917	3,148,987
Broker-dealer and clearing organization receivables	187,833	145,564
Fee award receivable	18,091	18,467
Cash surrender value of life insurance policies	24,171	24,086
Interest rate swaps, interest rate lock commitments and forward purchase commitments	22,600	15,697
Mortgage servicing asset	4,430	2,080
Accrued interest receivable	17,428	16,541
Financial liabilities:
Deposits	4,762,428	4,698,848
Broker-dealer and clearing organization payables	250,280	187,990
Other trading liabilities	52	3,164
Short-term borrowings	576,730	728,250
Debt	215,886	217,092
Commitments to sell mortgage-backed securities	7,481	1,080
Accrued interest payable	3,385	4,400
Carrying Amount
Financial assets:
Cash and short-term investments	612,529	726,460
Securities	1,207,274	1,081,066
Loans held for sale	1,242,322	1,401,507
Loans, net	3,231,730	3,148,987
Broker-dealer and clearing organization receivables	187,833	145,564
Fee award receivable	18,091	18,467
Cash surrender value of life insurance policies	24,171	24,086
Interest rate swaps, interest rate lock commitments and forward purchase commitments	22,600	15,697
Mortgage servicing asset	4,430	2,080
Accrued interest receivable	17,428	16,541
Financial liabilities:
Deposits	4,758,438	4,700,461
Broker-dealer and clearing organization payables	250,280	187,990
Other trading liabilities	52	3,164
Short-term borrowings	576,730	728,250
Debt	207,759	208,551
Commitments to sell mortgage-backed securities	7,481	1,080
Accrued interest payable	$ 3,385	$ 4,400

XML

Segment and Related Information (Tables)

3 Months Ended

Mar. 31, 2013

Segment and Related Information

Schedule of information about the segment revenues, operating results, goodwill, and assets of entity's reportable segments

The following presents certain information about reportable segment revenues, operating results, goodwill and assets (in thousands).

Three Months Ended March 31, 2013	Banking		Mortgage Origination			Insurance		Financial Advisory		All Other and Eliminations			Hilltop Consolidated
Net interest income (expense)	$	67,749	$	(12,054	)	$	944	$	3,228	$	7,345		$	67,212
Provision for loan losses	12,966		—			—		39		—			13,005
Noninterest income	12,081		146,529			39,474		22,778		(7,535		)	213,327
Noninterest expense	31,975		122,680			34,568		25,958		(190		)	214,991
Income before income taxes	$	34,889	$	11,795		$	5,850	$	9	$	—		$	52,543
March 31, 2013
Goodwill	$	207,741	$	13,071		$	23,988	$	7,008	$	—		$	251,808
Total assets	$	6,105,448	$	1,403,494		$	308,471	$	642,402	$	(1,242,905	)	$	7,216,910
December 31, 2012
Goodwill	$	209,703	$	13,071		$	23,988	$	7,008	$	—		$	253,770
Total assets	$	6,195,775	$	1,548,384		$	305,699	$	592,017	$	(1,355,010	)	$	7,286,865

XML

Segment and Related Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 item	Mar. 31, 2012	Dec. 31, 2012
Segment and Related Information
Number of reportable segments	4
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	$ 67,212	$ 1,216
Provision for loan losses	13,005
Noninterest income	213,327	36,887
Noninterest expense	214,991	37,557
Income before income taxes	52,543	546
Goodwill	251,808		253,770
Total assets	7,216,910		7,286,865
Banking
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	67,749
Provision for loan losses	12,966
Noninterest income	12,081
Noninterest expense	31,975
Income before income taxes	34,889
Goodwill	207,741		209,703
Total assets	6,105,448		6,195,775
Mortgage Origination
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	(12,054)
Noninterest income	146,529
Noninterest expense	122,680
Income before income taxes	11,795
Goodwill	13,071		13,071
Total assets	1,403,494		1,548,384
Insurance
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	944
Noninterest income	39,474
Noninterest expense	34,568
Income before income taxes	5,850
Goodwill	23,988		23,988
Total assets	308,471		305,699
Financial Advisory
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	3,228
Provision for loan losses	39
Noninterest income	22,778
Noninterest expense	25,958
Income before income taxes	9
Goodwill	7,008		7,008
Total assets	642,402		592,017
All Other and Eliminations
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	7,345
Noninterest income	(7,535)
Noninterest expense	(190)
Total assets	$ (1,242,905)		$ (1,355,010)

XML

Derivative Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2013

Derivative Financial Instruments

Schedule of derivative positions

Derivative positions are presented in the following table (in thousands).

	March 31, 2013					December 31, 2012
	Notional Amount		Estimated Fair Value			Notional Amount		Estimated Fair Value
Derivative instruments:
IRLCs	$	1,082,255	$	22,435		$	968,083	$	15,150
Commitments to purchase MBSs	219,471		(806		)	165,128		466
Interest rate swaps	1,969		9			1,969		25
Commitments to sell MBSs	1,912,250		(6,519		)	1,586,930		(1,025		)

XML

Securities (Details 2) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013 item	Dec. 31, 2012 item
Number of Securities
Unrealized loss for less than twelve months	235	256
Unrealized loss for twelve months or longer	1
Total	236	256
Fair Value
Unrealized loss for less than twelve months	$ 569,058	$ 446,562
Unrealized loss for twelve months or longer	399
Estimated Fair Value, Total	569,457	446,562
Unrealized Loss
Unrealized loss for less than twelve months	4,442	2,603
Total	4,442	2,603
U.S. Treasury securities
Number of Securities
Unrealized loss for less than twelve months	3	2
Unrealized loss for twelve months or longer	1
Total	4	2
Fair Value
Unrealized loss for less than twelve months	4,482	2,427
Unrealized loss for twelve months or longer	399
Estimated Fair Value, Total	4,881	2,427
Unrealized Loss
Unrealized loss for less than twelve months	3	2
Total	3	2
Bonds
Number of Securities
Unrealized loss for less than twelve months	21	14
Total	21	14
Fair Value
Unrealized loss for less than twelve months	340,047	236,305
Estimated Fair Value, Total	340,047	236,305
Unrealized Loss
Unrealized loss for less than twelve months	956	314
Total	956	314
Mortgage-backed
Number of Securities
Unrealized loss for less than twelve months	3	7
Total	3	7
Fair Value
Unrealized loss for less than twelve months	9,900	12,279
Estimated Fair Value, Total	9,900	12,279
Unrealized Loss
Unrealized loss for less than twelve months	150	70
Total	150	70
Collateralized mortgage obligations
Number of Securities
Unrealized loss for less than twelve months	9	8
Total	9	8
Fair Value
Unrealized loss for less than twelve months	83,102	38,887
Estimated Fair Value, Total	83,102	38,887
Unrealized Loss
Unrealized loss for less than twelve months	243	79
Total	243	79
States and political subdivisions
Number of Securities
Unrealized loss for less than twelve months	199	225
Total	199	225
Fair Value
Unrealized loss for less than twelve months	131,527	156,664
Estimated Fair Value, Total	131,527	156,664
Unrealized Loss
Unrealized loss for less than twelve months	3,090	2,138
Total	$ 3,090	$ 2,138

XML

Regulatory Matters (Details 2) (Texas Department of Insurance, USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
National Lloyds Insurance Company
Insurance
Capital and surplus	$ 98,011	$ 95,947
Statutory net income	3,391	1,128
American Summit Insurance Company
Insurance
Capital and surplus	26,111	24,953
Statutory net income	$ 251	$ 93

XML

Deposits (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Deposits
Noninterest-bearing demand	$ 249,678	$ 323,367
Interest-bearing:
NOW accounts	138,591	106,562
Money market	2,326,046	2,357,109
Brokered - money market	264,715	263,193
Demand	54,087	75,308
Savings	185,812	180,367
Time	1,286,950	1,175,432
Brokered - time	252,559	219,123
Total deposits	$ 4,758,438	$ 4,700,461

XML

Fair Value Measurements (Details 2) (Level 3, USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Rollforward for financial instruments measured at fair value using Level 3 inputs
Balance, beginning of year	$ 58,357	$ 60,377
Issuances	2,125
Total gains or losses (realized or unrealized):
Included in net income (loss)	225
Included in other comprehensive income (loss)	2,524	(3,817)
Balance, end of year	63,231	56,560
Available for sale securities
Rollforward for financial instruments measured at fair value using Level 3 inputs
Balance, beginning of year	56,277	60,377
Total gains or losses (realized or unrealized):
Included in other comprehensive income (loss)	2,524	(3,817)
Balance, end of year	58,801	56,560
Mortgage servicing asset
Rollforward for financial instruments measured at fair value using Level 3 inputs
Balance, beginning of year	2,080
Issuances	2,125
Total gains or losses (realized or unrealized):
Included in net income (loss)	225
Balance, end of year	$ 4,430

XML

Summary of Significant Accounting and Reporting Policies

3 Months Ended

Mar. 31, 2013

Summary of Significant Accounting and Reporting Policies

Summary of Significant Accounting and Reporting Policies

1. Summary of Significant Accounting and Reporting Policies

Nature of Operations

Hilltop Holdings Inc. (“Hilltop” or the “Company”) is a holding company that endeavors to make acquisitions or effect business combinations. In connection with this strategy, on November 30, 2012, Hilltop became a financial holding company registered under the Bank Holding Company Act of 1956, as amended by the Gramm-Leach-Bliley Act of 1999, and acquired PlainsCapital Corporation pursuant to an agreement and plan of merger whereby PlainsCapital Corporation merged with and into our wholly owned subsidiary (the “Merger”), which survived the Merger under the name “PlainsCapital Corporation” (“PlainsCapital”).

PlainsCapital is a financial holding company, headquartered in Dallas, Texas, that provides, through its subsidiaries, an array of financial products and services. In addition to traditional banking services, PlainsCapital provides residential mortgage lending, investment banking, public finance advisory, wealth and investment management, treasury management, capital equipment leasing, fixed income sales, asset management, and correspondent clearing services. Certain disclosures within the notes to consolidated financial statements are specific to financial products and services of PlainsCapital and its subsidiaries and, therefore include information at March 31, 2013 and December 31, 2012 and relating to the three months ended March 31, 2013.

Prior to the consummation of the Merger, Hilltop’s primary operations were limited to providing fire and homeowners insurance to low value dwellings and manufactured homes primarily in Texas and other areas of the southern United States through Hilltop’s wholly owned property and casualty insurance holding company, NLASCO, Inc. (“NLASCO”).

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), and in conformity with the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, these financial statements contain all adjustments (consisting primarily of normal recurring accruals) necessary for a fair statement of the results of the interim periods presented. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. Results for interim periods are not necessarily indicative of results to be expected for a full year or any future period.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates regarding the allowance for loan losses, the fair values of financial instruments, reserves for losses and loss adjustment expenses, the mortgage loan indemnification liability and the potential impairment of assets are particularly subject to change.

The presentation of Hilltop’s historical consolidated financial statements has been modified and certain items in the prior period financial statements have been reclassified to conform to the current period presentation, which is more consistent with that of a financial institution that provides an array of financial products and services.

Hilltop owns 100% of the outstanding stock of PlainsCapital. PlainsCapital owns 100% of the outstanding stock of PlainsCapital Bank (the “Bank”) and 100% of the membership interest in PlainsCapital Equity, LLC. The Bank owns 100% of the outstanding stock of PrimeLending, a PlainsCapital Company (“PrimeLending”), PNB Aero Services, Inc. and PCB-ARC, Inc. The Bank has a 100% membership interest in First Southwest Holdings, LLC (“First Southwest”) and PlainsCapital Securities, LLC, as well as a 51% voting interest in PlainsCapital Insurance Services, LLC.

Hilltop also owns 100% of NLASCO, which operates through its wholly owned subsidiaries, National Lloyds Insurance Company (“NLIC”) and American Summit Insurance Company (“ASIC”).

PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC, the controlling and sole managing member of PrimeLending Ventures, LLC (“Ventures”). Through a series limited liability company structure, Ventures establishes one or more separate operating divisions with select business partners, such as home builders, to originate residential mortgage loans.

The principal subsidiaries of First Southwest are First Southwest Company (“FSC”), a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority (“FINRA”), and First Southwest Asset Management, Inc., a registered investment advisor under the Investment Advisors Act of 1940.

The consolidated financial statements include the accounts of the above-named entities. All significant intercompany transactions and balances have been eliminated. Noncontrolling interests have been recorded for minority ownership in entities that are not wholly owned and are presented in compliance with the provisions of Noncontrolling Interest in Subsidiary Subsections of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

PlainsCapital also owns 100% of the outstanding common stock of PCC Statutory Trusts I, II, III and IV (the “Trusts”), which are not included in the consolidated financial statements under the requirements of the Variable Interest Entities Subsections of the ASC, because the primary beneficiaries of the Trusts are not within the consolidated group.

XML

Short-term Borrowings (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Short-term borrowings
Short-term borrowings	$ 576,730	$ 728,250
Weighted average interest rate (as a percent)	1.15%	1.16%
Federal funds purchased
Short-term borrowings
Short-term borrowings	301,775	269,625
Securities sold under agreements to repurchase
Short-term borrowings
Short-term borrowings	113,955	85,725
Federal Home Loan Bank (FHLB) notes
Short-term borrowings
Short-term borrowings		250,000
Average balance during the period	34,174
Average interest rate during the period (as a percent)	0.09%
Average interest rate at end of year (as a percent)		0.07%
Maturity term of debt	365 days
Federal funds purchased and securities sold under agreements to repurchase
Short-term borrowings
Average balance during the period	328,521
Average interest rate during the period (as a percent)	0.21%
Average interest rate at end of year (as a percent)	0.18%	0.22%
Carrying value	139,817	122,153
Estimated fair value	139,890	122,435
Short-term bank loans
Short-term borrowings
Short-term borrowings	$ 161,000	$ 122,900

XML

Earnings per Common Share (Tables)

3 Months Ended

Mar. 31, 2013

Earnings per Common Share

Table presents the computation of basic and diluted earnings per common share

The following table presents the computation of basic and diluted earnings per common share (in thousands, except per share data).

	Three Months Ended March 31,
	2013			2012
Income applicable to Hilltop Holdings common stockholders	$	33,073		$	343
Dividends on preferred stock	(703		)	—
Income applicable to Hilltop Holdings common stockholders for basic earnings per common share	$	32,370		$	343
Basic shares outstanding	83,487			56,499
Diluted shares outstanding	83,743			56,555
Basic earnings per common share	$	0.39		$	0.01
Diluted earnings per common share	$	0.39		$	0.01

XML

Summary of Significant Accounting and Reporting Policies (Policies)

3 Months Ended

Mar. 31, 2013

Summary of Significant Accounting and Reporting Policies

Nature of Operations

Nature of Operations

Hilltop Holdings Inc. (“Hilltop” or the “Company”) is a holding company that endeavors to make acquisitions or effect business combinations. In connection with this strategy, on November 30, 2012, Hilltop became a financial holding company registered under the Bank Holding Company Act of 1956, as amended by the Gramm-Leach-Bliley Act of 1999, and acquired PlainsCapital Corporation pursuant to an agreement and plan of merger whereby PlainsCapital Corporation merged with and into our wholly owned subsidiary (the “Merger”), which survived the Merger under the name “PlainsCapital Corporation” (“PlainsCapital”).

PlainsCapital is a financial holding company, headquartered in Dallas, Texas, that provides, through its subsidiaries, an array of financial products and services. In addition to traditional banking services, PlainsCapital provides residential mortgage lending, investment banking, public finance advisory, wealth and investment management, treasury management, capital equipment leasing, fixed income sales, asset management, and correspondent clearing services. Certain disclosures within the notes to consolidated financial statements are specific to financial products and services of PlainsCapital and its subsidiaries and, therefore include information at March 31, 2013 and December 31, 2012 and relating to the three months ended March 31, 2013.

Prior to the consummation of the Merger, Hilltop’s primary operations were limited to providing fire and homeowners insurance to low value dwellings and manufactured homes primarily in Texas and other areas of the southern United States through Hilltop’s wholly owned property and casualty insurance holding company, NLASCO, Inc. (“NLASCO”).

Basis of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), and in conformity with the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, these financial statements contain all adjustments (consisting primarily of normal recurring accruals) necessary for a fair statement of the results of the interim periods presented. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. Results for interim periods are not necessarily indicative of results to be expected for a full year or any future period.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates regarding the allowance for loan losses, the fair values of financial instruments, reserves for losses and loss adjustment expenses, the mortgage loan indemnification liability and the potential impairment of assets are particularly subject to change.

The presentation of Hilltop’s historical consolidated financial statements has been modified and certain items in the prior period financial statements have been reclassified to conform to the current period presentation, which is more consistent with that of a financial institution that provides an array of financial products and services.

