10-Q

0Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2016

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

Commission File Number: 1-31987

Hilltop Holdings Inc.

(Exact name of registrant as specified in its charter)

Maryland	84-1477939
(State or other jurisdiction of incorporation or	(I.R.S. Employer Identification No.)
organization)
200 Crescent Court, Suite 1330
Dallas, TX	75201
(Address of principal executive offices)	(Zip Code)

(214) 855-2177

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒     No ☐

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

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

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

The number of shares of the registrant's common stock outstanding at April 28, 2016 was 98,498,077.

HILLTOP HOLDINGS INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2016

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	56
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	88
Item 4.	Controls and Procedures	90
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	91
Item 1A.	Risk Factors	91
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	91
Item 6.	Exhibits	91

2

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(Unaudited)

	March 31,		December 31,
	2016		2015
Assets
Cash and due from banks	$	512,103	$	652,036
Federal funds sold		15,406		17,409
Securities purchased under agreements to resell		96,646		105,660
Assets segregated for regulatory purposes		120,714		158,613
Securities:
Trading, at fair value		368,425		214,146
Available for sale, at fair value (amortized cost of $655,989 and $670,003, respectively)		666,328		673,706
Held to maturity, at amortized cost (fair value of $313,553 and $331,468, respectively)		310,478		332,022
		1,345,231		1,219,874
Loans held for sale		1,344,333		1,533,678
Non-covered loans, net of unearned income		5,366,065		5,220,040
Allowance for non-covered loan losses		(48,450)		(45,415)
Non-covered loans, net		5,317,615		5,174,625
Covered loans, net of allowance of $1,217 and $1,532, respectively		346,169		378,762
Broker-dealer and clearing organization receivables		1,370,622		1,362,499
Premises and equipment, net		198,414		200,618
FDIC indemnification asset		80,522		91,648
Covered other real estate owned		78,890		99,090
Other assets		601,181		565,813
Goodwill		251,808		251,808
Other intangible assets, net		52,274		54,868
Total assets	$	11,731,928	$	11,867,001
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing	$	2,233,608	$	2,235,436
Interest-bearing		4,750,567		4,717,247
Total deposits		6,984,175		6,952,683
Broker-dealer and clearing organization payables		1,284,016		1,338,305
Short-term borrowings		832,921		947,373
Securities sold, not yet purchased, at fair value		165,704		130,044
Notes payable		232,190		238,716
Junior subordinated debentures		67,012		67,012
Other liabilities		405,899		454,743
Total liabilities		9,971,917		10,128,876
Commitments and contingencies (see Notes 12 and 13)
Stockholders' equity:
Hilltop stockholders' equity:
Common stock, $0.01 par value, 125,000,000 shares authorized; 98,584,947 and 98,896,184 shares issued and outstanding, respectively		986		989
Additional paid-in capital		1,567,150		1,577,270
Accumulated other comprehensive income		6,878		2,629
Retained earnings		183,042		155,475
Deferred compensation employee stock trust, net		1,020		1,034
Employee stock trust (21,453 and 22,196 shares, at cost, respectively)		(428)		(443)
Total Hilltop stockholders' equity		1,758,648		1,736,954
Noncontrolling interests		1,363		1,171
Total stockholders' equity		1,760,011		1,738,125
Total liabilities and stockholders' equity	$	11,731,928	$	11,867,001

See accompanying notes.

3

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2016		2015
Interest income:
Loans, including fees	$	91,551	$	87,388
Securities borrowed		7,589		10,018
Securities:
Taxable		6,367		7,049
Tax-exempt		1,637		1,741
Other		1,009		1,473
Total interest income		108,153		107,669
Interest expense:
Deposits		4,102		4,315
Securities loaned		5,987		7,506
Short-term borrowings		1,120		1,024
Notes payable		2,582		669
Junior subordinated debentures		645		585
Other		176		178
Total interest expense		14,612		14,277
Net interest income		93,541		93,392
Provision for loan losses		3,407		2,687
Net interest income after provision for loan losses		90,134		90,705
Noninterest income:
Net realized gains on securities		46		4,403
Net gains from sale of loans and other mortgage production income		127,297		120,545
Mortgage loan origination fees		18,813		14,589
Net insurance premiums earned		39,733		39,567
Securities commissions and fees		38,752		42,918
Investment and securities advisory fees and commissions		23,819		24,922
Bargain purchase gain		—		81,289
Other		29,226		24,613
Total noninterest income		277,686		352,846
Noninterest expense:
Employees' compensation and benefits		182,655		182,504
Loss and loss adjustment expenses		21,959		18,860
Policy acquisition and other underwriting expenses		11,252		11,674
Occupancy and equipment, net		27,791		29,185
Other		81,544		72,253
Total noninterest expense		325,201		314,476
Income before income taxes		42,619		129,075
Income tax expense		14,423		15,420
Net income		28,196		113,655
Less: Net income attributable to noncontrolling interest		629		353
Income attributable to Hilltop		27,567		113,302
Dividends on preferred stock		—		1,426
Income applicable to Hilltop common stockholders	$	27,567	$	111,876
Earnings per common share:
Basic	$	0.28	$	1.12
Diluted	$	0.28	$	1.11
Weighted average share information:
Basic		98,153		99,741
Diluted		98,669		100,627

See accompanying notes.

4

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2016		2015
Net income	$	28,196	$	113,655
Other comprehensive income:
Net unrealized gains on securities available for sale, net of tax of $2,390 and $4,454, respectively		4,279		7,913
Reclassification adjustment for gains included in net income, net of tax of $(16) and $(1,589), respectively		(30)		(2,814)
Comprehensive income		32,445		118,754
Less: comprehensive income attributable to noncontrolling interest		629		353
Comprehensive income applicable to Hilltop	$	31,816	$	118,401

See accompanying notes.

5

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)

									Accumulated		Retained		Deferred					Total
							Additional		Other		Earnings		Compensation		Employee			Hilltop				Total
	Preferred Stock			Common Stock			Paid-in		Comprehensive		(Accumulated		Employee Stock		Stock Trust			Stockholders’		Noncontrolling		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Income		Deficit)		Trust, Net		Shares	Amount		Equity		Interest		Equity
Balance, December 31, 2014	114	$	114,068	90,182	$	902	$	1,390,788	$	651	$	(45,957)	$	—	—	$	—	$	1,460,452	$	787	$	1,461,239
Net income	—		—	—		—		—		—		113,302		—	—		—		113,302		353		113,655
Other comprehensive income	—		—	—		—		—		5,099		—		—	—		—		5,099		—		5,099
Issuance of common stock	—		—	10,113		101		199,932		—		—		—	—		—		200,033		—		200,033
Stock-based compensation expense	—		—	—		—		1,814		—		—		—	—		—		1,814		—		1,814
Common stock issued to board members	—		—	2		—		51		—		—		—	—		—		51		—		51
Issuance of common stock related to share-based awards, net	—		—	(11)		—		—		—		—		—	—		—		—		—		—
Dividends on preferred stock	—		—	—		—		—		—		(1,427)		—	—		—		(1,427)		—		(1,427)
Deferred compensation plan	—		—	—		—		—		—		—		1,189	30		(597)		592		—		592
Net cash distributed to noncontrolling interest	—		—	—		—		—		—		—		—	—		—		—		(264)		(264)
Balance, March 31, 2015	114	$	114,068	100,286	$	1,003	$	1,592,585	$	5,750	$	65,918	$	1,189	30	$	(597)	$	1,779,916	$	876	$	1,780,792
Balance, December 31, 2015	—	$	—	98,896	$	989	$	1,577,270	$	2,629	$	155,475	$	1,034	22	$	(443)	$	1,736,954	$	1,171	$	1,738,125
Net income	—		—	—		—		—		—		27,567		—	—		—		27,567		629		28,196
Other comprehensive income	—		—	—		—		—		4,249		—		—	—		—		4,249		—		4,249
Issuance of common stock	—		—	500		5		3,845		—		—		—	—		—		3,850		—		3,850
Stock-based compensation expense	—		—	—		—		2,228		—		—		—	—		—		2,228		—		2,228
Common stock issued to board members	—		—	6		—		108		—		—		—	—		—		108		—		108
Issuance of common stock related to share-based awards, net	—		—	(1)		—		(33)		—		—		—	—		—		(33)		—		(33)
Retirement of common stock	—		—	(816)		(8)		(16,268)		—		—		—	—		—		(16,276)		—		(16,276)
Deferred compensation plan	—		—	—		—		—		—		—		(14)	(1)		15		1		—		1
Net cash distributed to noncontrolling interest	—		—	—		—		—		—		—		—	—		—		—		(437)		(437)
Balance, March 31, 2016	—	$	—	98,585	$	986	$	1,567,150	$	6,878	$	183,042	$	1,020	21	$	(428)	$	1,758,648	$	1,363	$	1,760,011

See accompanying notes.

6

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2016		2015
Operating Activities
Net income	$	28,196	$	113,655
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		3,407		2,687
Depreciation, amortization and accretion, net		(11,830)		(14,486)
Net realized gains on securities		(46)		(4,403)
Bargain purchase gain		—		(81,289)
Deferred income taxes		494		(2,545)
Other, net		8,320		(3,814)
Net change in securities purchased under agreements to resell		9,014		(22,486)
Net change in assets segregated for regulatory purposes		37,899		(20,657)
Net change in trading securities		(154,279)		11,632
Net change in broker-dealer and clearing organization receivables		130,858		(793,613)
Net change in FDIC Indemnification Asset		11,214		23,376
Net change in other assets		(14,890)		(34,554)
Net change in broker-dealer and clearing organization payables		(162,722)		690,552
Net change in other liabilities		(48,283)		(52,528)
Net gains from sales of loans		(127,297)		(120,545)
Loans originated for sale		(3,052,579)		(2,904,331)
Proceeds from loans sold		3,352,409		3,094,705
Net cash provided by (used in) operating activities		9,885		(118,644)
Investing Activities
Proceeds from maturities and principal reductions of securities held to maturity		21,398		6,329
Proceeds from sales, maturities and principal reductions of securities available for sale		64,918		449,892
Purchases of securities available for sale		(51,531)		(2,623)
Net change in loans		(233,309)		(2,080)
Purchases of premises and equipment and other assets		(9,948)		(5,565)
Proceeds from sales of premises and equipment and other real estate owned		22,068		31,818
Net cash received for Federal Home Loan Bank and Federal Reserve Bank stock		12,311		4,044
Net cash from acquisitions		—		41,097
Net cash provided by (used in) investing activities		(174,093)		522,912
Financing Activities
Net change in deposits		139,925		(556,657)
Net change in short-term borrowings		(114,452)		72,540
Proceeds from notes payable		5,553		1,000
Payments on notes payable		(12,028)		(23,904)
Proceeds from issuance of common stock		3,850		—
Dividends paid on preferred stock		—		(1,426)
Net cash distributed to noncontrolling interest		(437)		(264)
Other, net		(139)		(99)
Net cash provided by (used in) financing activities		22,272		(508,810)
Net change in cash and cash equivalents		(141,936)		(104,542)
Cash and cash equivalents, beginning of period		669,445		813,075
Cash and cash equivalents, end of period	$	527,509	$	708,533
Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	16,377	$	14,325
Cash paid for income taxes, net of refunds	$	831	$	45,981
Supplemental Schedule of Non-Cash Activities
Conversion of loans to other real estate owned	$	4,726	$	26,211
Common stock issued in acquisition	$	—	$	200,626
Additions to mortgage servicing rights	$	1,639	$	2,690

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. The Company’s primary line of business is to provide business and consumer banking services from offices located throughout Texas through PlainsCapital Bank (the “Bank”). In addition, the Company provides an array of financial products and services through its broker-dealer, mortgage origination and insurance subsidiaries.

The Company provides its products and services through three primary operating subsidiaries, PlainsCapital Corporation (“PlainsCapital”), Hilltop Securities Holdings LLC (“Securities Holdings”) and National Lloyds Corporation (“NLC”). PlainsCapital is a financial holding company, headquartered in Dallas, Texas, that provides, through its subsidiaries, traditional banking, wealth and investment management and treasury management services primarily in Texas and residential mortgage lending throughout the United States. Securities Holdings is a holding company, headquartered in Dallas, Texas, that provides, through its subsidiaries, investment banking and other related financial services, including municipal advisory, sales, trading and underwriting of taxable and tax-exempt fixed income securities, equity trading, clearing, securities lending, structured finance and retail brokerage services throughout the United States. NLC is a property and casualty insurance holding company, headquartered in Waco, Texas, that provides, through its subsidiaries, fire and homeowners insurance to low value dwellings and manufactured homes primarily in Texas and other areas of the southern United States.

On January 1, 2015, Hilltop completed its acquisition of SWS Group, Inc. (“SWS”) in a stock and cash transaction (the “SWS Merger”), whereby SWS’s broker-dealer subsidiaries, Southwest Securities, Inc. and SWS Financial Services, Inc., became subsidiaries of Securities Holdings, and SWS’s banking subsidiary, Southwest Securities, FSB (“SWS FSB”), was merged into the Bank. On October 5, 2015, Southwest Securities, Inc. and SWS Financial Services, Inc. were renamed “Hilltop Securities Inc.” (“Hilltop Securities”) and “Hilltop Securities Independent Network Inc.” (“HTS Independent Network”), respectively.

On October 22, 2015, the Financial Industry Regulatory Authority (“FINRA”) granted approval to combine First Southwest Company, LLC (“FSC”) and Hilltop Securities, subject to customary conditions. FSC, Hilltop Securities and HTS Independent Network operated as separate broker-dealers, under coordinated leadership from the date of the SWS Merger until January 22, 2016, when FSC was merged into Hilltop Securities to form a combined firm operating under the “Hilltop Securities” name. We use the term “Hilltop Broker-Dealers” to refer to FSC, Hilltop Securities and HTS Independent Network prior to January 22, 2016 and Hilltop Securities and HTS Independent Network after such date.

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, 2015 (“2015 Form 10-K”). 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 amounts receivable from the Federal Deposit Insurance Corporation (the “FDIC”) under loss-share agreements (the “FDIC Indemnification Asset”), reserves for losses and loss adjustment expenses (“LAE”), the

8

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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.

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”) and has a 100% membership interest in PlainsCapital Securities, LLC.

PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC, the controlling and sole managing member of PrimeLending Ventures, LLC (“Ventures”).

PlainsCapital also owns 100% of the outstanding common securities 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), because the primary beneficiaries of the Trusts are not within the consolidated group.

Hilltop has a 100% membership interest in Securities Holdings, which operates through its wholly-owned subsidiaries, Hilltop Securities, HTS Independent Network and First Southwest Holdings, LLC (“First Southwest”). Hilltop Securities is a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority (“FINRA”) and a member of the New York Stock Exchange (“NYSE”), HTS Independent Network is an introducing broker-dealer that is also registered with the SEC and FINRA, and First Southwest Asset Management, LLC, a wholly-owned subsidiary of First Southwest, is a registered investment advisor under the Investment Advisors Act of 1940. As discussed above, prior to January 22, 2016, Securities Holdings’ subsidiaries also included FSC, First Southwest’s principal subsidiary and formerly a broker-dealer registered with the SEC and FINRA and a member of the NYSE.

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

The consolidated financial statements include the accounts of the above-named entities. 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 ASC.

The operations acquired in the SWS Merger were included in the Company’s operating results beginning January 1, 2015 and such operations included a preliminary bargain purchase gain of $82.8 million as disclosed in the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2015. During 2015, certain adjustments were recorded that resulted in an aggregate decrease in the preliminary bargain purchase gain associated with the SWS Merger to $81.3 million, which also decreased net income for the three months ended March 31, 2015 by $1.5 million as compared with amounts previously reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015. Accordingly, our results for the quarter ended March 31, 2015 and related disclosures have been revised to reflect these adjustments.

Certain reclassifications have been made to the prior period consolidated financial statements to conform with the current period presentation. Additionally, during the preparation of the condensed consolidated financial statements for the period ended September 30, 2015, the Company determined that its previously reported unaudited consolidated statements of cash flows contained in the previously filed Quarterly Reports on Form 10-Q filed with SEC on May 6, 2015 and July 29, 2015 contained a classification error related to how certain acquired balances related to its acquisition of SWS were reflected. Management has evaluated the quantitative and qualitative impact of the classification error to previously issued unaudited consolidated statements of cash flows and concluded that the previously issued condensed consolidated financial statements were not materially misstated. However, in order to correctly present the cash flow statements, management has elected to revise the unaudited consolidated statements of cash flows for each of the three

9

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

months ended March 31, 2015 included herein and the six months ended June 30, 2015 in its future filings. The correction had no impact on the Company’s financial condition or results of operations for the periods presented.

The following table summarizes the revisions made to the Company’s unaudited consolidated statements of cash flows for the noted periods (in thousands).

	Three Months Ended March 31, 2015
	As Originally Reported		As Revised
Operating Activities
Net change in broker-dealer and clearing organization receivables	$	(1,062,969)	$	(793,613)
Net change in broker-dealer and clearing organization payables		1,039,786		690,552
Net cash used in operating activities		(38,766)		(118,644)
Investing Activities
Net change in loans		267,275		(2,080)
Net cash provided by investing activities		792,267		522,912
Financing Activities
Net change in deposits		(905,890)		(556,657)
Net cash used in financing activities		(858,043)		(508,810)
Net change in cash and cash equivalents		(104,542)		(104,542)

2. Acquisition

SWS Merger

On January 1, 2015, Hilltop completed its acquisition of SWS in a stock and cash transaction, whereby each outstanding share of SWS common stock was converted into the right to receive 0.2496 shares of Hilltop common stock and $1.94 in cash, equating to $6.92 per share based on Hilltop’s closing price on December 31, 2014 and resulting in an aggregate purchase price of $349.1 million, consisting of 10.1 million shares of common stock, $78.2 million in cash and $70.3 million associated with Hilltop’s existing investment in SWS common stock. The operations of SWS are included in the Company’s operating results beginning January 1, 2015. Such operating results include a bargain purchase gain of $81.3 million and are not necessarily indicative of future operating results. SWS’s results of operations prior to the acquisition date are not included in the Company’s consolidated operating results.

The SWS Merger was accounted for using the acquisition method of accounting, and accordingly, purchased assets, including identifiable intangible assets, and assumed liabilities were recorded at their respective acquisition date fair values. The components of the consideration paid are shown in the following table (in thousands).

Fair value of consideration paid:
Common stock issued	$	200,626
Cash		78,217
Fair value of Hilltop’s existing investment in SWS		70,282
Total consideration paid	$	349,125

10

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The resulting fair values of the identifiable assets acquired, and liabilities assumed, acquired in the SWS Merger at January 1, 2015 are summarized in the following table (in thousands).

Cash and due from banks	$	119,314
Federal funds sold and securities purchased under agreements to resell		44,741
Assets segregated for regulatory purposes		181,610
Securities		707,476
Non-covered loans, net		863,819
Broker-dealer and clearing organization receivables		1,221,793
Other assets		159,906
Total identifiable assets acquired		3,298,659
Deposits		(1,287,509)
Broker-dealer and clearing organization payables		(1,109,978)
Short-term borrowings		(164,240)
Securities sold, not yet purchased, at fair value		(140,409)
Notes payable		(76,643)
Other liabilities		(89,466)
Total liabilities assumed		(2,868,245)
Bargain purchase gain		(81,289)
		349,125
Less Hilltop existing investment in SWS		(70,282)
Net identifiable assets acquired	$	278,843

The bargain purchase gain represents the excess of the estimated fair value of the underlying net tangible assets and intangible assets over the merger consideration. The SWS Merger was a tax-free reorganization under Section 368(a) of the Internal Revenue Code, therefore no income taxes were recorded in connection with the bargain purchase gain. The Company used significant estimates and assumptions to value certain identifiable assets acquired and liabilities assumed. The bargain purchase gain was primarily driven by the Company’s ability to realize acquired deferred tax assets through its consolidated core earnings and the decline in the price of the Company’s common stock between the date the fixed conversion ratio was agreed upon and the closing date.

Included within the fair value of other assets in the table above are identifiable intangible assets recorded in connection with the SWS Merger. The allocation to intangible assets is as follows (in thousands).

	Estimated Useful	Gross Intangible
	Life (Years)	Assets
Customer relationships	14	$	7,300
Core deposits	4		160
		$	7,460

In connection with the SWS Merger, Hilltop acquired loans both with and without evidence of credit quality deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan losses. Acquired loans were segregated between those considered to be purchased credit impaired (“PCI”) loans and those without credit impairment at acquisition.

11

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The following table presents details on acquired loans at the acquisition date (in thousands).

	Loans, excluding		PCI		Total
	PCI Loans		Loans		Loans
Commercial and industrial	$	178,603	$	9,850	$	188,453
Real estate		324,477		62,218		386,695
Construction and land development		14,708		1,391		16,099
Consumer		3,216		—		3,216
Broker-dealer (1)		269,356		—		269,356
Total	$	790,360	$	73,459	$	863,819

(1)    Represents acquired margin loans to customers and correspondents associated with acquired broker-dealer segment operations.

The following table presents information about the PCI loans at acquisition (in thousands).

Contractually required principal and interest payments	$	120,078
Nonaccretable difference		32,040
Cash flows expected to be collected		88,038
Accretable difference		14,579
Fair value of loans acquired with a deterioration of credit quality	$	73,459

The following table presents information about the acquired loans without credit impairment at acquisition (in thousands).

Contractually required principal and interest payments	$	901,672
Contractual cash flows not expected to be collected		39,721
Fair value at acquisition		790,360

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 (such as interest rates, yield curves, prepayment speeds, default rates, credit risks and loss severities), and inputs that are derived from or corroborated by market data, among others.

12

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

· 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 and retained mortgage servicing rights (“MSR”) asset at fair value, under the provisions of the 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. At March 31, 2016 and December 31, 2015, the aggregate fair value of PrimeLending’s mortgage loans held for sale accounted for under the Fair Value Option was $1.29 billion and $1.46 billion, respectively, and the unpaid principal balance of those loans was $1.23 billion and $1.41 billion, respectively. 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 and data from independent pricing services.

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

	Level 1		Level 2		Level 3		Total
March 31, 2016	Inputs		Inputs		Inputs		Fair Value
Trading securities	$	12,916	$	355,508	$	1	$	368,425
Available for sale securities		17,979		648,349		—		666,328
Loans held for sale		—		1,244,799		40,545		1,285,344
Derivative assets		—		90,981		—		90,981
MSR asset		—		—		39,863		39,863
Securities sold, not yet purchased		60,149		105,555		—		165,704
Derivative liabilities		—		43,945		—		43,945

	Level 1		Level 2		Level 3			Total
December 31, 2015	Inputs		Inputs		Inputs			Fair Value
Trading securities	$	21,807	$	192,338	$	1	$	214,146
Available for sale securities		17,409		656,297		—		673,706
Loans held for sale		—		1,434,955		25,880		1,460,835
Derivative assets		—		35,676		—		35,676
MSR asset		—		—		52,285		52,285
Securities sold, not yet purchased		27,648		102,396		—		130,044
Derivative liabilities		—		5,426		—		5,426

13

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The following tables include a rollforward 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		Purchases/		Sales/		Included in		Comprehensive		Balance at
	Period		Additions		Reductions		Net Income		Income (Loss)		End of Period
Three months ended  March 31, 2016
Trading securities	$	1	$	—	$	—	$	—	$	—	$	1
Loans held for sale		25,880		23,236		(4,237)		(4,334)		—		40,545
MSR asset		52,285		1,639		—		(14,061)		—		39,863
Total	$	78,166	$	24,875	$	(4,237)	$	(18,395)	$	—	$	80,409
Three months ended  March 31, 2015
Available for sale securities	$	—	$	7,301	$	—	$	(1,369)	$	—	$	5,932
Loans held for sale		9,017		11,136		(271)		(387)		—		19,495
MSR asset		36,155		2,690		—		(7,197)		—		31,648
Total	$	45,172	$	21,127	$	(271)	$	(8,953)	$	—	$	57,075

All net realized and unrealized gains (losses) in the table above are reflected in the accompanying consolidated financial statements. The unrealized gains (losses) relate to financial instruments still held at March 31, 2016.

For Level 3 financial instruments measured at fair value on a recurring basis at March 31, 2016, the significant unobservable inputs used in the fair value measurements were as follows.

			Range
Financialinstrument	ValuationTechnique	UnobservableInput	(Weighted-Average)
Trading securities	Discounted cash flow	Discount rate	8	-	17	%	(	10	%)
Loansheld for sale	Discountedcash flow / Market comparable	Projected price	88	-	96	%	(	96	%)
MSR asset	Discounted cash flow	Constant prepayment rate			16.92		%
		Discount rate			10.79		%

Trading securities include corporate debt securities that are valued using a discounted cash flow model with observable market data; however, due to the distressed nature of these bonds, the Company has determined that these securities should be valued as a Level 3 financial instrument.

The fair value of certain loans held for sale that cannot be sold through normal sale channels or are non-performing is measured using Level 3, or unobservable, inputs. The fair value of such loans is generally based upon estimates of expected cash flows using unobservable inputs, including listing prices of comparable assets, uncorroborated expert opinions, and/or management’s knowledge of underlying collateral.

The MSR asset, which is included in other assets within the Company’s consolidated balance sheets, is valued by projecting net servicing cash flows, which are then discounted to estimate the fair value. The fair value of the MSR asset is impacted by a variety of factors. Prepayment rates and discount rates, the most significant unobservable inputs, are discussed further in Note 7 to the consolidated financial statements.

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

14

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

	Three Months Ended March 31, 2016						Three Months Ended March 31, 2015
			Other		Total				Other		Total
	Net		Noninterest		Changes in		Net		Noninterest		Changes in
	Gains (Losses)		Income		Fair Value		Gains (Losses)		Income		Fair Value
Loans held for sale	$	447	$	—	$	447	$	(6,695)	$	—	$	(6,695)
MSR asset		(14,061)		—		(14,061)		(7,197)		—		(7,197)

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 SWS Merger was determined at the acquisition 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. PCI loans with a fair value of $172.9 million, $822.8 million and $73.5 million were acquired by the Company upon completion of the merger with PlainsCapital (the “PlainsCapital Merger”), the FDIC-assisted transaction (the “FNB Transaction”) whereby the Bank acquired certain assets and assumed certain liabilities of First National Bank (“FNB”) and the SWS Merger, respectively (collectively, the “Bank Transactions”). 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 significant unobservable inputs regarding default rates, loss severity rates assuming default, prepayment speeds on acquired loans accounted for in pools (“Pooled Loans”), and estimated collateral values.

At March 31, 2016, estimates for these significant unobservable inputs were as follows.

	PCI Loans
	PlainsCapital		FNB		SWS
	Merger		Transaction		Merger
Weighted average default rate	60	%	55	%	51	%
Weighted average loss severity rate	51	%	34	%	30	%
Weighted average prepayment speed	0	%	6	%	0	%

At March 31, 2016, the resulting weighted average expected loss on PCI loans associated with the PlainsCapital Merger, FNB Transaction and SWS Merger was 31%, 19% and 15%, respectively.

The Company obtains updated appraisals of the fair value of collateral securing impaired collateral dependent loans at least annually, in accordance with regulatory guidelines. The Company also reviews the fair value of such collateral on a quarterly basis. If the quarterly review indicates that the fair value of the collateral may have deteriorated, the Company orders an updated appraisal of the fair value of the collateral. Because the Company obtains updated appraisals when evidence of a decline in the fair value of collateral exists, it typically does not adjust appraised values.

Other Real Estate Owned — The Company determines fair value primarily using independent appraisals of other real estate owned (“OREO”) properties. The resulting fair value measurements are classified as Level 2 or Level 3 inputs, depending upon the extent to which unobservable inputs determine the fair value measurement. The Company considers a number of factors in determining the extent to which specific fair value measurements utilize unobservable inputs, including, but not limited to, the inherent subjectivity in appraisals, the length of time elapsed since the receipt of independent market price or appraised value, and current market conditions. At March 31, 2016, the most significant unobservable input used in the determination of fair value of OREO was a discount to independent appraisals for estimated holding periods of OREO properties. Level 3 inputs were used to determine the initial fair value at acquisition of a large group of smaller balance properties that were acquired in the FNB Transaction. In the FNB Transaction, the Bank acquired OREO of $135.2 million, all of which is covered by FDIC loss-share agreements. At March 31, 2016 and December 31, 2015, the estimated fair value of covered OREO was $78.9 million and $99.1 million, respectively, and

15

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

the underlying fair value measurements utilize Level 2 and Level 3 inputs. The fair value of non-covered OREO at March 31, 2016 and December 31, 2015 was $0.5 million and $0.4 million, respectively, and is included in other assets within the consolidated balance sheets. During the reported periods, all fair value measurements for non-covered OREO subsequent to initial recognition utilized Level 2 inputs.

The following table presents information regarding certain assets and liabilities measured at fair value on a non-recurring basis for which a change in fair value has been recorded during reporting periods subsequent to initial recognition (in thousands).

									Total Gains (Losses) for the
	Level 1		Level 2		Level 3		Total		Three Months Ended March 31,
March 31, 2016	Inputs		Inputs		Inputs		Fair Value		2016		2015
Non-covered impaired loans	$	—	$	—	$	39,722	$	39,722	$	(33)	$	349
Covered impaired loans		—		—		45,025		45,025		332		3,218
Non-covered other real estate owned		—		—		—		—		—		(28)
Covered other real estate owned		—		11,322		—		11,322		(9,765)		(950)

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 the Company’s 2015 Form 10-K.

