10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2013

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

Commission File Number: 1-31987

Hilltop Holdings Inc.

(Exact name of registrant as specified in its charter)

Maryland	84-1477939
(State or other jurisdiction of incorporation or 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 November 8, 2013 was 86,857,999.

HILLTOP HOLDINGS INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 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	45
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 4.	Controls and Procedures	71
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	72
Item 1A.	Risk Factors	72
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74
Item 6.	Exhibits	74

2

HILLTOP HOLDINGS INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	September 30,			December 31,
	2013			2012
	(Unaudited)
Assets
Cash and due from banks	$	976,188		$	722,039
Federal funds sold and securities purchased under agreements to resell	40,086			4,421
Securities:
Trading, at fair value	43,254			90,113
Available for sale, at fair value (amortized cost of $1,305,903 and $978,502, respectively)	1,279,381			990,953
	1,322,635			1,081,066
Loans held for sale	1,046,801			1,401,507
Non-covered loans, net of unearned income	3,310,224			3,152,396
Allowance for non-covered loan losses	(33,180		)	(3,409		)
Non-covered loans, net	3,277,044			3,148,987
Covered loans	1,096,590			—
Broker-dealer and clearing organization receivables	132,636			145,564
Insurance premiums receivable	27,006			24,615
Deferred policy acquisition costs	21,884			19,812
Reinsurance receivable, net of uncollectible amounts	7,656			18,567
Premises and equipment, net	187,857			111,381
FDIC indemnification asset	190,041			—
Covered other real estate owned	119,660			—
Other assets	319,758			277,398
Goodwill	251,808			253,770
Other intangible assets, net	75,942			77,738
Total assets	$	9,093,592		$	7,286,865
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing	$	392,404		$	323,367
Interest-bearing	6,543,758			4,377,094
Total deposits	6,936,162			4,700,461
Broker-dealer and clearing organization payables	142,411			187,990
Reserve for losses and loss adjustment expenses	31,267			34,012
Unearned insurance premiums	92,064			82,598
Short-term borrowings	305,297			728,250
Notes payable	140,111			141,539
Junior subordinated debentures	67,012			67,012
Other liabilities	172,915			198,453
Total liabilities	7,887,239			6,140,315
Commitments and contingencies (see Notes 11 and 12)
Stockholders’ equity:
Hilltop stockholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized;
Series B, liquidation value per share of $1,000; 114,068 shares issued and outstanding, respectively	114,068			114,068
Common stock, $0.01 par value, 100,000,000 shares authorized; 83,958,844 and 83,487,340 shares issued and outstanding, respectively	840			835
Additional paid-in capital	1,302,625			1,304,448
Accumulated other comprehensive income (loss)	(17,238		)	8,094
Accumulated deficit	(194,820		)	(282,949		)
Total Hilltop stockholders’ equity	1,205,475			1,144,496
Noncontrolling interest	878			2,054
Total stockholders’ equity	1,206,353			1,146,550
Total liabilities and stockholders’ equity	$	9,093,592		$	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 September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
Interest income:
Loans, including fees	$	68,121	$	—		$	198,220	$	—
Securities:
Taxable	7,202		3,387			19,594		10,129
Tax-exempt	1,052		—			3,588		—
Federal funds sold and securities purchased under agreements to resell	35		—			91		—
Interest-bearing deposits with banks	282		—			857		—
Other	2,546		—			7,660		—
Total interest income	79,238		3,387			230,010		10,129
Interest expense:
Deposits	3,685		—			10,541		—
Short-term borrowings	384		—			1,488		—
Notes payable	2,294		2,140			6,924		6,410
Junior subordinated debentures	591		—			1,811		—
Other	832		—			2,108		—
Total interest expense	7,786		2,140			22,872		6,410
Net interest income	71,452		1,247			207,138		3,719
Provision for loan losses	10,658		—			34,952		—
Net interest income after provision for loan losses	60,794		1,247			172,186		3,719
Noninterest income:
Net realized gains on securities	1,142		—			1,142		—
Net gains from sale of loans and other mortgage production income	105,337		—			375,464		—
Mortgage loan origination fees	22,091		—			63,679		—
Net insurance premiums earned	39,982		37,688			116,045		109,038
Investment and securities advisory fees and commissions	22,310		—			70,283		—
Bargain purchase gain	3,271		—			3,271		—
Other	11,625		1,895			28,385		5,457
Total noninterest income	205,758		39,583			658,269		114,495
Noninterest expense:
Employees’ compensation and benefits	119,176		1,906			368,081		6,404
Loss and loss adjustment expenses	24,631		30,136			93,976		91,749
Policy acquisition and other underwriting expenses	11,739		10,121			34,169		31,864
Occupancy and equipment, net	20,974		246			60,540		738
Other	40,097		4,383			135,242		8,827
Total noninterest expense	216,617		46,792			692,008		139,582
Income (loss) before income taxes	49,935		(5,962		)	138,447		(21,368		)
Income tax expense (benefit)	16,632		(1,914		)	49,111		(6,954		)
Net income (loss)	33,303		(4,048		)	89,336		(14,414		)
Less: Net income attributable to noncontrolling interest	339		—			1,207		—
Income (loss) attributable to Hilltop	32,964		(4,048		)	88,129		(14,414		)
Dividends on preferred stock	1,133		—			2,985		—
Income (loss) applicable to Hilltop common stockholders	$	31,831	$	(4,048	)	$	85,144	$	(14,414	)
Earnings (loss) per common share:
Basic	$	0.38	$	(0.07	)	$	1.01	$	(0.26	)
Diluted	$	0.36	$	(0.07	)	$	0.98	$	(0.26	)
Weighted average share information:
Basic	83,493		56,363			83,490		56,408
Diluted	90,460		56,363			90,251		56,408

See accompanying notes.

4

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013			2012
Net income (loss)	$	33,303	$	(4,048	)	$	89,336		$	(14,414	)
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale, net of tax of $1,135, $3,225, $(13,641) and $319, respectively	2,109		5,990			(25,332		)	593
Comprehensive income (loss)	35,412		1,942			64,004			(13,821		)
Less: comprehensive income attributable to noncontrolling interest	339		—			1,207			—
Comprehensive income (loss) applicable to Hilltop	$	35,073	$	1,942		$	62,797		$	(13,821	)

See accompanying notes.

5

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)

												Accumulated						Total
									Additional			Other						Hilltop						Total
	Preferred Stock			Common Stock					Paid-in			Comprehensive			Accumulated			Stockholders’			Noncontrolling			Stockholders’
	Shares	Amount		Shares		Amount			Capital			Income (Loss)			Deficit			Equity			Interest			Equity
Balance, December 31, 2011	—	$	—	56,501		$	565		$	918,192		$	13,983		$	(277,357	)	$	655,383		$	—		$	655,383
Net loss	—	—		—		—			—			—			(14,414		)	(14,414		)	—			(14,414		)
Other comprehensive income	—	—		—		—			—			593			—			593			—			593
Stock-based compensation expense	—	—		—		—			367			—			—			367			—			367
Common stock issued to board members	—	—		4		—			38			—			—			38			—			38
Repurchase and retirement of common stock	—	—		(141	)	(1		)	(1,161		)	—			—			(1,162		)	—			(1,162		)
Balance, September 30, 2012	—	$	—	56,364		$	564		$	917,436		$	14,576		$	(291,771	)	$	640,805		$	—		$	640,805
Balance, December 31, 2012	114	$	114,068	83,487		$	835		$	1,304,448		$	8,094		$	(282,949	)	$	1,144,496		$	2,054		$	1,146,550
Net income	—	—		—		—			—			—			88,129			88,129			1,207			89,336
Other comprehensive loss	—	—		—		—			—			(25,332		)	—			(25,332		)	—			(25,332		)
Stock-based compensation expense	—	—		—		—			1,071			—			—			1,071			—			1,071
Common stock issued to board members	—	—		7		—			96			—			—			96			—			96
Issuance of restricted common stock	—	—		465		5			(5		)	—			—			—			—			—
Dividends on preferred stock	—	—		—		—			(2,985		)	—			—			(2,985		)	—			(2,985		)
Cash distributions to noncontrolling interest	—	—		—		—			—			—			—			—			(2,383		)	(2,383		)
Balance, September 30, 2013	114	$	114,068	83,959		$	840		$	1,302,625		$	(17,238	)	$	(194,820	)	$	1,205,475		$	878		$	1,206,353

See accompanying notes.

6

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2013			2012
Operating Activities
Net income (loss)	$	89,336		$	(14,414	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Provision for loan losses	34,952			—
Depreciation, amortization and accretion, net	(24,740		)	1,025
Net realized gains on securities	(1,142		)	—
Bargain purchase gain on acquisition	(3,271		)	—
Deferred income taxes	(11,423		)	(6,954		)
Other, net	3,914			495
Net change in trading securities	46,859			—
Net change in broker-dealer and clearing organization receivables	2,796			—
Net change in other assets	23,711			1,740
Net change in broker-dealer and clearing organization payables	(37,386		)	—
Net change in loss and loss adjustment expense reserve	(2,745		)	1,200
Net change in unearned insurance premiums	9,466			6,159
Net change in other liabilities	(21,993		)	(2,618		)
Net gains from sale of loans	(375,464		)	—
Loans originated for sale	(9,427,627		)	—
Proceeds from loans sold	10,157,410			—
Net cash provided by (used in) operating activities	462,653			(13,367		)
Investing Activities
Proceeds from sales, maturities and principal reductions of securities available for sale	211,732			13,225
Purchases of securities available for sale	(255,142		)	(2,887		)
Net change in non-covered loans	(49,255		)	—
Purchases of premises and equipment and other assets	(20,264		)	(161		)
Proceeds from sales of premises and equipment and other real estate owned	7,641			—
Net cash received for Federal Home Loan Bank and Federal Reserve Bank stock	89			—
Net cash from FNB Transaction	362,695			—
Net cash provided by investing activities	257,496			10,177
Financing Activities
Net change in deposits	(1,476		)	—
Net change in short-term borrowings	(422,953		)	—
Proceeds from notes payable	1,000
Payments on notes payable	(2,428		)	—
Payments to repurchase common stock	—			(1,162		)
Dividends paid	(1,852		)	—
Net cash distributed to noncontrolling interest	(2,383		)	—
Other, net	(243		)	—
Net cash used in financing activities	(430,335		)	(1,162		)
Net change in cash and cash equivalents	289,814			(4,352		)
Cash and cash equivalents, beginning of period	726,460			578,520
Cash and cash equivalents, end of period	$	1,016,274		$	574,168
Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	22,513		$	7,849
Cash paid for income taxes, net of refunds	$	52,752		$	—
Supplemental Schedule of Non-Cash Activities
Conversion of loans to other real estate owned	$	6,019		$	—

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” and, collectively with its subsidiaries, the “Company”) is a financial holding company registered under the Bank Holding Company Act of 1956, as amended by the Gramm-Leach-Bliley Act of 1999. On November 30, 2012, Hilltop acquired PlainsCapital Corporation pursuant to an agreement and plan of merger whereby PlainsCapital Corporation merged with and into our wholly owned subsidiary (the “PlainsCapital Merger”), which survived the PlainsCapital 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 September 30, 2013 and December 31, 2012 and relating to the three and nine months ended September 30, 2013.

Prior to the consummation of the PlainsCapital Merger, the Company’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 the Company’s wholly owned property and casualty insurance holding company, National Lloyds Corporation (“NLC”), formerly known as NLASCO, Inc.

On September 13, 2013 (the “Bank Closing Date”), PlainsCapital Bank (the “Bank”) assumed substantially all of the liabilities, including all of the deposits, and acquired substantially all of the assets of Edinburg, Texas-based First National Bank (“FNB”) from the Federal Deposit Insurance Corporation (the “FDIC”), as receiver, and reopened acquired branches of FNB under the PlainsCapital Bank name (the “FNB Transaction”). Pursuant to the Purchase and Assumption Agreement (the “P&A Agreement”), the Bank and the FDIC entered into loss-share agreements whereby the FDIC agreed to share in the losses of certain covered loans and covered other real estate owned (“OREO”) that the Bank acquired, as further described in Note 2 to the consolidated financial statements. Based on preliminary purchase date valuations, the fair market value of the assets acquired was $2.2 billion, including $1.1 billion in covered loans, $286.2 million in securities, $121.0 million in covered OREO and $45.9 million in non-covered loans. The Bank also assumed $2.2 billion in liabilities, consisting primarily of deposits. FNB’s expansive branch network allows the Bank to further develop its Texas footprint through expansion into the Rio Grande Valley, Houston, Corpus Christi, Laredo and El Paso markets, among others.

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 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, the FDIC Indemnification Asset, reserves for losses and loss adjustment expenses, the mortgage loan indemnification liability, and the potential impairment of assets are particularly subject to change. The Company has

8

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

applied its critical accounting policies and estimation methods consistently in all periods presented in these consolidated financial statements. As discussed in Note 2 to the consolidated financial statements, the purchase date valuations for the FNB Transaction are considered preliminary because management made significant estimates and exercised significant judgment in estimating fair values and accounting due to the short time period between the Bank Closing Date and September 30, 2013.

The presentation of the Company’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 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 NLC, 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, 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.

The following significant accounting policies are in addition to the significant accounting policies described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on March 15, 2013.

FDIC Indemnification Asset

The Company has elected to account for amounts receivable under the loss-share agreements with the FDIC as an indemnification asset (“FDIC Indemnification Asset”) in accordance with FASB ASC 805. The FDIC Indemnification Asset is initially recorded at fair value, based on the discounted value of expected future cash flows under the loss-share agreements. The difference between the present value and the undiscounted cash flows the Company expects to collect from the FDIC will be accreted into noninterest income within the consolidated statements of operations over the life of the FDIC Indemnification Asset. The FDIC Indemnification Asset is reviewed quarterly and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the covered portfolio. These adjustments are measured on the same basis as the related covered loans and covered OREO. Any increases in cash flow of the covered assets over those expected will reduce the FDIC Indemnification Asset and any decreases in cash flow of

9

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

the covered assets under those expected will increase the FDIC Indemnification Asset. Any amortization of changes in value is limited to the contractual term of the loss-share agreements. Increases and decreases to the FDIC Indemnification Asset are recorded as adjustments to noninterest income within the consolidated statements of operations over the life of the loss-share agreements.

Covered Other Real Estate Owned

Acquired OREO subject to FDIC loss-share agreements is referred to as “covered OREO” and reported separately in our consolidated balance sheets. Covered OREO is reported exclusive of expected reimbursement cash flows from the FDIC. Foreclosed covered loan collateral is transferred into covered OREO at the collateral’s fair value, less selling costs. Covered OREO was initially recorded at its estimated fair value based on similar market comparable valuations, less estimated selling costs. Subsequently, loan collateral transferred to OREO is recorded at its net realizable value. Any subsequent valuation adjustments due to declines in fair value of the covered OREO will be charged to noninterest expense, and will be partially offset by noninterest income representing the corresponding increase to the FDIC Indemnification Asset for loss reimbursements. Any recoveries of previous valuation decreases will be credited to noninterest expense with a corresponding charge to noninterest income for the portion of the recovery that is due to the FDIC.

2. Acquisitions

FNB Transaction

On the Bank Closing Date, the Bank assumed substantially all of the liabilities, including all of the deposits, and acquired substantially all of the assets of FNB from the FDIC in an FDIC-assisted transaction. As part of the P&A Agreement, the Bank and the FDIC entered into loss-share agreements covering future losses incurred on certain acquired loans and OREO. The Company refers to acquired commercial and single family residential loan portfolios and OREO that are subject to the loss-share agreements as “covered loans” and “covered OREO”, respectively, and these assets are presented as separate line items in the Company’s consolidated balance sheet. Collectively, covered loans and covered OREO are referred to as “covered assets”. Pursuant to the loss-share agreements, the FDIC has agreed to reimburse the Bank the following amounts with respect to the covered assets pursuant to the loss-share agreements: (i) 80% of losses on the first $240.4 million of losses incurred; (ii) 0% of losses in excess of $240.4 million up to and including $365.7 million of losses incurred; and (iii) 80% of losses in excess of $365.7 million of losses incurred. The loss-share agreements for commercial and single family residential loans are in effect for 5 years and 10 years, respectively, from the Bank Closing Date and the loss recovery provisions to the FDIC are in effect for 8 years and 10 years, respectively, from the Bank Closing Date.

In accordance with the loss-share agreements, the Bank may be required to make a “true-up” payment to the FDIC, approximately ten years following the Bank Closing Date, if the FDIC’s initial estimate of losses on covered assets is greater than the actual realized losses. The “true-up” payment is calculated using a defined formula set forth in the P&A Agreement.

The operations of FNB are included in the Company’s operating results beginning September 14, 2013, but were not significant to the Company’s consolidated statements of operations for the three and nine months ended September 30, 2013. Such operating results include a preliminary pre-tax bargain purchase gain of $3.3 million and are not necessarily indicative of future operating results. FNB’s results of operations prior to the Bank Closing Date are not included in the Company’s consolidated operating results.

Transaction-related expenses of $0.2 million associated with the FNB Transaction are included in noninterest expense within the consolidated statements of operations for the three and nine months ended September 30, 2013. Such expenses were for professional services and other incremental costs associated with the integration of FNB’s operations.

10

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The FNB Transaction 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 Bank Closing Date fair values. Because of the short time period between the Bank Closing Date and September 30, 2013, the Company used significant estimates and assumptions to value the identifiable assets acquired and liabilities assumed. The Bank Closing Date valuations related to loans, FDIC Indemnification Asset, covered OREO, other intangible assets, assumed liabilities and taxes are considered preliminary and could differ significantly when finalized. The amounts are also subject to adjustments based upon final settlement with the FDIC. In addition, the tax treatment of FDIC-assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the Bank Closing Date. The terms of the P&A Agreement provide for the FDIC to indemnify the Bank against claims with respect to liabilities and assets of FNB or any of its affiliates not assumed or otherwise purchased by the Bank and with respect to certain other claims by third parties.

A summary of the net assets received from the FDIC and the estimated fair value adjustments resulting in the bargain purchase gain are presented below (in thousands).

Cost basis net assets on September 13, 2013	$	182,169
Cash payment received from the FDIC	45,000
Fair value adjustments:
Securities	(3,341		)
Loans	(337,572		)
Premises and equipment	(1,358		)
Other real estate owned	(69,456		)
FDIC indemnification asset	189,773
Other intangible assets	6,380
Deposits	(8,282		)
Other	(42		)
Bargain purchase gain	$	3,271

In FDIC-assisted transactions, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirer’s bid, the FDIC may be required to make a cash payment to the acquirer or the acquirer may be required to make payment to the FDIC. In the FNB Transaction, cost basis net assets of $182.2 million and an initial cash payment received from the FDIC of $45.0 million were transferred to the Bank. This initial cash payment from the FDIC is subject to adjustment and settlement. The bargain purchase gain represents the excess of the estimated fair value of the assets acquired over the estimated fair value of the liabilities assumed.

The FDIC bid form provided a list of premises owned by FNB for sale at fixed prices. The Bank purchased 44 premises owned by FNB in connection with its bid for an aggregate premise purchase price of $59.5 million. For those premises owned by FNB that the Bank declined to purchase in its bid, the Bank had an exclusive option to purchase those premises during the 30-day period following the Bank Closing Date. In connection with that option, the Bank purchased an additional five premises owned by FNB on October 15, 2013, for an aggregate purchase price of $3.8 million. The Bank has a 90-day exclusive option to purchase owned premises not listed on the bid form. The Bank also has a 90-day option to assume the leases of premises leased by FNB. The Bank is required to purchase all data management equipment and, other certain special assets, furniture, fixtures and equipment, in each case at an appraised value at any premises purchased or leased by the Bank. The Bank paid $9.8 million to the FDIC for furniture, fixtures and data management equipment. The Bank is required to pay rent to the FDIC on premises owned or leased by FNB and furniture and equipment at such premises until it surrenders such premises to the FDIC. These incremental assets are reflected at fair value in the table above and were recorded subsequent to September 30, 2013.

11

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The resulting fair values of the identifiable assets acquired, and liabilities assumed, of FNB at September 13, 2013 are summarized in the following table (in thousands).

Cash and due from banks	$	362,695
Securities	286,214
Non-covered loans	45,915
Covered loans	1,105,421
Premises and equipment	71,806
FDIC indemnification asset	189,773
Covered other real estate owned	120,985
Other assets	39,709
Other intangible assets	6,380
Total identifiable assets acquired	2,228,898
Deposits	(2,211,740		)
Other liabilities	(13,887		)
Total liabilities assumed	(2,225,627		)
Net identifiable assets acquired/bargain purchase gain	$	3,271

The Bank acquired loans both with and without evidence of credit quality deterioration since origination. Based on preliminary purchase date valuations, the Bank’s portfolio of acquired loans had a fair market value of $1.2 billion as of the Bank Closing Date, with no carryover of any allowance for loan losses. Acquired loans were preliminarily segregated between those considered to be credit impaired, or purchased credit impaired (“PCI”) loans, and those deemed performing. The following table presents preliminary details on acquired loans at the Bank Closing Date (in thousands).

	Acquired		PCI		Total
	Performing		Loans		Loans
Commercial and industrial	$	44,207	$	50,705	$	94,912
Real estate	245,746		595,732		841,478
Construction and land development	38,135		151,803		189,938
Consumer	15,800		9,208		25,008
Total	$	343,888	$	807,448	$	1,151,336

The following table presents information about the acquired PCI loans at the Bank Closing Date (in thousands).

Contractually required principal and interest payments	$	1,605,634
Nonaccretable difference	567,861
Cash flows expected to be collected	1,037,773
Accretable difference	230,325
Fair value of covered loans acquired with a deterioration of credit quality	$	807,448

The following table presents information about the acquired performing loans at the Bank Closing Date (in thousands).

Contractually required principal and interest payments	$	555,057
Contractual cash flows not expected to be collected	50,216
Fair value at acquisition	343,888

12

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

PlainsCapital Merger

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 PlainsCapital 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. For further information regarding goodwill recorded in connection with the PlainsCapital Merger, refer to Note 7, Goodwill and Other Intangible Assets.

The FNB Transaction is based on the purchase of assets and assumption of certain liabilities of FNB from the FDIC, as receiver. An essential part of the transaction is the Federal financial assistance governed by the P&A Agreement with the FDIC, which is not reflective of the previous operations of FNB. The nature and magnitude of the FNB Transaction, coupled with the Federal assistance, substantially reduces the relevance of historical financial information of FNB when considering the assessment of the historical financial information relative to future operations. Since the Company believes that the continuity of FNB’s historical operations is substantially lacking after the transaction, no additional historical pro forma information regarding FNB is being provided below.

The following table presents pro forma results for the three and nine months ended September 30, 2012 had the PlainsCapital Merger taken place on January 1, 2011 (in thousands). The pro forma financial information combines the historical results of Hilltop and PlainsCapital, 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. 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 PlainsCapital Merger. Further, certain costs associated with any restructuring or integration activities are also not reflected in the pro forma results. Pro forma results include any acquisition-related merger and restructuring charges incurred during the period. The pro forma results are not indicative of what would have occurred had the PlainsCapital Merger taken place on the indicated date.

	Three Months Ended		Nine Months Ended
	September 30, 2012		September 30, 2012
Net interest income	$	57,212	$	164,980
Other revenues	247,764		641,201
Net income	33,764		72,494

3. Fair Value Measurements

Fair Value Measurements and Disclosures

The Company 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.

13

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

The Company has elected to measure substantially all of PrimeLending’s mortgage loans held for sale at fair value under the provisions of the Fair Value Option Subsections of the ASC (“Fair Value Option”). The Company 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. The Company 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 September 30, 2013, the aggregate fair value of PrimeLending’s mortgage loans held for sale accounted for under the Fair Value Option was $1.05 billion, and the unpaid principal balance of those loans was $1.00 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, and 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.

The Company holds a number of financial instruments that are measured at fair value on a recurring basis, either by the application of the 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
September 30, 2013	Inputs		Inputs		Inputs		Fair Value
Cash and cash equivalents	$	1,016,274	$	—	$	—	$	1,016,274
Trading securities	—		43,254		—		43,254
Available for sale securities	20,996		1,198,783		59,602		1,279,381
Loans held for sale	—		1,046,152		—		1,046,152
Derivative assets	—		32,967		—		32,967
Mortgage servicing asset	—		—		13,401		13,401
Trading liabilities	—		46		—		46
Derivative liabilities	—		28,375		—		28,375

14

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

	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 September 30, 2013
Available for sale securities	$	55,510	$	—	$	—	$	—	$	4,092	$	59,602
Mortgage servicing asset	7,111		—		4,079		2,211		—		13,401
Total	$	62,621	$	—	$	4,079	$	2,211	$	4,092	$	73,003
Nine months ended September 30, 2013
Available for sale securities	$	56,277	$	—	$	—	$	—	$	3,325	$	59,602
Mortgage servicing asset	2,080		—		8,384		2,937		—		13,401
Total	$	58,357	$	—	$	8,384	$	2,937	$	3,325	$	73,003
Three months ended September 30, 2012
Available for sale securities	$	54,577	$	—	$	—	$	—	$	7,491	$	62,068
Total	$	54,577	$	—	$	—	$	—	$	7,491	$	62,068
Nine months ended September 30, 2012
Available for sale securities	$	60,377	$	—	$	—	$	—	$	1,691	$	62,068
Total	$	60,377	$	—	$	—	$	—	$	1,691	$	62,068

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 September 30, 2013. The available for sale securities noted in the tables above reflect Hilltop’s note receivable and warrant to purchase common stock of 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 a corresponding decrease or increase, respectively, 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 SWS common 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.

15

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

The following tables present 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 September 30, 2013						Three Months Ended September 30, 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	$	44,395	$	—	$	44,395	$	—	$	—	$	—
Mortgage servicing asset	6,290		—		6,290		—		—		—
Time deposits	—		—		—		—		—		—

	Changes in Fair Value for Assets and Liabilities Reported at Fair Value under Fair Value Option
	Nine Months Ended September 30, 2013						Nine Months Ended September 30, 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	$	2,754	$	—	$	2,754	$	—	$	—	$	—
Mortgage servicing asset	11,321		—		11,321		—		—		—
Time deposits	—		12		12		—		—		—

The Company also determines the fair value of certain assets and liabilities on a non-recurring basis. In particular, the fair value of all of the assets acquired and liabilities assumed in the FNB Transaction was determined at the Bank Closing Date. In addition, 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 — The Company reports impaired loans based on the underlying fair value of the collateral through specific allowances within the allowance for loan losses. The Company acquired PCI loans with a fair value of $172.9 million and $807.4 million upon completion of the PlainsCapital Merger and the FNB Transaction, respectively. Substantially all PCI loans acquired in the FNB Transaction are covered by FDIC loss-share agreements. 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 September 30, 2013, non-covered PCI loans with a carrying amount of $139.2 million had been reduced by specific allowances within the allowance for non-covered loan losses of $3.0 million, resulting in a reported value of $136.2 million that approximates fair value. Covered PCI loans with a carrying amount of $782.6 million at September 30, 2013 approximated their fair value.

Other Real Estate Owned — The Company reports OREO 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 OREO. Subsequent to the initial transfer to OREO, downward valuation adjustments are charged against earnings. The Company primarily determines fair value using Level 2 inputs consisting of independent appraisals. In the FNB Transaction, the Bank acquired OREO of $121.0 million, all of which is covered by an FDIC loss-share agreement. At September 30, 2013, the estimated fair value of covered OREO was $119.7 million. The fair value of non-covered OREO at September 30, 2013 was $7.0 million and is included in other assets within the consolidated balance sheet.

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, except as follows.

FDIC Indemnification Asset — The fair value of the FDIC Indemnification Asset is based on Level 3 inputs, including the discounted value of expected future cash flows under the loss-share agreements. The discount rate contemplates the credit worthiness of the FDIC as counterparty to this asset, and considers an incremental discount rate risk premium reflective of the inherent uncertainty associated with the timing of the cash flows.

16

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The fair value of the assets acquired and liabilities assumed in the FNB Transaction was determined at Bank Closing Date. Given the short period of time that has elapsed between the Bank Closing Date and September 30, 2013, the fair value of the financial assets and liabilities shown at September 30, 2013 approximates their carrying values.

The following tables present the carrying values and estimated fair values of financial instruments not measured at fair value on either a recurring or non-recurring basis (in thousands).

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
September 30, 2013	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Non-covered loans, net	$	3,277,044	$	—	$	286,663	$	3,018,250	$	3,304,913
Covered loans	1,096,590		—		—		1,096,590		1,096,590
Broker-dealer and clearing organization receivables	132,636		—		132,636		—		132,636
FDIC indemnification asset	190,041		—		—		190,041		190,041
Other assets	68,423		—		51,134		17,289		68,423
Financial liabilities:
Deposits	6,936,162		—		6,936,527		—		6,936,527
Broker-dealer and clearing organization payables	142,411		—		142,411		—		142,411
Short-term borrowings	305,297		—		305,297		—		305,297
Debt	207,123		—		231,416		—		231,416
Other liabilities	4,651		—		4,651		—		4,651

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
December 31, 2012	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Non-covered loans, net	$	3,148,987	$	—	$	—	$	3,148,987	$	3,148,987
Broker-dealer and clearing organization receivables	145,564		—		145,564		—		145,564
Other assets	59,094		—		59,094		—		59,094
Financial liabilities:
Deposits	4,700,461		—		4,698,848		—		4,698,848
Broker-dealer and clearing organization payables	187,990		—		187,990		—		187,990
Short-term borrowings	728,250		—		728,250		—		728,250
Debt	208,551		—		217,092		—		217,092
Other liabilities	4,400		—		4,400		—		4,400

4. Securities

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

			Gross		Gross
	Amortized		Unrealized		Unrealized
September 30, 2013	Cost		Gains		Losses			Fair Value
U.S. Treasury securities	$	23,746	$	86	$	(17	)	$	23,815
U.S. government agencies:
Bonds	773,723		6,431		(37,491		)	742,663
Residential mortgage-backed securities	62,825		1,462		(499		)	63,788
Collateralized mortgage obligations	132,563		720		(2,749		)	130,534
Corporate debt securities	73,566		5,071		(276		)	78,361
States and political subdivisions	164,813		498		(6,493		)	158,818
Commercial mortgage-backed securities	741		63		—			804
Equity securities	19,756		1,240		—			20,996
Note receivable	42,102		6,385		—			48,487
Warrant	12,068		—		(953		)	11,115
Totals	$	1,305,903	$	21,956	$	(48,478	)	$	1,279,381

17

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

			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

Available for sale equity securities includes 1,475,387 shares of SWS common stock, a note made by SWS in the aggregate principal amount of $50.0 million and a warrant to purchase 8,695,652 shares of SWS common stock. SWS issued the note in July 2011 under a credit agreement pursuant to a senior unsecured loan from Hilltop. The note 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. The warrant provides for the purchase of 8,695,652 shares of SWS common stock at an exercise price of $5.75 per share, subject to anti-dilution adjustments. If the warrant was fully exercised, Hilltop would beneficially own 24.4% of SWS.

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

	September 30, 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	4	$	17,709	$	17	2	$	2,427	$	2
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	4	17,709		17		2	2,427		2
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	38	560,938		37,491		14	236,305		314
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	38	560,938		37,491		14	236,305		314
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	5	11,735		499		7	12,279		70
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	5	11,735		499		7	12,279		70
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	9	78,896		2,749		8	38,887		79
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	9	78,896		2,749		8	38,887		79
Corporate debt securities:
Unrealized loss for less than twelve months	4	4,671		276		—	—		—
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	4	4,671		276		—	—		—
States and political subdivisions:
Unrealized loss for less than twelve months	192	127,377		6,493		225	156,664		2,138
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	192	127,377		6,493		225	156,664		2,138
Warrants:
Unrealized loss for less than twelve months	1	11,115		953		—	—		—
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	1	11,115		953		—	—		—
Total available for sale:
Unrealized loss for less than twelve months	253	812,441		48,478		256	446,562		2,603
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	253	$	812,441	$	48,478	256	$	446,562	$	2,603

18

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

During the three and nine months ended September 30, 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 available for sale 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 September 30, 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 and the available for sale warrant, at September 30, 2013 are shown by contractual maturity below (in thousands).

	Amortized
	Cost		Fair Value
Due in one year or less	$	44,895	$	45,076
Due after one year through five years	110,294		120,931
Due after five years through ten years	87,047		89,034
Due after ten years	835,714		797,103
	1,077,950		1,052,144
Residential mortgage-backed securities	62,825		63,788
Collateralized mortgage obligations	132,563		130,534
Commercial mortgage-backed securities	741		804
	$	1,274,079	$	1,247,270

The Company realized a net gain from its trading securities portfolio of $0.1 million during the three months ended September 30, 2013 and a net loss of $2.6 million during the nine months ended September 30, 2013, which are recorded as a component of other noninterest income within the consolidated statements of operations.

Securities with a carrying amount of $928.7 million and $635.2 million (with a fair value of $884.6 million and $633.4 million) at September 30, 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 September 30, 2013 and December 31, 2012, NLC had investments on deposit in custody for various state insurance departments with carrying values of $9.4 million and $9.3 million, respectively.

19

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

5. Non-Covered Loans and Allowance for Non-Covered Loan Losses

Non-covered loans refer to loans not covered by the FDIC loss-share agreements. The non-covered loan portfolio at September 30, 2013 includes loans acquired as a part of the FNB Transaction totaling $49.7 million, of which $17.6 million are categorized as non-covered PCI loans. Covered loans are discussed in Note 6 to the consolidated financial statements. Non-covered loans summarized by portfolio segment are as follows (in thousands).

	September 30,			December 31,
	2013			2012
Commercial and industrial	$	1,625,422		$	1,660,293
Real estate	1,322,054			1,184,914
Construction and land development	310,392			280,483
Consumer	52,356			26,706
	3,310,224			3,152,396
Allowance for non-covered loan losses	(33,180		)	(3,409		)
Total non-covered loans, net of allowance	$	3,277,044		$	3,148,987

The Bank 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 regulations. 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 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 cash flow analysis based on the significance the guarantors are expected to serve as secondary repayment sources. The Bank’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.

The Bank 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 PlainsCapital Merger and the FNB Transaction, the Company acquired non-covered loans both with and without evidence of credit quality deterioration since origination. The following table presents the carrying values and the outstanding contractual balances of the non-covered PCI loans (in thousands).

	September 30,		December 31,
	2013		2012
Carrying amount	$	139,224	$	166,780
Outstanding balance	187,370		222,674

20

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

	Three Months Ended			Nine Months Ended
	September 30, 2013			September 30, 2013
Balance, beginning of period	$	20,118		$	17,553
Additions	1,923			1,923
Increases in expected cash flows	4,697			16,834
Disposals of loans	(441		)	(2,273		)
Accretion	(4,854		)	(12,594		)
Balance, end of period	$	21,443		$	21,443

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. Non-covered impaired loans include non-accrual loans, troubled debt restructurings (“TDRs”), PCI loans and partially charged-off loans.

Non-covered PCI loans are summarized by class in the following tables (in thousands). In addition to the non-covered PCI loans, there were $1.1 million of additional non-covered impaired loans at September 30, 2013.

	Unpaid						Total
	Contractual		Nonaccretable		Accretable		Recorded		Related
September 30, 2013	Principal Balance		Difference		Yield		Investment		Allowance
Commercial and industrial:
Secured	$	71,924	$	16,557	$	4,401	$	56,831	$	2,732
Unsecured	9,678		5,062		3,937		1,676		—
Real estate:
Secured by commercial properties	51,525		11,704		7,236		42,077		205
Secured by residential properties	6,141		1,140		904		4,636		73
Construction and land development:
Residential construction loans	—		—		—		—		—
Commercial construction loans and land development	35,012		9,637		3,940		24,641		1
Consumer	13,090		3,265		1,025		9,363		—
	$	187,370	$	47,365	$	21,443	$	139,224	$	3,011

	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

21

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Average investment in non-covered PCI loans is summarized by class in the following table (in thousands).

	Three Months Ended		Nine Months Ended
	September 30, 2013		September 30, 2013
Commercial and industrial:
Secured	$	55,797	$	62,399
Unsecured	1,826		2,548
Real estate:
Secured by commercial properties	45,114		48,798
Secured by residential properties	5,400		5,682
Construction and land development:
Residential construction loans	—		354
Commercial construction loans and land development	25,916		28,502
Consumer	4,715		4,720
	$	138,768	$	153,003

Non-covered non-accrual loans at September 30, 2013, excluding those classified as held for sale, are summarized by class in the following table (in thousands).

Commercial and industrial:
Secured	$	16,099
Unsecured	23
Real estate:
Secured by commercial properties	1,856
Secured by residential properties	161
Construction and land development:
Residential construction loans	—
Commercial construction loans and land development	1,073
Consumer	—
	$	19,212

At September 30, 2013, non-covered non-accrual loans included non-covered PCI loans of $18.1 million for which discount accretion has been suspended because the extent and timing of cash flows from these non-covered PCI loans can no longer be reasonably estimated. All non-covered PCI loans at December 31, 2012 were considered to be performing due to the application of the accretion method. In addition to the non-covered non-accrual loans in the table above, $2.7 million and $1.8 million of real estate loans secured by residential properties and classified as held for sale were in non-accrual status at September 30, 2013 and December 31, 2012, respectively.

Interest income recorded on non-covered non-accrual loans for the three and nine months ended September 30, 2013 was nominal.

The Bank 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. The Bank modifies loans by reducing interest rates and/or lengthening loan amortization schedules. The Bank 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.

22

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Information regarding TDRs granted is shown in the following tables (in thousands). All TDRs granted relate to non-covered PCI loans. At September 30, 2013, the Bank had $0.3 million in unadvanced commitments to borrowers whose loans have been restructured in TDRs.

	Recorded Investment in Loans Modified by
			Interest Rate		Payment Term		Total
Three months ended September 30, 2013	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	333	$	333
Unsecured	—		—		—		—
Real estate:
Secured by commercial properties	—		—		—		—
Secured by residential properties	—		—		—		—
Construction and land development:
Residential construction loans	—		—		—		—
Commercial construction loans and land development	—		—		—		—
Consumer	—		—		—		—
	$	—	$	—	$	333	$	333

	Recorded Investment in Loans Modified by
			Interest Rate		Payment Term		Total
Nine months ended September 30, 2013	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	9,764	$	9,764
Unsecured	—		—		—		—
Real estate:
Secured by commercial properties	—		—		276		276
Secured by residential properties	—		—		905		905
Construction and land development:
Residential construction loans	—		—		—		—
Commercial construction loans and land development	—		—		500		500
Consumer	—		—		—		—
	$	—	$	—	$	11,445	$	11,445

An analysis of the aging of the Bank’s non-covered loan portfolio is shown in the following tables (in thousands).

															Accruing Loans
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
September 30, 2013	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	1,099	$	1,065	$	1,395	$	3,559	$	1,451,740	$	56,831	$	1,512,130	$	1,118
Unsecured	475		1,339		23		1,837		109,779		1,676		113,292		—
Real estate:
Secured by commercial properties	—		132		—		132		1,004,464		42,077		1,046,673		—
Secured by residential properties	698		20		—		718		270,027		4,636		275,381		—
Construction and land development:
Residential construction loans	—		—		—		—		57,205		—		57,205		—
Commercial construction loans and land development	—		112		—		112		228,434		24,641		253,187		—
Consumer	101		21		10		132		42,861		9,363		52,356		10
	$	2,373	$	2,689	$	1,428	$	6,490	$	3,164,510	$	139,224	$	3,310,224	$	1,128

23

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

															Accruing Loans
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
December 31, 2012	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	7,844	$	348	$	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	755		101		—		856		253,027		6,728		260,611		—
Construction and land development:
Residential construction loans	—		—		—		—		47,461		708		48,169		—
Commercial construction loans and land development	63		—		—		63		199,889		32,362		232,314		—
Consumer	84		—		—		84		26,545		77		26,706		—
	$	9,463	$	449	$	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.

The Bank 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 — “Special Mention” loans have 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 loans and weaken the Bank’s credit position at some future date. Special Mention loans 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.

24

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

September 30, 2013	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,430,645	$	6,269	$	18,385	$	56,831	$	1,512,130
Unsecured	111,381		13		222		1,676		113,292
Real estate:
Secured by commercial properties	1,003,771		505		320		42,077		1,046,673
Secured by residential properties	266,949		—		3,796		4,636		275,381
Construction and land development:
Residential construction loans	57,205		—		—		—		57,205
Commercial construction loans and land development	227,192		874		480		24,641		253,187
Consumer	42,950		32		11		9,363		52,356
	$	3,140,093	$	7,693	$	23,214	$	139,224	$	3,310,224

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 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 PlainsCapital Merger on November 30, 2012, the Bank’s loan portfolio is now designated into two populations: acquired loans 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

25

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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, requiring that timely and appropriate changes be made to reviewed loans 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.