Hilltop owns 100% of the outstanding stock of PlainsCapital. PlainsCapital owns 100% of the outstanding stock of PlainsCapital Bank (the “Bank”) and 100% of the membership interest in PlainsCapital Equity, LLC. The Bank owns 100% of the outstanding stock of PrimeLending, a PlainsCapital Company (“PrimeLending”), PNB Aero Services, Inc. and PCB-ARC, Inc. The Bank has a 100% membership interest in First Southwest Holdings, LLC (“First Southwest”) and PlainsCapital Securities, LLC, as well as a 51% voting interest in PlainsCapital Insurance Services, LLC.

Hilltop also owns 100% of NLASCO, which operates through its wholly owned subsidiaries, National Lloyds Insurance Company (“NLIC”) and American Summit Insurance Company (“ASIC”).

PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC, the controlling and sole managing member of PrimeLending Ventures, LLC (“Ventures”). Through a series limited liability company structure, Ventures establishes one or more separate operating divisions with select business partners, such as home builders, to originate residential mortgage loans.

The principal subsidiaries of First Southwest are First Southwest Company (“FSC”), a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority (“FINRA”), and First Southwest Asset Management, Inc., a registered investment advisor under the Investment Advisors Act of 1940.

The consolidated financial statements include the accounts of the above-named entities. All significant intercompany transactions and balances have been eliminated. Noncontrolling interests have been recorded for minority ownership in entities that are not wholly owned and are presented in compliance with the provisions of Noncontrolling Interest in Subsidiary Subsections of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

PlainsCapital also owns 100% of the outstanding common stock of PCC Statutory Trusts I, II, III and IV (the “Trusts”), which are not included in the consolidated financial statements under the requirements of the Variable Interest Entities Subsections of the ASC, because the primary beneficiaries of the Trusts are not within the consolidated group.

XML

Subsequent Event

3 Months Ended

Mar. 31, 2013

Subsequent Event

Subsequent Event

20. Subsequent Event

Effective May 2, 2013, the Compensation Committee of the Board of Directors of the Company awarded certain executives and key employees a total of 465,000 restricted shares of common stock (“Restricted Stock Awards”) pursuant to the Hilltop Holdings 2012 Equity Incentive Plan. The estimated grant date fair value of the Restricted Stock Awards is $6.2 million. These Restricted Stock Awards vest on the third anniversary of the grant date and provide for accelerated vesting under certain conditions.

XML

Loans and Allowance for Loan Losses (Details 3) (USD $)	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Loans and Allowance for Loan Losses
Days outstanding loans and leases receivable are generally considered past due	90 days
Impaired loans
Unpaid Contractual Principal balance	$ 210,416,000	$ 222,674,000
Nonaccretable difference	52,122,000	61,378,000
Accretable Yield	26,246,000	17,553,000
Total Recorded Investment	157,024,000	166,780,000
Related Allowance	431,000
Average investment in impaired loans
Average investment in impaired loans	161,902,000
Non-accrual loans	3,400,000	1,800,000
PlainsCapital
Average investment in impaired loans
Unadvanced commitments to borrowers	0
Other than PCI loans
Impaired loans
Total Recorded Investment		0
Secured
Impaired loans
Unpaid Contractual Principal balance	91,154,000	91,633,000
Nonaccretable difference	23,380,000	24,982,000
Accretable Yield	7,264,000	6,114,000
Total Recorded Investment	68,666,000	67,967,000
Related Allowance	228,000
Average investment in impaired loans
Average investment in impaired loans	68,316,000
Unsecured
Impaired loans
Unpaid Contractual Principal balance	11,664,000	12,198,000
Nonaccretable difference	6,355,000	8,707,000
Accretable Yield	5,649,000	472,000
Total Recorded Investment	2,794,000	3,419,000
Average investment in impaired loans
Average investment in impaired loans	3,107,000
Secured by commercial properties
Impaired loans
Unpaid Contractual Principal balance	61,850,000	66,736,000
Nonaccretable difference	13,259,000	15,816,000
Accretable Yield	8,031,000	7,294,000
Total Recorded Investment	51,223,000	55,519,000
Related Allowance	156,000
Average investment in impaired loans
Average investment in impaired loans	53,371,000
Secured by residential properties
Impaired loans
Unpaid Contractual Principal balance	10,180,000	8,690,000
Nonaccretable difference	1,853,000	2,251,000
Accretable Yield	892,000	557,000
Total Recorded Investment	8,098,000	6,728,000
Related Allowance	18,000
Average investment in impaired loans
Average investment in impaired loans	7,413,000
Residential construction loan
Impaired loans
Unpaid Contractual Principal balance	29,000	995,000
Nonaccretable difference	5,000	493,000
Accretable Yield	24,000	40,000
Total Recorded Investment		708,000
Average investment in impaired loans
Average investment in impaired loans	354,000
Commercial construction loans and land development
Impaired loans
Unpaid Contractual Principal balance	35,452,000	42,330,000
Nonaccretable difference	7,256,000	9,113,000
Accretable Yield	4,377,000	3,067,000
Total Recorded Investment	26,171,000	32,362,000
Related Allowance	29,000
Average investment in impaired loans
Average investment in impaired loans	29,266,000
Consumer
Impaired loans
Unpaid Contractual Principal balance	87,000	92,000
Nonaccretable difference	14,000	16,000
Accretable Yield	9,000	9,000
Total Recorded Investment	72,000	77,000
Average investment in impaired loans
Average investment in impaired loans	$ 75,000

XML

Summary of Significant Accounting and Reporting Policies (Details)	3 Months Ended
	Mar. 31, 2013
Plains Capital
Basis of Presentation
Ownership percentage	100.00%
Plains Capital | Bank
Basis of Presentation
Ownership percentage	100.00%
Plains Capital | Plains Capital Equity, LLC
Basis of Presentation
Ownership percentage	100.00%
Plains Capital | Trusts
Basis of Presentation
Ownership percentage	100.00%
Bank | PrimeLending
Basis of Presentation
Ownership percentage	100.00%
Bank | PNB Aero Services, Inc.
Basis of Presentation
Ownership percentage	100.00%
Bank | PCB-ARC, Inc.
Basis of Presentation
Ownership percentage	100.00%
Bank | FSC
Basis of Presentation
Ownership percentage	100.00%
Bank | Plains Capital Securities, LLC
Basis of Presentation
Ownership percentage	100.00%
Bank | PlainsCapital Insurance Services, LLC
Basis of Presentation
Ownership percentage	51.00%
PrimeLending | PrimeLending Ventures Management, LLC
Basis of Presentation
Ownership percentage	100.00%
NLASCO
Basis of Presentation
Ownership percentage	100.00%

XML

PlainsCapital Acquisition (Tables)

3 Months Ended

Mar. 31, 2013

PlainsCapital Acquisition

Schedule of pro forma results

	Three Months Ended
	March 31, 2012
Net interest income	$	53,542
Other revenues	186,993
Net income	22,687

XML

Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value Measurements

Schedule of information regarding financial assets and liabilities measured at fair value on a recurring basis

The following tables present information regarding financial assets and liabilities measured at fair value on a recurring basis (in thousands).

	Level 1		Level 2		Level 3		Total
March 31, 2013	Inputs		Inputs		Inputs		Fair Value
Cash and cash equivalents	$	612,529	$	—	$	—	$	612,529
Trading securities	—		60,769		—		60,769
Available for sale securities	21,961		1,065,743		58,801		1,146,505
Loans held for sale	—		1,241,578		—		1,241,578
Derivative assets	—		22,600		—		22,600
Mortgage servicing asset	—		—		4,430		4,430
Time deposits	—		1,066		—		1,066
Trading liabilities	—		52		—		52
Derivative liabilities	—		7,481		—		7,481
	Level 1		Level 2		Level 3		Total
December 31, 2012	Inputs		Inputs		Inputs		Fair Value
Cash and cash equivalents	$	726,460	$	—	$	—	$	726,460
Trading securities	—		90,113		—		90,113
Available for sale securities	20,428		914,248		56,277		990,953
Loans held for sale	—		1,400,737		—		1,400,737
Derivative assets	—		15,697		—		15,697
Mortgage servicing asset	—		—		2,080		2,080
Time deposits	—		1,073		—		1,073
Trading liabilities	—		3,164		—		3,164
Derivative liabilities	—		1,080		—		1,080

Roll forward for financial instruments measured at fair value using Level 3 inputs

The following tables include a roll forward for those financial instruments measured at fair value using Level 3 inputs (in thousands).

							Total Gains or Losses
							(Realized or Unrealized)
	Balance at								Included in Other
	Beginning of						Included in		Comprehensive			Balance at
	Period		Purchases		Issuances		Net Income (Loss)		Income (Loss)			End of Period
Three months ended March 31, 2013
Available for sale securities	$	56,277	$	—	$	—	$	—	$	2,524		$	58,801
Mortgage servicing asset	2,080		—		2,125		225		—			4,430
Total	$	58,357	$	—	$	2,125	$	225	$	2,524		$	63,231
Three months ended March 31, 2012
Available for sale securities	$	60,377	$	—	$	—	$	—	$	(3,817	)	$	56,560
Total	$	60,377	$	—	$	—	$	—	$	(3,817	)	$	56,560

Schedule of changes in fair value for instruments reported at fair value under the Fair Value Option

The following table presents the changes in fair value for instruments that are reported at fair value under the Fair Value Option (in thousands).

	Changes in Fair Value for Assets and Liabilities Reported at Fair Value under Fair Value Option
	Three Months Ended March 31, 2013								Three Months Ended March 31, 2012
				Other		Total					Other		Total
	Net Gains from			Noninterest		Changes in			Net Gains from		Noninterest		Changes in
	Sale of Loans			Income		Fair Value			Sale of Loans		Income		Fair Value
Loans held for sale	$	(5,438	)	$	—	$	(5,438	)	$	—	$	—	$	—
Other assets	2,350			—		2,350			—		—		—
Time deposits	—			8		8			—		—		—

Schedule of carrying values and estimated fair values of financial instruments

The following tables present the carrying values and estimated fair values of financial instruments (in thousands).

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
March 31, 2013	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and short-term investments	$	612,529	$	612,529	$	—	$	—	$	612,529
Securities	1,207,274		21,961		1,126,512		58,801		1,207,274
Loans held for sale	1,242,322		—		1,242,322		—		1,242,322
Loans, net	3,231,730		—		—		3,267,917		3,267,917
Broker-dealer and clearing organization receivables	187,833		—		187,833		—		187,833
Fee award receivable	18,091		—		18,091		—		18,091
Cash surrender value of life insurance policies	24,171		—		24,171		—		24,171
Interest rate swaps, interest rate lock commitments and forward purchase commitments	22,600		—		22,600		—		22,600
Mortgage servicing asset	4,430		—		—		4,430		4,430
Accrued interest receivable	17,428		—		17,428		—		17,428
Financial liabilities:
Deposits	4,758,438		—		4,762,428		—		4,762,428
Broker-dealer and clearing organization payables	250,280		—		250,280		—		250,280
Other trading liabilities	52		—		52		—		52
Short-term borrowings	576,730		—		576,730		—		576,730
Debt	207,759		—		215,886		—		215,886
Commitments to sell mortgage-backed securities	7,481		—		7,481		—		7,481
Accrued interest payable	3,385		—		3,385		—		3,385

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
December 31, 2012	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and short-term investments	$	726,460	$	726,460	$	—	$	—	$	726,460
Securities	1,081,066		20,428		1,004,361		56,277		1,081,066
Loans held for sale	1,401,507		—		1,401,507		—		1,401,507
Loans, net	3,148,987		—		—		3,148,987		3,148,987
Broker-dealer and clearing organization receivables	145,564		—		145,564		—		145,564
Fee award receivable	18,467		—		18,467		—		18,467
Cash surrender value of life insurance policies	24,086		—		24,086		—		24,086
Interest rate swaps, interest rate lock commitments and
forward purchase commitments	15,697		—		15,697		—		15,697
Mortgage servicing asset	2,080		—		—		2,080		2,080
Accrued interest receivable	16,541		—		16,541		—		16,541
Financial liabilities:
Deposits	4,700,461		—		4,698,848		—		4,698,848
Broker-dealer and clearing organization payables	187,990		—		187,990		—		187,990
Other trading liabilities	3,164		—		3,164		—		3,164
Short-term borrowings	728,250		—		728,250		—		728,250
Debt	208,551		—		217,092		—		217,092
Commitments to sell mortgage-backed securities	1,080		—		1,080		—		1,080
Accrued interest payable	4,400		—		4,400		—		4,400

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Operating Activities
Net income	$ 33,373	$ 343
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses	13,005
Depreciation, amortization and accretion, net	(9,548)	339
Deferred income taxes	(7,067)	174
Other, net	85	179
Net change in securities purchased under resale agreements	(3,254)
Net change in trading securities	29,344
Net change in prepaid FDIC assessments	625
Net change in broker-dealer and clearing organization receivables	(77,077)
Net change in assets segregated for regulatory purposes	19,000
Net change in other assets	27,937	(1,481)
Net change in broker-dealer and clearing organization payables	34,075
Net change in loss and loss adjustment expense reserve	(1,942)	3,026
Net change in unearned insurance premiums	1,434	2,135
Net change in other liabilities	(56,899)	(2,161)
Net gains from sale of loans	(127,596)
Loans originated for sale	(3,025,709)
Proceeds from loans sold	3,310,115
Net cash provided by operating activities	159,901	2,554
Investing Activities
Proceeds from sales, maturities and principal reductions of securities available for sale	53,759	2,345
Purchases of securities available for sale	(209,507)	(2,556)
Net change in loans	(41,872)
Purchases of premises and equipment and other assets	(5,041)	(62)
Proceeds from sales of premises and equipment and other real estate owned	3,880
Net cash received for Federal Home Loan Bank and Federal Reserve Bank stock	6,702
Net cash used in investing activities	(192,079)	(273)
Financing Activities
Net change in deposits	68,948
Net change in short-term borrowings	(151,520)
Payments on notes payable	(792)
Payments to repurchase common stock		(1,162)
Net cash distributed to noncontrolling interest	(1,578)
Other, net	(65)
Net cash used in financing activities	(85,007)	(1,162)
Net change in cash and cash equivalents	(117,185)	1,119
Cash and cash equivalents, beginning of period	726,460	578,520
Cash and cash equivalents, end of period	609,275	579,639
Supplemental Disclosures of Cash Flow Information
Cash paid for interest	8,313	3,667
Cash paid for income taxes, net of refunds	2,205
Supplemental Schedule of Non-Cash Activities
Conversion of loans to other real estate owned	$ 284

XML

Securities (Tables)

3 Months Ended

Mar. 31, 2013

Securities

Summary of amortized cost and fair value of securities, excluding trading securities

The amortized cost and fair value of available for sale securities are summarized as follows (in thousands).

			Gross		Gross
	Amortized		Unrealized		Unrealized
March 31, 2013	Cost		Gains		Losses			Fair Value
U.S. Treasury securities	$	7,159	$	118	$	(3	)	$	7,274
U.S. government agencies:
Bonds	630,725		1,527		(956		)	631,296
Residential mortgage-backed securities	16,927		426		(150		)	17,203
Collateralized mortgage obligations	165,520		411		(243		)	165,688
Corporate debt securities	72,811		7,016		—			79,827
States and political subdivisions	166,057		416		(3,090		)	163,383
Commercial mortgage-backed securities	991		81		—			1,072
Equity securities	19,423		2,537		—			21,960
Note receivable	41,020		3,745		—			44,765
Warrant	12,068		1,969		—			14,037
Totals	$	1,132,701	$	18,246	$	(4,442	)	$	1,146,505

			Gross		Gross
	Amortized		Unrealized		Unrealized
December 31, 2012	Cost		Gains		Losses			Fair Value
U.S. Treasury securities	$	7,046	$	141	$	(2	)	$	7,185
U.S. government agencies:
Bonds	524,888		1,663		(314		)	526,237
Residential mortgage-backed securities	18,473		490		(70		)	18,893
Collateralized mortgage obligations	97,812		191		(79		)	97,924
Corporate debt securities	79,716		7,461		—			87,177
States and political subdivisions	177,701		196		(2,138		)	175,759
Commercial mortgage-backed securities	1,001		72		—			1,073
Equity securities	19,289		1,139		—			20,428
Note receivable	40,508		3,652		—			44,160
Warrant	12,068		49		—			12,117
Totals	$	978,502	$	15,054	$	(2,603	)	$	990,953

Schedule of information regarding available for sale securities that were in an unrealized loss position

Information regarding available for sale securities that were in an unrealized loss position is shown in the following table (dollars in thousands).