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
March 31, 2016	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and cash equivalents	$	527,509	$	527,509	$	—	$	—	$	527,509
Securities purchased under agreements to resell		96,646		—		96,646		—		96,646
Assets segregated for regulatory purposes		120,714		120,714		—		—		120,714
Held to maturity securities		310,478		—		313,553		—		313,553
Loans held for sale		58,989		—		58,989		—		58,989
Non-covered loans, net		5,317,615		—		463,987		4,891,840		5,355,827
Covered loans, net		346,169		—		—		484,424		484,424
Broker-dealer and clearing organization receivables		1,370,622		—		1,370,622		—		1,370,622
FDIC indemnification asset		80,522		—		—		77,817		77,817
Other assets		60,468		—		54,412		6,056		60,468
Financial liabilities:
Deposits		6,984,175		—		6,987,315		—		6,987,315
Broker-dealer and clearing organization payables		1,284,016		—		1,284,016		—		1,284,016
Short-term borrowings		832,921		—		832,921		—		832,921
Debt		299,202		—		292,817		—		292,817
Other liabilities		5,389		—		5,389		—		5,389

16

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
December 31, 2015	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and cash equivalents	$	669,445	$	669,445	$	—	$	—	$	669,445
Securities purchased under agreements to resell		105,660		—		105,660		—		105,660
Assets segregated for regulatory purposes		158,613		158,613		—		—		158,613
Held to maturity securities		332,022		—		331,468		—		331,468
Loans held for sale		72,843		—		72,843		—		72,843
Non-covered loans, net		5,174,625		—		602,968		4,600,406		5,203,374
Covered loans, net		378,762		—		—		527,201		527,201
Broker-dealer and clearing organization receivables		1,362,499		—		1,362,499		—		1,362,499
FDIC indemnification asset		91,648		—		—		91,648		91,648
Other assets		68,786		—		53,214		15,572		68,786
Financial liabilities:
Deposits		6,952,683		—		6,955,919		—		6,955,919
Broker-dealer and clearing organization payables		1,338,305		—		1,338,305		—		1,338,305
Short-term borrowings		947,373		—		947,373		—		947,373
Debt		305,728		—		299,257		—		299,257
Other liabilities		3,699		—		3,699		—		3,699

4. Securities

The fair value of trading securities are summarized as follows (in thousands).

	March 31,		December 31,
	2016		2015
U.S. Treasury securities	$	11,436	$	20,481
U.S. government agencies:
Bonds		75,015		36,244
Residential mortgage-backed securities		55,526		12,505
Commercial mortgage-backed securities		21,717		19,280
Collateralized mortgage obligations		3,150		264
Corporate debt securities		53,277		34,735
States and political subdivisions		101,655		58,588
Unit investment trusts		37,897		18,400
Private-label securitized product		7,443		12,324
Other		1,309		1,325
Totals	$	368,425	$	214,146

The Hilltop Broker-Dealers enter into transactions that represent commitments to purchase and deliver securities at prevailing future market prices to facilitate customer transactions and satisfy such commitments. Accordingly, the Hilltop Broker-Dealers’ ultimate obligation may exceed the amount recognized in the financial statements. These securities, which are carried at fair value and reported as securities sold, not yet purchased in the consolidated balance sheet, had a value of $165.7 million and $130.0 million at March 31, 2016 and December 31, 2015, respectively.

17

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

	Availablefor Sale
	Amortized		Unrealized		Unrealized
March 31, 2016	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	44,409	$	483	$	(8)	$	44,884
U.S. government agencies:
Bonds		301,690		1,703		(280)		303,113
Residential mortgage-backed securities		32,253		1,103		(14)		33,342
Commercial mortgage-backed securities		9,090		283		(2)		9,371
Collateralized mortgage obligations		49,082		81		(641)		48,522
Corporate debt securities		90,080		5,160		(17)		95,223
States and political subdivisions		110,515		2,863		(14)		113,364
Commercial mortgage-backed securities		499		31		—		530
Equity securities		18,371		666		(1,058)		17,979
Totals	$	655,989	$	12,373	$	(2,034)	$	666,328

	Availablefor Sale
	Amortized		Unrealized		Unrealized
December 31, 2015	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	44,430	$	206	$	(33)	$	44,603
U.S. government agencies:
Bonds		297,448		1,135		(1,947)		296,636
Residential mortgage-backed securities		34,864		1,008		(19)		35,853
Commercial mortgage-backed securities		9,174		35		(2)		9,207
Collateralized mortgage obligations		54,297		48		(1,644)		52,701
Corporate debt securities		94,877		3,399		(326)		97,950
States and political subdivisions		116,246		2,581		(102)		118,725
Commercial mortgage-backed securities		498		33		—		531
Equity securities		18,169		574		(1,243)		17,500
Totals	$	670,003	$	9,019	$	(5,316)	$	673,706

	Held toMaturity
	Amortized		Unrealized		Unrealized
March 31, 2016	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	25,073	$	1	$	—	$	25,074
U.S. government agencies:
Bonds		60,428		191		—		60,619
Residential mortgage-backed securities		23,099		634		—		23,733
Commercial mortgage-backed securities		18,577		543		(10)		19,110
Collateralized mortgage obligations		157,455		1,491		(2)		158,944
States and political subdivisions		25,846		235		(8)		26,073
Totals	$	310,478	$	3,095	$	(20)	$	313,553

18

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

	Held toMaturity
	Amortized		Unrealized		Unrealized
December 31, 2015	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	25,146	$	—	$	(30)	$	25,116
U.S. government agencies:
Bonds		69,379		145		(372)		69,152
Residential mortgage-backed securities		23,735		311		—		24,046
Commercial mortgage-backed securities		18,658		27		(92)		18,593
Collateralized mortgage obligations		167,541		302		(970)		166,873
States and political subdivisions		27,563		168		(43)		27,688
Totals	$	332,022	$	953	$	(1,507)	$	331,468

Information regarding available for sale and held to maturity securities that were in an unrealized loss position is shown in the following tables (dollars in thousands).

	March 31, 2016					December 31, 2015
	Number of			Unrealized		Number of			Unrealized
	Securities	Fair Value		Losses		Securities	Fair Value		Losses
Available for sale
U.S. treasury securities:
Unrealized loss for less than twelve months	3	$	4,304	$	5	8	$	33,791	$	33
Unrealized loss for twelve months or longer	2		2,457		3	—		—		—
	5		6,761		8	8		33,791		33
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	1		54,820		152	7		148,327		896
Unrealized loss for twelve months or longer	1		34,865		128	3		44,321		1,051
	2		89,685		280	10		192,648		1,947
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	1		1,311		1	3		3,407		5
Unrealized loss for twelve months or longer	1		976		13	1		982		14
	2		2,287		14	4		4,389		19
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	1		1,605		2	1		1,611		2
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	1		1,605		2	1		1,611		2
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	2		933		4	2		1,590		4
Unrealized loss for twelve months or longer	8		40,304		637	8		42,399		1,640
	10		41,237		641	10		43,989		1,644
Corporate debt securities:
Unrealized loss for less than twelve months	2		2,820		17	16		16,635		277
Unrealized loss for twelve months or longer	—		—		—	1		1,949		49
	2		2,820		17	17		18,584		326
States and political subdivisions:
Unrealized loss for less than twelve months	3		702		2	2		3,018		9
Unrealized loss for twelve months or longer	8		5,125		12	35		24,423		93
	11		5,827		14	37		27,441		102
Equity securities:
Unrealized loss for less than twelve months	1		8,523		709	2		8,949		909
Unrealized loss for twelve months or longer	2		2,321		349	1		1,927		334
	3		10,844		1,058	3		10,876		1,243
Total available for sale:
Unrealized loss for less than twelve months	14		75,018		892	41		217,328		2,135
Unrealized loss for twelve months or longer	22		86,048		1,142	49		116,001		3,181
	36	$	161,066	$	2,034	90	$	333,329	$	5,316

19

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

	March 31, 2016					December 31, 2015
	Number of			Unrealized		Number of			Unrealized
	Securities	Fair Value		Losses		Securities	Fair Value		Losses
Held to Maturity
U.S. treasury securities:
Unrealized loss for less than twelve months	—	$	—	$	—	1	$	25,115	$	30
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	—		—		—	1		25,115		30
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	—		—		—	6		46,607		372
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	—		—		—	6		46,607		372
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	1		1,416		10	7		16,098		92
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	1		1,416		10	7		16,098		92
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	1		6,648		2	10		127,393		970
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	1		6,648		2	10		127,393		970
States and political subdivisions:
Unrealized loss for less than twelve months	7		2,756		8	18		7,900		35
Unrealized loss for twelve months or longer	—		—		—	1		2,664		8
	7		2,756		8	19		10,564		43
Total held to maturity:
Unrealized loss for less than twelve months	9		10,820		20	42		223,113		1,499
Unrealized loss for twelve months or longer	—		—		—	1		2,664		8
	9	$	10,820	$	20	43	$	225,777	$	1,507

During the three months ended March 31, 2016 and 2015, the Company did not record any other-than-temporary impairments (“OTTI”). 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 OTTI of the securities. The Company does not intend, nor does the Company believe that is it likely that the Company will be required, to sell these securities before the recovery of the cost basis.

Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties. The amortized cost and fair value of securities, excluding trading and available for sale equity securities, at March 31, 2016 are shown by contractual maturity below (in thousands).

	Available for Sale				Heldto Maturity
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	105,633	$	105,938	$	26,360	$	26,364
Due after one year through five years		73,027		76,352		18,060		18,228
Due after five years through ten years		66,653		70,937		3,185		3,223
Due after ten years		301,381		303,357		63,742		63,951
		546,694		556,584		111,347		111,766
Residential mortgage-backed securities		32,253		33,342		23,099		23,733
Collateralized mortgage obligations		49,082		48,522		157,455		158,944
Commercial mortgage-backed securities		9,589		9,901		18,577		19,110
	$	637,618	$	648,349	$	310,478	$	313,553

The Company realized net gains of $11.3 million and $3.4 million from its trading securities portfolio during the three months ended March 31, 2016 and 2015, respectively,which are recorded as a component of other noninterest income within the consolidated statements of operations.

20

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Securities with a carrying amount of $753.5 million and $789.9 million (with a fair value of $761.3 million and $790.2 million, respectively) at March 31, 2016 and December 31, 2015, 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. Substantially all of these pledged securities were included in our available for sale and held to maturity securities portfolios at March 31, 2016 and December 31, 2015.

Mortgage-backed securities and collateralized mortgage obligations consist principally of Government National Mortgage Association (“GNMA”), Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) pass-through and participation certificates. GNMA securities are guaranteed by the full faith and credit of the United States, while FNMA and FHLMC securities are fully guaranteed by those respective United States government-sponsored agencies, and conditionally guaranteed by the full faith and credit of the United States.

At March 31, 2016 and December 31, 2015, NLC had investments on deposit in custody for various state insurance departments with carrying values of $9.7 million and $9.2 million, respectively.

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. Covered loans are discussed in Note 6 to the consolidated financial statements. Non-covered loans summarized by portfolio segment are as follows (in thousands).

	March 31,		December 31,
	2016		2015
Commercial and industrial	$	1,619,567	$	1,552,805
Real estate		2,536,302		2,313,239
Construction and land development		701,358		705,356
Consumer		44,851		45,672
Broker-dealer (1)		463,987		602,968
		5,366,065		5,220,040
Allowance for non-covered loan losses		(48,450)		(45,415)
Total non-covered loans, net of allowance	$	5,317,615	$	5,174,625

(1) Represents margin loans to customers and correspondents associated with our broker-dealer segment operations.

In connection with the Bank Transactions, 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 balances of the non-covered PCI loans (in thousands).

	March 31,		December 31,
	2016		2015
Carrying amount	$	68,053	$	72,054
Outstanding balance		87,345		92,682

21

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 March 31,
	2016		2015
Balance, beginning of period	$	17,744	$	12,814
Additions		—		14,579
Reclassifications from (to) nonaccretable difference, net(1)		2,343		281
Disposals of loans		—		(448)
Accretion		(3,919)		(2,749)
Balance, end of period	$	16,168	$	24,477

(1) Reclassifications from nonaccretable difference are primarily due to net increases in expected cash flows in the quarterly recasts. Reclassifications to nonaccretable difference occur when accruing loans are moved to nonaccrual and expected cash flows are no longer predictable and the accretable yield is eliminated.

The remaining nonaccretable difference for non-covered PCI loans was $28.0 million and $28.5 million at March 31, 2016 and December 31, 2015, respectively.

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.

The amounts shown in following tables include loans accounted for on an individual basis, as well as acquired Pooled Loans. For Pooled Loans, the recorded investment with allowance and the related allowance consider impairment measured at the pool level. Non-covered impaired loans, segregated between those considered to be PCI loans and those without credit impairment at acquisition, are summarized by class in the following tables (in thousands).

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
March 31, 2016	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial and industrial:
Secured	$	28,379	$	4,085	$	9,032	$	13,117	$	1,027
Unsecured		2,559		—		—		—		—
Real estate:
Secured by commercial properties		47,718		14,159		24,457		38,616		3,187
Secured by residential properties		15,516		8,888		2,806		11,694		175
Construction and land development:
Residential construction loans		—		—		—		—		—
Commercial construction loans and land development		6,914		3,115		983		4,098		138
Consumer		3,826		490		38		528		28
Broker-dealer		—		—		—		—		—
		104,912		30,737		37,316		68,053		4,555
Non-PCI
Commercial and industrial:
Secured		21,778		6,137		6,952		13,089		1,344
Unsecured		181		35		—		35		—
Real estate:
Secured by commercial properties		668		607		—		607		—
Secured by residential properties		1,088		789		—		789		—
Construction and land development:
Residential construction loans		—		—		—		—		—
Commercial construction loans and land development		122		102		—		102		—
Consumer		2		1		—		1		—
Broker-dealer		—		—		—		—		—
		23,839		7,671		6,952		14,623		1,344
	$	128,751	$	38,408	$	44,268	$	82,676	$	5,899

22

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
December 31, 2015	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial and industrial:
Secured	$	32,597	$	5,520	$	7,830	$	13,350	$	1,341
Unsecured		2,572		—		—		—		—
Real estate:
Secured by commercial properties		57,607		15,914		25,214		41,128		2,756
Secured by residential properties		15,278		8,957		2,690		11,647		175
Construction and land development:
Residential construction loans		395		—		221		221		8
Commercial construction loans and land development		7,929		3,283		1,646		4,929		174
Consumer		4,162		734		45		779		32
Broker-dealer		—		—		—		—		—
		120,540		34,408		37,646		72,054		4,486
Non-PCI
Commercial and industrial:
Secured		21,222		6,736		6,017		12,753		1,380
Unsecured		224		47		—		47		—
Real estate:
Secured by commercial properties		436		390		—		390		—
Secured by residential properties		1,229		918		—		918		—
Construction and land development:
Residential construction loans		—		—		—		—		—
Commercial construction loans and land development		131		114		—		114		—
Consumer		—		1		—		1		—
Broker-dealer		—		—		—		—		—
		23,242		8,206		6,017		14,223		1,380
	$	143,782	$	42,614	$	43,663	$	86,277	$	5,866

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

	Three Months Ended March 31,
	2016		2015
Commercial and industrial:
Secured	$	26,155	$	32,684
Unsecured		41		80
Real estate:
Secured by commercial properties		40,371		43,013
Secured by residential properties		12,524		12,205
Construction and land development:
Residential construction loans		111		117
Commercial construction loans and land development		4,622		10,068
Consumer		655		1,844
Broker-dealer		—		—
	$	84,479	$	100,011

23

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

	March 31,		December 31,
	2016		2015
Commercial and industrial:
Secured	$	19,144	$	17,717
Unsecured		35		47
Real estate:
Secured by commercial properties		4,813		4,597
Secured by residential properties		870		999
Construction and land development:
Residential construction loans		—		—
Commercial construction loans and land development		102		114
Consumer		1		7
Broker-dealer		—		—
	$	24,965	$	23,481

At March 31, 2016 and December 31, 2015, non-covered non-accrual loans included non-covered PCI loans of $10.3 million and $9.3 million, respectively, 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. In addition to the non-covered non-accrual loans in the table above, $2.1 million and $1.6 million of real estate loans secured by residential properties and classified as held for sale were in non-accrual status at March 31, 2016 and December 31, 2015, respectively.

Interest income, including recoveries and cash payments, recorded on non-covered impaired loans was $0.1 million and $0.6 million during the three months ended March 31, 2016 and 2015, respectively. Except as noted above, non-covered PCI loans are considered to be performing due to the application of the accretion method.

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.

24

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The outstanding balance of TDRs granted in the three months ended March 31, 2016 and 2015, respectively, is shown in the following tables (in thousands). The TDR granted during the three months ended March 31, 2015 was paid off as of June 30, 2015. At March 31, 2016 and December 31, 2015, the Bank had nominal 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  March 31, 2016	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	1,196	$	1,196
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		—		—		—		—
Broker-dealer		—		—		—		—
	$	—	$	—	$	1,196	$	1,196

	Recorded Investment in Loans Modified by
			Interest Rate		Payment Term		Total
Three months ended  March 31, 2015	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	—	$	—
Unsecured		—		—		—		—
Real estate:
Secured by commercial properties		—		—		—		—
Secured by residential properties		—		—		—		—
Construction and land development:
Residential construction loans		—		—		—		—
Commercial construction loans and land development		—		—		75		75
Consumer		—		—		—		—
Broker-dealer		—		—		—		—
	$	—	$	—	$	75	$	75

There were no TDRs granted during the three months ended March 31, 2016 and 2015, for which a payment was at least 30 days past due in the three months ended March 31, 2016 and 2015, respectively.

25

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

															Accruing Loans (Non-PCI)
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
March 31, 2016	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	2,347	$	915	$	7,819	$	11,081	$	1,496,644	$	13,117	$	1,520,842	$	46
Unsecured		637		51		—		688		98,037		—		98,725		—
Real estate:
Secured by commercial properties		1,153		—		1,519		2,672		1,684,700		38,616		1,725,988		1,183
Secured by residential properties		4,483		22		—		4,505		794,115		11,694		810,314		—
Construction and land development:
Residential construction loans		28		—		—		28		97,276		—		97,304		—
Commercial construction loans and land development		—		—		—		—		599,956		4,098		604,054		—
Consumer		443		27		1		471		43,852		528		44,851		—
Broker-dealer		—		—		—		—		463,987		—		463,987		—
	$	9,091	$	1,015	$	9,339	$	19,445	$	5,278,567	$	68,053	$	5,366,065	$	1,229

															Accruing Loans (Non-PCI)
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
December 31, 2015	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	14,869	$	3,960	$	8,414	$	27,243	$	1,406,537	$	13,350	$	1,447,130	$	12
Unsecured		18		1		—		19		105,656		—		105,675		—
Real estate:
Secured by commercial properties		1,008		964		293		2,265		1,528,084		41,128		1,571,477		—
Secured by residential properties		726		35		336		1,097		729,018		11,647		741,762		—
Construction and land development:
Residential construction loans		343		—		—		343		103,819		221		104,383		—
Commercial construction loans and land development		733		1,845		114		2,692		593,352		4,929		600,973		—
Consumer		359		17		—		376		44,517		779		45,672		—
Broker-dealer		—		—		—		—		602,968		—		602,968		—
	$	18,056	$	6,822	$	9,157	$	34,035	$	5,113,951	$	72,054	$	5,220,040	$	12

In addition to the non-covered loans shown in the table above, $50.7 million and $50.8 million of loans included in loans held for sale (with an unpaid principal balance of $51.2 million and $51.1 million, respectively) were 90 days past due and accruing interest at March 31, 2016 and December 31, 2015, respectively. These loans are guaranteed by U.S. government agencies and include loans that are subject to repurchase, or have been repurchased, by PrimeLending.

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.

26

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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).

March 31, 2016	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,434,976	$	2,568	$	70,181	$	13,117	$	1,520,842
Unsecured		98,560		—		165		—		98,725
Real estate:
Secured by commercial properties		1,674,739		—		12,633		38,616		1,725,988
Secured by residential properties		793,399		—		5,221		11,694		810,314
Construction and land development:
Residential construction loans		97,304		—		—		—		97,304
Commercial construction loans and land development		599,273		—		683		4,098		604,054
Consumer		44,242		—		81		528		44,851
Broker-dealer		463,987		—		—		—		463,987
	$	5,206,480	$	2,568	$	88,964	$	68,053	$	5,366,065

December 31, 2015	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,372,671	$	—	$	61,109	$	13,350	$	1,447,130
Unsecured		105,569		—		106		—		105,675
Real estate:
Secured by commercial properties		1,517,049		1,536		11,764		41,128		1,571,477
Secured by residential properties		724,701		—		5,414		11,647		741,762
Construction and land development:
Residential construction loans		104,162		—		—		221		104,383
Commercial construction loans and land development		594,614		—		1,430		4,929		600,973
Consumer		44,736		35		122		779		45,672
Broker-dealer		602,968		—		—		—		602,968
	$	5,066,470	$	1,571	$	79,945	$	72,054	$	5,220,040

Allowance for Loan Losses

The allowance for both originated and acquired loans 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. The Company’s analysis of 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

27

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Allowance for Loan and Lease Losses and the Receivables and Contingencies Topics of the ASC is described in detail in Note 5 to the consolidated financial statements included in the Company’s 2015 Form 10-K.

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 March 31, 2016	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Balance, beginning of period	$	19,845	$	18,983	$	6,064	$	314	$	209	$	45,415
Provision charged to (recapture from) operations		1,016		3,233		(503)		32		(93)		3,685
Loans charged off		(1,350)		—		—		(52)		(2)		(1,404)
Recoveries on charged off loans		658		56		—		40		—		754
Balance, end of period	$	20,169	$	22,272	$	5,561	$	334	$	114	$	48,450

	Commercial and				Construction and
Three Months Ended March 31, 2015	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Balance, beginning of period	$	18,833	$	11,131	$	6,450	$	461	$	166	$	37,041
Provision charged to (recapture from) operations		1,670		1,807		(608)		(276)		201		2,794
Loans charged off		(942)		(278)		—		(34)		—		(1,254)
Recoveries on charged off loans		592		44		—		25		123		784
Balance, end of period	$	20,153	$	12,704	$	5,842	$	176	$	490	$	39,365

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

	Commercial and				Construction and
March 31, 2016	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Loans individually evaluated for impairment	$	11,572	$	—	$	—	$	—	$	—	$	11,572
Loans collectively evaluated for impairment		1,594,878		2,485,992		697,260		44,323		463,987		5,286,440
PCI Loans		13,117		50,310		4,098		528		—		68,053
	$	1,619,567	$	2,536,302	$	701,358	$	44,851	$	463,987	$	5,366,065

	Commercial and				Construction and
December 31, 2015	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Loans individually evaluated for impairment	$	11,354	$	97	$	—	$	—	$	—	$	11,451
Loans collectively evaluated for impairment		1,528,101		2,260,367		700,206		44,893		602,968		5,136,535
PCI Loans		13,350		52,775		5,150		779		—		72,054
	$	1,552,805	$	2,313,239	$	705,356	$	45,672	$	602,968	$	5,220,040

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

	Commercial and				Construction and
March 31, 2016	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Loans individually evaluated for impairment	$	1,344	$	—	$	—	$	—	$	—	$	1,344
Loans collectively evaluated for impairment		17,798		18,910		5,423		306		114		42,551
PCI Loans		1,027		3,362		138		28		—		4,555
	$	20,169	$	22,272	$	5,561	$	334	$	114	$	48,450

	Commercial and				Construction and
December 31, 2015	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Loans individually evaluated for impairment	$	1,380	$	—	$	—	$	—	$	—	$	1,380
Loans collectively evaluated for impairment		17,124		16,052		5,882		282		209		39,549
PCI Loans		1,341		2,931		182		32		—		4,486
	$	19,845	$	18,983	$	6,064	$	314	$	209	$	45,415

28

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 (the “Bank Closing Date”). As part of the Purchase and Assumption Agreement by and among the FDIC (as receiver of FNB), the Bank and the FDIC (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 sheets. 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: (i) 80% of net losses on the first $240.4 million of net losses incurred; (ii) 0% of net losses in excess of $240.4 million up to and including $365.7 million of net losses incurred; and (iii) 80% of net losses in excess of $365.7 million of net losses incurred. Net losses are defined as book value losses plus certain defined expenses incurred in the resolution of assets, less subsequent recoveries. Under the loss-share agreement for commercial assets, the amount of subsequent recoveries that are reimbursable to the FDIC for a particular asset is limited to book value losses and expenses actually billed plus any book value charge-offs incurred prior to the Bank Closing Date. There is no limit on the amount of subsequent recoveries reimbursable to the FDIC under the loss-share agreement for single family residential assets. The loss-share agreements for commercial and single family residential assets 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. The asset arising from the loss-share agreements, referred 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 its actual net realized losses over the life of the loss-share agreements are less than the FDIC’s initial estimate of losses on covered assets. The “true-up” payment is calculated using a defined formula set forth in the P&A Agreement. At March 31, 2016, the Bank recorded a related “true-up” payment accrual of $7.5 million based on the current estimate of aggregate realized losses on covered assets over the life of the loss-share agreements.

Covered Loans and Allowance for Covered Loan Losses

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

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 segregated between those considered to be PCI loans and those without credit impairment at acquisition.

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 those 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.

29

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The following table presents the carrying value of the covered loans summarized by portfolio segment (in thousands).

	March 31,		December 31,
	2016		2015
Commercial and industrial	$	9,070	$	8,801
Real estate		318,921		341,048
Construction and land development		19,395		30,445
		347,386		380,294
Allowance for covered loans		(1,217)		(1,532)
Total covered loans, net of allowance	$	346,169	$	378,762

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

	March 31,		December 31,
	2016		2015
Carrying amount	$	197,865	$	221,974
Outstanding balance		371,802		408,221

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

	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	176,719	$	193,493
Reclassifications from (to) nonaccretable difference, net(1)		9,633		16,263
Transfer of loans to covered OREO(2)		(109)		1,172
Accretion		(17,110)		(16,931)
Balance, end of period	$	169,133	$	193,997

(1) Reclassifications from nonaccretable difference are primarily due to net increases in expected cash flows in the quarterly recasts, but may also include the reclassification and immediate income recognition of nonaccretable difference due to the favorable resolution of loans accounted for individually. Reclassifications to nonaccretable difference occur when accruing loans are moved to nonaccrual and expected cash flows are no longer predictable and the accretable yield is eliminated.

(2) Transfer of loans to covered OREO is the difference between the value removed from the pool and the expected cash flows for the loan.

The remaining nonaccretable difference for covered PCI loans was $150.6 million and $172.2 million at March 31, 2016 and December 31, 2015, respectively. During the three months ended March 31, 2016 and 2015, a combination of factors affecting the inputs to the Bank’s quarterly recast process led to the reclassifications from nonaccretable difference to accretable yield. These transfers resulted from revised cash flows that reflect better-than-expected performance of the covered PCI loan portfolio as a result of the Bank’s strategic decision to dedicate resources to the liquidation of covered loans during the noted periods.

30

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Covered impaired loans include non-accrual loans, TDRs, PCI loans and partially charged-off loans. The amounts shown in following tables include Pooled Loans, as well as loans accounted for on an individual basis. For Pooled Loans, the recorded investment with allowance and the related allowance consider impairment measured at the pool level. Covered impaired loans, segregated between those considered to be PCI loans and those without credit impairment at acquisition, are summarized by class in the following tables (in thousands).

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
March 31, 2016	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial and industrial:
Secured	$	13,790	$	1,680	$	3,483	$	5,163	$	361
Unsecured		8,757		1,145		645		1,790		61
Real estate:
Secured by commercial properties		197,972		77,867		10,210		88,077		189
Secured by residential properties		172,472		86,001		2,863		88,864		522
Construction and land development:
Residential construction loans		1,223		—		165		165		35
Commercial construction loans and land development		44,743		13,806		—		13,806		—
		438,957		180,499		17,366		197,865		1,168
Non-PCI
Commercial and industrial:
Secured		72		60		—		60		—
Unsecured		—		—		—		—		—
Real estate:
Secured by commercial properties		508		433		—		433		—
Secured by residential properties		3,827		3,062		—		3,062		—
Construction and land development:
Residential construction loans		787		520		—		520		—
Commercial construction loans and land development		48		13		—		13		—
		5,242		4,088		—		4,088		—
	$	444,199	$	184,587	$	17,366	$	201,953	$	1,168

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
December 31, 2015	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial and industrial:
Secured	$	15,454	$	3,312	$	2,415	$	5,727	$	495
Unsecured		9,377		618		1,162		1,780		246
Real estate:
Secured by commercial properties		211,145		67,540		29,388		96,928		245
Secured by residential properties		182,698		93,438		3,180		96,618		514
Construction and land development:
Residential construction loans		1,225		121		—		121		—
Commercial construction loans and land development		55,947		20,800		—		20,800		—
		475,846		185,829		36,145		221,974		1,500
Non-PCI
Commercial and industrial:
Secured		78		68		—		68		—
Unsecured		—		1		—		1		—
Real estate:
Secured by commercial properties		512		443		—		443		—
Secured by residential properties		3,745		3,031		—		3,031		—
Construction and land development:
Residential construction loans		799		540		—		540		—
Commercial construction loans and land development		123		110		—		110		—
		5,257		4,193		—		4,193		—
	$	481,103	$	190,022	$	36,145	$	226,167	$	1,500

31

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Average recorded investment in covered impaired loans is summarized by class in the following table (in thousands).