Homogeneous 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 homogeneous pool of loans based on the expected net charge-offs from current trends in delinquencies, losses or historical experience and general economic conditions. At September 30, 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 PCI loans, cash flows expected to be collected are recast quarterly 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.

26

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Changes in the allowance for non-covered loan losses, distributed by portfolio segment, are shown below (in thousands).

	Commercial and						Construction and
Three months ended September 30, 2013	Industrial			Real Estate			Land Development			Consumer			Total
Balance, beginning of period	$	13,806		$	5,339		$	7,050		$	42		$	26,237
Provision charged to operations	8,879			1,776			6			(3		)	10,658
Loans charged off	(3,220		)	(53		)	(524		)	(3		)	(3,800		)
Recoveries on charged off loans	42			26			2			15			85
Balance, end of period	$	19,507		$	7,088		$	6,534		$	51		$	33,180

	Commercial and						Construction and
Nine months ended September 30, 2013	Industrial			Real Estate			Land Development			Consumer			Total
Balance, beginning of period	$	1,845		$	977		$	582		$	5		$	3,409
Provision charged to operations	22,519			6,033			6,323			77			34,952
Loans charged off	(7,314		)	(149		)	(524		)	(74		)	(8,061		)
Recoveries on charged off loans	2,457			227			153			43			2,880
Balance, end of period	$	19,507		$	7,088		$	6,534		$	51		$	33,180

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

	Commercial and				Construction and
September 30, 2013	Industrial		Real Estate		Land Development		Consumer		Total
Loans individually evaluated for impairment	$	940	$	161	$	—	$	—	$	1,101
Loans collectively evaluated for impairment	1,565,975		1,275,180		285,751		42,993		3,169,899
PCI Loans individually evaluated for impairment	58,507		46,713		24,641		9,363		139,224
	$	1,625,422	$	1,322,054	$	310,392	$	52,356	$	3,310,224

	Commercial and				Construction and
December 31, 2012	Industrial		Real Estate		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 non-covered loan losses was distributed by portfolio segment and impairment methodology as shown below (in thousands).

	Commercial and				Construction and
September 30, 2013	Industrial		Real Estate		Land Development		Consumer		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment	16,775		6,810		6,533		51		30,169
PCI Loans individually evaluated for impairment	2,732		278		1		—		3,011
	$	19,507	$	7,088	$	6,534	$	51	$	33,180

	Commercial and				Construction and
December 31, 2012	Industrial		Real Estate		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

27

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

6. Covered Assets and Indemnification Asset

As discussed in Note 2 to the consolidated financial statements, the Bank assumed substantially all of the liabilities, including all of the deposits, and acquired substantially all of the assets of FNB in an FDIC-assisted transaction on September 13, 2013. As part of the loss-share agreements entered into by the Bank with the FDIC in connection therewith, the Bank and the FDIC agreed to share the losses on loans and OREO covered under the agreements. The asset arising from the loss-share agreements, which we refer to as the “FDIC Indemnification Asset” is measured separately from the covered loan portfolio because the agreements are not contractually embedded in the covered loans and are not transferable should the Bank choose to dispose of the covered loans.

In accordance with the loss-share agreements, the Bank may be required to make a “true-up” payment to the FDIC, approximately ten years following the Bank Closing Date, if the FDIC’s initial estimate of losses on covered assets is greater than the actual realized losses. The “true-up” payment is calculated using a defined formula set forth in the P&A Agreement.

Covered Loans and Allowance for Covered Loan Losses

Loans acquired in a FDIC-assisted acquisition that are subject to a loss-share agreement are referred to as “covered loans” and reported separately in our consolidated balance sheets. Covered loans are reported exclusive of the cash flow reimbursements that may be received from the FDIC.

Based on preliminary purchase date valuations, the Bank’s portfolio of acquired covered loans had a fair value of $1.1 billion as of the Bank Closing Date, with no carryover of any allowance for loan losses. Acquired covered loans were preliminarily segregated between those considered to be PCI loans and those deemed performing.

In connection with the FNB Transaction, the Bank acquired loans both with and without evidence of credit quality deterioration since origination. The Company’s accounting policies for acquired covered loans, including covered PCI loans, are consistent with that of acquired non-covered loans, as described in Note 5 to the consolidated financial statements. The Company has established under its PCI accounting policy a framework to aggregate certain acquired covered loans into various loan pools based on a minimum of two layers of common risk characteristics for the purpose of determining their respective fair values as of their acquisition dates, and for applying the subsequent recognition and measurement provisions for income accretion and impairment testing.

The following table presents the carrying value of the covered loans summarized by portfolio segment at September 30, 2013 (in thousands).

Commercial and industrial	$		74,581
Real estate	833,493
Construction and land development	188,505
Consumer	11
Total covered loans	$	1,096,590

The following table presents the carrying value and the outstanding contractual balance of the covered PCI loans at September 30, 2013 (in thousands).

Carrying amount	$	782,560
Oustanding balance	1,082,315

28

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

At September 30, 2013, the preliminary total nonaccretable difference and accretable yield for covered PCI loans were $561.7 million and $226.8 million, respectively. The change in the accretable yield for the covered PCI loans for the period from September 14, 2013 through September 30, 2013 included accretion of the discount on loans of $0.1 million, which was recorded as a component of interest income within the consolidated statements of operations.

Interest income recorded on non-accrual covered loans was nominal. All covered PCI loans are considered to be performing due to the application of the accretion method. Additionally, no acquired covered loans have been modified in a TDR.

An analysis of the aging of the Bank’s covered loan portfolio at September 30, 2013 is shown in the following table (in thousands).

															Accruing Loans
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	54	$	—	$	—	$	54	$	28,529	$	34,994	$	63,577	$	—
Unsecured	—		—		—		—		2,854		8,150		11,004		—
Real estate:
Secured by commercial properties	37		—		—		37		80,627		373,849		454,513		—
Secured by residential properties	—		—		—		—		163,514		215,466		378,980		—
Construction and land development:
Residential construction loans	—		—		—		—		6,490		4,651		11,141		—
Commercial construction loans and land development	—		—		—		—		31,914		145,450		177,364		—
Consumer	—		—		—		—		11		—		11		—
	$	91	$	—	$	—	$	91	$	313,939	$	782,560	$	1,096,590	$	—

The Bank assigns a risk grade to each of its covered loans in a manner consistent with the existing loan review program and risk grading matrix used for non-covered loans, as described in Note 5 to the consolidated financial statements. However, given the short period of time that has elapsed between the Bank Closing Date and September 30, 2013, the Bank’s assessment of individual loan factors and assignment of an internal risk grade to each of the loans in its covered loan portfolio is preliminary.

The Bank’s impairment methodology for the covered loans is consistent with that of non-covered loans as discussed in Note 5 to the consolidated financial statements. To the extent there is experienced or projected credit deterioration on the acquired covered loan pools subsequent to amounts estimated at the previous quarterly recast date, this deterioration will be measured, and a provision for credit losses will be charged to earnings. Additionally, provision for credit losses will be recorded on advances on covered loans subsequent to the acquisition date in a manner consistent with the allowance for non-covered loan losses. These provisions will be partially offset by an increase to the FDIC Indemnification Asset in an amount equal to the FDIC’s loss sharing percentage under the loss-share agreements, which is recognized in noninterest income within the consolidated statement of operations.

There were no specific reserves in the allowance for loan losses related to covered loans at September 30, 2013.

Covered Other Real Estate Owned

At September 30, 2013, covered OREO was $119.7 million. Between the Bank Closing Date and September 30, 2013, the Company sold covered OREO properties with a carrying amount of $1.3 million, substantially at book value.

FDIC Indemnification Asset

At September 30, 2013, the FDIC Indemnification Asset was $190.0 million. The Company recorded accretion of $0.3 million since acquisition, which was included as a component of other noninterest income within the consolidated statements of operations.

29

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

7. Goodwill and Other Intangible Assets

The carrying amount of goodwill was $251.8 million and $253.8 million at September 30, 2013 and December 31, 2012, respectively. The Company initially recorded $230.1 million of goodwill in connection with the PlainsCapital Merger, and used significant estimates and assumptions to value the identifiable assets acquired and liabilities assumed. The amount of goodwill recorded in connection with the PlainsCapital Merger is not deductible for tax purposes. During the three months ended March 31, 2013, the Company reduced goodwill related to the PlainsCapital Merger by $2.0 million for a purchase accounting adjustment related to the valuation of a capital lease obligation. The Company made no further adjustments to its purchase price allocation.

Other intangible assets of $75.9 million and $77.7 million at September 30, 2013 and December 31, 2012, respectively, include an indefinite lived intangible asset with an estimated fair value of $3.0 million related to state licenses acquired as a part of the NLC acquisition in January 2007. In addition, as discussed in Note 2 to the consolidated financial statements, the Company recorded a $6.4 million preliminary core deposits intangible asset during September 2013 in connection with the FNB Transaction, which will be amortized on an accelerated basis over approximately seven years.

The Company tests goodwill and other intangible assets having an indefinite useful life for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment. Goodwill impairment testing is performed at the reporting unit level, which is one level below an operating segment. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill. The Company performs required annual impairment tests of its goodwill and other intangible assets as of December 31st for its insurance reporting unit, while the acquired banking, mortgage origination and financial advisory reporting units will be tested for impairment annually as of October 1st.

8. Deposits

Deposits are summarized as follows (in thousands).

	September 30,		December 31,
	2013		2012
Noninterest-bearing demand	$	392,404	$	323,367
Interest-bearing:
NOW accounts	179,805		106,562
Money market	2,936,579		2,357,109
Brokered - money market	280,354		263,193
Demand	53,558		75,308
Savings	450,723		180,367
Time	2,402,485		1,175,432
Brokered - time	240,254		219,123
	$	6,936,162	$	4,700,461

The significant increase in deposits at September 30, 2013 as compared to December 31, 2012 is primarily due to the inclusion of $2.2 billion of deposits assumed as a part of the FNB Transaction.

30

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

9. Short-term Borrowings

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

	September 30,		December 31,
	2013		2012
Federal funds purchased	$	91,875	$	269,625
Securities sold under agreements to repurchase	121,222		85,725
Federal Home Loan Bank notes	—		250,000
Short-term bank loans	92,200		122,900
	$	305,297	$	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).

	Nine Months Ended
	September 30, 2013
Average balance during the period	$	284,819
Average interest rate during the period	0.19		%

	September 30,			December 31,
	2013			2012
Average interest rate at end of period	0.14		%	0.22		%
Securities underlying the agreements at end of period
Carrying value	$	152,808		$	122,153
Estimated fair value	$	146,197		$	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).

	Nine Months Ended
	September 30, 2013
Average balance during the period	$	142,274
Average interest rate during the period	0.13		%

	September 30,		December 31,
	2013		2012
Average interest rate at end of period	0.00	%	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 September 30, 2013 and December 31, 2012 was 1.09% and 1.16%, respectively.

31

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

10. Income Taxes

The Company 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 33.3% and 35.5% for the three and nine months ended September 30, 2013, respectively. During the three and nine months ended September 30, 2012, the Company recorded income tax benefits due to the loss from operations which reflected effective rates of 32.1% and 32.5%, 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 September 30, 2013 and 2012. The Company does not anticipate any significant liabilities for uncertain tax positions to arise in the next twelve months.

The Company 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, the Company 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 September 30, 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 September 30, 2013.

For the majority of tax jurisdictions, the Company is no longer subject to federal, state or local income tax examinations by tax authorities for years prior to 2009.

11. 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 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 the Company’s 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. The mortgage origination segment has established an indemnification liability reserve for such probable losses.

Generally, the mortgage origination segment first becomes aware that an investor believes a loss has been incurred on a sold loan when it receives a written request from the investor to repurchase the loan or reimburse the investor’s losses. Upon completing its review of the investor’s request, the mortgage origination segment establishes a specific claims reserve for the loan if it concludes its obligation to the investor is both probable and reasonably estimable.

An additional reserve has been established for probable investor losses that may have been incurred, but not yet reported to the mortgage origination segment based upon a reasonable estimate of such losses. Factors considered in the calculation of this reserve include, but are not limited to, the total volume of loans sold exclusive of specific investor requests, actual

32

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

investor claim settlements and the severity of estimated losses resulting from future claims, and our history of successfully curing defects identified in investor claim requests. While the mortgage origination segment’s sales contracts typically include borrower early payment default repurchase provisions, these provisions have not been a primary driver of investor claims to date, and therefore, are not a primary factor considered in the calculation of this reserve.

At September 30, 2013, and December 31, 2012, the mortgage origination segment’s indemnification liability reserve totaled $21.0 million and $19.0 million, respectively. The provision for indemnification losses was $0.9 million and $2.8 million for the three and nine months ended September 30, 2013, respectively.

The following tables provide for a roll-forward of claims activity for loans put-back to the mortgage origination segment based upon an alleged breach of a representation or warranty with respect to a loan sold and related indemnification liability reserve activity (in thousands).

	Representation and Warranty Specific Claims Activity - Origination Loan Balance
	Three Months Ended			Nine Months Ended
	September 30, 2013			September 30, 2013
Balance, beginning of period	$	46,090		$	39,693
Claims made	6,769			25,844
Claims resolved with no payment	(2,338		)	(10,751		)
Repurchases	(1,597		)	(3,917		)
Indemnification payments	(542		)	(2,487		)
Balance, end of period	$	48,382		$	48,382

	Indemnification Liability Reserve Activity
	Three Months Ended			Nine Months Ended
	September 30, 2013			September 30, 2013
Balance, beginning of period	$	20,397		$	18,964
Additions for new sales	878			2,834
Repurchases	(120		)	(129		)
Early payment defaults	(165		)	(397		)
Indemnification payments	(177		)	(701		)
Change in estimate	214			456
Balance, end of period	$	21,027		$	21,027
Reserve for Indemnification Liability:
Specific claims	$	12,336
Incurred but not reported claims	8,691
Total	$	21,027

Although management considers the total indemnification liability reserve to be appropriate, there may be changes in the reserve over time to address incurred losses, 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 is considered in the reserving process when probable and estimable.

In connection with the FNB Transaction, the Bank entered into two loss-share agreements with the FDIC that collectively cover approximately $1.2 billion of loans and OREO acquired in the FNB Transaction. Pursuant to the loss-share agreements, the FDIC has agreed to reimburse the Bank the following amounts with respect to the covered assets: (i) 80% of losses on the first $240.4 million of losses incurred; (ii) 0% of losses in excess of $240.4 million up to and including $365.7 million of losses incurred; and (iii) 80% of losses in excess of $365.7 million of losses incurred. The Bank has also agreed to reimburse the FDIC for any subsequent recoveries. The loss-share agreements for commercial and single family residential loans are in effect for 5 years and 10 years, respectively, from the Bank Closing Date and the loss recovery provisions to the FDIC are in effect for 8 years and 10 years, respectively, from the Bank Closing Date. In accordance

33

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

with the loss-share agreements, the Bank may be required to make a “true-up” payment to the FDIC, approximately ten years following the Bank Closing Date, if the FDIC’s initial estimate of losses on covered assets is greater than the actual realized losses. The “true-up” payment is calculated using a defined formula set forth in the P&A Agreement.

12. 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 $1.2 billion at September 30, 2013 and outstanding standby letters of credit of $37.8 million at September 30, 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.

13. Stock-Based Compensation

Pursuant to the Hilltop Holdings 2012 Equity Incentive Plan (the “2012 Plan”), the Company may grant nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights and other awards to employees of the Company, its subsidiaries and outside directors of the Company. Upon the effectiveness of the 2012 Plan in September 2012, no additional awards were permissible under the 2003 Equity Incentive Plan (the “2003 Plan”). In the aggregate, 4,000,000 shares of common stock may be delivered pursuant to awards granted under the 2012 Plan.

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 2012 Plan. These Restricted Stock Awards are subject to service conditions set forth in the grant agreements with associated costs recognized on a straight-line basis over the vesting period. The grant date fair value related to these Restricted Stock Awards was $13.25 per share, resulting in expected compensation expense of $6.2 million. At September 30, 2013, unrecognized compensation expense related to these Restricted Stock Awards was $5.3 million, which will be amortized through March 2016. These Restricted Stock Awards vest on April 1, 2016 and provide for accelerated vesting under certain conditions.

34

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

During the nine months ended September 30, 2013, the Company granted 6,504 shares of common stock to members of our board of directors as compensation for director services pursuant to the 2012 Plan.

At September 30, 2013, 3,528,496 shares of common stock remain available for issuance pursuant to the 2012 Plan.

Stock options granted on November 2, 2011 pursuant to the 2003 Plan to purchase an aggregate of 600,000 shares of the Company’s common stock (the “Stock Option Awards”) at an exercise price of $7.70 per share were outstanding at September 30, 2013. These Stock Option Awards vest in five equal installments beginning on the grant date, with the remainder vesting on each grant date anniversary through 2015. At September 30, 2013, unrecognized compensation expense related to these Stock Option Awards was $0.2 million, which will be amortized on a straight-line basis through October 2015. Additionally, these Stock Option Awards expire on November 2, 2016.

Compensation expense related to the 2012 Plan and 2003 Plan was $0.6 million and $0.1 million for the three months ended September 30, 2013 and 2012, respectively. For the nine months ended September 30, 2013 and 2012, compensation expense related to the plans was $1.1 million and $0.4 million, respectively.

14. 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.

During September 2013, Hilltop and PlainsCapital contributed capital of $35.0 million and $25.0 million, respectively, to the Bank to provide additional capital in connection with the FNB Transaction.

35

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The following table shows the Bank’s and Hilltop’s consolidated actual capital amounts and ratios compared to the regulatory minimum capital requirements and the Bank’s regulatory minimum capital requirements needed to qualify as a “well-capitalized” institution (dollars in thousands), without giving effect to the final Basel III capital rules adopted by the Federal Reserve Board on July 2, 2013.

									To Be Well Capitalized
					Minimum Capital				Minimum Capital
	Actual				Requirements				Requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2013
Tier 1 capital (to average assets):
Bank	$	724,382	11.05	%	$	262,134	4	%	$	327,668	5	%
Hilltop	986,507		13.96	%	282,603		4	%	N/A		N/A
Tier 1 capital (to risk-weighted assets):
Bank	724,382		12.76	%	227,101		4	%	274,961		6	%
Hilltop	986,507		16.56	%	238,347		4	%	N/A		N/A
Total capital (to risk-weighted assets):
Bank	758,753		13.36	%	454,203		8	%	567,753		10	%
Hilltop	1,021,436		17.14	%	476,695		8	%	N/A		N/A
December 31, 2012
Tier 1 capital (to average assets):
Bank	$	542,307	8.84	%	$	245,495	4	%	$	306,869	5	%
Hilltop	871,379		13.08	%	266,514		4	%	N/A		N/A
Tier 1 capital (to risk-weighted assets):
Bank	542,307		11.83	%	183,308		4	%	274,961		6	%
Hilltop	871,379		17.72	%	196,670		4	%	N/A		N/A
Total capital (to risk-weighted assets):
Bank	546,598		11.93	%	366,615		8	%	458,269		10	%
Hilltop	875,670		17.81	%	393,340		8	%	N/A		N/A

To be considered “adequately capitalized” (as defined) under regulatory requirements, 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 table, the Bank’s ratios place it in the “well capitalized” (as defined) capital category under regulatory requirements.

Management continues to evaluate the final Basel III capital rules and their impact, which would apply to reporting periods beginning after January 1, 2015.

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 September 30, 2013, FSC had net capital of $69.8 million (the minimum net capital requirement was $3.8 million), net capital maintained by FSC was 37% of aggregate debits, and net capital in excess of the minimum requirement was $66.0 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 is 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 September 30, 2013 or December 31, 2012.

36

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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 its minimum net worth requirements. In addition, PrimeLending monitors compliance on an ongoing basis and, as of September 30, 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’ (“NAIC”) statutory accounting practices as the basis of its statutory accounting practices with certain differences that are not significant to the insurance company subsidiaries’ statutory equity.

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

	September 30,		December 31,
	2013		2012
Capital and surplus:
National Lloyds Insurance Company	$	87,723	$	94,558
American Summit Insurance Company	24,946		25,761

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2013		2012			2013			2012
Statutory net income (loss):
National Lloyds Insurance Company	$	2,645	$	(1,759	)	$	(7,296	)	$	(9,516	)
American Summit Insurance Company	167		(136		)	(962		)	(706		)

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 September 30, 2013, the Company’s insurance subsidiaries had statutory surplus in excess of the minimum required.

The NAIC has adopted a risk based capital (“RBC”) formula for insurance companies that establishes minimum capital requirements indicating various levels of available regulatory action on an annual basis relating to insurance risk, asset credit risk, interest rate risk and business risk. The RBC 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 December 31, 2012, the most recent date for which the RBC calculation was performed, the Company’s insurance subsidiaries’ RBC ratio exceeded the level at which regulatory action would be required. As of September 30, 2013, management was not aware of any changes in financial condition or structure that would cause the Company’s insurance subsidiaries to not be in compliance with the required RBC ratio.

37

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

15. Derivative Financial Instruments

The Company 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, the Company 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 net losses of $48.9 million and $14.9 million for the three and nine months ended September 30, 2013, respectively, which were recorded as a component of net gains from sale of loans and other mortgage production income. The change in fair value during the three months ended September 30, 2013, is attributable to a decrease in the volume of IRLC’s and mortgage loans held for sale, which also conversely affected the value of PrimeLending’s mortgage loans held for sale, which are measured at fair value under the Fair Value Option. The effect of the change in market interest rates on PrimeLending’s loans held for sale is discussed in Note 3 to the consolidated financial statements. 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 net gains of $3.2 million and $8.8 million for the three and nine months ended September 30, 2013, respectively, which were recorded as a component of other noninterest income.

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

	September 30, 2013					December 31, 2012
	Notional		Estimated			Notional		Estimated
	Amount		Fair Value			Amount		Fair Value
Derivative instruments:
IRLCs	$	798,837	$	26,440		$	968,083	$	15,150
Commitments to purchase MBSs	283,437		7,443			165,128		466
Interest rate swaps	—		—			1,969		25
Commitments to sell MBSs	1,826,399		(29,290		)	1,586,930		(1,025		)

38

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

16. 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 following tables present the assets and liabilities subject to an enforceable master netting arrangement, repurchase agreements, or similar agreements with offsetting rights at September 30, 2013 and December 31, 2012 (in thousands).

							Gross Amounts Not Offset in
					Net Amounts		the Balance Sheet
	Gross Amounts		Gross Amounts		of Assets					Cash
	of Recognized		Offset in the		Presented in the		Financial			Collateral		Net
	Assets		Balance Sheet		Balance Sheet		Instruments			Pledged		Amount
September 30, 2013
Securities Borrowed:
Institutional Counterparties	$	100,348	$	—	$	100,348	$	(100,348	)	$	—	$	—
	$	100,348	$	—	$	100,348	$	(100,348	)	$	—	$	—
December 31, 2012
Securities Borrowed:
Institutional Counterparties	$	103,936	$	—	$	103,936	$	(103,936	)	$	—	$	—
	$	103,936	$	—	$	103,936	$	(103,936	)	$	—	$	—

								Gross Amounts Not Offset in
						Net Amounts		the Balance Sheet
	Gross Amounts		Gross Amounts			of Liabilities					Cash
	of Recognized		Offset in the			Presented in the		Financial			Collateral			Net
	Liabities		Balance Sheet			Balance Sheet		Instruments			Pledged			Amount
September 30, 2013
Securities Loaned:
Institutional Counterparties	$	70,769	$	—		$	70,769	$	(70,769	)	$	—		$	—
Repurchase Agreements:
Customer Counterparties	121,222		—			121,222		(121,222		)	—			—
Forward MBS Sale Derivatives:
Institutional Counterparties	29,389		(100		)	29,289		—			(21,858		)	7,431
	$	221,380	$	(100	)	$	221,280	$	(191,991	)	$	(21,858	)	$	7,431
December 31, 2012
Securities Loaned:
Institutional Counterparties	$	115,102	$	—		$	115,102	$	(115,102	)	$	—		$	—
Repurchase Agreements:
Customer Counterparties	85,726		—			85,726		(85,726		)	—			—
Forward MBS Sale Derivatives:
Institutional Counterparties	2,000		(975		)	1,025		—			(249		)	776
	$	202,828	$	(975	)	$	201,853	$	(200,828	)	$	(249	)	$	776

39

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

17. Broker-Dealer and Clearing Organization Receivables and Payables

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

	September 30,		December 31,
	2013		2012
Receivables:
Securities borrowed	$	100,348	$	103,936
Securities failed to deliver	21,442		33,045
Clearing organizations	10,842		8,543
Due from dealers	4		40
	$	132,636	$	145,564
Payables:
Securities loaned	$	70,769	$	115,102
Correspondents	43,550		41,414
Securities failed to receive	24,888		31,474
Clearing organizations	3,204		—
	$	142,411	$	187,990

18. 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).

	Nine Months Ended September 30,
	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	93,124			90,928
Prior periods	852			821
Total incurred	93,976			91,749
Payments related to:
Current period	(78,742		)	(73,267		)
Prior periods	(13,623		)	(13,194		)
Total payments	(92,365		)	(86,461		)
Net balance, end of period	25,238			25,040
Plus reinsurance recoverables	6,029			20,995
Balance, end of period	$	31,267		$	46,035

The decrease in the reserves at September 30, 2013 as compared to September 30, 2012 of $14.8 million is primarily due to the significant subsequent payment and recovery of those reinsurance recoverables outstanding at September 30, 2012.

40

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

19. Reinsurance Activity

NLC 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 NLC 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 NLC; consequently, allowances are established for amounts deemed uncollectible as NLC 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 September 30, 2013, reinsurance receivables had a carrying value of $7.7 million. There was no allowance for uncollectible accounts at September 30, 2013, based on our quality requirements.

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

	Three Months Ended September 30,												Nine Months Ended September 30,
	2013						2012						2013						2012
	Written			Earned			Written			Earned			Written			Earned			Written			Earned
Premiums from direct business	$	44,484		$	43,031		$	40,899		$	40,922		$	134,292		$	125,520		$	126,833		$	121,209
Reinsurance assumed	2,058			1,860			1,726			1,520			5,931			5,238			4,830			4,296
Reinsurance ceded	(5,100		)	(4,909		)	(5,106		)	(4,754		)	(14,879		)	(14,713		)	(14,953		)	(16,467		)
Net premiums	$	41,442		$	39,982		$	37,519		$	37,688		$	125,344		$	116,045		$	116,710		$	109,038

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Loss and LAE incurred	$	27,558		$	31,577		$	98,507		$	94,022
Reinsurance recoverables	(2,927		)	(1,441		)	(4,531		)	(2,273		)
Net loss and LAE incurred	$	24,631		$	30,136		$	93,976		$	91,749

Multi-line excess of loss coverage

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

Catastrophic coverage

NLC has catastrophic excess of loss reinsurance coverage 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 $40 million ($70 million through June 30, 2013) 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 September 30, 2013, total retention for any one catastrophe that affects both NLIC and ASIC was limited to $8 million in the aggregate.

Effective July 1, 2013, NLC renewed its catastrophic reinsurance contract for its third and fourth layers of reinsurance for a two year period. In the contract renewal, the coverage provided by the fourth layer changed to reflect the reduction of exposure in Texas primarily as a result of NLIC exiting the Texas coast and reducing its exposure in Harris County, Texas. The coverage provides $40 million in excess of $100 million loss, resulting in catastrophic excess of loss reinsurance coverage up to $140 million.

41

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

20. Segment and Related Information

The Company 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 NLC. 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, the Company operated as a single segment through its insurance subsidiary, NLC, 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).

			Mortgage					Financial			All Other and			Hilltop
	Banking		Origination			Insurance		Advisory			Eliminations			Consolidated
Three Months Ended September 30, 2013
Net interest income (expense)	$	70,230	$	(8,907	)	$	902	$	2,682		$	6,545		$	71,452
Provision for loan losses	10,661		—			—		(3		)	—			10,658
Noninterest income	17,156		127,460			42,162		25,709			(6,729		)	205,758
Noninterest expense	34,474		115,135			38,795		28,324			(111		)	216,617
Income (loss) before income taxes	$	42,251	$	3,418		$	4,269	$	70		$	(73	)	$	49,935

			Mortgage						Financial		All Other and			Hilltop
	Banking		Origination			Insurance			Advisory		Eliminations			Consolidated
Nine Months Ended September 30, 2013
Net interest income (expense)	$	206,661	$	(32,849	)	$	2,755		$	9,409	$	21,162		$	207,138
Provision for loan losses	34,927		—			—			25		—			34,952
Noninterest income	41,041		439,246			122,365			77,349		(21,732		)	658,269
Noninterest expense	98,484		373,405			135,729			84,887		(497		)	692,008
Income (loss) before income taxes	$	114,291	$	32,992		$	(10,609	)	$	1,846	$	(73	)	$	138,447
September 30, 2013
Goodwill	$	207,741	$	13,071		$	23,988		$	7,008	$	—		$	251,808
Total assets	$	8,143,611	$	1,212,909		$	306,308		$	530,959	$	(1,100,195	)	$	9,093,592
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

21. Earnings (Loss) per Common Share

Nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and are included in the computation of earnings per share pursuant to the two-class method prescribed by the Earnings Per Share Topic of the ASC. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In May 2013, as discussed in Note 13 to the consolidated financial statements, Hilltop issued Restricted Stock Awards which qualify as participating securities.

Net earnings, less any preferred dividends accumulated for the period (whether or not declared), is allocated between the common stock and participating securities pursuant to the two-class method. Basic earnings per common share is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested restricted shares.

42

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Diluted earnings per common share is computed in a similar manner, except that first the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares, excluding the participating securities, were issued using the treasury stock method. For all periods presented, stock options are the only potentially dilutive non-participating instruments issued by Hilltop. Next, we determine and include in diluted earnings per common share calculation the more dilutive effect of the participating securities using the treasury stock method or the two-class method. Undistributed losses are not allocated to the nonvested share-based payment awards (the participating securities) under the two-class method as the holders are not contractually obligated to share in the losses of the Company.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Basic earnings (loss) per share:
Income (loss) applicable to Hilltop common stockholders	$	31,831		$	(4,048	)	$	85,144		$	(14,414	)
Less: income applicable to participating shares	(176		)	—			(472		)	—
Net earnings (loss) available to Hilltop common stockholders	$	31,655		$	(4,048	)	$	84,672		$	(14,414	)
Weighted average shares outstanding - basic	83,493			56,363			83,490			56,408
Basic earnings (loss) per common share	$	0.38		$	(0.07	)	$	1.01		$	(0.26	)
Diluted earnings (loss) per share:
Income (loss) applicable to Hilltop common stockholders	$	31,831		$	(4,048	)	$	85,144		$	(14,414	)
Add: interest expense on senior exchangeable notes (net of tax)	1,053			—			3,158			—
Net earnings (loss) available to Hilltop common stockholders	$	32,884		$	(4,048	)	$	88,302		$	(14,414	)
Weighted average shares outstanding - basic	83,493			56,363			83,490			56,408
Effect of potentially dilutive securities	6,967			—			6,761			—
Weighted average shares outstanding - diluted	90,460			56,363			90,251			56,408
Diluted earnings (loss) per common share	$	0.36		$	(0.07	)	$	0.98		$	(0.26	)

For each of the three and nine months ended September 30, 2012, the computation of diluted loss 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 noted periods. Additionally, options to purchase 700,000 shares of Hilltop’s common stock were not included in the computation of diluted loss per common share for each of the three and nine months ended September 30, 2012, as their inclusion would have been anti-dilutive.

22. Recently Issued Accounting Standards

Comprehensive Income (Loss)

In February 2013, 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 the Company 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.

43

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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 the Company 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 16 to the consolidated financial statements for the disclosures required by this Topic.

23. Subsequent Event

On October 15, 2013, Hilltop entered into a First Supplemental Indenture pursuant to which Hilltop guaranteed the obligations of HTH Operating Partnership LP, a wholly owned subsidiary of Hilltop (“OP”), under that certain Indenture, dated as of August 9, 2005 (the “Indenture”). OP previously issued $96.6 million aggregate principal amount of its 7.5% Senior Exchangeable Notes due 2025 (the “Notes”) under the Indenture, of which $90.9 million were outstanding as of October 15, 2013, including $6.9 million aggregate principal amount held by Hilltop’s insurance company subsidiaries.

On October 15, 2013, OP called for redemption all outstanding Notes on November 14, 2013 (the “Redemption Date”). The Notes will be redeemed at a redemption price equal to the principal amount of the Notes, plus accrued and unpaid interest up to, but excluding, the Redemption Date.

At any time prior to the Redemption Date, holders may exchange their Notes into shares of Hilltop common stock at the rate of 73.94998 shares per $1,000 principal amount of the Notes (or approximately $13.52 per share). In lieu of delivery of Hilltop common stock upon the exercise of a holder of its exchange right, OP may elect to pay such holder of the Notes an amount in cash (or a combination of Hilltop common stock and cash) in respect of all or a portion of such holder’s Notes equal to the closing price of Hilltop’s common stock for the five consecutive trading days commencing on and including the third business day following the exercise of such exchange right. As of November 8, 2013, such redemptions resulted in the issuance of 2,896,316 shares of Hilltop common stock.

44

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, in this Quarterly Report on Form 10-Q, references to the “Company,” “we,” “us,” “our” or “ours” or similar words are to Hilltop Holdings Inc. and its direct and indirect wholly owned subsidiaries, references to “Hilltop” refer solely to Hilltop Holdings Inc., 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 “FNB” refer to First National Bank, 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 “NLC” refer to National Lloyds Corporation, formerly known as NLASCO, Inc., (a wholly owned subsidiary of Hilltop) and its subsidiaries as a whole.

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,” “probable,” “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, market trends, operations and business, expectations concerning mortgage loan origination volume, anticipated changes in our revenues or earnings, the effects of government regulation applicable to our operations, 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;

·our ability to estimate loan losses;

45

·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;

·risks associated with merger and acquisition integration;

·our ability to obtain reimbursements for losses on acquired loans under loss-share agreements with the Federal Deposit Insurance Corporation (the “FDIC”); and

·our ability to use excess cash in an effective manner, including the execution of successful acquisitions.

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 financial holding company registered under the Bank Holding Company Act of 1956, as amended by the Gramm-Leach-Bliley Act of 1999. On November 30, 2012, the Company acquired PlainsCapital Corporation in a stock and cash transaction, whereby 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” (the “PlainsCapital 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.

Prior to the consummation of the PlainsCapital 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, NLC. NLC operates through its wholly owned subsidiaries, National Lloyds Insurance Company (“NLIC”) and American Summit Insurance Company (“ASIC”).

On September 13, 2013 (the “Bank Closing Date”), the Bank assumed substantially all of the liabilities, including all of the deposits, and acquired substantially all of the assets, of FNB from the FDIC, as receiver, and reopened acquired branches of FNB under the “PlainsCapital Bank” name (the “FNB Transaction”). Pursuant to the Purchase and Assumption Agreement (the “P&A Agreement”), the Bank and the FDIC entered into loss-share agreements whereby the FDIC agreed to share in the losses of certain covered loans and covered other real estate owned (“OREO”) that the Bank acquired. Based on preliminary purchase date valuations, the fair market value of the assets acquired was $2.2 billion, including $1.1 billion in covered loans, $286.2 million in securities, $121.0 million in covered OREO and $45.9 million in non-covered loans. The Bank also assumed $2.2 billion in liabilities, consisting primarily of deposits.

Following the PlainsCapital Merger on November 30, 2012, our primary line of business has been to provide business and consumer banking services from offices located throughout central, north and west Texas through 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. The acquisition of FNB’s expansive branch network allows the Bank to further develop its Texas footprint through expansion into the Rio Grande Valley, Houston, Corpus Christi, Laredo and El Paso markets, among others.

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OVERVIEW

As a result of the PlainsCapital Merger, the operating results of the Company beginning December 1, 2012 include the banking, mortgage origination and financial advisory operations acquired in the PlainsCapital Merger. Accordingly, our operating results and financial condition for the three and nine months ended September 30, 2013 are not comparable to prior periods. Additionally, the presentation of the Company’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.

The operations of FNB are included in the Company’s operating results beginning September 14, 2013, and were not significant to the Company’s consolidated statements of operations for the three and nine months ended September 30, 2013. FNB’s results of operations prior to the Bank Closing Date are not included in the Company’s consolidated operating results.

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 $207.1 million in net interest income during the nine months ended September 30, 2013, compared with net interest income of $3.7 million during the nine months ended September 30, 2012. The significant increase in net interest income during 2013 was primarily due to $204.6 million in net interest income during the nine months ended September 30, 2013 generated by those operations acquired as part of the PlainsCapital 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 nine months ended September 30, 2013, we generated $439.1 million in net gains from the sale of loans, other mortgage production income, and mortgage loan origination fees.

(ii)Net insurance premiums earned.  Through our wholly owned insurance subsidiary, NLC, we provide fire and limited homeowners insurance for low value dwellings and manufactured homes. We generated $116.0 million in net insurance premiums earned during the nine months ended September 30, 2013, compared with $109.0 million during the same period in the prior year.

(iii)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 $70.3 million in investment advisory fees and commissions and securities brokerage fees and commissions during the nine months ended September 30, 2013.

In the aggregate, we generated $658.3 million in noninterest income during the nine months ended September 30, 2013, compared with $114.5 million during the same period in the prior year. 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 PlainsCapital 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 PlainsCapital Merger, we have two primary operating business units, PlainsCapital (financial services and products) and NLC (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

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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, which, since September 14, 2013, includes the operations acquired in the FNB Transaction. The banking segment primarily provides business and consumer banking products and services from offices located throughout Texas 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 mortgage origination segment includes the operations of PrimeLending, which offers a variety of loan products from offices in 42 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 NLC, which operates through its wholly owned subsidiaries, NLIC and ASIC. Insurance segment income is primarily generated from revenue earned on net insurance premiums less loss and loss 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. FSC holds trading securities to support sales, underwriting and other customer activities. These securities are marked to market through other noninterest income. FSC uses derivatives to support mortgage origination programs of certain non-profit housing organization clients. FSC hedges its related exposure to interest rate risk from these programs with U.S. Agency to-be-announced, or TBA, mortgage-backed securities. These derivatives are marked to market through other noninterest income.

Additional information concerning our reportable segments is presented in Note 20, Segment and Related Information, in the notes to our consolidated financial statements. The following tables present certain information about the operating results of our reportable segments (in thousands).

Three Months Ended September 30, 2013	Banking		Mortgage Origination			Insurance		Financial Advisory			All Other and Eliminations			Hilltop Consolidated
Net interest income (expense)	$	70,230	$	(8,907	)	$	902	$	2,682		$	6,545		$	71,452
Provision for loan losses	10,661		—			—		(3		)	—			10,658
Noninterest income	17,156		127,460			42,162		25,709			(6,729		)	205,758
Noninterest expense	34,474		115,135			38,795		28,324			(111		)	216,617
Income before income taxes	$	42,251	$	3,418		$	4,269	$	70		$	(73	)	$	49,935

			Mortgage						Financial		All Other and			Hilltop
Nine Months Ended September 30, 2013	Banking		Origination			Insurance			Advisory		Eliminations			Consolidated
Net interest income (expense)	$	206,661	$	(32,849	)	$	2,755		$	9,409	$	21,162		$	207,138
Provision for loan losses	34,927		—			—			25		—			34,952
Noninterest income	41,041		439,246			122,365			77,349		(21,732		)	658,269
Noninterest expense	98,484		373,405			135,729			84,887		(497		)	692,008
Income before income taxes	$	114,291	$	32,992		$	(10,609	)	$	1,846	$	(73	)	$	138,447

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Operating Results

The net income applicable to common stockholders for the three months ended September 30, 2013 was $31.8 million, or $0.36 per diluted share, compared to net loss applicable to common stockholders of $4.0 million, or $0.07 per diluted share, for the three months ended September 30, 2012. The net income applicable to common stockholders for the nine months ended September 30, 2013 was $85.1 million, or $0.98 per diluted share, compared to net loss applicable to common stockholders of $14.4 million, or $0.26 per diluted share, for the nine months ended September 30, 2012.

As a result of the PlainsCapital Merger on November 30, 2012, the net income of PlainsCapital is included in the operating results of the Company for the three and nine months ended September 30, 2013. The operations acquired in the FNB Transaction are included in the Company’s operating results beginning September 14, 2013, and were therefore not fully reflected in the Company’s consolidated statement of operations for the three months ended September 30, 2013. FNB’s results of operations prior to the Bank Closing Date are not included in the Company’s consolidated operating results. However, we expect the operations acquired in the FNB Transaction to have a significant effect on the Bank’s operating results beginning in the fourth quarter of 2013.