	March 31, 2013					December 31, 2012
	Number of			Unrealized		Number of				Unrealized
	Securities	Fair Value		Losses		Securities		Fair Value		Losses
U.S. treasury securities:
Unrealized loss for less than twelve months	3	$	4,482	$	3	$	2	$	2,427	$	2
Unrealized loss for twelve months or longer	1	399		—		—		—		—
	4	4,881		3		2		2,427		2
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	21	340,047		956		14		236,305		314
Unrealized loss for twelve months or longer	—	—		—		—		—		—
	21	340,047		956		14		236,305		314
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	3	9,900		150		7		12,279		70
Unrealized loss for twelve months or longer	—	—		—		—		—		—
	3	9,900		150		7		12,279		70
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	9	83,102		243		8		38,887		79
Unrealized loss for twelve months or longer	—	—		—		—		—		—
	9	83,102		243		8		38,887		79
States and political subdivisions:
Unrealized loss for less than twelve months	199	131,527		3,090		225		156,664		2,138
Unrealized loss for twelve months or longer	—	—		—		—		—		—
	199	131,527		3,090		225		156,664		2,138
Total available for sale:
Unrealized loss for less than twelve months	235	569,058		4,442		256		446,562		2,603
Unrealized loss for twelve months or longer	1	399		—		—		—		—
	236	$	569,457	$	4,442	256		$	446,562	$	2,603

Schedule of amortized cost and fair value of securities, excluding trading and equity available for sale securities by contractual maturity

The amortized cost and fair value of securities, excluding trading and available for sale equity securities, at March 31, 2013, are shown by contractual maturity below (in thousands).

	Amortized
	Cost		Fair Value
Due in one year or less	$	25,874	$	26,150
Due after one year through five years	82,885		87,836
Due after five years through ten years	45,284		48,011
Due after ten years	722,709		719,783
	876,752		881,780
Residential mortgage-backed securities	16,927		17,203
Collateralized mortgage obligations	165,520		165,688
Commercial mortgage-backed securities	991		1,072
	$	1,060,190	$	1,065,743

XML

Reserves for Unpaid Losses and Loss Adjustment Expenses (Tables)

3 Months Ended

Mar. 31, 2013

Reserves for Unpaid Losses and Loss Adjustment Expenses

Schedule of information regarding the reserve for unpaid losses and losses and loss adjustment expenses (LAE)

Information regarding the reserve for unpaid losses and losses and loss adjustment expenses (“LAE”) are as follows (in thousands).

	Three Months Ended March 31,
	2013			2012
Balance, beginning of period	$	34,012		$	44,835
Less reinsurance recoverables	(10,385		)	(25,083		)
Net balance, beginning of period	23,627			19,752
Incurred related to:
Current period	21,531			20,393
Prior periods	(346		)	2,149
Total incurred	21,185			22,542
Payments related to:
Current period	(9,734		)	(10,542		)
Prior periods	(9,024		)	(8,970		)
Total payments	(18,758		)	(19,512		)
Net balance, end of period	26,054			22,782
Plus reinsurance recoverables	6,016			25,079
Balance, end of period	$	32,070		$	47,861

XML

Securities (Details 3) (USD $)	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Amortized Cost
Due in one year or less	$ 25,874,000
Due after one year through five years	82,885,000
Due after five years through ten years	45,284,000
Due after ten years	722,709,000
Total	876,752,000
Total amortized cost	1,060,190,000
Fair Value
Due in one year or less	26,150,000
Due after one year through five years	87,836,000
Due after five years through ten years	48,011,000
Due after ten years	719,783,000
Total	881,780,000
Fair Value	1,065,743,000
Realized net losses from trading securities portfolio	1,000,000
Carrying amount of securities pledged	783,000,000	635,200,000
Fair value of securities pledged	786,700,000	633,400,000
Deposit with various state insurance departments	9,300,000	9,300,000
Mortgage-backed
Amortized Cost
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	16,927,000
Fair Value
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	17,203,000
Collateralized mortgage obligations
Amortized Cost
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	165,520,000
Fair Value
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	165,688,000
Commercial mortgage-backed securities
Amortized Cost
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	991,000
Fair Value
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	$ 1,072,000

XML

Reserves for Unpaid Losses and Loss Adjustment Expenses (Details) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013
Information regarding of the reserve for unpaid losses and loss adjustment expenses
Balance at the beginning of the period	$ 34,012,000	$ 44,835,000	$ 47,861,000
Less reinsurance recoverables	(10,385,000)	(25,083,000)	(25,079,000)
Net balance at the beginning of the period	23,627,000	19,752,000	22,782,000
Incurred related to:
Current period	21,531,000	20,393,000
Prior periods	(346,000)	2,149,000
Total incurred	21,185,000	22,542,000
Payments related to:
Current period	(9,734,000)	(10,542,000)
Prior periods	(9,024,000)	(8,970,000)
Total payments	(18,758,000)	(19,512,000)
Net balance at the end of the period	26,054,000	22,782,000	26,054,000
Plus reinsurance recoverables	6,016,000	25,079,000	6,016,000
Balance at the end of the period	32,070,000	47,861,000	32,070,000
Change in insurance reserves			$ 15,800,000

XML

CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Assets
Cash and due from banks	$ 588,838	$ 722,039
Federal funds sold and securities purchased under agreements to resell	23,691	4,421
Securities:
Trading, at fair value	60,769	90,113
Available for sale, at fair value (amortized cost of $1,132,701 and $978,502, respectively)	1,146,505	990,953
Total securities	1,207,274	1,081,066
Loans held for sale	1,242,322	1,401,507
Loans, net of unearned income	3,248,367	3,152,396
Allowance for loan losses	(16,637)	(3,409)
Loans, net	3,231,730	3,148,987
Broker-dealer and clearing organization receivables	187,833	145,564
Insurance premiums receivable	24,924	24,615
Deferred policy acquisition costs	20,301	19,812
Reinsurance receivable, net of uncollectible amounts	18,210	18,567
Premises and equipment, net	111,894	111,381
Other assets	233,033	277,398
Goodwill	251,808	253,770
Other intangible assets, net	75,052	77,738
Total assets	7,216,910	7,286,865
Deposits:
Noninterest-bearing	249,678	323,367
Interest-bearing	4,508,760	4,377,094
Total deposits	4,758,438	4,700,461
Broker-dealer and clearing organization payables	250,280	187,990
Reserve for losses and loss adjustment expenses	32,070	34,012
Unearned insurance premiums	84,032	82,598
Short-term borrowings	576,730	728,250
Notes payable	140,747	141,539
Junior subordinated debentures	67,012	67,012
Other liabilities	129,016	198,453
Total liabilities	6,038,325	6,140,315
Commitments and contingencies (see Notes 9 and 10)
Hilltop Holdings 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, respectively	114,068	114,068
Common stock, $0.01 par value, 100,000,000 shares authorized; 83,487,340 shares issued and outstanding, respectively	835	835
Additional paid-in capital	1,304,771	1,304,707
Accumulated other comprehensive income	8,973	8,094
Accumulated deficit	(250,838)	(283,208)
Total Hilltop Holdings stockholders' equity	1,177,809	1,144,496
Noncontrolling interest	776	2,054
Total stockholders' equity	1,178,585	1,146,550
Total liabilities and stockholders' equity	$ 7,216,910	$ 7,286,865

XML

PlainsCapital Acquisition (Details) (Plains Capital, USD $)	0 Months Ended	3 Months Ended
	Nov. 30, 2012	Mar. 31, 2013	Mar. 31, 2012
Plains Capital Acquisition
Total purchase price	$ 813,500,000
Cash consideration	311,800,000
Fair market value of assets acquired	6,500,000,000
Loans	3,200,000,000
Investment securities	730,800,000
Identifiable intangibles	70,700,000
Fair market value of the liabilities assumed	5,900,000,000
Deposits	4,500,000,000
Goodwill recorded in connection with the merger	230,100,000
Period for which purchase date valuations are subject to change	1 year
Reduction in goodwill for a purchase accounting adjustment		2,000,000
Pro forma financial information
Net interest income			53,542,000
Other revenues			186,993,000
Net income			$ 22,687,000
Common Stock
Plains Capital Acquisition
Shares of common stock issued as purchase consideration	27,100,000
Non-Cumulative Perpetual Preferred Stock, Series B
Plains Capital Acquisition
Shares of common stock issued as purchase consideration	114,068

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on securities available for sale, tax	$ 473	$ (1,831)

XML

Loans and Allowance for Loan Losses (Details 6) (USD $) In Thousands, unless otherwise specified			1 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2012 PlainsCapital item	Mar. 31, 2013 Pass	Dec. 31, 2012 Pass	Mar. 31, 2013 Special Mention	Dec. 31, 2012 Special Mention	Mar. 31, 2013 Substandard	Dec. 31, 2012 Substandard	Mar. 31, 2013 Secured	Dec. 31, 2012 Secured	Mar. 31, 2013 Secured Pass	Dec. 31, 2012 Secured Pass	Mar. 31, 2013 Secured Special Mention	Dec. 31, 2012 Secured Special Mention	Mar. 31, 2013 Secured Substandard	Dec. 31, 2012 Secured Substandard	Mar. 31, 2013 Unsecured	Dec. 31, 2012 Unsecured	Mar. 31, 2013 Unsecured Pass	Dec. 31, 2012 Unsecured Pass	Mar. 31, 2013 Unsecured Special Mention	Dec. 31, 2012 Unsecured Special Mention	Mar. 31, 2013 Unsecured Substandard	Mar. 31, 2013 Secured by commercial properties	Dec. 31, 2012 Secured by commercial properties	Mar. 31, 2013 Secured by commercial properties Pass	Dec. 31, 2012 Secured by commercial properties Pass	Mar. 31, 2013 Secured by residential properties	Dec. 31, 2012 Secured by residential properties	Mar. 31, 2013 Secured by residential properties Pass	Dec. 31, 2012 Secured by residential properties Pass	Mar. 31, 2013 Secured by residential properties Substandard	Mar. 31, 2013 Residential construction loan	Dec. 31, 2012 Residential construction loan	Mar. 31, 2013 Residential construction loan Pass	Dec. 31, 2012 Residential construction loan Pass	Mar. 31, 2013 Commercial construction loans and land development	Dec. 31, 2012 Commercial construction loans and land development	Mar. 31, 2013 Commercial construction loans and land development Pass	Dec. 31, 2012 Commercial construction loans and land development Pass	Mar. 31, 2013 Commercial construction loans and land development Substandard	Mar. 31, 2013 Consumer	Dec. 31, 2012 Consumer	Mar. 31, 2013 Consumer Pass	Dec. 31, 2012 Consumer Pass	Mar. 31, 2013 Loans Impaired at Acquisition [Member]	Dec. 31, 2012 Loans Impaired at Acquisition [Member]	Mar. 31, 2013 Loans Impaired at Acquisition [Member] Secured	Dec. 31, 2012 Loans Impaired at Acquisition [Member] Secured	Mar. 31, 2013 Loans Impaired at Acquisition [Member] Unsecured	Dec. 31, 2012 Loans Impaired at Acquisition [Member] Unsecured	Mar. 31, 2013 Loans Impaired at Acquisition [Member] Secured by commercial properties	Dec. 31, 2012 Loans Impaired at Acquisition [Member] Secured by commercial properties	Mar. 31, 2013 Loans Impaired at Acquisition [Member] Secured by residential properties	Dec. 31, 2012 Loans Impaired at Acquisition [Member] Secured by residential properties	Dec. 31, 2012 Loans Impaired at Acquisition [Member] Residential construction loan	Mar. 31, 2013 Loans Impaired at Acquisition [Member] Commercial construction loans and land development	Dec. 31, 2012 Loans Impaired at Acquisition [Member] Commercial construction loans and land development	Mar. 31, 2013 Loans Impaired at Acquisition [Member] Consumer	Dec. 31, 2012 Loans Impaired at Acquisition [Member] Consumer
Internal risk grades of loans
Total	$ 3,248,367	$ 3,152,396		$ 3,080,728	$ 2,978,271	$ 2,840	$ 2,715	$ 7,775	$ 4,630	$ 1,588,989	$ 1,551,532	$ 1,510,466	$ 1,476,420	$ 2,759	$ 2,515	$ 7,098	$ 4,630	$ 116,219	$ 108,761	$ 113,223	$ 105,142	$ 81	$ 200	$ 121	$ 964,709	$ 924,303	$ 913,486	$ 868,784	$ 272,643	$ 260,611	$ 264,437	$ 253,883	$ 108	$ 43,174	$ 48,169	$ 43,174	$ 47,461	$ 236,200	$ 232,314	$ 209,581	$ 199,952	$ 448	$ 26,433	$ 26,706	$ 26,361	$ 26,629	$ 157,024	$ 166,780	$ 68,666	$ 67,967	$ 2,794	$ 3,419	$ 51,223	$ 55,519	$ 8,098	$ 6,728	$ 708	$ 26,171	$ 32,362	$ 72	$ 77
Number of types of loans			2

XML

Short-term Borrowings (Tables)

3 Months Ended

Mar. 31, 2013

Short-term borrowings

Schedule of short-term borrowings

Short-term borrowings are summarized as follows (in thousands).

	March 31, 2013		December 31, 2012
Federal funds purchased	$	301,775	$	269,625
Securities sold under agreements to repurchase	113,955		85,725
Federal Home Loan Bank (FHLB) notes	—		250,000
Short-term bank loans	161,000		122,900
	$	576,730	$	728,250

Schedule of federal funds purchased and securities sold under agreements to repurchase

Short-term borrowings

Schedule of short-term borrowings

Information concerning federal funds purchased and securities sold under agreements to repurchase is shown in the following tables (dollars in thousands).

	Three Months Ended March 31, 2013
Average balance during the period	$	328,521
Average interest rate during the period	0.21		%

	March 31, 2013			December 31, 2012
Average interest rate at end of period	0.18		%	0.22		%
Securities underlying the agreements at end of period
Carrying value	$	139,817		$	122,153
Estimated fair value	$	139,890		$	122,435

Federal Home Loan Bank (FHLB) notes

Short-term borrowings

Schedule of short-term borrowings

Other information regarding FHLB notes is shown in the following tables (dollars in thousands).

	Three Months Ended March 31, 2013
Average balance during the period	$	34,174
Average interest rate during the period	0.09		%

	March 31, 2013	December 31, 2012
Average interest rate at end of period	—	0.07	%

XML

Financial Instruments with Off-Balance Sheet Risk (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2013
Unused commitments to extend credit
Financial Instruments with Off-Balance Sheet Risk
Outstanding commitments	$ 1,000.0
Standby letters of credit
Financial Instruments with Off-Balance Sheet Risk
Outstanding commitments	$ 35.0

XML

Broker-Dealer and Clearing Organization Receivables and Payables

3 Months Ended

Mar. 31, 2013

Broker-Dealer and Clearing Organization Receivables and Payables

Broker-Dealer and Clearing Organization Receivables and Payables

14. Broker-Dealer and Clearing Organization Receivables and Payables

Broker-dealer and clearing organization receivables and payables consisted of the following (in thousands).

	March 31, 2013		December 31, 2012
Receivables:
Securities borrowed	$	130,072	$	103,936
Securities failed to deliver	49,652		33,045
Clearing organizations	8,075		8,543
Due from dealers	34		40
	$	187,833	$	145,564
Payables:
Securities loaned	$	159,836	$	115,102
Correspondents	44,632		41,414
Securities failed to receive	42,983		31,474
Clearing organizations	2,829		—
	$	250,280	$	187,990

XML

Regulatory Matters (Tables)

3 Months Ended

Mar. 31, 2013

Regulatory Matters

Schedule of comparison of the Bank's and Hilltop's actual capital amounts and ratios to the minimum requirements

A comparison of the Bank’s and Hilltop’s actual capital amounts and ratios to the minimum requirements is as follows (dollars in thousands).

	March 31, 2013
	Required				Actual
	Amount		Ratio		Amount		Ratio
Bank:
Tier 1 capital (to average assets)	$	248,671	4	%	$	572,965	9.22	%
Tier 1 capital (to risk-weighted assets)	187,655		4	%	572,965		12.21	%
Total capital (to risk-weighted assets)	375,309		8	%	590,484		12.59	%
Hilltop:
Tier 1 capital (to average assets)	$	270,976	4	%	$	906,947	13.39	%
Tier 1 capital (to risk-weighted assets)	199,239		4	%	906,947		18.21	%
Total capital (to risk-weighted assets)	398,478		8	%	925,608		18.58	%

	December 31, 2012
	Required				Actual
	Amount		Ratio		Amount		Ratio
Bank:
Tier 1 capital (to average assets)	$	245,495	4	%	$	542,307	8.84	%
Tier 1 capital (to risk-weighted assets)	183,308		4	%	542,307		11.83	%
Total capital (to risk-weighted assets)	366,615		8	%	546,598		11.93	%
Hilltop:
Tier 1 capital (to average assets)	$	266,514	4	%	$	871,379	13.08	%
Tier 1 capital (to risk-weighted assets)	196,670		4	%	871,379		17.72	%
Total capital (to risk-weighted assets)	393,340		8	%	875,670		17.81	%

Summary of minimum required capital amounts and ratios for the well capitalized category

The minimum required capital amounts and ratios for the “well capitalized” category are summarized as follows (dollars in thousands).