	Three Months Ended March 31,
	2016		2015
Commercial and industrial:
Secured	$	5,509	$	13,170
Unsecured		1,786		5,851
Real estate:
Secured by commercial properties		92,941		203,506
Secured by residential properties		95,788		135,164
Construction and land development:
Residential construction loans		673		1,336
Commercial construction loans and land development		17,365		42,364
	$	214,062	$	401,391

Covered non-accrual loans are summarized by class in the following table (in thousands).

	March 31,		December 31,
	2016		2015
Commercial and industrial:
Secured	$	60	$	68
Unsecured		—		—
Real estate:
Secured by commercial properties		433		442
Secured by residential properties		2,550		2,516
Construction and land development:
Residential construction loans		520		541
Commercial construction loans and land development		13		5,411
	$	3,576	$	8,978

At March 31, 2016, there were no covered PCI loans included within non-accrual loans for which discount accretion has been suspended. At December 31, 2015, covered non-accrual loans included covered PCI loans of $5.3 million for which discount accretion has been suspended because the extent and timing of cash flows from these covered PCI loans can no longer be reasonably estimated.

Interest income, including recoveries and cash payments, recorded on covered impaired loans during the three months ended March 31, 2016 and 2015 was nominal. Except as noted above, covered PCI loans are considered to be performing due to the application of the accretion method.

32

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The Bank classifies loan modifications of covered loans as TDRs in a manner consistent with that of non-covered loans as discussed in Note 5 to the consolidated financial statements. There were no TDRs granted during the three months ended March 31, 2016. The outstanding balance of TDRs granted during three months ended March 31, 2015 is shown in the following table (in thousands). Pooled Loans are not in the scope of the disclosure requirements for TDRs. At March 31, 2016 and December 31, 2015, the Bank had nominal unadvanced commitments to borrowers whose loans have been restructured in TDRs.

	RecordedInvestmentinLoansModifiedby
			InterestRate		PaymentTerm		Total
Three Months Ended March 31, 2015	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	—	$	—
Unsecured		—		—		—		—
Real estate:
Secured by commercial properties		—		—		573		573
Secured by residential properties		—		—		280		280
Construction and land development:
Residential construction loans		—		—		—		—
Commercial construction loans and land development		—		—		—		—
	$	—	$	—	$	853	$	853

The following table presents information regarding TDRs granted during the three months ended March 31, 2015 for  which a payment was at least 30 days past due in the three months ended March 31, 2015 (dollars in thousands).

	Number of	Recorded
	Loans	Investment
Commercial and industrial:
Secured	—	$	—
Unsecured	—		—
Real estate:
Secured by commercial properties	—		—
Secured by residential properties	1		280
Construction and land development:
Residential construction loans	—		—
Commercial construction loans and land development	—		—
	1	$	280

33

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

An analysis of the aging of the Bank’s 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		(Non‑PCI)Past Due
March 31, 2016	30‑59 Days		60‑89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	—	$	—	$	162	$	162	$	1,955	$	5,163	$	7,280	$	102
Unsecured		—		—		—		—		—		1,790		1,790		—
Real estate:
Secured by commercial properties		—		—		98		98		26,999		88,077		115,174		—
Secured by residential properties		3,379		121		1,075		4,575		110,308		88,864		203,747		—
Construction and land development:
Residential construction loans		—		—		520		520		—		165		685		—
Commercial construction loans and land development		87		—		—		87		4,817		13,806		18,710		—
	$	3,466	$	121	$	1,855	$	5,442	$	144,079	$	197,865	$	347,386	$	102

															Accruing Loans
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		(Non‑PCI)Past Due
December 31, 2015	30‑59 Days		60‑89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	51	$	—	$	68	$	119	$	1,175	$	5,727	$	7,021	$	—
Unsecured		—		—		—		—		—		1,780		1,780		—
Real estate:
Secured by commercial properties		—		—		100		100		28,957		96,928		125,985		—
Secured by residential properties		3,399		418		1,104		4,921		113,524		96,618		215,063		—
Construction and land development:
Residential construction loans		—		—		540		540		264		121		925		—
Commercial construction loans and land development		47		1		95		143		8,577		20,800		29,520		—
	$	3,497	$	419	$	1,907	$	5,823	$	152,497	$	221,974	$	380,294	$	—

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. The following tables present the internal risk grades of covered loans in the portfolio by class (in thousands).

March 31, 2016	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,118	$	—	$	999	$	5,163	$	7,280
Unsecured		—		—		—		1,790		1,790
Real estate:
Secured by commercial properties		22,565		—		4,532		88,077		115,174
Secured by residential properties		107,719		484		6,680		88,864		203,747
Construction and land development:
Residential construction loans		—		—		520		165		685
Commercial construction loans and land development		3,204		—		1,700		13,806		18,710
	$	134,606	$	484	$	14,431	$	197,865	$	347,386

34

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

December 31, 2015	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	758	$	—	$	536	$	5,727	$	7,021
Unsecured		—		—		—		1,780		1,780
Real estate:
Secured by commercial properties		24,070		—		4,987		96,928		125,985
Secured by residential properties		111,128		491		6,826		96,618		215,063
Construction and land development:
Residential construction loans		264		—		540		121		925
Commercial construction loans and land development		6,847		—		1,873		20,800		29,520
	$	143,067	$	491	$	14,762	$	221,974	$	380,294

The Bank’s impairment methodology for the covered loans is consistent with that of non-covered loans as discussed in detail in Notes 5 and 6 to the consolidated financial statements included in the Company’s 2015 Form 10-K.

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

	Commercial and				Construction and
Three months ended  March 31, 2016	Industrial		Real Estate		Land Development		Total
Balance, beginning of period	$	758	$	774	$	—	$	1,532
Provision charged to (recapture from) operations		(314)		(23)		59		(278)
Loans charged off		(6)		(16)		(22)		(44)
Recoveries on charged off loans		—		7		—		7
Balance, end of period	$	438	$	742	$	37	$	1,217

	Commercial and				Construction and
Three months ended  March 31, 2015	Industrial		Real Estate		Land Development		Total
Balance, beginning of period	$	1,193	$	3,334	$	84	$	4,611
Provision charged to (recapture from) operations		71		(192)		14		(107)
Loans charged off		(900)		(2,215)		(1)		(3,116)
Recoveries on charged off loans		—		—		—		—
Balance, end of period	$	364	$	927	$	97	$	1,388

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

	Commercial and				Construction and
March 31, 2016	Industrial		Real Estate		Land Development		Total
Loans individually evaluated for impairment	$	—	$	—	$	520	$	520
Loans collectively evaluated for impairment		2,117		141,980		4,904		149,001
PCI Loans		6,953		176,941		13,971		197,865
	$	9,070	$	318,921	$	19,395	$	347,386

	Commercial and				Construction and
December 31, 2015	Industrial		Real Estate		Land Development		Total
Loans individually evaluated for impairment	$	—	$	—	$	540	$	540
Loans collectively evaluated for impairment		1,294		147,502		8,984		157,780
PCI Loans		7,507		193,546		20,921		221,974
	$	8,801	$	341,048	$	30,445	$	380,294

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

	Commercial and				Construction and
March 31, 2016	Industrial		Real Estate		Land Development		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment		16		31		2		49
PCI Loans		422		711		35		1,168
	$	438	$	742	$	37	$	1,217

35

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

	Commercial and				Construction and
December 31, 2015	Industrial		Real Estate		Land Development		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment		17		15		—		32
PCI Loans		741		759		—		1,500
	$	758	$	774	$	—	$	1,532

Covered Other Real Estate Owned

A summary of the activity in covered OREO is as follows (in thousands).

	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	99,090	$	136,945
Additions to covered OREO		4,542		24,042
Dispositions of covered OREO		(14,977)		(22,334)
Valuation adjustments in the period		(9,765)		(950)
Balance, end of period	$	78,890	$	137,703

During the three months ended March 31, 2016 and 2015, the Bank wrote down certain covered OREO assets to fair value to reflect new appraisals on certain OREO acquired in the FNB Transaction and OREO acquired from the foreclosure on certain FNB loans acquired in the FNB Transaction. Although the Bank recorded a fair value discount on the acquired assets upon acquisition, in some cases additional downward valuations were required.

These additional downward valuation adjustments reflect changes to the assumptions regarding the fair value of the OREO, including in some cases the intended use of the OREO due to the availability of more information, as well as the passage of time. The process of determining fair value is subjective in nature and requires the use of significant estimates and assumptions. Although the Bank makes market-based assumptions when valuing acquired assets, new information may come to light that causes estimates to increase or decrease. When the Bank determines, based on subsequent information, that its estimates require adjustment, the Bank records the adjustment. The accounting for such adjustments requires that the decreases to fair value be recorded at the time such new information is received, while increases to fair value are recorded when the asset is subsequently sold.

FDIC Indemnification Asset

A summary of the activity in the FDIC Indemnification Asset is as follows (in thousands).

	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	91,648	$	130,437
FDIC Indemnification Asset accretion (amortization)		87		506
Transfers to due from FDIC and other		(11,213)		(23,376)
Balance, end of period	$	80,522	$	107,567

As of March 31, 2016, the Bank had billed and collected $111.5 million from the FDIC, which represented reimbursable covered losses and expenses through December 31, 2015.

36

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

7. Mortgage Servicing Rights

The following tables present the changes in fair value of the Company’s MSR, as included in other assets within the consolidated balance sheets, and other information related to the serviced portfolio (dollars in thousands).

	Three Months Ended March 31,
	2016			2015
Balance, beginning of period	$	52,285		$	36,155
Additions		1,639			2,690
Changes in fair value:
Due to changes in model inputs or assumptions(1)		(12,842)			(5,044)
Due to customer payoffs		(1,219)			(2,153)
Balance, end of period	$	39,863		$	31,648
	March 31,			December 31,
	2016			2015
Mortgage loans serviced for others	$	5,004,100		$	5,051,884
MSR asset as a percentage of serviced mortgage loans		0.80	%		1.03	%

(1) Primarily represents normal customer payments, changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates and the refinement of other MSR model assumptions.

The key assumptions used in measuring the fair value of the Company’s MSR were as follows.

	March 31,		December 31,
	2016		2015
Weighted average constant prepayment rate	16.92	%	11.51	%
Weighted average discount rate	10.79	%	10.92	%
Weighted average life (in years)	4.8		6.5

A sensitivity analysis of the fair value of the Company’s MSR to certain key assumptions is presented in the following table (in thousands).

	March 31,		December 31,
	2016		2015
Constant prepayment rate:
Impact of 10% adverse change	$	(1,831)	$	(2,177)
Impact of 20% adverse change		(3,494)		(4,195)
Discount rate:
Impact of 10% adverse change		(1,073)		(2,073)
Impact of 20% adverse change		(2,076)		(3,989)

This sensitivity analysis presents the effect of hypothetical changes in key assumptions on the fair value of the MSR. The effect of such hypothetical change in assumptions generally cannot be extrapolated because the relationship of the change in one key assumption to the change in the fair value of the MSR is not linear. In addition, in the analysis, the impact of an adverse change in one key assumption is calculated independent of any impact on other assumptions. In reality, changes in one assumption may change another assumption.

Contractually specified servicing fees, late fees and ancillary fees earned of $5.9 million and $4.2 million during the three months ended March 31, 2016 and 2015, respectively, were included in other noninterest income within the consolidated statements of operations.

37

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

8. Deposits

Deposits are summarized as follows (in thousands).

	March 31,		December 31,
	2016		2015
Noninterest-bearing demand	$	2,233,608	$	2,235,436
Interest-bearing:
NOW accounts		1,171,481		1,077,576
Money market		1,447,155		1,500,780
Brokered - money market		97,472		133,380
Demand		343,083		380,214
Savings		330,307		273,390
Time		1,361,069		1,325,342
Brokered - time		—		26,565
	$	6,984,175	$	6,952,683

9. Short-term Borrowings

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

	March 31,		December 31,
	2016		2015
Federal funds purchased	$	62,900	$	58,925
Securities sold under agreements to repurchase		320,021		217,748
Federal Home Loan Bank		300,000		600,000
Short-term bank loans		150,000		70,700
	$	832,921	$	947,373

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 the Hilltop Broker-Dealers 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, the Hilltop Broker-Dealers or a third-party dealer.

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

	Three Months Ended March 31,
	2016			2015
Average balance during the period	$	329,392		$	361,600
Average interest rate during the period		0.49	%		0.25	%

	March 31,			December 31,
	2016			2015
Average interest rate at end of period		0.41	%		0.26	%
Securities underlying the agreements at end of period:
Carrying value	$	333,973		$	250,981
Estimated fair value	$	337,695		$	250,045

38

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Federal Home Loan Bank (“FHLB”) short-term borrowings 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 short-term borrowings is shown in the following tables (dollars in thousands).

	Three Months Ended March 31,
	2016			2015
Average balance during the period	$	234,341		$	235,111
Average interest rate during the period		0.44	%		0.22	%

	March 31,		December 31,
	2016		2015
Average interest rate at end of period	0.47	%	0.35	%

The Hilltop Broker-Dealers use short-term bank loans periodically to finance securities owned, margin loans to customers and correspondents, and underwriting activities. Interest on the borrowings varies with the federal funds rate. The weighted average interest rate on the borrowings at both March 31, 2016 and December 31, 2015 was 1.26%.

10. Notes Payable

	March 31,		December 31,
	2016		2015
NLIC note payable due May 2033	$	10,000	$	10,000
NLIC note payable due September 2033		10,000		10,000
ASIC note payable due April 2034		7,500		7,500
Insurance company note payable due March 2035		20,000		20,000
Federal Home Loan Bank notes, maturities ranging from May 2016 to June 2030		32,524		36,042
Insurance company line of credit due December 31, 2016		1,500		7,000
Ventures line of credit due August 2016		2,459		—
Senior Notes due April 2025, net		148,207		148,174
	$	232,190	$	238,716

11. 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 tax rate was 33.8% and 11.9% during the three months ended March 31, 2016 and 2015, respectively. The effective tax rate during the three months ended March 31, 2016 was lower than the statutory rate primarily due to recognition of excess tax benefits on share-based payment awards as a result of the Company’s adoption of the provisions of Accounting Standards Update (“ASU”) 2016-09 as of January 1, 2016 as discussed in Note 23 to the consolidated financial statements. The lower effective tax rate during the three months ended March 31, 2015 was primarily due to no income taxes being recorded during 2015 in connection with the bargain purchase gain of $81.3 million associated with the SWS Merger because the acquisition was a tax-free reorganization under Section 368(a) of the Internal Revenue Code. In addition, the Company recorded an income tax benefit during 2015 of $2.1 million as a result of the SWS Merger to reverse the deferred tax liability for the difference between book and tax basis on Hilltop’s investment in SWS common stock.

39

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

12. Commitments and Contingencies

Legal Matters

The Company is subject to loss contingencies related to litigation, claims, investigations and legal and administrative cases and proceedings arising in the ordinary course of business. The Company evaluates these contingencies based on information currently available, including advice of counsel. The Company establishes accruals for those matters when a loss contingency is considered probable and the related amount is reasonably estimable. Any accruals are periodically reviewed and may be adjusted as circumstances change. A portion of the Company’s exposure with respect to loss contingencies may be offset by applicable insurance coverage. In determining the amounts of any accruals or estimates of possible loss contingencies, the Company does not take into account the availability of insurance coverage, other than that provided by reinsurers in the insurance segment. When it is practicable, the Company estimates loss contingencies for possible litigation and claims, whether or not there is an accrued probable loss. When the Company is able to estimate such possible losses, and when it estimates that it is reasonably possible it could incur losses, in excess of amounts accrued, the Company is required to make a disclosure of the aggregate estimation. As available information changes, however, the matters for which the Company is able to estimate, as well as the estimates themselves will be adjusted, accordingly.

Assessments of litigation and claims exposures are difficult due to many factors that involve inherent unpredictability. Those factors include the following: the varying stages of the proceedings, particularly in the early stages; unspecified, unsupported, or uncertain damages; damages other than compensatory, such as punitive damages; a matter presenting meaningful legal uncertainties, including novel issues of law; multiple defendants and jurisdictions; whether discovery has begun or not or discovery is not complete; meaningful settlement discussions have not commenced; and whether the claim involves a class action and if so, how the class is defined. As a result of some of these factors, the Company may be unable to estimate reasonably possible losses with respect to some or all of the pending and threatened litigation and claims asserted against the Company.

Following completion of Hilltop’s acquisition of SWS, several purported holders of shares of SWS common stock filed petitions in the Court of Chancery of the State of Delaware seeking appraisal for their shares pursuant to Section 262 of the Delaware General Corporation Law. These petitions were consolidated as In re SWS Group, Inc., C.A. No. 10554-VCG. The consolidated matter represents a total of approximately 5.2 million shares of SWS common stock. The Company intends to vigorously defend this matter.

On or about November 2, 2012, FSC, along with thirteen other defendants, was named in a lawsuit pending in the state of Rhode Island Superior Court styled Rhode Island Economic Development Corporation v. Wells Fargo Securities, LLC, et al. FSC is included in connection with its role as financial advisor to the State of Rhode Island, specifically in connection with the Rhode Island Economic Development Corporation’s issuance of $75 million in bonds to finance a loan to 38 Studios, LLC. 38 Studios, LLC ultimately failed to repay the loan and the Rhode Island Economic Development Corporation is seeking recovery to repay the bonds it issued to make such loan. FSC intends to defend itself vigorously in this action.

The Company is involved in information-gathering requests and investigations (both formal and informal), as well as reviews, examinations and proceedings (collectively, “Inquiries”) by various governmental regulatory agencies, law enforcement authorities and self-regulatory bodies regarding certain of its businesses, business practices and policies, as well as the conduct of persons with whom it does business. Additional Inquiries will arise from time to time. In connection with those Inquiries, the Company receives document requests, subpoenas and other requests for information. The Inquiries, including the Inquiry described below, could develop into administrative, civil or criminal proceedings or enforcement actions that could result in consequences that have a material effect on the Company's consolidated financial position, results of operations or cash flows as a whole. Such consequences could include adverse judgments, findings, settlements, penalties, fines, orders, injunctions, restitution, or alterations in the Company’s business practices, and could result in additional expenses and collateral costs, including reputational damage.

40

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

As a part of an industry-wide Inquiry, PrimeLending received a subpoena from the Office of Inspector General of the U.S. Department of Housing and Urban Development regarding mortgage-related practices, including those relating to origination practices for loans insured by the Federal Housing Administration (the “FHA”). On August 20, 2014, PrimeLending received a Civil Investigative Demand from the United States Department of Justice (the “DOJ”) related to this Inquiry. According to the Civil Investigative Demand, the DOJ is conducting an investigation to determine whether PrimeLending has violated the False Claims Act in connection with originating and underwriting single-family residential mortgage loans insured by the FHA. No claims or demands have been asserted against PrimeLending. PrimeLending cannot predict the ultimate outcome of this investigation, and cannot make a reasonable estimate of potential liability, if any, at this time. PrimeLending continues to cooperate with the investigation.

While the final outcome of litigation and claims exposures or of any Inquiries is inherently unpredictable, management is currently of the opinion that the outcome of pending and threatened litigation and Inquiries will not have a material effect on the Company’s business, consolidated financial position, results of operations or cash flows as a whole. However, in the event of unexpected future developments, it is reasonably possible that an adverse outcome in any of the matters discussed above could be material to the Company’s business, consolidated financial position, results of operations or cash flows for any particular reporting period of occurrence.

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 the mortgage origination segment’s 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 March 31, 2016 and December 31, 2015, the mortgage origination segment’s indemnification liability reserve totaled $17.1 million and $16.6 million, respectively. The provision for indemnification losses was $0.9 million and $0.8 million during the three months ended March 31, 2016 and 2015, respectively.

41

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The following tables provide for a rollforward 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 March 31,
	2016		2015
Balance, beginning of period	$	57,298	$	53,906
Claims made		4,548		37,323
Claims resolved with no payment		(6,115)		(11,687)
Repurchases		(1,157)		(5,239)
Indemnification payments		(372)		(203)
Balance, end of period	$	54,202	$	74,100
	Indemnification Liability Reserve Activity
	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	16,640	$	17,619
Additions for new sales		878		844
Repurchases		(112)		(498)
Early payment defaults		(90)		(10)
Indemnification payments		(169)		(162)
Change in estimate		—		(451)
Balance, end of period	$	17,147	$	17,342

	March 31,		December 31,
	2016		2015
Reserve for Indemnification Liability:
Specific claims	$	4,754	$	5,210
Incurred but not reported claims		12,393		11,430
Total	$	17,147	$	16,640

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 $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 net losses on the first $240.4 million of net losses incurred; (ii) 0% of net losses in excess of $240.4 million up to and including $365.7 million of net losses incurred; and (iii) 80% of net losses in excess of $365.7 million of net losses incurred. Net losses are defined as book value losses plus certain defined expenses incurred in the resolution of assets, less subsequent recoveries. Under the loss-share agreement for commercial assets, the amount of subsequent recoveries that are reimbursable to the FDIC for a particular asset is limited to book value losses and expenses actually billed plus any book value charge-offs incurred prior to the Bank Closing Date. There is no limit on the amount of subsequent recoveries reimbursable to the FDIC under the loss-share agreement for single family residential assets. The loss-share agreements for commercial and single family residential assets 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 its actual net realized losses over the life of the loss-share agreements are less than the FDIC’s initial estimate of losses on covered assets. The “true-up” payment is calculated using a defined formula set forth in the P&A Agreement. As of March 31,

42

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

2016, the Bank estimated that the sum of covered losses and reimbursable expenses subject to the loss-share agreements will exceed $240.4 million, but will not exceed $365.7 million. Unless actual plus projected covered losses and reimbursable expenses exceed $365.7 million, the Bank will not record additional amounts to the FDIC Indemnification Asset. As of March 31, 2016, the Bank had billed $139.4 million of covered net losses to the FDIC, of which 80%, or $111.5 million, were reimbursable under the loss-share agreements. As of March 31, 2016, the Bank had received aggregate reimbursements of $111.5 million from the FDIC, which represented reimbursable covered losses and expenses through December 31, 2015.

13. 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 $1.6 billion at March 31, 2016 and outstanding financial and performance standby letters of credit of $38.4 million at March 31, 2016.

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, the Hilltop Broker-Dealers execute, settle, and finance various securities transactions that may expose the Hilltop Broker-Dealers 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 accounts of the Hilltop Broker-Dealers, use of derivatives to support certain non-profit housing organization clients, clearing agreements between the Hilltop Broker-Dealers and various clearinghouses and broker-dealers, secured financing arrangements that involve pledged securities, and when-issued underwriting and purchase commitments.

14. Stock-Based Compensation

Pursuant to the Hilltop Holdings Inc. 2012 Equity Incentive Plan (the “2012 Plan”), the Company may grant nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance awards, dividend equivalent rights and other awards to employees of the Company, its subsidiaries and outside directors of the Company. Upon the approval by stockholders and 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. At March 31, 2016, 2,293,228 shares of common stock remained available for issuance pursuant to the 2012 Plan, including shares that may be delivered pursuant to outstanding awards. Compensation expense related to the 2012 Plan and the 2003 Plan was $2.3 million and $1.9 million during the three months ended March 31, 2016 and 2015, respectively.

43

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

During the three months ended March 31, 2016 and 2015, Hilltop granted 5,516 and 2,545 shares of common stock, respectively, to certain non-employee members of the Company’s Board of Directors for services rendered to the Company pursuant to the 2012 Plan.

Restricted Stock Awards and RSUs

The following table summarizes information about nonvested Restricted Stock Award and RSU activity for the three months ended March 31, 2016 (shares in thousands).

		Restricted Stock Awards			RSUs
			Weighted			Weighted
			Average			Average
			Grant Date			Grant Date
		Outstanding	Fair Value		Outstanding	Fair Value
Balance, December 31, 2015		453	$	13.50	875	$	21.22
	Granted	-	$	-	277	$	16.04
	Vested/Released	(3)	$	13.25	(5)	$	22.24
	Forfeited	(2)	$	19.72	(2)	$	21.41
Balance, March 31, 2016		448	$	13.47	1,145	$	20.00

Vested/Released Restricted Stock Awards and RSUs include an aggregate of 2,128 shares withheld to satisfy employee statutory tax obligations during the three months ended March 31, 2016. Pursuant to certain RSU award agreements, an aggregate of 8,247 vested RSUs at March 31, 2016 require deferral of the settlement in shares and statutory tax obligations to a future date.

At March 31, 2016, unrecognized compensation expense related to outstanding Restricted Stock Awards of $0.1 million is expected to be recognized over a weighted average period of 1.05 years.

During the three months ended March 31, 2016, the Compensation Committee of the Board of Directors of the Company awarded certain executives and key employees an aggregate of 276,551 RSUs pursuant to the 2012 Plan. These awards include 158,028 RSUs subject to time-based vesting conditions and generally cliff vest on the third anniversary of the grant date, and 118,523 RSUs that cliff vest based upon the achievement of certain performance goals over a three-year period. Total compensation expense related to these RSUs is expected to be $4.4 million, which will amortized through February 2019.

At March 31, 2016, 860,321 of the outstanding RSUs are subject to time-based vesting conditions and generally cliff vest on the third anniversary of the grant date, and 284,398 outstanding RSUs cliff vest based upon the achievement of certain performance goals over a three-year period. At March 31, 2016, unrecognized compensation expense related to outstanding RSUs of $14.4 million is expected to be recognized over a weighted average period of 1.92 years.

Stock Options

Stock options granted on November 2, 2011 to two senior executives 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 fully vested and exercisable at November 2, 2015. As of March 31, 2016, an aggregate of 100,000 Stock Option Awards remain outstanding and will expire on November 2, 2016 if unexercised. 

44

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

15. Regulatory Matters

Banking and Hilltop

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 the Bank and Hilltop 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 common equity Tier 1, Tier 1 and total capital (as defined) to risk-weighted assets (as defined).

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 in accordance with Basel III as measured at March 31, 2016 and December 31, 2015, respectively (dollars in thousands).

									To Be Well Capitalized
					Minimum Capital				Minimum Capital
	Actual				Requirements				Requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2016
Tier 1 capital (to average assets):
Bank	$	1,035,022	12.70	%	$	326,044	4.0	%	$	407,555	5.0	%
Hilltop		1,532,458	13.35	%		459,069	4.0	%		N/A	N/A
Common equity Tier 1 capital (to risk-weighted assets):
Bank		1,033,659	15.10	%		308,020	4.5	%		444,918	6.5	%
Hilltop		1,481,394	17.56	%		379,562	4.5	%		N/A	N/A
Tier 1 capital (to risk-weighted assets):
Bank		1,035,022	15.12	%		410,693	6.0	%		547,591	8.0	%
Hilltop		1,532,458	18.17	%		506,082	6.0	%		N/A	N/A
Total capital (to risk-weighted assets):
Bank		1,086,214	15.87	%		547,591	8.0	%		684,489	10.0	%
Hilltop		1,568,465	18.60	%		674,776	8.0	%		N/A	N/A
December 31, 2015
Tier 1 capital (to average assets):
Bank	$	1,064,212	13.22	%	$	322,104	4.0	%	$	402,630	5.0	%
Hilltop		1,520,514	12.65	%		480,928	4.0	%		N/A	N/A
Common equity Tier 1 capital (to risk-weighted assets):
Bank		1,063,041	16.23	%		294,716	4.5	%		425,701	6.5	%
Hilltop		1,469,642	17.87	%		370,156	4.5	%		N/A	N/A
Tier 1 capital (to risk-weighted assets):
Bank		1,064,212	16.25	%		392,954	6.0	%		523,939	8.0	%
Hilltop		1,520,514	18.48	%		493,541	6.0	%		N/A	N/A
Total capital (to risk-weighted assets):
Bank		1,112,654	16.99	%		523,939	8.0	%		654,924	10.0	%
Hilltop		1,553,867	18.89	%		658,055	8.0	%		N/A	N/A

45

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

To be considered “adequately capitalized” (as defined) under regulatory requirements, the Bank must maintain minimum Tier 1 capital to total average assets of 4%, common equity Tier 1 capital to risk-weighted assets of 4.5%, Tier 1 capital to risk-weighted assets ratios of 6%, 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.

In order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary bonus payments to executive officers, Basel III also implemented a capital conservation buffer, which requires a banking organization to hold a buffer above its minimum risk-based capital requirements. This buffer will help to ensure that banking organizations conserve capital when it is most needed, allowing them to better weather periods of economic stress. The buffer is measured relative to risk-weighted assets. The phase-in of the capital conservation buffer requirements began on January 1, 2016 for Hilltop and the Bank. Based on the actual ratios as shown in the table above, Hilltop and the Bank exceed each of the capital conservation buffer requirements in effect as of March 31, 2016, as well as the fully phased-in requirements through 2019.

Broker-Dealer

Pursuant to the net capital requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Hilltop Securities has elected to determine its net capital requirements using the alternative method. Accordingly, Hilltop Securities is required to maintain minimum net capital, as defined in Rule 15c3-1 promulgated under the Exchange Act, equal to the greater of $250,000 and $1,000,000, respectively, or 2% of aggregate debit balances, as defined in Rule 15c3-3 promulgated under the Exchange Act. Additionally, the net capital rule of the NYSE provides that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than 5% of the aggregate debit items. HTS Independent Network follows the primary (aggregate indebtedness) method, as defined in Rule 15c3-1 promulgated under the Exchange Act, which requires the maintenance of the larger of minimum net capital of $250,000 or 1/15 of aggregate indebtedness.