Certain items included in net income for 2013 resulted from purchase accounting associated with the PlainsCapital Merger and FNB Transaction. During the three months ended September 30, 2013, the pre-tax effects of these items include net accretion on acquired earning assets and liabilities of $15.2 million, offset by amortization of identifiable intangibles of $2.5 million. PlainsCapital also recorded provisions for loan losses related to acquired performing loans of approximately $2.6 million for the three months ended September 30, 2013. The aggregate after tax impact of these items was to increase net income by $6.4 million for the three months ended September 30, 2013. During the nine months ended September 30, 2013, the pre-tax effects of these items include net accretion on acquired earning assets and liabilities of $47.1 million, offset by amortization of identifiable intangibles of $7.4 million. PlainsCapital also recorded provisions for loan losses related to acquired performing loans of approximately $14.9 million for the nine months ended September 30, 2013. The aggregate after tax impact of these items was to increase net income by $15.5 million for the nine months ended September 30, 2013.

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

	Three Months Ended		Nine Months Ended
	September 30, 2013		September 30, 2013
Performance Ratios (1):
Return on average stockholders’ equity	10.92	%	9.95	%
Return on average assets	1.73	%	1.63	%
Net interest margin (taxable equivalent) (2)	4.45	%	4.38	%

(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) Annualized taxable equivalent net interest income divided by average interest-earning assets.

During the three months ended September 30, 2013, the consolidated taxable equivalent net interest margin of 4.45% was impacted by accretion of discount on loans of $15.7 million, amortization of premium on acquired securities of $1.2 million and amortization of premium on acquired time deposits of $0.8 million. The consolidated taxable equivalent net interest margin for the nine months ended September 30, 2013 of 4.38% was impacted by accretion of discount on loans of $49.3 million, amortization of premium on acquired securities of $4.6 million and amortization of premium on acquired time deposits of $2.4 million. As a result of these items, the consolidated taxable equivalent net interest margin increased by 92 basis points and 95 basis points during the three and nine months ended September 30, 2013, respectively.

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The table below provides additional details regarding our consolidated net interest income for the three and nine months ended September 30, 2013 (dollars in thousands).

	Three Months Ended							Nine Months Ended
	September 30, 2013							September 30, 2013
	Average			Interest		Annualized		Average			Interest		Annualized
	Outstanding			Earned or		Yield or		Outstanding			Earned or		Yield or
	Balance			Paid		Rate		Balance			Paid		Rate
Assets
Interest-earning assets
Loans, gross (1)	$	4,451,589		$	68,121	6.03	%	$	4,338,209		$	198,220	6.04	%
Investment securities - taxable	976,775			7,202		2.97	%	958,220			19,594		2.76	%
Investment securities - non-taxable (2)	166,789			1,641		3.93	%	195,316			5,383		4.29	%
Federal funds sold and securities purchased under agreements to resell	36,762			35		0.38	%	27,281			91		0.45	%
Interest-bearing deposits in other financial institutions	591,581			282		0.19	%	636,203			857		0.18	%
Other	166,559			2,546		5.66	%	162,001			7,660		5.86	%
Interest-earning assets, gross	6,390,055			79,827		4.93	%	6,317,230			231,805		4.88	%
Allowance for non-covered loan losses	(29,042		)					(18,884		)
Interest-earning assets, net	6,361,013							6,298,346
Noninterest-earning assets	985,793							905,077
Total assets	$	7,346,806						$	7,203,423
Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Interest-bearing deposits	$	4,877,836		$	3,685	0.30	%	$	4,621,094		$	10,541	0.30	%
Notes payable and other borrowings	696,472			4,101		2.02	%	773,656			12,331		1.82	%
Total interest-bearing liabilities	5,574,308			7,786		0.54	%	5,394,750			22,872		0.55	%
Noninterest-bearing liabilities
Noninterest-bearing deposits	159,244							160,836
Other liabilities	431,529							472,648
Total liabilities	6,165,081							6,028,234
Stockholders’ equity	1,181,165							1,174,512
Noncontrolling interest	560							677
Total liabilities and stockholders’ equity	$	7,346,806						$	7,203,423
Net interest income (2)				$	72,041						$	208,933
Net interest spread (2)						4.39	%						4.33	%
Net interest margin (2)						4.45	%						4.38	%

(1) Average balance includes non-accrual loans.

(2) Annualized taxable equivalent adjustments are based on a 35% tax rate. The adjustment to interest income was $0.6 million and $1.8 million for the three and nine months ended September 30, 2013, respectively.

On a consolidated basis, net interest income increased $70.2 million and $203.4 million for the three and nine months ended September 30, 2013, respectively, compared with the same periods in 2012. These increases were primarily due to the inclusion of the results of operations of the banking segment, which was acquired in the PlainsCapital Merger on November 30, 2012. Net interest income during the three and nine months ended September 30, 2012 was limited to interest income on securities and interest expense on notes payable of the insurance segment.

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 $10.7 million for the three months ended September 30, 2013 and $35.0 million for the nine months ended September 30, 2013. During the three and nine months ended September 30, 2013, the provision for loan losses was comprised of charges relating to newly originated loans and acquired performing loans of approximately $8.4 million and $32.0 million, respectively, and purchased credit impaired (“PCI”) loans of approximately $2.3 million and $3.0 million, respectively.

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Consolidated noninterest income increased $166.2 million and $543.8 million during the three and nine months ended September 30, 2013, respectively, compared with the same periods in 2012. The increases in 2013 were primarily due to the inclusion of $153.2 million and $516.6 million during the three and nine months ended September 30, 2013, respectively, of noninterest income generated from the operations of the mortgage origination and financial advisory segments, which were acquired in the PlainsCapital Merger. Consolidated noninterest income during the three and nine months ended September 30, 2013 also included increases in net insurance premiums earned of $2.3 million and $7.0 million, respectively, compared with the same periods in 2012. In addition, the FNB Transaction resulted in the recognition of a pre-tax bargain purchase gain of $3.3 million, which is considered preliminary because management made significant estimates and exercised significant judgment in estimating fair values and accounting for the FNB Transaction due to the short time period between the Bank Closing Date and September 30, 2013.

Our consolidated noninterest expense during the three and nine months ended September 30, 2013 increased $169.8 million and $552.4 million, respectively, compared with the same periods in 2012. The increases primarily resulted from the inclusion of $177.9 million and $556.8 million during the three and nine months ended September 30, 2013, respectively, in employees’ compensation and benefits, occupancy and equipment and other expenses specifically attributable to those segments acquired as a part of the PlainsCapital Merger. The balance of increases in our consolidated noninterest expenses during the three and nine months ended September 30, 2013 were primarily related to loss and LAE and policy acquisition and other underwriting expenses specific to our insurance segment.

Consolidated income tax expense for the three and nine months ended September 30, 2013 was $16.6 million and $49.1 million, respectively, reflecting effective rates of 33.3% and 35.5%, respectively. During the three and nine months ended September 30, 2012, we recorded an income tax benefit, due to losses from operations, of $1.9 million and $7.0 million, respectively, reflecting an effective rate of 32.1% and 32.5%, respectively. The increase in income tax expense during 2013 was due to the operating income generated by PlainsCapital.

Segment Results

Banking Segment

Income before income taxes for the three and nine months ended September 30, 2013 was $42.3 million and $114.3 million, respectively, and was primarily driven by net interest income of $70.2 million and $206.7 million, respectively, partially offset by noninterest expenses of $34.5 million and $98.5 million, respectively, during the three and nine months ended September 30, 2013.

At September 30, 2013, the Bank exceeded all regulatory capital requirements with a total capital to risk weighted assets ratio of 13.36%, Tier 1 capital to risk weighted assets ratio of 12.76% and a Tier 1 capital to average assets, or leverage, ratio of 11.05%. At September 30, 2013, the Bank was also considered to be “well-capitalized” under regulatory requirements without giving effect to the final Basel III capital rules adopted by the Federal Reserve Board on July 2, 2013.

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

	Three Months Ended		Nine Months Ended
	September 30, 2013		September 30, 2013
Performance Ratios (1):
Efficiency ratio (2)	41.04	%	40.32	%
Return on average assets	1.81	%	1.68	%
Net interest margin (taxable equivalent) (3)	5.07	%	5.16	%

(1) The banking segment was acquired in December 2012. Therefore, noted measures for periods prior to 2013 are not useful measures and have been excluded.

(2) Noninterest expenses divided by the sum of total noninterest income and net interest income for the period.

(3) Annualized taxable equivalent net interest income divided by average interest-earning assets.

During the three months ended September 30, 2013, the taxable equivalent net interest margin of 5.07% was impacted by accretion of discount on loans of $15.7 million, amortization of premium on acquired securities of $1.2 million and amortization of premium on acquired time deposits of $0.8 million. The taxable equivalent net interest margin for the nine

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months ended September 30, 2013 of 5.16% was impacted by accretion of discount on loans of $49.3 million, amortization of premium on acquired securities of $4.6 million and amortization of premium on acquired time deposits of $2.4 million. As a result of these items, the taxable equivalent net interest margin increased by 105 basis points and 112 basis points during the three and nine months ended September 30, 2013, respectively.

The table below provides additional details regarding our banking segment’s net interest income for the three and nine months ended September 30, 2013 (dollars in thousands).

	Three Months Ended							Nine Months Ended
	September 30, 2013							September 30, 2013
	Average			Interest		Annualized		Average			Interest		Annualized
	Outstanding			Earned or		Yield or		Outstanding			Earned or		Yield or
	Balance			Paid		Rate		Balance			Paid		Rate
Assets
Interest-earning assets
Loans, gross (1)	$	3,135,680		$	55,918	7.00	%	$	2,995,848		$	163,162	7.20	%
Subsidiary warehouse lines of credit	970,323			12,907		5.20	%	984,857			41,122		5.51	%
Investment securities - taxable	789,451			4,088		2.07	%	758,330			10,267		1.81	%
Investment securities - non-taxable (2)	154,518			1,430		3.70	%	159,671			4,242		4.15	%
Federal funds sold and securities purchased under agreements to resell	35,127			25		0.29	%	25,111			53		0.28	%
Interest-bearing deposits in other financial institutions	371,196			282		0.30	%	389,383			806		0.28	%
Other	41,798			385		3.68	%	34,818			935		3.58	%
Interest-earning assets, gross	5,498,093			75,035		5.36	%	5,348,018			220,587		5.47	%
Allowance for non-covered loan losses	(28,885		)					(18,730		)
Interest-earning assets, net	5,469,208							5,329,288
Noninterest-earning assets	913,615							840,050
Total assets	$	6,382,823						$	6,169,338
Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Interest-bearing deposits	$	4,874,003		$	3,711	0.30	%	$	4,591,551		$	10,528	0.31	%
Notes payable and other borrowings	384,843			324		0.33	%	429,727			1,053		0.33	%
Total interest-bearing liabilities (3)	5,258,846			4,035		0.30	%	5,021,278			11,581		0.31	%
Noninterest-bearing liabilities
Noninterest-bearing deposits	214,476							231,849
Other liabilities	22,903							46,597
Total liabilities	5,496,225							5,299,724
Stockholders’ equity	886,598							869,614
Total liabilities and stockholders’ equity	$	6,382,823						$	6,169,338
Net interest income (2)				$	71,000						$	209,006
Net interest spread (2)						5.06	%						5.16	%
Net interest margin (2)						5.07	%						5.16	%

(1) Average balance includes non-accrual loans.

(2) Annualized taxable equivalent adjustments are based on a 35% tax rate. The adjustment to interest income was $0.5 million and $1.5 million for the three and nine months ended September 30, 2013, respectively.

(3) Excludes the allocation of interest income of $0.6 million and $1.8 million and interest expense on Hilltop debt of $0.9 million and $2.7 million for the three and nine months ended September 30, 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 and PlainsCapital, 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 expenses were $34.5 million and $98.5 million during the three and nine months ended September 30, 2013, respectively, and were primarily comprised of employees’ compensation and benefits, and occupancy expenses.

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Mortgage Origination Segment

Income before income taxes for the three and nine months ended September 30, 2013 was $3.4 million and $33.0 million, respectively. Income before income taxes was primarily driven by noninterest income of $127.5 million and $439.2 million, respectively, partially offset by noninterest expense of $115.1 million and $373.4 million, respectively, during the three and nine months ended September 30, 2013. Additionally, net interest expense of $8.9 million and $32.8 million during the three and nine months ended September 30, 2013, respectively, 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. The following table provides certain details regarding our mortgage loan originations (dollars in thousands).

	Three Months Ended		% of		Nine Months Ended		% of
	September 30, 2013		Total		September 30, 2013		Total
Mortgage Loan Originations - units	13,727				44,681
Mortgage Loan Originations - volume	$	2,851,627			$	9,447,550
Mortgage Loan Originations:
Conventional	$	1,841,025	64.56	%	$	6,017,174	63.69	%
Government	856,127		30.02	%	2,801,915		29.66	%
Jumbo	144,027		5.05	%	596,478		6.31	%
Other	10,448		0.37	%	31,993		0.34	%
	$	2,851,627	100.00	%	$	9,447,560	100.00	%
Home purchases	$	2,342,508	82.15	%	$	6,330,240	67.00	%
Refinancings	509,119		17.85	%	3,117,320		33.00	%
	$	2,851,627	100.00	%	$	9,447,560	100.00	%
Texas	$	665,504	23.34	%	$	2,111,761	22.35	%
California	457,812		16.05	%	1,683,019		17.81	%
North Carolina	138,446		4.86	%	494,652		5.24	%
Virginia	107,860		3.78	%	389,374		4.12	%
Florida	117,891		4.13	%	344,483		3.65	%
Maryland	86,326		3.03	%	320,142		3.39	%
Arizona	87,739		3.08	%	318,473		3.37	%
All other states	1,190,049		41.73	%	3,785,656		40.07	%
	$	2,851,627	100.00	%	$	9,447,560	100.00	%

The mortgage lending business is subject to variables that can impact loan origination volume, including seasonal and interest rate fluctuations. Historically, we have typically experienced increased loan origination volume from purchases of homes during the spring and summer, when more people tend to move and buy or sell homes. An increase in mortgage interest rates tends to result in decreased loan origination volume from refinancings, while a decrease in rates tends to result in increased refinancings. Changes in interest rates have historically had a lesser impact on home purchases volume than on refinancing volume.

Beginning in May 2013 and continuing through September 2013, mortgage interest rates increased at a pace that resulted in decreasing the mortgage origination segment’s total loan origination volume during the third quarter of 2013 by approximately 20% when compared to the prior quarter. Home purchases volume of $2.3 billion during the three months ended September 30, 2013 was virtually unchanged from the three months ended June 30, 2013, while refinancing volume decreased from $1.2 billion (33% of total loan origination volume) to $0.5 billion (18% of total loan origination volume) between the same periods. While mortgage interest rates trended downward during the latter part of September, rates at September 30, 2013 approximated those at June 30, 2013. Due to the recent volatility in mortgage interest rates and uncertain consumer confidence, mortgage loan origination volume for the remainder of 2013 may vary from origination trends historically experienced by the mortgage origination segment.

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While PrimeLending’s total loan origination volume decreased approximately 20% during the third quarter of 2013 compared to the prior quarter, income before income taxes decreased approximately 81%. Income before income taxes decreased at a greater rate primarily because segment operating costs included in noninterest expenses, including salaries, occupancy, and administrative expenses, were relatively unchanged between the two periods. To address negative trends in loan origination volume resulting from recent changes in interest rates, the mortgage origination segment reduced its non-origination employee headcount by approximately 10% during the third quarter of 2013. Third quarter expenses were not significantly impacted by the headcount reductions, since decreases in employees’ compensation and benefits resulting from the reductions were mostly offset by related severance expense. We anticipate that we will begin to realize the benefits of these reductions during the fourth quarter of 2013. We also made additional headcount reductions that were initiated in the fourth quarter of 2013 and are engaging in other initiatives to reduce operating costs. We expect to begin realizing the benefits of these measures during the fourth quarter of 2013.

Noninterest income of $127.5 million and $439.2 million for the three and nine months ended September 30, 2013, respectively, was comprised of net gains on the sale of loans and other mortgage production income, and mortgage origination fees. Noninterest income for the three months ended September 30, 2013 included $14.5 million of net losses resulting from changes in the fair value of the mortgage origination segment’s interest rate lock commitments (“IRLCs”) and loans held for sale, and the related activity associated with forward commitments used by PrimeLending to mitigate interest rate risk associated with its IRLCs and mortgage loans held for sale. The loss was primarily the result of a decrease in the volume of IRLCs and mortgage loans held for sale between June 30 and September 30, 2013.

Noninterest expenses were $115.1 million and $373.4 million for the three and nine months ended September 30, 2013, respectively. 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 58% and 61% of the total employees’ compensation and benefits expenses during the three and nine months ended September 30, 2013, respectively. Unreimbursed closing costs during the three and nine months ended September 30, 2013 were $4.4 million and $24.7 million, respectively. 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.

Between January 1, 2005, and September 30, 2013, the mortgage origination segment sold mortgage loans totaling $53.2 billion. These loans were sold under sales contracts that generally include provisions which hold the mortgage origination segment responsible for errors or omissions relating to its representations and warranties that loans sold meet certain requirements, including representations as to underwriting standards and the validity of certain borrower representations in connection with the loan. In addition, the sales contracts typically require the refund of purchased servicing rights plus certain investor servicing costs if a loan experiences an early payment default. While the mortgage origination segment sold loans prior to 2005, it has not experienced, nor does it anticipate experiencing, significant losses on loans originated prior to 2005 as a result of investor claims under these provisions of its sales contracts.

When an investor claim for indemnification of a loan sold is made, we evaluate the claim and determine if the claim can be satisfied through additional documentation or other deliverables. If the claim cannot be satisfied in that matter, we negotiate with the investor to reach a settlement of the claim. Settlements typically result in either the repurchase of a loan or reimbursement to the investor for losses incurred on the loan. Following is a summary of the mortgage origination segments claims resolution activity relating to loans sold between January 1, 2005, and September 30, 2013 (dollars in thousands).

	Original Loan Balance				Loss Recognized
			% of				% of
			Loans				Loans
	Amount		Sold		Amount		Sold
Claims resolved with no payment	$	127,287	0.24	%	$	—	0.00	%
Claims resolved as a result of a loan repurchase or payment to an investor for losses incurred (1)	165,497		0.31	%	21,114		0.04	%
	$	292,784	0.55	%	$	21,114	0.04	%

(1) Losses incurred include refunded purchased servicing rights.

At September 30, 2013, and December 31, 2012, the mortgage origination segment’s indemnification liability reserve totaled $21.0 million and $19.0 million, respectively. The related provision for indemnification losses was $0.9 million and $2.8 million for the three and nine months ended September 30, 2013, respectively.

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Insurance Segment

Income before income taxes was $4.3 million during the three months ended September 30, 2013, compared with a loss before income taxes of $6.0 million during the same period in 2012. Losses before income taxes were $10.6 million and $21.4 million during the nine months ended September 30, 2013 and 2012, respectively. The insurance segment is subject to claims arising out of severe weather, the incidence and severity of which are inherently unpredictable. Generally, the insurance segment’s insured risks exhibit higher losses in the second and third calendar quarters due to a seasonal concentration of weather-related events in its primary geographic markets. Although weather-related losses (including hail, high winds, tornadoes and hurricanes) can occur in any calendar quarter, the second calendar quarter, historically, has experienced the highest frequency of losses associated with these events. Hurricanes, however, are more likely to occur in the third calendar quarter of the year.

The loss during the nine months ended September 30, 2013 was primarily driven by the severity of three tornado, wind and hail storms during the second quarter of 2013.  Based on estimates of the ultimate cost, two of these storms are now considered catastrophic losses as they exceeded our $8 million reinsurance retention during the three months ended September 30, 2013. The estimate of ultimate losses from these storms totaled $26.5 million at September 30, 2013 with a net effect, after reinsurance, of $21.9 million, resulting in a net cost of $1.0 million for the three months ended September 30, 2013. These net costs compare favorably to the same period in the prior year given our improved containment of expected losses from the weather events in May 2013 at June 30, 2013 compared to prior year activity. This year-over-year improvement contributed to combined ratios of 94.0% and 113.7% for the three and nine months ended September 30, 2013, respectively, compared with 114.2% and 118.6% for the three and nine months ended September 30, 2012, respectively. The combined ratio is a measure of overall insurance underwriting profitability, and represents the sum of the loss and LAE ratio and the underwriting expense ratio, which are discussed in more detail below.

Noninterest income of $42.2 million during the three months ended September 30, 2013 included net insurance premiums earned of $40.0 million, compared to $37.7 million for the same period in 2012, while noninterest income of $122.4 million during the nine months ended September 30, 2013 included net insurance premiums earned of $116.0 million, compared to $109.0 million for the same period in 2012. The increase in earned premiums during both periods is primarily attributable to volume and, to a lesser extent, rate increases in homeowners and mobile home products.

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

	Three Months Ended September 30,				Variance			Nine Months Ended September 30,				Variance
	2013		2012		2013 vs 2012			2013		2012		2013 vs 2012
Direct Insurance Premiums Written:
Homeowners	$	21,110	$	19,128	$	1,982		$	61,634	$	57,118	$	4,516
Fire	14,086		12,712		1,374			42,097		39,809		2,288
Mobile Home	8,098		6,779		1,319			26,827		22,996		3,831
Commercial	1,094		2,160		(1,066		)	3,492		6,619		(3,127		)
Other	96		120		(24		)	242		291		(49		)
	$	44,484	$	40,899	$	3,585		$	134,292	$	126,833	$	7,459

Total direct insurance premiums written increased for the three and nine months ended September 30, 2013 compared to the same periods in 2012 by $4.7 million and $10.6 million, respectively, for our three largest insurance product lines due to growth in our core insurance products. These decreases were partially offset by decreases of $1.1 million and $3.1 million related to a commercial product line that was non-renewed.

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

	Three Months Ended September 30,				Variance			Nine Months Ended September 30,				Variance
	2013		2012		2013 vs 2012			2013		2012		2013 vs 2012
Net Insurance Premiums Earned:
Homeowners	$	18,937	$	17,561	$	1,376		$	53,259	$	49,104	$	4,155
Fire	12,653		11,725		928			36,377		34,223		2,154
Mobile Home	7,320		6,305		1,015			23,182		19,770		3,412
Commercial	987		1,988		(1,001		)	3,018		5,690		(2,672		)
Other	85		109		(24		)	209		251		(42		)
	$	39,982	$	37,688	$	2,294		$	116,045	$	109,038	$	7,007

Net insurance premiums earned for the three and nine months ended September 30, 2013 increased as compared to the same period in 2012, primarily due to increases in net insurance premiums written of $3.9 million and $8.6 million, respectively. These increases were offset by an increase in unearned insurance premiums of $1.6 million during the three and nine months ended September 30, 2013 as compared to the same periods in 2012.

Noninterest expenses of $38.8 million and $135.7 million during the three and nine months ended September 30, 2013, respectively, include 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 September 30, 2013 was $24.6 million, as compared to $30.1 million for the same period in 2012, resulting in loss and LAE ratios of 61.6% and 80.0% for the three months ended September 30, 2013 and 2012, respectively. Loss and LAE for the nine months ended September 30, 2013 was $94.0 million, as compared to $91.7 million for the same period in 2012. As a result, the loss and LAE ratio for the nine months ended September 30, 2013 and 2012 was 81.0% and 84.1%, respectively. These year-over-year ratio improvements were primarily a result of growth of earned premium and the improved containment of expected losses from the respective year prior quarter weather events as previously discussed.

Policy acquisition and other underwriting expenses encompass all expenses incurred relative to NLC operations, and include elements of multiple categories of expense otherwise reported as noninterest expense in the consolidated statements of operations. Included in other underwriting expenses during the nine months ended September 30, 2012 is a $1.7 million write down of a policy administration system NLC was unable to successfully implement. Excluding this prior year write down, the expense ratio for the nine months ended September 30, 2012 would have improved to 32.9%, compared to 32.7% for the same period in 2013.

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

	Three Months Ended September 30,						Variance			Nine Months Ended September 30,						Variance
	2013			2012			2013 vs 2012			2013			2012			2013 vs 2012
Amortization of deferred policy acquisition costs	$	10,418		$	9,675		$	743		$	30,305		$	28,821		$	1,484
Other underwriting expenses	3,207			3,766			(559		)	9,511			10,328			(817		)
Total policy acquisition and other underwriting expenses	13,625			13,441			184			39,816			39,149			667
Agency expenses	(652		)	(568		)	(84		)	(1,883		)	(1,532		)	(351		)
Total policy acquisition and other underwriting expenses less agency expenses	$	12,973		$	12,873		$	100		$	37,933		$	37,617		$	316
Net insurance premiums earned	$	39,982		$	37,688		$	2,294		$	116,045		$	109,038		$	7,007
Expense ratio	32.4		%	34.2		%	-1.8		%	32.7		%	34.5		%	-1.8		%

Financial Advisory Segment

Income before income taxes for the three and nine months ended September 30, 2013 were $0.1 million and $1.8 million, respectively. Rising interest rates along with increased volatility in fixed income markets in recent months have resulted in reduced sales of fixed income securities to institutional customers, some trading losses on securities held to support those sales and reduction in financial advisory fee income.

The majority of noninterest income for the three and nine months ended September 30, 2013 of $25.7 million and $77.3 million, respectively, was generated from fees and commissions earned from investment advisory and securities brokerage activities of $22.3 million and $70.3 million, respectively. Additionally, changes in the fair values of derivatives during the three and nine months ended September 30, 2013 produced net gains of $3.2 million and $8.8 million, respectively. Changes in the fair value of the trading portfolio produced gains of $0.2 million during the three months ended September 30, 2013 and losses of $1.7 million during the nine months ended September 30, 2013.

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Noninterest expenses were $28.3 million and $84.9 million for the three and nine months ended September 30, 2013, respectively.  Employees’ compensation and benefits and occupancy and equipment accounted for the majority of the costs incurred.

Financial Condition

The following discussion contains a more detailed analysis of our financial condition at September 30, 2013 as compared to December 31, 2012.

Securities Portfolio

At September 30, 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.

The securities portfolio consists of two major components: trading securities and securities available for sale. Trading securities are bought and held principally for the purpose of selling them in the near term and 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.

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

	September 30,		December 31,
	2013		2012
Trading securities, at fair value	$	43,254	$	90,113
Securities available for sale, at fair value
U.S. Treasury securities	23,815		7,185
U.S. government agencies:
Bonds	742,663		526,237
Residential mortgage-backed securities	63,788		18,893
Collateralized mortgage obligations	130,534		97,924
Corporate debt securities	78,361		87,177
States and political subdivisions	158,818		175,759
Commercial mortgage-backed securities	804		1,073
Equity securities	20,996		20,428
Note receivable	48,487		44,160
Warrant	11,115		12,117
Total securities portfolio	$	1,322,635	$	1,081,066

We had net unrealized losses of $26.5 million and net unrealized gains of $12.5 million related to the available for sale investment portfolio at September 30, 2013 and December 31, 2012, respectively. The significant increase in the net unrealized loss position of our available for sale investment portfolio during 2013 was due to effects of an increase in market interest rates since May that resulted in a decrease in the fair value of our debt securities.

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Hilltop

Available for sale securities at September 30, 2013 include Hilltop’s note receivable and warrant with SWS Group, Inc. of $59.6 million and equity securities of $8.2 million representing those shares of SWS common stock held by Hilltop.

Banking Segment

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. At September 30, 2013, the banking segment’s securities portfolio of $1.1 billion was comprised of trading securities of $21.3 million and available for sale securities of $1.1 billion. The banking segment’s portfolio at September 30, 2013 included available for sale securities acquired in connection with the FNB Transaction with a book value of $193.6 million. Subsequent to September 30, 2013, securities acquired in the FNB Transaction with a book value of $130.3 million were sold.

Insurance Segment

Our insurance segment’s primary investment objective is to preserve capital and manage for a total rate of return. NLC’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. At September 30, 2013, the insurance segment’s securities portfolio was comprised of $133.3 million in available for sale securities.

Financial Advisory Segment

Our financial advisory segment holds securities to support sales, underwriting and other customer activities. Because FSC is a broker-dealer, it is required to carry its securities at fair value and record changes in the fair value of the portfolio in operations. Accordingly, FSC classifies its securities portfolio of $22.0 million as trading.

Non-Covered Loan Portfolio

Consolidated non-covered loans held for investment are detailed in the table below and classified by portfolio segment (in thousands).

	Loans, excluding			PCI			Total
September 30, 2013	PCI Loans			Loans			Loans
Commercial and industrial	$	1,566,915		$	58,507		$	1,625,422
Real estate	1,275,341			46,713			1,322,054
Construction and land development	285,751			24,641			310,392
Consumer	42,993			9,363			52,356
Loans, gross	3,171,000			139,224			3,310,224
Allowance for loan losses	(30,169		)	(3,011		)	(33,180		)
Loans, net of allowance	$	3,140,831		$	136,213		$	3,277,044

	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

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Banking Segment

The non-covered 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 non-covered loans, net of the allowance for non-covered loan losses, were $4.2 billion and $4.1 billion at September 30, 2013 and December 31, 2012, respectively. The banking segment’s non-covered loan portfolio includes a $1.3 billion warehouse line of credit extended to PrimeLending, of which $0.9 billion was drawn at September 30, 2013, and is eliminated from net loans on our consolidated balance sheets. Prior to September 2013, this warehouse line of credit had $1.6 billion of availability, of which $1.3 billion was drawn at December 31, 2012.

The banking segment does not generally participate in syndicated loan transactions and has no foreign loans in its portfolio. At September 30, 2013, the banking segment’s only non-covered loan concentration (loans to borrowers engaged in similar activities) that exceeded 10% of its total non-covered loans was non-construction commercial real estate loans within our non-covered real estate portfolio. At September 30, 2013, non-construction commercial real estate loans were 31.46% of the banking segment’s total non-covered loans. The banking segment’s non-covered loan concentrations were within regulatory requirements at September 30, 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 $1.0 billion and $1.4 billion at September 30, 2013 and December 31, 2012, respectively.

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

	September 30,		December 31,
	2013		2012
Loans held for sale:
Unpaid principal balance	$	1,002,490	$	1,359,829
Fair value adjustment	43,662		40,908
	$	1,046,152	$	1,400,737
Pipeline loans:
Unpaid principal balance	$	695,183	$	968,083
Fair value adjustment	25,524		15,150
	$	720,707	$	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 FSC’s internal policies. The financial advisory segment’s total non-covered loans, net of the allowance for non-covered loan losses, were $286.7 million and $277.0 million at September 30, 2013 and December 31, 2012, respectively. This increase was primarily attributable to increased borrowings in margin accounts held by FSC customers and correspondents.

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Covered Loan Portfolio

Banking Segment

Loans acquired in the FNB Transaction are subject to loss-share agreements with the FDIC and are referred to as “covered loans” and reported separately in our consolidated balance sheets. Under the terms of the loss-share agreements, the FDIC has agreed to reimburse the Bank for: (i) 80% of losses on the first $240.4 million of losses incurred; (ii) 0% of losses in excess of $240.4 million up to and including $365.7 million of losses incurred; and (iii) 80% of losses in excess of $365.7 million of losses incurred. The loss-share agreements for commercial and single family residential loans are in effect for 5 years and 10 years, respectively, and the loss recovery provisions to the FDIC are in effect for 8 years and 10 years, respectively, from the Bank Closing Date. In accordance with the loss-share agreements, the Bank may be required to make a “true-up” payment to the FDIC, approximately ten years following the Bank Closing Date, if the FDIC’s initial estimate of losses on covered assets is greater than the actual realized losses. The “true-up” payment is calculated using a defined formula set forth in the P&A Agreement.

The Bank acquired loans both with and without evidence of credit quality deterioration since origination. Based on preliminary purchase date valuations, the banking segment’s portfolio of acquired covered loans had a fair market value of $1.1 billion as of the Bank Closing Date, with no carryover of any allowance for loan losses. Given the short period of time that has elapsed since the Bank Closing Date, significant estimates and assumptions were used to preliminarily value the covered loan portfolio and the fair value of the covered loans shown at September 30, 2013 is equal to its carrying value.

Covered loans summarized by portfolio segment at September 30, 2013 are as follows (in thousands).

Commercial and industrial	$	74,581
Real estate	833,493
Construction and land development	188,505
Consumer	11
Total covered loans	$	1,096,590

At September 30, 2013, the banking segment had covered loan concentrations (loans to borrowers engaged in similar activities) that exceeded 10% of total covered loans in its real estate portfolio. The areas of concentration within our covered real estate portfolio were construction and land development loans, non-construction residential real estate loans, and non-construction commercial real estate loans. At September 30, 2013, construction and land development loans, non-construction residential real estate loans, and non-construction commercial real estate loans were 22.53%, 27.26% and 36.56%, respectively, of the banking segment’s total covered loans. The banking segment’s covered loan concentrations were within regulatory requirements at September 30, 2013.

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 our existing non-covered and covered loan portfolios. 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 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.

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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 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, requiring that timely and appropriate changes are made to reviewed loans 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.

Homogeneous 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 homogeneous pool of loans based on the expected net charge-offs from current trends in delinquencies, losses or historical experience and general economic conditions. At September 30, 2013, we had no material delinquencies in these types of loans.

The allowance is subject to regulatory examination and determination 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 non-covered and covered portfolios at September 30, 2013, additional provisions for losses on existing loans may be necessary in the future. Within our non-covered portfolio, we recorded net charge-offs in the amount of $3.7 million and $5.2 million for the three and nine months ended September 30, 2013, respectively. Our allowance for non-covered loan losses totaled $33.2 million and $3.4 million at September 30, 2013 and December 31, 2012, respectively. The ratio of the allowance for non-covered loan losses to total non-covered loans held for investment at September 30, 2013 and December 31, 2012 was 1.00% and 0.11%, respectively. There were no specific reserves in the allowance for loan losses related to covered impaired loans at September 30, 2013.

In connection with the PlainsCapital Merger and the FNB Transaction, we 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. Given the short period of time that has elapsed since the Bank Closing Date, significant estimates and assumptions were used to preliminarily value the covered loan portfolio and the fair value of the covered loans shown at September 30, 2013 is equal to its carrying value.

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 non-covered loan losses, primarily in the banking segment, was $10.7 million and $35.0 million for the three and nine months ended September 30, 2013, respectively.

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The following table presents the activity in our allowance for non-covered loan losses for the periods presented (in thousands). Substantially all of the activity shown below occurred within the banking segment, which was acquired as a part of the PlainsCapital Merger.

	Three Months Ended			Nine Months Ended
	September 30, 2013			September 30, 2013
Balance, beginning of period	$	26,237		$	3,409
Provisions charged to operating expenses	10,658			34,952
Recoveries of non-covered loans previously charged off:
Commercial and industrial	42			2,457
Real estate	26			227
Construction and land development	2			153
Consumer	15			43
Total recoveries	85			2,880
Non-covered loans charged off:
Commercial and industrial	3,220			7,314
Real estate	53			149
Construction and land development	524			524
Consumer	3			74
Total charge-offs	3,800			8,061
Net charge-offs	(3,715		)	(5,181		)
Balance, end of period	$	33,180		$	33,180

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

	September 30, 2013				December 31, 2012
			% of				% of
			Gross				Gross
			Non-Covered				Non-Covered
	Reserve		Loans		Reserve		Loans
Commercial and industrial	$	19,507	49.10	%	$	1,845	52.67	%
Real estate (including construction and land development)	13,622		49.32	%	1,559		46.48	%
Consumer	51		1.58	%	5		0.85	%
Total	$	33,180	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. Within our non-covered loan portfolio at September 30, 2013, we had five credit relationships totaling $7.7 million of potential problem loans, which are assigned a grade of special mention within our risk grading matrix. At December 31, 2012, we had four credit relationships totaling $2.7 million of non-covered potential problem loans. Given the short period of time that has elapsed since the Bank Closing Date, the Bank’s ongoing review of potential problem loans acquired in the FNB Transaction and the resulting determination of internal risk grades remains outstanding at September 30, 2013.

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Non-Performing Assets

The following table presents our components of non-covered non-performing assets (dollars in thousands).

	September 30,			December 31,
	2013			2012
Non-covered loans accounted for on a non-accrual basis:
Commercial and industrial	$	16,122		$	—
Real estate	4,691			1,756
Construction and land development	1,073			—
Consumer	—			—
	$	21,886		$	1,756
Non-covered non-performing loans as a percentage of total non-covered loans	0.50		%	0.04		%
Non-covered other real estate owned	$	6,989		$	11,098
Other repossessed assets	$	1,601		$	557
Non-covered non-performing assets	$	30,476		$	13,411
Non-covered non-performing assets as a percentage of total assets	0.34		%	0.18		%
Non-covered loans past due 90 days or more and still accruing	$	1,128		$	2,000
Troubled debt restructurings included in accruing non-covered loans	$	1,180		$	—

At September 30, 2013, total non-covered non-performing assets increased $17.1 million to $30.5 million, compared with $13.4 million at December 31, 2012, primarily due to an increase in non-covered non-accrual PCI loans of $18.1 million. Non-covered non-performing loans totaled $21.9 million at September 30, 2013 and $1.8 million at December 31, 2012. At September 30, 2013, non-covered non-accrual loans included 13 commercial and industrial relationships with loans totaling $15.9 million secured by accounts receivable, inventory and equipment, and a total of $0.2 million in lease financing receivables. Non-covered non-accrual loans at September 30, 2013 also included $4.7 million characterized as real estate loans, including five commercial real estate loan relationships totaling $2.0 million and loans secured by residential real estate totaling $2.7 million, substantially all of which were classified as loans held for sale, as well as construction and land development loans of $1.1 million. At December 31, 2012, non-covered non-accrual loans of $1.8 million included real estate loans secured by residential real estate and classified as loans held for sale. Non-covered OREO decreased $4.1 million to $7.0 million at September 30, 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 September 30, 2013, non-covered OREO included commercial properties of $6.7 million, commercial real estate property consisting of parcels of unimproved land of $0.2 million and residential lots under development of $0.1 million.

At September 30, 2013, troubled debt restructurings (“TDRs”) totaled $11.4 million, all of which relate to modifications of non-covered PCI loans. These TDRs were comprised of $1.2 million of non-covered PCI loans that are considered to be performing due to the application of the accretion method and non-covered non-performing PCI loans of $10.2 million for which discount accretion has been suspended because the extent and timing of cash flows from these non-covered PCI loans can no longer be reasonably estimated.

OREO acquired in the FNB Transaction that is subject to the FDIC loss-share agreements is referred to as “covered OREO” and reported separately in our consolidated balance sheets. At September 30, 2013, covered OREO was $119.7 million and included commercial properties of $72.1 million, commercial real estate property consisting of parcels of unimproved land of $25.8 million and residential lots under development of $21.8 million.

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Reserve for Unpaid Losses and Loss Adjustment Expenses

At September 30, 2013 and December 31, 2012, our reserves for unpaid losses and LAE were $31.3 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 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).

	September 30, 2013				December 31, 2012
			Average				Average
	Balance		Rate Paid		Balance		Rate Paid
Short-term borrowings	$	305,297	0.36	%	$	728,250	0.33	%
Notes payable	140,111		6.58	%	141,539		5.89	%
Junior subordinated debentures	67,012		3.61	%	67,012		3.53	%
	$	512,420	1.79	%	$	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 $423.0 million decrease in short-term borrowings at September 30, 2013 compared with December 31, 2012 included decreases of $250.0 million in borrowings at the FHLB and $177.8 million in federal funds purchased. These decreases were primarily the result of lower funding requirements due to a reduction in our mortgage origination segment’s balance on its warehouse line of credit with the Bank. Notes payable is comprised of 7.50% Senior Exchangeable Notes due 2025 (the “Notes”) at HTH Operating Partnership LP (“OP”), a wholly owned subsidiary of Hilltop, which were called for redemption on October 15, 2013, insurance segment term notes and nonrecourse notes owed by First Southwest.

Liquidity and Capital Resources

Hilltop is a financial holding company whose assets primarily consist of the stock of its subsidiaries and invested assets with a combined value of $9.1 billion at September 30, 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 September 30, 2013, Hilltop had approximately $177 million in freely available cash and cash equivalents. This decrease from the $205 million balance at June 30, 2013 primarily resulted from Hilltop’s $35 million capital investment in our subsidiary, PlainsCapital Bank, to provide additional capital in connection with the FNB Transaction on September 13, 2013. If necessary or appropriate, we may also finance acquisitions with the proceeds from equity or debt issuances. The current short-term liquidity needs of Hilltop include operating expenses, debt service and dividends on preferred stock.

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On October 15, 2013, OP called for redemption all of its outstanding Notes on November 14, 2013 (the “Redemption Date”). At October 15, 2013, OP had $90.9 million in aggregate principal amount of Notes outstanding, including $6.9 million aggregate principal amount held by our insurance company subsidiaries. The Notes will be redeemed at a redemption price equal to the principal amount of the Notes, plus accrued and unpaid interest up to, but excluding, the Redemption Date.