	March 31, 2013
	Required				Actual
	Amount		Ratio		Amount		Ratio
Bank:
Tier 1 capital (to average assets)	$	310,839	5	%	$	572,965	9.22	%
Tier 1 capital (to risk-weighted assets)	281,482		6	%	572,965		12.21	%
Total capital (to risk-weighted assets)	469,136		10	%	590,484		12.59	%

	December 31, 2012
	Required				Actual
	Amount		Ratio		Amount		Ratio
Bank:
Tier 1 capital (to average assets)	$	306,869	5	%	$	542,307	8.84	%
Tier 1 capital (to risk-weighted assets)	274,961		6	%	542,307		11.83	%
Total capital (to risk-weighted assets)	458,269		10	%	546,598		11.93	%

Summary of statutory capital and surplus and statutory net income of each insurance subsidiary

A summary of statutory capital and surplus and statutory net income of each insurance subsidiary is as follows (in thousands).

	March 31,
	2013		2012
Capital and surplus:
National Lloyds Insurance Company	$	98,011	$	95,947
American Summit Insurance Company	26,111		24,953

	Three Months Ended March 31,
	2013		2012
Statutory net income:
National Lloyds Insurance Company	$	3,391	$	1,128
American Summit Insurance Company	251		93

XML

Reinsurance Activity

3 Months Ended

Mar. 31, 2013

Reinsurance Activity

Reinsurance Activity

16. Reinsurance Activity

NLASCO limits the maximum net loss that can arise from large risks or risks in concentrated areas of exposure by reinsuring (ceding) certain levels of risk. Substantial amounts of business are ceded, and these reinsurance contracts do not relieve NLASCO from its obligations to policyholders. Such reinsurance includes quota share, excess of loss, catastrophe, and other forms of reinsurance on essentially all property and casualty lines of insurance. Net insurance premiums earned, losses and LAE and policy acquisition and other underwriting expenses are reported net of the amounts related to reinsurance ceded to other companies. Amounts recoverable from reinsurers related to the portions of the liability for losses and LAE and unearned insurance premiums ceded to them are reported as assets. Failure of reinsurers to honor their obligations could result in losses to NLASCO; consequently, allowances are established for amounts deemed uncollectible as NLASCO evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. At March 31, 2013, reinsurance receivables have a carrying value of $18.2 million. There was no allowance for uncollectible accounts at March 31, 2013, based on our quality requirements.

The effects of reinsurance on premiums written and earned are summarized as follows (in thousands).

	Three Months Ended March 31,
	2013						2012
	Written			Earned			Written			Earned
Premiums from direct business	$	41,857		$	40,546		$	40,741		$	38,685
Reinsurance assumed	1,754			1,630			1,437			1,359
Reinsurance ceded	(4,555		)	(4,703		)	(4,616		)	(4,889		)
Net premiums	$	39,056		$	37,473		$	37,562		$	35,155

The effects of reinsurance on incurred losses are as follows (in thousands).

	Three Months Ended March 31,
	2013			2012
Loss and LAE incurred	$	21,412		$	24,071
Reinsurance recoverables	(227		)	(1,529		)
Net loss and LAE incurred	$	21,185		$	22,542

Multi-line excess of loss coverage

For all lines of business, NLASCO has excess of loss reinsurance covering $700,000 in excess of $300,000 retention on losses on any one risk.

Catastrophic coverage

NLASCO has catastrophic excess of loss reinsurance coverage up to $170 million of losses per event in excess of $8 million retention by NLIC and $1.5 million retention by ASIC. ASIC maintains an underlying layer of coverage, providing $6.5 million in excess of its $1.5 million retention to bridge to the primary program. The reinsurance in excess of $8 million is comprised of four layers of protection: $17 million in excess of $8 million retention; $25 million in excess of $25 million loss; $50 million in excess of $50 million loss and $70 million in excess of $100 million loss. NLIC and ASIC retain no participation in any of the layers, beyond the first $8 million and $1.5 million, respectively. At March 31, 2013, total retention for any one catastrophe that affects both NLIC and ASIC is limited to $8 million in the aggregate.

XML

Derivative Financial Instruments (Details) (USD $)	3 Months Ended
	Mar. 31, 2013 Designated as hedging instrument FSC	Mar. 31, 2013 Non-Hedging Derivative Instruments PrimeLending	Mar. 31, 2013 Non-Hedging Derivative Instruments Commitments to purchase MBSs	Dec. 31, 2012 Non-Hedging Derivative Instruments Commitments to purchase MBSs	Mar. 31, 2013 Non-Hedging Derivative Instruments Commitments to sell MBSs	Dec. 31, 2012 Non-Hedging Derivative Instruments Commitments to sell MBSs	Mar. 31, 2013 Interest rate lock commitments Non-Hedging Derivative Instruments	Dec. 31, 2012 Interest rate lock commitments Non-Hedging Derivative Instruments	Mar. 31, 2013 Interest rate swaps Cash Flow Hedges Designated as hedging instrument	Dec. 31, 2012 Interest rate swaps Cash Flow Hedges Designated as hedging instrument
Derivative financial instruments
Net gain due to changes in the fair value of the derivative instruments	$ 1,800,000	$ 1,900,000
Notional Amount			219,471,000	165,128,000	1,912,250,000	1,586,930,000	1,082,255,000	968,083,000	1,969,000	1,969,000
Estimated Fair Value			$ (806,000)	$ 466,000	$ (6,519,000)	$ (1,025,000)	$ 22,435,000	$ 15,150,000	$ 9,000	$ 25,000

XML

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $) In Thousands, unless otherwise specified	Total	Total Hilltop Holdings Stockholders' Equity	Preferred Stock	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income	Accumulated Deficit	Noncontrolling Interest
Balance at Dec. 31, 2011	$ 655,383	$ 655,383		$ 565	$ 918,192	$ 13,983	$ (277,357)
Balance (in shares) at Dec. 31, 2011				56,501
Increase (Decrease) in Stockholders' Equity
Net income	343	343					343
Other comprehensive income (loss)	(3,401)	(3,401)				(3,401)
Common stock issued to board members	12	12			12
Common stock issued to board members (in shares)				1
Repurchase and retirement of common stock	(1,162)	(1,162)		(1)	(1,161)
Repurchase and retirement of common stock (in shares)				(141)
Stock-based compensation expense	122	122			122
Balance at Mar. 31, 2012	651,297	651,297		564	917,165	10,582	(277,014)
Balance (in shares) at Mar. 31, 2012				56,361
Balance at Dec. 31, 2012	1,146,550	1,144,496	114,068	835	1,304,707	8,094	(283,208)	2,054
Balance (in shares) at Dec. 31, 2012			114	83,487
Increase (Decrease) in Stockholders' Equity
Net income	33,373	33,073					33,073	300
Other comprehensive income (loss)	879	879				879
Stock-based compensation expense	64	64			64
Dividends on preferred stock	(703)	(703)					(703)
Cash distributions to noncontrolling interest	(1,578)							(1,578)
Balance at Mar. 31, 2013	$ 1,178,585	$ 1,177,809	$ 114,068	$ 835	$ 1,304,771	$ 8,973	$ (250,838)	$ 776
Balance (in shares) at Mar. 31, 2013			114	83,487

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
CONSOLIDATED BALANCE SHEETS
Available for sale, amortized cost (in dollars)	$ 1,132,701	$ 978,502
Statement
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	83,487,340	83,487,340
Common stock, shares outstanding	83,487,340	83,487,340
Series B Preferred Stock
Statement
Preferred stock, liquidation value per share (in dollars per share)	$ 1,000	$ 1,000
Preferred stock, shares issued	114,068	114,068
Preferred stock, shares outstanding	114,068	114,068

XML

Commitments and Contingencies

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies

Commitments and Contingencies

9. Commitments and Contingencies

Legal Matters

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.

Hilltop and its subsidiaries are defendants in various legal matters arising in the normal course of business. Management believes that the ultimate liability, if any, arising from these matters will not materially affect our consolidated financial condition, results of operations or cash flows taken as a whole.

Other Contingencies

The mortgage origination segment may be responsible for errors or omissions relating to its representations and warranties that each loan sold meets certain requirements, including representations as to underwriting standards and the validity of certain borrower representations in connection with the loan. If determined to be at fault, the mortgage origination segment either repurchases the affected loan from the investor or reimburses the investor’s losses (a “make-whole” payment). The mortgage origination segment has established an indemnification liability for such probable losses based upon, among other things, the level of current unresolved repurchase requests, the volume of estimated probable future repurchase requests, our ability to cure the defects identified in the repurchase requests, and the severity of the estimated loss upon repurchase. At March 31, 2013 and December 31, 2012, the indemnification reserve totaled $19.7 million and $19.0 million, respectively. The provision for indemnification losses was $0.9 million for the three months ended March 31, 2013. Although management considers this reserve to be appropriate, there can be no assurance that the reserve will prove to be appropriate over time to cover ultimate losses, primarily due to unanticipated adverse changes in the economy and historical loss patterns, discrete events adversely affecting specific borrowers or industries, and/or actions taken by institutions or investors. The impact of such matters will be considered in the reserving process when known.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 03, 2013
Document and Entity Information
Entity Registrant Name	Hilltop Holdings Inc.
Entity Central Index Key	0001265131
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		83,955,870
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1

XML

Financial Instruments with Off-Balance Sheet Risk

3 Months Ended

Mar. 31, 2013

Financial Instruments with Off-Balance Sheet Risk

Financial Instruments with Off-Balance Sheet Risk

10. Financial Instruments with Off-Balance Sheet Risk

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit that involve varying degrees of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. Such financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received. The contract amounts of those instruments reflect the extent of involvement (and therefore the exposure to credit loss) the Bank has in particular classes of financial instruments.

Commitments to extend credit are agreements to lend to a customer provided that the terms established in the contract are met. Commitments generally have fixed expiration dates and may require payment of fees. Because some commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.

In the aggregate, the Bank had outstanding unused commitments to extend credit of $1.0 billion at March 31, 2013 and outstanding standby letters of credit of $35.0 million at March 31, 2013.

The Bank uses the same credit policies in making commitments and standby letters of credit as it does for on-balance sheet instruments. The amount of collateral obtained, if deemed necessary, in these transactions is based on management’s credit evaluation of the borrower. Collateral held varies but may include real estate, accounts receivable, marketable securities, interest-bearing deposit accounts, inventory, and property, plant and equipment.

In the normal course of business, FSC executes, settles, and finances various securities transactions that may expose FSC to off-balance sheet risk in the event that a customer or counterparty does not fulfill its contractual obligations. Examples of such transactions include the sale of securities not yet purchased by customers or for the account of FSC, clearing agreements between FSC and various clearinghouses and broker-dealers, secured financing arrangements that involve pledged securities, and when-issued underwriting and purchase commitments.

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Interest income:
Loans, including fees	$ 64,886
Securities:
Taxable	5,863	3,355
Tax-exempt	1,347
Federal funds sold and securities purchased under agreements to resell	21
Interest-bearing deposits with banks	333
Other	2,105
Total interest income	74,555	3,355
Interest expense:
Deposits	3,450
Short-term borrowings	513
Notes payable	2,322	2,139
Junior subordinated debentures	608
Other	450
Total interest expense	7,343	2,139
Net interest income	67,212	1,216
Provision for loan losses	13,005
Net interest income after provision for loan losses	54,207	1,216
Noninterest income:
Net gains from sale of loans and other mortgage production income	127,596
Mortgage loan origination fees	18,893
Net insurance premiums earned	37,473	35,155
Investment and securities advisory fees and commissions	22,009
Other	7,356	1,732
Total noninterest income	213,327	36,887
Noninterest expense:
Employees' compensation and benefits	116,190	2,226
Loss and loss adjustment expenses	21,185	22,542
Policy acquisition and other underwriting expenses	10,803	10,901
Occupancy and equipment, net	19,412	244
Other	47,401	1,644
Total noninterest expense	214,991	37,557
Income before income taxes	52,543	546
Income tax expense	19,170	203
Net income	33,373	343
Less: Net income attributable to noncontrolling interest	300
Income attributable to Hilltop Holdings	33,073	343
Dividends on preferred stock	703
Income applicable to Hilltop Holdings common stockholders	$ 32,370	$ 343
Earnings per common share:
Basic (in dollars per share)	$ 0.39	$ 0.01
Diluted (in dollars per share)	$ 0.39	$ 0.01
Weighted average share information:
Basic (in shares)	83,487	56,499
Diluted (in shares)	83,743	56,555

XML

Securities

3 Months Ended

Mar. 31, 2013

Securities

Securities

4. Securities

The amortized cost and fair value of available for sale securities are summarized as follows (in thousands).

			Gross		Gross
	Amortized		Unrealized		Unrealized
March 31, 2013	Cost		Gains		Losses			Fair Value
U.S. Treasury securities	$	7,159	$	118	$	(3	)	$	7,274
U.S. government agencies:
Bonds	630,725		1,527		(956		)	631,296
Residential mortgage-backed securities	16,927		426		(150		)	17,203
Collateralized mortgage obligations	165,520		411		(243		)	165,688
Corporate debt securities	72,811		7,016		—			79,827
States and political subdivisions	166,057		416		(3,090		)	163,383
Commercial mortgage-backed securities	991		81		—			1,072
Equity securities	19,423		2,537		—			21,960
Note receivable	41,020		3,745		—			44,765
Warrant	12,068		1,969		—			14,037
Totals	$	1,132,701	$	18,246	$	(4,442	)	$	1,146,505

			Gross		Gross
	Amortized		Unrealized		Unrealized
December 31, 2012	Cost		Gains		Losses			Fair Value
U.S. Treasury securities	$	7,046	$	141	$	(2	)	$	7,185
U.S. government agencies:
Bonds	524,888		1,663		(314		)	526,237
Residential mortgage-backed securities	18,473		490		(70		)	18,893
Collateralized mortgage obligations	97,812		191		(79		)	97,924
Corporate debt securities	79,716		7,461		—			87,177
States and political subdivisions	177,701		196		(2,138		)	175,759
Commercial mortgage-backed securities	1,001		72		—			1,073
Equity securities	19,289		1,139		—			20,428
Note receivable	40,508		3,652		—			44,160
Warrant	12,068		49		—			12,117
Totals	$	978,502	$	15,054	$	(2,603	)	$	990,953

Included within the available for sale equity securities are 1,475,387 shares of SWS common stock. Furthermore, the available for sale securities include a senior unsecured loan to SWS in July 2011 in a principal amount of $50.0 million pursuant to a credit agreement, which loan bears interest at a rate of 8.0% per annum, is prepayable by SWS subject to certain conditions after three years, and has a maturity of five years. SWS issued Hilltop a warrant to purchase 8,695,652 shares of SWS common stock, $0.10 par value per share, exercisable at a price of $5.75 per share subject to anti-dilution adjustments. If the warrant was fully exercised, Hilltop would beneficially own 24.6% of SWS.

Information regarding available for sale securities that were in an unrealized loss position is shown in the following table (dollars in thousands).

	March 31, 2013					December 31, 2012
	Number of			Unrealized		Number of				Unrealized
	Securities	Fair Value		Losses		Securities		Fair Value		Losses
U.S. treasury securities:
Unrealized loss for less than twelve months	3	$	4,482	$	3	$	2	$	2,427	$	2
Unrealized loss for twelve months or longer	1	399		—		—		—		—
	4	4,881		3		2		2,427		2
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	21	340,047		956		14		236,305		314
Unrealized loss for twelve months or longer	—	—		—		—		—		—
	21	340,047		956		14		236,305		314
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	3	9,900		150		7		12,279		70
Unrealized loss for twelve months or longer	—	—		—		—		—		—
	3	9,900		150		7		12,279		70
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	9	83,102		243		8		38,887		79
Unrealized loss for twelve months or longer	—	—		—		—		—		—
	9	83,102		243		8		38,887		79
States and political subdivisions:
Unrealized loss for less than twelve months	199	131,527		3,090		225		156,664		2,138
Unrealized loss for twelve months or longer	—	—		—		—		—		—
	199	131,527		3,090		225		156,664		2,138
Total available for sale:
Unrealized loss for less than twelve months	235	569,058		4,442		256		446,562		2,603
Unrealized loss for twelve months or longer	1	399		—		—		—		—
	236	$	569,457	$	4,442	256		$	446,562	$	2,603

During the three months ended March 31, 2013 and 2012, the Company did not record any other-than-temporary impairments. While all of the investments are monitored for potential other-than-temporary impairment, our analysis and experience indicate that these investments generally do not present a great risk of other-than-temporary-impairment, as fair value should recover over time. Factors considered in the Company’s analysis include the reasons for the unrealized loss position, the severity and duration of the unrealized loss position, credit worthiness, and forecasted performance of the investee. While some of the securities held in the investment portfolio have decreased in value since the date of acquisition, the severity of loss and the duration of the loss position are not believed to be significant enough to warrant other-than-temporary impairment of the securities. The Company does not intend, nor is it likely that the Company will be required, to sell these securities before the recovery of the cost basis. Therefore, management does not believe any other-than-temporary impairments exist at March 31, 2013.

Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties. The amortized cost and fair value of securities, excluding trading and available for sale equity securities, at March 31, 2013, are shown by contractual maturity below (in thousands).

	Amortized
	Cost		Fair Value
Due in one year or less	$	25,874	$	26,150
Due after one year through five years	82,885		87,836
Due after five years through ten years	45,284		48,011
Due after ten years	722,709		719,783
	876,752		881,780
Residential mortgage-backed securities	16,927		17,203
Collateralized mortgage obligations	165,520		165,688
Commercial mortgage-backed securities	991		1,072
	$	1,060,190	$	1,065,743

FSC realized a net loss from its trading securities portfolio of $1.0 million during the three months ended March 31, 2013, which is recorded as a component of other noninterest income within the consolidated statement of operations.

Securities with a carrying amount of $783.0 million and $635.2 million (with a fair value of $786.7 million and $633.4 million) at March 31, 2013 and December 31, 2012, respectively, were pledged to secure public and trust deposits, federal funds purchased and securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

At both March 31, 2013 and December 31, 2012, NLASCO had investments on deposit in custody for various state insurance departments with carrying values of $9.3 million.

XML

Fair Value Measurements

3 Months Ended

Mar. 31, 2013

Fair Value Measurements

Fair Value Measurements

3. Fair Value Measurements

Fair Value Measurements and Disclosures

Hilltop determines fair values in compliance with The Fair Value Measurements and Disclosures Topic of the ASC (the “Fair Value Topic”). The Fair Value Topic defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. The Fair Value Topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Fair Value Topic assumes that transactions upon which fair value measurements are based occur in the principal market for the asset or liability being measured. Further, fair value measurements made under the Fair Value Topic exclude transaction costs and are not the result of forced transactions.

The Fair Value Topic creates a fair value hierarchy that classifies fair value measurements based upon the inputs used in valuing the assets or liabilities that are the subject of fair value measurements. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs, as indicated below.

· Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.

· Level 2 Inputs: Observable inputs other than Level 1 prices. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, prepayment speeds, default rates, credit risks, loss severities, etc.), and inputs that are derived from or corroborated by market data, among others.

· Level 3 Inputs: Unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. Level 3 inputs include pricing models and discounted cash flow techniques, among others.

Fair Value Option

Hilltop has elected to measure substantially all of PrimeLending’s mortgage loans held for sale and certain time deposits at fair value under the provisions of the Fair Value Option. Hilltop elected to apply the provisions of the Fair Value Option to these items so that it would have the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Hilltop determines the fair value of the financial instruments accounted for under the provisions of the Fair Value Option in compliance with the provisions of the Fair Value Topic of the ASC discussed above.

At March 31, 2013, the aggregate fair value of PrimeLending’s mortgage loans held for sale accounted for under the Fair Value Option was $1.24 billion, while the unpaid principal balance of those loans was $1.20 billion. At December 31, 2012, the aggregate fair value of PrimeLending’s mortgage loans held for sale accounted for under the Fair Value Option was $1.40 billion, while the unpaid principal balance of those loans was $1.36 billion. The interest component of fair value is reported as interest income on loans in the accompanying consolidated statements of operations.

Hilltop holds a number of financial instruments that are measured at fair value on a recurring basis, either by the application of Fair Value Option or other authoritative pronouncements. The fair values of those instruments are determined primarily using Level 2 inputs. Those inputs include quotes from mortgage loan investors and derivatives dealers, data from independent pricing services and rates paid in the brokered certificate of deposit market.

The following tables present information regarding financial assets and liabilities measured at fair value on a recurring basis (in thousands).

	Level 1		Level 2		Level 3		Total
March 31, 2013	Inputs		Inputs		Inputs		Fair Value
Cash and cash equivalents	$	612,529	$	—	$	—	$	612,529
Trading securities	—		60,769		—		60,769
Available for sale securities	21,961		1,065,743		58,801		1,146,505
Loans held for sale	—		1,241,578		—		1,241,578
Derivative assets	—		22,600		—		22,600
Mortgage servicing asset	—		—		4,430		4,430
Time deposits	—		1,066		—		1,066
Trading liabilities	—		52		—		52
Derivative liabilities	—		7,481		—		7,481
	Level 1		Level 2		Level 3		Total
December 31, 2012	Inputs		Inputs		Inputs		Fair Value
Cash and cash equivalents	$	726,460	$	—	$	—	$	726,460
Trading securities	—		90,113		—		90,113
Available for sale securities	20,428		914,248		56,277		990,953
Loans held for sale	—		1,400,737		—		1,400,737
Derivative assets	—		15,697		—		15,697
Mortgage servicing asset	—		—		2,080		2,080
Time deposits	—		1,073		—		1,073
Trading liabilities	—		3,164		—		3,164
Derivative liabilities	—		1,080		—		1,080

The following tables include a roll forward for those financial instruments measured at fair value using Level 3 inputs (in thousands).

							Total Gains or Losses
							(Realized or Unrealized)
	Balance at								Included in Other
	Beginning of						Included in		Comprehensive			Balance at
	Period		Purchases		Issuances		Net Income (Loss)		Income (Loss)			End of Period
Three months ended March 31, 2013
Available for sale securities	$	56,277	$	—	$	—	$	—	$	2,524		$	58,801
Mortgage servicing asset	2,080		—		2,125		225		—			4,430
Total	$	58,357	$	—	$	2,125	$	225	$	2,524		$	63,231
Three months ended March 31, 2012
Available for sale securities	$	60,377	$	—	$	—	$	—	$	(3,817	)	$	56,560
Total	$	60,377	$	—	$	—	$	—	$	(3,817	)	$	56,560

All net unrealized gains (losses) in the table above are reflected in the accompanying consolidated financial statements. The unrealized gains (losses) relate to financial instruments still held at March 31, 2013. The available for sale securities noted in the tables above reflect Hilltop’s note receivable and warrant with SWS Group, Inc. (“SWS”) as discussed in Note 4 to the consolidated financial statements.

Hilltop’s note receivable is valued using a cash flow model that estimates yield based on comparable securities in the market. The interest rate used to discount cash flows is the most significant unobservable input. An increase or decrease in the discount rate would result in an increase or decrease in the fair value measurement of the note receivable.

The warrant is valued utilizing a binomial model. The underlying SWS common stock price and its related volatility, an unobservable input, are the most significant inputs into the model and, therefore, decreases or increases to the stock price would result in a significant change in the fair value measurement of the warrant.

The mortgage servicing asset is valued by projecting net servicing cash flows, which are then discounted to estimate the fair value. The fair value of the mortgage servicing asset is impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees, servicing costs and underlying portfolio characteristics.

The Company had no transfers between Levels 1 and 2 during the periods presented.

The following table presents the changes in fair value for instruments that are reported at fair value under the Fair Value Option (in thousands).

	Changes in Fair Value for Assets and Liabilities Reported at Fair Value under Fair Value Option
	Three Months Ended March 31, 2013								Three Months Ended March 31, 2012
				Other		Total					Other		Total
	Net Gains from			Noninterest		Changes in			Net Gains from		Noninterest		Changes in
	Sale of Loans			Income		Fair Value			Sale of Loans		Income		Fair Value
Loans held for sale	$	(5,438	)	$	—	$	(5,438	)	$	—	$	—	$	—
Other assets	2,350			—		2,350			—		—		—
Time deposits	—			8		8			—		—		—

Hilltop also determines the fair value of certain assets and liabilities on a non-recurring basis. Facts and circumstances may dictate a fair value measurement when there is evidence of impairment. Assets and liabilities measured on a non-recurring basis include the items discussed below.

Impaired Loans — Hilltop reports impaired loans at fair value through specific allowances within the allowance for loan losses. Hilltop acquired impaired, or purchased credit impaired (“PCI”) loans with a fair value of $172.9 million at acquisition. The fair value of PCI loans was determined using Level 3 inputs, including estimates of expected cash flows that incorporated assumptions regarding default rates, loss severity rates assuming default, prepayment speeds and estimated collateral values. At March 31, 2013, PCI loans with a carrying amount of $157.0 million had been reduced by specific allowances within the allowance for loan losses of $0.4 million, resulting in a reported fair value of $156.6 million.

Other Real Estate Owned — Hilltop reports other real estate owned at fair value less estimated cost to sell. Any excess of recorded investment over fair value less cost to sell is charged against the allowance for loan losses when property is initially transferred to other real estate owned. Subsequent to the initial transfer to other real estate owned, downward valuation adjustments are charged against earnings. Hilltop primarily determines fair value using Level 2 inputs consisting of independent appraisals. At March 31, 2013, the estimated fair value of other real estate owned was $7.5 million.

The Fair Value of Financial Instruments Subsection of the ASC requires disclosure of the fair value of financial assets and liabilities, including the financial assets and liabilities previously discussed. The methods for determining estimated fair value for financial assets and liabilities is described in detail in Note 3 to the consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on March 15, 2013.

The following tables present the carrying values and estimated fair values of financial instruments (in thousands).

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
March 31, 2013	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and short-term investments	$	612,529	$	612,529	$	—	$	—	$	612,529
Securities	1,207,274		21,961		1,126,512		58,801		1,207,274
Loans held for sale	1,242,322		—		1,242,322		—		1,242,322
Loans, net	3,231,730		—		—		3,267,917		3,267,917
Broker-dealer and clearing organization receivables	187,833		—		187,833		—		187,833
Fee award receivable	18,091		—		18,091		—		18,091
Cash surrender value of life insurance policies	24,171		—		24,171		—		24,171
Interest rate swaps, interest rate lock commitments and forward purchase commitments	22,600		—		22,600		—		22,600
Mortgage servicing asset	4,430		—		—		4,430		4,430
Accrued interest receivable	17,428		—		17,428		—		17,428
Financial liabilities:
Deposits	4,758,438		—		4,762,428		—		4,762,428
Broker-dealer and clearing organization payables	250,280		—		250,280		—		250,280
Other trading liabilities	52		—		52		—		52
Short-term borrowings	576,730		—		576,730		—		576,730
Debt	207,759		—		215,886		—		215,886
Commitments to sell mortgage-backed securities	7,481		—		7,481		—		7,481
Accrued interest payable	3,385		—		3,385		—		3,385

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
December 31, 2012	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and short-term investments	$	726,460	$	726,460	$	—	$	—	$	726,460
Securities	1,081,066		20,428		1,004,361		56,277		1,081,066
Loans held for sale	1,401,507		—		1,401,507		—		1,401,507
Loans, net	3,148,987		—		—		3,148,987		3,148,987
Broker-dealer and clearing organization receivables	145,564		—		145,564		—		145,564
Fee award receivable	18,467		—		18,467		—		18,467
Cash surrender value of life insurance policies	24,086		—		24,086		—		24,086
Interest rate swaps, interest rate lock commitments and
forward purchase commitments	15,697		—		15,697		—		15,697
Mortgage servicing asset	2,080		—		—		2,080		2,080
Accrued interest receivable	16,541		—		16,541		—		16,541
Financial liabilities:
Deposits	4,700,461		—		4,698,848		—		4,698,848
Broker-dealer and clearing organization payables	187,990		—		187,990		—		187,990
Other trading liabilities	3,164		—		3,164		—		3,164
Short-term borrowings	728,250		—		728,250		—		728,250
Debt	208,551		—		217,092		—		217,092
Commitments to sell mortgage-backed securities	1,080		—		1,080		—		1,080
Accrued interest payable	4,400		—		4,400		—		4,400

XML

Reserves for Unpaid Losses and Loss Adjustment Expenses

3 Months Ended

Mar. 31, 2013

Reserves for Unpaid Losses and Loss Adjustment Expenses

Reserves for Unpaid Losses and Loss Adjustment Expenses

15. Reserves for Unpaid Losses and Loss Adjustment Expenses

Information regarding the reserve for unpaid losses and losses and loss adjustment expenses (“LAE”) are as follows (in thousands).

	Three Months Ended March 31,
	2013			2012
Balance, beginning of period	$	34,012		$	44,835
Less reinsurance recoverables	(10,385		)	(25,083		)
Net balance, beginning of period	23,627			19,752
Incurred related to:
Current period	21,531			20,393
Prior periods	(346		)	2,149
Total incurred	21,185			22,542
Payments related to:
Current period	(9,734		)	(10,542		)
Prior periods	(9,024		)	(8,970		)
Total payments	(18,758		)	(19,512		)
Net balance, end of period	26,054			22,782
Plus reinsurance recoverables	6,016			25,079
Balance, end of period	$	32,070		$	47,861

The decrease in reserves at March 31, 2013, as compared to March 31, 2012 of $15.8 million is primarily due to the settlement of reserves and payment of claims related to Hurricane Ike, the 2010 Arizona storm, and the wind and hail storm in the Dallas/Ft Worth region from the 2012 accident year.

XML

Regulatory Matters

3 Months Ended

Mar. 31, 2013

Regulatory Matters

Regulatory Matters

11. Regulatory Matters

Bank

The Bank and Hilltop are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a direct, material effect on the consolidated financial statements. The regulations require us to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the companies to maintain minimum amounts and ratios (set forth in the following table) of Tier 1 capital (as defined in the regulations) to total average assets (as defined), and minimum ratios of Tier 1 and total capital (as defined) to risk-weighted assets (as defined). The Tier 1 capital (to average assets) ratio at December 31, 2012 was calculated using the average assets for the month of December 2012.

A comparison of the Bank’s and Hilltop’s actual capital amounts and ratios to the minimum requirements is as follows (dollars in thousands).

	March 31, 2013
	Required				Actual
	Amount		Ratio		Amount		Ratio
Bank:
Tier 1 capital (to average assets)	$	248,671	4	%	$	572,965	9.22	%
Tier 1 capital (to risk-weighted assets)	187,655		4	%	572,965		12.21	%
Total capital (to risk-weighted assets)	375,309		8	%	590,484		12.59	%
Hilltop:
Tier 1 capital (to average assets)	$	270,976	4	%	$	906,947	13.39	%
Tier 1 capital (to risk-weighted assets)	199,239		4	%	906,947		18.21	%
Total capital (to risk-weighted assets)	398,478		8	%	925,608		18.58	%

	December 31, 2012
	Required				Actual
	Amount		Ratio		Amount		Ratio
Bank:
Tier 1 capital (to average assets)	$	245,495	4	%	$	542,307	8.84	%
Tier 1 capital (to risk-weighted assets)	183,308		4	%	542,307		11.83	%
Total capital (to risk-weighted assets)	366,615		8	%	546,598		11.93	%
Hilltop:
Tier 1 capital (to average assets)	$	266,514	4	%	$	871,379	13.08	%
Tier 1 capital (to risk-weighted assets)	196,670		4	%	871,379		17.72	%
Total capital (to risk-weighted assets)	393,340		8	%	875,670		17.81	%

To be considered “adequately capitalized” (as defined) under the regulatory framework for prompt corrective action, the Bank must maintain minimum Tier 1 capital to total average assets and Tier 1 capital to risk-weighted assets ratios of 4%, and a total capital to risk-weighted assets ratio of 8%. Based on the actual capital amounts and ratios shown in the previous tables, the Bank’s ratios place it in the “well capitalized” (as defined) capital category under the regulatory framework for prompt corrective action.

The minimum required capital amounts and ratios for the “well capitalized” category are summarized as follows (dollars in thousands).

	March 31, 2013
	Required				Actual
	Amount		Ratio		Amount		Ratio
Bank:
Tier 1 capital (to average assets)	$	310,839	5	%	$	572,965	9.22	%
Tier 1 capital (to risk-weighted assets)	281,482		6	%	572,965		12.21	%
Total capital (to risk-weighted assets)	469,136		10	%	590,484		12.59	%

	December 31, 2012
	Required				Actual
	Amount		Ratio		Amount		Ratio
Bank:
Tier 1 capital (to average assets)	$	306,869	5	%	$	542,307	8.84	%
Tier 1 capital (to risk-weighted assets)	274,961		6	%	542,307		11.83	%
Total capital (to risk-weighted assets)	458,269		10	%	546,598		11.93	%

Financial Advisory

Pursuant to the net capital requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), FSC has elected to determine its net capital requirements using the alternative method. Accordingly, FSC is required to maintain minimum net capital, as defined in Rule 15c3-1, equal to the greater of $250,000 or 2% of aggregate debit balances, as defined in Rule 15c3-3. At March 31, 2013, FSC had net capital of $42.1 million; the minimum net capital requirement was $3.5 million; net capital maintained by FSC was 24% of aggregate debits; and net capital in excess of the minimum requirement was $38.6 million.

Under certain conditions, FSC may be required to segregate cash and securities in a special reserve account for the benefit of customers under Rule 15c3-3. Assets segregated under the provisions of the Exchange Act are not available for general corporate purposes. FSC was required to segregate $19.0 million in cash and securities at December 31, 2012, which are included in other assets within the consolidated balance sheet.

FSC was not required to segregate cash or securities in a special reserve account for the benefit of proprietary accounts of introducing broker-dealers at March 31, 2013 or December 31, 2012.