At March 31, 2016, the net capital position of each of the Hilltop Broker-Dealers was as follows (in thousands). 

				HTS
	Hilltop			Independent
	Securities			Network
Net capital	$	132,718		$	1,195
Less required net capital		9,484			250
Excess net capital	$	123,234		$	945
Net capital as a percentage of aggregate debit items		28.0	%
Net capital in excess of 5% aggregate debit items	$	109,007

Under certain conditions, Hilltop Securities may be required to segregate cash and securities in a special reserve account for the benefit of customers under Rule 15c3-3 promulgated under the Exchange Act. Assets segregated under the provisions of the Exchange Act are not available for general corporate purposes. At March 31, 2016, Hilltop Securities held cash of $120.7 million segregated in special reserve bank accounts for the benefit of customers. Hilltop Securities was not required to segregate cash and securities in special reserve accounts for the benefit of proprietary accounts of introducing broker-dealers at March 31, 2016. The fair values of these segregated assets included in special reserve accounts were determined using Level 1 inputs.

46

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 U.S. Department of Housing and Urban Development (“HUD”) and the 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 March 31, 2016, 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 statutory accounting practices of the National Association of Insurance Commissioners (“NAIC”) 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 of each insurance subsidiary is as follows (in thousands).

	March 31,		December 31,
	2016		2015
Capital and surplus:
National Lloyds Insurance Company	$	119,836	$	121,750
American Summit Insurance Company		28,980		30,592

	Three Months Ended March 31,
	2016		2015
Statutory net income:
National Lloyds Insurance Company	$	3,557	$	4,759
American Summit Insurance Company		852		909

Regulations of the Texas Department of Insurance require insurance companies to maintain minimum levels of statutory surplus to ensure their ability to meet their obligations to policyholders. At March 31, 2016, 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 March 31, 2016, the Company's insurance subsidiaries' RBC ratio exceeded the level at which regulatory action would be required.

47

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

16. 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 managing the re-pricing characteristics of certain assets and liabilities to mitigate potential adverse impacts from changes in interest rates on 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 interest 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”). Additionally, PrimeLending has interest rate risk relative to its MSR asset and uses derivative instruments, including interest rate swaps and swaptions, to hedge this risk. The Hilltop Broker-Dealers use forward commitments to both purchase and sell MBSs to facilitate customer transactions and as a means to hedge related exposure to interest rate 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, forward commitments, and interest rate swaps and swaptions are recorded in other assets or other liabilities, as appropriate, and changes in the fair values of these derivative instruments are recorded as a component of net gains from sale of loans and other mortgage production income. The fair value of PrimeLending’s derivative instruments increased $12.5 million during the three months ended March 31, 2016, compared with an increase of $18.9 million during the same period in 2015. Changes in fair value are attributable to changes in the volume of IRLCs, mortgage loans held for sale, commitments to purchase and sell MBSs and MSR assets, and changes in market interest rates. Changes in market interest rates also conversely affect the value of PrimeLending’s mortgage loans held for sale and its MSR asset, 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 and MSR asset is discussed in Note 3 to the consolidated financial statements. The fair values of the Hilltop Broker-Dealers’ derivative instruments are recorded in other assets or other liabilities, as appropriate, and the fair values of the Hilltop Broker-Dealers’ derivatives increased $6.9 million and $8.6 million during the three months ended March 31, 2016 and 2015, respectively. The changes in fair value were recorded as a component of other noninterest income.

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

	March 31, 2016				December 31, 2015
	Notional		Estimated		Notional		Estimated
	Amount		Fair Value		Amount		Fair Value
Derivative instruments:
IRLCs	$	1,505,457	$	44,915	$	944,942	$	23,762
Commitments to purchase MBSs		3,761,758		23,811		3,151,862		8,350
Commitments to sell MBSs		6,194,817		(23,294)		5,038,565		(2,352)
Interest rate swaps and swaptions		587,418		1,604		409,982		490

PrimeLending had cash collateral advances totaling $7.3 million and $0.8 million to offset net liability derivative positions on its commitments to sell MBSs at March 31, 2016 and December 31, 2015, respectively. In addition, PrimeLending advanced cash collateral totaling $8.7 million and $6.4 million in initial margin on its interest rate swaps and swaptions at March 31, 2016 and December 31, 2015, respectively. These amounts are included in other assets within the consolidated balance sheets.

48

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

17. 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 sheets and/or subject to master netting arrangements or similar agreements. The following tables present the assets and liabilities subject to enforceable master netting arrangements, repurchase agreements, or similar agreements with offsetting rights (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
March 31, 2016
Securities borrowed:
Institutional counterparties	$	1,315,940	$	—	$	1,315,940	$	(1,315,940)	$	—	$	—
Interest rate swaps and swaptions:
Institutional counterparties		3,114		(404)		2,710		—		—		2,710
Reverse repurchase agreements:
Institutional counterparties		96,646		—		96,646		(96,462)		—		184
Forward MBS derivatives:
Institutional counterparties		23,811		—		23,811		(23,811)		—		—
	$	1,439,511	$	(404)	$	1,439,107	$	(1,436,213)	$	—	$	2,894
December 31, 2015
Securities borrowed:
Institutional counterparties	$	1,307,741	$	—	$	1,307,741	$	(1,307,741)	$	—	$	—
Interest rate swaps and swaptions:
Institutional counterparties		1,526		(393)		1,133		—		—		1,133
Reverse repurchase agreements:
Institutional counterparties		105,660		—		105,660		(105,412)		—		248
Forward MBS derivatives:
Institutional counterparties		1,377		—		1,377		(1,377)		—		—
	$	1,416,304	$	(393)	$	1,415,911	$	(1,414,530)	$	—	$	1,381

							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
	Liabilities		Balance Sheet		Balance Sheet		Instruments		Pledged		Amount
March 31, 2016
Securities loaned:
Institutional counterparties	$	1,222,522	$	—	$	1,222,522	$	(1,222,522)	$	—	$	—
Interest rate swaps and swaptions:
Institutional counterparties		1,106		—		1,106		(2,518)		—		(1,412)
Repurchase agreements:
Institutional counterparties		164,647		—		164,647		(164,647)		—		—
Customer counterparties		155,374		—		155,374		(155,374)		—		—
Forward MBS derivatives:
Institutional counterparties		23,582		(288)		23,294		(11,882)		—		11,412
	$	1,567,231	$	(288)	$	1,566,943	$	(1,556,943)	$	—	$	10,000
December 31, 2015
Securities loaned:
Institutional counterparties	$	1,235,466		—		1,235,466		(1,235,466)		—		—
Interest rate swaps and swaptions:
Institutional counterparties		643		—		643		(2,519)		—		(1,876)
Repurchase agreements:
Institutional counterparties		69,748		—		69,748		(69,748)		—		—
Customer counterparties		148,000		—		148,000		(148,000)		—		—
Forward MBS derivatives:
Institutional counterparties		4,385		(1,769)		2,616		(1,420)		—		1,196
	$	1,458,242	$	(1,769)	$	1,456,473	$	(1,457,153)	$	—	$	(680)

49

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Secured Borrowing Arrangements

Secured Borrowings (Repurchase Agreements)  — The Company participates in transactions involving securities sold under repurchase agreements, which are secured borrowings and generally mature within one to thirty days from the transaction date. Securities sold under repurchase agreements are reflected at the amount of cash received in connection with the transactions. The Company may be required to provide additional collateral based on the fair value of the underlying securities, which is monitored on a daily basis.

Securities Lending Activities — The Company’s securities lending activities includes lending securities for other broker-dealers, lending institutions and its own clearing and retail operations. These activities involve lending securities to other broker-dealers to cover short sales, to complete transactions in which there has been a failure to deliver securities by the required settlement date and as a conduit for financing activities.

When lending securities, the Company receives cash or similar collateral and generally pays interest (based on the amount of cash deposited) to the other party to the transaction. Securities lending transactions are executed pursuant to written agreements with counterparties that generally require securities loaned to be marked-to-market on a daily basis.  The Company receives collateral in the form of cash in an amount generally in excess of the fair value of securities loaned. The Company monitors the fair value of securities loaned on a daily basis, with additional collateral obtained or refunded, as necessary. Collateral adjustments are made on a daily basis through the facilities of various clearinghouses. The Company is a principal in these securities lending transactions and is liable for losses in the event of a failure of any other party to honor its contractual obligation. Management sets credit limits with each counterparty and reviews these limits regularly to monitor the risk level with each counterparty. The Company is subject to credit risk through its securities lending activities if securities prices decline rapidly because the value of the Company’s collateral could fall below the amount of the indebtedness it secures. In rapidly appreciating markets, credit risk increases due to short positions. The Company’s securities lending business subjects the Company to credit risk if a counterparty fails to perform or if collateral securing its obligations is insufficient. In securities transactions, the Company is subject to credit risk during the period between the execution of a trade and the settlement by the customer.

The following tables present the remaining contractual maturities of repurchase agreement and securities lending transactions accounted for as secured borrowings (in thousands). The Company had no repurchase-to-maturity transactions outstanding at both March 31, 2016 and December 31, 2015.

	Remaining Contractual Maturities
	Overnight and						Greater Than
March 31, 2016	Continuous		Up to 30 Days		30-90 Days		90 Days		Total
Repurchase agreement transactions:
U.S. Treasury and agency securities	$	232,974	$	87,047	$	—	$	—	$	320,021
Securities lending transactions:
Corporate securities		11,582		—		—		—		11,582
Equity securities		1,210,928		—		—		—		1,210,928
Other		12		—		—		—		12
Total	$	1,455,496	$	87,047	$	—	$	—	$	1,542,543
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above									$	1,542,543
Amount related to agreements not included in offsetting disclosure above									$	—
	Remaining Contractual Maturities
	Overnight and						Greater Than
December 31, 2015	Continuous		Up to 30 Days		30-90 Days		90 Days		Total
Repurchase agreement transactions:
U.S. Treasury and agency securities	$	201,090	$	16,658	$	—	$	—	$	217,748
Securities lending transactions:
U.S. Treasury and agency securities		12,646		—		—		—		12,646
Corporate securities		5,993		—		—		—		5,993
Equity securities		1,216,827		—		—		—		1,216,827
Total	$	1,436,556	$	16,658	$	—	$	—	$	1,453,214
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above									$	1,453,214
Amount related to agreements not included in offsetting disclosure above									$	—

50

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

18. Broker-Dealer and Clearing Organization Receivables and Payables

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

	March 31,		December 31,
	2016		2015
Receivables:
Securities borrowed	$	1,315,940	$	1,307,741
Securities failed to deliver		29,910		25,087
Clearing organizations		—		16,701
Trades in process of settlement, net		16,023		5,707
Other		8,749		7,263
	$	1,370,622	$	1,362,499
Payables:
Securities loaned	$	1,222,522	$	1,235,466
Correspondents		27,888		69,046
Securities failed to receive		30,780		28,352
Clearing organizations		2,826		5,441
	$	1,284,016	$	1,338,305

19. Reserve for Losses and Loss Adjustment Expenses

A rollforward of NLC’s reserve for unpaid losses and LAE, as included in other liabilities within the consolidated balance sheets, is as follows (in thousands).

	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	44,357	$	29,716
Less reinsurance recoverables		(13,502)		(4,315)
Net balance, beginning of period		30,855		25,401
Incurred related to:
Current year		21,604		14,290
Prior years		355		4,570
Total incurred		21,959		18,860
Payments related to:
Current year		(9,538)		(7,174)
Prior years		(9,129)		(8,094)
Total payments		(18,667)		(15,268)
Net balance, end of period		34,147		28,993
Plus reinsurance recoverables		8,831		8,451
Balance, end of period	$	42,978	$	37,444

The increase in NLC’s reserves at March 31, 2016 as compared with March 31, 2015 of $5.5 million is primarily due to increased reserves attributable to an increase in frequency and severity of severe weather events in our geographic coverage area.

51

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

20. 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 March 31, 2016, reinsurance receivables had a carrying value of $13.1 million, which is included in other assets within the consolidated balance sheet. There was no allowance for uncollectible accounts at March 31, 2016, based on NLC’s quality requirements.

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

	Three Months Ended March 31,
	2016				2015
	Written		Earned		Written		Earned
Premiums from direct business	$	39,079	$	40,886	$	42,749	$	42,089
Reinsurance assumed		2,679		2,669		2,516		2,443
Reinsurance ceded		(3,498)		(3,822)		(4,705)		(4,965)
Net premiums	$	38,260	$	39,733	$	40,560	$	39,567

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

	Three Months Ended March 31,
	2016		2015
Loss and LAE incurred	$	23,489	$	23,331
Reinsurance recoverables		(1,530)		(4,471)
Net loss and LAE incurred	$	21,959	$	18,860

Catastrophic coverage

At March 31, 2016, NLC had catastrophic excess of loss reinsurance coverage of losses per event in excess of $8.0 million retention by NLIC and $1.5 million retention by ASIC. ASIC maintained 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 $8.0 million is comprised of four layers of protection: $17 million in excess of $8 million retention; $25 million in excess of $25 million loss; $25 million in excess of $50 million loss and $50 million in excess of $75 million loss. NLIC and ASIC retain no participation in any of the layers, beyond the first $8 million and $1.5 million, respectively. At March 31, 2016, total retention for any one catastrophe that affects both NLIC and ASIC was limited to $8 million in the aggregate.

Effective January 1, 2016, NLC did not renew its multi-line excess of loss coverage that previously limited each risk with respect to property and liability. NLC renewed its underlying excess of loss contract that provides $10.0 million aggregate coverage in excess of NLC’s per event retention and aggregate retention for sub-catastrophic events. NLC retains no participation beyond the first $1 million, down from 9% participation in this coverage during 2015.

52

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

21. Segment and Related Information

The Company currently has four reportable business segments that are organized primarily by the core products offered to the segments’ respective customers. These segments reflect the manner in which operations are managed and the criteria used by the Company’s chief operating decision maker function to evaluate segment performance, develop strategy and allocate resources. The chief operating decision maker function consists of the President and Chief Executive Officer of the Company and the Chief Executive Officer of PlainsCapital. For the third quarter of 2015, the Company began presenting the bargain purchase gain associated with the SWS Merger, previously allocated to the banking and broker-dealer reportable business segments, within corporate to better reflect segment performance. This change is reflected in the segment operating results within noninterest income for the three months ended March 31, 2015. Additionally, related amounts previously reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 will be revised in future filings. This change had no impact on the Company’s consolidated results of operations.

The banking segment includes the operations of the Bank. The broker-dealer segment includes the operations of the Hilltop Broker-Dealers, while the mortgage origination segment is composed of PrimeLending, and the insurance segment is composed of NLC.

Corporate includes certain activities not allocated to specific business segments. These activities include holding company financing and investing activities, and management and administrative services to support the overall operations of the Company including, but not limited to, certain executive management, corporate relations, legal, finance and acquisition costs.

Balance sheet amounts not discussed previously and the elimination of intercompany transactions are included in “All Other and Eliminations.” The following tables present certain information about reportable business segment revenues, operating results, goodwill and assets (in thousands).

					Mortgage						All Other and		Hilltop
Three Months Ended March 31, 2016	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	86,105	$	7,051	$	(2,569)	$	740	$	(1,714)	$	3,928	$	93,541
Provision for loan losses		3,500		(93)		—		—		—		—		3,407
Noninterest income		12,956		80,883		146,338		41,804		1		(4,296)		277,686
Noninterest expense		64,357		84,261		134,671		36,375		5,849		(312)		325,201
Income (loss) before income taxes	$	31,204	$	3,766	$	9,098	$	6,169	$	(7,562)	$	(56)	$	42,619

					Mortgage						All Other and		Hilltop
Three Months Ended March 31, 2015	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	83,442	$	7,996	$	(3,014)	$	757	$	109	$	4,102	$	93,392
Provision for loan losses		2,486		201		—		—		—		—		2,687
Noninterest income		19,309		79,528		135,292		41,845		81,289		(4,417)		352,846
Noninterest expense		58,532		90,795		122,302		33,466		9,626		(245)		314,476
Income (loss) before income taxes	$	41,733	$	(3,472)	$	9,976	$	9,136	$	71,772	$	(70)	$	129,075
March 31, 2016
Goodwill	$	207,741	$	7,008	$	13,071	$	23,988	$	—	$	—	$	251,808
Total assets	$	8,591,995	$	2,692,691	$	1,570,635	$	347,328	$	1,926,204	$	(3,396,925)	$	11,731,928
December 31, 2015
Goodwill	$	207,741	$	7,008	$	13,071	$	23,988	$	—	$	—	$	251,808
Total assets	$	8,707,433	$	2,673,455	$	1,737,843	$	349,259	$	1,905,547	$	(3,506,536)	$	11,867,001

53

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

22. Earnings 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. Restricted Stock Awards are the only instruments issued by Hilltop 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 stockholders 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. During the three months ended March 31, 2016 and 2015, stock options and RSUs are the only potentially dilutive non-participating instruments issued by Hilltop. Next, the Company determines and includes in the 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 per common share (in thousands, except per share data).

	Three Months Ended March 31,
	2016		2015
Basic earnings per share:
Income applicable to Hilltop common stockholders	$	27,567	$	111,876
Less: income applicable to participating shares		(125)		(574)
Net earnings available to Hilltop common stockholders	$	27,442	$	111,302
Weighted average shares outstanding - basic		98,153		99,741
Basic earnings per common share	$	0.28	$	1.12
Diluted earnings per share:
Income applicable to Hilltop common stockholders	$	27,567	$	111,876
Weighted average shares outstanding - basic		98,153		99,741
Effect of potentially dilutive securities		516		886
Weighted average shares outstanding - diluted		98,669		100,627
Diluted earnings per common share	$	0.28	$	1.11

54

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

23. Recently Issued Accounting Standards

In March 2016, FASB issued ASU 2016-09 as part of its simplification initiative and affects all entities that issue share-based payment awards to their employees. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash flows. The amendments are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2016 using either prospective, retrospective or modified retrospective transition method, depending on the area covered in this update. As permitted within the amendment, the Company elected to early adopt and prospectively apply the provisions of this amendment as of January 1, 2016.

In February 2016, FASB issued ASU 2016-02 related to leases. The new standard is intended to increase transparency and comparability among organizations and require lessees to record a right-to-use asset and liability representing the obligation to make lease payments for long-term leases. Accounting by lessors will remain largely unchanged. The amendments are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. Adoption will require a modified retrospective transition where the lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented. The Company is currently evaluating the provisions of the amendment and the impact on its future consolidated financial statements.

In January 2016, FASB issued ASU 2016-01 related to financial instruments. This pronouncement requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The pronouncement also impacts financial liabilities under the Fair Value Option and the presentation and disclosure requirements for financial instruments. The amendment is effective for annual periods, and interim periods within those fiscal periods, beginning after December 15, 2017. The Company is currently evaluating the provisions of the amendment and the impact on its future consolidated financial statements.

In May 2015, the FASB issued ASU 2015-09 requiring enhanced disclosures for insurers relating to short-duration insurance contract claims and the unpaid claims liability rollforward for long and short-duration contracts. The amendment is effective for annual periods beginning after December 15, 2015 and interim reporting periods thereafter. The Company adopted the amendment as of January 1, 2016 and will include the enhanced disclosures beginning with its Annual Report on Form 10-K for the year ended December 31, 2016.

In May 2014, the FASB issued ASU 2014-09 which clarifies the principles for recognizing revenue from contracts with customers. The amendment outlines a single comprehensive model for entities to depict the transfer of goods or services to customers in amounts that reflect the payment to which a company expects to be entitled in exchange for those goods or services. The amendment also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The amendment was initially scheduled to be effective for the Company no earlier than the first quarter of 2017, however, in July 2015, the FASB issued ASU 2015-14 which deferred the effective date by one year. Therefore, the amendment is effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2017 and may be adopted using either a full retrospective transition method or a modified retrospective transition method. Early adoption is permitted no earlier than the first quarter of 2017. The Company is currently evaluating the provisions of the amendment and the impact on its future consolidated financial statements.

24. Subsequent Event

On April 1, 2016, the Company awarded certain key employees a total of 268,906 RSUs pursuant to the 2012 Plan at a grant date fair value of $18.68 per share. These RSUs generally cliff vest on the third anniversary of the grant date and are subject to service conditions set forth in the award agreements. Total compensation expense related to these RSUs is expected to be $5.0 million, which will be amortized through March 2019.

55

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 (this “Quarterly Report”) and the financial information set forth in the tables herein.

Unless the context otherwise indicates, all references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, 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 “Securities Holdings” refer to Hilltop Securities Holdings LLC (a wholly owned subsidiary of Hilltop), references to “Hilltop Securities” refer to Hilltop Securities Inc. (a wholly owned subsidiary of Securities Holdings that was formerly known as Southwest Securities, Inc.), references to “HTS Independent Network” refer to Hilltop Securities Independent Network Inc. (a wholly owned subsidiary of Securities Holdings that was formerly known as SWS Financial Services, Inc.), references to the “Bank” refer to PlainsCapital Bank (a wholly owned subsidiary of PlainsCapital), references to “FNB” refer to First National Bank, references to “SWS” refer to the former SWS Group, Inc., references to “First Southwest” refer to First Southwest Holdings, LLC (a wholly owned subsidiary of Securities Holdings) and its subsidiaries as a whole, references to “FSC” refer to First Southwest Company, LLC (a former 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, references to “NLC” refer to National Lloyds Corporation (a wholly owned subsidiary of Hilltop) and its subsidiaries as a whole, references to “NLIC” refer to National Lloyds Insurance Company (a wholly owned subsidiary of NLC) and references to “ASIC” refer to American Summit Insurance Company (a wholly owned subsidiary of NLC).

FORWARD-LOOKING STATEMENTS

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934 (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 Quarterly 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,” “goal,” “intends,” “may,” “might,” “plan,” “probable,” “projects,” “seeks,” “should,” “target,” “view” 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 efforts to make strategic acquisitions, the integration of the operations acquired in the SWS Merger (as defined below), our revenue, our liquidity and sources of funding, market trends, operations and business, expectations concerning mortgage loan origination volume, expected losses on covered loans and related reimbursements from the Federal Deposit Insurance Corporation (“FDIC”), expected levels of refinancing as a percentage of total loan origination volume, projected losses on mortgage loans originated, 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 and litigation 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:

· risks associated with merger and acquisition integration, including our ability to promptly and effectively integrate our businesses with those acquired in the SWS Merger and achieve the anticipated synergies and cost savings in connection therewith, as well as the diversion of management time on acquisition- and integration-related issues;

our ability to estimate loan losses;

56

changes in the default rate of our loans;

changes in general economic, market and business conditions in areas or markets where we compete, including changes in the price of crude oil;

risks associated with concentration in real estate related loans;

severe catastrophic events in Texas and other areas of the southern United States;

changes in the interest rate environment;

· cost and availability of capital;

effectiveness of our data security controls in the face of cyber attacks;

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;

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

changes in key management;

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

our ability to obtain reimbursements for losses on acquired loans under loss-share agreements with the FDIC to the extent the FDIC determines that we did not adequately manage the covered loan portfolio;

failure of our insurance segment reinsurers to pay obligations under reinsurance contracts; 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, see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015 (“2015 Form 10-K”), which was filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2016, this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part II, Item 1A, “Risk Factors” herein and other filings we have made with the SEC. We caution that the foregoing list of factors is not exhaustive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. All subsequent written and oral forward-looking statements concerning our business attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements above. We do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Quarterly Report except to the extent required by federal securities laws.

OVERVIEW

We are a financial holding company registered under the Bank Holding Company Act of 1956. Our primary line of business is to provide business and consumer banking services from offices located throughout Texas through the Bank. We also provide an array of financial products and services through our broker-dealer, mortgage origination and insurance segments. The following includes additional details regarding the financial products and services provided by each of our primary operating business units.

PlainsCapital.  PlainsCapital is a financial holding company headquartered in Dallas, Texas that provides, through its subsidiaries, traditional banking and wealth, investment management and treasury management services primarily in Texas and residential mortgage loans throughout the United States.

Securities Holdings.  Securities Holdings is a holding company headquartered in Dallas, Texas that provides, through its subsidiaries, investment banking and other related financial services, including municipal advisory, sales, trading and underwriting of taxable and tax-exempt fixed income securities, equity trading, clearing, securities lending, structured finance and retail brokerage services throughout the United States.

57

NLC.  NLC is a property and casualty insurance holding company headquartered in Waco, Texas that provides, through its subsidiaries, fire and homeowners insurance to low value dwellings and manufactured homes primarily in Texas and other areas of the southern United States.

During the three months ended March 31, 2016, our net income to common stockholders was $27.6 million, or $0.28 per diluted share.

We reported $42.6 million of consolidated income before income taxes during the three months ended March 31, 2016, including the following contributions from our four reportable operating segments.

· The banking segment contributed $31.2 million of income before income taxes during the three months ended March 31, 2016;

· The broker-dealer segment contributed $3.8 million of income before income taxes during the three months ended March 31, 2016;

· The mortgage origination segment contributed $9.1 million of income before income taxes during the three months ended March 31, 2016; and

· The insurance segment contributed $6.2 million of income before income taxes during the three months ended March 31, 2016.

At March 31, 2016, on a consolidated basis, we had total assets of $11.7 billion, total deposits of $7.0 billion, total loans, including loans held for sale, of $7.0 billion and stockholders’ equity of $1.8 billion.

On January 1, 2015, we completed our acquisition of SWS in a stock and cash transaction (the “SWS Merger”), whereby SWS’s broker-dealer subsidiaries, Southwest Securities, Inc. and SWS Financial Services, Inc., became subsidiaries of Securities Holdings and SWS’s banking subsidiary, Southwest Securities, FSB (“SWS FSB”), was merged into the Bank, an indirect wholly owned subsidiary of Hilltop. On October 5, 2015, Southwest Securities, Inc. and SWS Financial Services, Inc. were renamed “Hilltop Securities Inc.” and “Hilltop Securities Independent Network Inc.”, respectively. The operations acquired in the SWS Merger were included in our operating results beginning January 1, 2015 and such operations included a preliminary bargain purchase gain of $82.8 million as disclosed in our Quarterly Report on Form 10-Q filed with the SEC on May 6, 2015. During 2015, certain adjustments were recorded that resulted in an aggregate decrease in the preliminary bargain purchase gain associated with the SWS Merger to $81.3 million, which also decreased net income for the three months ended March 31, 2015 by $1.5 million as compared with amounts previously reported in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015. Accordingly, our results for the quarter ended March 31, 2015 and related disclosures have been revised to reflect these adjustments.

On October 22, 2015, the Financial Industry Regulatory Authority (“FINRA”) granted approval to combine FSC and Hilltop Securities, subject to customary conditions. Following this approval, we integrated the back-office systems of FSC and Hilltop Securities and, on January 22, 2016, merged FSC and Hilltop Securities into a combined firm operating under the “Hilltop Securities” name. We use the term “Hilltop Broker-Dealers” to refer to FSC, Hilltop Securities and HTS Independent Network prior to such date and Hilltop Securities and HTS Independent Network after such date.

Segment Information

We have three primary operating business units, PlainsCapital (banking and mortgage origination), Securities Holdings (broker-dealer) and NLC (insurance). Under accounting principles generally accepted in the United States (“GAAP”), our business units are comprised of four reportable business segments organized primarily by the core products offered to the segments’ respective customers: banking, broker-dealer, mortgage origination and insurance. For the third quarter of 2015, we began presenting the bargain purchase gain associated with the SWS Merger, previously allocated to the banking and broker-dealer reportable business segments, within corporate to better reflect segment performance. This change is reflected in the segment operating results within noninterest income, and MD&A, for the three months ended March 31, 2015. Additionally, related amounts previously reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, within the MD&A, will be revised in future filings. This change had no impact on our consolidated results of operations. Consistent with our historical segment operating results, we anticipate that future revenues will be driven primarily from the banking segment, with the remainder being generated by our broker-dealer, mortgage

58

origination and insurance segments. Operating results for the mortgage origination segment have historically been more volatile than operating results for the banking, broker-dealer and insurance segments.

The banking segment includes the operations of the Bank, which primarily provides business and consumer banking 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 broker-dealer segment includes the operations of Hilltop Securities and HTS Independent Network. From the date of the SWS Merger until January 22, 2016, when we merged FSC into Hilltop Securities to form a combined firm operating under the “Hilltop Securities” name, our broker-dealer segment was operated through FSC, Hilltop Securities and HTS Independent Network as separate broker-dealers under coordinated leadership.The broker-dealer segment generates a majority of its revenues from fees and commissions earned from investment advisory and securities brokerage services. Hilltop Securities is a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority (“FINRA”) and a member of the New York Stock Exchange (“NYSE”), HTS Independent Network is an introducing broker-dealer that is also registered with the SEC and FINRA, and First Southwest Asset Management, LLC is a registered investment advisor under the Investment Advisors Act of 1940.

The mortgage origination segment includes the operations of PrimeLending, which offers a variety of loan products 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.

Corporate includes certain activities not allocated to specific business segments. These activities include holding company financing and investing activities, and management and administrative services to support the overall operations of the Company including, but not limited to, certain executive management, corporate relations, legal, finance, and acquisition costs.

The elimination of intercompany transactions are included in “All Other and Eliminations.”Additional information concerning our reportable segments is presented in Note 21, 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).