At any time prior to the Redemption Date, holders may exchange their Notes into shares of Hilltop common stock at the rate of 73.94998 shares per $1,000 principal amount of the Notes (or approximately $13.52 per share). In lieu of delivery of Hilltop common stock upon the exercise of a holder of its exchange right, OP may elect to pay such holder of the Notes an amount in cash (or a combination of Hilltop common stock and cash) in respect of all or a portion of such holder’s Notes equal to the closing price of Hilltop’s common stock for the five consecutive trading days commencing on and including the third business day following the exercise of such exchange right. As of November 8, 2013, such redemptions resulted in the issuance of 2,896,316 shares of Hilltop common stock. As of November 8, 2013, Notes with an aggregate principal amount of $51.7 million remained outstanding, including $6.9 million of Notes held by our insurance company subsidiaries.

During September 2013, Hilltop and PlainsCapital contributed capital of $35.0 million and $25.0 million, respectively, to the Bank to provide additional capital in connection with the FNB Transaction.

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.

As a result of the PlainsCapital 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 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 Articles Supplementary governing Hilltop’s Series B Preferred Stock. The shares of Hilltop Series B Preferred Stock are senior to shares of our common stock with respect to dividends and liquidation preference, and qualify as Tier 1 Capital for regulatory purposes. At September 30, 2013 and December 31, 2012, $114.1 million of our Series B Preferred Stock was outstanding. During the three months ended September 30, 2013, we accrued dividends of $1.1 million on the Hilltop Series B Preferred Stock.

The dividend rate on the Hilltop Series B Preferred Stock was 3.974% for the three months ended September 30, 2013. The dividend rate for the period from October 1, 2013 to December 31, 2013 increased to 4.706% due to a decrease in the level of QSBL at June 30, 2013, relative to the Baseline. Subject to the approval of Treasury, we expect the dividend rate for the period from January 1, 2014 to March 26, 2016 to be 5.000%.  In addition, beginning on January 1, 2014 and on all dividend payment dates thereafter ending on April 1, 2016, if the Bank fails to increase its level of QSBL compared to the Baseline, we will be required to pay a quarterly lending incentive fee of 0.5% of the liquidation value of the Hilltop Series B Preferred Stock.

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In connection with the FNB Transaction, the Bank entered into two loss-share agreements with the FDIC that collectively cover approximately $1.2 billion of loans and OREO acquired in the FNB Transaction. Pursuant to the loss-share agreements, the FDIC has agreed to reimburse the Bank the following amounts with respect to the covered assets: (i) 80% of losses on the first $240.4 million of losses incurred; (ii) 0% of losses in excess of $240.4 million up to and including $365.7 million of losses incurred; and (iii) 80% of losses in excess of $365.7 million of losses incurred. The Bank has also agreed to reimburse the FDIC for any subsequent recoveries.  The loss-share agreements for commercial and single family residential loans are in effect for 5 years and 10 years, respectively, from the Bank Closing Date and the loss recovery provisions to the FDIC are in effect for 8 years and 10 years, respectively, from the Bank Closing Date. In accordance with the loss-share agreements, the Bank may be required to make a “true-up” payment to the FDIC, approximately ten years following the Bank Closing Date, if the FDIC’s initial estimate of losses on covered assets is greater than the actual realized losses. The “true-up” payment is calculated using a defined formula set forth in the P&A Agreement.

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 and regulatory requirements, 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 September 30, 2013, Hilltop exceeded all regulatory capital requirements with a total capital to risk weighted assets ratio of 17.14%, Tier 1 capital to risk weighted assets ratio of 16.56% and a Tier 1 capital to average assets, or leverage, ratio of 13.96%. At September 30, 2013, the Bank was also considered to be “well-capitalized” under regulatory requirements.

Cash and cash equivalents (consisting of cash and due from banks and federal funds sold), totaled $1.0 billion at September 30, 2013, an increase of $289.8 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 nine months ended September 30, 2013 was $462.7 million, an increase in cash flow of $476.0 million compared with the same period in 2012. Cash provided by operations increased primarily due to the PlainsCapital Merger on November 30, 2012 and inclusion of operating activities of the banking, mortgage origination and financial advisory segments during the nine months ended September 30, 2013.

Cash provided by our investment activities during the nine months ended September 30, 2013 was $257.5 million, including $362.7 million in net cash from the FNB Transaction, partially offset by $49.3 million for the origination of loans held for investment and net purchases of securities for our investment portfolio of $43.4 million. Proceeds from investment portfolio activity provided $10.3 million during the nine months ended September 30, 2012.

Cash used in financing activities during the nine months ended September 30, 2013 was $430.3 million, an increase in cash used of $429.2 million compared with the same period in 2012. This increase in cash used was due primarily to the PlainsCapital Merger on November 30, 2012 and the inclusion of financing activities of the banking segment for the nine months ended September 30, 2013.

We had deposits of $6.9 billion at September 30, 2013, an increase of $2.2 billion 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. In particular, our deposits at September 30, 2013 increased compared to our deposits at December 31, 2012 primarily due to the inclusion of assumed FNB Transaction deposits within the banking segment. At September 30, 2013, money market deposits, including brokered deposits, were $3.2 billion, time deposits, including brokered deposits, were $2.6 billion, and noninterest bearing demand deposits were $392.4 million.

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Our 15 largest depositors, excluding Hilltop and our indirect wholly owned subsidiary, First Southwest, accounted for 13.25% of our total deposits, and our five largest depositors, excluding First Southwest, accounted for 8.09% of our total deposits at September 30, 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 $1.3 billion maintained with the Bank. At September 30, 2013, PrimeLending had outstanding borrowings of $0.9 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 certain 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 September 30, 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 $255.0 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 September 30, 2013, FSC had borrowed $92.2 million under these credit arrangements.

Our insurance operating subsidiary’s primary investment objectives is to preserve capital and manage for a total rate of return. NLC’s strategy is to purchase securities in sectors that represent the most attractive relative value. Bonds, cash, and short-term investments of $193.0 million, or 93.8%, and equity investments of $12.8 million comprised NLC’s $205.8 million in total investments at September 30, 2013. NLC does not currently have any significant concentration in both direct and indirect guarantor exposure or any investments in subprime mortgages. NLC 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.

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.

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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. Since December 31, 2012, there have been no changes in critical accounting policies as 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, except as follows.

FDIC Indemnification Asset

We have elected to account for amounts receivable under the loss-share agreements as an indemnification asset (the “FDIC Indemnification Asset”) in accordance with FASB ASC 805. The FDIC Indemnification Asset is initially recorded at fair value, based on the discounted value of expected future cash flows under the loss-share agreements. The difference between the present value and the undiscounted cash flows we expect to collect from the FDIC will be accreted into noninterest income within the consolidated statements of operations over the life of the FDIC Indemnification Asset. The FDIC Indemnification Asset is reviewed quarterly and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the covered portfolio. These adjustments are measured on the same basis as the related covered loans and covered OREO. Any increases in cash flow of the covered assets over those expected will reduce the FDIC Indemnification Asset and any decreases in cash flow of the covered assets under those expected will increase the FDIC Indemnification Asset. Any amortization of changes in value is limited to the contractual terms of the loss-share agreements. Increases and decreases to the FDIC Indemnification Asset are recorded as adjustments to noninterest income within the consolidated statements of operations over the life of the loss-share agreements.

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.

The banking segment is 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.

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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 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 employ procedures which include interest rate shock analysis, maturity gap analysis and balance sheet decomposition techniques help mitigate interest rate risk 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 September 30, 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.

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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 as shown in the following table (dollars in thousands).

	September 30, 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	$	2,631,597		$	550,782		$	682,791		$	255,826		$	946,766		$	5,067,762
Securities	527,138			58,934			152,473			44,282			304,956			1,087,783
Federal funds sold and securities purchased under agreements to resell	40,086			—			—			—			—			40,086
Other interest sensitive assets	535,348			—			—			—			—			535,348
Total interest sensitive assets	3,734,169			609,716			835,264			300,108			1,251,722			6,730,979
Interest sensitive liabilities:
Interest bearing checking	$	2,137,981		$	—		$	—		$	—		$	—		$	2,137,981
Savings	450,723			—			—			—			—			450,723
Time deposits	856,605			1,093,315			562,777			92,000			38,042			2,642,739
Notes payable & other borrowings	213,261			505			1,437			771			5,474			221,448
Total interest sensitive liabilities	3,658,570			1,093,820			564,214			92,771			43,516			5,452,891
Interest sensitivity gap	$	75,599		$	(484,104	)	$	271,050		$	207,337		$	1,208,206		$	1,278,088
Cumulative interest sensitivity gap	$	75,599		$	(408,505	)	$	(137,455	)	$	69,882		$	1,278,088
Percentage of cumulative gap to total interest sensitive assets	1.12		%	-6.07		%	-2.04		%	1.04		%	18.99		%

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 September 30, 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	$	(47,898	)	-16.29	%	$	73,287		6.30	%
	+200	$	(36,696	)	-12.48	%	$	47,974		4.13	%
	+100	$	(26,052	)	-8.86	%	$	19,588		1.69	%
	-50	$	9,506		3.23	%	$	(20,748	)	-1.78	%

The projected changes in net interest income and market value of equity to changes in interest rates at September 30, 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.

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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.

Within our mortgage origination segment, our principal market exposure is to interest rate risk due to the impact on our mortgage-related assets and commitments, including mortgage loans held for sale and IRLCs. Changes in interest rates could also materially and adversely affect our volume of mortgage loan originations.

IRLCs represent an agreement to extend credit to a mortgage loan applicant, whereby the interest rate on the loan is set prior to funding. Our mortgage loans held for sale, which we hold in inventory while awaiting sale into the secondary market, and our IRLCs are subject to the effects of changes in mortgage interest rates from the date of the commitment through the sale of the loan into the secondary market. As a result, we are exposed to interest rate risk and related price risk during the period from the date of the lock commitment until (i) the lock commitment cancellation or expiration date or (ii) the date of sale into the secondary mortgage market. Loan commitments generally range from 20 to 60 days, and our average holding period of the mortgage loan from funding to sale is approximately 30 days.

The goal of our interest rate risk management strategy within our mortgage origination segment is not to eliminate interest rate risk, but to manage it within appropriate limits. To mitigate the risk of loss, we have established policies and procedures, which include guidelines on the amount of exposure to interest rate changes we are willing to accept. An integral component of our interest rate risk management strategy is our execution of forward commitments to sell mortgage-backed securities to minimize significant fluctuations in earnings caused by changes in interest rates.

At September 30, 2013, total notes payable outstanding on our consolidated balance sheet was $140.1 million, and was comprised of $83.9 million of indebtedness subject to fixed interest rates and $56.2 million 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 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. We have excluded from our evaluation the internal control over financial reporting of the assets acquired and liabilities assumed of FNB on September 13, 2013. The total assets and total income before income taxes of the excluded business represent $2.3 billion and $1.2 million, respectively, of the related consolidated financial statement amounts as of and for the nine months ended September 30, 2013.

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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 1A. Risk Factors.

Loans acquired in the FNB transaction may not be covered by the loss-share agreements if the FDIC determines that we have not adequately managed these loans.

Under the terms of the loss-share agreements we entered into with the FDIC in connection with the FNB transaction, the FDIC is obligated to reimburse us for the following losses on covered loans: (i) 80% of losses on the first $240.4 million of losses incurred; (ii) 0% of losses in excess of $240.4 million up to and including $365.7 million of losses incurred; and (iii) 80% of losses in excess of $365.7 million of losses incurred. The loss-share agreements for commercial and single family residential loans are in effect for 5 years and 10 years, respectively, and the loss recovery provisions to the FDIC are in effect for 8 years and 10 years, respectively, from the Bank Closing Date. Although the FDIC has agreed to reimburse us for the substantial portion of losses on covered loans, the FDIC has the right to refuse or delay payment for loan losses if we do not manage covered loans in accordance with the loss-share agreements. In addition, reimbursable losses are based on the book value of the relevant loans as determined by the FDIC as of the effective dates of the transactions. The amount that we realize on these loans could differ materially from the carrying value that will be reflected in our consolidated financial statements, based upon the timing and amount of collections on the covered loans in future periods. Any losses we experience in the assets acquired in the FNB transaction that are not covered under the loss-share agreements could have an adverse effect on our results of operations and financial condition.

In addition, in accordance with the loss-share agreements, the Bank may be required to make a “true-up” payment to the FDIC, approximately ten years following the Bank Closing Date, if the FDIC’s initial estimate of losses on covered assets is greater than the actual realized losses. The “true-up” payment is calculated using a defined formula set forth in the P&A Agreement.

Income that we recognized as a bargain purchase gain in connection with the FNB Transaction is based upon a preliminary valuation and is subject to change.

In September 2013, we assumed substantially all of the liabilities, including all of the deposits, and acquired substantially all of the assets, of FNB from the FDIC in the FNB Transaction. We acquired approximately $2.2 billion in assets and assumed $2.2 billion in liabilities in the FNB Transaction. The FNB Transaction was accounted for under the purchase method of accounting. Based upon a preliminary valuation, we recorded a bargain purchase gain totaling $3.3 million as a result of the FNB Transaction, which was included as a component of noninterest income in our consolidated statement of operations for the three and nine months ended September 30, 2013. The amount of the gain was equal to the amount by which the estimated fair value of assets purchased exceeded the estimated fair value of liabilities assumed. The bargain purchase gain resulting from the FNB Transaction was a one-time, extraordinary gain that is not expected to be repeated in future periods. As we complete our purchase accounting, we may revise our estimates, which could result in the recognition of additional bargain purchase gain, which would be recorded as noninterest income, or the recognition of less or no bargain purchase gain, in which case we would reduce noninterest income and may be required to record goodwill that would be subject to an ongoing impairment analysis.

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Income that we recognize in connection with the purchase discount accretion of the credit-impaired loans acquired in the PlainsCapital Merger and the FNB Transaction and accounted for under ASC 310-30 could be volatile in nature and have significant effects on reported net income.

In connection with the PlainsCapital Merger and the FNB Transaction, we acquired loans at a discount of $146.6 million and $337.6 million, respectively. The PlainsCapital Merger and the FNB Transaction were each accounted for under the purchase method of accounting. Accordingly, these discounts are amortized and accreted to interest income on a monthly basis. The effective yield and related discount accretion on credit-impaired loans is initially determined at the acquisition date based upon estimates of the timing and amount of future cash flows as well as the amount of credit losses that will be incurred. These estimates are updated quarterly. In future periods, if actual historical results combined with future projections of these factors (amount, timing, or credit losses) differ from the initial projections, the effective yield and the amount of discount recognized will change. Volatility may increase as the variance of actual results from initial projections increases. As the acquired loans are removed from our books, the related discount will no longer be available for accretion into income. Accretion of $49.2 million on loans purchased at a discount in the PlainsCapital Merger was recorded as interest income during the nine months ended September 30, 2013, and accretion of $0.1 million on loans purchased at a discount in the FNB Transaction was recorded as interest income from September 14, 2013 to September 30, 2013. As of September 30, 2013, the balance of the carrying value of our discount on loans in the aggregate was $425.8 million.

We may fail to realize all of the anticipated benefits of the PlainsCapital Merger or the FNB Transaction.

The success of the PlainsCapital Merger and the FNB Transaction will depend, in part, on our ability to successfully integrate PlainsCapital Corporation’s and FNB’s respective operations with our own. Achieving the anticipated cost savings and financial benefits of the PlainsCapital Merger and the FNB Transaction will depend in part on whether we integrate PlainsCapital Corporation’s and FNB’s respective operations in an efficient and effective manner. It is possible that the integration process could result in the loss of key employees, the disruption of ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, customers, depositors and employees. In addition, the integration of certain operations will require the dedication of significant management resources, which may temporarily distract management’s attention from our day-to-day business. With respect to the FNB Transaction, there could also be difficulties in complying with the technical requirements of the loss-share agreements with the FDIC, which could result in acquired assets losing their coverage thereunder. Any inability to realize the full extent, or any, of the anticipated cost savings and financial benefits of the PlainsCapital Merger and the FNB Transaction, as well as any delays encountered in the integration process, could have an adverse effect on our business and results of operations, which could affect our financial condition and cause a decrease in our earnings per share or decrease or delay the expected accretive effect of the FNB Transaction and contribute to a decrease in the price of our common stock.

The Consumer Financial Protection Bureau recently issued “ability-to-repay” and “qualified mortgage” rules that may have a negative impact on our loan origination process and foreclosure proceedings, which could adversely affect our business, operating results, and financial condition.

On January 10, 2013, the Consumer Financial Protection Bureau (the “CFPB”) issued a final rule to implement the “qualified mortgage” provisions of the Dodd-Frank Act requiring mortgage lenders to consider consumers’ ability to repay home loans before extending them credit. The CFPB’s “qualified mortgage” rule will take effect on January 10, 2014. The final rule describes certain minimum requirements for lenders making ability-to-repay determinations, but does not dictate that they follow particular underwriting models. Lenders will be presumed to have complied with the ability-to-repay rule if they issue “qualified mortgages,” which are generally defined as mortgage loans prohibiting or limiting certain risky features. Loans that do not meet the ability-to-repay standard can be challenged in court by borrowers who default and the absence of ability-to-repay status can be used against a lender in foreclosure proceedings. Any loans that we make outside of the “qualified mortgage” criteria could expose us to an increased risk of liability and reduce or delay our ability to foreclose on the underlying property. It is difficult to predict how the CFPB’s “qualified mortgage” rule will impact us when it takes effect, but any decreases in loan origination volume or increases in compliance and foreclosure costs caused by the rule could negatively affect our business, operating results and financial condition.

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The impact of the changing regulatory capital requirements and new capital rules are uncertain.

In July 2013, the Federal Reserve Board approved a final rule that will substantially amend the risk-based capital rules applicable to Hilltop and the Bank. The final rule implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. The final rule includes new minimum risk-based capital and leverage ratios, which will be effective for Hilltop and the Bank on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements will be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a “capital conservation buffer” of 2.5% above the new regulatory minimum capital ratios and will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions. The application of more stringent capital requirements for Hilltop and the Bank could, among other things, adversely affect our results of operations and growth, require the raising of additional capital, restrict our ability to pay dividends or repurchase shares and result in regulatory actions if we were to be unable to comply with such requirements.

In addition, the Federal Reserve Board published an interim final rule in September 2013 that clarifies how companies should incorporate the Basel III regulatory capital reforms into their capital and business projections during the next cycle of capital plan submissions and stress tests. For companies and their subsidiary banks with between $10.0 billion and $50.0 billion in total consolidated assets, the initial capital planning and stress testing cycle began on October 1, 2013 and continues through the fourth quarter of 2015, which overlaps with the implementation of the Basel III capital reforms beginning on January 1, 2015. At September 30, 2013, Hilltop and the Bank had approximately $9.1 billion and $8.6 billion, respectively, in total consolidated assets. Accordingly, Hilltop and the Bank are not subject to this capital planning and stress testing cycle. If we grow to have more than $10.0 billion in assets through additional acquisitions or organic growth, we may become subject to future capital planning and stress testing cycles, which would likely increase our cost of regulatory compliance. Management continues to study the implementation of Basel III regulatory capital reforms and stress testing requirements.

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

As of November 8, 2013, Hilltop has issued 2,896,316 shares of common stock in exchange for $39.2 million aggregate principal amount of the Notes tendered for exchange (the “Exchanges”). The Exchanges were exempt from registration under Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”), as the shares of common stock were issued to existing holders of securities guaranteed by the Company and no commission or other remuneration was paid or given for soliciting the Exchanges.

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.

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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: November 12, 2013	By:	/s/ Darren Parmenter
		Darren Parmenter
		Senior Vice President — Finance (Principal Financial and Accounting Officer and duly authorized officer)

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EXHIBIT INDEX

ExhibitNumber	Description of Exhibit
2.1	Purchase and Assumption Agreement — Whole Bank, All Deposits, dated as of September 13, 2013, by and among the Federal Deposit Insurance Corporation, receiver of First National Bank, Edinburg, Texas, PlainsCapital Bank and the Federal Deposit Insurance Corporation (filed as Exhibit 2.1to the Registrant’s Current Report on Form 8-K filed on September 19, 2013 (File No. 001-31987) and incorporated herein by reference).
10.1	First Supplemental Indenture, dated October 15, 2013, by and among HTH Operating Partnership LP, as issuer, Hilltop Holdings Inc., as guarantor, and U.S. Bank National Association, as trustee (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 17, 2013 (File No. 001-31987) and incorporated herein by reference).
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.

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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: November 12, 2013	By:	/s/ Jeremy B. Ford
		Jeremy B. Ford
		President and Chief Executive Officer

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: November 12, 2013	By:	/s/ Darren Parmenter
		Darren Parmenter
		Senior Vice President — Finance

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 September 30, 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: November 12, 2013	By:	/s/ Jeremy B. Ford
		Jeremy B. Ford
		President and Chief Executive Officer
Date: November 12, 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.

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Reinsurance Activity (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Reinsurance Activity
Carrying value of reinsurance receivables	$ 7,656		$ 7,656		$ 18,567
Allowance for uncollectible accounts	0		0
Earned
Net premiums, Earned	39,982	37,688	116,045	109,038
Effect of reinsurance on incurred losses
Loss and LAE incurred	27,558	31,577	98,507	94,022
Reinsurance recoverables	(2,927)	(1,441)	(4,531)	(2,273)
Net loss and LAE incurred	24,631	30,136	93,976	91,749
Property and casualty
Written
Premiums from direct business	44,484	40,899	134,292	126,833
Reinsurance assumed	2,058	1,726	5,931	4,830
Reinsurance ceded	(5,100)	(5,106)	(14,879)	(14,953)
Net premiums, Written	41,442	37,519	125,344	116,710
Earned
Premiums from direct business	43,031	40,922	125,520	121,209
Reinsurance assumed	1,860	1,520	5,238	4,296
Reinsurance ceded	(4,909)	(4,754)	(14,713)	(16,467)
Net premiums, Earned	$ 39,982	$ 37,688	$ 116,045	$ 109,038

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Commitments and Contingencies (Details) (USD $)		0 Months Ended				3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended
	Sep. 30, 2013 item	Sep. 13, 2013 Bank FNB item	Sep. 13, 2013 Bank FNB Covered loans Commercial	Sep. 13, 2013 Bank FNB Covered loans Single family residential loans	Sep. 13, 2013 Bank FNB Maximum	Sep. 30, 2013 Representation and Warranty Specific Claims Activity -Origination Loan Balance	Sep. 30, 2013 Representation and Warranty Specific Claims Activity -Origination Loan Balance	Sep. 30, 2013 Reserve for Indemnification liability established by mortgage origination segment	Sep. 30, 2013 Reserve for Indemnification liability established by mortgage origination segment
Commitments and Contingencies
Number of Legal actions expected to have a material adverse effect on the entity	0
Indemnification liability reserve						$ 48,382,000	$ 48,382,000	$ 21,027,000	$ 21,027,000
Provision for indemnification losses								900,000	2,800,000
Number of loss-sharing agreements		2
Roll-forward of claims activity for loans put-back to the mortgage origination segment
Balance, beginning of period						46,090,000	39,693,000	20,397,000	18,964,000
Claims made						6,769,000	25,844,000
Additions for new sales								878,000	2,834,000
Claims resolved with no payment						(2,338,000)	(10,751,000)
Repurchases						(1,597,000)	(3,917,000)	(120,000)	(129,000)
Early payment defaults								(165,000)	(397,000)
Indemnification payments						(542,000)	(2,487,000)	(177,000)	(701,000)
Change in estimate								214,000	456,000
Balance, end of period						48,382,000	48,382,000	21,027,000	21,027,000
Reserve for Indemnification Liability:
Specific claims								12,336,000	12,336,000
Incurred but not reported claims								8,691,000	8,691,000
Total						48,382,000	48,382,000	21,027,000	21,027,000
Loans and OREO acquired		1,200,000,000
Percentage of losses to be absorbed by FDIC on the first $240.4 million of losses incurred as per the loss sharing agreement		80.00%
Threshold amount of losses incurred for 80% of losses to be absorbed by FDIC as per the loss sharing agreement, first layer		240,400,000
Percentage of losses to be absorbed by FDIC in excess of $240.4 million up to and including $365.7 million of losses incurred as per the loss sharing agreement		0.00%
Threshold amount of losses incurred for 0% of losses to be absorbed by FDIC as per the loss sharing agreement, second layer					$ 365,700,000
Percentage of losses to be absorbed by FDIC in excess of $365.7 million of losses incurred as per the loss sharing agreement		80.00%
Period of loss-sharing agreements in effect			5 years	10 years
Period of loss recovery provisions in effect			8 years	10 years
Period for which payment is required to be made to the FDIC of true-up amount		10 years

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Stock-Based Compensation (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended		1 Months Ended	0 Months Ended				0 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2012 2003 Plan	Nov. 02, 2011 2003 Plan Stock Option Awards item	Sep. 30, 2013 2003 Plan Stock Option Awards	Sep. 30, 2013 2012 Plan	Sep. 30, 2012 2012 Plan	May 02, 2013 2012 Plan Restricted Stock	Sep. 30, 2013 2012 Plan Restricted Stock	Sep. 30, 2013 2012 Plan Board of directors
Stock based compensation
Number of additional awards permissible under the plan					0
Number of awards approved for grant (in shares)									4,000,000
Common shares granted to members of board of directors as compensation for director services												6,504
Awards granted (in shares)						600,000				465,000
Grant date fair value of awards (in dollars per share)										$ 13.25
Expected compensation expense										$ 6.2
Unrecognized compensation expense							0.2				5.3
Common stock remaining available for issuance (in shares)								3,528,496
Exercise price (in dollars per share)						$ 7.70
Awards vesting in number of equal installments						5
Compensation expense amortized	$ 0.6	$ 0.1	$ 1.1	$ 0.4

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Short-term Borrowings

9 Months Ended

Sep. 30, 2013

Short-term Borrowings

Short-term Borrowings

9. Short-term Borrowings

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

	September 30,		December 31,
	2013		2012
Federal funds purchased	$	91,875	$	269,625
Securities sold under agreements to repurchase	121,222		85,725
Federal Home Loan Bank notes	—		250,000
Short-term bank loans	92,200		122,900
	$	305,297	$	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).

	Nine Months Ended
	September 30, 2013
Average balance during the period	$	284,819
Average interest rate during the period	0.19		%

	September 30,			December 31,
	2013			2012
Average interest rate at end of period	0.14		%	0.22		%
Securities underlying the agreements at end of period
Carrying value	$	152,808		$	122,153
Estimated fair value	$	146,197		$	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).

	Nine Months Ended
	September 30, 2013
Average balance during the period	$	142,274
Average interest rate during the period	0.13		%

	September 30,		December 31,
	2013		2012
Average interest rate at end of period	0.00	%	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 September 30, 2013 and December 31, 2012 was 1.09% and 1.16%, respectively.

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Acquisitions (Details 4) (USD $)	3 Months Ended	9 Months Ended	0 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Nov. 30, 2012 Plains Capital	Nov. 30, 2012 Plains Capital Common Stock	Nov. 30, 2012 Plains Capital Non-Cumulative Perpetual Preferred Stock, Series B
Acquisitions
Total purchase price			$ 813,500,000
Shares of stock issued as purchase consideration				27,100,000	114,068
Cash consideration			311,800,000
Pro forma financial information
Net interest income	57,212,000	164,980,000
Other revenues	247,764,000	641,201,000
Net income	$ 33,764,000	$ 72,494,000

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Interest income:
Loans, including fees	$ 68,121		$ 198,220
Securities:
Taxable	7,202	3,387	19,594	10,129
Tax-exempt	1,052		3,588
Federal funds sold and securities purchased under agreements to resell	35		91
Interest-bearing deposits with banks	282		857
Other	2,546		7,660
Total interest income	79,238	3,387	230,010	10,129
Interest expense:
Deposits	3,685		10,541
Short-term borrowings	384		1,488
Notes payable	2,294	2,140	6,924	6,410
Junior subordinated debentures	591		1,811
Other	832		2,108
Total interest expense	7,786	2,140	22,872	6,410
Net interest income	71,452	1,247	207,138	3,719
Provision for loan losses	10,658		34,952
Net interest income after provision for loan losses	60,794	1,247	172,186	3,719
Noninterest income:
Net realized gains on securities	1,142		1,142
Net gains from sale of loans and other mortgage production income	105,337		375,464
Mortgage loan origination fees	22,091		63,679
Net insurance premiums earned	39,982	37,688	116,045	109,038
Investment and securities advisory fees and commissions	22,310		70,283
Bargain purchase gain	3,271		3,271
Other	11,625	1,895	28,385	5,457
Total noninterest income	205,758	39,583	658,269	114,495
Noninterest expense:
Employees' compensation and benefits	119,176	1,906	368,081	6,404
Loss and loss adjustment expenses	24,631	30,136	93,976	91,749
Policy acquisition and other underwriting expenses	11,739	10,121	34,169	31,864
Occupancy and equipment, net	20,974	246	60,540	738
Other	40,097	4,383	135,242	8,827
Total noninterest expense	216,617	46,792	692,008	139,582
Income (loss) before income taxes	49,935	(5,962)	138,447	(21,368)
Income tax expense (benefit)	16,632	(1,914)	49,111	(6,954)
Net income (loss)	33,303	(4,048)	89,336	(14,414)
Less: Net income attributable to noncontrolling interest	339		1,207
Income (loss) attributable to Hilltop	32,964	(4,048)	88,129	(14,414)
Dividends on preferred stock	1,133		2,985
Income (loss) applicable to Hilltop common stockholders	$ 31,831	$ (4,048)	$ 85,144	$ (14,414)
Earnings (loss) per common share:
Basic (in dollars per share)	$ 0.38	$ (0.07)	$ 1.01	$ (0.26)
Diluted (in dollars per share)	$ 0.36	$ (0.07)	$ 0.98	$ (0.26)
Weighted average share information:
Basic (in shares)	83,493	56,363	83,490	56,408
Diluted (in shares)	90,460	56,363	90,251	56,408

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Acquisitions

9 Months Ended

Sep. 30, 2013

Acquisitions

Acquisitions

2. Acquisitions

FNB Transaction

On the Bank Closing Date, the Bank assumed substantially all of the liabilities, including all of the deposits, and acquired substantially all of the assets of FNB from the FDIC in an FDIC-assisted transaction. As part of the P&A Agreement, the Bank and the FDIC entered into loss-share agreements covering future losses incurred on certain acquired loans and OREO. The Company refers to acquired commercial and single family residential loan portfolios and OREO that are subject to the loss-share agreements as “covered loans” and “covered OREO”, respectively, and these assets are presented as separate line items in the Company’s consolidated balance sheet. Collectively, covered loans and covered OREO are referred to as “covered assets”. Pursuant to the loss-share agreements, the FDIC has agreed to reimburse the Bank the following amounts with respect to the covered assets pursuant to the loss-share agreements: (i) 80% of losses on the first $240.4 million of losses incurred; (ii) 0% of losses in excess of $240.4 million up to and including $365.7 million of losses incurred; and (iii) 80% of losses in excess of $365.7 million of losses incurred. The loss-share agreements for commercial and single family residential loans are in effect for 5 years and 10 years, respectively, from the Bank Closing Date and the loss recovery provisions to the FDIC are in effect for 8 years and 10 years, respectively, from the Bank Closing Date.

In accordance with the loss-share agreements, the Bank may be required to make a “true-up” payment to the FDIC, approximately ten years following the Bank Closing Date, if the FDIC’s initial estimate of losses on covered assets is greater than the actual realized losses. The “true-up” payment is calculated using a defined formula set forth in the P&A Agreement.

The operations of FNB are included in the Company’s operating results beginning September 14, 2013, but were not significant to the Company’s consolidated statements of operations for the three and nine months ended September 30, 2013. Such operating results include a preliminary pre-tax bargain purchase gain of $3.3 million and are not necessarily indicative of future operating results. FNB’s results of operations prior to the Bank Closing Date are not included in the Company’s consolidated operating results.

Transaction-related expenses of $0.2 million associated with the FNB Transaction are included in noninterest expense within the consolidated statements of operations for the three and nine months ended September 30, 2013. Such expenses were for professional services and other incremental costs associated with the integration of FNB’s operations.

The FNB Transaction 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 Bank Closing Date fair values. Because of the short time period between the Bank Closing Date and September 30, 2013, the Company used significant estimates and assumptions to value the identifiable assets acquired and liabilities assumed. The Bank Closing Date valuations related to loans, FDIC Indemnification Asset, covered OREO, other intangible assets, assumed liabilities and taxes are considered preliminary and could differ significantly when finalized. The amounts are also subject to adjustments based upon final settlement with the FDIC. In addition, the tax treatment of FDIC-assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the Bank Closing Date. The terms of the P&A Agreement provide for the FDIC to indemnify the Bank against claims with respect to liabilities and assets of FNB or any of its affiliates not assumed or otherwise purchased by the Bank and with respect to certain other claims by third parties.

A summary of the net assets received from the FDIC and the estimated fair value adjustments resulting in the bargain purchase gain are presented below (in thousands).

Cost basis net assets on September 13, 2013	$	182,169
Cash payment received from the FDIC	45,000
Fair value adjustments:
Securities	(3,341		)
Loans	(337,572		)
Premises and equipment	(1,358		)
Other real estate owned	(69,456		)
FDIC indemnification asset	189,773
Other intangible assets	6,380
Deposits	(8,282		)
Other	(42		)
Bargain purchase gain	$	3,271

In FDIC-assisted transactions, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirer’s bid, the FDIC may be required to make a cash payment to the acquirer or the acquirer may be required to make payment to the FDIC. In the FNB Transaction, cost basis net assets of $182.2 million and an initial cash payment received from the FDIC of $45.0 million were transferred to the Bank. This initial cash payment from the FDIC is subject to adjustment and settlement. The bargain purchase gain represents the excess of the estimated fair value of the assets acquired over the estimated fair value of the liabilities assumed.

The FDIC bid form provided a list of premises owned by FNB for sale at fixed prices. The Bank purchased 44 premises owned by FNB in connection with its bid for an aggregate premise purchase price of $59.5 million. For those premises owned by FNB that the Bank declined to purchase in its bid, the Bank had an exclusive option to purchase those premises during the 30-day period following the Bank Closing Date. In connection with that option, the Bank purchased an additional five premises owned by FNB on October 15, 2013, for an aggregate purchase price of $3.8 million. The Bank has a 90-day exclusive option to purchase owned premises not listed on the bid form. The Bank also has a 90-day option to assume the leases of premises leased by FNB. The Bank is required to purchase all data management equipment and, other certain special assets, furniture, fixtures and equipment, in each case at an appraised value at any premises purchased or leased by the Bank. The Bank paid $9.8 million to the FDIC for furniture, fixtures and data management equipment. The Bank is required to pay rent to the FDIC on premises owned or leased by FNB and furniture and equipment at such premises until it surrenders such premises to the FDIC. These incremental assets are reflected at fair value in the table above and were recorded subsequent to September 30, 2013.

The resulting fair values of the identifiable assets acquired, and liabilities assumed, of FNB at September 13, 2013 are summarized in the following table (in thousands).

Cash and due from banks	$	362,695
Securities	286,214
Non-covered loans	45,915
Covered loans	1,105,421
Premises and equipment	71,806
FDIC indemnification asset	189,773
Covered other real estate owned	120,985
Other assets	39,709
Other intangible assets	6,380
Total identifiable assets acquired	2,228,898
Deposits	(2,211,740		)
Other liabilities	(13,887		)
Total liabilities assumed	(2,225,627		)
Net identifiable assets acquired/bargain purchase gain	$	3,271

The Bank acquired loans both with and without evidence of credit quality deterioration since origination. Based on preliminary purchase date valuations, the Bank’s portfolio of acquired loans had a fair market value of $1.2 billion as of the Bank Closing Date, with no carryover of any allowance for loan losses. Acquired loans were preliminarily segregated between those considered to be credit impaired, or purchased credit impaired (“PCI”) loans, and those deemed performing. The following table presents preliminary details on acquired loans at the Bank Closing Date (in thousands).

	Acquired		PCI		Total
	Performing		Loans		Loans
Commercial and industrial	$	44,207	$	50,705	$	94,912
Real estate	245,746		595,732		841,478
Construction and land development	38,135		151,803		189,938
Consumer	15,800		9,208		25,008
Total	$	343,888	$	807,448	$	1,151,336

The following table presents information about the acquired PCI loans at the Bank Closing Date (in thousands).

Contractually required principal and interest payments	$	1,605,634
Nonaccretable difference	567,861
Cash flows expected to be collected	1,037,773
Accretable difference	230,325
Fair value of covered loans acquired with a deterioration of credit quality	$	807,448

The following table presents information about the acquired performing loans at the Bank Closing Date (in thousands).

Contractually required principal and interest payments	$	555,057
Contractual cash flows not expected to be collected	50,216
Fair value at acquisition	343,888

PlainsCapital Merger

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 PlainsCapital 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. For further information regarding goodwill recorded in connection with the PlainsCapital Merger, refer to Note 7, Goodwill and Other Intangible Assets.

The FNB Transaction is based on the purchase of assets and assumption of certain liabilities of FNB from the FDIC, as receiver. An essential part of the transaction is the Federal financial assistance governed by the P&A Agreement with the FDIC, which is not reflective of the previous operations of FNB. The nature and magnitude of the FNB Transaction, coupled with the Federal assistance, substantially reduces the relevance of historical financial information of FNB when considering the assessment of the historical financial information relative to future operations. Since the Company believes that the continuity of FNB’s historical operations is substantially lacking after the transaction, no additional historical pro forma information regarding FNB is being provided below.

The following table presents pro forma results for the three and nine months ended September 30, 2012 had the PlainsCapital Merger taken place on January 1, 2011 (in thousands). The pro forma financial information combines the historical results of Hilltop and PlainsCapital, 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. 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 PlainsCapital Merger. Further, certain costs associated with any restructuring or integration activities are also not reflected in the pro forma results. Pro forma results include any acquisition-related merger and restructuring charges incurred during the period. The pro forma results are not indicative of what would have occurred had the PlainsCapital Merger taken place on the indicated date.

	Three Months Ended		Nine Months Ended
	September 30, 2012		September 30, 2012
Net interest income	$	57,212	$	164,980
Other revenues	247,764		641,201
Net income	33,764		72,494

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Balance Sheet Offsetting

9 Months Ended

Sep. 30, 2013

Balance Sheet Offsetting

Balance Sheet Offsetting

16. 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 following tables present the assets and liabilities subject to an enforceable master netting arrangement, repurchase agreements, or similar agreements with offsetting rights at September 30, 2013 and December 31, 2012 (in thousands).