Mortgage Origination

As a mortgage originator, PrimeLending is subject to minimum net worth requirements established by the United States Department of Housing and Urban Development (“HUD”) and the Government National Mortgage Association (“GNMA”). On an annual basis, PrimeLending submits audited financial statements to HUD and GNMA documenting PrimeLending’s compliance with the minimum net worth requirements. In addition, PrimeLending monitors compliance on an ongoing basis and, as of March 31, 2013, PrimeLending’s net worth exceeded the amounts required by both HUD and GNMA.

Insurance

The statutory financial statements of the Company’s insurance subsidiaries, which are domiciled in the State of Texas, are presented on the basis of accounting practices prescribed or permitted by the Texas Department of Insurance. Texas has adopted the National Association of Insurance Commissioners’ statutory accounting practices as the basis of its statutory accounting practices with certain differences which are not significant to the company’s statutory equity.

A summary of statutory capital and surplus and statutory net income of each insurance subsidiary is as follows (in thousands).

	March 31,
	2013		2012
Capital and surplus:
National Lloyds Insurance Company	$	98,011	$	95,947
American Summit Insurance Company	26,111		24,953

	Three Months Ended March 31,
	2013		2012
Statutory net income:
National Lloyds Insurance Company	$	3,391	$	1,128
American Summit Insurance Company	251		93

Regulations of the Texas Department of Insurance require insurance companies to maintain minimum levels of statutory surplus to ensure their ability to meet their obligations to policyholders. At March 31, 2013, the Company’s insurance subsidiaries had statutory surplus in excess of the minimum required.

Also, the NAIC has adopted the RBC formula for insurance companies that establishes minimum capital requirements relating to insurance risk, asset credit risk, interest rate risk and business risk. The formula is used by the NAIC and certain state insurance regulators as an early warning tool to identify companies that require additional scrutiny or regulatory action. At March 31, 2013, the Company’s insurance subsidiaries’ RBC ratio exceeded the level at which regulatory action would be required.

XML

Short-term Borrowings

3 Months Ended

Mar. 31, 2013

Short-term Borrowings

Short-term Borrowings

7. Short-term Borrowings

Short-term borrowings are summarized as follows (in thousands).

	March 31, 2013		December 31, 2012
Federal funds purchased	$	301,775	$	269,625
Securities sold under agreements to repurchase	113,955		85,725
Federal Home Loan Bank (FHLB) notes	—		250,000
Short-term bank loans	161,000		122,900
	$	576,730	$	728,250

Federal funds purchased and securities sold under agreements to repurchase generally mature daily, on demand, or on some other short-term basis. The Bank and FSC execute transactions to sell securities under agreements to repurchase with both customers and broker-dealers. Securities involved in these transactions are held by the Bank, FSC or the dealer.

Information concerning federal funds purchased and securities sold under agreements to repurchase is shown in the following tables (dollars in thousands).

	Three Months Ended March 31, 2013
Average balance during the period	$	328,521
Average interest rate during the period	0.21		%

	March 31, 2013			December 31, 2012
Average interest rate at end of period	0.18		%	0.22		%
Securities underlying the agreements at end of period
Carrying value	$	139,817		$	122,153
Estimated fair value	$	139,890		$	122,435

Federal Home Loan Bank (“FHLB”) notes mature over terms not exceeding 365 days and are collateralized by FHLB Dallas stock, nonspecified real estate loans and certain specific commercial real estate loans. Other information regarding FHLB notes is shown in the following tables (dollars in thousands).

	Three Months Ended March 31, 2013
Average balance during the period	$	34,174
Average interest rate during the period	0.09		%

	March 31, 2013	December 31, 2012
Average interest rate at end of period	—	0.07	%

FSC uses short-term bank loans periodically to finance securities owned, customers’ margin accounts and underwriting activities. Interest on the borrowings varies with the federal funds rate. The weighted average interest rate on the borrowings at March 31, 2013 and December 31, 2012 was 1.15% and 1.16%, respectively.

XML

Loans and Allowance for Loan Losses (Details 7) (USD $)	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Changes in the allowance for loan losses
Balance at beginning of period	$ 3,409,000
Provision charged to operations	13,005,000
Loans charged off	(525,000)
Recoveries on charged off loans	748,000
Balance at end of period	16,637,000
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	1,615,000
Loans collectively evaluated for impairment	3,089,728,000	2,985,616,000
Total loans	3,248,367,000	3,152,396,000
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment	16,206,000	3,409,000
Total loans	16,637,000
Commercial and industrial
Changes in the allowance for loan losses
Balance at beginning of period	1,845,000
Provision charged to operations	6,911,000
Loans charged off	(438,000)
Recoveries on charged off loans	494,000
Balance at end of period	8,812,000
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	1,507,000
Loans collectively evaluated for impairment	1,632,241,000	1,588,907,000
Total loans	1,705,208,000	1,660,293,000
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment	8,584,000	1,845,000
Total loans	8,812,000
Real Estate
Changes in the allowance for loan losses
Balance at beginning of period	977,000
Provision charged to operations	2,437,000
Loans charged off	(31,000)
Recoveries on charged off loans	139,000
Balance at end of period	3,522,000
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	108,000
Loans collectively evaluated for impairment	1,177,923,000	1,122,667,000
Total loans	1,237,352,000	1,184,914,000
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment	3,348,000	977,000
Total loans	3,522,000
Construction and land development
Changes in the allowance for loan losses
Balance at beginning of period	582,000
Provision charged to operations	3,597,000
Recoveries on charged off loans	107,000
Balance at end of period	4,286,000
Loan portfolio distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment	253,203,000	247,413,000
Total loans	279,374,000	280,483,000
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment	4,257,000	582,000
Total loans	4,286,000
Consumer
Changes in the allowance for loan losses
Balance at beginning of period	5,000
Provision charged to operations	60,000
Loans charged off	(56,000)
Recoveries on charged off loans	8,000
Balance at end of period	17,000
Loan portfolio distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment	26,361,000	26,629,000
Total loans	26,433,000	26,706,000
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment	17,000	5,000
Total loans	17,000
Acquired performing loans
Allowance for loan losses
Additional allowance recorded when allowance is less than remaining fair value of discount	0
PCI loans
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	157,024,000	166,780,000
Total loans	157,024,000	166,780,000
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	431,000
PCI loans | Commercial and industrial
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	71,460,000	71,386,000
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	228,000
PCI loans | Real Estate
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	59,321,000	62,247,000
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	174,000
PCI loans | Construction and land development
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	26,171,000	33,070,000
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	29,000
PCI loans | Consumer
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	72,000	77,000
Total loans	72,000	77,000
Acquired loans
Allowance for loan losses
Carryover of the allowance for loan losses recorded	$ 0

XML

Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2013

Loans and Allowance for Loan Losses

Loans and Allowance for Loan Losses

5. Loans and Allowance for Loan Losses

Loans summarized by category are as follows (in thousands).

	March 31,			December 31,
	2013			2012
Commercial and industrial	$	1,705,208		$	1,660,293
Real estate	1,237,352			1,184,914
Construction and land development	279,374			280,483
Consumer	26,433			26,706
	3,248,367			3,152,396
Allowance for loan losses	(16,637		)	(3,409		)
Total loans, net of allowance	$	3,231,730		$	3,148,987

PlainsCapital has lending policies in place with the goal of establishing an asset portfolio that will provide a return on stockholders’ equity sufficient to maintain capital to assets ratios that meet or exceed established regulatory guidelines. Loans are underwritten with careful consideration of the borrower’s financial condition, the specific purpose of the loan, the primary sources of repayment and any collateral pledged to secure the loan.

Underwriting procedures address financial components based on the size or complexity of the credit. The financial components include but are not limited to current and projected global cash flows, shock analysis and/or stress testing, and trends in appropriate balance sheet and statement of operations ratios. Collateral analysis includes a complete description of the collateral, as well as determining values, monitoring requirements, loan to value ratios, concentration risk, appraisal requirements and other information relevant to the collateral being pledged. Guarantor analysis includes liquidity and global cash flow analysis based on the significance the guarantors are expected to serve as secondary repayment sources. PlainsCapital’s underwriting standards are governed by adherence to its loan policy. The loan policy provides for specific guidelines by portfolio segment, including commercial and industrial, real estate, construction and land development, and consumer loans. Within each individual portfolio segment, permissible and impermissible loan types are explicitly outlined. Within the loan types, minimum requirements for the underwriting factors listed above are provided.

PlainsCapital maintains a loan review department that reviews credit risk in response to both external and internal factors that potentially impact the performance of either individual loans or the overall loan portfolio. The loan review process reviews the creditworthiness of borrowers and determines compliance with the loan policy. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel.  Results of these reviews are presented to management and the Bank’s Board of Directors.

In connection with the Merger, Hilltop acquired loans both with and without evidence of credit quality deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan losses. The following table presents the outstanding contractual balance and the carrying value of the PCI loans at March 31, 2013 and December 31, 2012 (in thousands).

	March 31,		December 31,
	2013		2012
Carrying amount	$	157,024	$	166,780
Outstanding balance	210,416		222,674

Changes in the accretable yield for the PCI loans were as follows (in thousands).

	Three Months Ended
	March 31, 2013
Balance, beginning of period	$	17,553
Increases in expected cash flows	11,996
Disposals of loans	(26		)
Accretion	(3,277		)
Balance, end of period	$	26,246

Impaired loans exhibit a clear indication that the borrower’s cash flow may not be sufficient to meet principal and interest payments, which is generally when a loan is 90 days past due unless the asset is both well secured and in the process of collection. Impaired loans include non-accrual loans, troubled debt restructurings (“TDRs”), PCI loans and partially charged-off loans.

Impaired loans are summarized by class in the following tables (in thousands). There were no impaired loans at December 31, 2012, other than PCI loans, and therefore no related allowance.

	Unpaid						Total
	Contractual		Nonaccretable		Accretable		Recorded		Related
March 31, 2013	Principal Balance		Difference		Yield		Investment		Allowance
Commercial and industrial:
Secured	$	91,154	$	23,380	$	7,264	$	68,666	$	228
Unsecured	11,664		6,355		5,649		2,794		—
Real estate:
Secured by commercial properties	61,850		13,259		8,031		51,223		156
Secured by residential properties	10,180		1,853		892		8,098		18
Construction and land development:
Residential construction loans	29		5		24		—		—
Commercial construction loans and land development	35,452		7,256		4,377		26,171		29
Consumer	87		14		9		72		—
	$	210,416	$	52,122	$	26,246	$	157,024	$	431
	Unpaid						Total
	Contractual		Nonaccretable		Accretable		Recorded
December 31, 2012	Principal Balance		Difference		Yield		Investment
Commercial and industrial:
Secured	$	91,633	$	24,982	$	6,114	$	67,967
Unsecured	12,198		8,707		472		3,419
Real estate:
Secured by commercial properties	66,736		15,816		7,294		55,519
Secured by residential properties	8,690		2,251		557		6,728
Construction and land development:
Residential construction loans	995		493		40		708
Commercial construction loans and land development	42,330		9,113		3,067		32,362
Consumer	92		16		9		77
	$	222,674	$	61,378	$	17,553	$	166,780

Average investment in impaired loans for the three months ended March 31, 2013 is summarized by class in the following table (in thousands).

Commercial and industrial:
Secured	$	68,316
Unsecured	3,107
Real estate:
Secured by commercial properties	53,371
Secured by residential properties	7,413
Construction and land development:
Residential construction loans	354
Commercial construction loans and land development	29,266
Consumer	75
	$	161,902

Interest income recorded on non-accrual loans for the three months ended March 31, 2013 was nominal.

Non-accrual loans at March 31, 2013 were $3.4 million, primarily composed of real estate loans secured by residential properties that are classified as held for sale and carried at fair value, as well as lease financing receivables. At December 31, 2012, non-accrual loans were $1.8 million, all of which were real estate loans secured by residential properties that are classified as held for sale and carried at fair value. All PCI loans are considered to be performing due to the application of the accretion method.

PlainsCapital classifies loan modifications as TDRs when it concludes that it has both granted a concession to a debtor and that the debtor is experiencing financial difficulties. Loan modifications are typically structured to create affordable payments for the debtor and can be achieved in a variety of ways. PlainsCapital modifies loans by reducing interest rates and/or lengthening loan amortization schedules. PlainsCapital also reconfigures a single loan into two or more loans (“A/B Note”). The typical A/B Note restructure results in a “bad” loan which is charged off and a “good” loan or loans the terms of which comply with the Bank’s customary underwriting policies. The debt charged off on the “bad” loan is not forgiven to the debtor.

Information regarding TDRs granted for the three months ended March 31, 2013 is shown in the following table (in thousands). All TDRs granted relate to PCI loans. At March 31, 2013, PlainsCapital had no unadvanced commitments to borrowers whose loans have been restructured in troubled debt restructurings.

	Recorded Investment in Loans Modifed by
			Interest Rate		Payment Term		Total
	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	28	$	28
Unsecured	—		—		—		—
Real estate:
Secured by commercial properties	—		—		1,236		1,236
Secured by residential properties	—		—		262		262
Construction and land development:
Residential construction loans	—		—		—		—
Commercial construction loans and land development	—		—		570		570
Consumer	—		—		—		—
	$	—	$	—	$	2,096	$	2,096

An analysis of the aging of PlainsCapital’s loan portfolio is shown in the following tables (in thousands). PCI loans are considered to be performing due to the application of the accretion method.

													Accruing Loans
	Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
March 31, 2013	30-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	6,150	$	1,510	$	7,660	$	1,512,663	$	68,666	$	1,588,989	$	—
Unsecured	259		—		259		113,166		2,794		116,219		—
Real estate:
Secured by commercial properties	796		—		796		912,690		51,223		964,709		—
Secured by residential properties	1,257		108		1,365		263,180		8,098		272,643		—
Construction and land development:
Residential construction loans	—		—		—		43,174		—		43,174		—
Commercial construction loans and land development	178		—		178		209,851		26,171		236,200		—
Consumer	20		—		20		26,341		72		26,433		—
	$	8,660	$	1,618	$	10,278	$	3,081,065	$	157,024	$	3,248,367	$	—
													Accruing Loans
	Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
December 31, 2012	30-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	8,192	$	2,131	$	10,323	$	1,473,242	$	67,967	$	1,551,532	$	2,000
Unsecured	3		—		3		105,339		3,419		108,761		—
Real estate:
Secured by commercial properties	714		—		714		868,070		55,519		924,303		—
Secured by residential properties	856		—		856		253,027		6,728		260,611		—
Construction and land development:
Residential construction loans	63		—		63		47,398		708		48,169		—
Commercial construction loans and land development	—		—		—		199,952		32,362		232,314		—
Consumer	84		—		84		26,545		77		26,706		—
	$	9,912	$	2,131	$	12,043	$	2,973,573	$	166,780	$	3,152,396	$	2,000

Management tracks credit quality trends on a quarterly basis related to: (i) past due levels, (ii) non-performing asset levels, (iii) classified loan levels, (iv) net charge-offs, and (v) general economic conditions in the state and local markets.

PlainsCapital utilizes a risk grading matrix to assign a risk grade to each of the loans in its portfolio. A risk rating is assigned based on an assessment of the borrower’s management, collateral position, financial capacity, and economic factors. The general characteristics of the various risk grades are described below.

Pass — “Pass” loans present a range of acceptable risks to the Bank. Loans that would be considered virtually risk-free are rated Pass — low risk.  Loans that exhibit sound standards based on the grading factors above and present a reasonable risk to the Bank are rated Pass — normal risk.  Loans that exhibit a minor weakness in one or more of the grading criteria but still present an acceptable risk to the Bank are rated Pass — high risk.

Special Mention — A “Special Mention” asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in a deterioration of the repayment prospects for the asset and weaken the Bank’s credit position at some future date. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to require adverse classification.

Substandard — “Substandard” loans are inadequately protected by the current sound worth and paying capacity of the obligor or the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Many substandard loans are considered impaired.

PCI — “PCI” loans exhibited evidence of credit deterioration at acquisition that made it probable that all contractually required principal payments would not be collected.

The following tables present the internal risk grades of loans, as previously described, in the portfolio by class (in thousands).

March 31, 2013	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,510,466	$	2,759	$	7,098	$	68,666	$	1,588,989
Unsecured	113,223		81		121		2,794		116,219
Real estate:
Secured by commercial properties	913,486		—		—		51,223		964,709
Secured by residential properties	264,437		—		108		8,098		272,643
Construction and land development:
Residential construction loans	43,174		—		—		—		43,174
Commercial construction loans and land development	209,581		—		448		26,171		236,200
Consumer	26,361		—		—		72		26,433
	$	3,080,728	$	2,840	$	7,775	$	157,024	$	3,248,367

December 31, 2012	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,476,420	$	2,515	$	4,630	$	67,967	$	1,551,532
Unsecured	105,142		200		—		3,419		108,761
Real estate:
Secured by commercial properties	868,784		—		—		55,519		924,303
Secured by residential properties	253,883		—		—		6,728		260,611
Construction and land development:
Residential construction loans	47,461		—		—		708		48,169
Commercial construction loans and land development	199,952		—		—		32,362		232,314
Consumer	26,629		—		—		77		26,706
	$	2,978,271	$	2,715	$	4,630	$	166,780	$	3,152,396

The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses inherent in the existing portfolio of loans. Management has responsibility for determining the level of the allowance for loan losses, subject to review by the Audit Committee of our Board of Directors and the Directors’ Loan Review Committee of the Bank’s Board of Directors.