					Mortgage						All Other and		Hilltop
Three Months Ended March 31, 2016	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	86,105	$	7,051	$	(2,569)	$	740	$	(1,714)	$	3,928	$	93,541
Provision for loan losses		3,500		(93)		—		—		—		—		3,407
Noninterest income		12,956		80,883		146,338		41,804		1		(4,296)		277,686
Noninterest expense		64,357		84,261		134,671		36,375		5,849		(312)		325,201
Income (loss) before income taxes	$	31,204	$	3,766	$	9,098	$	6,169	$	(7,562)	$	(56)	$	42,619

					Mortgage						All Other and		Hilltop
Three Months Ended March 31, 2015	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	83,442	$	7,996	$	(3,014)	$	757	$	109	$	4,102	$	93,392
Provision for loan losses		2,486		201		—		—		—		—		2,687
Noninterest income		19,309		79,528		135,292		41,845		81,289		(4,417)		352,846
Noninterest expense		58,532		90,795		122,302		33,466		9,626		(245)		314,476
Income (loss) before income taxes	$	41,733	$	(3,472)	$	9,976	$	9,136	$	71,772	$	(70)	$	129,075

59

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 $93.5 million in net interest income during the three months ended March 31, 2016, compared with net interest income of $93.4 million during the same period in 2015. The year-over-year change in net interest income primarily included an increase within our banking segment, offset by interest expense incurred on our $150.0 million aggregate principle amount of 5% senior notes due 2025 (“Senior Notes”) that were not issued until the second quarter of 2015 and a decrease in net interest income within our broker-dealer segment.

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

(i) Income from broker-dealer operations.  Through the Hilltop Broker-Dealers, we provide investment banking and other related financial services.  We generated $62.6 million and $67.8 million in securities brokerage commissions and fees and investment advisory fees and commissions and$17.7 million and $11.6 million in gains from derivative and trading portfolio activities (included within other noninterest income) during the three months ended March 31, 2016 and 2015, respectively.

(ii) Income from mortgage operations.  Through PrimeLending, we generate noninterest income by originating and selling mortgage loans. During the three months ended March 31, 2016 and 2015, we generated $146.1 million and $135.1 million, respectively, in net gains from the sale of loans, other mortgage production income (including income associated with retained mortgage servicing rights), and mortgage loan origination fees.

(iii) Income from insurance operations.  Through NLC, we provide fire and limited homeowners insurance for low value dwellings and manufactured homes. We generated $39.7 million and $39.6 million in net insurance premiums earned during the three months ended March 31, 2016 and 2015, respectively.

In the aggregate, we generated $277.7 million and $352.8 million in noninterest income during the three months ended March 31, 2016 and 2015, respectively. Excluding the bargain purchase gain of $81.3 million related to the SWS Merger, our noninterest income during the three months ended March 31, 2015 was $271.6 million. We are presenting this financial measure because certain investors may use it to evaluate our business and financial results. This year-over-year increase in noninterest income, other than bargain purchase gain, is predominantly attributable to increases in noninterest income in our mortgage origination and broker-dealer segments, offset by a decline in noninterest income in our banking segment.

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.

Consolidated Operating Results

Net income applicable to common stockholders during the three months ended March 31, 2016 was $27.6 million, or $0.28 per diluted share, compared with net income applicable to common stockholders of $111.9 million, or $1.11 per diluted share, during the three months ended March 31, 2015. The consolidated operating results during the three months ended March 31, 2015 include the recognition of a bargain purchase gain related to the SWS Merger of $81.3 million, or $0.81 per diluted share. Included in the bargain purchase gain is a reversal of a $33.4 million valuation allowance against SWS deferred tax assets. This amount is based on our expected ability to realize these acquired deferred tax assets through our consolidated core earnings, the implementation of certain tax planning strategies and reversal of timing differences. SWS’s net operating loss carryforwards are subject to an annual limitation on their usage because of the ownership change effected in connection with the SWS Merger. In addition, the bargain purchase gain reflects our acquisition date fair value allocation to identifiable intangible assets of $7.5 million.

Our consolidated operating results during the three months ended March 31, 2016 and 2015 also include transaction costs primarily related to the execution and closing of the SWS Merger, and integration-related costs associated with employee expenses (such as severance and retention), professional fees (such as consulting and legal) and contractual

60

costs (such as vendor contract termination and lease), incurred as a result of the plan to integrate the operations and systems acquired in the SWS Merger. During the three months ended March 31, 2016, we incurred $0.8 million in pre-tax transaction costs related to the SWS Merger, while pre-tax integration-related costs associated with employee, professional fee and contractual expenses during this same period were $1.7 million, $2.2 million and $0.1 million, respectively. During the three months ended March 31, 2015, we incurred $5.6 million in pre-tax transaction costs related to the SWS Merger, while pre-tax integration-related costs associated with employee expenses and professional fees during this same period were $4.0 million and $0.4 million, respectively. On October 22, 2015, FINRA granted approval to combine FSC and Hilltop Securities, subject to customary conditions. Since this approval, we have integrated the back-office systems of FSC and Hilltop Securities and, effective as of the close of business on January 22, 2016, we merged FSC and Hilltop Securities into a combined firm operating under the “Hilltop Securities” name. As a result, we began realizing cost savings in 2016, although these cost savings have been partially offset by additional integration costs that we anticipate incurring through the first six months of 2016.

Certain items included in net income for 2016 and 2015 resulted from purchase accounting associated with the merger of PlainsCapital Corporation with and into a wholly owned subsidiary of Hilltop on November 30, 2012 (the “PlainsCapital Merger”), the FDIC-assisted transaction (the “FNB Transaction”) whereby the Bank acquired certain assets and assumed certain liabilities of FNB, and the SWS Merger (collectively, the “Bank Transactions”). Income before taxes during the three months ended March 31, 2016 included net accretion of $3.3 million, $11.4 million and $1.2 million on earning assets and liabilities acquired in the PlainsCapital Merger, FNB Transaction and SWS Merger, respectively, offset by amortization of identifiable intangibles of $2.0 million, $0.2 million and $0.2 million, respectively. During the three months ended March 31, 2015, income before taxes included net accretion of $4.0 million, $9.8 million and $2.3 million on earning assets and liabilities acquired in the PlainsCapital Merger, FNB Transaction and SWS Merger, respectively, offset by amortization of identifiable intangibles of $2.2 million, $0.2 million and $0.4 million, respectively.

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

	Three Months Ended March 31,
	2016		2015
Performance Ratios:
Return on average stockholder's equity	6.32	%	26.76	%
Return on average assets	0.96	%	3.64	%
Net interest margin (taxable equivalent) (1) (2)	3.70	%	3.53	%

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

(2) During the three months ended March 31, 2016 and 2015, taxable equivalent net interest margin was 54 basis points and 70 basis points, respectively, lower due to the impact related to the securities financing operations within our broker-dealer segment.

During the three months ended March 31, 2016, the consolidated taxable equivalent net interest margin of 3.70% was 74 basis points greater due to the impact of purchase accounting and primarily related to accretion of discount on loans of $4.1 million, $11.4 million and $1.1 million associated with the PlainsCapital Merger, FNB Transaction and SWS Merger, respectively, and PlainsCapital Merger-related amortization of premium on acquired securities of $0.8 million. The consolidated taxable equivalent net interest margin during the three months ended March 31, 2015 of 3.53% was 69 basis points greater due to the impact of purchase accounting and primarily related to accretion of discount on loans of $5.0 million, $9.7 million and $2.3 million associated with PlainsCapital Merger, FNB Transaction and SWS Merger, respectively, and PlainsCapital Merger-related amortization of premium on acquired securities of $0.9 million.

The FNB Transaction-related accretion of discount on loans of $11.4 million and $9.7 million during the three months ended March 31, 2016 and 2015, respectively, included accretion of approximately $3 million and $1 million, respectively, due to better-than-expected resolution of covered purchased credit impaired (“PCI”) loans during the respective periods. The better-than-expected performance of the covered PCI loan portfolio since 2014 has led to higher yields calculated as a result of the Bank’s quarterly cash flow recast process. The recast process performed during the three months ended March 31, 2016 and 2015 resulted in the reclassification of $9.6 million and $16.3 million, respectively, from nonaccretable difference to accretable yield.

61

The table below provides additional details regarding our consolidated net interest income (dollars in thousands).

	Three Months Ended March 31,
	2016						2015
	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)	$	6,733,697	$	91,551	5.41	%	$	6,354,615	$	87,388	5.50	%
Investment securities - taxable		1,044,705		6,348	2.44	%		1,164,030		7,049	2.80	%
Investment securities - non-taxable (2)		261,656		2,327	3.56	%		264,123		2,525	3.84	%
Federal funds sold and securities purchased under agreements to resell		125,308		26	0.08	%		70,449		17	0.10	%
Interest-bearing deposits in other financial institutions		428,082		474	0.45	%		872,032		574	0.27	%
Other		1,610,483		8,119	2.00	%		2,088,380		10,901	2.11	%
Interest-earning assets, gross		10,203,931		108,845	4.24	%		10,813,629		108,454	4.06	%
Allowance for loan losses		(48,851)						(41,424)
Interest-earning assets, net		10,155,080						10,772,205
Noninterest-earning assets		1,596,627						1,796,232
Total assets	$	11,751,707					$	12,568,437
Liabilities and Stockholders' Equity
Interest-bearing liabilities
Interest-bearing deposits	$	4,784,004	$	4,102	0.34	%	$	5,104,544	$	4,315	0.34	%
Notes payable and other borrowings		2,444,807		10,510	1.72	%		2,877,686		9,962	1.40	%
Total interest-bearing liabilities		7,228,811		14,612	0.81	%		7,982,230		14,277	0.72	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		2,153,901						2,152,610
Other liabilities		624,971						725,469
Total liabilities		10,007,683						10,860,309
Stockholders’ equity		1,743,209						1,707,624
Noncontrolling interest		815						504
Total liabilities and stockholders' equity	$	11,751,707					$	12,568,437
Net interest income (2)			$	94,233					$	94,177
Net interest spread (2)					3.43	%					3.34	%
Net interest margin (2)					3.70	%					3.53	%

(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 $0.7 million and $0.8 million for the three months ended March 31, 2016 and 2015, respectively.

The banking segment’s net interest margin exceeds our consolidated net interest margin shown above. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our banking segment and reduce our consolidated net interest margin, such as the borrowing costs of Hilltop and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities in the broker-dealer segment, including items related to securities financing operations that particularly decrease net interest margin. In addition, yields and costs on certain interest-earning assets, such as warehouse lines of credit extended to subsidiaries by the banking segment, are eliminated from the consolidated financial statements.

On a consolidated basis, net interest income increased $0.1 million during the three months ended March 31, 2016 compared with the same period in 2015. This increase included the net effect of increases in the volume of the loan portfolio, partially offset by lower yields on the loan portfolio within our banking segment. This increase in net interest income was offset by interest expense at corporate on our outstanding Senior Notes, the offering of which was completed during the second quarter of 2015 and reduction in interest earned on securities lending activities in our broker-dealer 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, substantially all of which relates to the banking segment, was $3.4 million and $2.7 million during the three months ended March 31, 2016 and 2015, respectively. During the three months ended March 31, 2016, the provision for loan losses was entirely comprised of charges relating to newly originated loans and acquired loans without credit impairment at acquisition of $3.4 million, compared to charges during the three months ended March 31, 2015 relating to newly originated loans and acquired loans without credit impairment at acquisition of $3.4 million, partially offset by the recapture of charges on PCI loans of $0.7 million.

62

Consolidated noninterest income decreased $75.2 million during the three months ended March 31, 2016, compared with the same period in 2015. This year-over-year change included the recognition of a bargain purchase gain related to the SWS Merger of $81.3 million during the three months ended March 31, 2015. The resulting year-over-year increase in noninterest income, other than bargain purchase gain, during the three months ended March 31, 2016, compared with the same period in 2015, of $6.1 million was primary driven by an increase in noninterest income within our mortgage origination segment of $11.0 million, offset by decreases in securities commissions and fees (net of intercompany eliminations) and investment banking and advisory fees within our broker-dealer segment of $5.3 million.

Consolidated noninterest expense during the three months ended March 31, 2016 increased $10.7 million, compared with the same period in 2015. This year-over-year increase included increases in noninterest expenses within our banking, mortgage origination and insurance segments, offset by decreases in our broker-dealer segment and corporate partially attributable to decreases in pre-tax transaction and integration-related costs associated with the SWS Merger. During the three months ended March 31, 2016 we incurred pre-tax transaction costs related to the SWS Merger of $0.8 million and pre-tax integration-related costs associated with employee expenses, professional fees and contractual expenses of $1.7 million, $2.2 million and $0.1 million, respectively, compared with pre-tax transaction costs of $5.6 million and integration-related costs associated with employee expenses and professional fees of $4.0 million and $0.4 million, respectively, during the same period in 2015. Changes between the three months ended March 31, 2016 and the same period in 2015 within the major components of noninterest expense included increases of $3.1 million in loss and loss adjustment expenses within our insurance segment and $9.3 million in other expenses primarily attributable to a downward valuation adjustment associated with an OREO property within our banking segment, slightly offset by a decrease in occupancy and equipment expenses of $1.4 million.

Consolidated income tax expense during the three months ended March 31, 2016 and 2015 was $14.4 million and $15.4 million, respectively, reflecting effective tax rates of 33.8% and 11.9%, respectively. The effective tax rate during the three months ended March 31, 2016 was lower than the statutory rate primarily due to recognition of excess tax benefits on share-based payment awards as a result of our adoption of the provisions of Accounting Standards Update 2016-09 as of January 1, 2016. The lower effective tax rate during the three months ended March 31, 2015 was primarily due to no income taxes being recorded in connection with the bargain purchase gain of $81.3 million associated with the SWS Merger because the acquisition was a tax-free reorganization under Section 368(a) of the Internal Revenue Code. In addition, during the quarter ended March 31, 2015, we recorded an income tax benefit of $2.1 million as a result of the SWS Merger to reverse the deferred tax liability for the difference between book and tax basis on Hilltop’s investment in SWS common stock. Therefore, the effective income tax rate during the three months ended March 31, 2015 is not necessarily indicative of anticipated future effective tax rates.

Segment Results

Banking Segment

Income before income taxes in our banking segment during the three months ended March 31, 2016 and 2015 was $31.2 million and $41.7 million, respectively. The decrease in income before income taxes during the three months ended March 31, 2016, compared with the same period in 2015, was primarily due to an increase in noninterest expense primarily due to a downward valuation adjustment on a covered OREO property and a decrease in noninterest income associated with the prior year recognition of gains on securities acquired in the SWS Merger and subsequently sold, partially offset by an increase in net interest income.

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

	Three Months Ended March 31,
	2016		2015
Performance Ratios:
Efficiency ratio (1)	64.97	%	56.96	%
Return on average assets	0.98	%	1.28	%
Net interest margin (taxable equivalent) (2)	4.73	%	4.59	%

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

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

63

During the three months ended March 31, 2016, the banking segment’s taxable equivalent net interest margin of 4.73% was 103 basis points greater due to the impact of purchase accounting and primarily related to accretion of discount on loans of $4.1 million, $11.4 million and $1.1 million associated with the PlainsCapital Merger, FNB Transaction, and SWS Merger, respectively, and PlainsCapital Merger-related amortization of premium on acquired securities of $0.8 million. The banking segment’s taxable equivalent net interest margin during the three months ended March 31, 2015 of 4.59% was 109 basis points greater due to the impact of purchase accounting and primarily related to accretion of discount on loans of $5.0 million, $9.7 million and $2.3 million associated with PlainsCapital Merger, FNB Transaction and SWS Merger, respectively, and PlainsCapital Merger-related amortization of premium on acquired securities of $0.9 million.

The FNB Transaction-related accretion of discount on loans of $11.4 million and $9.7 million during the three months ended March 31, 2016 and 2015, respectively, included accretion of approximately $3 million and $1 million, respectively, due to better-than-expected resolution of covered PCI loans during the respective periods. The better-than-expected performance of the covered PCI loan portfolio since 2014 has led to higher yields calculated as a result of the Bank’s quarterly cash flow recast process. The recast process performed during the three months ended March 31, 2016 and 2015 resulted in the reclassification of $9.6 million and $16.3 million, respectively, from nonaccretable difference to accretable yield.

The table below provides additional details regarding our banking segment’s net interest income (dollars in thousands).

	Three Months Ended March 31,
	2016						2015
	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)	$	5,097,141	$	76,381	5.95	%	$	4,728,489	$	73,941	6.26	%
Subsidiary warehouse lines of credit		992,640		9,708	3.87	%		906,927		8,063	3.56	%
Investment securities - taxable		737,567		3,931	2.13	%		842,356		4,783	2.27	%
Investment securities - non-taxable (2)		142,388		1,301	3.65	%		146,059		1,385	3.79	%
Federal funds sold and securities purchased under agreements to resell		19,328		26	0.55	%		25,361		17	0.27	%
Interest-bearing deposits in other financial institutions		331,387		429	0.52	%		757,511		542	0.29	%
Other		53,552		511	3.82	%		44,717		421	3.76	%
Interest-earning assets, gross		7,374,003		92,287	4.97	%		7,451,420		89,152	4.79	%
Allowance for loan losses		(48,637)						(41,096)
Interest-earning assets, net		7,325,366						7,410,324
Noninterest-earning assets		1,066,868						1,171,055
Total assets	$	8,392,234					$	8,581,379
Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Interest-bearing deposits	$	4,429,665	$	4,708	0.43	%	$	4,679,401	$	4,322	0.37	%
Notes payable and other borrowings		510,063		673	0.52	%		589,374		556	0.38	%
Total interest-bearing liabilities (3)		4,939,728		5,381	0.44	%		5,268,775		4,878	0.38	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		2,155,229						2,084,112
Other liabilities		34,962						76,633
Total liabilities		7,129,919						7,429,520
Stockholders’ equity		1,262,315						1,151,859
Total liabilities and stockholders’ equity	$	8,392,234					$	8,581,379
Net interest income (2)			$	86,906					$	84,274
Net interest spread (2)					4.53	%					4.41	%
Net interest margin (2)					4.73	%					4.59	%

(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 $0.4 million and $0.5 million for the three months ended March 31, 2016 and 2015, respectively.

(3) Excludes the allocation of interest expense on PlainsCapital debt of $0.4 million and $0.3 million for the three months ended March 31, 2016 and 2015, respectively.

The banking segment’s net interest margin exceeds our consolidated net interest margin. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our banking segment and reduce our consolidated net interest margin, such as the borrowing costs of Hilltop and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities in the broker-dealer segment, including items related to securities financing operations that particularly decrease net interest margin. In addition, the banking segment’s interest-earning assets include warehouse lines of credit extended to other subsidiaries, which are eliminated from the consolidated financial statements.

64

The following table summarizes the changes in the banking segment’s net interest income for the periods indicated below, including the component changes in the volume of average interest-earning assets and interest-bearing liabilities and changes in the rates earned or paid on those items (in thousands).

	Three Months Ended March 31,
	2016 vs. 2015
	Change Due To (1)
	Volume		Yield/Rate		Change
Interest income
Loans, gross	$	5,750	$	(3,310)	$	2,440
Subsidiary warehouse lines of credit		760		885		1,645
Investment securities - taxable		(593)		(259)		(852)
Investment securities - non-taxable (2)		(35)		(49)		(84)
Federal funds sold and securities purchased under agreements to resell		(4)		13		9
Interest-bearing deposits in other financial institutions		(308)		195		(113)
Other		83		7		90
Total interest income (2)		5,653		(2,518)		3,135
Interest expense
Deposits	$	(233)	$	619	$	386
Notes payable and other borrowings		(75)		192		117
Total interest expense		(308)		811		503
Net interest income (2)	$	5,961	$	(3,329)	$	2,632

(1) Changes attributable to both volume and yield/rate are included in yield/rate column.

(2) Annualized taxable equivalent.

Taxable equivalent net interest income increased $2.6 million during the three months ended March 31, 2016, compared with the same period in 2015. Increases in the volume of interest-earning assets, primarily on the loan portfolio and additional amounts drawn on the subsidiary warehouse lines of credit, increased taxable equivalent net interest income by $5.7 million during the three months ended March 31, 2016, compared with the same period in 2015. Changes in the yields earned on interest-earning assets decreased taxable equivalent net interest income by $2.5 million during the three months ended March 31, 2016, compared to the same period in 2015, primarily due to the net effects of lower yields on the loan and investment portfolios, partially offset by the favorable change in yields on subsidiary warehouse lines of credit during the current quarter. Changes in rates paid on interest-bearing liabilities decreased taxable equivalent net interest income by $0.8 million during the three months ended March 31, 2016, compared with the same period in 2015. Market interest rates increased during the three months ended March 31, 2016, compared with the same period in 2015, however, such changes did not have a significant effect on either the yields on interest-earning assets or the rates paid on interest-bearing liabilities.

The banking segment’s noninterest income was $13.0 million and $19.3 million during the three months ended March 31, 2016 and 2015, respectively. The decrease in noninterest income during the three months ended March 31, 2016, compared to the same period in 2015, was primarily due to $4.4 million of realized gains on securities acquired in the SWS Merger and subsequently sold during the three months ended March 31, 2015, that did not recur during the same period in 2016, as well as year-over-year decreases in trust account and OREO income.

The banking segment’s noninterest expenses were $64.4 million and $58.5 million during the three months ended March 31, 2016 and 2015, respectively. Noninterest expenses were primarily comprised of employees’ compensation and benefits, and occupancy expenses. The increase in noninterest expenses during the three months ended March 31, 2016, compared to the same period in 2015, was primarily due to a downward valuation adjustment associated with a significant covered OREO property of $7.9 million offset by a reduction of $1.8 million in pre-tax integration-related costs directly attributable to the integration of the former SWS FSB related to employee expenses.

65

Broker-Dealer Segment

Income before income taxes in our broker-dealer segment during the three months ended March 31, 2016 was $3.8 million, compared with a loss before income taxes of $3.5 million during the same period in 2015. The change in income (loss) before income taxes during the three months ended March 31, 2016, compared with the same period in 2015, was primarily the result of an increase in gains from derivative and trading portfolio activities, as well as a decrease in compensation and benefits expenses due to the integration and merger of FSC and Hilltop Securities, offset by decreases in both securities commissions and fees and investment banking and advisory fees.  

The following table provides additional details regarding our broker-dealer operating results (in thousands).

	Three Months Ended March 31,				Variance
	2016		2015		2016 vs 2015
Net interest income:
Securities lending	$	1,602	$	2,512	$	(910)
Other		5,449		5,484		(35)
Total net interest income		7,051		7,996		(945)
Noninterest income:
Securities commissions and fees by business line (1):
Capital markets		13,850		16,181		(2,331)
Retail		17,751		19,858		(2,107)
Clearing		6,515		5,251		1,264
Other		1,220		1,621		(401)
		39,336		42,911		(3,575)
Investment banking and advisory fees by business line:
Public finance		17,555		18,930		(1,375)
Capital markets		1,370		758		612
Retail		3,586		3,964		(378)
Structured finance		1,304		1,179		125
Clearing		7		12		(5)
Other		(3)		79		(82)
		23,819		24,922		(1,103)
Other		17,728		11,695		6,033
Total noninterest income		80,883		79,528		1,355
Noninterest expense:
Compensation and benefits expenses		57,816		64,358		(6,542)
Other		26,352		26,638		(286)
Total noninterest expense		84,168		90,996		(6,828)
Income (loss) before income taxes	$	3,766	$	(3,472)	$	7,238

(1) Securities commissions and fees includes income of $0.6 million during the three months ended March 31, 2016 that is eliminated in consolidation. There were no such fees eliminated in consolidation during the three months ended March 31, 2015.

The broker-dealer segment had net interest income of $7.1 million and $8.0 million during the three months ended March 31, 2016 and 2015, respectively. In the broker-dealer segment, interest is earned from securities lending activities, interest charged on customer margin loan balances and interest earned on investment securities used to support sales, underwriting and other customer activities. The year-over-year decrease between the three months ended March 31, 2016 and the same period in 2015 was primarily due to a two basis point reduction in the spread earned in its stock lending business and a decrease in its average stock borrow/loan program balances.

Noninterest income was $80.9 million and $79.5 million during the three months ended March 31, 2016 and 2015, respectively. The increase in noninterest income of $1.4 million during the three months ended March 31, 2016, compared with the same period in 2015, was primarily due to a $6.1 million increase in the income earned from its derivative and trading portfolio activities, offset by decreases of $3.6 million in securities commissions and fees and $1.1 million in investment banking and advisory fees. The broker-dealer segment participates in programs in which it issues forward purchase commitments of mortgage-backed securities to certain non-profit housing clients and sells U.S. Agency to-be-announced (“TBA”) securities. Additionally, TBA purchase and sales agreements are entered into to assist small to mid-size mortgage loan originators in hedging the interest rate risk associated with their client-owned mortgages. The fair values of these derivative instruments increased $6.9 million and $8.6 million during the three months ended March 31, 2016 and 2015, respectively, a year-over-year decline of $1.7 million. The Hilltop Broker-Dealers also hold trading securities to support sales, underwriting and other customer activities. The fair values of securities within this trading portfolio increased $10.8 million and $3.0 million during the three months ended March 31, 2016 and 2015, respectively. This year-over-year improvement of $7.8 million was primarily the result of $5.5 million associated with net gains earned in the trading of mortgage-backed securities.

66

The $3.6 million decrease in securities commissions and fees during the three months ended March 31, 2016, compared with the same period in 2015, was primarily due to decreases in the commissions earned on municipal bond transactions, while the $1.1 million year-over-year decrease in investment banking and advisory fees was primarily due to the decrease in the number of public finance issuances.

Noninterest expenses, including provision for loan losses, were $84.2 million and $91.0 million during the three months ended March 31, 2016 and 2015, respectively. The decrease in noninterest expenses, including provision for loan losses, of $6.8 million during the three months ended March 31, 2016, compared to the same period in 2015, was primarily due to a decrease of $6.5 million in compensation and benefits expenses, which was in part a product of the integration and merger of FSC and Hilltop Securities. During the three months ended March 31, 2016, the broker-dealer segment incurred pre-tax integration-related costs resulting from employee expenses, professional fees and contractual expenses directly attributable to the integration of SWS were $1.7 million, $2.2 million and $0.1 million, respectively, compared with pre-tax transaction costs of $0.8 million, and $2.2 million and $0.2 million related to employee expenses and professional fees, respectively, during the three months ended March 31, 2015.

On October 22, 2015, FINRA granted approval to combine FSC and Hilltop Securities, subject to customary conditions. Since this approval, we have integrated the back-office systems of FSC and Hilltop Securities and, effective as of January 22, 2016, we merged FSC and Hilltop Securities into a combined firm operating under the “Hilltop Securities” name. As a result, we began realizing cost savings in 2016, although these cost savings have been partially offset by integration costs that we anticipate incurring through the first six months of 2016.

Selected information concerning the broker-dealer segment follows (dollars in thousands).

	Three Months Ended March 31,
	2016			2015
Compensation as a % of net revenue		65.7%		73.5%
FDIC insured program balances at PlainsCapital Bank (end of period)	$	801,799	$	548,197
Other FDIC insured program balances (end of period)	$	1,515,244	$	1,268,587
Customer margin balances (end of period)	$	351,523	$	406,643
Customer funds on deposit, including short credits (end of period)	$	343,193	$	611,241
Public finance:
Number of issues		370		383
Aggregate amount of offerings	$	21,615,698	$	25,192,060
Capital markets:
Total volumes	$	19,170,532	$	17,506,246
Net inventory (end of period)	$	182,574	$	158,777
Retail:
Retail employee representatives (end of period)		116		140
Independent registered representatives (end of period)		232		264
Structured finance:
Lock production/TBA volume	$	1,064,068	$	664,280
Clearing:
Total tickets	$	535,156	$	519,115
Correspondents (end of period)		185		209
Securities lending:
Interest-earning assets - stock borrowed (end of period)	$	1,315,940	$	1,990,598
Interest-bearing liabilities - stock loaned (end of period)	$	1,222,522	$	1,853,366

67

Mortgage Origination Segment

Income before income taxes in our mortgage origination segment during the three months ended March 31, 2016 and 2015 was $9.1 million and $10.0 million, respectively. The decrease in income before income taxes during the three months ended March 31, 2016 compared to the same period in 2015 was primarily due to an increase in segment operating costs, and to a lesser extent, compensation that varies with the volume of mortgage loan originations (“variable compensation”), partially offset by an increase in other noninterest income. Net interest expense of $2.6 million and $3.0 million during the three months ended March 31, 2016 and 2015, respectively, resulted from interest incurred on a warehouse line of credit held with the Bank as well as related intercompany financing costs, partially offset by interest income earned on loans held for sale.

The mortgage origination segment originates all of its mortgage loans through a retail channel. The following table provides certain details regarding our mortgage loan originations and selected information for the periods indicated below (dollars in thousands).