							Gross Amounts Not Offset in
					Net Amounts		the Balance Sheet
	Gross Amounts		Gross Amounts		of Assets					Cash
	of Recognized		Offset in the		Presented in the		Financial			Collateral		Net
	Assets		Balance Sheet		Balance Sheet		Instruments			Pledged		Amount
September 30, 2013
Securities Borrowed:
Institutional Counterparties	$	100,348	$	—	$	100,348	$	(100,348	)	$	—	$	—
	$	100,348	$	—	$	100,348	$	(100,348	)	$	—	$	—
December 31, 2012
Securities Borrowed:
Institutional Counterparties	$	103,936	$	—	$	103,936	$	(103,936	)	$	—	$	—
	$	103,936	$	—	$	103,936	$	(103,936	)	$	—	$	—

								Gross Amounts Not Offset in
						Net Amounts		the Balance Sheet
	Gross Amounts		Gross Amounts			of Liabilities					Cash
	of Recognized		Offset in the			Presented in the		Financial			Collateral			Net
	Liabities		Balance Sheet			Balance Sheet		Instruments			Pledged			Amount
September 30, 2013
Securities Loaned:
Institutional Counterparties	$	70,769	$	—		$	70,769	$	(70,769	)	$	—		$	—
Repurchase Agreements:
Customer Counterparties	121,222		—			121,222		(121,222		)	—			—
Forward MBS Sale Derivatives:
Institutional Counterparties	29,389		(100		)	29,289		—			(21,858		)	7,431
	$	221,380	$	(100	)	$	221,280	$	(191,991	)	$	(21,858	)	$	7,431
December 31, 2012
Securities Loaned:
Institutional Counterparties	$	115,102	$	—		$	115,102	$	(115,102	)	$	—		$	—
Repurchase Agreements:
Customer Counterparties	85,726		—			85,726		(85,726		)	—			—
Forward MBS Sale Derivatives:
Institutional Counterparties	2,000		(975		)	1,025		—			(249		)	776
	$	202,828	$	(975	)	$	201,853	$	(200,828	)	$	(249	)	$	776

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Non-Covered Loans and Allowance for Non-Covered Loan Losses (Details 6) (USD $) In Thousands, unless otherwise specified			10 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Sep. 20, 2013 Bank item	Sep. 30, 2013 Non-covered loans	Dec. 31, 2012 Non-covered loans	Sep. 30, 2013 Non-covered loans Bank	Dec. 31, 2012 Non-covered loans Bank	Sep. 30, 2013 Non-covered loans Pass	Dec. 31, 2012 Non-covered loans Pass	Sep. 30, 2013 Non-covered loans Special Mention	Dec. 31, 2012 Non-covered loans Special Mention	Sep. 30, 2013 Non-covered loans Substandard	Dec. 31, 2012 Non-covered loans Substandard	Sep. 30, 2013 Non-covered loans Secured	Dec. 31, 2012 Non-covered loans Secured	Sep. 30, 2013 Non-covered loans Secured Bank	Dec. 31, 2012 Non-covered loans Secured Bank	Sep. 30, 2013 Non-covered loans Secured Pass	Dec. 31, 2012 Non-covered loans Secured Pass	Sep. 30, 2013 Non-covered loans Secured Special Mention	Dec. 31, 2012 Non-covered loans Secured Special Mention	Sep. 30, 2013 Non-covered loans Secured Substandard	Dec. 31, 2012 Non-covered loans Secured Substandard	Sep. 30, 2013 Non-covered loans Unsecured	Dec. 31, 2012 Non-covered loans Unsecured	Sep. 30, 2013 Non-covered loans Unsecured Bank	Dec. 31, 2012 Non-covered loans Unsecured Bank	Sep. 30, 2013 Non-covered loans Unsecured Pass	Dec. 31, 2012 Non-covered loans Unsecured Pass	Sep. 30, 2013 Non-covered loans Unsecured Special Mention	Dec. 31, 2012 Non-covered loans Unsecured Special Mention	Sep. 30, 2013 Non-covered loans Unsecured Substandard	Sep. 30, 2013 Non-covered loans Secured by commercial properties	Dec. 31, 2012 Non-covered loans Secured by commercial properties	Sep. 30, 2013 Non-covered loans Secured by commercial properties Bank	Dec. 31, 2012 Non-covered loans Secured by commercial properties Bank	Sep. 30, 2013 Non-covered loans Secured by commercial properties Pass	Dec. 31, 2012 Non-covered loans Secured by commercial properties Pass	Sep. 30, 2013 Non-covered loans Secured by commercial properties Special Mention	Sep. 30, 2013 Non-covered loans Secured by commercial properties Substandard	Sep. 30, 2013 Non-covered loans Secured by residential properties	Dec. 31, 2012 Non-covered loans Secured by residential properties	Sep. 30, 2013 Non-covered loans Secured by residential properties Bank	Dec. 31, 2012 Non-covered loans Secured by residential properties Bank	Sep. 30, 2013 Non-covered loans Secured by residential properties Pass	Dec. 31, 2012 Non-covered loans Secured by residential properties Pass	Sep. 30, 2013 Non-covered loans Secured by residential properties Substandard	Sep. 30, 2013 Non-covered loans Residential construction loan	Dec. 31, 2012 Non-covered loans Residential construction loan	Sep. 30, 2013 Non-covered loans Residential construction loan Bank	Dec. 31, 2012 Non-covered loans Residential construction loan Bank	Sep. 30, 2013 Non-covered loans Residential construction loan Pass	Dec. 31, 2012 Non-covered loans Residential construction loan Pass	Sep. 30, 2013 Non-covered loans Commercial construction loans and land development	Dec. 31, 2012 Non-covered loans Commercial construction loans and land development	Sep. 30, 2013 Non-covered loans Commercial construction loans and land development Bank	Dec. 31, 2012 Non-covered loans Commercial construction loans and land development Bank	Sep. 30, 2013 Non-covered loans Commercial construction loans and land development Pass	Dec. 31, 2012 Non-covered loans Commercial construction loans and land development Pass	Sep. 30, 2013 Non-covered loans Commercial construction loans and land development Special Mention	Sep. 30, 2013 Non-covered loans Commercial construction loans and land development Substandard	Sep. 30, 2013 Non-covered loans Consumer	Dec. 31, 2012 Non-covered loans Consumer	Sep. 30, 2013 Non-covered loans Consumer Bank	Dec. 31, 2012 Non-covered loans Consumer Bank	Sep. 30, 2013 Non-covered loans Consumer Pass	Dec. 31, 2012 Non-covered loans Consumer Pass	Sep. 30, 2013 Non-covered loans Consumer Special Mention	Sep. 30, 2013 Non-covered loans Consumer Substandard	Sep. 30, 2013 Non-covered loans PCI loans	Dec. 31, 2012 Non-covered loans PCI loans	Sep. 30, 2013 Non-covered loans PCI loans Bank	Dec. 31, 2012 Non-covered loans PCI loans Bank	Sep. 30, 2013 Non-covered loans PCI loans Secured	Dec. 31, 2012 Non-covered loans PCI loans Secured	Sep. 30, 2013 Non-covered loans PCI loans Secured Bank	Dec. 31, 2012 Non-covered loans PCI loans Secured Bank	Sep. 30, 2013 Non-covered loans PCI loans Unsecured	Dec. 31, 2012 Non-covered loans PCI loans Unsecured	Sep. 30, 2013 Non-covered loans PCI loans Unsecured Bank	Dec. 31, 2012 Non-covered loans PCI loans Unsecured Bank	Sep. 30, 2013 Non-covered loans PCI loans Secured by commercial properties	Dec. 31, 2012 Non-covered loans PCI loans Secured by commercial properties	Sep. 30, 2013 Non-covered loans PCI loans Secured by commercial properties Bank	Dec. 31, 2012 Non-covered loans PCI loans Secured by commercial properties Bank	Sep. 30, 2013 Non-covered loans PCI loans Secured by residential properties	Dec. 31, 2012 Non-covered loans PCI loans Secured by residential properties	Sep. 30, 2013 Non-covered loans PCI loans Secured by residential properties Bank	Dec. 31, 2012 Non-covered loans PCI loans Secured by residential properties Bank	Dec. 31, 2012 Non-covered loans PCI loans Residential construction loan	Dec. 31, 2012 Non-covered loans PCI loans Residential construction loan Bank	Sep. 30, 2013 Non-covered loans PCI loans Commercial construction loans and land development	Dec. 31, 2012 Non-covered loans PCI loans Commercial construction loans and land development	Sep. 30, 2013 Non-covered loans PCI loans Commercial construction loans and land development Bank	Dec. 31, 2012 Non-covered loans PCI loans Commercial construction loans and land development Bank	Sep. 30, 2013 Non-covered loans PCI loans Consumer	Dec. 31, 2012 Non-covered loans PCI loans Consumer	Sep. 30, 2013 Non-covered loans PCI loans Consumer Bank	Dec. 31, 2012 Non-covered loans PCI loans Consumer Bank
Internal risk grades of non-covered loans
Total	$ 3,310,224	$ 3,152,396		$ 3,310,224	$ 3,152,396	$ 3,310,224	$ 3,152,396	$ 3,140,093	$ 2,978,271	$ 7,693	$ 2,715	$ 23,214	$ 4,630	$ 1,512,130	$ 1,551,532	$ 1,512,130	$ 1,551,532	$ 1,430,645	$ 1,476,420	$ 6,269	$ 2,515	$ 18,385	$ 4,630	$ 113,292	$ 108,761	$ 113,292	$ 108,761	$ 111,381	$ 105,142	$ 13	$ 200	$ 222	$ 1,046,673	$ 924,303	$ 1,046,673	$ 924,303	$ 1,003,771	$ 868,784	$ 505	$ 320	$ 275,381	$ 260,611	$ 275,381	$ 260,611	$ 266,949	$ 253,883	$ 3,796	$ 57,205	$ 48,169	$ 57,205	$ 48,169	$ 57,205	$ 47,461	$ 253,187	$ 232,314	$ 253,187	$ 232,314	$ 227,192	$ 199,952	$ 874	$ 480	$ 52,356	$ 26,706	$ 52,356	$ 26,706	$ 42,950	$ 26,629	$ 32	$ 11	$ 139,224	$ 166,780	$ 139,224	$ 166,780	$ 56,831	$ 67,967	$ 56,831	$ 67,967	$ 1,676	$ 3,419	$ 1,676	$ 3,419	$ 42,077	$ 55,519	$ 42,077	$ 55,519	$ 4,636	$ 6,728	$ 4,636	$ 6,728	$ 708	$ 708	$ 24,641	$ 32,362	$ 24,641	$ 32,362	$ 9,363	$ 77	$ 9,363	$ 77
Number of types of loans			2

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Fair Value Measurements (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Fair Value Measurements
Transfers of assets from level 1 to level 2	$ 0	$ 0	$ 0	$ 0
Transfers of assets from level 2 to level 1	0	0	0	0
Transfers of liabilities from level 1 to level 2	0	0	0	0
Transfers of liabilities from level 2 to level 1	0	0	0	0
Changes in Fair Value for Assets and Liabilities Reported at Fair Value under Fair Value Option
Net Gains from Sale of Loans	105,337		375,464
Other Noninterest Income	11,625	1,895	28,385	5,457
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	44,395		2,754
Total Changes in Fair Value	44,395		2,754
Mortgage servicing asset
Changes in Fair Value for Assets and Liabilities Reported at Fair Value under Fair Value Option
Net Gains from Sale of Loans	6,290		11,321
Total Changes in Fair Value	6,290		11,321
Time deposits
Changes in Fair Value for Assets and Liabilities Reported at Fair Value under Fair Value Option
Other Noninterest Income			12
Total Changes in Fair Value			$ 12

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Income Taxes

9 Months Ended

Sep. 30, 2013

Income Taxes

Income Taxes

10. Income Taxes

The Company 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 33.3% and 35.5% for the three and nine months ended September 30, 2013, respectively. During the three and nine months ended September 30, 2012, the Company recorded income tax benefits due to the loss from operations which reflected effective rates of 32.1% and 32.5%, 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 September 30, 2013 and 2012. The Company does not anticipate any significant liabilities for uncertain tax positions to arise in the next twelve months.

The Company 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, the Company 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 September 30, 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 September 30, 2013.

For the majority of tax jurisdictions, the Company is no longer subject to federal, state or local income tax examinations by tax authorities for years prior to 2009.

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Reinsurance Activity (Details 2) (USD $)	9 Months Ended			6 Months Ended	9 Months Ended					0 Months Ended			9 Months Ended
	Sep. 30, 2013 Catastrophic coverage First layer of protection	Sep. 30, 2013 Catastrophic coverage Second layer of protection	Sep. 30, 2013 Catastrophic coverage Third layer of protection	Jun. 30, 2013 Catastrophic coverage Fourth layer of protection	Sep. 30, 2013 Catastrophic coverage Fourth layer of protection	Sep. 30, 2013 ASIC Catastrophic coverage	Sep. 30, 2013 NLIC Catastrophic coverage	Sep. 30, 2013 NLC Multi-line excess of loss coverage	Sep. 30, 2013 NLC Catastrophic coverage item	Jul. 02, 2013 NLC Catastrophic coverage Maximum	Jul. 02, 2013 NLC Catastrophic coverage Fourth layer of protection	Jul. 02, 2013 NLC Catastrophic coverage Third and fourth layer of protection	Sep. 30, 2013 NLIC and ASIC Catastrophic coverage Maximum
Reinsurance activity
Loss amount covered under reinsurance contract		$ 25,000,000	$ 50,000,000		$ 100,000,000	$ 6,500,000		$ 700,000		$ 140,000,000	$ 100,000,000
Reinsurance retention amount	8,000,000					1,500,000	8,000,000	300,000					8,000,000
Number of layers of protection under reinsurance									4
Reinsurance coverage in losses per event	$ 17,000,000	$ 25,000,000	$ 50,000,000	$ 70,000,000	$ 40,000,000						$ 40,000,000
Renewal period of reinsurance contract												2 years

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Earnings (Loss) per Common Share (Tables)

9 Months Ended

Sep. 30, 2013

Earnings (Loss) per Common Share

Schedule of the computation of basic and diluted earnings (loss) per common share

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Basic earnings (loss) per share:
Income (loss) applicable to Hilltop common stockholders	$	31,831		$	(4,048	)	$	85,144		$	(14,414	)
Less: income applicable to participating shares	(176		)	—			(472		)	—
Net earnings (loss) available to Hilltop common stockholders	$	31,655		$	(4,048	)	$	84,672		$	(14,414	)
Weighted average shares outstanding - basic	83,493			56,363			83,490			56,408
Basic earnings (loss) per common share	$	0.38		$	(0.07	)	$	1.01		$	(0.26	)
Diluted earnings (loss) per share:
Income (loss) applicable to Hilltop common stockholders	$	31,831		$	(4,048	)	$	85,144		$	(14,414	)
Add: interest expense on senior exchangeable notes (net of tax)	1,053			—			3,158			—
Net earnings (loss) available to Hilltop common stockholders	$	32,884		$	(4,048	)	$	88,302		$	(14,414	)
Weighted average shares outstanding - basic	83,493			56,363			83,490			56,408
Effect of potentially dilutive securities	6,967			—			6,761			—
Weighted average shares outstanding - diluted	90,460			56,363			90,251			56,408
Diluted earnings (loss) per common share	$	0.36		$	(0.07	)	$	0.98		$	(0.26	)

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Regulatory Matters (Details 2) (Texas Department of Insurance, USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
National Lloyds Insurance Company
Insurance
Capital and surplus	$ 87,723		$ 87,723		$ 94,558
Statutory net income (loss):	2,645	(1,759)	(7,296)	(9,516)
American Summit Insurance Company
Insurance
Capital and surplus	24,946		24,946		25,761
Statutory net income (loss):	$ 167	$ (136)	$ (962)	$ (706)

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Fair Value Measurements (Details 4) (USD $)	Sep. 30, 2013 Non-covered loans	Sep. 30, 2013 PCI loans Covered loans	Sep. 30, 2013 PlainsCapital PCI loans Non-covered loans	Dec. 31, 2012 PlainsCapital PCI loans Non-covered loans	Sep. 13, 2013 FNB Bank	Sep. 13, 2013 FNB Covered loans Bank	Sep. 13, 2013 FNB PCI loans Bank	Sep. 30, 2013 FNB PCI loans Non-covered loans Bank	Sep. 30, 2013 Level 3 PCI loans Covered loans	Sep. 30, 2013 Level 3 PCI loans Non-covered loans	Sep. 13, 2013 Non-recurring Level 2 FNB Covered loans Bank	Sep. 30, 2013 Non-recurring Level 2 Estimated fair value Covered loans	Sep. 30, 2013 Non-recurring Level 2 Estimated fair value Non-covered loans	Nov. 30, 2012 Non-recurring Level 3 PlainsCapital PCI loans	Sep. 13, 2013 Non-recurring Level 3 FNB PCI loans
Fair value measurements
Fair value of loans acquired					$ 1,151,336,000		$ 807,448,000							$ 172,900,000	$ 807,400,000
Carrying value of loans acquired		782,560,000	139,224,000	166,780,000				139,200,000	782,600,000	17,600,000
Allowance for loan losses	3,011,000									3,000,000
Fair value of PCI loans acquired										136,200,000
Acquired OREO						120,985,000					121,000,000
Other real estate owned												$ 119,700,000	$ 7,000,000

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Deposits (Tables)

9 Months Ended

Sep. 30, 2013

Deposits.

Summary of deposits

Deposits are summarized as follows (in thousands).

	September 30,		December 31,
	2013		2012
Noninterest-bearing demand	$	392,404	$	323,367
Interest-bearing:
NOW accounts	179,805		106,562
Money market	2,936,579		2,357,109
Brokered - money market	280,354		263,193
Demand	53,558		75,308
Savings	450,723		180,367
Time	2,402,485		1,175,432
Brokered - time	240,254		219,123
	$	6,936,162	$	4,700,461

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Reinsurance Activity

9 Months Ended

Sep. 30, 2013

Reinsurance Activity

Reinsurance Activity

19. Reinsurance Activity

NLC 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 NLC 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 NLC; consequently, allowances are established for amounts deemed uncollectible as NLC 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 September 30, 2013, reinsurance receivables had a carrying value of $7.7 million. There was no allowance for uncollectible accounts at September 30, 2013, based on our quality requirements.

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

	Three Months Ended September 30,												Nine Months Ended September 30,
	2013						2012						2013						2012
	Written			Earned			Written			Earned			Written			Earned			Written			Earned
Premiums from direct business	$	44,484		$	43,031		$	40,899		$	40,922		$	134,292		$	125,520		$	126,833		$	121,209
Reinsurance assumed	2,058			1,860			1,726			1,520			5,931			5,238			4,830			4,296
Reinsurance ceded	(5,100		)	(4,909		)	(5,106		)	(4,754		)	(14,879		)	(14,713		)	(14,953		)	(16,467		)
Net premiums	$	41,442		$	39,982		$	37,519		$	37,688		$	125,344		$	116,045		$	116,710		$	109,038

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Loss and LAE incurred	$	27,558		$	31,577		$	98,507		$	94,022
Reinsurance recoverables	(2,927		)	(1,441		)	(4,531		)	(2,273		)
Net loss and LAE incurred	$	24,631		$	30,136		$	93,976		$	91,749

Multi-line excess of loss coverage

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

Catastrophic coverage

NLC has catastrophic excess of loss reinsurance coverage 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 $40 million ($70 million through June 30, 2013) 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 September 30, 2013, total retention for any one catastrophe that affects both NLIC and ASIC was limited to $8 million in the aggregate.

Effective July 1, 2013, NLC renewed its catastrophic reinsurance contract for its third and fourth layers of reinsurance for a two year period. In the contract renewal, the coverage provided by the fourth layer changed to reflect the reduction of exposure in Texas primarily as a result of NLIC exiting the Texas coast and reducing its exposure in Harris County, Texas. The coverage provides $40 million in excess of $100 million loss, resulting in catastrophic excess of loss reinsurance coverage up to $140 million.

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Reserves for Unpaid Losses and Loss Adjustment Expenses

9 Months Ended

Sep. 30, 2013

Reserves for Unpaid Losses and Loss Adjustment Expenses

Reserves for Unpaid Losses and Loss Adjustment Expenses

18. 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).

	Nine Months Ended September 30,
	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	93,124			90,928
Prior periods	852			821
Total incurred	93,976			91,749
Payments related to:
Current period	(78,742		)	(73,267		)
Prior periods	(13,623		)	(13,194		)
Total payments	(92,365		)	(86,461		)
Net balance, end of period	25,238			25,040
Plus reinsurance recoverables	6,029			20,995
Balance, end of period	$	31,267		$	46,035

The decrease in the reserves at September 30, 2013 as compared to September 30, 2012 of $14.8 million is primarily due to the significant subsequent payment and recovery of those reinsurance recoverables outstanding at September 30, 2012.

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Reinsurance Activity (Tables)

9 Months Ended

Sep. 30, 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 September 30,												Nine Months Ended September 30,
	2013						2012						2013						2012
	Written			Earned			Written			Earned			Written			Earned			Written			Earned
Premiums from direct business	$	44,484		$	43,031		$	40,899		$	40,922		$	134,292		$	125,520		$	126,833		$	121,209
Reinsurance assumed	2,058			1,860			1,726			1,520			5,931			5,238			4,830			4,296
Reinsurance ceded	(5,100		)	(4,909		)	(5,106		)	(4,754		)	(14,879		)	(14,713		)	(14,953		)	(16,467		)
Net premiums	$	41,442		$	39,982		$	37,519		$	37,688		$	125,344		$	116,045		$	116,710		$	109,038

Schedule of effects of reinsurance on incurred losses

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Loss and LAE incurred	$	27,558		$	31,577		$	98,507		$	94,022
Reinsurance recoverables	(2,927		)	(1,441		)	(4,531		)	(2,273		)
Net loss and LAE incurred	$	24,631		$	30,136		$	93,976		$	91,749

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 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
September 30, 2013	Inputs		Inputs		Inputs		Fair Value
Cash and cash equivalents	$	1,016,274	$	—	$	—	$	1,016,274
Trading securities	—		43,254		—		43,254
Available for sale securities	20,996		1,198,783		59,602		1,279,381
Loans held for sale	—		1,046,152		—		1,046,152
Derivative assets	—		32,967		—		32,967
Mortgage servicing asset	—		—		13,401		13,401
Trading liabilities	—		46		—		46
Derivative liabilities	—		28,375		—		28,375

	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 September 30, 2013
Available for sale securities	$	55,510	$	—	$	—	$	—	$	4,092	$	59,602
Mortgage servicing asset	7,111		—		4,079		2,211		—		13,401
Total	$	62,621	$	—	$	4,079	$	2,211	$	4,092	$	73,003
Nine months ended September 30, 2013
Available for sale securities	$	56,277	$	—	$	—	$	—	$	3,325	$	59,602
Mortgage servicing asset	2,080		—		8,384		2,937		—		13,401
Total	$	58,357	$	—	$	8,384	$	2,937	$	3,325	$	73,003
Three months ended September 30, 2012
Available for sale securities	$	54,577	$	—	$	—	$	—	$	7,491	$	62,068
Total	$	54,577	$	—	$	—	$	—	$	7,491	$	62,068
Nine months ended September 30, 2012
Available for sale securities	$	60,377	$	—	$	—	$	—	$	1,691	$	62,068
Total	$	60,377	$	—	$	—	$	—	$	1,691	$	62,068

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

The following tables present 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 September 30, 2013						Three Months Ended September 30, 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	$	44,395	$	—	$	44,395	$	—	$	—	$	—
Mortgage servicing asset	6,290		—		6,290		—		—		—
Time deposits	—		—		—		—		—		—

	Changes in Fair Value for Assets and Liabilities Reported at Fair Value under Fair Value Option
	Nine Months Ended September 30, 2013						Nine Months Ended September 30, 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	$	2,754	$	—	$	2,754	$	—	$	—	$	—
Mortgage servicing asset	11,321		—		11,321		—		—		—
Time deposits	—		12		12		—		—		—

Schedule of carrying values and estimated fair values of financial instruments not measured at fair value on either recurring or non-recurring basis

The following tables present the carrying values and estimated fair values of financial instruments not measured at fair value on either a recurring or non-recurring basis (in thousands).

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
September 30, 2013	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Non-covered loans, net	$	3,277,044	$	—	$	286,663	$	3,018,250	$	3,304,913
Covered loans	1,096,590		—		—		1,096,590		1,096,590
Broker-dealer and clearing organization receivables	132,636		—		132,636		—		132,636
FDIC indemnification asset	190,041		—		—		190,041		190,041
Other assets	68,423		—		51,134		17,289		68,423
Financial liabilities:
Deposits	6,936,162		—		6,936,527		—		6,936,527
Broker-dealer and clearing organization payables	142,411		—		142,411		—		142,411
Short-term borrowings	305,297		—		305,297		—		305,297
Debt	207,123		—		231,416		—		231,416
Other liabilities	4,651		—		4,651		—		4,651

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
December 31, 2012	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Non-covered loans, net	$	3,148,987	$	—	$	—	$	3,148,987	$	3,148,987
Broker-dealer and clearing organization receivables	145,564		—		145,564		—		145,564
Other assets	59,094		—		59,094		—		59,094
Financial liabilities:
Deposits	4,700,461		—		4,698,848		—		4,698,848
Broker-dealer and clearing organization payables	187,990		—		187,990		—		187,990
Short-term borrowings	728,250		—		728,250		—		728,250
Debt	208,551		—		217,092		—		217,092
Other liabilities	4,400		—		4,400		—		4,400

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies.

Schedule of roll-forward of claims activity for loans put-back to the mortgage origination segment

The following tables provide for a roll-forward of claims activity for loans put-back to the mortgage origination segment based upon an alleged breach of a representation or warranty with respect to a loan sold and related indemnification liability reserve activity (in thousands).

	Representation and Warranty Specific Claims Activity - Origination Loan Balance
	Three Months Ended			Nine Months Ended
	September 30, 2013			September 30, 2013
Balance, beginning of period	$	46,090		$	39,693
Claims made	6,769			25,844
Claims resolved with no payment	(2,338		)	(10,751		)
Repurchases	(1,597		)	(3,917		)
Indemnification payments	(542		)	(2,487		)
Balance, end of period	$	48,382		$	48,382

	Indemnification Liability Reserve Activity
	Three Months Ended			Nine Months Ended
	September 30, 2013			September 30, 2013
Balance, beginning of period	$	20,397		$	18,964
Additions for new sales	878			2,834
Repurchases	(120		)	(129		)
Early payment defaults	(165		)	(397		)
Indemnification payments	(177		)	(701		)
Change in estimate	214			456
Balance, end of period	$	21,027		$	21,027
Reserve for Indemnification Liability:
Specific claims	$	12,336
Incurred but not reported claims	8,691
Total	$	21,027

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Summary of Significant Accounting and Reporting Policies (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended					9 Months Ended
	Sep. 30, 2013 Plains Capital	Sep. 30, 2013 Bank	Sep. 13, 2013 Bank FNB	Sep. 13, 2013 Bank FNB Covered loans	Sep. 13, 2013 Bank FNB Non-covered loans	Sep. 30, 2013 Plains Capital Equity, LLC	Sep. 30, 2013 PrimeLending	Sep. 30, 2013 PNB Aero Services, Inc.	Sep. 30, 2013 PCB-ARC, Inc.	Sep. 30, 2013 FSC	Sep. 30, 2013 PlainsCapital Securities, LLC	Sep. 30, 2013 PlainsCapital Insurance Services, LLC	Sep. 30, 2013 NLC	Sep. 30, 2013 PrimeLending Ventures Management, LLC	Sep. 30, 2013 Trusts
Basis of Presentation
Fair market value of assets acquired			$ 2,228,898
Loans				1,105,421	45,915
Securities			286,214
Other real estate owned				120,985
Assumed liabilities			$ 2,225,627
Ownership percentage of subsidiary owned by the reporting entity	100.00%												100.00%
Ownership percentage of subsidiary owned by subsidiary of the reporting entity		100.00%				100.00%	100.00%	100.00%	100.00%	100.00%	100.00%	51.00%		100.00%	100.00%

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Subsequent Event

9 Months Ended

Sep. 30, 2013

Subsequent Event

Subsequent Event

23. Subsequent Event

On October 15, 2013, Hilltop entered into a First Supplemental Indenture pursuant to which Hilltop guaranteed the obligations of HTH Operating Partnership LP, a wholly owned subsidiary of Hilltop (“OP”), under that certain Indenture, dated as of August 9, 2005 (the “Indenture”). OP previously issued $96.6 million aggregate principal amount of its 7.5% Senior Exchangeable Notes due 2025 (the “Notes”) under the Indenture, of which $90.9 million were outstanding as of October 15, 2013, including $6.9 million aggregate principal amount held by Hilltop’s insurance company subsidiaries.

On October 15, 2013, OP called for redemption all outstanding Notes on November 14, 2013 (the “Redemption Date”). The Notes will be redeemed at a redemption price equal to the principal amount of the Notes, plus accrued and unpaid interest up to, but excluding, the Redemption Date.

At any time prior to the Redemption Date, holders may exchange their Notes into shares of Hilltop common stock at the rate of 73.94998 shares per $1,000 principal amount of the Notes (or approximately $13.52 per share). In lieu of delivery of Hilltop common stock upon the exercise of a holder of its exchange right, OP may elect to pay such holder of the Notes an amount in cash (or a combination of Hilltop common stock and cash) in respect of all or a portion of such holder’s Notes equal to the closing price of Hilltop’s common stock for the five consecutive trading days commencing on and including the third business day following the exercise of such exchange right. As of November 8, 2013, such redemptions resulted in the issuance of 2,896,316 shares of Hilltop common stock.

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Non-Covered Loans and Allowance for Non-Covered Loan Losses (Details 3) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Dec. 31, 2012
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Days outstanding loans and leases receivable are generally considered past due		90 days
Non-covered loans
Non-covered PCI loans
Unpaid Contractual Principal balance	$ 187,370,000	$ 187,370,000	$ 222,674,000
Nonaccretable Difference	47,365,000	47,365,000	61,378,000
Accretable Yield	21,443,000	21,443,000	17,553,000
Total Recorded Investment	139,224,000	139,224,000	166,780,000
Related Allowance	3,011,000	3,011,000
Average investment in PCI loans
Average investment in PCI loans	138,768,000	153,003,000
Non-accrual loans	19,212,000	19,212,000
Non-covered loans | Bank
Average investment in PCI loans
Unadvanced commitments to borrowers	300,000	300,000
Non-covered loans | Secured
Non-covered PCI loans
Unpaid Contractual Principal balance	71,924,000	71,924,000	91,633,000
Nonaccretable Difference	16,557,000	16,557,000	24,982,000
Accretable Yield	4,401,000	4,401,000	6,114,000
Total Recorded Investment	56,831,000	56,831,000	67,967,000
Related Allowance	2,732,000	2,732,000
Average investment in PCI loans
Average investment in PCI loans	55,797,000	62,399,000
Non-accrual loans	16,009,000	16,009,000
Non-covered loans | Unsecured
Non-covered PCI loans
Unpaid Contractual Principal balance	9,678,000	9,678,000	12,198,000
Nonaccretable Difference	5,062,000	5,062,000	8,707,000
Accretable Yield	3,937,000	3,937,000	472,000
Total Recorded Investment	1,676,000	1,676,000	3,419,000
Average investment in PCI loans
Average investment in PCI loans	1,826,000	2,548,000
Non-accrual loans	23,000	23,000
Non-covered loans | Secured by commercial properties
Non-covered PCI loans
Unpaid Contractual Principal balance	51,525,000	51,525,000	66,736,000
Nonaccretable Difference	11,704,000	11,704,000	15,816,000
Accretable Yield	7,236,000	7,236,000	7,294,000
Total Recorded Investment	42,077,000	42,077,000	55,519,000
Related Allowance	205,000	205,000
Average investment in PCI loans
Average investment in PCI loans	45,114,000	48,798,000
Non-accrual loans	1,856,000	1,856,000
Non-covered loans | Secured by residential properties
Non-covered PCI loans
Unpaid Contractual Principal balance	6,141,000	6,141,000	8,690,000
Nonaccretable Difference	1,140,000	1,140,000	2,251,000
Accretable Yield	904,000	904,000	557,000
Total Recorded Investment	4,636,000	4,636,000	6,728,000
Related Allowance	73,000	73,000
Average investment in PCI loans
Average investment in PCI loans	5,400,000	5,682,000
Non-accrual loans	161,000	161,000
Non-accrual loans held for sale	2,700,000	2,700,000	1,800,000
Non-covered loans | Residential construction loan
Non-covered PCI loans
Unpaid Contractual Principal balance			995,000
Nonaccretable Difference			493,000
Accretable Yield			40,000
Total Recorded Investment			708,000
Average investment in PCI loans
Average investment in PCI loans		354,000
Non-covered loans | Commercial construction loans and land development
Non-covered PCI loans
Unpaid Contractual Principal balance	35,012,000	35,012,000	42,330,000
Nonaccretable Difference	9,637,000	9,637,000	9,113,000
Accretable Yield	3,940,000	3,940,000	3,067,000
Total Recorded Investment	24,641,000	24,641,000	32,362,000
Related Allowance	1,000	1,000
Average investment in PCI loans
Average investment in PCI loans	25,916,000	28,502,000
Non-accrual loans	1,073,000	1,073,000
Non-covered loans | Consumer
Non-covered PCI loans
Unpaid Contractual Principal balance	13,090,000	13,090,000	92,000
Nonaccretable Difference	3,265,000	3,265,000	16,000
Accretable Yield	1,025,000	1,025,000	9,000
Total Recorded Investment	9,363,000	9,363,000	77,000
Average investment in PCI loans
Average investment in PCI loans	4,715,000	4,720,000
Non-covered loans | PCI
Non-covered PCI loans
Total Recorded Investment	1,100,000	1,100,000
Average investment in PCI loans
Non-accrual loans	$ 18,100,000	$ 18,100,000

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Goodwill and Other Intangible Assets (Details) (USD $)			3 Months Ended			1 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Mar. 31, 2013 Plains Capital	Sep. 30, 2013 Plains Capital	Nov. 30, 2012 Plains Capital	Sep. 30, 2013 Bank FNB Core deposits
Goodwill and Other Intangible Assets
Carrying amount of goodwill	$ 251,808,000	$ 253,770,000			$ 230,100,000
Adjustments related to PlainsCapital acquisition			2,000,000
Purchase price allocation adjustments amount expected				0
Other intangible assets	75,942,000	77,738,000
Estimated fair value of indefinite lived intangible assets related to state licenses acquired as a part of the NLASCO acquisition	3,000,000
Intangible asset recorded in connection with acquisition						$ 6,400,000
Amortization period						7 years

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Non-Covered Loans and Allowance for Non-Covered Loan Losses (Details 2) (Plains Capital, Non-covered loans, Acquired Impaired, USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Dec. 31, 2012
Plains Capital | Non-covered loans | Acquired Impaired
Carrying values and the outstanding contractual balances of the PCI loans
Carrying amount	$ 139,224	$ 139,224	$ 166,780
Outstanding balance	187,370	187,370	222,674
Changes in the accretable yield for the acquired impaired loans
Balance, beginning of period	20,118	17,553
Additions	1,923	1,923
Increases in expected cash flows	4,697	16,834
Disposals of loans	(441)	(2,273)
Accretion	(4,854)	(12,594)
Balance, end of period	$ 21,443	$ 21,443

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Balance Sheet Offsetting (Tables)

9 Months Ended

Sep. 30, 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 September 30, 2013 and December 31, 2012 (in thousands).

							Gross Amounts Not Offset in
					Net Amounts		the Balance Sheet
	Gross Amounts		Gross Amounts		of Assets					Cash
	of Recognized		Offset in the		Presented in the		Financial			Collateral		Net
	Assets		Balance Sheet		Balance Sheet		Instruments			Pledged		Amount
September 30, 2013
Securities Borrowed:
Institutional Counterparties	$	100,348	$	—	$	100,348	$	(100,348	)	$	—	$	—
	$	100,348	$	—	$	100,348	$	(100,348	)	$	—	$	—
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

								Gross Amounts Not Offset in
						Net Amounts		the Balance Sheet
	Gross Amounts		Gross Amounts			of Liabilities					Cash
	of Recognized		Offset in the			Presented in the		Financial			Collateral			Net
	Liabities		Balance Sheet			Balance Sheet		Instruments			Pledged			Amount
September 30, 2013
Securities Loaned:
Institutional Counterparties	$	70,769	$	—		$	70,769	$	(70,769	)	$	—		$	—
Repurchase Agreements:
Customer Counterparties	121,222		—			121,222		(121,222		)	—			—
Forward MBS Sale Derivatives:
Institutional Counterparties	29,389		(100		)	29,289		—			(21,858		)	7,431
	$	221,380	$	(100	)	$	221,280	$	(191,991	)	$	(21,858	)	$	7,431
December 31, 2012
Securities Loaned:
Institutional Counterparties	$	115,102	$	—		$	115,102	$	(115,102	)	$	—		$	—
Repurchase Agreements:
Customer Counterparties	85,726		—			85,726		(85,726		)	—			—
Forward MBS Sale Derivatives:
Institutional Counterparties	2,000		(975		)	1,025		—			(249		)	776
	$	202,828	$	(975	)	$	201,853	$	(200,828	)	$	(249	)	$	776

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Covered Assets and Indemnification Asset (Details) (USD $) In Thousands, unless otherwise specified	0 Months Ended	9 Months Ended
	Sep. 13, 2013	Sep. 30, 2013
Covered loans
Covered assets and indemnification asset
Total covered loans		$ 1,096,590
Covered loans | Commercial and Industrial
Covered assets and indemnification asset
Total covered loans		74,581
Covered loans | Real estate
Covered assets and indemnification asset
Total covered loans		833,493
Covered loans | Construction and Land Development
Covered assets and indemnification asset
Total covered loans		188,505
Covered loans | Consumer
Covered assets and indemnification asset
Total covered loans		11
Covered loans | Acquired loans
Covered assets and indemnification asset
Fair value of loans acquired	1,100,000
Carryover of the allowance for loan losses recorded	0
Bank | FNB
Covered assets and indemnification asset
Period for which payment is required to be made to the FDIC of true-up amount		10 years
Fair value of loans acquired	1,151,336
Carryover of the allowance for loan losses recorded	0
Bank | FNB | Commercial and Industrial
Covered assets and indemnification asset
Fair value of loans acquired	94,912
Bank | FNB | Real estate
Covered assets and indemnification asset
Fair value of loans acquired	841,478
Bank | FNB | Construction and Land Development
Covered assets and indemnification asset
Fair value of loans acquired	189,938
Bank | FNB | Consumer
Covered assets and indemnification asset
Fair value of loans acquired	$ 25,008

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Broker-Dealer and Clearing Organization Receivables and Payables

9 Months Ended

Sep. 30, 2013

Broker-Dealer and Clearing Organization Receivables and Payables

Broker-Dealer and Clearing Organization Receivables and Payables

17. Broker-Dealer and Clearing Organization Receivables and Payables

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

	September 30,		December 31,
	2013		2012
Receivables:
Securities borrowed	$	100,348	$	103,936
Securities failed to deliver	21,442		33,045
Clearing organizations	10,842		8,543
Due from dealers	4		40
	$	132,636	$	145,564
Payables:
Securities loaned	$	70,769	$	115,102
Correspondents	43,550		41,414
Securities failed to receive	24,888		31,474
Clearing organizations	3,204		—
	$	142,411	$	187,990

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on securities available for sale, tax	$ 1,135	$ 3,225	$ (13,641)	$ 319

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Operating Activities
Net income (loss)	$ 89,336	$ (14,414)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Provision for loan losses	34,952
Depreciation, amortization and accretion, net	(24,740)	1,025
Net realized gains on securities	(1,142)
Bargain purchase gain on acquisition	(3,271)
Deferred income taxes	(11,423)	(6,954)
Other, net	3,914	495
Net change in trading securities	46,859
Net change in broker-dealer and clearing organization receivables	2,796
Net change in other assets	23,711	1,740
Net change in broker-dealer and clearing organization payables	(37,386)
Net change in loss and loss adjustment expense reserve	(2,745)	1,200
Net change in unearned insurance premiums	9,466	6,159
Net change in other liabilities	(21,993)	(2,618)
Net gains from sale of loans	(375,464)
Loans originated for sale	(9,427,627)
Proceeds from loans sold	10,157,410
Net cash provided by (used in) operating activities	462,653	(13,367)
Investing Activities
Proceeds from sales, maturities and principal reductions of securities available for sale	211,732	13,225
Purchases of securities available for sale	(255,142)	(2,887)
Net change in non-covered loans	(49,255)
Purchases of premises and equipment and other assets	(20,264)	(161)
Proceeds from sales of premises and equipment and other real estate owned	7,641
Net cash received for Federal Home Loan Bank and Federal Reserve Bank stock	89
Net cash from FNB Transaction	362,695
Net cash provided by investing activities	257,496	10,177
Financing Activities
Net change in deposits	(1,476)
Net change in short-term borrowings	(422,953)
Proceeds from notes payable	1,000
Payments on notes payable	(2,428)
Payments to repurchase common stock		(1,162)
Dividends paid	(1,852)
Net cash distributed to noncontrolling interest	(2,383)
Other, net	(243)
Net cash used in financing activities	(430,335)	(1,162)
Net change in cash and cash equivalents	289,814	(4,352)
Cash and cash equivalents, beginning of period	726,460	578,520
Cash and cash equivalents, end of period	1,016,274	574,168
Supplemental Disclosures of Cash Flow Information
Cash paid for interest	22,513	7,849
Cash paid for income taxes, net of refunds	52,752
Supplemental Schedule of Non-Cash Activities
Conversion of loans to other real estate owned	$ 6,019

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Fair Value Measurements

9 Months Ended

Sep. 30, 2013

Fair Value Measurements

Fair Value Measurements

3. Fair Value Measurements

Fair Value Measurements and Disclosures

The Company 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

The Company has elected to measure substantially all of PrimeLending’s mortgage loans held for sale at fair value under the provisions of the Fair Value Option Subsections of the ASC (“Fair Value Option”). The Company 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. The Company 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 September 30, 2013, the aggregate fair value of PrimeLending’s mortgage loans held for sale accounted for under the Fair Value Option was $1.05 billion, and the unpaid principal balance of those loans was $1.00 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, and 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.

