32. Condensed Financial Statements of Parent

Condensed financial statements of Hilltop (parent only) follow (in thousands). Investments in subsidiaries are determined using the equity method of accounting.

Condensed Statements of Operations and Comprehensive Income


	Year Ended December 31,
	2015		2014		2013
Investment income	$	445	$	5,219	$	6,635
Interest expense		5,554		—		8,232
Net gain on investment in SWS common stock		—		5,985		—
Bargain purchase gain		81,289		—		—
General and administrative expense		31,926		13,878		10,439
Income (loss) before income taxes, equity in undistributed earnings of subsidiaries and preferred stock activity		44,254		(2,674)		(12,036)
Income tax benefit		(9,562)		(592)		(4,680)
Equity in undistributed earnings of subsidiaries		158,763		114,640		134,065
Net income	$	212,579	$	112,558	$	126,709
Other comprehensive income (loss), net		1,978		35,514		(43,418)
Comprehensive income	$	214,557	$	148,072	$	83,291

Condensed Balance Sheets


	December 31,
	2015		2014		2013
Assets:
Cash and cash equivalents	$	55,542	$	145,948	$	163,856
Securities, available for sale		—		—		69,023
Investment in subsidiaries		1,817,083		1,218,182		1,069,226
Investment in SWS common stock		—		70,282		—
Other assets		32,922		88,243		14,293
Total assets	$	1,905,547	$	1,522,655	$	1,316,398

Liabilities and Stockholders’ Equity:
Accounts payable and accrued expenses	$	20,419	$	62,203	$	5,257
Notes payable		148,174		—		—
Stockholders’ equity		1,736,954		1,460,452		1,311,141
Total liabilities and stockholders’ equity	$	1,905,547	$	1,522,655	$	1,316,398

Condensed Statements of Cash Flows


	Year Ended December 31,
	2015		2014		2013
Operating Activities:
Net income	$	212,579	$	112,558	$	126,709
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in undistributed earnings of subsidiaries		(158,763)		(114,640)		(134,065)
Bargain purchase gain		(81,289)		—		—
Deferred income taxes		12,429		156		8,850
Net gain on investment in SWS common stock		—		(5,985)		—
Loss on redemption of senior exchangeable notes		—		—		3,733
Other, net		2,443		(1,379)		132
Net cash provided by (used in) operating activities		(12,601)		(9,290)		5,359

Investing Activities:
Advance to subsidiary		—		(6,000)		—
Capital contribution to subsidiary		—		—		(35,000)
Cash paid for acquisition		(78,217)		—		—
Other, net		(31)		—		—
Net cash used in investing activities		(78,248)		(6,000)		(35,000)

Financing Activities:
Payments to repurchase common stock		(30,028)		—		—
Proceeds from issuance of notes payable		148,078		—		—
Redemption of senior exchangeable notes		—		—		(11,088)
Dividends paid on preferred stock		(3,539)		(5,619)		(2,985)
Redemption of preferred stock		(114,068)		—		—
Other, net		—		3,001		2,816
Net cash provided by (used in) financing activities		443		(2,618)		(11,257)

Net change in cash and cash equivalents		(90,406)		(17,908)		(40,898)
Cash and cash equivalents, beginning of year		145,948		163,856		204,754
Cash and cash equivalents, end of year	$	55,542	$	145,948	$	163,856

Supplemental Schedule of Non-Cash Activities:
Common stock issued in acquisition	$	200,626	$	—	$	—
Conversion of available for sale investment in SWS common stock	$	—	$	71,502	$	—
Redemption of senior exchangeable notes for common stock	$	—	$	—	$	83,950

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

As discussed in Note 3 to the consolidated financial statements, Hilltop’s investment in SWS common stock is accounted for under the provisions of the Fair Value Option effective October 2, 2014. Hilltop had previously accounted for its investments in SWS as available for sale securities. Under the Fair Value Option, Hilltop’s investment in SWS common stock is recorded at fair value, with changes in fair value being recorded in other noninterest income within Hilltop’s condensed statement of operations rather than as a component of other comprehensive income. Hilltop’s election to apply the provisions of the Fair Value Option resulted in Hilltop recording those unrealized gains previously associated with its investment in SWS common stock of $7.2 million. For the period from October 3, 2014 through December 31, 2014, the change in fair value of Hilltop’s investment in SWS common stock resulted in a loss of $1.2 million. In the aggregate, Hilltop recorded a $6.0 million net gain in income within Hilltop’s condensed statement of operations during 2014.