	Three Months Ended March 31,
			% of				% of
	2016		Total		2015		Total
Mortgage Loan Originations - units		12,944				12,363
Mortgage Loan Originations - volume	$	2,929,116			$	2,813,520
Mortgage Loan Originations:
Conventional	$	1,835,703	62.67	%	$	1,847,413	65.66	%
Government		686,565	23.44	%		669,536	23.80	%
Jumbo		266,522	9.10	%		211,833	7.53	%
Other		140,326	4.79	%		84,738	3.01	%
	$	2,929,116	100.00	%	$	2,813,520	100.00	%
Home purchases	$	2,050,825	70.02	%	$	1,688,359	60.01	%
Refinancings		878,291	29.98	%		1,125,161	39.99	%
	$	2,929,116	100.00	%	$	2,813,520	100.00	%
Texas	$	662,492	22.62	%	$	589,430	20.95	%
California		446,214	15.24	%		487,078	17.31	%
Florida		151,221	5.16	%		129,495	4.60	%
Ohio		114,319	3.90	%		107,444	3.82	%
Washington		103,703	3.54	%		91,884	3.27	%
Arizona		99,202	3.39	%		90,492	3.23	%
North Carolina		96,709	3.30	%		107,846	3.83	%
Maryland		88,231	3.01	%		99,997	3.55	%
Missouri		86,128	2.94	%		74,903	2.66	%
South Carolina		81,809	2.79	%		82,768	2.94	%
All other states		999,088	34.11	%		952,183	33.84	%
	$	2,929,116	100.00	%	$	2,813,520	100.00	%
Mortgage Loan Sales - volume	$	3,117,605			$	2,905,266

The mortgage lending business is subject to variables that can impact loan origination volume, including seasonal and interest rate fluctuations. Historically, the mortgage origination segment has 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 mortgage interest rates tends to result in increased loan origination volume from refinancings. Changes in interest rates have historically had a lesser impact on home purchases volume than on refinancing volume. On October 3, 2015, lender compliance changes associated with TILA-RESPA Integrated Disclosures (“TRID”) became effective and significantly modified required disclosure documents and settlement procedures associated with home mortgage loans. PrimeLending has not experienced significant delays in loan closings due to the implementation of TRID. The long-term impact of TRID-related costs are yet unknown.

Refinancing volume decreased to $878.3 billion during the three months ended March 31, 2016 (representing 30.0% of total loan origination volume), from $1.1 billion during the three months ended March 31, 2015 (representing 40.0% of total loan origination volume). Home purchases volume increased 21.5% to $2.1 billion from $1.7 billion during the three months ended March 31, 2016 compared to the same period in 2015.

68

The mortgage origination segment’s total loan origination volume during the three months ended March 31, 2016 increased 4.1%, compared to the same period in 2015, while income before income taxes during the three months ended March 31, 2016 decreased 8.8% compared to the same period in 2015. The decrease in income before taxes was primarily due to noninterest expense increasing by 10.1%, while noninterest income increased at a lesser rate of 8.2%.  

Noninterest income was $146.3 million and $135.3 million during the three months ended March 31, 2016 and 2015, respectively, and was comprised of the following (in thousands).

	Three Months Ended March 31,				Variance
	2016		2015		2016 vs 2015
Net gains from sale of loans	$	115,234	$	108,630	$	6,604
Mortgage loan origination fees		18,813		14,589		4,224
Other mortgage production income:
Change in net fair value and related derivative activity:
Interest rate lock commitments and loans held for sale		8,858		13,173		(4,315)
Mortgage servicing rights asset		(2,487)		(5,288)		2,801
Servicing fees		5,920		4,188		1,732
	$	146,338	$	135,292	$	11,046

Net gains on sale of loans increased 6.1% and mortgage loan origination fees increased 29.0% during the three months ended March 31, 2016, respectively, compared with the same period in 2015. The increase in net gains on sale of loans during the three months ended March 31, 2016 was primarily a result of a 7.3% increase in total loan sales volume, partially offset by a slight decrease in average loan sales margin, compared with the same period in 2015. The increase in mortgage loan origination fees was primarily a result of an increase in average loan origination fees during the three months ended March 31, 2016, compared with the same period in 2015. Also contributing to the increase in mortgage loan origination fees during the three months ended March 31, 2016 was a 4.1% increase in total loan origination volume.

During the three months ended March 31, 2016 and 2015, noninterest income included increases of $8.9 million and $13.2 million, respectively, in net 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 the mortgage origination segment to mitigate interest rate risk associated with its IRLCs and mortgage loans held for sale. These increases were primarily a result of increases in the volume of IRLCs and mortgage loans held during these periods, partially offset by decreases in the average value of individual IRLCs and mortgage loans.

The mortgage origination segment sells substantially all mortgage loans it originates to various investors in the secondary market, the majority servicing released. During the three months ended March 31, 2015, the mortgage origination segment retained servicing on approximately 9% of loans sold, but decreased to approximately 6% during the three months ended March 31, 2016. The mortgage origination segment’s determination of whether to retain or release servicing on mortgage loans it sells is impacted by, among other things, changes in mortgage interest rates, and refinancing and market activity. The related mortgage servicing rights (“MSR”) asset was valued at $41.0 million on $5.1 billion of serviced loan volume at March 31, 2016, compared with a value of $53.5 million on $5.2 billion of serviced loan volume at December 31, 2015. The mortgage origination segment may, from time to time, manage its MSR asset through different strategies, including varying the percentage of mortgage loans sold servicing released and opportunistically selling MSR assets. The mortgage origination segment has also retained servicing on certain loans sold to the banking segment. Gains and losses associated with such sales to the banking segment and the related MSR asset are eliminated in consolidation. The mortgage origination segment uses derivative financial instruments, including interest rate swaps, swaptions and forward commitments to sell mortgage-backed securities, as a means to mitigate market risk associated with its MSR asset. Changes in the net fair value of the MSR asset and the related derivatives resulted in net losses of $2.5 million and $5.3 million during the three months ended March 31, 2016 and 2015, respectively, associated with normal customer payments, changes in discount rates, prepayment speed assumptions and customer payoffs. These net losses were offset by net servicing income of $2.4 million and $2.1 million during the three months ended March 31, 2016 and 2015, respectively.

69

Noninterest expenses were $134.7 million and $122.3 million during the three months ended March 31, 2016 and 2015, respectively, and were comprised of the following (in thousands).

	Three Months Ended March 31,				Variance
	2016		2015		2016 vs 2015
Variable compensation	$	51,689	$	48,130	$	3,559
Segment operating costs		71,990		61,780		10,210
Lender paid closing costs		7,499		10,317		(2,818)
Servicing expense		3,493		2,075		1,418
	$	134,671	$	122,302	$	12,369

Employees’ compensation and benefits accounted for the majority of the noninterest expenses incurred during all periods presented. Variable compensation increased $3.6 million during the three months ended March 31, 2016, compared with the same period in 2015, and comprised 57.0% and 59.8% of the total employees’ compensation and benefits expenses during the three months ended March 31, 2016 and 2015, respectively. Variable compensation tends to fluctuate to a greater degree than loan origination volumes because mortgage loan originator and fulfillment staff incentive compensation plans are structured to pay at increasing rates as higher monthly volume tiers are achieved.

While total loan origination volumes increased 4.1% for the three months ended March 31, 2016, compared to the same period in 2015, the mortgage origination segment’s operating costs increased 16.5%. The largest increase in segment operating costs during the three months ended March 31, 2016, compared to the same period in 2015, was an increase in salaries and benefits totaling $6.8 million. This increase was primarily the result of increases in headcount related to loan processing, loan fulfillment and technology functions. The increases in loan processing and fulfillment headcount levels were initiated during 2015 primarily to address growth in loan origination volumes that began in 2014. The remaining increases in segment operating costs during the three months ended March 31, 2016, compared to the same period in 2015, were primarily associated with a slight increase in mortgage branch locations and technology initiatives. Historically, segment operating costs tend to fluctuate with, but at a lesser magnitude than, loan origination volume, as these costs are comprised of salaries, benefits, occupancy and administrative costs, which are not normally highly sensitive to changes in loan origination volume.

In exchange for a higher interest rate, a customer may opt to have PrimeLending pay certain costs associated with the origination of the mortgage loan (“lender paid closing costs”). Fluctuations in lender paid closing costs are not always aligned with fluctuations in loan origination volumes. Other loan pricing conditions, including the mortgage loan interest rate, loan origination fees paid by the customer and a customer’s willingness to pay closing costs, may also influence fluctuations in lender paid closing costs. 

Between January 1, 2007, and March 31, 2016, the mortgage origination segment sold mortgage loans totaling $76.6 billion. These loans were sold under sales contracts that generally include provisions that 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 2007, it does not anticipate experiencing significant losses in the future on loans originated prior to 2007 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, the mortgage origination segment evaluates the claim and determines if the claim can be satisfied through additional documentation or other deliverables. If the claim cannot be satisfied in that manner, the mortgage origination segment negotiates 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.

70

Following is a summary of the mortgage origination segment’s claims resolution activity relating to loans sold between January 1, 2007 and March 31, 2016 (dollars in thousands).

	OriginalLoanBalance			LossRecognized
			% of			% of
			Loans			Loans
	Amount		Sold	Amount		Sold
Claims resolved with no payment	$	201,310	0.26%	$	—	0.00%
Claims resolved as a result of a loan repurchase or payment to an investor for losses incurred (1)		235,774	0.31%		23,552	0.03%
	$	437,084	0.57%	$	23,552	0.03%

(1) Losses incurred include refunded purchased servicing rights.

At March 31, 2016 and December 31, 2015, the mortgage origination segment’s indemnification liability reserve totaled $17.1 million and $16.6 million, respectively. The related provision for indemnification losses was $0.9 million and $0.8 million during the three months ended March 31, 2016 and 2015, respectively.

Insurance Segment

Income before income taxes in our insurance segment was $6.2 million and $9.1 million during the three months ended March 31, 2016 and 2015, respectively. While the insurance segment had positive earnings during the three months ended March 31, 2016 and 2015, the changes experienced in operating results between periods were primarily a result of changes in claims loss experience associated with the frequency and severity of severe weather-related events. During three months ended March 31, 2016, compared with the same period in 2015, net insurance premiums earned were relatively flat, while claims loss experience worsened.

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 insurance segment periodically reviews the pricing of its primary products in each state of operation utilizing a consulting actuarial firm to supplement normal review processes resulting in filings to increase rates as deemed necessary. The benefit of these rate actions are not fully realized until all customers renew their policies under the new rates, typically one year from the date of rate change implementation. Concurrently, business concentrations are reviewed and actions initiated, including cancellation of agents, non-renewal of policies and cessation of new business writing on certain products in problematic geographic areas. Rate actions have historically reduced the rate of premium growth for targeted areas when compared with the patterns exhibited in prior quarters and years and reduced the insurance segment’s exposure to volatile weather in these areas, but competition and customer response to rate increases has negatively impacted customer retention and new business. The insurance segment aims to manage and diversify its business concentrations and products to minimize the effects of future weather-related events.

The insurance segment’s operations resulted in combined ratios of 88.5% and 81.8% during the three months ended March 31, 2016 and 2015, respectively. The increase in the combined ratio during the three months ended March 31, 2016, compared with the same period in 2015, was primarily driven by the effects of an increase in frequency and severity of severe weather events in our geographic coverage area and net insurance premiums earned being relatively flat. The combined ratio is a measure of overall insurance underwriting profitability, and represents the sum of loss and LAE and underwriting expenses divided by net insurance premiums earned.

Noninterest income of $41.8 million during each of the three months ended March 31, 2016 and 2015 included net insurance premiums earned of $39.7 million and $39.6 million, respectively. The slight increase in net insurance premiums earned was primarily due to the effect of the decrease in cost of reinsurance.

71

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

	Three Months Ended March 31,				Variance
	2016		2015		2016 vs 2015
Direct Insurance Premiums Written:
Homeowners	$	15,995	$	18,095	$	(2,100)
Fire		11,906		13,446		(1,540)
Mobile Home		10,295		10,227		68
Commercial		844		953		(109)
Other		39		28		11
	$	39,079	$	42,749	$	(3,670)

The total direct insurance premiums written for our three largest insurance product lines decreased by $3.6 million during the three months ended March 31, 2016, compared with the same period in 2015, due to the continued effects of efforts to reduce concentrations both geographically and within specific product lines, agent management initiatives and competitive pressure.

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

	Three Months Ended March 31,				Variance
	2016		2015		2016 vs 2015
Net Insurance Premiums Earned:
Homeowners	$	16,263	$	16,748	$	(485)
Fire		12,105		12,446		(341)
Mobile Home		10,467		9,465		1,002
Commercial		858		882		(24)
Other		40		26		14
	$	39,733	$	39,567	$	166

Net insurance premiums earned during the three months ended March 31, 2016 slightly increased compared to the same period in 2015, primarily due to the decrease in the cost of reinsurance, offset by the decrease in net premiums written during 2016. The slight increase in net insurance premiums earned, when compared with the patterns exhibited in prior quarters and years, reflects the effects of both the benefit of the current reinsurance structure and the insurance segment’s previously discussed efforts to manage and diversify its business concentrations and products to minimize the effects of future weather-related events.

Noninterest expenses of $36.4 million and $33.5 million during the three months ended March 31, 2016 and 2015, respectively, include both loss and LAE expenses and policy acquisition and other underwriting expenses, as well as other noninterest expenses. Loss and LAE are recognized based on formula and case basis estimates for losses reported with respect to direct business, estimates of unreported losses based on past experience and deduction of amounts for reinsurance placed with reinsurers. Loss and LAE during the three months ended March 31, 2016 was $22.0 million, compared with $18.9 million during the same period in 2015, resulting in loss and LAE ratios of 55.3% and 47.7%, respectively. The year-over-year increase in the loss and LAE ratio during the three months ended March 31, 2016, compared with the same period in 2015, was primarily due to an increase in frequency and severity of severe weather events in our geographic coverage area and net insurance premiums earned being relatively flat.

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.

72

The following table details the calculation of the underwriting expense ratio for the periods presented (dollars in thousands).

	Three Months Ended March 31,						Variance
	2016			2015			2016 vs 2015
Amortization of deferred policy acquisition costs	$	10,193		$	10,041		$	152
Other underwriting expenses		3,780			4,166			(386)
Total		13,973			14,207			(234)
Agency expenses		(794)			(705)			(89)
Total less agency expenses	$	13,179		$	13,502		$	(323)
Net insurance premiums earned	$	39,733		$	39,567		$	166
Expense ratio		33.2	%		34.1	%		(1.0)	%

Corporate

Corporate includes certain activities not allocated to specific business segments. These activities include holding company financing and investing activities, and management and administrative services to support the overall operations of the Company including, but not limited to, certain executive management, corporate relations, legal, finance, and acquisition costs.

As a holding company, Hilltop’s primary investment objectives are to preserve capital and have cash resources available to make acquisitions. Investment and interest income earned was $0.2 million and $0.1 million during the three months ended March 31, 2016 and 2015, respectively. Investment and interest income during the three months ended March 31, 2016 primarily consisted of intercompany interest earned on note receivables held with Securities Holdings and First Southwest that were paid off in January 2016 and March 2016, respectively.

During the three months ended June 30, 2015, Hilltop completed its issuance of Senior Notes and used the net proceeds of the offering to redeem all of its outstanding Non-Cumulative Perpetual Preferred Stock, Series B at an aggregate liquidation value of $114.1 million, plus accrued but unpaid dividends of $0.4 million, and utilized the remainder for general corporate purposes. Consequently, recurring quarterly interest expense of $1.9 million was incurred during the three months ended March 31, 2016.

Noninterest income of $81.3 million during the three months ended March 31, 2015 represents the recognition of a bargain purchase gain related to the SWS Merger. Included in the bargain purchase gain was a reversal of a $33.4 million valuation allowance against SWS deferred tax assets. This amount was based on our expected ability to realize these acquired deferred tax assets through our consolidated core earnings, the implementation of certain tax planning strategies and reversal of timing differences. SWS’s net operating loss carryforwards are subject to an annual Section 382 limitation on their usage because of the ownership change.

Noninterest expenses of $5.8 million and $9.6 million during the three months ended March 31, 2016 and 2015, respectively, were primarily comprised of employees’ compensation and benefits and professional fees, including corporate governance, legal and transaction costs. During the three months ended March 31, 2016, compared with the same period in 2015, noninterest expenses included a year-over-year decrease of $4.3 million in transaction and integration-related costs directly attributable to the SWS Merger. Specifically, during the three months ended March 31, 2016, Hilltop incurred pre-tax transaction costs related to the SWS Merger of $0.8 million, compared with $4.8 million in pre-tax transaction costs and $0.2 million in pre-tax integration-related costs associated with professional fees during the three months ended March 31, 2015.

73

Financial Condition

The following discussion contains a more detailed analysis of our financial condition at March 31, 2016 as compared with December 31, 2015.

Securities Portfolio

At March 31, 2016, 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. We may categorize investments as trading, available for sale, and held to maturity.

Trading securities are bought and held principally for the purpose of selling them in the near term and are carried at fair value, marked to market through operations and held at the Bank and the Hilltop Broker-Dealers. 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 (loss). Securities are classified as held to maturity based on the intent and ability of our management, at the time of purchase, to hold such securities to maturity. These securities are carried at amortized cost.

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

	March 31,		December 31,
	2016		2015
Trading securities, at fair value
U.S. Treasury securities	$	11,436	$	20,481
U.S. government agencies:
Bonds		75,015		36,244
Residential mortgage-backed securities		55,526		12,505
Commercial mortgage-backed securities		21,717		19,280
Collateralized mortgage obligations		3,150		264
Corporate debt securities		53,277		34,735
States and political subdivisions		101,655		58,588
Unit investment trusts		37,897		18,400
Private-label securitized product		7,443		12,324
Other		1,309		1,325
		368,425		214,146
Securities available for sale, at fair value
U.S. Treasury securities		44,884		44,603
U.S. government agencies:
Bonds		303,113		296,636
Residential mortgage-backed securities		33,342		35,853
Commercial mortgage-backed securities		9,371		9,207
Collateralized mortgage obligations		48,522		52,701
Corporate debt securities		95,223		97,950
States and political subdivisions		113,364		118,725
Commercial mortgage-backed securities		530		531
Equity securities		17,979		17,500
		666,328		673,706
Securities held to maturity, at amortized cost
U.S. Treasury securities		25,073		25,146
U.S. government agencies:
Bonds		60,428		69,379
Residential mortgage-backed securities		23,099		23,735
Commercial mortgage-backed securities		18,577		18,658
Collateralized mortgage obligations		157,455		167,541
States and political subdivisions		25,846		27,563
		310,478		332,022
Total securities portfolio	$	1,345,231	$	1,219,874

74

We had net unrealized gains of $10.3 million and $3.7 million at March 31, 2016 and December 31, 2015, respectively, related to the available for sale investment portfolio, and a net unrealized gain associated with the securities held to maturity portfolio of $3.1 million at March 31, 2016, compared with a net unrealized loss of $0.6 million at December 31, 2015.

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 March 31, 2016, the banking segment’s securities portfolio of $855.9 million was comprised of trading securities of $20.2 million, available for sale securities of $525.2 million and held to maturity securities of $310.5 million.

Broker-Dealer Segment

Our broker-dealer segment holds securities to support sales, underwriting and other customer activities. The Hilltop Broker-Dealers are required to carry their securities at fair value and record changes in the fair value of the portfolio in operations. Accordingly, the securities portfolio of the Hilltop Broker-Dealers included trading securities of $348.3 million at March 31, 2016. In addition, the Hilltop Broker-Dealers enter into transactions that represent commitments to purchase and deliver securities at prevailing future market prices to facilitate customer transactions and satisfy such commitments. Accordingly, the Hilltop Broker-Dealers’ ultimate obligation may exceed the amount recognized in the financial statements. These securities, which are carried at fair value and reported as securities sold, not yet purchased in the consolidated balance sheet, had a value of $165.7 million at March 31, 2016.

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 March 31, 2016, the insurance segment’s securities portfolio was comprised of $141.0 million in available for sale securities and $6.1 million of other investments included in other assets within the consolidated balance sheet.

Non-Covered Loan Portfolio

Consolidated non-covered loans held for investment are detailed in the table below, classified by portfolio segment and segregated between those considered to be PCI loans and all other originated or acquired loans (in thousands). PCI loans showed evidence of credit deterioration on the date of acquisition that made it probable that all contractually required principal and interest payments would not be collected.

	Loans, excluding		PCI		Total
March 31, 2016	PCI Loans		Loans		Loans
Commercial and industrial	$	1,606,450	$	13,117	$	1,619,567
Real estate		2,485,992		50,310		2,536,302
Construction and land development		697,260		4,098		701,358
Consumer		44,323		528		44,851
Broker-dealer		463,987		—		463,987
Non-covered loans, gross		5,298,012		68,053		5,366,065
Allowance for loan losses		(43,895)		(4,555)		(48,450)
Non-covered loans, net of allowance	$	5,254,117	$	63,498	$	5,317,615

75

	Loans, excluding		PCI		Total
December 31, 2015	PCI Loans		Loans		Loans
Commercial and industrial	$	1,539,455	$	13,350	$	1,552,805
Real estate		2,260,464		52,775		2,313,239
Construction and land development		700,206		5,150		705,356
Consumer		44,893		779		45,672
Broker-dealer		602,968		—		602,968
Non-covered loans, gross		5,147,986		72,054		5,220,040
Allowance for loan losses		(40,929)		(4,486)		(45,415)
Non-covered loans, net of allowance	$	5,107,057	$	67,568	$	5,174,625

Banking Segment

The loan portfolio constitutes the major earning asset of the banking segment and typically offers the best alternative for obtaining the maximum interest spread above the banking segment’s cost of funds. The overall economic strength of the banking segment generally parallels the quality and yield of its loan portfolio. The banking segment’s loan portfolio consists of the non-covered loan portfolio and the covered loan portfolio. The covered loan portfolio consists of loans acquired in the FNB Transaction that are subject to loss-share agreements with the FDIC and is discussed below. The non-covered loan portfolio includes all other loans held by the Bank and is discussed herein.

The banking segment’s total non-covered loans, net of the allowance for non-covered loan losses, were $6.1 billion and $5.9 billion at March 31, 2016 and December 31, 2015, respectively. The banking segment’s non-covered loan portfolio includes a $1.5 billion warehouse line of credit extended to PrimeLending, of which $1.2 billion and $1.4 billion was drawn at March 31, 2016 and December 31, 2015, respectively. Amounts advanced against the warehouse line of credit are eliminated from net loans on our consolidated balance sheets. The banking segment does not generally participate in syndicated loan transactions and has no foreign loans in its portfolio.

At March 31, 2016, the banking segment had non-covered loan concentrations (loans to borrowers engaged in similar activities) that exceeded 10% of total non-covered loans in its real estate portfolio. The areas of concentration within our non-covered real estate portfolio were non-construction commercial real estate loans, non-construction residential real estate loans, and construction and land development loans, which represented 32.2%, 15.1% and 13.1%, respectively, of the banking segment’s total non-covered loans at March 31, 2016. The banking segment’s non-covered loan concentrations were within regulatory guidelines at March 31, 2016.

Broker-Dealer Segment

The loan portfolio of the broker-dealer 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 the Hilltop Broker-Dealers’ internal policies. The broker-dealer segment’s total non-covered loans, net of the allowance for non-covered loan losses, were $463.9 million and $602.8 million at March 31, 2016 and December 31, 2015, respectively. This decrease was primarily attributable to decreases of $62.5 million in customer borrowings in margin accounts and $93.4 million in receivables from correspondents.

76

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 IRLCs with customers pursuant to which we agree to originate a mortgage loan on a future date at an agreed-upon interest rate. The components of the mortgage origination segment’s loans held for sale and IRLCs are as follows (in thousands).

	March 31,		December 31,
	2016		2015
Loans held for sale:
Unpaid principal balance	$	1,234,507	$	1,410,445
Fair value adjustment		50,837		50,390
	$	1,285,344	$	1,460,835
IRLCs:
Unpaid principal balance	$	1,505,457	$	944,942
Fair value adjustment		44,915		23,762
	$	1,550,372	$	968,704

The mortgage origination segment uses forward commitments to mitigate interest rate risk associated with its loans held for sale and IRLCs. The notional amounts of these forward commitments at March 31, 2016 and December 31, 2015 were $2.5 billion and $2.0 billion, respectively, while the related estimated fair values were ($11.4) million and ($1.2) million, respectively.

Covered Loan Portfolio

Banking Segment

Loans acquired in the FNB Transaction that are subject to loss-share agreements with the FDIC 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 the following amounts with respect to the covered assets (including covered loans): (i) 80% of net losses on the first $240.4 million of net losses incurred; (ii) 0% of net losses in excess of $240.4 million up to and including $365.7 million of net losses incurred; and (iii) 80% of net losses in excess of $365.7 million of net losses incurred. Net losses are defined as book value losses plus certain defined expenses incurred in the resolution of assets, less subsequent recoveries. Under the loss-share agreement for commercial assets, the amount of subsequent recoveries that are reimbursable to the FDIC for a particular asset is limited to book value losses and expenses actually billed plus any book value charge-offs incurred prior to September 13, 2013 (the “Bank Closing Date”). There is no limit on the amount of subsequent recoveries reimbursable to the FDIC under the loss-share agreement for single family residential assets. The loss-share agreements for commercial and single family residential assets 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 our actual net realized losses over the life of the loss-share agreements are less than the FDIC’s initial estimate of losses on covered assets. The “true-up” payment is calculated using a defined formula set forth in the Purchase and Assumption Agreement by and among the FDIC (as receiver of FNB), the Bank and the FDIC (the “P&A Agreement”). As of March 31, 2016, the Bank estimated that the sum of covered losses and reimbursable expenses subject to the loss-share agreements will exceed $240.4 million, but will not exceed $365.7 million. Unless actual plus projected covered losses and reimbursable expenses exceed $365.7 million, the Bank will not record additional amounts to the FDIC Indemnification Asset. As of March 31, 2016, the Bank had billed $139.4 million of covered net losses to the FDIC, of which 80%, or $111.5 million, were reimbursable under the loss-share agreements. As of March 31, 2016, the Bank had received aggregate reimbursements of $111.5 million from the FDIC, which represented reimbursable covered losses and expenses through December 31, 2015. While the ultimate amount of any “true-up” payment is unknown at this time and will vary based upon the amount of future losses or recoveries within our covered loan portfolio, the Bank has recorded a related “true-up” payment accrual of $7.5 million at March 31, 2016 based on the current estimate of aggregate realized losses on covered assets over the life of the loss-share agreements. Additionally, as estimates of realized losses on covered assets change, the value of the FDIC Indemnification Asset will be adjusted and therefore may not be realized. If the Bank continues to experience favorable resolutions within its covered assets portfolio and

77

covered losses are lower than currently estimated, the Bank may be required to increase its “true-up” payment accrual and recognize negative accretion (amortization) on the FDIC Indemnification Asset. These changes will be partially offset by increased discount accretion on the covered loan portfolio.

In connection with the FNB Transaction, the Bank acquired loans both with and without evidence of credit quality deterioration since origination. Based on purchase date valuations, the banking segment’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. Unless the banking segment acquires additional loans subject to loss-share agreements with the FDIC, the covered portfolio will continue to decrease as covered loans are liquidated.

Covered loans held for investment are detailed in the table below and classified by portfolio segment (in thousands).

	Loans, excluding		PCI		Total
March 31, 2016	PCI Loans		Loans		Loans
Commercial and industrial	$	2,117	$	6,953	$	9,070
Real estate		141,980		176,941		318,921
Construction and land development		5,424		13,971		19,395
Covered loans, gross		149,521		197,865		347,386
Allowance for loan losses		(49)		(1,168)		(1,217)
Covered loans, net of allowance	$	149,472	$	196,697	$	346,169

	Loans, excluding		PCI		Total
December 31, 2015	PCI Loans		Loans		Loans
Commercial and industrial	$	1,294	$	7,507	$	8,801
Real estate		147,502		193,546		341,048
Construction and land development		9,524		20,921		30,445
Covered loans, gross		158,320		221,974		380,294
Allowance for loan losses		(32)		(1,500)		(1,532)
Covered loans, net of allowance	$	158,288	$	220,474	$	378,762

At March 31, 2016, 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 non-construction residential real estate loans and non-construction commercial real estate loans, which represented 58.7% and 33.2%, respectively, of the banking segment’s total covered loans at March 31, 2016. The banking segment’s covered loan concentrations were within regulatory guidelines at March 31, 2016.

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. Management has responsibility for determining the level of the allowance for loan losses, subject to review by 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. 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, or for acquired loans accounted for in pools, charged against the pool discount. Recoveries on charge-offs of loans acquired in the Bank Transactions that occurred prior to their acquisition represent contractual cash flows not expected to be collected and are recorded as accretion income. Recoveries on acquired loans charged-off subsequent to their acquisition are credited to the allowance for loan loss, except for recoveries on loans accounted for in pools, which are credited to the pool discount.

In connection with the Bank Transactions, we acquired loans both with and without evidence of credit quality deterioration since origination. PCI loans acquired in the PlainsCapital Merger are accounted for on an individual loan basis, while PCI loans acquired in each of the FNB Transaction and the SWS Merger are accounted for in pools as well as on an individual loan basis. We have established under our PCI accounting policy a framework to aggregate certain

78

acquired 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 common risk characteristics used for the pooling of the FNB and SWS PCI loans are risk grade and loan collateral type. The loans acquired in the Bank Transactions were initially recorded at fair value with no carryover of any allowance for loan losses.

Provisions for loan losses are charged to operations to record the total allowance for loan losses at a level deemed appropriate by the banking segment’s management based on such factors as the volume and type of lending it conducted, the amount of non-performing loans and related collateral security, the present level of the allowance for loan losses, the results of recent regulatory examinations, generally accepted accounting principles, general economic conditions and other factors related to the ability to collect loans in its portfolio. The provision for loan losses, primarily in the banking segment, was $3.4 million and $2.7 million during the three months ended March 31, 2016 and 2015, respectively.