The Company holds a number of financial instruments that are measured at fair value on a recurring basis, either by the application of the 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
September 30, 2013	Inputs		Inputs		Inputs		Fair Value
Cash and cash equivalents	$	1,016,274	$	—	$	—	$	1,016,274
Trading securities	—		43,254		—		43,254
Available for sale securities	20,996		1,198,783		59,602		1,279,381
Loans held for sale	—		1,046,152		—		1,046,152
Derivative assets	—		32,967		—		32,967
Mortgage servicing asset	—		—		13,401		13,401
Trading liabilities	—		46		—		46
Derivative liabilities	—		28,375		—		28,375

	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 September 30, 2013
Available for sale securities	$	55,510	$	—	$	—	$	—	$	4,092	$	59,602
Mortgage servicing asset	7,111		—		4,079		2,211		—		13,401
Total	$	62,621	$	—	$	4,079	$	2,211	$	4,092	$	73,003
Nine months ended September 30, 2013
Available for sale securities	$	56,277	$	—	$	—	$	—	$	3,325	$	59,602
Mortgage servicing asset	2,080		—		8,384		2,937		—		13,401
Total	$	58,357	$	—	$	8,384	$	2,937	$	3,325	$	73,003
Three months ended September 30, 2012
Available for sale securities	$	54,577	$	—	$	—	$	—	$	7,491	$	62,068
Total	$	54,577	$	—	$	—	$	—	$	7,491	$	62,068
Nine months ended September 30, 2012
Available for sale securities	$	60,377	$	—	$	—	$	—	$	1,691	$	62,068
Total	$	60,377	$	—	$	—	$	—	$	1,691	$	62,068

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 September 30, 2013. The available for sale securities noted in the tables above reflect Hilltop’s note receivable and warrant to purchase common stock of 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 a corresponding decrease or increase, respectively, 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 SWS common 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 tables present 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 September 30, 2013						Three Months Ended September 30, 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	$	44,395	$	—	$	44,395	$	—	$	—	$	—
Mortgage servicing asset	6,290		—		6,290		—		—		—
Time deposits	—		—		—		—		—		—

	Changes in Fair Value for Assets and Liabilities Reported at Fair Value under Fair Value Option
	Nine Months Ended September 30, 2013						Nine Months Ended September 30, 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	$	2,754	$	—	$	2,754	$	—	$	—	$	—
Mortgage servicing asset	11,321		—		11,321		—		—		—
Time deposits	—		12		12		—		—		—

The Company also determines the fair value of certain assets and liabilities on a non-recurring basis. In particular, the fair value of all of the assets acquired and liabilities assumed in the FNB Transaction was determined at the Bank Closing Date. In addition, 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 — The Company reports impaired loans based on the underlying fair value of the collateral through specific allowances within the allowance for loan losses. The Company acquired PCI loans with a fair value of $172.9 million and $807.4 million upon completion of the PlainsCapital Merger and the FNB Transaction, respectively. Substantially all PCI loans acquired in the FNB Transaction are covered by FDIC loss-share agreements. 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 September 30, 2013, non-covered PCI loans with a carrying amount of $139.2 million had been reduced by specific allowances within the allowance for non-covered loan losses of $3.0 million, resulting in a reported value of $136.2 million that approximates fair value. Covered PCI loans with a carrying amount of $782.6 million at September 30, 2013 approximated their fair value.

Other Real Estate Owned — The Company reports OREO 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 OREO. Subsequent to the initial transfer to OREO, downward valuation adjustments are charged against earnings. The Company primarily determines fair value using Level 2 inputs consisting of independent appraisals. In the FNB Transaction, the Bank acquired OREO of $121.0 million, all of which is covered by an FDIC loss-share agreement. At September 30, 2013, the estimated fair value of covered OREO was $119.7 million. The fair value of non-covered OREO at September 30, 2013 was $7.0 million and is included in other assets within the consolidated balance sheet.

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, except as follows.

FDIC Indemnification Asset — The fair value of the FDIC Indemnification Asset is based on Level 3 inputs, including the discounted value of expected future cash flows under the loss-share agreements. The discount rate contemplates the credit worthiness of the FDIC as counterparty to this asset, and considers an incremental discount rate risk premium reflective of the inherent uncertainty associated with the timing of the cash flows.

The fair value of the assets acquired and liabilities assumed in the FNB Transaction was determined at Bank Closing Date. Given the short period of time that has elapsed between the Bank Closing Date and September 30, 2013, the fair value of the financial assets and liabilities shown at September 30, 2013 approximates their carrying values.

The following tables present the carrying values and estimated fair values of financial instruments not measured at fair value on either a recurring or non-recurring basis (in thousands).

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
September 30, 2013	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Non-covered loans, net	$	3,277,044	$	—	$	286,663	$	3,018,250	$	3,304,913
Covered loans	1,096,590		—		—		1,096,590		1,096,590
Broker-dealer and clearing organization receivables	132,636		—		132,636		—		132,636
FDIC indemnification asset	190,041		—		—		190,041		190,041
Other assets	68,423		—		51,134		17,289		68,423
Financial liabilities:
Deposits	6,936,162		—		6,936,527		—		6,936,527
Broker-dealer and clearing organization payables	142,411		—		142,411		—		142,411
Short-term borrowings	305,297		—		305,297		—		305,297
Debt	207,123		—		231,416		—		231,416
Other liabilities	4,651		—		4,651		—		4,651

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
December 31, 2012	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Non-covered loans, net	$	3,148,987	$	—	$	—	$	3,148,987	$	3,148,987
Broker-dealer and clearing organization receivables	145,564		—		145,564		—		145,564
Other assets	59,094		—		59,094		—		59,094
Financial liabilities:
Deposits	4,700,461		—		4,698,848		—		4,698,848
Broker-dealer and clearing organization payables	187,990		—		187,990		—		187,990
Short-term borrowings	728,250		—		728,250		—		728,250
Debt	208,551		—		217,092		—		217,092
Other liabilities	4,400		—		4,400		—		4,400

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Deposits (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Deposits.
Noninterest-bearing demand	$ 392,404,000	$ 323,367,000
Interest-bearing:
NOW accounts	179,805,000	106,562,000
Money market	2,936,579,000	2,357,109,000
Brokered - money market	280,354,000	263,193,000
Demand	53,558,000	75,308,000
Savings	450,723,000	180,367,000
Time	2,402,485,000	1,175,432,000
Brokered - time	240,254,000	219,123,000
Total deposits	6,936,162,000	4,700,461,000
Net change in deposits	$ 2,200,000,000

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Summary of Significant Accounting and Reporting Policies

9 Months Ended

Sep. 30, 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” and, collectively with its subsidiaries, the “Company”) is a financial holding company registered under the Bank Holding Company Act of 1956, as amended by the Gramm-Leach-Bliley Act of 1999. On November 30, 2012, Hilltop acquired PlainsCapital Corporation pursuant to an agreement and plan of merger whereby PlainsCapital Corporation merged with and into our wholly owned subsidiary (the “PlainsCapital Merger”), which survived the PlainsCapital 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 September 30, 2013 and December 31, 2012 and relating to the three and nine months ended September 30, 2013.

Prior to the consummation of the PlainsCapital Merger, the Company’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 the Company’s wholly owned property and casualty insurance holding company, National Lloyds Corporation (“NLC”), formerly known as NLASCO, Inc.

On September 13, 2013 (the “Bank Closing Date”), PlainsCapital Bank (the “Bank”) assumed substantially all of the liabilities, including all of the deposits, and acquired substantially all of the assets of Edinburg, Texas-based First National Bank (“FNB”) from the Federal Deposit Insurance Corporation (the “FDIC”), as receiver, and reopened acquired branches of FNB under the PlainsCapital Bank name (the “FNB Transaction”). Pursuant to the Purchase and Assumption Agreement (the “P&A Agreement”), the Bank and the FDIC entered into loss-share agreements whereby the FDIC agreed to share in the losses of certain covered loans and covered other real estate owned (“OREO”) that the Bank acquired, as further described in Note 2 to the consolidated financial statements. Based on preliminary purchase date valuations, the fair market value of the assets acquired was $2.2 billion, including $1.1 billion in covered loans, $286.2 million in securities, $121.0 million in covered OREO and $45.9 million in non-covered loans. The Bank also assumed $2.2 billion in liabilities, consisting primarily of deposits. FNB’s expansive branch network allows the Bank to further develop its Texas footprint through expansion into the Rio Grande Valley, Houston, Corpus Christi, Laredo and El Paso markets, among others.

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 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, the FDIC Indemnification Asset, reserves for losses and loss adjustment expenses, the mortgage loan indemnification liability, and the potential impairment of assets are particularly subject to change. The Company has applied its critical accounting policies and estimation methods consistently in all periods presented in these consolidated financial statements. As discussed in Note 2 to the consolidated financial statements, the purchase date valuations for the FNB Transaction are considered preliminary because management made significant estimates and exercised significant judgment in estimating fair values and accounting due to the short time period between the Bank Closing Date and September 30, 2013.

The presentation of the Company’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 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 NLC, 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, 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.

The following significant accounting policies are in addition to the significant accounting policies described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on March 15, 2013.

FDIC Indemnification Asset

The Company has elected to account for amounts receivable under the loss-share agreements with the FDIC as an indemnification asset (“FDIC Indemnification Asset”) in accordance with FASB ASC 805. The FDIC Indemnification Asset is initially recorded at fair value, based on the discounted value of expected future cash flows under the loss-share agreements. The difference between the present value and the undiscounted cash flows the Company expects to collect from the FDIC will be accreted into noninterest income within the consolidated statements of operations over the life of the FDIC Indemnification Asset. The FDIC Indemnification Asset is reviewed quarterly and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the covered portfolio. These adjustments are measured on the same basis as the related covered loans and covered OREO. Any increases in cash flow of the covered assets over those expected will reduce the FDIC Indemnification Asset and any decreases in cash flow of the covered assets under those expected will increase the FDIC Indemnification Asset. Any amortization of changes in value is limited to the contractual term of the loss-share agreements. Increases and decreases to the FDIC Indemnification Asset are recorded as adjustments to noninterest income within the consolidated statements of operations over the life of the loss-share agreements.

Covered Other Real Estate Owned

Acquired OREO subject to FDIC loss-share agreements is referred to as “covered OREO” and reported separately in our consolidated balance sheets. Covered OREO is reported exclusive of expected reimbursement cash flows from the FDIC. Foreclosed covered loan collateral is transferred into covered OREO at the collateral’s fair value, less selling costs. Covered OREO was initially recorded at its estimated fair value based on similar market comparable valuations, less estimated selling costs. Subsequently, loan collateral transferred to OREO is recorded at its net realizable value. Any subsequent valuation adjustments due to declines in fair value of the covered OREO will be charged to noninterest expense, and will be partially offset by noninterest income representing the corresponding increase to the FDIC Indemnification Asset for loss reimbursements. Any recoveries of previous valuation decreases will be credited to noninterest expense with a corresponding charge to noninterest income for the portion of the recovery that is due to the FDIC.

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Regulatory Matters (Tables)

9 Months Ended

Sep. 30, 2013

Regulatory Matters

Schedule of comparison of the Bank's and Hilltop's consolidated actual capital amounts and ratios to the regulatory minimum requirements and the Bank's regulatory minimum capital requirements needed to qualify as a well-capitalized institution without giving effect to the final Basel III capital rules adopted by the Federal Reserve Board

The following table shows the Bank’s and Hilltop’s consolidated actual capital amounts and ratios compared to the regulatory minimum capital requirements and the Bank’s regulatory minimum capital requirements needed to qualify as a “well-capitalized” institution (dollars in thousands), without giving effect to the final Basel III capital rules adopted by the Federal Reserve Board on July 2, 2013.

									To Be Well Capitalized
					Minimum Capital				Minimum Capital
	Actual				Requirements				Requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2013
Tier 1 capital (to average assets):
Bank	$	724,382	11.05	%	$	262,134	4	%	$	327,668	5	%
Hilltop	986,507		13.96	%	282,603		4	%	N/A		N/A
Tier 1 capital (to risk-weighted assets):
Bank	724,382		12.76	%	227,101		4	%	274,961		6	%
Hilltop	986,507		16.56	%	238,347		4	%	N/A		N/A
Total capital (to risk-weighted assets):
Bank	758,753		13.36	%	454,203		8	%	567,753		10	%
Hilltop	1,021,436		17.14	%	476,695		8	%	N/A		N/A
December 31, 2012
Tier 1 capital (to average assets):
Bank	$	542,307	8.84	%	$	245,495	4	%	$	306,869	5	%
Hilltop	871,379		13.08	%	266,514		4	%	N/A		N/A
Tier 1 capital (to risk-weighted assets):
Bank	542,307		11.83	%	183,308		4	%	274,961		6	%
Hilltop	871,379		17.72	%	196,670		4	%	N/A		N/A
Total capital (to risk-weighted assets):
Bank	546,598		11.93	%	366,615		8	%	458,269		10	%
Hilltop	875,670		17.81	%	393,340		8	%	N/A		N/A

Summary of statutory capital and surplus and statutory net income (loss) of each insurance subsidiary

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

	September 30,		December 31,
	2013		2012
Capital and surplus:
National Lloyds Insurance Company	$	87,723	$	94,558
American Summit Insurance Company	24,946		25,761

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2013		2012			2013			2012
Statutory net income (loss):
National Lloyds Insurance Company	$	2,645	$	(1,759	)	$	(7,296	)	$	(9,516	)
American Summit Insurance Company	167		(136		)	(962		)	(706		)

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Segment and Related Information

9 Months Ended

Sep. 30, 2013

Segment and Related Information

Segment and Related Information

20. Segment and Related Information

The Company 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 NLC. 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, the Company operated as a single segment through its insurance subsidiary, NLC, 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).

			Mortgage					Financial			All Other and			Hilltop
	Banking		Origination			Insurance		Advisory			Eliminations			Consolidated
Three Months Ended September 30, 2013
Net interest income (expense)	$	70,230	$	(8,907	)	$	902	$	2,682		$	6,545		$	71,452
Provision for loan losses	10,661		—			—		(3		)	—			10,658
Noninterest income	17,156		127,460			42,162		25,709			(6,729		)	205,758
Noninterest expense	34,474		115,135			38,795		28,324			(111		)	216,617
Income (loss) before income taxes	$	42,251	$	3,418		$	4,269	$	70		$	(73	)	$	49,935

			Mortgage						Financial		All Other and			Hilltop
	Banking		Origination			Insurance			Advisory		Eliminations			Consolidated
Nine Months Ended September 30, 2013
Net interest income (expense)	$	206,661	$	(32,849	)	$	2,755		$	9,409	$	21,162		$	207,138
Provision for loan losses	34,927		—			—			25		—			34,952
Noninterest income	41,041		439,246			122,365			77,349		(21,732		)	658,269
Noninterest expense	98,484		373,405			135,729			84,887		(497		)	692,008
Income (loss) before income taxes	$	114,291	$	32,992		$	(10,609	)	$	1,846	$	(73	)	$	138,447
September 30, 2013
Goodwill	$	207,741	$	13,071		$	23,988		$	7,008	$	—		$	251,808
Total assets	$	8,143,611	$	1,212,909		$	306,308		$	530,959	$	(1,100,195	)	$	9,093,592
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

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Summary of Significant Accounting and Reporting Policies (Policies)

9 Months Ended

Sep. 30, 2013

Summary of Significant Accounting and Reporting Policies

Nature of Operations

Nature of Operations

Hilltop Holdings Inc. (“Hilltop” and, collectively with its subsidiaries, the “Company”) is a financial holding company registered under the Bank Holding Company Act of 1956, as amended by the Gramm-Leach-Bliley Act of 1999. On November 30, 2012, Hilltop acquired PlainsCapital Corporation pursuant to an agreement and plan of merger whereby PlainsCapital Corporation merged with and into our wholly owned subsidiary (the “PlainsCapital Merger”), which survived the PlainsCapital 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 September 30, 2013 and December 31, 2012 and relating to the three and nine months ended September 30, 2013.

Prior to the consummation of the PlainsCapital Merger, the Company’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 the Company’s wholly owned property and casualty insurance holding company, National Lloyds Corporation (“NLC”), formerly known as NLASCO, Inc.

On September 13, 2013 (the “Bank Closing Date”), PlainsCapital Bank (the “Bank”) assumed substantially all of the liabilities, including all of the deposits, and acquired substantially all of the assets of Edinburg, Texas-based First National Bank (“FNB”) from the Federal Deposit Insurance Corporation (the “FDIC”), as receiver, and reopened acquired branches of FNB under the PlainsCapital Bank name (the “FNB Transaction”). Pursuant to the Purchase and Assumption Agreement (the “P&A Agreement”), the Bank and the FDIC entered into loss-share agreements whereby the FDIC agreed to share in the losses of certain covered loans and covered other real estate owned (“OREO”) that the Bank acquired, as further described in Note 2 to the consolidated financial statements. Based on preliminary purchase date valuations, the fair market value of the assets acquired was $2.2 billion, including $1.1 billion in covered loans, $286.2 million in securities, $121.0 million in covered OREO and $45.9 million in non-covered loans. The Bank also assumed $2.2 billion in liabilities, consisting primarily of deposits. FNB’s expansive branch network allows the Bank to further develop its Texas footprint through expansion into the Rio Grande Valley, Houston, Corpus Christi, Laredo and El Paso markets, among others.

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 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, the FDIC Indemnification Asset, reserves for losses and loss adjustment expenses, the mortgage loan indemnification liability, and the potential impairment of assets are particularly subject to change. The Company has applied its critical accounting policies and estimation methods consistently in all periods presented in these consolidated financial statements. As discussed in Note 2 to the consolidated financial statements, the purchase date valuations for the FNB Transaction are considered preliminary because management made significant estimates and exercised significant judgment in estimating fair values and accounting due to the short time period between the Bank Closing Date and September 30, 2013.

The presentation of the Company’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 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 NLC, 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, 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.

The following significant accounting policies are in addition to the significant accounting policies described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on March 15, 2013.

FDIC Indemnification Asset

FDIC Indemnification Asset

The Company has elected to account for amounts receivable under the loss-share agreements with the FDIC as an indemnification asset (“FDIC Indemnification Asset”) in accordance with FASB ASC 805. The FDIC Indemnification Asset is initially recorded at fair value, based on the discounted value of expected future cash flows under the loss-share agreements. The difference between the present value and the undiscounted cash flows the Company expects to collect from the FDIC will be accreted into noninterest income within the consolidated statements of operations over the life of the FDIC Indemnification Asset. The FDIC Indemnification Asset is reviewed quarterly and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of the covered portfolio. These adjustments are measured on the same basis as the related covered loans and covered OREO. Any increases in cash flow of the covered assets over those expected will reduce the FDIC Indemnification Asset and any decreases in cash flow of the covered assets under those expected will increase the FDIC Indemnification Asset. Any amortization of changes in value is limited to the contractual term of the loss-share agreements. Increases and decreases to the FDIC Indemnification Asset are recorded as adjustments to noninterest income within the consolidated statements of operations over the life of the loss-share agreements.

Covered Other Real Estate Owned

Covered Other Real Estate Owned

Acquired OREO subject to FDIC loss-share agreements is referred to as “covered OREO” and reported separately in our consolidated balance sheets. Covered OREO is reported exclusive of expected reimbursement cash flows from the FDIC. Foreclosed covered loan collateral is transferred into covered OREO at the collateral’s fair value, less selling costs. Covered OREO was initially recorded at its estimated fair value based on similar market comparable valuations, less estimated selling costs. Subsequently, loan collateral transferred to OREO is recorded at its net realizable value. Any subsequent valuation adjustments due to declines in fair value of the covered OREO will be charged to noninterest expense, and will be partially offset by noninterest income representing the corresponding increase to the FDIC Indemnification Asset for loss reimbursements. Any recoveries of previous valuation decreases will be credited to noninterest expense with a corresponding charge to noninterest income for the portion of the recovery that is due to the FDIC.

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Covered Assets and Indemnification Asset (Details 3) (USD $)	1 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Covered Assets and Indemnification Asset
Total loans	$ 3,310,224,000	$ 3,152,396,000
Covered OREO	119,660,000
Carrying value of covered OREO properties sold	1,300,000
FDIC indemnification asset	190,041,000
Accretion in FDIC indemnification asset since acquisition	300,000
Covered loans | PCI loans
Covered Assets and Indemnification Asset
Specific reserves in the allowance for loan losses	0
Bank | Covered loans
Covered Assets and Indemnification Asset
Loans past Due 30-59 Days	91,000
Total Past Due Loans	91,000
Current Loans	313,939,000
Total loans	1,096,590,000
Bank | Covered loans | PCI loans
Covered Assets and Indemnification Asset
Total loans	782,560,000
Bank | Covered loans | Secured
Covered Assets and Indemnification Asset
Loans past Due 30-59 Days	54,000
Total Past Due Loans	54,000
Current Loans	28,529,000
Total loans	63,577,000
Bank | Covered loans | Secured | PCI loans
Covered Assets and Indemnification Asset
Total loans	34,994,000
Bank | Covered loans | Unsecured
Covered Assets and Indemnification Asset
Current Loans	2,854,000
Total loans	11,004,000
Bank | Covered loans | Unsecured | PCI loans
Covered Assets and Indemnification Asset
Total loans	8,150,000
Bank | Covered loans | Secured by commercial properties
Covered Assets and Indemnification Asset
Loans past Due 30-59 Days	37,000
Total Past Due Loans	37,000
Current Loans	80,627,000
Total loans	454,513,000
Bank | Covered loans | Secured by commercial properties | PCI loans
Covered Assets and Indemnification Asset
Total loans	373,849,000
Bank | Covered loans | Secured by residential properties
Covered Assets and Indemnification Asset
Current Loans	163,514,000
Total loans	378,980,000
Bank | Covered loans | Secured by residential properties | PCI loans
Covered Assets and Indemnification Asset
Total loans	215,466,000
Bank | Covered loans | Residential construction loans
Covered Assets and Indemnification Asset
Current Loans	6,490,000
Total loans	11,141,000
Bank | Covered loans | Residential construction loans | PCI loans
Covered Assets and Indemnification Asset
Total loans	4,651,000
Bank | Covered loans | Commercial construction loans and land development
Covered Assets and Indemnification Asset
Current Loans	31,914,000
Total loans	177,364,000
Bank | Covered loans | Commercial construction loans and land development | PCI loans
Covered Assets and Indemnification Asset
Total loans	145,450,000
Bank | Covered loans | Consumer
Covered Assets and Indemnification Asset
Current Loans	11,000
Total loans	$ 11,000

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Covered Assets and Indemnification Asset (Tables) (Covered loans)

9 Months Ended

Sep. 30, 2013

Covered assets and indemnification asset

Summary of non-covered loans by portfolio segment

The following table presents the carrying value of the covered loans summarized by portfolio segment at September 30, 2013 (in thousands).

Commercial and industrial	$		74,581
Real estate	833,493
Construction and land development	188,505
Consumer	11
Total covered loans	$	1,096,590

Bank

Covered assets and indemnification asset

Schedule of analysis of the aging of the covered loan portfolio

An analysis of the aging of the Bank’s covered loan portfolio at September 30, 2013 is shown in the following table (in thousands).

															Accruing Loans
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	54	$	—	$	—	$	54	$	28,529	$	34,994	$	63,577	$	—
Unsecured	—		—		—		—		2,854		8,150		11,004		—
Real estate:
Secured by commercial properties	37		—		—		37		80,627		373,849		454,513		—
Secured by residential properties	—		—		—		—		163,514		215,466		378,980		—
Construction and land development:
Residential construction loans	—		—		—		—		6,490		4,651		11,141		—
Commercial construction loans and land development	—		—		—		—		31,914		145,450		177,364		—
Consumer	—		—		—		—		11		—		11		—
	$	91	$	—	$	—	$	91	$	313,939	$	782,560	$	1,096,590	$	—

PCI loans

Covered assets and indemnification asset

Schedule of carrying value and the outstanding contractual balance of the covered PCI loans

The following table presents the carrying value and the outstanding contractual balance of the covered PCI loans at September 30, 2013 (in thousands).

Carrying amount	$	782,560
Oustanding balance	1,082,315

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Covered Assets and Indemnification Asset (Details 2) (Covered loans, PCI loans, USD $)	1 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013 item
Covered loans | PCI loans
Carrying value and the outstanding contractual balance of the covered PCI loans
Carrying amount	$ 782,560,000	$ 782,560,000
Outstanding balance	1,082,315,000	1,082,315,000
Preliminary total nonaccretable difference	561,700,000	561,700,000
Accretable yield	226,800,000	226,800,000
Accretion of the discount on loans	$ 100,000
Number of loans modified in a TDR		0

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Fair Value Measurements (Details 2) (Level 3, USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Rollforward for financial instruments measured at fair value using Level 3 inputs
Balance, beginning of Period	$ 62,621	$ 54,577	$ 58,357	$ 60,377
Issuances	4,079		8,384
Total gains or losses (realized or unrealized):
Included in net income (loss)	2,211		2,937
Included in other comprehensive income (loss)	4,092	7,491	3,325	1,691
Balance, end of Period	73,003	62,068	73,003	62,068
Available for sale securities
Rollforward for financial instruments measured at fair value using Level 3 inputs
Balance, beginning of Period	55,501	54,577	56,277	60,377
Total gains or losses (realized or unrealized):
Included in other comprehensive income (loss)	4,092	7,491	3,325	1,691
Balance, end of Period	59,602	62,068	59,602	62,068
Mortgage servicing asset
Rollforward for financial instruments measured at fair value using Level 3 inputs
Balance, beginning of Period	7,111		2,080
Issuances	4,079		8,384
Total gains or losses (realized or unrealized):
Included in net income (loss)	2,211		2,937
Balance, end of Period	$ 13,401		$ 13,401

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Acquisitions (Details) (USD $)	3 Months Ended	9 Months Ended		0 Months Ended		3 Months Ended	9 Months Ended	0 Months Ended			0 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Nov. 30, 2012 Plains Capital	Oct. 15, 2013 Bank FNB item	Sep. 13, 2013 Bank FNB item	Sep. 30, 2013 Bank FNB	Sep. 30, 2013 Bank FNB	Sep. 13, 2013 Bank FNB Maximum	Sep. 13, 2013 Bank FNB Fair value adjustments	Sep. 13, 2013 Bank FNB Covered loans	Sep. 13, 2013 Bank FNB Covered loans Commercial	Sep. 13, 2013 Bank FNB Covered loans Single family residential loans	Sep. 13, 2013 Bank FNB Non-covered loans
Acquisitions
Percentage of losses to be absorbed by FDIC on the first $240.4 million of losses incurred as per the loss sharing agreement					80.00%
Threshold amount of losses incurred for 80% of losses to be absorbed by FDIC as per the loss sharing agreement, first layer					$ 240,400,000
Percentage of losses to be absorbed by FDIC in excess of $240.4 million up to and including $365.7 million of losses incurred as per the loss sharing agreement					0.00%
Threshold amount of losses incurred for 0% of losses to be absorbed by FDIC as per the loss sharing agreement, second layer								365,700,000
Percentage of losses to be absorbed by FDIC in excess of $365.7 million of losses incurred as per the loss sharing agreement					80.00%
Period of loss-sharing agreements in effect											5 years	10 years
Period of loss recovery provisions in effect											8 years	10 years
Period for which payment is required to be made to the FDIC of true-up amount					10 years
Pre-tax bargain purchase gain	3,271,000	3,271,000			3,271,000				3,271,000
Transaction-related expenses						200,000	200,000
Net assets received from the FDIC and the estimated fair value adjustments resulting in the bargain purchase gain
Cost basis net assets					182,169,000
Cash payment received from the FDIC					45,000,000
Securities			730,800,000		286,214,000				(3,341,000)
Loans			3,200,000,000						(337,572,000)	1,105,421,000			45,915,000
Premises and equipment					71,806,000				(1,358,000)
Other real estate owned									(69,456,000)	120,985,000
FDIC indemnification asset					189,773,000				189,773,000
Other intangible assets			70,700,000		6,380,000				6,380,000
Deposits	2,200,000,000	2,200,000,000	4,500,000,000		2,211,740,000				(8,282,000)
Other					13,887,000				(42,000)
Bargain purchase gain	3,271,000	3,271,000			3,271,000				3,271,000
Number of premises purchased from the FDIC					44
Aggregate purchase price of premises purchased from the FDIC				3,800,000	59,500,000
Period of option from the acquisition date, to purchase real estate from the FDIC					30 days
Number of additional premises purchased pursuant to exercise of option from the FDIC				5
Period of exclusive option to purchase real estate not listed in bid form, from the FDIC					90 days
Period of option from the acquisition date, to lease real estate and purchase furniture and equipment from the FDIC					90 days
Exercise of right to purchase furniture and equipment					9,800,000
Fair values of the identifiable assets acquired, and liabilities assumed
Cash and due from banks					362,695,000
Securities			730,800,000		286,214,000				(3,341,000)
Loans			3,200,000,000						(337,572,000)	1,105,421,000			45,915,000
Premises and equipment					71,806,000				(1,358,000)
FDIC indemnification asset					189,773,000				189,773,000
Other real estate owned									(69,456,000)	120,985,000
Other assets					39,709,000
Other intangible assets			70,700,000		6,380,000				6,380,000
Total identifiable assets acquired			6,500,000,000		2,228,898,000
Deposits	2,200,000,000	2,200,000,000	4,500,000,000		2,211,740,000				(8,282,000)
Other liabilities					13,887,000				(42,000)
Total liabilities assumed			5,900,000,000		2,225,627,000
Net identifiable assets acquired/ bargain purchase gain					$ 3,271,000

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Reserves for Unpaid Losses and Loss Adjustment Expenses (Tables)

9 Months Ended

Sep. 30, 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).

	Nine Months Ended September 30,
	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	93,124			90,928
Prior periods	852			821
Total incurred	93,976			91,749
Payments related to:
Current period	(78,742		)	(73,267		)
Prior periods	(13,623		)	(13,194		)
Total payments	(92,365		)	(86,461		)
Net balance, end of period	25,238			25,040
Plus reinsurance recoverables	6,029			20,995
Balance, end of period	$	31,267		$	46,035

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
CONSOLIDATED BALANCE SHEETS
Available for sale, amortized cost (in dollars)	$ 1,305,903	$ 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	83,958,844	83,487,340
Common stock, shares outstanding	83,958,844	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

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Covered Assets and Indemnification Asset

9 Months Ended

Sep. 30, 2013

Covered Assets and Indemnification Asset

Covered Assets and Indemnification Asset

6. Covered Assets and Indemnification Asset

As discussed in Note 2 to the consolidated financial statements, the Bank assumed substantially all of the liabilities, including all of the deposits, and acquired substantially all of the assets of FNB in an FDIC-assisted transaction on September 13, 2013. As part of the loss-share agreements entered into by the Bank with the FDIC in connection therewith, the Bank and the FDIC agreed to share the losses on loans and OREO covered under the agreements. The asset arising from the loss-share agreements, which we refer to as the “FDIC Indemnification Asset” is measured separately from the covered loan portfolio because the agreements are not contractually embedded in the covered loans and are not transferable should the Bank choose to dispose of the covered loans.

In accordance with the loss-share agreements, the Bank may be required to make a “true-up” payment to the FDIC, approximately ten years following the Bank Closing Date, if the FDIC’s initial estimate of losses on covered assets is greater than the actual realized losses. The “true-up” payment is calculated using a defined formula set forth in the P&A Agreement.

Covered Loans and Allowance for Covered Loan Losses

Loans acquired in a FDIC-assisted acquisition that are subject to a loss-share agreement are referred to as “covered loans” and reported separately in our consolidated balance sheets. Covered loans are reported exclusive of the cash flow reimbursements that may be received from the FDIC.

Based on preliminary purchase date valuations, the Bank’s portfolio of acquired covered loans had a fair value of $1.1 billion as of the Bank Closing Date, with no carryover of any allowance for loan losses. Acquired covered loans were preliminarily segregated between those considered to be PCI loans and those deemed performing.

In connection with the FNB Transaction, the Bank acquired loans both with and without evidence of credit quality deterioration since origination. The Company’s accounting policies for acquired covered loans, including covered PCI loans, are consistent with that of acquired non-covered loans, as described in Note 5 to the consolidated financial statements. The Company has established under its PCI accounting policy a framework to aggregate certain acquired covered loans into various loan pools based on a minimum of two layers of common risk characteristics for the purpose of determining their respective fair values as of their acquisition dates, and for applying the subsequent recognition and measurement provisions for income accretion and impairment testing.

The following table presents the carrying value of the covered loans summarized by portfolio segment at September 30, 2013 (in thousands).

Commercial and industrial	$		74,581
Real estate	833,493
Construction and land development	188,505
Consumer	11
Total covered loans	$	1,096,590

The following table presents the carrying value and the outstanding contractual balance of the covered PCI loans at September 30, 2013 (in thousands).

Carrying amount	$	782,560
Oustanding balance	1,082,315

At September 30, 2013, the preliminary total nonaccretable difference and accretable yield for covered PCI loans were $561.7 million and $226.8 million, respectively. The change in the accretable yield for the covered PCI loans for the period from September 14, 2013 through September 30, 2013 included accretion of the discount on loans of $0.1 million, which was recorded as a component of interest income within the consolidated statements of operations.

Interest income recorded on non-accrual covered loans was nominal. All covered PCI loans are considered to be performing due to the application of the accretion method. Additionally, no acquired covered loans have been modified in a TDR.

An analysis of the aging of the Bank’s covered loan portfolio at September 30, 2013 is shown in the following table (in thousands).

															Accruing Loans
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	54	$	—	$	—	$	54	$	28,529	$	34,994	$	63,577	$	—
Unsecured	—		—		—		—		2,854		8,150		11,004		—
Real estate:
Secured by commercial properties	37		—		—		37		80,627		373,849		454,513		—
Secured by residential properties	—		—		—		—		163,514		215,466		378,980		—
Construction and land development:
Residential construction loans	—		—		—		—		6,490		4,651		11,141		—
Commercial construction loans and land development	—		—		—		—		31,914		145,450		177,364		—
Consumer	—		—		—		—		11		—		11		—
	$	91	$	—	$	—	$	91	$	313,939	$	782,560	$	1,096,590	$	—

The Bank assigns a risk grade to each of its covered loans in a manner consistent with the existing loan review program and risk grading matrix used for non-covered loans, as described in Note 5 to the consolidated financial statements. However, given the short period of time that has elapsed between the Bank Closing Date and September 30, 2013, the Bank’s assessment of individual loan factors and assignment of an internal risk grade to each of the loans in its covered loan portfolio is preliminary.

The Bank’s impairment methodology for the covered loans is consistent with that of non-covered loans as discussed in Note 5 to the consolidated financial statements. To the extent there is experienced or projected credit deterioration on the acquired covered loan pools subsequent to amounts estimated at the previous quarterly recast date, this deterioration will be measured, and a provision for credit losses will be charged to earnings. Additionally, provision for credit losses will be recorded on advances on covered loans subsequent to the acquisition date in a manner consistent with the allowance for non-covered loan losses. These provisions will be partially offset by an increase to the FDIC Indemnification Asset in an amount equal to the FDIC’s loss sharing percentage under the loss-share agreements, which is recognized in noninterest income within the consolidated statement of operations.

There were no specific reserves in the allowance for loan losses related to covered loans at September 30, 2013.

Covered Other Real Estate Owned

At September 30, 2013, covered OREO was $119.7 million. Between the Bank Closing Date and September 30, 2013, the Company sold covered OREO properties with a carrying amount of $1.3 million, substantially at book value.

FDIC Indemnification Asset

At September 30, 2013, the FDIC Indemnification Asset was $190.0 million. The Company recorded accretion of $0.3 million since acquisition, which was included as a component of other noninterest income within the consolidated statements of operations.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$ 33,303	$ (4,048)	$ 89,336	$ (14,414)
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale, net of tax of $1,135, $3,225, $(13,641) and $319, respectively	2,109	5,990	(25,332)	593
Comprehensive income (loss)	35,412	1,942	64,004	(13,821)
Less: comprehensive income attributable to noncontrolling interest	339		1,207
Comprehensive income (loss) applicable to Hilltop	$ 35,073	$ 1,942	$ 62,797	$ (13,821)

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Fair Value Measurements (Details 5) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Financial assets:
Non-covered loans, net	$ 3,277,044	$ 3,148,987
Covered loans	1,096,590
Broker-dealer and clearing organization receivables	132,636	145,564
FDIC indemnification asset	190,041
Financial liabilities:
Broker-dealer and clearing organization payables	142,411	187,990
Level 2
Financial assets:
Non-covered loans, net	286,663
Broker-dealer and clearing organization receivables	132,636	145,564
Other assets	51,134	59,094
Financial liabilities:
Deposits	6,936,527	4,698,848
Broker-dealer and clearing organization payables	142,411	187,990
Short-term borrowings	305,297	728,250
Debt	231,416	217,092
Other liabilities	4,651	4,400
Level 3
Financial assets:
Non-covered loans, net	3,018,250	3,148,987
Covered loans	1,096,590
FDIC indemnification asset	190,041
Other assets	17,289
Total Fair Value
Financial assets:
Non-covered loans, net	3,304,913	3,148,987
Covered loans	1,096,590
Broker-dealer and clearing organization receivables	132,636	145,564
FDIC indemnification asset	190,041
Other assets	68,423	59,094
Financial liabilities:
Deposits	6,936,527	4,698,848
Broker-dealer and clearing organization payables	142,411	187,990
Short-term borrowings	305,297	728,250
Debt	231,416	217,092
Other liabilities	4,651	4,400
Carrying Amount
Financial assets:
Non-covered loans, net	3,277,044	3,148,987
Covered loans	1,096,590
Broker-dealer and clearing organization receivables	132,636	145,564
FDIC indemnification asset	190,041
Other assets	68,423	59,094
Financial liabilities:
Deposits	6,936,162	4,700,461
Broker-dealer and clearing organization payables	142,411	187,990
Short-term borrowings	305,297	728,250
Debt	207,123	208,551
Other liabilities	$ 4,651	$ 4,400

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Assets
Cash and due from banks	$ 976,188	$ 722,039
Federal funds sold and securities purchased under agreements to resell	40,086	4,421
Securities:
Trading, at fair value	43,254	90,113
Available for sale, at fair value (amortized cost of $1,305,903 and $978,502, respectively)	1,279,381	990,953
Total securities	1,322,635	1,081,066
Loans held for sale	1,046,801	1,401,507
Non-covered loans, net of unearned income	3,310,224	3,152,396
Allowance for non-covered loan losses	(33,180)	(3,409)
Non-covered loans, net	3,277,044	3,148,987
Covered loans	1,096,590
Broker-dealer and clearing organization receivables	132,636	145,564
Insurance premiums receivable	27,006	24,615
Deferred policy acquisition costs	21,884	19,812
Reinsurance receivable, net of uncollectible amounts	7,656	18,567
Premises and equipment, net	187,857	111,381
FDIC indemnification asset	190,041
Covered other real estate owned	119,660
Other assets	319,758	277,398
Goodwill	251,808	253,770
Other intangible assets, net	75,942	77,738
Total assets	9,093,592	7,286,865
Deposits:
Noninterest-bearing	392,404	323,367
Interest-bearing	6,543,758	4,377,094
Total deposits	6,936,162	4,700,461
Broker-dealer and clearing organization payables	142,411	187,990
Reserve for losses and loss adjustment expenses	31,267	34,012
Unearned insurance premiums	92,064	82,598
Short-term borrowings	305,297	728,250
Notes payable	140,111	141,539
Junior subordinated debentures	67,012	67,012
Other liabilities	172,915	198,453
Total liabilities	7,887,239	6,140,315
Commitments and contingencies (see Notes 11 and 12)
Hilltop stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; Series B, liquidation value per share of $1,000; 114,068 shares issued and outstanding, respectively	114,068	114,068
Common stock, $0.01 par value, 100,000,000 shares authorized; 83,958,844 and 83,487,340 shares issued and outstanding, respectively	840	835
Additional paid-in capital	1,302,625	1,304,448
Accumulated other comprehensive income (loss)	(17,238)	8,094
Accumulated deficit	(194,820)	(282,949)
Total Hilltop stockholders' equity	1,205,475	1,144,496
Noncontrolling interest	878	2,054
Total stockholders' equity	1,206,353	1,146,550
Total liabilities and stockholders' equity	$ 9,093,592	$ 7,286,865

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Acquisitions (Details 2) (Bank, FNB, USD $) In Thousands, unless otherwise specified	0 Months Ended
	Sep. 13, 2013
Acquisitions
Carryover of the allowance for loan losses recorded	$ 0
Total loans	1,151,336
Commercial and Industrial
Acquisitions
Total loans	94,912
Real estate
Acquisitions
Total loans	841,478
Construction and Land Development
Acquisitions
Total loans	189,938
Consumer
Acquisitions
Total loans	25,008
Acquired performing loans
Acquisitions
Total loans	343,888
Acquired performing loans | Commercial and Industrial
Acquisitions
Total loans	44,207
Acquired performing loans | Real estate
Acquisitions
Total loans	245,746
Acquired performing loans | Construction and Land Development
Acquisitions
Total loans	38,135
Acquired performing loans | Consumer
Acquisitions
Total loans	15,800
PCI loans
Acquisitions
Total loans	807,448
PCI loans | Commercial and Industrial
Acquisitions
Total loans	50,705
PCI loans | Real estate
Acquisitions
Total loans	595,732
PCI loans | Construction and Land Development
Acquisitions
Total loans	151,803
PCI loans | Consumer
Acquisitions
Total loans	$ 9,208

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Regulatory Matters (Details) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Bank
Tier 1 capital (to average assets)
Actual Amount	$ 724,382,000	$ 542,307,000
Actual Ratio (as a percent)	11.05%	8.84%
Minimum Capital Requirements, Amount	262,134,000	245,495,000
Minimum Capital Requirements, Ratio (as a percent)	4.00%	4.00%
Tier 1 capital (to risk-weighted assets)
Actual Amount	724,382,000	542,307,000
Actual Ratio (as a percent)	12.76%	11.83%
Minimum Capital Requirements, Amount	227,101,000	183,308,000
Minimum Capital Requirements, Ratio (as a percent)	4.00%	4.00%
Total capital (to risk-weighted assets)
Actual Amount	758,753,000	546,598,000
Actual Ratio (as a percent)	13.36%	11.93%
Minimum Capital Requirements, Amount	454,203,000	366,615,000
Minimum Capital Requirements, Ratio (as a percent)	8.00%	8.00%
Tier 1 capital (to average assets)
To Be Well Capitalized Minimum Capital Requirements, Amount	327,668,000	306,869,000
To Be Well Capitalized Minimum Capital Requirements, Ratio (as a percent)	5.00%	5.00%
Tier 1 capital (to risk-weighted assets)
To Be Well Capitalized Minimum Capital Requirements, Amount	274,961,000	274,961,000
To Be Well Capitalized Minimum Capital Requirements, Ratio (as a percent)	6.00%	6.00%
Total capital (to risk-weighted assets)
To Be Well Capitalized Minimum Capital Requirements, Amount	567,753,000	458,269,000
To Be Well Capitalized Minimum Capital Requirements, Ratio (as a percent)	10.00%	10.00%
Bank | FNB
Total capital (to risk-weighted assets)
Actual Amount	25,000,000
Hilltop
Tier 1 capital (to average assets)
Actual Amount	986,507,000	871,379,000
Actual Ratio (as a percent)	13.96%	13.08%
Minimum Capital Requirements, Amount	282,603,000	266,514,000
Minimum Capital Requirements, Ratio (as a percent)	4.00%	4.00%
Tier 1 capital (to risk-weighted assets)
Actual Amount	986,507,000	871,379,000
Actual Ratio (as a percent)	16.56%	17.72%
Minimum Capital Requirements, Amount	238,347,000	196,670,000
Minimum Capital Requirements, Ratio (as a percent)	4.00%	4.00%
Total capital (to risk-weighted assets)
Actual Amount	1,021,436,000	875,670,000
Actual Ratio (as a percent)	17.14%	17.81%
Minimum Capital Requirements, Amount	476,695,000	393,340,000
Minimum Capital Requirements, Ratio (as a percent)	8.00%	8.00%
Hilltop | FNB
Total capital (to risk-weighted assets)
Actual Amount	35,000,000
FSC
Financial Advisory
Net capital	69,800,000
Minimum net capital requirement	3,800,000
Net capital as a percentage of aggregate debits	37.00%
Net capital in excess of the minimum requirement	(66,000,000)
Amount required to be segregated in cash and securities for regulatory purposes		$ 19,000,000

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Income Taxes (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Net operating loss carryforwards
Effective income tax rate (as a percent)	33.30%	32.10%	35.50%	32.50%
Uncertain tax positions
Liabilities for uncertain tax positions	$ 0	$ 0	$ 0	$ 0

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Earnings (Loss) per Common Share

9 Months Ended

Sep. 30, 2013

Earnings (Loss) per Common Share

Earnings (Loss) per Common Share

21. Earnings (Loss) per Common Share

Nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and are included in the computation of earnings per share pursuant to the two-class method prescribed by the Earnings Per Share Topic of the ASC. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In May 2013, as discussed in Note 13 to the consolidated financial statements, Hilltop issued Restricted Stock Awards which qualify as participating securities.