It is management’s responsibility at the end of each quarter, or more frequently as deemed necessary, to analyze the level of the allowance for loan losses to ensure that it is appropriate for the estimated credit losses in the portfolio consistent with the Interagency Policy Statement on the Allowance for Loan and Lease Losses and the Receivables and Contingencies Topics of the ASC. Estimated credit losses are the probable current amount of loans that the Company will be unable to collect given facts and circumstances as of the evaluation date. When management determines that a loan or portion thereof is uncollectible, the loan, or portion thereof, is charged off against the allowance for loan losses. Any subsequent recovery of charged-off loans is added back to the allowance for loan losses. As a result of the Merger on November 30, 2012, PlainsCapital’s loan portfolio is now designated into two populations, acquired and originated loans. The allowance for loan losses is calculated separately for the acquired and originated loans.

Originated Loans

The Company has developed a methodology that seeks to determine an allowance within the scope of the Receivables and Contingencies Topics of the ASC. Each of the loans that has been determined to be impaired is within the scope of the Receivables Topic and is individually evaluated for impairment using one of three impairment measurement methods as of the evaluation date: (1) the present value of expected future discounted cash flows on the loan, (2) the loan’s observable market price, or (3) the fair value of the collateral if the loan is collateral dependent. Specific reserves are provided in the estimate of the allowance based on the measurement of impairment under these three methods, except for collateral dependent loans, which require the fair value method. All non-impaired loans are within the scope of the Contingencies Topic. Estimates of loss for the Contingencies Topic are calculated based on historical loss experience by loan portfolio segment adjusted for changes in trends, conditions, and other relevant factors that affect repayment of loans as of the evaluation date. While historical loss experience provides a reasonable starting point for the analysis, historical losses, or recent trends in losses, are not the sole basis upon which to determine the appropriate level for the allowance for loan losses. Management considers recent qualitative or environmental factors that are likely to cause estimated credit losses associated with the existing portfolio to differ from historical loss experience, including but not limited to: changes in lending policies and procedures; changes in underwriting standards; changes in economic and business conditions and developments that affect the collectability of the portfolio; the condition of various market segments; changes in the nature and volume of the portfolio and in the terms of loans; changes in lending management and staff; changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans; changes in the loan review system; changes in the value of underlying collateral for collateral-dependent loans; and any concentrations of credit and changes in the level of such concentrations.

The loan review program is designed to identify and monitor problem loans by maintaining a credit grading process, ensuring that timely and appropriate changes are made to the loans with assigned risk grades and coordinating the delivery of the information necessary to assess the appropriateness of the allowance for loan losses. Loans are evaluated for impairment when: (i) payments on the loan are delayed, typically by 90 days or more (unless the loan is both well secured and in the process of collection), (ii) the loan becomes classified, (iii) the loan is being reviewed in the normal course of the loan review scope, or (iv) the loan is identified by the servicing officer as a problem.

Homogenous loans, such as consumer installment loans, residential mortgage loans and home equity loans, are not individually reviewed and are generally risk graded at the same levels. The risk grade and reserves are established for each homogenous pool of loans based on the expected net charge-offs from current trends in delinquencies, losses or historical experience and general economic conditions. At March 31, 2013 and December 31, 2012, there were no material delinquencies in these types of loans.

Acquired Loans

Purchased loans acquired in a business combination are recorded at their estimated fair value on their purchase date and with no carryover of the related allowance for loan losses. Performing acquired loans are subsequently evaluated for any required allowance at each reporting date. An allowance for loan losses is calculated using a methodology similar to that described above for originated loans. The allowance as determined for each loan is compared to the remaining fair value discount for that loan. If greater, the excess is recognized as an addition to the allowance through a provision for loan losses. If less than the discount, no additional allowance is recorded. Charge-offs and losses first reduce any remaining fair value discount for the loan and once the discount is depleted, losses are applied against the allowance established for that loan.

For acquired impaired loans, cash flows expected to be collected are recast at each reporting date for each loan. These evaluations require the continued use and updating of key assumptions and estimates such as default rates, loss severity given default and prepayment speed assumptions, similar to those used for the initial fair value estimate. Management judgment must be applied in developing these assumptions. If expected cash flows for a loan decreases, an increase in the allowance for loan losses is made through a charge to the provision for loan losses. If expected cash flows for a loan increase, any previously established allowance for loan losses is reversed and any remaining difference increases the accretable yield which will be taken into income over the remaining life of the loan.

The allowance is subject to regulatory examinations and determinations as to appropriateness, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance.

Changes in the allowance for loan losses for the three months ended March 31, 2013, distributed by portfolio segment, are shown below (in thousands).

	Commercial and Industrial			Real Estate			Construction and Land Development		Consumer			Total
Balance, beginning of period	$	1,845		$	977		$	582	$	5		$	3,409
Provision charged to operations	6,911			2,437			3,597		60			13,005
Loans charged off	(438		)	(31		)	—		(56		)	(525		)
Recoveries on charged off loans	494			139			107		8			748
Balance, end of period	$	8,812		$	3,522		$	4,286	$	17		$	16,637

The loan portfolio was distributed by portfolio segment and impairment methodology as shown below (in thousands).

March 31, 2013	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
Loans individually evaluated for impairment	$	1,507	$	108	$	—	$	—	$	1,615
Loans collectively evaluated for impairment	1,632,241		1,177,923		253,203		26,361		3,089,728
PCI Loans individually evaluated for impairment	71,460		59,321		26,171		72		157,024
	$	1,705,208	$	1,237,352	$	279,374	$	26,433	$	3,248,367

December 31, 2012	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment	1,588,907		1,122,667		247,413		26,629		2,985,616
PCI Loans individually evaluated for impairment	71,386		62,247		33,070		77		166,780
	$	1,660,293	$	1,184,914	$	280,483	$	26,706	$	3,152,396

The allowance for loan losses was distributed by portfolio segment and impairment methodology as shown below (in thousands).

March 31, 2013	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment	8,584		3,348		4,257		17		16,206
PCI Loans individually evaluated for impairment	228		174		29		—		431
	$	8,812	$	3,522	$	4,286	$	17	$	16,637

December 31, 2012	Commercial and Industrial		Real Estate		Construction and Land Development		Consumer		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment	1,845		977		582		5		3,409
PCI Loans individually evaluated for impairment	—		—		—		—		—
	$	1,845	$	977	$	582	$	5	$	3,409

XML

Deposits

3 Months Ended

Mar. 31, 2013

Deposits

Deposits

6. Deposits

Deposits are summarized as follows (in thousands).

	March 31, 2013		December 31, 2012
Noninterest-bearing demand	$	249,678	$	323,367
Interest-bearing:
NOW accounts		138,591		106,562
Money market		2,326,046		2,357,109
Brokered - money market		264,715		263,193
Demand		54,087		75,308
Savings		185,812		180,367
Time		1,286,950		1,175,432
Brokered - time		252,559		219,123
	$	4,758,438	$	4,700,461

XML

Income Taxes

3 Months Ended

Mar. 31, 2013

Income Taxes

Income Taxes

8. Income Taxes

Hilltop applies an estimated annual effective rate to interim period pre-tax income to calculate the income tax provision for the quarter, in accordance with the principal method prescribed by the accounting guidance established for computing income taxes in interim periods. The Company’s effective rate was 36.5% and 37.2% for the three months ended March 31, 2013 and 2012, respectively.

GAAP requires the measurement of uncertain tax positions. Uncertain tax positions are the difference between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for accounting purposes. There were no uncertain tax positions at March 31, 2013 and 2012. The Company does not anticipate any significant liabilities for uncertain tax positions to arise in the next twelve months.

Hilltop files income tax returns in U.S. federal and several U.S. state jurisdictions. The Company is subject to tax audits in numerous jurisdictions in the U.S. until the applicable statute of limitations expires. Excluding those entities acquired as a part of the PlainsCapital Merger, Hilltop has been examined by U.S. tax authorities for U.S. federal income tax years prior to 2010, and is under no federal or state tax audits at March 31, 2013. PlainsCapital has been examined by U.S. tax authorities for U.S. federal income tax years prior to 2010, and is under no federal or state tax audits at March 31, 2013.

XML

Commitments and Contingencies (Details) (Indemnification liability established by mortgage origination segment, USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Indemnification liability established by mortgage origination segment
Commitments and Contingencies
Indemnification reserve	$ 19.7	$ 19.0
Provision for indemnification losses	$ 0.9

XML

Regulatory Matters (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Bank
Tier 1 capital (to average assets)
Required Amount	$ 248,671,000	$ 245,495,000
Required Ratio (as a percent)	4.00%	4.00%
Actual Amount	572,965,000	542,307,000
Actual Ratio (as a percent)	9.22%	8.84%
Tier 1 capital (to risk-weighted assets)
Required Amount	187,655,000	183,308,000
Required Ratio (as a percent)	4.00%	4.00%
Actual Amount	572,965,000	542,307,000
Actual Ratio (as a percent)	12.21%	11.83%
Total capital (to risk-weighted assets)
Required Amount	375,309,000	366,615,000
Required Ratio (as a percent)	8.00%	8.00%
Actual Amount	590,484,000	546,598,000
Actual Ratio (as a percent)	12.59%	11.93%
Tier 1 capital (to average assets)
Required Amount	310,839,000	306,869,000
Required Ratio (as a percent)	5.00%	5.00%
Actual Amount	572,965,000	542,307,000
Actual Ratio (as a percent)	9.22%	8.84%
Tier 1 capital (to risk-weighted assets)
Required Amount	281,482,000	274,961,000
Required Ratio (as a percent)	6.00%	6.00%
Actual Amount	572,965,000	542,307,000
Actual Ratio (as a percent)	12.21%	11.83%
Total capital (to risk-weighted assets)
Required Amount	469,136,000	458,269,000
Required Ratio (as a percent)	10.00%	10.00%
Actual Amount	590,484,000	546,598,000
Actual Ratio (as a percent)	12.59%	11.93%
Hilltop
Tier 1 capital (to average assets)
Required Amount	270,976,000	266,514,000
Required Ratio (as a percent)	4.00%	4.00%
Actual Amount	906,947,000	871,379,000
Actual Ratio (as a percent)	13.39%	13.08%
Tier 1 capital (to risk-weighted assets)
Required Amount	199,239,000	196,670,000
Required Ratio (as a percent)	4.00%	4.00%
Actual Amount	906,947,000	871,379,000
Actual Ratio (as a percent)	18.21%	17.72%
Total capital (to risk-weighted assets)
Required Amount	398,478,000	393,340,000
Required Ratio (as a percent)	8.00%	8.00%
Actual Amount	925,608,000	875,670,000
Actual Ratio (as a percent)	18.58%	17.81%
Tier 1 capital (to average assets)
Actual Amount	906,947,000	871,379,000
Actual Ratio (as a percent)	13.39%	13.08%
Tier 1 capital (to risk-weighted assets)
Actual Amount	906,947,000	871,379,000
Actual Ratio (as a percent)	18.21%	17.72%
Total capital (to risk-weighted assets)
Actual Amount	925,608,000	875,670,000
Actual Ratio (as a percent)	18.58%	17.81%
FSC
Financial Advisory
Net capital	42,100,000
Minimum net capital requirement	3,500,000
Net capital as a percentage of aggregate debits	24.00%
Net capital in excess of the minimum requirement	38,600,000
Amount required to be segregated in cash and securities for regulatory purposes		$ 19,000,000

XML

Income Taxes (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Net operating loss carryforwards
Effective income tax rate (as a percent)	36.50%	37.20%
Uncertain tax positions
Liabilities for uncertain tax positions	$ 0	$ 0

XML

Deposits (Tables)

3 Months Ended

Mar. 31, 2013

Deposits

Summary of deposits

Deposits are summarized as follows (in thousands).

	March 31, 2013		December 31, 2012
Noninterest-bearing demand	$	249,678	$	323,367
Interest-bearing:
NOW accounts		138,591		106,562
Money market		2,326,046		2,357,109
Brokered - money market		264,715		263,193
Demand		54,087		75,308
Savings		185,812		180,367
Time		1,286,950		1,175,432
Brokered - time		252,559		219,123
	$	4,758,438	$	4,700,461

XML

Securities (Details) (USD $) In Thousands, except Share data, unless otherwise specified			1 Months Ended																					3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Jul. 31, 2011 SWS Note receivable	Mar. 31, 2013 U.S. Treasury securities	Dec. 31, 2012 U.S. Treasury securities	Mar. 31, 2013 Bonds	Dec. 31, 2012 Bonds	Mar. 31, 2013 Residential mortgage-backed securities	Dec. 31, 2012 Residential mortgage-backed securities	Mar. 31, 2013 Collateralized mortgage obligations	Dec. 31, 2012 Collateralized mortgage obligations	Mar. 31, 2013 Corporate debt securities	Dec. 31, 2012 Corporate debt securities	Mar. 31, 2013 States and political subdivisions	Dec. 31, 2012 States and political subdivisions	Mar. 31, 2013 Commercial mortgage-backed securities	Dec. 31, 2012 Commercial mortgage-backed securities	Mar. 31, 2013 Equity securities	Dec. 31, 2012 Equity securities	Mar. 31, 2013 Note receivable	Dec. 31, 2012 Note receivable	Mar. 31, 2013 Warrant	Dec. 31, 2012 Warrant	Mar. 31, 2013 Warrant SWS	Mar. 31, 2013 Common Stock SWS
Available for sale
Amortized Cost	$ 1,132,701	$ 978,502		$ 7,159	$ 7,046	$ 630,725	$ 524,888	$ 16,927	$ 18,473	$ 165,520	$ 97,812	$ 72,811	$ 79,716	$ 166,057	$ 177,701	$ 991	$ 1,001	$ 19,423	$ 19,289	$ 41,020	$ 40,508	$ 12,068	$ 12,068
Gross Unrealized Gains	18,246	15,054		118	141	1,527	1,663	426	490	411	191	7,016	7,461	416	196	81	72	2,537	1,139	3,745	3,652	1,969	49
Gross Unrealized Losses	(4,442)	(2,603)		(3)	(2)	(956)	(314)	(150)	(70)	(243)	(79)			(3,090)	(2,138)
Fair Value	1,146,505	990,953		7,274	7,185	631,296	526,237	17,203	18,893	165,688	97,924	79,827	87,177	163,383	175,759	1,072	1,073	21,960	20,428	44,765	44,160	14,037	12,117
Number of shares included within the available for sale equity securities																									1,475,387
Principal amount of senior unsecured loan			$ 50,000
Interest rate on senior unsecured loan (as a percent)			8.00%
Period after issuance in which senior unsecured loan may be prepaid			3 years
Maturity term of senior unsecured loan			5 years
Number of warrants received to purchase shares of common stock																								8,695,652
Par value of SWS common stock (in dollars per share)																								$ 0.10
Warrants exercise price (in dollars per share)																								$ 5.75
Ownership interest percentage the entity would own if warrant was fully exercised																								24.60%

XML

Balance Sheet Offsetting

3 Months Ended

Mar. 31, 2013

Balance Sheet Offsetting

Balance Sheet Offsetting

13. Balance Sheet Offsetting

Certain financial instruments, including resale and repurchase agreements, securities lending arrangements and derivatives, may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements or similar agreements. The Company has not elected to offset assets and liabilities under netting arrangements for balance sheet presentation.

The following tables present the assets and liabilities subject to an enforceable master netting arrangement, repurchase agreements, or similar agreements with offsetting rights at March 31, 2013 and December 31, 2012 (in thousands).