The allowance for loan losses 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 March 31, 2016, additional provisions for losses on existing loans may be necessary in the future.

The following tables present the activity in our allowance for loan losses within our non-covered and covered loan portfolios for the periods presented (in thousands). Substantially all of the activity shown below occurred within the banking segment.

	Three Months Ended March 31,
Non-Covered Portfolio	2016			2015
Balance, beginning of period	$	45,415		$	37,041
Provisions charged to operations		3,685			2,794
Recoveries of non-covered loans previously charged off:
Commercial and industrial		658			592
Real estate		56			44
Construction and land development		—			—
Consumer		40			25
Broker-dealer		—			123
Total recoveries		754			784
Non-covered loans charged off:
Commercial and industrial		1,350			942
Real estate		—			278
Construction and land development		—			—
Consumer		52			34
Broker-dealer		2			—
Total charge-offs		1,404			1,254
Net charge-offs		(650)			(470)
Balance, end of period	$	48,450		$	39,365
Non-covered allowance for loan losses as a percentage of gross non-covered loans	$	0.90	%	$	0.87	%

79

	Three Months Ended March 31,
Covered Portfolio	2016			2015
Balance, beginning of period	$	1,532		$	4,611
Recapture of provisions charged to operations		(278)			(107)
Recoveries of covered loans previously charged off:
Commercial and industrial		—			—
Real estate		7			—
Construction and land development		—			—
Total recoveries		7			—
Covered loans charged off:
Commercial and industrial		6			900
Real estate		16			2,215
Construction and land development		22			1
Total charge-offs		44			3,116
Net charge-offs		(37)			(3,116)
Balance, end of period	$	1,217		$	1,388
Covered allowance for loan losses as a percentage of gross covered loans	$	0.35	%	$	0.40	%

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

	March 31, 2016				December 31, 2015
			% of				% of
			Gross				Gross
			Non‑Covered				Non‑Covered
Non-Covered Portfolio	Reserve		Loans		Reserve		Loans
Commercial and industrial	$	20,169	30.18	%	$	19,845	29.75	%
Real estate (including construction and land development)		27,833	60.34	%		25,047	57.83	%
Consumer		334	0.83	%		314	0.87	%
Broker-dealer		114	8.65	%		209	11.55	%
Total	$	48,450	100.00	%	$	45,415	100.00	%

	March 31, 2016				December 31, 2015
			% of				% of
			Gross				Gross
			Covered				Covered
Covered Portfolio	Reserve		loans		Reserve		Loans
Commercial and industrial	$	438	2.61	%	$	758	2.31	%
Real estate (including construction and land development)		779	97.39	%		774	97.69	%
Total	$	1,217	100.00	%	$	1,532	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. Potential problem loans are assigned a grade of special mention within our risk grading matrix. Potential problem loans do not include PCI loans because PCI loans exhibited evidence of credit deterioration at acquisition that made it probable that all contractually required principal payments would not be collected. Within our non-covered loan portfolio, we had one credit relationship totaling $2.6 million of potential problem loans at March 31, 2016, compared with two credit relationships totaling $1.6 million of non-covered potential problem loans at December 31, 2015. Within our covered loan portfolio, we had two credit relationships totaling $0.5 million of potential problem loans at March 31, 2016, compared with one credit relationship totaling $0.5 million of potential problem loans at December 31, 2015.

80

Non-Performing Assets

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

	March 31,			December 31,
	2016			2015
Non-covered loans accounted for on a non-accrual basis:
Commercial and industrial	$	19,179		$	17,764
Real estate		7,802			7,160
Construction and land development		102			114
Consumer		1			7
Broker-dealer		—			—
	$	27,084		$	25,045
Non-covered non-performing loans as a percentage of total non-covered loans		0.40	%		0.37	%
Non-covered other real estate owned	$	543		$	394
Other repossessed assets	$	30		$	—
Non-covered non-performing assets	$	27,657		$	25,439
Non-covered non-performing assets as a percentage of total assets		0.24	%		0.21	%
Non-covered loans past due 90 days or more and still accruing	$	51,943		$	50,776
Troubled debt restructurings included in accruing non-covered loans	$	1,409		$	1,418

At March 31, 2016, total non-covered non-performing assets increased $2.2 million to $27.7 million, compared with $25.4 million at December 31, 2015. Non-covered non-performing loans totaled $27.1 million at March 31, 2016 and $25.0 million at December 31, 2015. At March 31, 2016, non-covered non-accrual loans included 20 commercial and industrial relationships with loans of $18.8 million secured by accounts receivable, life insurance, oil and gas, livestock, and equipment. Non-covered non-accrual loans at March 31, 2016 also included $7.8 million characterized as real estate loans, including five commercial real estate loan relationships of $4.8 million and loans secured by residential real estate of $0.9 million, $2.1 million of which were classified as loans held for sale, as well as construction and land development loans of $0.1 million. At December 31, 2015, non-covered non-accrual loans included 20 commercial and industrial relationships with loans of $17.4 million secured by accounts receivable, inventory, life insurance, livestock, and oil and gas, and a total of $0.3 million in lease financing receivables. Non-covered non-accrual loans at December 31, 2015 also included $7.2 million of real estate loans, including four commercial real estate loan relationships of $4.6 million and loans secured by residential real estate of $2.6 million, $1.6 million of which were classified as loans held for sale, as well as construction and land development loans of $0.1 million.

Non-covered OREO increased $0.1 million to $0.5 million at March 31, 2016, compared with $0.4 million at December 31, 2015. Changes in non-covered OREO included the addition of one property totaling $0.2 million. At March 31, 2016, non-covered OREO included commercial properties of $0.5 million, while at December 31, 2015, non-covered OREO included commercial properties of $0.4 million.

Non-covered non-PCI loans past due 90 days or more and still accruing were $51.9 million and $50.8 million at March 31, 2016 and December 31, 2015, respectively, all of which were loans held for sale and guaranteed by U.S. Government agencies, that are subject to repurchase, or have been repurchased, by PrimeLending.

At March 31, 2016, troubled debt restructurings (“TDRs”) on non-covered loans totaled $9.9 million. These TDRs were comprised of $1.4 million of non-covered loans that are considered to be performing and non-covered non-performing loans of $8.5 million reported in non-accrual loans. At December 31, 2015, TDRs on non-covered loans totaled $9.3 million, of which $1.4 million relate to non-covered loans that are considered to be performing and non-covered non-performing loans of $7.9 million reported in non-accrual loans.

81

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

	March 31,			December 31,
	2016			2015
Covered loans accounted for on a non-accrual basis:
Commercial and industrial	$	60		$	68
Real estate		2,983			2,958
Construction and land development		533			5,952
	$	3,576		$	8,978
Covered non-performing loans as a percentage of total covered loans		1.03	%		2.36	%
Covered other real estate owned:
Real estate - residential	$	12,364		$	17,718
Real estate - commercial		20,360			33,425
Construction and land development - residential		9,476			9,190
Construction and land development - commercial		36,690			38,757
	$	78,890		$	99,090
Other repossessed assets	$	—		$	—
Covered non-performing assets	$	82,466		$	108,068
Covered non-performing assets as a percentage of total assets		0.70	%		0.91	%
Covered loans past due 90 days or more and still accruing	$	102		$	—
Troubled debt restructurings included in accruing covered loans	$	512		$	515

At March 31, 2016, covered non-performing assets decreased by $25.6 million to $82.5 million, compared with $108.1 million at December 31, 2015, due to decreases in covered non-accrual loans of $5.4 million and covered other real estate owned of $20.2 million. Covered non-performing loans totaled $3.6 million at March 31, 2016 and $9.0 million at December 31, 2015. At March 31, 2016, covered non-performing loans included three commercial and industrial relationships with loans of $0.4 million, two commercial real estate loan relationships of $0.4 million, 27 residential real estate loan relationships of $2.6 million, as well as construction and land development loans of $0.5 million. At December 31, 2015, covered non-performing loans included four commercial and industrial relationships with loans of $0.1 million secured by accounts receivable and inventory, two commercial real estate loan relationships of $0.4 million, 25 residential real estate loan relationships of $2.5 million, as well as construction and land development loans of $6.0 million.

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. Covered OREO decreased $20.2 million to $78.9 million at March 31, 2016, compared with $99.1 million at December 31, 2015. The decrease was primarily due to the disposal of 55 properties totaling $15.0 million and fair value valuation decreases of $9.7 million, partially offset by the addition of 44 properties totaling $4.5 million.

Covered non-PCI loans past due 90 days or more and still accruing totaled $0.1 million at March 31, 2016 and included two commercial and industrial relationships. There were no covered non-PCI loans past due 90 days or more and still accruing at December 31, 2015.

At March 31, 2016, TDRs on covered loans totaled $1.5 million, of which $0.5 million relate to covered loans that are considered to be performing and covered non-performing loans of $1.0 million included in non-accrual loans. At December 31, 2015, TDRs on covered loans totaled $1.5 million, of which $0.5 million relate to covered loans that are considered to be performing and covered non-performing loans of $1.0 million included in non-accrual loans.

82

Insurance Losses and Loss Adjustment Expenses

At March 31, 2016 and December 31, 2015, our gross reserves for unpaid losses and LAE were $43.0 million and $44.4 million, respectively, including estimated recoveries from reinsurance of $8.8 million and $13.5 million, respectively. The decrease in the gross reserve for unpaid losses and LAE was primarily due to the payment of outstanding losses and the corresponding reduction in outstanding reinsurance recoverables. 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, less a reduction for reinsurance recoverables related to those liabilities. 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. The amount of liabilities for reported claims is based primarily on a claim-by-claim evaluation of coverage, liability, injury severity or scope of property damage, and any other information considered relevant to estimating exposure presented by the claim.

NLC’s liabilities for unpaid losses represent the best estimate at a given point in time of what it expects to pay claimants, based on facts, circumstances and historical trends then known. During the loss settlement period, additional facts regarding individual claims may become known and, consequently, it often becomes necessary to refine and adjust the estimates of liability. 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 (which utilize historical trends, adjusted for changes in loss costs, underwriting standards, policy provisions, product mix and other factors) and applicable insurance industry loss development factors. Estimating the liability for unpaid losses and LAE is inherently judgmental and is influenced by factors that are subject to significant variation. Liabilities for LAE are intended to cover the ultimate cost of settling claims, including investigation and defense of lawsuits resulting from such claims.

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.

Deposits

The banking segment’s major source of funds and liquidity is its deposit base. Deposits provide funding for its investments in loans and securities. Interest paid for deposits must be managed carefully to control the level of interest expense and overall net interest margin. The composition of the deposit base (time deposits versus interest-bearing demand deposits and savings), as discussed in more detail within the section entitled “Liquidity and Capital Resources — Banking Segment” below, is constantly changing due to the banking segment’s needs and market conditions. Average deposits totaled $6.9 billion during the three months ended March 31, 2016, a decrease from average deposits of $7.3 billion during the three months ended March 31, 2015 and $7.0 billion during the year ended December 31, 2015. The decrease in average deposits during the three months ended March 31, 2016, compared with the same period in 2015 and the year ended December 31, 2015, was primarily related to the decline in time deposit accounts due to factors including both seasonality of deposit levels and lower renewal rates. For the periods presented in the table below, the average rates paid associated with time deposits include the effects of amortization of the deposit premiums booked as a part of the Bank Transactions.

83

The table below presents the average balance of, and rate paid on, consolidated deposits (dollars in thousands).

	Three Months Ended March 31,								Year Ended December 31,
	2016				2015				2015
	Average		Average		Average		Average		Average		Average
	Balance		Rate Paid		Balance		Rate Paid		Balance		Rate Paid
Noninterest-bearing demand deposits	$	2,153,901	0.00	%	$	2,152,610	0.00	%	$	2,187,336	0.00	%
Interest-bearing demand deposits		3,125,580	0.18	%		3,130,424	0.14	%		3,011,647	0.13	%
Savings deposits		302,744	0.15	%		327,802	0.16	%		297,857	0.15	%
Time deposits		1,355,680	0.76	%		1,646,318	0.76	%		1,494,573	0.74	%
	$	6,937,905	0.24	%	$	7,257,154	0.24	%	$	6,991,413	0.22	%

Borrowings

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

	March 31, 2016				December 31, 2015
			Average				Average
	Balance		Rate Paid		Balance		Rate Paid
Short-term borrowings	$	832,921	0.65	%	$	947,373	0.56	%
Notes payable		232,190	4.35	%		238,716	3.93	%
Junior subordinated debentures		67,012	3.86	%		67,012	3.58	%
	$	1,132,123	1.75	%	$	1,253,101	1.38	%

Short-term borrowings consisted of federal funds purchased, securities sold under agreements to repurchase, borrowings at the Federal Home Loan Bank (“FHLB”) and short-term bank loans. The $114.5 million decrease in short-term borrowings at March 31, 2016 compared with December 31, 2015 was primarily due to a decrease in borrowings of $288.7 million in our banking segment primarily associated with the decrease in borrowings under the mortgage origination segment’s warehouse line of credit with the Bank, offset by an increase of $174.2 million in short-term bank loans and securities sold under agreements to repurchase used by the Hilltop Broker-Dealers to finance their activities. Notes payable at March 31, 2016 of $232.2 million was comprised of $148.2 million related to Senior Notes, net of loan origination fees, insurance segment term notes of $49.0 million, FHLB borrowings with an original maturity greater than one year held by the former SWS FSB within the banking segment of $32.5 million and mortgage origination segment borrowings of $2.5 million. The average rate paid associated with notes payable includes the effect of amortization of the premiums on FHLB borrowings booked as a part of the SWS Merger.

Liquidity and Capital Resources

Hilltop is a financial holding company whose assets primarily consist of the stock of its subsidiaries and invested assets. Hilltop’s primary investment objectives, as a holding company, are to preserve capital and have cash resources available to make acquisitions. At March 31, 2016, Hilltop had $68.2 million in freely available cash and cash equivalents, an increase of $12.7 million from $55.5 million at December 31, 2015. This increase in available cash was primarily due to the net effects of Hilltop’s receipt of a $50.0 million dividend from PlainsCapital, a $20.0 million contribution of capital to Hilltop Securities, and payment of transaction-related costs associated with the SWS Merger and other general corporate expenses. If necessary or appropriate, we may also finance acquisitions with the proceeds from equity or debt issuances. Subject to regulatory restrictions, Hilltop has received, and may also continue to receive, dividends from its subsidiaries. The current short-term liquidity needs of Hilltop include operating expenses and interest on debt obligations.

Senior Notes due 2025

Our Senior Notes bear interest at a fixed rate of 5% per year, payable semi-annually in arrears in cash on April 15 and October 15 of each year, commencing on October 15, 2015. The Senior Notes will mature on April 15, 2025, unless we redeem the Senior Notes, in whole at any time or in part from time to time, on or after January 15, 2025 (three months prior to the maturity date of the Senior Notes) at our election at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date. At March 31, 2016, $150.0 million of our Senior Notes was outstanding. During the three months ended March 31, 2016, we accrued interest expense of $1.9 million on the Senior Notes.

84

Loss-Share Agreements

In connection with the FNB Transaction, the Bank entered into two loss-share agreements with the FDIC that collectively cover $1.2 billion of loans and OREO acquired in the FNB Transaction, which we refer 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: (i) 80% of net losses on the first $240.4 million of net losses incurred; (ii) 0% of net losses in excess of $240.4 million up to and including $365.7 million of net losses incurred; and (iii) 80% of net losses in excess of $365.7 million of net losses incurred. Net losses are defined as book value losses plus certain defined expenses incurred in the resolution of assets, less subsequent recoveries. Under the loss-share agreement for commercial assets, the amount of subsequent recoveries that are reimbursable to the FDIC for a particular asset is limited to book value losses and expenses actually billed plus any book value charge-offs incurred prior to the Bank Closing Date. There is no limit on the amount of subsequent recoveries reimbursable to the FDIC under the loss-share agreement for single family assets. 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 our actual net realized losses over the life of the loss-share agreements are less than the FDIC’s initial estimate of losses on covered assets. The “true-up” payment is calculated using a defined formula set forth in the P&A Agreement. While the ultimate amount of any “true-up” payment is unknown at this time and will vary based upon the amount of future losses or recoveries within our covered loan portfolio, the Bank has recorded a related “true-up” payment accrual of $7.5 million at March 31, 2016 based on the current estimate of aggregate realized losses on covered assets over the life of the loss-share agreements.

Regulatory Capital

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.

In addition, under the final rules, bank holding companies with less than $15 billion in assets as of December 31, 2009 are allowed to continue to include junior subordinated debentures in Tier 1 capital, subject to certain restrictions. However, if an institution grows to above $15 billion in assets as a result of an acquisition, or organically grows to above $15 billion in assets and then makes an acquisition, the combined trust preferred issuances must be phased out of Tier 1 and into Tier 2 capital. All of the debentures issued to the PCC Statutory Trusts I, II, III and IV (the “Trusts”), less the common stock of the Trusts, qualified as Tier 1 capital as of March 31, 2016, under guidance issued by the Board of Governors of the Federal Reserve System.

At March 31, 2016, Hilltop exceeded all regulatory capital requirements in accordance with Basel III with a total capital to risk weighted assets ratio of 18.60%, Tier 1 capital to risk weighted assets ratio of 18.17%, common equity Tier 1 capital to risk weighted assets ratio of 17.56% and a Tier 1 capital to average assets, or leverage, ratio of 13.35%. The Bank’s consolidated actual capital amounts and ratios at March 31, 2016 resulted in it being considered “well-capitalized” under regulatory requirements in accordance with Basel III, and included a total capital to risk weighted assets ratio of 15.87%, Tier 1 capital to risk weighted assets ratio of 15.12%, common equity Tier 1 capital to risk weighted assets ratio of 15.10% and a Tier 1 capital to average assets, or leverage, ratio of 12.70%.

In order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary bonus payments to executive officers, Basel III also implemented a capital conservation buffer, which requires a banking organization to hold a buffer above its minimum risk-based capital requirements. This buffer will help to ensure that banking organizations conserve capital when it is most needed, allowing them to better weather periods of economic stress. The buffer is measured relative to risk-weighted assets. The phase-in of the capital conservation buffer requirements began on January 1, 2016 for Hilltop and the Bank. Based on the actual ratios as noted above, Hilltop and the Bank exceed each of the capital conservation buffer requirements in effect as of March 31, 2016, as well as the fully phased-in requirements through 2019.

85

We discuss regulatory capital requirements in more detail in Note 15 to our consolidated financial statements, as well as under the caption “Government Supervision and Regulation — Corporate — Capital Adequacy Requirements and BASEL III” set forth in Part I, Item I. of our 2015 Form 10-K.

Banking Segment

Within our banking segment, our primary uses of cash are for customer withdrawals and extensions of credit as well as our borrowing costs and other operating expenses. Our asset and liability group is responsible for continuously monitoring our liquidity position to ensure that our assets and liabilities are managed in a manner that will meet our short-term and long-term cash requirements. Our goal is to manage our liquidity position in a manner such that we can meet our customers’ short-term and long-term deposit withdrawals and anticipated and unanticipated increases in loan demand without penalizing earnings. 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 time deposits, term loans at the FHLB and borrowings under lines of credit with other financial institutions.

We had deposits of $7.0 billion at both March 31, 2016 and December 31, 2015. Deposit flows are affected by the level of market interest rates, the interest rates and products offered by competitors, the volatility of equity markets and other factors. At March 31, 2016, money market deposits, including brokered deposits, were $1.5 billion; time deposits, including brokered deposits, were $1.4 billion; and noninterest bearing demand deposits were $2.2 billion. Money market deposits, including brokered deposits, decreased by $89.5 million from $1.6 million and time deposits, including brokered deposits, decreased $9.2 million from December 31, 2015.

The Bank’s 15 largest depositors, excluding Hilltop and Hilltop Securities, accounted for 10.75% of the Bank’s total deposits, and the Bank’s five largest depositors, excluding Hilltop and Hilltop Securities, accounted for 5.65% of the Bank’s total deposits at March 31, 2016. The loss of one or more of our largest Bank customers, or a significant decline in our 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.

Broker-Dealer Segment

The Hilltop Broker-Dealers rely on their 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 their assets and operations, subject to their respective compliance with broker-dealer net capital and customer protection rules. At March 31, 2016, Hilltop Securities had credit arrangements with five unaffiliated banks of up to $678.0 million. These credit arrangements are used to finance securities owned, securities held for correspondent accounts, receivables in customer margin accounts and underwriting activities. These credit arrangements are provided on an “as offered” basis and are not committed lines of credit. In addition, Hilltop Securities has a committed revolving credit facility with an unaffiliated bank of up to $45.0 million. At March 31, 2016, Hilltop Securities had borrowed $150.0 million under its credit arrangements and had no borrowings under its credit facility.

Mortgage Origination Segment

PrimeLending funds the mortgage loans it originates through a warehouse line of credit of up to $1.5 billion maintained with the Bank. At March 31, 2016, PrimeLending had outstanding borrowings of $1.2 billion against the warehouse line of credit. PrimeLending sells substantially all mortgage loans it originates to various investors in the secondary market, the majority with servicing released. 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, and PrimeLending Ventures, LLC (“Ventures”) has an available line of credit with Wells Fargo Bank, N.A. (“Wells Fargo”) of up to $20.0 million. At March 31, 2016,

86

PrimeLending had no borrowings under the JPMorgan Chase line of credit, while Ventures had $2.5 million in borrowings under the Wells Fargo line of credit.

Insurance Segment

Our insurance operating subsidiary’s primary investment objectives are 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 $223.2 million, or 90.3%, equity investments of $17.9 million and other investments of $6.1 million comprised NLC’s $247.2 million in total cash and investments at March 31, 2016. 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.

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 aggregate, the Bank had outstanding unused commitments to extend credit of $1.6 billion at March 31, 2016 and outstanding financial and performance standby letters of credit of $38.4 million at March 31, 2016.

In the normal course of business, the Hilltop Broker-Dealers execute, settle and finance various securities transactions that may expose the Hilltop Broker-Dealers 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 the Hilltop Broker-Dealers, use of derivatives to support certain non-profit housing organization clients, clearing agreements between the Hilltop Broker-Dealers and various clearinghouses and broker-dealers, secured financing arrangements that involve pledged securities, and when-issued underwriting and purchase commitments.

87

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 significant accounting policies which involve a higher degree of judgment and complexity in making certain estimates and assumptions that affect amounts reported in our consolidated financial statements. The significant accounting policies which we believe to be the most critical in preparing our consolidated financial statements relate to allowance for loan losses, FDIC Indemnification Asset, reserve for losses and LAE, goodwill and identifiable intangible assets, mortgage loan indemnification liability, mortgage servicing rights asset and acquisition accounting. Since December 31, 2015, 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 our 2015 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our assessment of market risk as of March 31, 2016 indicates there are no material changes in the quantitative and qualitative disclosures from those previously reported in our 2015 Form 10-K, except as discussed below.

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. Market risk represents the risk of loss that may result from changes in value of a financial instrument as a result of changes in interest rates, market prices and the credit perception of an issuer. 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.

Banking Segment

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 sensitivity to changes in interest rates. 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.

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 risk. We employ procedures which include interest rate shock analysis, repricing gap analysis and balance sheet decomposition techniques to 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

88

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 remain relatively balanced so that changes in rates do not have a significant impact on earnings.

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).

	March 31, 2016
	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	$	3,545,272		$	685,972		$	918,536		$	347,789		$	901,139		$	6,398,708
Securities		314,167			181,070			139,782			58,373			214,801			908,193
Federal funds sold and securities purchased under agreements to resell		15,406			—			—			—			—			15,406
Other interest sensitive assets		257,107			—			—			—			—			257,107
Total interest sensitive assets		4,131,952			867,042			1,058,318			406,162			1,115,940			7,579,414
Interest sensitive liabilities:
Interest bearing checking	$	2,790,054		$	—		$	—		$	—		$	—		$	2,790,054
Savings		330,307			—			—			—			—			330,307
Time deposits		352,628			483,654			432,947			79,072			12,768			1,361,069
Notes payable and other borrowings		444,846			75,445			24,429			1,445			11,996			558,161
Total interest sensitive liabilities		3,917,835			559,099			457,376			80,517			24,764			5,039,591
Interest sensitivity gap	$	214,117		$	307,943		$	600,942		$	325,645		$	1,091,176		$	2,539,823
Cumulative interest sensitivity gap	$	214,117		$	522,060		$	1,123,002		$	1,448,647		$	2,539,823
Percentage of cumulative gap to total interest sensitive assets		2.82	%		6.89	%		14.82	%		19.11	%		33.51	%

The positive GAP in the interest rate analysis indicates that banking segment net interest income would generally rise if rates increase. Because of inherent limitations in interest rate GAP 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 economic value of equity by discounting projected cash flows of deposits and loans. Economic 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 economic value of equity for the banking segment at March 31, 2016 (dollars in thousands).

Change in	Changes in				Changes in
Interest Rates	Net Interest Income				Economic Value of Equity
(basis points)	Amount		Percent		Amount		Percent
+300	$	22,629	8.18	%	$	31,948	2.49	%
+200	$	9,527	3.44	%	$	24,252	1.89	%
+100	$	(1,987)	(0.72)	%	$	12,303	0.96	%
-50	$	976	0.35	%	$	(40,639)	(3.16)	%

The projected changes in net interest income and economic value of equity to changes in interest rates at March 31, 2016 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.

89

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.

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 during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

90

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

For a description of material pending legal proceedings, see the discussion set forth under the heading “Legal Matters” in Note 12 to our Consolidated Financial Statements, which is incorporated by reference herein.

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed under “Item 1A. Risk Factors” of our 2015 Form 10-K. For additional information concerning our risk factors, please refer to “Item 1A. Risk Factors” of our 2015 Form 10-K.

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

On January 28, 2016, we issued an aggregate of 5,516 shares of common stock under the Hilltop Holdings Inc. 2012 Equity Incentive Plan to certain non-employee directors as compensation for their service on our Board of Directors during the fourth quarter of 2015. The shares were issued pursuant to the exemption from registration under Section 4(a)(2) of the Securities Act.

The following table details our repurchases of shares of common stock during the three months ended March 31, 2016.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 – January 31, 2016	—		$	—	—	$	—
February 1 – February 29, 2016	951	(1)		15.75	—		—
March 1 – March 31, 2016	—			—	—		—
Total	951		$	15.75	—

(1) Represents shares of common stock repurchased by the Company to satisfy tax withholding obligations on restricted stock issued under the Hilltop Holdings Inc. 2012 Equity Incentive Plan.

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.

91

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: April 28, 2016	By:	/s/ Darren Parmenter
		Darren Parmenter
		Executive Vice President — Principal Financial Officer (Principal Financial and Accounting Officer and duly authorized officer)

92

EXHIBIT INDEX

Exhibit Number	Description of Exhibit
2.1	Agreement and Plan of Merger by and among SWS Group, Inc., Hilltop Holdings Inc. and Peruna LLC, dated as of March 31, 2014 (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on April 1, 2014 (File No. 001-31987) and incorporated herein by reference).
2.2	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 2.1 to 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*	Form of Restricted Stock Unit Award Agreement (Performance-Based Vesting) for awards issued beginning in 2016.
10.2*	Form of Restricted Stock Unit Award Agreement (Time-Based Vesting for Section 16 Officers) for awards issued beginning in 2016.
10.3*	Form of Restricted Stock Unit Award Agreement (Time-Based Vesting for Non-Section 16 Officers) for awards issued beginning in 2016.
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.

93

EX-10.1

Exhibit 10.1

Form of

RESTRICTED STOCK UNIT AWARD AGREEMENT

THIS RESTRICTED STOCK UNIT AWARD AGREEMENT (this “Agreement”), dated as of the _____ day of ___________, between Hilltop Holdings Inc., a Maryland corporation (the “Company”), and _____________ (the “Participant”).

W I T N E S S E T H

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

1. Grant and Vesting of Restricted Stock Units.

(a) Subject to the provisions of this Agreement and to the provisions of the Hilltop Holdings Inc. 2012 Equity Incentive Plan (the “Plan”), the Company hereby grants to the Participant as of ________________ (the “Grant Date”), an Award under the Plan of __________ Restricted Stock Units (the “Awarded Units”).  Each Awarded Unit shall be a notional Share, with the value of each Awarded Unit being equal to the Fair Market Value of a Share at any time.  All capitalized terms used herein, to the extent not defined, shall have the meanings set forth in the Plan. 

(b) Subject to the terms and conditions of this Agreement, the Awarded Units shall vest and no longer be subject to any restriction (other than the restrictions set forth in Section 4(b) and Section 5 below) according to the provisions set forth in Exhibit A, with the period during which any of the Awarded Units remain unvested being the “Restriction Period”, provided that the Participant is employed by (or, if the Participant is a director or consultant, is providing services to) the Company or any of its Subsidiaries or Affiliates on the Vesting Date (as defined in Exhibit A). 

(c) Notwithstanding the foregoing, in the event of the Participant’s Termination of Employment during the Restriction Period:

(i) due to death or Disability (as defined below), a prorated portion of the Awarded Units granted hereunder shall immediately vest and no longer be subject to restriction, with such proration determined by multiplying the total number of the Awarded Units granted hereunder by a fraction, the numerator of which is the number of months during the Restriction Period that the Participant was employed, including the full month in which the Participant’s death or Disability occurs, and the denominator of which is _____________; or

(ii) by the Company without Cause (as defined below),  a prorated portion of the Awarded Units granted hereunder shall remain outstanding and eligible for vesting at the end of the Restriction Period, with such proration determined by multiplying the total number of the Awarded Units granted hereunder by a fraction, the numerator of which is the number of months during the Restriction Period that the Participant was employed, including the full month in which the Participant’s Termination of Employment occurs, and the denominator of which is _____________; provided that any Awarded Units that remain outstanding shall be vested and no longer subject to restriction at the end of the Restriction Period according to the provisions set

forth in Exhibit A (and shall be forfeited at the end of the Restriction Period if the conditions for vesting as set forth in Exhibit A are not achieved).