Net earnings, less any preferred dividends accumulated for the period (whether or not declared), is allocated between the common stock and participating securities pursuant to the two-class method. Basic earnings per common share is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested restricted shares.

Diluted earnings per common share is computed in a similar manner, except that first the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares, excluding the participating securities, were issued using the treasury stock method. For all periods presented, stock options are the only potentially dilutive non-participating instruments issued by Hilltop. Next, we determine and include in diluted earnings per common share calculation the more dilutive effect of the participating securities using the treasury stock method or the two-class method. Undistributed losses are not allocated to the nonvested share-based payment awards (the participating securities) under the two-class method as the holders are not contractually obligated to share in the losses of the Company.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Basic earnings (loss) per share:
Income (loss) applicable to Hilltop common stockholders	$	31,831		$	(4,048	)	$	85,144		$	(14,414	)
Less: income applicable to participating shares	(176		)	—			(472		)	—
Net earnings (loss) available to Hilltop common stockholders	$	31,655		$	(4,048	)	$	84,672		$	(14,414	)
Weighted average shares outstanding - basic	83,493			56,363			83,490			56,408
Basic earnings (loss) per common share	$	0.38		$	(0.07	)	$	1.01		$	(0.26	)
Diluted earnings (loss) per share:
Income (loss) applicable to Hilltop common stockholders	$	31,831		$	(4,048	)	$	85,144		$	(14,414	)
Add: interest expense on senior exchangeable notes (net of tax)	1,053			—			3,158			—
Net earnings (loss) available to Hilltop common stockholders	$	32,884		$	(4,048	)	$	88,302		$	(14,414	)
Weighted average shares outstanding - basic	83,493			56,363			83,490			56,408
Effect of potentially dilutive securities	6,967			—			6,761			—
Weighted average shares outstanding - diluted	90,460			56,363			90,251			56,408
Diluted earnings (loss) per common share	$	0.36		$	(0.07	)	$	0.98		$	(0.26	)

For each of the three and nine months ended September 30, 2012, the computation of diluted loss 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 noted periods. Additionally, options to purchase 700,000 shares of Hilltop’s common stock were not included in the computation of diluted loss per common share for each of the three and nine months ended September 30, 2012, as their inclusion would have been anti-dilutive.

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Derivative Financial Instruments

9 Months Ended

Sep. 30, 2013

Derivative Financial Instruments

Derivative Financial Instruments

15. Derivative Financial Instruments

The Company 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, the Company 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 net losses of $48.9 million and $14.9 million for the three and nine months ended September 30, 2013, respectively, which were recorded as a component of net gains from sale of loans and other mortgage production income. The change in fair value during the three months ended September 30, 2013, is attributable to a decrease in the volume of IRLC’s and mortgage loans held for sale, which also conversely affected the value of PrimeLending’s mortgage loans held for sale, which are measured at fair value under the Fair Value Option. The effect of the change in market interest rates on PrimeLending’s loans held for sale is discussed in Note 3 to the consolidated financial statements. 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 net gains of $3.2 million and $8.8 million for the three and nine months ended September 30, 2013, respectively, which were recorded as a component of other noninterest income.

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

	September 30, 2013					December 31, 2012
	Notional		Estimated			Notional		Estimated
	Amount		Fair Value			Amount		Fair Value
Derivative instruments:
IRLCs	$	798,837	$	26,440		$	968,083	$	15,150
Commitments to purchase MBSs	283,437		7,443			165,128		466
Interest rate swaps	—		—			1,969		25
Commitments to sell MBSs	1,826,399		(29,290		)	1,586,930		(1,025		)

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

9 Months Ended

Sep. 30, 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).

	September 30,		December 31,
	2013		2012
Receivables:
Securities borrowed	$	100,348	$	103,936
Securities failed to deliver	21,442		33,045
Clearing organizations	10,842		8,543
Due from dealers	4		40
	$	132,636	$	145,564
Payables:
Securities loaned	$	70,769	$	115,102
Correspondents	43,550		41,414
Securities failed to receive	24,888		31,474
Clearing organizations	3,204		—
	$	142,411	$	187,990

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Financial Instruments with Off-Balance Sheet Risk (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013
Unused commitments to extend credit
Financial Instruments with Off-Balance Sheet Risk
Outstanding commitments	$ 1,200.0
Standby letters of credit
Financial Instruments with Off-Balance Sheet Risk
Outstanding commitments	$ 37.8

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Fair Value Measurements (Details) (USD $)	Sep. 30, 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	$ 1,050,000,000	$ 1,400,000,000
Unpaid principal balance of PrimeLending loans held for sale accounted under the fair value option	1,000,000,000	1,360,000,000
Financial assets and liabilities
Trading securities	43,254,000	90,113,000
Available for sale securities	1,279,381,000	990,953,000
Level 2
Financial assets and liabilities
Time deposits	6,936,527,000	4,698,848,000
Total Fair Value
Financial assets and liabilities
Time deposits	6,936,527,000	4,698,848,000
Recurring | Level 1
Financial assets and liabilities
Cash and cash equivalents	1,016,274,000	726,460,000
Available for sale securities	20,996,000	20,428,000
Recurring | Level 2
Financial assets and liabilities
Trading securities	43,254,000	90,113,000
Available for sale securities	1,198,783,000	914,248,000
Loans held for sale	1,046,152,000	1,400,737,000
Derivative assets	32,967,000	15,697,000
Time deposits		1,073,000
Trading liabilities	46,000	3,164,000
Derivative liabilities	28,375,000	1,080,000
Recurring | Level 3
Financial assets and liabilities
Available for sale securities	59,602,000	56,277,000
Mortgage servicing asset	13,401,000	2,080,000
Recurring | Total Fair Value
Financial assets and liabilities
Cash and cash equivalents	1,016,274,000	726,460,000
Trading securities	43,254,000	90,113,000
Available for sale securities	1,279,381,000	990,953,000
Loans held for sale	1,046,152,000	1,400,737,000
Derivative assets	32,967,000	15,697,000
Mortgage servicing asset	13,401,000	2,080,000
Time deposits		1,073,000
Trading liabilities	46,000	3,164,000
Derivative liabilities	$ 28,375,000	$ 1,080,000

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Non-Covered Loans and Allowance for Non-Covered Loan Losses (Details 4) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013
A/B Note | Minimum | Bank
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Number of loans into which a single loan is reconfigured		2
Non-covered loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Modifications	$ 333	$ 11,445
Non-covered loans | Payment Term Extension
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Modifications	333	11,445
Non-covered loans | Secured
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Modifications	333	9,764
Non-covered loans | Secured | Payment Term Extension
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Modifications	333	9,764
Non-covered loans | Secured by commercial properties
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Modifications		276
Non-covered loans | Secured by commercial properties | Payment Term Extension
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Modifications		276
Non-covered loans | Secured by residential properties
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Modifications		905
Non-covered loans | Secured by residential properties | Payment Term Extension
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Modifications		905
Non-covered loans | Commercial construction loans and land development
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Modifications		500
Non-covered loans | Commercial construction loans and land development | Payment Term Extension
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Modifications		$ 500

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Short-term Borrowings (Tables)

9 Months Ended

Sep. 30, 2013

Short-term borrowings

Schedule of short-term borrowings

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

	September 30,		December 31,
	2013		2012
Federal funds purchased	$	91,875	$	269,625
Securities sold under agreements to repurchase	121,222		85,725
Federal Home Loan Bank notes	—		250,000
Short-term bank loans	92,200		122,900
	$	305,297	$	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).

	Nine Months Ended
	September 30, 2013
Average balance during the period	$	284,819
Average interest rate during the period	0.19		%

	September 30,			December 31,
	2013			2012
Average interest rate at end of period	0.14		%	0.22		%
Securities underlying the agreements at end of period
Carrying value	$	152,808		$	122,153
Estimated fair value	$	146,197		$	122,435

Federal Home Loan Bank notes

Short-term borrowings

Schedule of short-term borrowings

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

	Nine Months Ended
	September 30, 2013
Average balance during the period	$	142,274
Average interest rate during the period	0.13		%

	September 30,		December 31,
	2013		2012
Average interest rate at end of period	0.00	%	0.07	%

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Securities (Tables)

9 Months Ended

Sep. 30, 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
September 30, 2013	Cost		Gains		Losses			Fair Value
U.S. Treasury securities	$	23,746	$	86	$	(17	)	$	23,815
U.S. government agencies:
Bonds	773,723		6,431		(37,491		)	742,663
Residential mortgage-backed securities	62,825		1,462		(499		)	63,788
Collateralized mortgage obligations	132,563		720		(2,749		)	130,534
Corporate debt securities	73,566		5,071		(276		)	78,361
States and political subdivisions	164,813		498		(6,493		)	158,818
Commercial mortgage-backed securities	741		63		—			804
Equity securities	19,756		1,240		—			20,996
Note receivable	42,102		6,385		—			48,487
Warrant	12,068		—		(953		)	11,115
Totals	$	1,305,903	$	21,956	$	(48,478	)	$	1,279,381

			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).

	September 30, 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	4	$	17,709	$	17	2	$	2,427	$	2
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	4	17,709		17		2	2,427		2
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	38	560,938		37,491		14	236,305		314
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	38	560,938		37,491		14	236,305		314
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	5	11,735		499		7	12,279		70
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	5	11,735		499		7	12,279		70
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	9	78,896		2,749		8	38,887		79
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	9	78,896		2,749		8	38,887		79
Corporate debt securities:
Unrealized loss for less than twelve months	4	4,671		276		—	—		—
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	4	4,671		276		—	—		—
States and political subdivisions:
Unrealized loss for less than twelve months	192	127,377		6,493		225	156,664		2,138
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	192	127,377		6,493		225	156,664		2,138
Warrants:
Unrealized loss for less than twelve months	1	11,115		953		—	—		—
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	1	11,115		953		—	—		—
Total available for sale:
Unrealized loss for less than twelve months	253	812,441		48,478		256	446,562		2,603
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	253	$	812,441	$	48,478	256	$	446,562	$	2,603

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

The amortized cost and fair value of securities, excluding trading and available for sale equity securities and the available for sale warrant, at September 30, 2013 are shown by contractual maturity below (in thousands).

	Amortized
	Cost		Fair Value
Due in one year or less	$	44,895	$	45,076
Due after one year through five years	110,294		120,931
Due after five years through ten years	87,047		89,034
Due after ten years	835,714		797,103
	1,077,950		1,052,144
Residential mortgage-backed securities	62,825		63,788
Collateralized mortgage obligations	132,563		130,534
Commercial mortgage-backed securities	741		804
	$	1,274,079	$	1,247,270

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Non-Covered Loans and Allowance for Non-Covered Loan Losses (Tables) (Non-covered loans)

9 Months Ended

Sep. 30, 2013

Non-covered loans

Non-Covered Loans and Allowance for Non-Covered Loan Losses

Summary of non-covered loans by portfolio segment

Non-covered loans summarized by portfolio segment are as follows (in thousands).

	September 30,			December 31,
	2013			2012
Commercial and industrial	$	1,625,422		$	1,660,293
Real estate	1,322,054			1,184,914
Construction and land development	310,392			280,483
Consumer	52,356			26,706
	3,310,224			3,152,396
Allowance for non-covered loan losses	(33,180		)	(3,409		)
Total non-covered loans, net of allowance	$	3,277,044		$	3,148,987

Schedule of carrying values and the outstanding contractual balances of the PCI loans

The following table presents the carrying values and the outstanding contractual balances of the non-covered PCI loans (in thousands).

	September 30,		December 31,
	2013		2012
Carrying amount	$	139,224	$	166,780
Outstanding balance	187,370		222,674

Schedule of changes in the accretable yield for the PCI loans

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

	Three Months Ended			Nine Months Ended
	September 30, 2013			September 30, 2013
Balance, beginning of period	$	20,118		$	17,553
Additions	1,923			1,923
Increases in expected cash flows	4,697			16,834
Disposals of loans	(441		)	(2,273		)
Accretion	(4,854		)	(12,594		)
Balance, end of period	$	21,443		$	21,443

Summary of PCI loans by class

Non-covered PCI loans are summarized by class in the following tables (in thousands).

	Unpaid						Total
	Contractual		Nonaccretable		Accretable		Recorded		Related
September 30, 2013	Principal Balance		Difference		Yield		Investment		Allowance
Commercial and industrial:
Secured	$	71,924	$	16,557	$	4,401	$	56,831	$	2,732
Unsecured	9,678		5,062		3,937		1,676		—
Real estate:
Secured by commercial properties	51,525		11,704		7,236		42,077		205
Secured by residential properties	6,141		1,140		904		4,636		73
Construction and land development:
Residential construction loans	—		—		—		—		—
Commercial construction loans and land development	35,012		9,637		3,940		24,641		1
Consumer	13,090		3,265		1,025		9,363		—
	$	187,370	$	47,365	$	21,443	$	139,224	$	3,011

	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 PCI loans by class

Average investment in non-covered PCI loans is summarized by class in the following table (in thousands).

	Three Months Ended		Nine Months Ended
	September 30, 2013		September 30, 2013
Commercial and industrial:
Secured	$	55,797	$	62,399
Unsecured	1,826		2,548
Real estate:
Secured by commercial properties	45,114		48,798
Secured by residential properties	5,400		5,682
Construction and land development:
Residential construction loans	—		354
Commercial construction loans and land development	25,916		28,502
Consumer	4,715		4,720
	$	138,768	$	153,003

Summary of non-accrual loans by class, excluding those classified as held for sale

Non-covered non-accrual loans at September 30, 2013, excluding those classified as held for sale, are summarized by class in the following table (in thousands).

Commercial and industrial:
Secured	$	16,099
Unsecured	23
Real estate:
Secured by commercial properties	1,856
Secured by residential properties	161
Construction and land development:
Residential construction loans	—
Commercial construction loans and land development	1,073
Consumer	—
	$	19,212

Schedule of information regarding TDRs granted

Information regarding TDRs granted is shown in the following tables (in thousands).

	Recorded Investment in Loans Modified by
			Interest Rate		Payment Term		Total
Three months ended September 30, 2013	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	333	$	333
Unsecured	—		—		—		—
Real estate:
Secured by commercial properties	—		—		—		—
Secured by residential properties	—		—		—		—
Construction and land development:
Residential construction loans	—		—		—		—
Commercial construction loans and land development	—		—		—		—
Consumer	—		—		—		—
	$	—	$	—	$	333	$	333

	Recorded Investment in Loans Modified by
			Interest Rate		Payment Term		Total
Nine months ended September 30, 2013	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	9,764	$	9,764
Unsecured	—		—		—		—
Real estate:
Secured by commercial properties	—		—		276		276
Secured by residential properties	—		—		905		905
Construction and land development:
Residential construction loans	—		—		—		—
Commercial construction loans and land development	—		—		500		500
Consumer	—		—		—		—
	$	—	$	—	$	11,445	$	11,445

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

An analysis of the aging of the Bank’s non-covered loan portfolio is shown in the following tables (in thousands).

															Accruing Loans
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
September 30, 2013	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	1,099	$	1,065	$	1,395	$	3,559	$	1,451,740	$	56,831	$	1,512,130	$	1,118
Unsecured	475		1,339		23		1,837		109,779		1,676		113,292		—
Real estate:
Secured by commercial properties	—		132		—		132		1,004,464		42,077		1,046,673		—
Secured by residential properties	698		20		—		718		270,027		4,636		275,381		—
Construction and land development:
Residential construction loans	—		—		—		—		57,205		—		57,205		—
Commercial construction loans and land development	—		112		—		112		228,434		24,641		253,187		—
Consumer	101		21		10		132		42,861		9,363		52,356		10
	$	2,373	$	2,689	$	1,428	$	6,490	$	3,164,510	$	139,224	$	3,310,224	$	1,128

															Accruing Loans
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
December 31, 2012	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	7,844	$	348	$	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	755		101		—		856		253,027		6,728		260,611		—
Construction and land development:
Residential construction loans	—		—		—		—		47,461		708		48,169		—
Commercial construction loans and land development	63		—		—		63		199,889		32,362		232,314		—
Consumer	84		—		—		84		26,545		77		26,706		—
	$	9,463	$	449	$	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 non-covered loans, as previously described, in the portfolio by class (in thousands).

September 30, 2013	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,430,645	$	6,269	$	18,385	$	56,831	$	1,512,130
Unsecured	111,381		13		222		1,676		113,292
Real estate:
Secured by commercial properties	1,003,771		505		320		42,077		1,046,673
Secured by residential properties	266,949		—		3,796		4,636		275,381
Construction and land development:
Residential construction loans	57,205		—		—		—		57,205
Commercial construction loans and land development	227,192		874		480		24,641		253,187
Consumer	42,950		32		11		9,363		52,356
	$	3,140,093	$	7,693	$	23,214	$	139,224	$	3,310,224

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 non-covered loan losses, distributed by portfolio segment, are shown below (in thousands).

	Commercial and						Construction and
Three months ended September 30, 2013	Industrial			Real Estate			Land Development			Consumer			Total
Balance, beginning of period	$	13,806		$	5,339		$	7,050		$	42		$	26,237
Provision charged to operations	8,879			1,776			6			(3		)	10,658
Loans charged off	(3,220		)	(53		)	(524		)	(3		)	(3,800		)
Recoveries on charged off loans	42			26			2			15			85
Balance, end of period	$	19,507		$	7,088		$	6,534		$	51		$	33,180

	Commercial and						Construction and
Nine months ended September 30, 2013	Industrial			Real Estate			Land Development			Consumer			Total
Balance, beginning of period	$	1,845		$	977		$	582		$	5		$	3,409
Provision charged to operations	22,519			6,033			6,323			77			34,952
Loans charged off	(7,314		)	(149		)	(524		)	(74		)	(8,061		)
Recoveries on charged off loans	2,457			227			153			43			2,880
Balance, end of period	$	19,507		$	7,088		$	6,534		$	51		$	33,180

Schedule of loan portfolio distributed by portfolio segment and impairment methodology

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

	Commercial and				Construction and
September 30, 2013	Industrial		Real Estate		Land Development		Consumer		Total
Loans individually evaluated for impairment	$	940	$	161	$	—	$	—	$	1,101
Loans collectively evaluated for impairment	1,565,975		1,275,180		285,751		42,993		3,169,899
PCI Loans individually evaluated for impairment	58,507		46,713		24,641		9,363		139,224
	$	1,625,422	$	1,322,054	$	310,392	$	52,356	$	3,310,224

	Commercial and				Construction and
December 31, 2012	Industrial		Real Estate		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 non-covered loan losses was distributed by portfolio segment and impairment methodology as shown below (in thousands).

	Commercial and				Construction and
September 30, 2013	Industrial		Real Estate		Land Development		Consumer		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment	16,775		6,810		6,533		51		30,169
PCI Loans individually evaluated for impairment	2,732		278		1		—		3,011
	$	19,507	$	7,088	$	6,534	$	51	$	33,180

	Commercial and				Construction and
December 31, 2012	Industrial		Real Estate		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

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Non-Covered Loans and Allowance for Non-Covered Loan Losses

9 Months Ended

Sep. 30, 2013

Non-Covered Loans and Allowance for Non-Covered Loan Losses

Non-Covered Loans and Allowance for Non-Covered Loan Losses

5. Non-Covered Loans and Allowance for Non-Covered Loan Losses

Non-covered loans refer to loans not covered by the FDIC loss-share agreements. The non-covered loan portfolio at September 30, 2013 includes loans acquired as a part of the FNB Transaction totaling $49.7 million, of which $17.6 million are categorized as non-covered PCI loans. Covered loans are discussed in Note 6 to the consolidated financial statements. Non-covered loans summarized by portfolio segment are as follows (in thousands).

	September 30,			December 31,
	2013			2012
Commercial and industrial	$	1,625,422		$	1,660,293
Real estate	1,322,054			1,184,914
Construction and land development	310,392			280,483
Consumer	52,356			26,706
	3,310,224			3,152,396
Allowance for non-covered loan losses	(33,180		)	(3,409		)
Total non-covered loans, net of allowance	$	3,277,044		$	3,148,987

The Bank 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 regulations. 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 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 cash flow analysis based on the significance the guarantors are expected to serve as secondary repayment sources. The Bank’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.

The Bank 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 PlainsCapital Merger and the FNB Transaction, the Company acquired non-covered loans both with and without evidence of credit quality deterioration since origination. The following table presents the carrying values and the outstanding contractual balances of the non-covered PCI loans (in thousands).

	September 30,		December 31,
	2013		2012
Carrying amount	$	139,224	$	166,780
Outstanding balance	187,370		222,674

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

	Three Months Ended			Nine Months Ended
	September 30, 2013			September 30, 2013
Balance, beginning of period	$	20,118		$	17,553
Additions	1,923			1,923
Increases in expected cash flows	4,697			16,834
Disposals of loans	(441		)	(2,273		)
Accretion	(4,854		)	(12,594		)
Balance, end of period	$	21,443		$	21,443

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. Non-covered impaired loans include non-accrual loans, troubled debt restructurings (“TDRs”), PCI loans and partially charged-off loans.

Non-covered PCI loans are summarized by class in the following tables (in thousands). In addition to the non-covered PCI loans, there were $1.1 million of additional non-covered impaired loans at September 30, 2013.

	Unpaid						Total
	Contractual		Nonaccretable		Accretable		Recorded		Related
September 30, 2013	Principal Balance		Difference		Yield		Investment		Allowance
Commercial and industrial:
Secured	$	71,924	$	16,557	$	4,401	$	56,831	$	2,732
Unsecured	9,678		5,062		3,937		1,676		—
Real estate:
Secured by commercial properties	51,525		11,704		7,236		42,077		205
Secured by residential properties	6,141		1,140		904		4,636		73
Construction and land development:
Residential construction loans	—		—		—		—		—
Commercial construction loans and land development	35,012		9,637		3,940		24,641		1
Consumer	13,090		3,265		1,025		9,363		—
	$	187,370	$	47,365	$	21,443	$	139,224	$	3,011

	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 non-covered PCI loans is summarized by class in the following table (in thousands).

	Three Months Ended		Nine Months Ended
	September 30, 2013		September 30, 2013
Commercial and industrial:
Secured	$	55,797	$	62,399
Unsecured	1,826		2,548
Real estate:
Secured by commercial properties	45,114		48,798
Secured by residential properties	5,400		5,682
Construction and land development:
Residential construction loans	—		354
Commercial construction loans and land development	25,916		28,502
Consumer	4,715		4,720
	$	138,768	$	153,003

Non-covered non-accrual loans at September 30, 2013, excluding those classified as held for sale, are summarized by class in the following table (in thousands).

Commercial and industrial:
Secured	$	16,099
Unsecured	23
Real estate:
Secured by commercial properties	1,856
Secured by residential properties	161
Construction and land development:
Residential construction loans	—
Commercial construction loans and land development	1,073
Consumer	—
	$	19,212

At September 30, 2013, non-covered non-accrual loans included non-covered PCI loans of $18.1 million for which discount accretion has been suspended because the extent and timing of cash flows from these non-covered PCI loans can no longer be reasonably estimated. All non-covered PCI loans at December 31, 2012 were considered to be performing due to the application of the accretion method. In addition to the non-covered non-accrual loans in the table above, $2.7 million and $1.8 million of real estate loans secured by residential properties and classified as held for sale were in non-accrual status at September 30, 2013 and December 31, 2012, respectively.

Interest income recorded on non-covered non-accrual loans for the three and nine months ended September 30, 2013 was nominal.

The Bank 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. The Bank modifies loans by reducing interest rates and/or lengthening loan amortization schedules. The Bank 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 is shown in the following tables (in thousands). All TDRs granted relate to non-covered PCI loans. At September 30, 2013, the Bank had $0.3 million in unadvanced commitments to borrowers whose loans have been restructured in TDRs.

	Recorded Investment in Loans Modified by
			Interest Rate		Payment Term		Total
Three months ended September 30, 2013	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	333	$	333
Unsecured	—		—		—		—
Real estate:
Secured by commercial properties	—		—		—		—
Secured by residential properties	—		—		—		—
Construction and land development:
Residential construction loans	—		—		—		—
Commercial construction loans and land development	—		—		—		—
Consumer	—		—		—		—
	$	—	$	—	$	333	$	333

	Recorded Investment in Loans Modified by
			Interest Rate		Payment Term		Total
Nine months ended September 30, 2013	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	9,764	$	9,764
Unsecured	—		—		—		—
Real estate:
Secured by commercial properties	—		—		276		276
Secured by residential properties	—		—		905		905
Construction and land development:
Residential construction loans	—		—		—		—
Commercial construction loans and land development	—		—		500		500
Consumer	—		—		—		—
	$	—	$	—	$	11,445	$	11,445

An analysis of the aging of the Bank’s non-covered loan portfolio is shown in the following tables (in thousands).

															Accruing Loans
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
September 30, 2013	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	1,099	$	1,065	$	1,395	$	3,559	$	1,451,740	$	56,831	$	1,512,130	$	1,118
Unsecured	475		1,339		23		1,837		109,779		1,676		113,292		—
Real estate:
Secured by commercial properties	—		132		—		132		1,004,464		42,077		1,046,673		—
Secured by residential properties	698		20		—		718		270,027		4,636		275,381		—
Construction and land development:
Residential construction loans	—		—		—		—		57,205		—		57,205		—
Commercial construction loans and land development	—		112		—		112		228,434		24,641		253,187		—
Consumer	101		21		10		132		42,861		9,363		52,356		10
	$	2,373	$	2,689	$	1,428	$	6,490	$	3,164,510	$	139,224	$	3,310,224	$	1,128

															Accruing Loans
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
December 31, 2012	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	7,844	$	348	$	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	755		101		—		856		253,027		6,728		260,611		—
Construction and land development:
Residential construction loans	—		—		—		—		47,461		708		48,169		—
Commercial construction loans and land development	63		—		—		63		199,889		32,362		232,314		—
Consumer	84		—		—		84		26,545		77		26,706		—
	$	9,463	$	449	$	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.

The Bank 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 — “Special Mention” loans have 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 loans and weaken the Bank’s credit position at some future date. Special Mention loans 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 non-covered loans, as previously described, in the portfolio by class (in thousands).

September 30, 2013	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,430,645	$	6,269	$	18,385	$	56,831	$	1,512,130
Unsecured	111,381		13		222		1,676		113,292
Real estate:
Secured by commercial properties	1,003,771		505		320		42,077		1,046,673
Secured by residential properties	266,949		—		3,796		4,636		275,381
Construction and land development:
Residential construction loans	57,205		—		—		—		57,205
Commercial construction loans and land development	227,192		874		480		24,641		253,187
Consumer	42,950		32		11		9,363		52,356
	$	3,140,093	$	7,693	$	23,214	$	139,224	$	3,310,224

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 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 PlainsCapital Merger on November 30, 2012, the Bank’s loan portfolio is now designated into two populations: acquired loans 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, requiring that timely and appropriate changes be made to reviewed loans 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.

Homogeneous 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 homogeneous pool of loans based on the expected net charge-offs from current trends in delinquencies, losses or historical experience and general economic conditions. At September 30, 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 PCI loans, cash flows expected to be collected are recast quarterly 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 non-covered loan losses, distributed by portfolio segment, are shown below (in thousands).

	Commercial and						Construction and
Three months ended September 30, 2013	Industrial			Real Estate			Land Development			Consumer			Total
Balance, beginning of period	$	13,806		$	5,339		$	7,050		$	42		$	26,237
Provision charged to operations	8,879			1,776			6			(3		)	10,658
Loans charged off	(3,220		)	(53		)	(524		)	(3		)	(3,800		)
Recoveries on charged off loans	42			26			2			15			85
Balance, end of period	$	19,507		$	7,088		$	6,534		$	51		$	33,180

	Commercial and						Construction and
Nine months ended September 30, 2013	Industrial			Real Estate			Land Development			Consumer			Total
Balance, beginning of period	$	1,845		$	977		$	582		$	5		$	3,409
Provision charged to operations	22,519			6,033			6,323			77			34,952
Loans charged off	(7,314		)	(149		)	(524		)	(74		)	(8,061		)
Recoveries on charged off loans	2,457			227			153			43			2,880
Balance, end of period	$	19,507		$	7,088		$	6,534		$	51		$	33,180

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

	Commercial and				Construction and
September 30, 2013	Industrial		Real Estate		Land Development		Consumer		Total
Loans individually evaluated for impairment	$	940	$	161	$	—	$	—	$	1,101
Loans collectively evaluated for impairment	1,565,975		1,275,180		285,751		42,993		3,169,899
PCI Loans individually evaluated for impairment	58,507		46,713		24,641		9,363		139,224
	$	1,625,422	$	1,322,054	$	310,392	$	52,356	$	3,310,224

	Commercial and				Construction and
December 31, 2012	Industrial		Real Estate		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 non-covered loan losses was distributed by portfolio segment and impairment methodology as shown below (in thousands).

	Commercial and				Construction and
September 30, 2013	Industrial		Real Estate		Land Development		Consumer		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment	16,775		6,810		6,533		51		30,169
PCI Loans individually evaluated for impairment	2,732		278		1		—		3,011
	$	19,507	$	7,088	$	6,534	$	51	$	33,180

	Commercial and				Construction and
December 31, 2012	Industrial		Real Estate		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

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Non-Covered Loans and Allowance for Non-Covered Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Jun. 30, 2013	Dec. 31, 2012
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	$ 3,310,224		$ 3,152,396
Allowance for loan losses	(33,180)		(3,409)
Non-covered loans, net	3,277,044		3,148,987
Non-covered loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	3,310,224		3,152,396
Allowance for loan losses	(33,180)	(26,237)	(3,409)
Non-covered loans, net	3,277,044		3,148,987
Non-covered loans | Acquired Impaired
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	139,224		166,780
Non-covered loans | Commercial and Industrial
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	1,625,422		1,660,293
Allowance for loan losses	(19,507)	(13,806)	(1,845)
Non-covered loans | Real estate
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	1,322,054		1,184,914
Allowance for loan losses	(7,088)	(5,339)	(977)
Non-covered loans | Construction and Land Development
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	310,392		280,483
Allowance for loan losses	(6,534)	(7,050)	(582)
Non-covered loans | Consumer
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	52,356		26,706
Allowance for loan losses	(51)	(42)	(5)
Non-covered loans | Consumer | Acquired Impaired
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	9,363		77
Bank | Non-covered loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	3,310,224		3,152,396
Bank | Non-covered loans | Acquired Impaired
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	139,224		166,780
Bank | Non-covered loans | Consumer
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	52,356		26,706
Bank | Non-covered loans | Consumer | Acquired Impaired
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	9,363		77
Bank | FNB | Non-covered loans | Acquired loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Carrying value of loans acquired	49,700
Bank | FNB | Non-covered loans | Acquired Impaired
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Carrying value of loans acquired	139,200
Bank | FNB | Non-covered loans | PCI | Acquired loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Carrying value of loans acquired	$ 17,600

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Earnings (Loss) per Common Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Earnings (Loss) per Common Share
Weighted average shares outstanding - basic	83,493,000	56,363,000	83,490,000	56,408,000
Effect of potentially dilutive securities (in shares)	6,967,000		6,761,000
Weighted average shares outstanding - diluted	90,460,000	56,363,000	90,251,000	56,408,000
Basic earnings (loss) per common share (in dollars per share)	$ 0.38	$ (0.07)	$ 1.01	$ (0.26)
Diluted earnings (loss) per common share (in dollars per share)	$ 0.36	$ (0.07)	$ 0.98	$ (0.26)
Basic earnings (loss) per share:
Income (loss) applicable to Hilltop common stockholders	$ 31,655	$ (4,048)	$ 84,672	$ (14,414)
Diluted earnings (loss) per share:
Income (loss) applicable to Hilltop common stockholders	32,884	(4,048)	88,302	(14,414)
Add: interest expense on senior exchangeable notes (net of tax)	1,053		3,158
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
Stock options
Weighted-average equivalent shares excluded from diluted loss:
Weighted-average equivalent shares excluded from diluted loss		700,000		700,000
Restricted Stock
Basic earnings (loss) per share:
Less: income applicable to participating shares	(176)		(472)
Common Stock
Basic earnings (loss) per share:
Income (loss) applicable to Hilltop common stockholders	31,831	(4,048)	85,144	(14,414)
Diluted earnings (loss) per share:
Income (loss) applicable to Hilltop common stockholders	$ 31,831	$ (4,048)	$ 85,144	$ (14,414)

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Recently Issued Accounting Standards

9 Months Ended

Sep. 30, 2013

Recently Issued Accounting Standards

Recently Issued Accounting Standards

22. Recently Issued Accounting Standards

Comprehensive Income (Loss)

In February 2013, 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 the Company 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 the Company 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 16 to the consolidated financial statements for the disclosures required by this Topic.

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Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2013

Derivative Financial Instruments

Schedule of derivative positions

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

	September 30, 2013					December 31, 2012
	Notional		Estimated			Notional		Estimated
	Amount		Fair Value			Amount		Fair Value
Derivative instruments:
IRLCs	$	798,837	$	26,440		$	968,083	$	15,150
Commitments to purchase MBSs	283,437		7,443			165,128		466
Interest rate swaps	—		—			1,969		25
Commitments to sell MBSs	1,826,399		(29,290		)	1,586,930		(1,025		)

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Deposits

9 Months Ended

Sep. 30, 2013

Deposits.

Deposits

8. Deposits

Deposits are summarized as follows (in thousands).

	September 30,		December 31,
	2013		2012
Noninterest-bearing demand	$	392,404	$	323,367
Interest-bearing:
NOW accounts	179,805		106,562
Money market	2,936,579		2,357,109
Brokered - money market	280,354		263,193
Demand	53,558		75,308
Savings	450,723		180,367
Time	2,402,485		1,175,432
Brokered - time	240,254		219,123
	$	6,936,162	$	4,700,461

The significant increase in deposits at September 30, 2013 as compared to December 31, 2012 is primarily due to the inclusion of $2.2 billion of deposits assumed as a part of the FNB Transaction.

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Short-term Borrowings (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Short-term borrowings
Short-term borrowings	$ 305,297	$ 728,250
FSC
Short-term borrowings
Weighted average interest rate (as a percent)	1.09%	1.16%
Federal funds purchased
Short-term borrowings
Short-term borrowings	91,875	269,625
Securities sold under agreements to repurchase
Short-term borrowings
Short-term borrowings	121,222	85,725
Federal Home Loan Bank notes
Short-term borrowings
Short-term borrowings		250,000
Average balance during the period	142,274
Average interest rate during the period (as a percent)	0.13%
Average interest rate at end of period (as a percent)	0.00%	0.07%
Federal Home Loan Bank notes | Maximum
Short-term borrowings
Maturity term of debt	365 days
Federal funds purchased and securities sold under agreements to repurchase
Short-term borrowings
Average balance during the period	284,819
Average interest rate during the period (as a percent)	0.19%
Average interest rate at end of period (as a percent)	0.14%	0.22%
Carrying value	152,808	122,153
Estimated fair value	146,197	122,435
Short-term bank loans
Short-term borrowings
Short-term borrowings	$ 92,200	$ 122,900

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Securities

9 Months Ended

Sep. 30, 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
September 30, 2013	Cost		Gains		Losses			Fair Value
U.S. Treasury securities	$	23,746	$	86	$	(17	)	$	23,815
U.S. government agencies:
Bonds	773,723		6,431		(37,491		)	742,663
Residential mortgage-backed securities	62,825		1,462		(499		)	63,788
Collateralized mortgage obligations	132,563		720		(2,749		)	130,534
Corporate debt securities	73,566		5,071		(276		)	78,361
States and political subdivisions	164,813		498		(6,493		)	158,818
Commercial mortgage-backed securities	741		63		—			804
Equity securities	19,756		1,240		—			20,996
Note receivable	42,102		6,385		—			48,487
Warrant	12,068		—		(953		)	11,115
Totals	$	1,305,903	$	21,956	$	(48,478	)	$	1,279,381

			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

Available for sale equity securities includes 1,475,387 shares of SWS common stock, a note made by SWS in the aggregate principal amount of $50.0 million and a warrant to purchase 8,695,652 shares of SWS common stock. SWS issued the note in July 2011 under a credit agreement pursuant to a senior unsecured loan from Hilltop. The note 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. The warrant provides for the purchase of 8,695,652 shares of SWS common stock at an exercise price of $5.75 per share, subject to anti-dilution adjustments. If the warrant was fully exercised, Hilltop would beneficially own 24.4% of SWS.

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

	September 30, 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	4	$	17,709	$	17	2	$	2,427	$	2
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	4	17,709		17		2	2,427		2
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	38	560,938		37,491		14	236,305		314
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	38	560,938		37,491		14	236,305		314
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	5	11,735		499		7	12,279		70
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	5	11,735		499		7	12,279		70
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	9	78,896		2,749		8	38,887		79
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	9	78,896		2,749		8	38,887		79
Corporate debt securities:
Unrealized loss for less than twelve months	4	4,671		276		—	—		—
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	4	4,671		276		—	—		—
States and political subdivisions:
Unrealized loss for less than twelve months	192	127,377		6,493		225	156,664		2,138
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	192	127,377		6,493		225	156,664		2,138
Warrants:
Unrealized loss for less than twelve months	1	11,115		953		—	—		—
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	1	11,115		953		—	—		—
Total available for sale:
Unrealized loss for less than twelve months	253	812,441		48,478		256	446,562		2,603
Unrealized loss for twelve months or longer	—	—		—		—	—		—
	253	$	812,441	$	48,478	256	$	446,562	$	2,603

During the three and nine months ended September 30, 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 available for sale 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 September 30, 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 and the available for sale warrant, at September 30, 2013 are shown by contractual maturity below (in thousands).