					Net Amounts		Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet		of Assets Presented in the Balance Sheet		Financial Instruments			Cash Collateral Pledged		Net Amount
March 31, 2013
Securities Borrowed:
Institutional Counterparties	$	130,072	$	—	$	130,072	$	(130,072	)	$	—	$	—
	$	130,072	$	—	$	130,072	$	(130,072	)	$	—	$	—
December 31, 2012
Securities Borrowed:
Institutional Counterparties	$	103,936	$	—	$	103,936	$	(103,936	)	$	—	$	—
	$	103,936	$	—	$	103,936	$	(103,936	)	$	—	$	—

						Net Amounts		Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabities		Gross Amounts Offset in the Balance Sheet			of Liabilities Presented in the Balance Sheet		Financial Instruments			Cash Collateral Pledged			Net Amount
March 31, 2013
Securities Loaned:
Institutional Counterparties	$	159,835	$	—		$	159,835	$	(159,835	)	$	—		$	—
Repurchase Agreements:
Institutional Counterparties	3,243		—			3,243		(3,243		)	—			—
Forward MBS Sale Derivatives:
Institutional Counterparties	6,872		(353		)	6,519		—			(2,224		)	4,295
	$	169,950	$	(353	)	$	169,597	$	(163,078	)	$	(2,224	)	$	4,295
December 31, 2012
Securities Loaned:
Institutional Counterparties	$	115,102	$	—		$	115,102	$	(115,102	)	$	—		$	—
Forward MBS Sale Derivatives:
Institutional Counterparties	2,000		(975		)	1,025		—			(249		)	776
	$	117,102	$	(975	)	$	116,127	$	(115,102	)	$	(249	)	$	776

XML

Earnings per Common Share

3 Months Ended

Mar. 31, 2013

Earnings per Common Share

Earnings per Common Share

18. Earnings per Common Share

The following table presents the computation of basic and diluted earnings per common share (in thousands, except per share data).

	Three Months Ended March 31,
	2013			2012
Income applicable to Hilltop Holdings common stockholders	$	33,073		$	343
Dividends on preferred stock	(703		)	—
Income applicable to Hilltop Holdings common stockholders for basic earnings per common share	$	32,370		$	343
Basic shares outstanding	83,487			56,499
Diluted shares outstanding	83,743			56,555
Basic earnings per common share	$	0.39		$	0.01
Diluted earnings per common share	$	0.39		$	0.01

For each of the three months ended March 31, 2013 and 2012, the computation of diluted net earnings per common share did not include 6,208,000 equivalent shares of senior exchangeable notes as the equivalent exchange rate per share was in excess of the average stock prices for the periods presented.

XML

Fair Value Measurements (Details 4) (USD $)	Mar. 31, 2013	Mar. 31, 2013 PlainsCapital PCI loans	Dec. 31, 2012 PlainsCapital PCI loans	Mar. 31, 2013 Level 3 PlainsCapital PCI loans	Mar. 31, 2013 Non-recurring Level 2 Estimated fair value	Nov. 30, 2012 Non-recurring Level 3 PlainsCapital PCI loans
Fair value measurements
Fair value of loans acquired						$ 172,900,000
Carrying value of loans acquired		157,024,000	166,780,000	157,000,000
Allowance for loan losses	431,000			400,000
Fair value of PCI loans acquired				156,600,000
Other real estate owned					$ 7,500,000

XML

Reinsurance Activity (Tables)

3 Months Ended

Mar. 31, 2013

Reinsurance Activity

Schedule of effects of reinsurance on premiums written and earned

The effects of reinsurance on premiums written and earned are summarized as follows (in thousands).

	Three Months Ended March 31,
	2013						2012
	Written			Earned			Written			Earned
Premiums from direct business	$	41,857		$	40,546		$	40,741		$	38,685
Reinsurance assumed	1,754			1,630			1,437			1,359
Reinsurance ceded	(4,555		)	(4,703		)	(4,616		)	(4,889		)
Net premiums	$	39,056		$	37,473		$	37,562		$	35,155

Schedule of effects of reinsurance on incurred losses

The effects of reinsurance on incurred losses are as follows (in thousands).

	Three Months Ended March 31,
	2013			2012
Loss and LAE incurred	$	21,412		$	24,071
Reinsurance recoverables	(227		)	(1,529		)
Net loss and LAE incurred	$	21,185		$	22,542

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income	$ 33,373	$ 343
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale, net of tax of $473 and $(1,831)	879	(3,401)
Comprehensive income (loss)	34,252	(3,058)
Less: comprehensive income attributable to noncontrolling interest	300
Comprehensive income (loss) applicable to Hilltop Holdings	$ 33,952	$ (3,058)

XML

PlainsCapital Acquisition

3 Months Ended

Mar. 31, 2013

PlainsCapital Acquisition

PlainsCapital Acquisition

2. PlainsCapital Acquisition

After the close of business on November 30, 2012, Hilltop acquired PlainsCapital Corporation in a stock and cash transaction. PlainsCapital Corporation merged with and into Meadow Corporation, a wholly owned subsidiary of Hilltop, with Meadow Corporation continuing as the surviving entity under the name “PlainsCapital Corporation”. Based on Hilltop’s closing stock price on November 30, 2012, the total purchase price was $813.5 million, consisting of 27.1 million shares of common stock, $311.8 million in cash and the issuance of 114,068 shares of Hilltop Non-Cumulative Perpetual Preferred Stock, Series B. The fair market value of assets acquired, excluding goodwill, totaled $6.5 billion, including $3.2 billion of loans, $730.8 million of investment securities and $70.7 million of identifiable intangibles. The fair market value of the liabilities assumed was $5.9 billion, including $4.5 billion of deposits.

The Merger was accounted for using the purchase method of accounting, and accordingly, purchased assets, including identifiable intangible assets, and assumed liabilities were recorded at their respective acquisition date fair values. The Company initially recorded $230.1 million of goodwill in connection with the Merger, representing the inherent long-term value expected from the business opportunities created from combining PlainsCapital with Hilltop. The amount of goodwill recorded in connection with the Company’s acquisition of PlainsCapital Corporation is not deductible for tax purposes. The Company used significant estimates and assumptions to value the identifiable assets acquired and liabilities assumed. The purchase date valuations are considered preliminary and are subject to change for up to one year after the acquisition date. During the three months ended March 31, 2013, the Company reduced goodwill related to the PlainsCapital acquisition by $2.0 million for a purchase accounting adjustment related to the valuation of a capital lease obligation.

The operations acquired in the Merger have been included in Hilltop’s financial results since December 1, 2012. The following table presents pro forma results for the three months ended March 31, 2012 had the acquisition taken place on January 1, 2011 (in thousands). The pro forma financial information combines the historical results of Hilltop and PlainsCapital Corporation and includes the estimated impact of purchase accounting adjustments. The purchase accounting adjustments reflect the impact of recording the acquired loans at fair value, including the estimated accretion of the purchase discount on the loan portfolio and related adjustments to PlainsCapital’s provision for loan losses. Accretion estimates were based on the acquisition date purchase discount on the loan portfolio, as it was not practicable to determine the amount of discount that would have been recorded based on economic conditions that existed on January 1, 2011. The pro forma results do not include any potential operating cost savings as a result of the Merger. Further, certain costs associated with any restructuring or integration activities are also not reflected in the pro forma results. Pro forma results include the acquisition-related merger and restructuring charges incurred during the period. The pro forma results are not indicative of what would have occurred had the acquisition taken place on the indicated date.

	Three Months Ended
	March 31, 2012
Net interest income	$	53,542
Other revenues	186,993
Net income	22,687

XML

Loans and Allowance for Loan Losses (Details 5) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Loans and Allowance for Loan Losses
Loans past Due 30-89 Days	$ 8,660	$ 9,912
Loans past Due 90 Days or More	1,618	2,131
Total Past Due Loans	10,278	12,043
Current Loans	3,081,065	2,973,573
Total loans	3,248,367	3,152,396
Accruing Loans Past Due 90 Days or More		2,000
PCI loans
Loans and Allowance for Loan Losses
Total loans	157,024	166,780
Secured
Loans and Allowance for Loan Losses
Loans past Due 30-89 Days	6,150	8,192
Loans past Due 90 Days or More	1,510	2,131
Total Past Due Loans	7,660	10,323
Current Loans	1,512,663	1,473,242
Total loans	1,588,989	1,551,532
Accruing Loans Past Due 90 Days or More		2,000
Secured | PCI loans
Loans and Allowance for Loan Losses
Total loans	68,666	67,967
Unsecured
Loans and Allowance for Loan Losses
Loans past Due 30-89 Days	259	3
Total Past Due Loans	259	3
Current Loans	113,166	105,339
Total loans	116,219	108,761
Unsecured | PCI loans
Loans and Allowance for Loan Losses
Total loans	2,794	3,419
Secured by commercial properties
Loans and Allowance for Loan Losses
Loans past Due 30-89 Days	796	714
Total Past Due Loans	796	714
Current Loans	912,690	868,070
Total loans	964,709	924,303
Secured by commercial properties | PCI loans
Loans and Allowance for Loan Losses
Total loans	51,223	55,519
Secured by residential properties
Loans and Allowance for Loan Losses
Loans past Due 30-89 Days	1,257	856
Loans past Due 90 Days or More	108
Total Past Due Loans	1,365	856
Current Loans	263,180	253,027
Total loans	272,643	260,611
Secured by residential properties | PCI loans
Loans and Allowance for Loan Losses
Total loans	8,098	6,728
Residential construction loan
Loans and Allowance for Loan Losses
Loans past Due 30-89 Days		63
Total Past Due Loans		63
Current Loans	43,174	47,398
Total loans	43,174	48,169
Residential construction loan | PCI loans
Loans and Allowance for Loan Losses
Total loans		708
Commercial construction loans and land development
Loans and Allowance for Loan Losses
Loans past Due 30-89 Days	178
Total Past Due Loans	178
Current Loans	209,851	199,952
Total loans	236,200	232,314
Commercial construction loans and land development | PCI loans
Loans and Allowance for Loan Losses
Total loans	26,171	32,362
Consumer
Loans and Allowance for Loan Losses
Loans past Due 30-89 Days	20	84
Total Past Due Loans	20	84
Current Loans	26,341	26,545
Total loans	26,433	26,706
Consumer | PCI loans
Loans and Allowance for Loan Losses
Total loans	$ 72	$ 77

XML

Balance Sheet Offsetting (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Securities Borrowed:
Gross Amounts of Recognized Assets	$ 130,072	$ 103,936
Net Amounts of Assets Presented in the Balance Sheets	130,072	103,936
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(130,072)	(103,936)
Institutional Counterparties
Securities Borrowed:
Gross Amounts of Recognized Assets	130,072	103,936
Net Amounts of Assets Presented in the Balance Sheets	130,072	103,936
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	$ (130,072)	$ (103,936)

XML

Recently Issued Accounting Standards

3 Months Ended

Mar. 31, 2013

Recently Issued Accounting Standards

Recently Issued Accounting Standards

19. Recently Issued Accounting Standards

Comprehensive Income (Loss)

In February 2012, the FASB issued an amendment to the Comprehensive Income Topic to improve the reporting of reclassifications out of comprehensive income (loss). The amendments require entities to present, either parenthetically on the face of the financial statements or in a single footnote, the effect of significant reclassifications out of each component of accumulated other comprehensive income (loss) by the respective line items of net income (loss) affected by the reclassification. The amendment became effective for Hilltop on January 1, 2013, and its adoption did not have any effect on the Company’s consolidated financial statements as the Company had no such reclassifications during the periods presented.

Offsetting Asset and Liabilities

In December 2011, the FASB amended the Balance Sheet Topic of the ASC to require enhanced disclosures about the nature and effect or potential effect of an entity’s rights of setoff associated with its financial and derivative instruments. In January 2013, the FASB issued an update to the amendments, which narrowed the scope of the financial instruments for which the enhanced disclosures are applicable. The amendments became effective for Hilltop on January 1, 2013, and its adoption did not have a significant effect on the Company’s financial position, results of operations or cash flows. See Note 13 to the consolidated financial statements for the disclosures required by this Topic.

XML

Reinsurance Activity (Details 2) (USD $)	3 Months Ended
	Mar. 31, 2013
Catastrophic coverage | First layer of protection
Reinsurance activity
Reinsurance retention amount	$ 8,000,000
Reinsurance coverage in losses per event	17,000,000
Catastrophic coverage | Second layer of protection
Reinsurance activity
Loss amount covered under reinsurance contract	25,000,000
Reinsurance coverage in losses per event	25,000,000
Catastrophic coverage | Third layer of protection
Reinsurance activity
Loss amount covered under reinsurance contract	50,000,000
Reinsurance coverage in losses per event	50,000,000
Catastrophic coverage | Fourth layer of protection
Reinsurance activity
Loss amount covered under reinsurance contract	100,000,000
Reinsurance coverage in losses per event	70,000,000
ASIC | Catastrophic coverage
Reinsurance activity
Loss amount covered under reinsurance contract	6,500,000
Reinsurance retention amount	1,500,000
NLIC | Catastrophic coverage
Reinsurance activity
Reinsurance retention amount	8,000,000
NLASCO | Multi-line excess of loss coverage
Reinsurance activity
Loss amount covered under reinsurance contract	700,000
Reinsurance retention amount	300,000
NLASCO | Catastrophic coverage
Reinsurance activity
Number of layers of protection under reinsurance	4
Reinsurance coverage in losses per event	170,000,000
NLIC and ASIC | Catastrophic coverage | Maximum
Reinsurance activity
Reinsurance retention amount	$ 8,000,000

XML

Balance Sheet Offsetting (Tables)

3 Months Ended

Mar. 31, 2013

Balance Sheet Offsetting

Schedule of the assets subject to an enforceable master netting arrangement or repurchase agreements

The following tables present the assets and liabilities subject to an enforceable master netting arrangement, repurchase agreements, or similar agreements with offsetting rights at March 31, 2013 and December 31, 2012 (in thousands).

					Net Amounts		Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Balance Sheet		of Assets Presented in the Balance Sheet		Financial Instruments			Cash Collateral Pledged		Net Amount
March 31, 2013
Securities Borrowed:
Institutional Counterparties	$	130,072	$	—	$	130,072	$	(130,072	)	$	—	$	—
	$	130,072	$	—	$	130,072	$	(130,072	)	$	—	$	—
December 31, 2012
Securities Borrowed:
Institutional Counterparties	$	103,936	$	—	$	103,936	$	(103,936	)	$	—	$	—
	$	103,936	$	—	$	103,936	$	(103,936	)	$	—	$	—

Schedule of the liabilities subject to an enforceable master netting arrangement or repurchase agreements

						Net Amounts		Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Liabities		Gross Amounts Offset in the Balance Sheet			of Liabilities Presented in the Balance Sheet		Financial Instruments			Cash Collateral Pledged			Net Amount
March 31, 2013
Securities Loaned:
Institutional Counterparties	$	159,835	$	—		$	159,835	$	(159,835	)	$	—		$	—
Repurchase Agreements:
Institutional Counterparties	3,243		—			3,243		(3,243		)	—			—
Forward MBS Sale Derivatives:
Institutional Counterparties	6,872		(353		)	6,519		—			(2,224		)	4,295
	$	169,950	$	(353	)	$	169,597	$	(163,078	)	$	(2,224	)	$	4,295
December 31, 2012
Securities Loaned:
Institutional Counterparties	$	115,102	$	—		$	115,102	$	(115,102	)	$	—		$	—
Forward MBS Sale Derivatives:
Institutional Counterparties	2,000		(975		)	1,025		—			(249		)	776
	$	117,102	$	(975	)	$	116,127	$	(115,102	)	$	(249	)	$	776

XML

Derivative Financial Instruments

3 Months Ended

Mar. 31, 2013

Derivative Financial Instruments

Derivative Financial Instruments

12. Derivative Financial Instruments

Hilltop uses various derivative financial instruments to mitigate interest rate risk. The Bank’s interest rate risk management strategy involves effectively modifying the re-pricing characteristics of certain assets and liabilities so that changes in interest rates do not adversely affect the net interest margin. PrimeLending has interest rate risk relative to interest rate lock commitments (“IRLCs”) and its inventory of mortgage loans held for sale. PrimeLending is exposed to such rate risk from the time an IRLC is made to an applicant to the time the related mortgage loan is sold. To mitigate interest rate risk, PrimeLending executes forward commitments to sell mortgage-backed securities (“MBSs”). FSC uses forward commitments to both purchase and sell MBSs to facilitate customer transactions and as a means to manage risk in certain inventory positions.

Non-Hedging Derivative Instruments and the Fair Value Option

As discussed in Note 3 to the consolidated financial statements, Hilltop has elected to measure substantially all mortgage loans held for sale at fair value under the provisions of the Fair Value Option. The election provides the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without applying complex hedge accounting provisions. The fair values of PrimeLending’s IRLCs and forward commitments are recorded in other assets or other liabilities, as appropriate, and changes in the fair values of these derivative instruments produced a net gain of $1.9 million for the three months ended March 31, 2013, which was recorded as a component of net gains from sale of loans and other mortgage production income. The fair values of FSC’s derivative instruments are recorded in other assets or other liabilities, as appropriate, and changes in the fair values of FSC’s derivatives produced a net gain of $1.8 million for the three months ended March 31, 2013, which was recorded as a component of other noninterest income.

Derivative positions are presented in the following table (in thousands).

	March 31, 2013					December 31, 2012
	Notional Amount		Estimated Fair Value			Notional Amount		Estimated Fair Value
Derivative instruments:
IRLCs	$	1,082,255	$	22,435		$	968,083	$	15,150
Commitments to purchase MBSs	219,471		(806		)	165,128		466
Interest rate swaps	1,969		9			1,969		25
Commitments to sell MBSs	1,912,250		(6,519		)	1,586,930		(1,025		)