	Amortized
	Cost		Fair Value
Due in one year or less	$	44,895	$	45,076
Due after one year through five years	110,294		120,931
Due after five years through ten years	87,047		89,034
Due after ten years	835,714		797,103
	1,077,950		1,052,144
Residential mortgage-backed securities	62,825		63,788
Collateralized mortgage obligations	132,563		130,534
Commercial mortgage-backed securities	741		804
	$	1,274,079	$	1,247,270

The Company realized a net gain from its trading securities portfolio of $0.1 million during the three months ended September 30, 2013 and a net loss of $2.6 million during the nine months ended September 30, 2013, which are recorded as a component of other noninterest income within the consolidated statements of operations.

Securities with a carrying amount of $928.7 million and $635.2 million (with a fair value of $884.6 million and $633.4 million) at September 30, 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 September 30, 2013 and December 31, 2012, NLC had investments on deposit in custody for various state insurance departments with carrying values of $9.4 million and $9.3 million, respectively.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $) In Thousands, except Share data, unless otherwise specified	Total	Total Hilltop Stockholders' Equity	Preferred Stock	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	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				56,501,000
Increase (Decrease) in Stockholders' Equity
Net income (loss)	(14,414)	(14,414)					(14,414)
Other comprehensive income (loss)	593	593				593
Stock-based compensation expense	367	367			367
Common stock issued to board members	38	38			38
Common stock issued to board members (in shares)				4,000
Repurchase and retirement of common stock	(1,162)	(1,162)		(1)	(1,161)
Repurchase and retirement of common stock (in shares)				(141,000)
Balance at Sep. 30, 2012	640,805	640,805		564	917,436	14,576	(291,771)
Balance (in shares) at Sep. 30, 2012				56,364,000
Balance at Dec. 31, 2012	1,146,550	1,144,496	114,068	835	1,304,448	8,094	(282,949)	2,054
Balance (in shares) at Dec. 31, 2012			114,000	83,487,000
Increase (Decrease) in Stockholders' Equity
Net income (loss)	89,336	88,129					88,129	1,207
Other comprehensive income (loss)	(25,332)	(25,332)				(25,332)
Stock-based compensation expense	1,071	1,071			1,071
Common stock issued to board members	96	96			96
Common stock issued to board members (in shares)				7,000
Issuance of restricted common stock				5	(5)
Issuance of restricted common stock (in shares)				465,000
Dividends on preferred stock	(2,985)	(2,985)			(2,985)
Cash distributions to noncontrolling interest	(2,383)							(2,383)
Balance at Sep. 30, 2013	$ 1,206,353	$ 1,205,475	$ 114,068	$ 840	$ 1,302,625	$ (17,238)	$ (194,820)	$ 878
Balance (in shares) at Sep. 30, 2013			114,000	83,959,000

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Subsequent Event (Details) (USD $)			9 Months Ended	0 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2013 7.5% Senior exchangeable notes due 2025	Nov. 08, 2013 7.5% Senior exchangeable notes due 2025 Hilltop common stock	Oct. 15, 2013 Subsequent event 7.5% Senior exchangeable notes due 2025 HTH Operating Partnership LP	Oct. 15, 2013 Subsequent event 7.5% Senior exchangeable notes due 2025 Insurance company subsidiaries
Subsequent event
Aggregate principal amount					$ 96,600,000
Interest rate (as a percent)					7.50%
Notes payable	$ 140,111,000	$ 141,539,000			$ 90,900,000	$ 6,900,000
Conversion rate of common stock per $1,000 principal amount of the Notes			0.07394998
Conversion rate of common stock (in dollars per share)			$ 13.52
Number of consecutive trading days during which the closing price of the entity's common stock must exceed the exchange price for at least 20 trading days in order for the notes to be exchanged			5 days
Common stock issued for redemption of notes				2,896,316

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Acquisitions (Details 3) (Bank, FNB, USD $) In Thousands, unless otherwise specified	Sep. 13, 2013
Acquisitions
Total loans	$ 1,151,336
PCI loans
Acquisitions
Contractually required principal and interest payments	1,605,634
Nonaccretable difference	567,861
Cash flows expected to be collected	1,037,773
Accretable difference	230,325
Total loans	807,448
Acquired performing loans
Acquisitions
Contractually required principal and interest payments	555,057
Contractual cash flows not expected to be collected	50,216
Total loans	$ 343,888

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Segment and Related Information (Tables)

9 Months Ended

Sep. 30, 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).

			Mortgage					Financial			All Other and			Hilltop
	Banking		Origination			Insurance		Advisory			Eliminations			Consolidated
Three Months Ended September 30, 2013
Net interest income (expense)	$	70,230	$	(8,907	)	$	902	$	2,682		$	6,545		$	71,452
Provision for loan losses	10,661		—			—		(3		)	—			10,658
Noninterest income	17,156		127,460			42,162		25,709			(6,729		)	205,758
Noninterest expense	34,474		115,135			38,795		28,324			(111		)	216,617
Income (loss) before income taxes	$	42,251	$	3,418		$	4,269	$	70		$	(73	)	$	49,935

			Mortgage						Financial		All Other and			Hilltop
	Banking		Origination			Insurance			Advisory		Eliminations			Consolidated
Nine Months Ended September 30, 2013
Net interest income (expense)	$	206,661	$	(32,849	)	$	2,755		$	9,409	$	21,162		$	207,138
Provision for loan losses	34,927		—			—			25		—			34,952
Noninterest income	41,041		439,246			122,365			77,349		(21,732		)	658,269
Noninterest expense	98,484		373,405			135,729			84,887		(497		)	692,008
Income (loss) before income taxes	$	114,291	$	32,992		$	(10,609	)	$	1,846	$	(73	)	$	138,447
September 30, 2013
Goodwill	$	207,741	$	13,071		$	23,988		$	7,008	$	—		$	251,808
Total assets	$	8,143,611	$	1,212,909		$	306,308		$	530,959	$	(1,100,195	)	$	9,093,592
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

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Balance Sheet Offsetting (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Securities Borrowed:
Gross Amounts of Recognized Assets	$ 100,348	$ 103,936
Net Amounts of Assets Presented in the Balance Sheets	100,348	103,936
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(100,348)	(103,936)
Institutional Counterparties
Securities Borrowed:
Gross Amounts of Recognized Assets	100,348	103,936
Net Amounts of Assets Presented in the Balance Sheets	100,348	103,936
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	$ (100,348)	$ (103,936)

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Acquisitions (Tables)

9 Months Ended

Sep. 30, 2013

Acquisitions

Summary of the net assets received from the FDIC and the estimated fair value adjustments resulting in the bargain purchase gain

A summary of the net assets received from the FDIC and the estimated fair value adjustments resulting in the bargain purchase gain are presented below (in thousands).

Cost basis net assets on September 13, 2013	$	182,169
Cash payment received from the FDIC	45,000
Fair value adjustments:
Securities	(3,341		)
Loans	(337,572		)
Premises and equipment	(1,358		)
Other real estate owned	(69,456		)
FDIC indemnification asset	189,773
Other intangible assets	6,380
Deposits	(8,282		)
Other	(42		)
Bargain purchase gain	$	3,271

Summary of fair values of the identifiable assets acquired, and liabilities assumed

The resulting fair values of the identifiable assets acquired, and liabilities assumed, of FNB at September 13, 2013 are summarized in the following table (in thousands).

Cash and due from banks	$	362,695
Securities	286,214
Non-covered loans	45,915
Covered loans	1,105,421
Premises and equipment	71,806
FDIC indemnification asset	189,773
Covered other real estate owned	120,985
Other assets	39,709
Other intangible assets	6,380
Total identifiable assets acquired	2,228,898
Deposits	(2,211,740		)
Other liabilities	(13,887		)
Total liabilities assumed	(2,225,627		)
Net identifiable assets acquired/bargain purchase gain	$	3,271

Schedule of loans acquired in business combination

The following table presents preliminary details on acquired loans at the Bank Closing Date (in thousands).

	Acquired		PCI		Total
	Performing		Loans		Loans
Commercial and industrial	$	44,207	$	50,705	$	94,912
Real estate	245,746		595,732		841,478
Construction and land development	38,135		151,803		189,938
Consumer	15,800		9,208		25,008
Total	$	343,888	$	807,448	$	1,151,336

Plains Capital

Acquisitions

Schedule of pro forma results

The following table presents pro forma results for the three and nine months ended September 30, 2012 had the PlainsCapital Merger taken place on January 1, 2011 (in thousands).

	Three Months Ended		Nine Months Ended
	September 30, 2012		September 30, 2012
Net interest income	$	57,212	$	164,980
Other revenues	247,764		641,201
Net income	33,764		72,494

Bank | FNB | PCI loans

Acquisitions

Schedule of information about the loans at Bank Closing Date

The following table presents information about the acquired PCI loans at the Bank Closing Date (in thousands).

Contractually required principal and interest payments	$	1,605,634
Nonaccretable difference	567,861
Cash flows expected to be collected	1,037,773
Accretable difference	230,325
Fair value of covered loans acquired with a deterioration of credit quality	$	807,448

Bank | FNB | Acquired performing loans

Acquisitions

Schedule of information about the loans at Bank Closing Date

The following table presents information about the acquired performing loans at the Bank Closing Date (in thousands).

Contractually required principal and interest payments	$	555,057
Contractual cash flows not expected to be collected	50,216
Fair value at acquisition	343,888

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Derivative Financial Instruments (Details) (Non-Hedging Derivative Instruments, USD $)	3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended
	Sep. 30, 2013 FSC	Sep. 30, 2013 FSC	Sep. 30, 2013 PrimeLending	Sep. 30, 2013 PrimeLending	Sep. 30, 2013 Commitments to purchase MBSs	Dec. 31, 2012 Commitments to purchase MBSs	Sep. 30, 2013 Commitments to sell MBSs	Dec. 31, 2012 Commitments to sell MBSs	Sep. 30, 2013 Interest rate lock commitments	Dec. 31, 2012 Interest rate lock commitments	Dec. 31, 2012 Interest rate swaps Cash Flow Hedges
Derivative financial instruments
Net gain (loss) due to changes in the fair value of the derivative instruments	$ 3,200,000	$ 8,800,000	$ (48,900,000)	$ (14,900,000)
Notional Amount					283,437,000	165,128,000	1,826,399,000	1,586,930,000	798,837,000	968,083,000	1,969,000
Estimated Fair Value					$ 7,443,000	$ 466,000	$ (29,290,000)	$ (1,025,000)	$ 26,440,000	$ 15,150,000	$ 25,000

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Segment and Related Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013 item	Sep. 30, 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)	$ 71,452	$ 1,247	$ 207,138	$ 3,719
Provision for loan losses	10,658		34,952
Noninterest income	205,758	39,583	658,269	114,495
Noninterest expense	216,617	46,792	692,008	139,582
Income (loss) before income taxes	49,935	(5,962)	138,447	(21,368)
Goodwill	251,808		251,808		253,770
Total assets	9,093,592		9,093,592		7,286,865
Operating segment | Banking
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	70,230		206,661
Provision for loan losses	10,661		34,927
Noninterest income	17,156		41,041
Noninterest expense	34,474		98,484
Income (loss) before income taxes	42,251		114,291
Goodwill	207,741		207,741		209,703
Total assets	8,143,611		8,143,611		6,195,775
Operating segment | Mortgage Origination
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	(8,907)		(32,849)
Noninterest income	127,460		439,246
Noninterest expense	115,135		373,405
Income (loss) before income taxes	3,418		32,992
Goodwill	13,071		13,071		13,071
Total assets	1,212,909		1,212,909		1,548,384
Operating segment | Insurance
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	902		2,755
Noninterest income	42,162		122,365
Noninterest expense	38,795		135,729
Income (loss) before income taxes	4,269		(10,609)
Goodwill	23,988		23,988		23,988
Total assets	306,308		306,308		305,699
Operating segment | Financial Advisory
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	2,682		9,409
Provision for loan losses	(3)		25
Noninterest income	25,709		77,349
Noninterest expense	28,324		84,887
Income (loss) before income taxes	70		1,846
Goodwill	7,008		7,008		7,008
Total assets	530,959		530,959		592,017
All Other and Eliminations | All Other and Eliminations
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	6,545		21,162
Noninterest income	(6,729)		(21,732)
Noninterest expense	(111)		(497)
Income (loss) before income taxes	(73)		(73)
Total assets	$ (1,100,195)		$ (1,100,195)		$ (1,355,010)

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Non-Covered Loans and Allowance for Non-Covered Loan Losses (Details 5) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	$ 3,310,224	$ 3,152,396
Non-covered loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	3,310,224	3,152,396
Non-covered loans | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	139,224	166,780
Non-covered loans | Secured
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	1,512,130	1,551,532
Non-covered loans | Secured | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	56,831	67,967
Non-covered loans | Unsecured
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	113,292	108,761
Non-covered loans | Unsecured | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	1,676	3,419
Non-covered loans | Secured by commercial properties
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	1,046,673	924,303
Non-covered loans | Secured by commercial properties | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	42,077	55,519
Non-covered loans | Secured by residential properties
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	275,381	260,611
Non-covered loans | Secured by residential properties | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	4,636	6,728
Non-covered loans | Residential construction loan
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	57,205	48,169
Non-covered loans | Residential construction loan | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans		708
Non-covered loans | Commercial construction loans and land development
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	253,187	232,314
Non-covered loans | Commercial construction loans and land development | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	24,641	32,362
Non-covered loans | Consumer
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	52,356	26,706
Non-covered loans | Consumer | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	9,363	77
Non-covered loans | Bank
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days	2,373	9,463
Loans past Due 60-89 Days	2,689	449
Loans past Due 90 Days or More	1,428	2,131
Total Past Due Loans	6,490	12,043
Current Loans	3,164,510	2,973,573
Total loans	3,310,224	3,152,396
Accruing Loans Past Due 90 Days or More	1,128	2,000
Non-covered loans | Bank | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	139,224	166,780
Non-covered loans | Bank | Secured
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days	1,099	7,844
Loans past Due 60-89 Days	1,065	348
Loans past Due 90 Days or More	1,395	2,131
Total Past Due Loans	3,559	10,323
Current Loans	1,451,740	1,473,242
Total loans	1,512,130	1,551,532
Accruing Loans Past Due 90 Days or More	1,118	2,000
Non-covered loans | Bank | Secured | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	56,831	67,967
Non-covered loans | Bank | Unsecured
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days	475	3
Loans past Due 60-89 Days	1,339
Loans past Due 90 Days or More	23
Total Past Due Loans	1,837	3
Current Loans	109,779	105,339
Total loans	113,292	108,761
Non-covered loans | Bank | Unsecured | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	1,676	3,419
Non-covered loans | Bank | Secured by commercial properties
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days		714
Loans past Due 60-89 Days	132
Total Past Due Loans	132	714
Current Loans	1,004,464	868,070
Total loans	1,046,673	924,303
Non-covered loans | Bank | Secured by commercial properties | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	42,077	55,519
Non-covered loans | Bank | Secured by residential properties
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days	698	755
Loans past Due 60-89 Days	20	101
Total Past Due Loans	718	856
Current Loans	270,027	253,027
Total loans	275,381	260,611
Non-covered loans | Bank | Secured by residential properties | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	4,636	6,728
Non-covered loans | Bank | Residential construction loan
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Current Loans	57,205	47,461
Total loans	57,205	48,169
Non-covered loans | Bank | Residential construction loan | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans		708
Non-covered loans | Bank | Commercial construction loans and land development
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days		63
Loans past Due 60-89 Days	112
Total Past Due Loans	112	63
Current Loans	228,434	199,889
Total loans	253,187	232,314
Non-covered loans | Bank | Commercial construction loans and land development | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	24,641	32,362
Non-covered loans | Bank | Consumer
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days	101	84
Loans past Due 60-89 Days	21
Loans past Due 90 Days or More	10
Total Past Due Loans	132	84
Current Loans	42,861	26,545
Total loans	52,356	26,706
Accruing Loans Past Due 90 Days or More	10
Non-covered loans | Bank | Consumer | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	$ 9,363	$ 77

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Securities (Details) (USD $)			1 Months Ended																					9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Jul. 31, 2011 SWS Note receivable	Sep. 30, 2013 U.S. Treasury securities	Dec. 31, 2012 U.S. Treasury securities	Sep. 30, 2013 Bonds	Dec. 31, 2012 Bonds	Sep. 30, 2013 Residential mortgage-backed securities	Dec. 31, 2012 Residential mortgage-backed securities	Sep. 30, 2013 Collateralized mortgage obligations	Dec. 31, 2012 Collateralized mortgage obligations	Sep. 30, 2013 Corporate debt securities	Dec. 31, 2012 Corporate debt securities	Sep. 30, 2013 States and political subdivisions	Dec. 31, 2012 States and political subdivisions	Sep. 30, 2013 Commercial mortgage-backed securities	Dec. 31, 2012 Commercial mortgage-backed securities	Sep. 30, 2013 Equity securities	Dec. 31, 2012 Equity securities	Sep. 30, 2013 Note receivable	Dec. 31, 2012 Note receivable	Sep. 30, 2013 Warrant	Dec. 31, 2012 Warrant	Sep. 30, 2013 Warrant SWS	Sep. 30, 2013 Common Stock SWS
Available for sale
Amortized Cost	$ 1,305,903,000	$ 978,502,000		$ 23,746,000	$ 7,046,000	$ 773,723,000	$ 524,888,000	$ 62,825,000	$ 18,473,000	$ 132,563,000	$ 97,812,000	$ 73,566,000	$ 79,716,000	$ 164,813,000	$ 177,701,000	$ 741,000	$ 1,001,000	$ 19,756,000	$ 19,289,000	$ 42,102,000	$ 40,508,000	$ 12,068,000	$ 12,068,000
Gross Unrealized Gains	21,956,000	15,054,000		86,000	141,000	6,431,000	1,663,000	1,462,000	490,000	720,000	191,000	5,071,000	7,461,000	498,000	196,000	63,000	72,000	1,240,000	1,139,000	6,385,000	3,652,000		49,000
Gross Unrealized Losses	(48,478,000)	(2,603,000)		(17,000)	(2,000)	(37,491,000)	(314,000)	(499,000)	(70,000)	(2,749,000)	(79,000)	(276,000)		(6,493,000)	(2,138,000)							(953,000)
Fair Value	1,279,381,000	990,953,000		23,815,000	7,185,000	742,663,000	526,237,000	63,788,000	18,893,000	130,534,000	97,924,000	78,361,000	87,177,000	158,818,000	175,759,000	804,000	1,073,000	20,996,000	20,428,000	48,487,000	44,160,000	11,115,000	12,117,000
Number of shares included within the available for sale equity securities																									1,475,387
Aggregate Principal amount of senior unsecured loan			$ 50,000,000
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 shares of common stock available to purchase under warrant																								8,695,652
Warrants exercise price (in dollars per share)																								$ 5.75
Ownership interest percentage the entity would own if warrant was fully exercised																								24.40%

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Balance Sheet Offsetting (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Total
Gross Amounts of Recognized Liabilities	$ 221,380	$ 202,828
Gross Amounts Offset in the Balance Sheets	(100)	(975)
Net Amounts of Liabilities Presented in the Balance Sheets	221,280	201,853
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(191,991)	(200,828)
Cash Collateral Pledged	(21,858)	(249)
Net Amount	7,431	776
Institutional Counterparties
Securities Loaned:
Gross Amounts of Recognized Liabilities	70,769	115,102
Net Amounts of Liabilities Presented in the Balance Sheets	70,769	115,102
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(70,769)	(115,102)
Institutional Counterparties | Forward sales of MBSs
Derivatives:
Gross Amounts of Recognized Liabilities	29,389	2,000
Gross Amounts Offset in the Balance Sheets	(100)	(975)
Net Amounts of Liabilities Presented in the Balance Sheets	29,289	1,025
Gross Amounts Not Offset in the Balance Sheets
Cash Collateral Pledged	(21,858)	(249)
Net Amount	7,431	776
Customer Counterparties
Repurchase Agreement:
Gross Amounts of Recognized Liabilities	121,222	85,726
Net Amounts of Liabilities Presented in the Balance Sheets	121,222	85,726
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	$ (121,222)	$ (85,726)

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies.

Commitments and Contingencies

11. 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 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 the Company’s 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. The mortgage origination segment has established an indemnification liability reserve for such probable losses.

Generally, the mortgage origination segment first becomes aware that an investor believes a loss has been incurred on a sold loan when it receives a written request from the investor to repurchase the loan or reimburse the investor’s losses. Upon completing its review of the investor’s request, the mortgage origination segment establishes a specific claims reserve for the loan if it concludes its obligation to the investor is both probable and reasonably estimable.

An additional reserve has been established for probable investor losses that may have been incurred, but not yet reported to the mortgage origination segment based upon a reasonable estimate of such losses. Factors considered in the calculation of this reserve include, but are not limited to, the total volume of loans sold exclusive of specific investor requests, actual investor claim settlements and the severity of estimated losses resulting from future claims, and our history of successfully curing defects identified in investor claim requests. While the mortgage origination segment’s sales contracts typically include borrower early payment default repurchase provisions, these provisions have not been a primary driver of investor claims to date, and therefore, are not a primary factor considered in the calculation of this reserve.

At September 30, 2013, and December 31, 2012, the mortgage origination segment’s indemnification liability reserve totaled $21.0 million and $19.0 million, respectively. The provision for indemnification losses was $0.9 million and $2.8 million for the three and nine months ended September 30, 2013, respectively.

The following tables provide for a roll-forward of claims activity for loans put-back to the mortgage origination segment based upon an alleged breach of a representation or warranty with respect to a loan sold and related indemnification liability reserve activity (in thousands).

	Representation and Warranty Specific Claims Activity - Origination Loan Balance
	Three Months Ended			Nine Months Ended
	September 30, 2013			September 30, 2013
Balance, beginning of period	$	46,090		$	39,693
Claims made	6,769			25,844
Claims resolved with no payment	(2,338		)	(10,751		)
Repurchases	(1,597		)	(3,917		)
Indemnification payments	(542		)	(2,487		)
Balance, end of period	$	48,382		$	48,382

	Indemnification Liability Reserve Activity
	Three Months Ended			Nine Months Ended
	September 30, 2013			September 30, 2013
Balance, beginning of period	$	20,397		$	18,964
Additions for new sales	878			2,834
Repurchases	(120		)	(129		)
Early payment defaults	(165		)	(397		)
Indemnification payments	(177		)	(701		)
Change in estimate	214			456
Balance, end of period	$	21,027		$	21,027
Reserve for Indemnification Liability:
Specific claims	$	12,336
Incurred but not reported claims	8,691
Total	$	21,027

Although management considers the total indemnification liability reserve to be appropriate, there may be changes in the reserve over time to address incurred losses, 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 is considered in the reserving process when probable and estimable.

In connection with the FNB Transaction, the Bank entered into two loss-share agreements with the FDIC that collectively cover approximately $1.2 billion of loans and OREO acquired in the FNB Transaction. Pursuant to the loss-share agreements, the FDIC has agreed to reimburse the Bank the following amounts with respect to the covered assets: (i) 80% of losses on the first $240.4 million of losses incurred; (ii) 0% of losses in excess of $240.4 million up to and including $365.7 million of losses incurred; and (iii) 80% of losses in excess of $365.7 million of losses incurred. The Bank has also agreed to reimburse the FDIC for any subsequent recoveries. The loss-share agreements for commercial and single family residential loans are in effect for 5 years and 10 years, respectively, from the Bank Closing Date and the loss recovery provisions to the FDIC are in effect for 8 years and 10 years, respectively, from the Bank Closing Date. In accordance with the loss-share agreements, the Bank may be required to make a “true-up” payment to the FDIC, approximately ten years following the Bank Closing Date, if the FDIC’s initial estimate of losses on covered assets is greater than the actual realized losses. The “true-up” payment is calculated using a defined formula set forth in the P&A Agreement.

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2013

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

7. Goodwill and Other Intangible Assets

The carrying amount of goodwill was $251.8 million and $253.8 million at September 30, 2013 and December 31, 2012, respectively. The Company initially recorded $230.1 million of goodwill in connection with the PlainsCapital Merger, and used significant estimates and assumptions to value the identifiable assets acquired and liabilities assumed. The amount of goodwill recorded in connection with the PlainsCapital Merger is not deductible for tax purposes. During the three months ended March 31, 2013, the Company reduced goodwill related to the PlainsCapital Merger by $2.0 million for a purchase accounting adjustment related to the valuation of a capital lease obligation. The Company made no further adjustments to its purchase price allocation.

Other intangible assets of $75.9 million and $77.7 million at September 30, 2013 and December 31, 2012, respectively, include an indefinite lived intangible asset with an estimated fair value of $3.0 million related to state licenses acquired as a part of the NLC acquisition in January 2007. In addition, as discussed in Note 2 to the consolidated financial statements, the Company recorded a $6.4 million preliminary core deposits intangible asset during September 2013 in connection with the FNB Transaction, which will be amortized on an accelerated basis over approximately seven years.

The Company tests goodwill and other intangible assets having an indefinite useful life for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment. Goodwill impairment testing is performed at the reporting unit level, which is one level below an operating segment. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill. The Company performs required annual impairment tests of its goodwill and other intangible assets as of December 31st for its insurance reporting unit, while the acquired banking, mortgage origination and financial advisory reporting units will be tested for impairment annually as of October 1st.

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Non-Covered Loans and Allowance for Non-Covered Loan Losses (Details 7) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Dec. 31, 2012
Changes in the allowance for loan losses
Balance, beginning of period		$ 3,409
Provision charged to operations	10,658	34,952
Balance, end of period	33,180	33,180
Loan portfolio distributed by portfolio segment and impairment methodology
Total loans	3,310,224	3,310,224	3,152,396
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans	33,180	33,180
Non-covered loans
Changes in the allowance for loan losses
Balance, beginning of period	26,237	3,409
Provision charged to operations	10,658	34,952
Loans charged off	(3,800)	(8,061)
Recoveries on charged off loans	85	2,880
Balance, end of period	33,180	33,180
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	1,101	1,101
Loans collectively evaluated for impairment	3,169,899	3,169,899	2,985,616
Total loans	3,310,224	3,310,224	3,152,396
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment	30,169	30,169	3,409
Total loans	33,180	33,180
Non-covered loans | Commercial and Industrial
Changes in the allowance for loan losses
Balance, beginning of period	13,806	1,845
Provision charged to operations	8,879	22,519
Loans charged off	(3,220)	(7,314)
Recoveries on charged off loans	42	2,457
Balance, end of period	19,507	19,507
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	940	940
Loans collectively evaluated for impairment	1,565,975	1,565,975	1,588,907
Total loans	1,625,422	1,625,422	1,660,293
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment	16,775	16,775	1,845
Total loans	19,507	19,507
Non-covered loans | Real estate
Changes in the allowance for loan losses
Balance, beginning of period	5,339	977
Provision charged to operations	1,776	6,033
Loans charged off	(53)	(149)
Recoveries on charged off loans	26	227
Balance, end of period	7,088	7,088
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	161	161
Loans collectively evaluated for impairment	1,275,180	1,275,180	1,122,667
Total loans	1,322,054	1,322,054	1,184,914
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment	6,810	6,810	977
Total loans	7,088	7,088
Non-covered loans | Construction and Land Development
Changes in the allowance for loan losses
Balance, beginning of period	7,050	582
Provision charged to operations	6	6,323
Loans charged off	(524)	(524)
Recoveries on charged off loans	2	153
Balance, end of period	6,534	6,534
Loan portfolio distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment	285,751	285,751	247,413
Total loans	310,392	310,392	280,483
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment	6,533	6,533	582
Total loans	6,534	6,534
Non-covered loans | Consumer
Changes in the allowance for loan losses
Balance, beginning of period	42	5
Provision charged to operations	(3)	77
Loans charged off	(3)	(74)
Recoveries on charged off loans	15	43
Balance, end of period	51	51
Loan portfolio distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment	42,993	42,993	26,629
Total loans	52,356	52,356	26,706
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment	51	51	5
Total loans	51	51
Non-covered loans | Acquired performing loans
Allowance for loan losses
Additional allowance recorded when allowance is less than remaining fair value of discount		0
Non-covered loans | PCI loans
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	139,224	139,224	166,780
Total loans	139,224	139,224	166,780
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	3,011	3,011
Non-covered loans | PCI loans | Commercial and Industrial
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	58,507	58,507	71,386
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	2,732	2,732
Non-covered loans | PCI loans | Real estate
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	46,713	46,713	62,247
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	278	278
Non-covered loans | PCI loans | Construction and Land Development
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	24,641	24,641	33,070
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	1	1
Non-covered loans | PCI loans | Consumer
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment	9,363	9,363	77
Total loans	9,363	9,363	77
Non-covered loans | Acquired loans
Allowance for loan losses
Carryover of the allowance for loan losses recorded		$ 0

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Regulatory Matters

9 Months Ended

Sep. 30, 2013

Regulatory Matters

Regulatory Matters

14. 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.

During September 2013, Hilltop and PlainsCapital contributed capital of $35.0 million and $25.0 million, respectively, to the Bank to provide additional capital in connection with the FNB Transaction.

The following table shows the Bank’s and Hilltop’s consolidated actual capital amounts and ratios compared to the regulatory minimum capital requirements and the Bank’s regulatory minimum capital requirements needed to qualify as a “well-capitalized” institution (dollars in thousands), without giving effect to the final Basel III capital rules adopted by the Federal Reserve Board on July 2, 2013.

									To Be Well Capitalized
					Minimum Capital				Minimum Capital
	Actual				Requirements				Requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2013
Tier 1 capital (to average assets):
Bank	$	724,382	11.05	%	$	262,134	4	%	$	327,668	5	%
Hilltop	986,507		13.96	%	282,603		4	%	N/A		N/A
Tier 1 capital (to risk-weighted assets):
Bank	724,382		12.76	%	227,101		4	%	274,961		6	%
Hilltop	986,507		16.56	%	238,347		4	%	N/A		N/A
Total capital (to risk-weighted assets):
Bank	758,753		13.36	%	454,203		8	%	567,753		10	%
Hilltop	1,021,436		17.14	%	476,695		8	%	N/A		N/A
December 31, 2012
Tier 1 capital (to average assets):
Bank	$	542,307	8.84	%	$	245,495	4	%	$	306,869	5	%
Hilltop	871,379		13.08	%	266,514		4	%	N/A		N/A
Tier 1 capital (to risk-weighted assets):
Bank	542,307		11.83	%	183,308		4	%	274,961		6	%
Hilltop	871,379		17.72	%	196,670		4	%	N/A		N/A
Total capital (to risk-weighted assets):
Bank	546,598		11.93	%	366,615		8	%	458,269		10	%
Hilltop	875,670		17.81	%	393,340		8	%	N/A		N/A

To be considered “adequately capitalized” (as defined) under regulatory requirements, 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 table, the Bank’s ratios place it in the “well capitalized” (as defined) capital category under regulatory requirements.

Management continues to evaluate the final Basel III capital rules and their impact, which would apply to reporting periods beginning after January 1, 2015.

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 September 30, 2013, FSC had net capital of $69.8 million (the minimum net capital requirement was $3.8 million), net capital maintained by FSC was 37% of aggregate debits, and net capital in excess of the minimum requirement was $66.0 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 is 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 September 30, 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 its minimum net worth requirements. In addition, PrimeLending monitors compliance on an ongoing basis and, as of September 30, 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’ (“NAIC”) statutory accounting practices as the basis of its statutory accounting practices with certain differences that are not significant to the insurance company subsidiaries’ statutory equity.

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

	September 30,		December 31,
	2013		2012
Capital and surplus:
National Lloyds Insurance Company	$	87,723	$	94,558
American Summit Insurance Company	24,946		25,761

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2013		2012			2013			2012
Statutory net income (loss):
National Lloyds Insurance Company	$	2,645	$	(1,759	)	$	(7,296	)	$	(9,516	)
American Summit Insurance Company	167		(136		)	(962		)	(706		)

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 September 30, 2013, the Company’s insurance subsidiaries had statutory surplus in excess of the minimum required.

The NAIC has adopted a risk based capital (“RBC”) formula for insurance companies that establishes minimum capital requirements indicating various levels of available regulatory action on an annual basis relating to insurance risk, asset credit risk, interest rate risk and business risk. The RBC 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 December 31, 2012, the most recent date for which the RBC calculation was performed, the Company’s insurance subsidiaries’ RBC ratio exceeded the level at which regulatory action would be required. As of September 30, 2013, management was not aware of any changes in financial condition or structure that would cause the Company’s insurance subsidiaries to not be in compliance with the required RBC ratio.

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Financial Instruments with Off-Balance Sheet Risk

9 Months Ended

Sep. 30, 2013

Financial Instruments with Off-Balance Sheet Risk

Financial Instruments with Off-Balance Sheet Risk

12. 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 $1.2 billion at September 30, 2013 and outstanding standby letters of credit of $37.8 million at September 30, 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.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2013	Nov. 08, 2013
Document and Entity Information
Entity Registrant Name	Hilltop Holdings Inc.
Entity Central Index Key	0001265131
Document Type	10-Q
Document Period End Date	Sep. 30, 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		86,857,999
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3

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Broker-Dealer and Clearing Organization Receivables and Payables (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Receivables:
Securities borrowed	$ 100,348	$ 103,936
Securities failed to deliver	21,442	33,045
Clearing organizations	10,842	8,543
Due from dealers	4	40
Total receivables	132,636	145,564
Payables:
Securities loaned	70,769	115,102
Correspondents	43,550	41,414
Securities failed to receive	24,888	31,474
Clearing organizations	3,204
Total Payables	$ 142,411	$ 187,990

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2013

Stock-Based Compensation

Stock-Based Compensation

13. Stock-Based Compensation

Pursuant to the Hilltop Holdings 2012 Equity Incentive Plan (the “2012 Plan”), the Company may grant nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights and other awards to employees of the Company, its subsidiaries and outside directors of the Company. Upon the effectiveness of the 2012 Plan in September 2012, no additional awards were permissible under the 2003 Equity Incentive Plan (the “2003 Plan”). In the aggregate, 4,000,000 shares of common stock may be delivered pursuant to awards granted under the 2012 Plan.

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 2012 Plan. These Restricted Stock Awards are subject to service conditions set forth in the grant agreements with associated costs recognized on a straight-line basis over the vesting period. The grant date fair value related to these Restricted Stock Awards was $13.25 per share, resulting in expected compensation expense of $6.2 million. At September 30, 2013, unrecognized compensation expense related to these Restricted Stock Awards was $5.3 million, which will be amortized through March 2016. These Restricted Stock Awards vest on April 1, 2016 and provide for accelerated vesting under certain conditions.

During the nine months ended September 30, 2013, the Company granted 6,504 shares of common stock to members of our board of directors as compensation for director services pursuant to the 2012 Plan.

At September 30, 2013, 3,528,496 shares of common stock remain available for issuance pursuant to the 2012 Plan.

Stock options granted on November 2, 2011 pursuant to the 2003 Plan to purchase an aggregate of 600,000 shares of the Company’s common stock (the “Stock Option Awards”) at an exercise price of $7.70 per share were outstanding at September 30, 2013. These Stock Option Awards vest in five equal installments beginning on the grant date, with the remainder vesting on each grant date anniversary through 2015. At September 30, 2013, unrecognized compensation expense related to these Stock Option Awards was $0.2 million, which will be amortized on a straight-line basis through October 2015. Additionally, these Stock Option Awards expire on November 2, 2016.

Compensation expense related to the 2012 Plan and 2003 Plan was $0.6 million and $0.1 million for the three months ended September 30, 2013 and 2012, respectively. For the nine months ended September 30, 2013 and 2012, compensation expense related to the plans was $1.1 million and $0.4 million, respectively.

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Securities (Details 3) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Dec. 31, 2012
Amortized Cost
Due in one year or less	$ 44,895,000	$ 44,895,000
Due after one year through five years	110,294,000	110,294,000
Due after five years through ten years	87,047,000	87,047,000
Due after ten years	835,714,000	835,714,000
Total	1,077,950,000	1,077,950,000
Total amortized cost	1,274,079,000	1,274,079,000
Fair Value
Due in one year or less	45,076,000	45,076,000
Due after one year through five years	120,931,000	120,931,000
Due after five years through ten years	89,034,000	89,034,000
Due after ten years	797,103,000	797,103,000
Total	1,052,144,000	1,052,144,000
Fair Value	1,247,270,000	1,247,270,000
Realized net gain (loss) from trading securities portfolio	100,000	(2,600,000)
Carrying amount of securities pledged	928,700,000	928,700,000	635,200,000
Fair value of securities pledged	884,600,000	884,600,000	633,400,000
Deposit with various state insurance departments	9,400,000	9,400,000	9,300,000
Residential mortgage-backed securities
Amortized Cost
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	62,825,000	62,825,000
Fair Value
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	63,788,000	63,788,000
Collateralized mortgage obligations
Amortized Cost
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	132,563,000	132,563,000
Fair Value
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	130,534,000	130,534,000
Commercial mortgage-backed securities
Amortized Cost
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	741,000	741,000
Fair Value
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	$ 804,000	$ 804,000

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Securities (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013 item	Dec. 31, 2012 item
Number of Securities
Unrealized loss for less than twelve months	253	256
Total	253	256
Fair Value
Unrealized loss for less than twelve months	$ 812,441	$ 446,562
Estimated Fair Value, Total	812,441	446,562
Unrealized Loss
Unrealized loss for less than twelve months	48,478	2,603
Total	48,478	2,603
U.S. Treasury securities
Number of Securities
Unrealized loss for less than twelve months	4	2
Total	4	2
Fair Value
Unrealized loss for less than twelve months	17,709	2,427
Estimated Fair Value, Total	17,709	2,427
Unrealized Loss
Unrealized loss for less than twelve months	17	2
Total	17	2
Bonds
Number of Securities
Unrealized loss for less than twelve months	38	14
Total	38	14
Fair Value
Unrealized loss for less than twelve months	560,938	236,305
Estimated Fair Value, Total	560,938	236,305
Unrealized Loss
Unrealized loss for less than twelve months	37,491	314
Total	37,491	314
Residential mortgage-backed securities
Number of Securities
Unrealized loss for less than twelve months	5	7
Total	5	7
Fair Value
Unrealized loss for less than twelve months	11,735	12,279
Estimated Fair Value, Total	11,735	12,279
Unrealized Loss
Unrealized loss for less than twelve months	499	70
Total	499	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	78,896	38,887
Estimated Fair Value, Total	78,896	38,887
Unrealized Loss
Unrealized loss for less than twelve months	2,749	79
Total	2,749	79
Corporate debt securities
Number of Securities
Unrealized loss for less than twelve months	4
Total	4
Fair Value
Unrealized loss for less than twelve months	4,671
Estimated Fair Value, Total	4,671
Unrealized Loss
Unrealized loss for less than twelve months	276
Total	276
States and political subdivisions
Number of Securities
Unrealized loss for less than twelve months	192	225
Total	192	225
Fair Value
Unrealized loss for less than twelve months	127,377	156,664
Estimated Fair Value, Total	127,377	156,664
Unrealized Loss
Unrealized loss for less than twelve months	6,493	2,138
Total	6,493	2,138
Warrant
Number of Securities
Unrealized loss for less than twelve months	1
Total	1
Fair Value
Unrealized loss for less than twelve months	11,115
Estimated Fair Value, Total	11,115
Unrealized Loss
Unrealized loss for less than twelve months	953
Total	$ 953

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Reserves for Unpaid Losses and Loss Adjustment Expenses (Details) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Information regarding of the reserve for unpaid losses and loss adjustment expenses
Balance, beginning of period	$ 34,012,000	$ 44,835,000
Less reinsurance recoverables	(10,385,000)	(25,083,000)
Net balance, beginning of period	23,627,000	19,752,000
Incurred related to:
Current period	93,124,000	90,928,000
Prior periods	852,000	821,000
Total incurred	93,976,000	91,749,000
Payments related to:
Current period	(78,742,000)	(73,267,000)
Prior periods	(13,623,000)	(13,194,000)
Total payments	(92,365,000)	(86,461,000)
Net balance, end of period	25,238,000	25,040,000
Plus reinsurance recoverables	6,029,000	20,995,000
Balance, end of period	31,267,000	46,035,000
Change in insurance reserves	$ 14,800,000