Except as specifically provided in (i) and (ii) immediately above, in the event of the Participant’s Termination of Employment during the Restriction Period, all unvested Awarded Units shall be forfeited by the Participant for no consideration effective immediately upon such termination.  Upon forfeiture, all of the Participant’s rights with respect to the forfeited Awarded Units shall cease and terminate, without any further obligation on the part of the Company.  For purposes of this Agreement, employment with the Company shall include employment with the Company’s Subsidiaries and those of its successors.  Nothing in this Agreement or the Plan shall confer upon the Participant any right to continue in the employ of the Company or any of its Subsidiaries or Affiliates or interfere in any way with the right of the Company or any such Subsidiaries or Affiliates to terminate the Participant’s employment at any time.

(d) In the event of a Change in Control, to the extent not previously forfeited, the Awarded Units shall immediately no longer be subject to restriction and vest in full at the greater of (i) “Target” (as defined in Exhibit A) or (ii) the projected actual results based upon results through the Change in Control.

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

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

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

(f) Awarded Units that have become vested pursuant to the terms of this Section 1 are collectively referred to herein as “Vested RSUs.”  All other Awarded Units are collectively referred to herein as “Unvested RSUs.”

2. Issuance of Shares. 

Subject to the provisions of the Plan and this Agreement, as soon as practicable following the date on which (but in no event more than two and a half (2½) months following the close of the calendar year in which) the Awarded Units vest in accordance with Section 1 above, the Company shall convert the Vested RSUs into the number of whole Shares equal to the number

2

of Vested RSUs, subject to the provisions of the Plan and this Agreement, including, without limitation, the forfeiture provisions of Section 1(c) and Section 5, and the clawback provisions of Section 16, and shall either electronically register such Shares in the Participant’s name or issue certificates for the number of Shares equal to the Vested RSUs in the Participant’s name. Notwithstanding the foregoing, the Company shall convert any Awarded Units that become Vested RSUs as a result of the Participant’s death into the number of whole Shares equal to the number of Vested RSUs within thirty (30) days following the Participant’s death, subject to the provisions of the Plan and this Agreement.  The Company shall electronically register such Shares, or issue certificates for the number of Shares, equal to the Vested RSUs in the Participant’s name or in the name of such person or persons to whom the Participant’s rights under the Award passed by will or the applicable laws of descent and distribution.  From and after the date of registration or receipt of such Shares, the Participant, or such person or persons to whom the Participant’s rights under the Award passed by will or the applicable laws of descent and distribution, as the case may be, shall have full rights of transfer or resale with respect to such Shares, subject to Section 4(b) and Section 5 hereof and applicable state and federal regulations.

3. Who May Receive Converted Vested RSUs. 

During the lifetime of the Participant, the Shares received upon conversion of Vested RSUs shall only be received by the Participant or the Participant’s legal representative.  If the Participant dies prior to the date his or her Vested RSUs are converted into Shares as described in Section 2 above, the Shares  relating to such converted Vested RSUs may be received by any individual who is entitled to receive the property of the Participant pursuant to the applicable laws of descent and distribution.

4. Nontransferability of the Restricted Stock Units.

(a)     Subject to the provisions of the Plan and this Agreement, the Unvested RSUs shall not be transferable by the Participant by means of sale, assignment, exchange, encumbrance, pledge, or otherwise.

(b)     Notwithstanding anything to the contrary contained herein, for the one year period immediately following the end of the Restriction Period, the Vested RSUs (and the Shares received upon the conversion of the Vested RSUs under Section 2) shall not be transferable by the Participant by means of sale, assignment, exchange, or otherwise, provided that (i) nothing in this Section 4(b) shall prevent the Participant from pledging or encumbering such Shares during such one year period so long as such pledge or encumbrance cannot cause a transfer or sale of the Shares until after the expiration of such one year period; (ii) in the event of the Participant’s death during such one year period, such restrictions shall terminate on the Participant’s death and the Shares may be transferred to the individual who is entitled to receive the property of the Participant pursuant to the applicable laws of descent and distribution; (iii) nothing in this Section 4(b) shall prevent the sale or transfer of the Shares on, in connection with, or after a  Change in Control; and (iv) nothing in this Section 4(b) shall prevent the withholding of Shares deliverable upon vesting of the Awarded Units as provided in Section 9 below.

3

5. Non-Solicitation. 

The Participant covenants and agrees that during his or her employment with the Company or its Affiliates and for a period of twelve (12) months subsequent to the Participant’s Termination of Employment for any reason, whether involuntary or voluntary, the Participant shall not directly or indirectly, as an owner, stockholder, director, employee, partner, agent, broker, or consultant recruit, hire or attempt to recruit or hire, other employees of the Company or its Affiliates, directly or by assisting other employees of the Company and its Affiliates, nor shall the Participant contact or communicate with any other employees of the Company or its Affiliates for the purpose of inducing other employees to terminate their employment with the Company or its Affiliates. For purposes of this Section 5, “other employees” shall refer to employees who are still actively employed by, or doing business with, the Company or its Affiliates at the time of the attempted recruiting or hiring. Notwithstanding anything to the contrary contained herein, in the event the Participant fails to comply with the non-solicitation provisions set forth in this Section 5, or the non-solicitation provisions contained in any written agreement by and between the Participant and the Company, then (i) the Awarded Units shall cease to immediately vest as of the date of such violation, and (ii) any Vested RSUs that had not been converted into Shares prior to the date of such violation and (iii) any Unvested RSUs shall be immediately forfeited and this Agreement (other than the provisions of Sections 4(b) and 5 hereof) will be terminated on the date of such violation.

6. Rights as a Stockholder.

The Participant will have no rights as a stockholder with respect to any Shares covered by this Agreement until the electronic registration of, or the issuance of certificates for, such Shares in the Participant’s name with respect to the Awarded Units.  The Awarded Units shall be subject to the terms and conditions of this Agreement regarding such Shares.  No adjustment shall be made for dividends or other rights for which the record date is prior to the registration of, or the issuance of certificates for, such Shares in the Participant’s name.

7. Adjustments.

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

8. Conditions for Issuance. 

The Committee may, in its discretion, require the Participant to represent to, and agree with, the Company in writing that such person is acquiring the Shares without a view toward the distribution thereof. The certificates for such Shares may include any legend that the Committee deems appropriate to reflect any restrictions on transfer.  Notwithstanding any other provision of the Plan or this Agreement, the Company shall not be required to issue or deliver any certificate or certificates for Shares under the Plan prior to fulfillment of all of the following conditions: (i) listing, or approval for listing upon notice of issuance, of such Shares on the Applicable Exchange; (ii) any registration or other qualification of such Shares of the Company under any state or federal law or regulation, or the maintaining in effect of any such registration or

4

other qualification that the Committee shall, in its absolute discretion upon the advice of counsel, deem necessary or advisable; and (iii) obtaining any other consent, approval or permit from any state or federal governmental agency that the Committee shall, in its absolute discretion after receiving the advice of counsel, determine to be necessary or advisable. Notwithstanding any of the provisions hereof, the Participant hereby agrees that he or she will not acquire any Shares, and that the Company will not be obligated to issue any Shares to the Participant hereunder, if the issuance of such Shares shall constitute a violation by the Participant or the Company of any provision of any law or regulation of any governmental authority.  Any determination in this connection by the Company shall be final, binding and conclusive.  The obligations of the Company and the rights of the Participant are subject to all applicable laws, rules and regulations. 

9. Taxes and Withholding.

No later than the date as of which an amount with respect to this Agreement first becomes includible in the gross income of the Participant or subject to withholding for federal, state, local or foreign income or employment or other tax purposes, the Participant shall pay to the Company or the applicable Affiliate, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign taxes of any kind required by applicable law and regulations to be withheld with respect to such amount.  Unless the Participant has made separate arrangements satisfactory to the Company, the Company may elect, but shall not be obligated, to withhold Shares deliverable upon vesting of the Awarded Units having a Fair Market Value on the date of withholding equal to the minimum amount (or, if permitted by the Company, such higher withholding rate to the extent consistent with equity accounting in accordance with Generally Accepted Accounting Principles) required to be withheld for tax purposes, all in accordance with such procedures as the Committee establishes.  The obligations of the Company under this Agreement and the Plan shall be conditional on compliance by the Participant with this Section 9, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise payable to the Participant.  The Committee may establish such procedures as it deems appropriate, including making irrevocable elections, for the settlement of withholding obligations with Shares.

10. Notices.

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

If to the Participant:  At the most recent address maintained by the Company in its personnel records.

If to the Company:Hilltop Holdings Inc.

_____________

_____________

Attention:_____________

Facsimile:_____________

5

or to such other address or facsimile number as any party shall have furnished to the other in writing in accordance with this Section 10.  Notice and communications shall be effective when actually received by the addressee.

11. Successors and Assigns.

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

12. Laws Applicable to Construction.

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

13. Severability.

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

14. Conflicts and Interpretation.

In the event of any conflict between this Agreement and the Plan, the Plan shall control.  In the event of any ambiguity in this Agreement, or any matters as to which this Agreement is silent, the Plan shall govern, including, without limitation, the provisions thereof pursuant to which the Committee has the power, among others, to (i) interpret the Plan; (ii) prescribe, amend and rescind rules and regulations relating to the Plan; and (iii) make all other determinations deemed necessary or advisable for the administration of the Plan.  The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any question arising under this Agreement. 

15. Amendment.

This Agreement may be unilaterally amended or modified by the Committee at any time; provided that no amendment or modification shall cause a Qualified Performance-Based Award to cease to qualify for the Section 162(m) Exemption or, without the Participant’s written consent, materially impair the rights of the Participant as provided by this Agreement, except such an amendment made to cause the terms of this Agreement or the Awarded Units granted hereunder to comply with applicable law (including tax law), Applicable Exchange listing standards or accounting rules.  The waiver by either party of compliance with any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.

6

16. Clawback.

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

17. Headings.

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

18. Counterparts.

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

19. Entire Agreement.

This Agreement, together with the Plan, supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to said subject matter.  All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement.  Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan, and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.

20. Section 409A; Six Month Delay. 

The Awarded Units granted under this Agreement are intended to be exempt from Section 409A of the Code, and the provisions of this Agreement will be administered, interpreted and construed accordingly.  Notwithstanding anything to the contrary contained herein, in the event any distribution made on account of the Participant’s Termination of Employment as provided in Section 1 above is deemed to be subject to (and not otherwise exempt from) the requirements of Section 409A of the Code and the Participant is deemed a “specified employee” (within the meaning of Section 409A of the Code and the regulations issued thereunder), then the Participant shall not be entitled to any such distributions that are subject to Section 409A of the Code until the earliest of: (i) the first day of the seventh month following the Participant’s Termination of Employment; (ii) the date of the Participant’s death; or (iii) such earlier date as complies with the requirements of Section 409A of the Code.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

7

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

HILLTOP HOLDINGS INC.

By:

Name:

Title:

Agreed and acknowledged:

PARTICIPANT

___________________________

Name:

8

EXHIBIT A

The Awarded Units shall vest in 20__ in accordance with the provisions set forth below on the date that the Committee has certified the extent that the Performance Metrics set forth below have been attained for the Performance Period (as defined below) (the “Vesting Date”), subject to the terms and conditions of the Agreement (including, without limitation, the forfeiture provisions set forth in Section 1 and Section 5 of the Agreement).  Any Awarded Units outstanding on the Vesting Date that are not vested in accordance with this Exhibit A or pursuant to Section 1(c), Section 1(d) or Section 5 of the Agreement shall be immediately forfeited as of the Vesting Date.  The Committee shall certify the extent that the Performance Metrics have been attained in 20__ prior to _________, 20__.

1.Performance Period:  _________, 20__ – _________, 20__.

2.  Performance Metrics:  Achievement of the performance metrics set forth in this paragraph 2 of this Exhibit A shall be determined by the Committee, in its sole discretion. 

Primary Performance Metric

Subject to the terms and conditions of the Agreement and this Exhibit A, the percentage of Awarded Units that potentially vest (the “Reference Amount”) shall be determined based on the achievement by the Company of GAAP cumulative earnings per share for the Performance Period of at least $______ per share (the “Target Aggregate EPS”):

	Threshold	Target	Stretch
Aggregate EPS	___% of  Target Aggregate EPS	___% of Target Aggregate EPS	___% of Target  Aggregate EPS
Reference Amount	___% of Awarded Units	___% of Awarded Units	___% of Awarded Units

Attainment between Threshold and Target and Target and Stretch Performance Metrics shall be subject to straight-line interpolation.  Performance Metric achievement below the Threshold level shall result in forfeiture of all Awarded Units.

Modifier to Primary Performance Metric

Following the completion of the Performance Period, the Reference Amount determined in accordance with the Primary Performance Metric above will be adjusted by the TSR Modifier (as described below). A Participant’s earned Awarded Units (if any) shall be equal to the Reference Amount multiplied by the TSR Modifier for the Performance Period. The TSR Modifier will be determined based on the Company’s ___ year performance (with TSR measurement being made at the end of the Performance Period) as measured against the ___ year performance of the companies comprising the KBW Regional Banking Index over the same period.

9

	Threshold	Target	Stretch
Relative TSR	___% Percentile	___% Percentile	___% Percentile
TSR Modifier	___% of Reference Amount for Threshold and below	___% of Reference Amount	___% of Reference Amount and above

For performance between the threshold level and target level, a proportionate fraction of the TSR Modifier between ___% and ___% will be applied, and for performance between the target level and the stretch level, a proportionate fraction of the TSR modifier between ___% and ___% will be applied. In no event shall more than ___% of the number of Awarded Units set forth in the Award Agreement be eligible to be earned.

TSR shall be calculated on a per share basis as the quotient of (i) (Ending Price plus Dividends per Share Paid minus Beginning Price), divided by (ii) the Beginning Price, where:

· Ending Price means the average closing share price of the Company’s Common Stock over the 20 trading days immediately preceding January 1, 2019.

· Dividends per Share Paid means cumulative dividends per share of Common Stock paid by the Company between January 1, 2016 and December 31, 2018. Dividends are assumed to be reinvested.

· Beginning Price means the average closing share price of the Company’s Common Stock over the 20 trading days immediately preceding January 1, 2016.

The KBW Regional Banking Index is comprised of those companies that make up the KBW Regional Banking Index on the first day of the performance period) with the following exceptions:

· If a company has been acquired as of the end of the performance period the company will be removed from the index.

· If a company goes bankrupt during the performance period the company will be included in the ranking at -100%.

10

3.Example:  By way of illustration, refer to the following:

3-Year EPS	X	3-Year TSR	=	Payout Percentage
(50% to 150%)		(80% to 120%)		(40% to 180%)

For example, if Aggregate EPS is above stretch performance and Relative TSR is below threshold, the payout percentage would be as follows:

3-Year EPS	X	3-Year TSR	=	Payout Percentage
(150%)		(80%)		(120%)

11

EX-10.2

Exhibit 10.2

FORM OF

RESTRICTED STOCK UNIT AWARD AGREEMENT

THIS RESTRICTED STOCK UNIT AWARD AGREEMENT (this “Agreement”), dated as of the ___ day of _______ 20__, between Hilltop Holdings Inc., a Maryland corporation (the “Company”), and _______________ (the “Participant”).

W I T N E S S E T H

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

1. Grant and Vesting of Restricted Stock Units.

(a) Subject to the provisions of this Agreement and to the provisions of the Hilltop Holdings Inc. 2012 Equity Incentive Plan (the “Plan”), the Company hereby grants to the Participant as of ____________, 20__ (the “Grant Date”), an Award under the Plan of _______ Restricted Stock Units (the “Awarded Units”).  Each Awarded Unit shall be a notional Share, with the value of each Awarded Unit being equal to the Fair Market Value of a Share at any time.  All capitalized terms used herein, to the extent not defined, shall have the meaning set forth in the Plan. 

(b) Subject to the terms and conditions of this Agreement, one hundred percent (100%) of the Awarded Units shall vest and no longer be subject to any restriction (other than the restrictions set forth in Section 4(b) and Section 5 below) on the ______ anniversary of the Grant Date (the “Restriction Period”), provided that the Participant is employed by (or, if the Participant is a director or consultant, is providing services to) the Company or any of its Subsidiaries or Affiliates on such date. 

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

Company or any such Subsidiaries or Affiliates to terminate the Participant’s employment at any time.

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

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

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

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

iii. “Retirement” means the Participant’s Termination of Employment on or after age ___ for any reason other than death, Disability, or by the Company for Cause.

(f) Awarded Units that have become vested pursuant to the terms of this Section 1 are collectively referred to herein as “Vested RSUs.”  All other Awarded Units are collectively referred to herein as “Unvested RSUs.”

2. Issuance of Shares. 

The Company shall convert the Vested RSUs into the number of whole Shares equal to the number of Vested RSUs, subject to the provisions of the Plan and this Agreement, including, without limitation, the forfeiture provisions of Section 1(c) and Section 5, and the clawback provisions of Section 16, and shall either electronically register such Shares in the Participant’s name or issue certificates for the number of Shares equal to the Vested RSUs in the Participant’s name, on the first of the following events:

(i)on the third anniversary of the Grant Date;

(ii) within thirty (30) days following the Participant’s Termination of Employment due to death, Disability, Retirement or by the Company without Cause, provided, that if such thirty (30) day period begins in one taxable year and ends in a second

2

taxable year, the Vested RSUs shall be converted into Shares in the second taxable year; or

(iii)on the effective date of a Change in Control (so long as such Change in Control qualifies as a permissible payment event pursuant to Section 409A(a)(2)(A)(v) of the Code and the regulations issued thereunder).

The Company shall electronically register such shares, or issue certificates for the number of Shares, equal to the Vested RSUs in the Participant’s name or in the name of such person or persons to whom the Participant’s rights under the Award passed by will or the applicable laws of descent and distribution.  From and after the date of registration or receipt of such Shares, the Participant, or such person or persons to whom the Participant’s rights under the Award passed by will or the applicable laws of descent and distribution, as the case may be, shall have full rights of transfer or resale with respect to such Shares, subject to Section 4(b) and Section 5 hereof and applicable state and federal regulations.

3. Who May Receive Converted Vested RSUs. 

During the lifetime of the Participant, the Shares received upon conversion of Vested RSUs shall only be received by the Participant or the Participant’s legal representative.  If the Participant dies prior to the date his or her Vested RSUs are converted into Shares as described in Section 2 above, the Shares relating to such converted Vested RSUs may be received by any individual who is entitled to receive the property of the Participant pursuant to the applicable laws of descent and distribution.

4. Nontransferability of the Restricted Stock Units.

(a) Subject to the provisions of the Plan and this Agreement, the Unvested RSUs shall not be transferable by the Participant by means of sale, assignment, exchange, encumbrance, pledge, or otherwise.

(b) Notwithstanding anything to the contrary contained herein, for the one year period immediately following the end of the Restriction Period, the Vested RSUs (and the Shares received upon the conversion of the Vested RSUs under Section 2) shall not be transferable by the Participant by means of sale, assignment, exchange, or otherwise, provided that (i) nothing in this Section 4(b) shall prevent the Participant from pledging or encumbering such Shares during such one year period so long as such pledge or encumbrance cannot cause a transfer or sale of the Shares until after the expiration of such one year period; (ii) in the event of the Participant’s death during such one year period, such restrictions shall terminate on the Participant’s death and the Shares may be transferred to the individual who is entitled to receive the property of the Participant pursuant to the applicable laws of descent and distribution; (iii) nothing in this Section 4(b) shall prevent the sale or transfer of the Shares on, in connection with, or after a Change in Control; and (iv) nothing in this Section 4(b) shall prevent the withholding of Shares deliverable upon vesting of the Awarded Units as provided in Section 9 below.

3

5. Non-Solicitation.  

The Participant covenants and agrees that during his or her employment with the Company or its Affiliates and for a period of twelve (12) months subsequent to the Participant’s Termination of Employment for any reason, whether involuntary or voluntary, the Participant shall not directly or indirectly, as an owner, stockholder, director, employee, partner, agent, broker, or consultant recruit, hire or attempt to recruit or hire other employees of the Company or its Affiliates, directly or by assisting other employees of the Company and its Affiliates, nor shall the Participant contact or communicate with any other employees of the Company or its Affiliates for the purpose of inducing other employees to terminate their employment with the Company or its Affiliates.  For purposes of this Section 5, “other employees” shall refer to employees who are still actively employed by or doing business with the Company or its Affiliates at the time of the attempted recruiting or hiring.Notwithstanding anything to the contrary contained herein, in the event the Participant fails to comply with the non-solicitation provisions set forth in this Section 5, or the non-solicitation provisions contained in any written agreement by and between the Participant and the Company, then (i) the Awarded Units shall immediately cease to vest as of the date of such violation, and (ii) any Vested RSUs that had not been converted into Shares prior to the date of such violation and any Unvested RSUs shall be immediately forfeited and this Agreement (other than the provisions of this Section 5) will be terminated on the date of such violation.

6. Rights as a Stockholder.

The Participant will have no rights as a stockholder with respect to any Shares covered by this Agreement until the electronic registration of, or the issuance of certificates for, such Shares in the Participant’s name with respect to the Awarded Units.  The Awarded Units shall be subject to the terms and conditions of this Agreement regarding such Shares.  No adjustment shall be made for dividends or other rights for which the record date is prior to the registration of, or the issue of certificates for, such Shares in the Participant’s name.

7. Adjustments.

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

8. Conditions for Issuance. 

The Committee may, in its discretion, require the Participant to represent to, and agree with, the Company in writing that such person is acquiring the Shares without a view toward the distribution thereof.  The certificates for such Shares may include any legend that the Committee deems appropriate to reflect any restrictions on transfer.  Notwithstanding any other provision of the Plan or this Agreement, the Company shall not be required to issue or deliver any certificate or certificates for Shares under the Plan prior to fulfillment of all of the following conditions: (i) listing, or approval for listing upon notice of issuance, of such Shares on the Applicable Exchange; (ii) any registration or other qualification of such Shares of the Company under any state or federal law or regulation, or the maintaining in effect of any such registration or other qualification that the Committee shall, in its absolute discretion upon the advice of counsel,

4

deem necessary or advisable; and (iii) obtaining any other consent, approval or permit from any state or federal governmental agency that the Committee shall, in its absolute discretion after receiving the advice of counsel, determine to be necessary or advisable. Notwithstanding any of the provisions hereof, the Participant hereby agrees that he or she will not acquire any Shares, and that the Company will not be obligated to issue any Shares to the Participant hereunder, if the issuance of such Shares shall constitute a violation by the Participant or the Company of any provision of any law or regulation of any governmental authority.  Any determination in this connection by the Company shall be final, binding and conclusive.  The obligations of the Company and the rights of the Participant are subject to all applicable laws, rules and regulations. 

9. Taxes and Withholding.

No later than the date as of which an amount with respect to this Agreement first becomes includible in the gross income of the Participant or subject to withholding for federal, state, local or foreign income or employment or other tax purposes, the Participant shall pay to the Company or the applicable Affiliate, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign taxes of any kind required by applicable law and regulations to be withheld with respect to such amount.  Unless the Participant has made separate arrangements satisfactory to the Company, the Company may elect, but shall not be obligated, to withhold Shares deliverable upon vesting of the Awarded Units having a Fair Market Value on the date of withholding equal to the minimum amount (and not any greater amount) required to be withheld for tax purposes, all in accordance with such procedures as the Committee establishes.  The obligations of the Company under this Agreement and the Plan shall be conditional on compliance by the Participant with this Section 9, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise payable to the Participant.  The Committee may establish such procedures as it deems appropriate, including making irrevocable elections, for the settlement of withholding obligations with Shares. 

10. Notices.

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

If to the Participant:  At the most recent address maintained by the Company in its personnel records.

If to the Company:Hilltop Holdings Inc.

_________________

_________________

Attention:_________________

Facsimile:_________________

or to such other address or facsimile number as any party shall have furnished to the other in writing in accordance with this Section 10.  Notice and communications shall be effective when actually received by the addressee.

5

11. Successors and Assigns.

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

12. Laws Applicable to Construction.

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

13. Severability.

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

14. Conflicts and Interpretation.

In the event of any conflict between this Agreement and the Plan, the Plan shall control.  In the event of any ambiguity in this Agreement, or any matters as to which this Agreement is silent, the Plan shall govern, including, without limitation, the provisions thereof pursuant to which the Committee has the power, among others, to (i) interpret the Plan; (ii) prescribe, amend and rescind rules and regulations relating to the Plan; and (iii) make all other determinations deemed necessary or advisable for the administration of the Plan.  The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any question arising under this Agreement. 

15. Amendment.

This Agreement may be unilaterally amended or modified by the Committee at any time; provided that no amendment or modification shall cause a Qualified Performance-Based Award to cease to qualify for the Section 162(m) Exemption or, without the Participant’s written consent, materially impair the rights of the Participant as provided by this Agreement, except such an amendment made to cause the terms of this Agreement or the Awarded Units granted hereunder to comply with applicable law (including tax law), Applicable Exchange listing standards or accounting rules.  The waiver by either party of compliance with any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.

6

16. Clawback.

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

17. Headings.

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

18. Counterparts.

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

19. Entire Agreement.

This Agreement, together with the Plan, supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to said subject matter.  All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement.  Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan, and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.

20. Section 409A; Six Month Delay. 

The Awarded Units granted under this Agreement are intended to be exempt from Section 409A of the Code, and the provisions of this Agreement will be administered, interpreted and construed accordingly.  Notwithstanding anything to the contrary contained herein, in the event any distribution made on account of the Participant’s Termination of Employment as provided in Section 1 above is deemed to be subject to (and not otherwise exempt from) the requirements of Section 409A of the Code and the Participant is deemed a “specified employee” (within the meaning of Section 409A of the Code and the regulations issued thereunder), then the Participant shall not be entitled to any such distributions that are subject to Section 409A of the Code until the earliest of: (i) the first day of the seventh month following the Participant’s Termination of Employment; (ii) the date of the Participant’s death; or (iii) such earlier date as complies with the requirements of Section 409A of the Code.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

7

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

HILLTOP HOLDINGS INC.

By:

Name:

Title:

Agreed and acknowledged:

PARTICIPANT

___________________________

Name:

8

EX-10.3

Exhibit 10.3

FORM OF

RESTRICTED STOCK UNIT AWARD AGREEMENT

THIS RESTRICTED STOCK UNIT AWARD AGREEMENT (this “Agreement”), dated as of the ___ day of ________ 20__, between Hilltop Holdings Inc., a Maryland corporation (the “Company”), and _______________ (the “Participant”).

W I T N E S S E T H

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

1. Grant and Vesting of Restricted Stock Units.

(a) Subject to the provisions of this Agreement and to the provisions of the Hilltop Holdings Inc. 2012 Equity Incentive Plan (the “Plan”), the Company hereby grants to the Participant as of ________, 20__ (the “Grant Date”), an Award under the Plan of _______ Restricted Stock Units (the “Awarded Units”).  Each Awarded Unit shall be a notional Share, with the value of each Awarded Unit being equal to the Fair Market Value of a Share at any time.  All capitalized terms used herein, to the extent not defined, shall have the meaning set forth in the Plan. 

(b) Subject to the terms and conditions of this Agreement, one hundred percent (100%) of the Awarded Units shall vest and no longer be subject to any restriction (other than the restrictions set forth in Section 5 below) on the ________ anniversary of the Grant Date (the “Restriction Period”), provided that the Participant is employed by (or, if the Participant is a director or consultant, is providing services to) the Company or any of its Subsidiaries or Affiliates on such date. 

(c) Notwithstanding the foregoing, in the event of the Participant’s Termination of Employment during the Restriction Period due to death or Disability (as defined below), Retirement (as defined below) or by the Company without Cause (as defined below), a prorated portion of the Awarded Units granted hereunder shall immediately vest and no longer be subject to restriction, with such proration determined by multiplying the total number of the Awarded Units granted hereunder by a fraction, the numerator of which is the number of months during the Restriction Period that the Participant was employed, including the full vesting month in which the Participant’s death or Disability, Retirement or Termination of Employment without Cause occurs, and the denominator of which is _________________.  Except as provided in the preceding sentence, in the event of the Participant’s Termination of Employment during the Restriction Period, all unvested Awarded Units shall be forfeited by the Participant for no consideration effective immediately upon such termination.  Upon forfeiture, all of the Participant’s rights with respect to the forfeited Awarded Units shall cease and terminate, without any further obligation on the part of the Company.  For purposes of this Agreement, employment with the Company shall include employment with the Company’s Subsidiaries and those of its successors.  Nothing in this Agreement or the Plan shall confer upon the Participant any right to

continue in the employ of the Company or any of its Subsidiaries or Affiliates or interfere in any way with the right of the Company or any such Subsidiaries or Affiliates to terminate the Participant’s employment at any time.

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

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

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

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

iii. “Retirement” means the Participant’s Termination of Employment on or after age ___ for any reason other than death, Disability, or by the Company for Cause.

(f) Awarded Units that have become vested pursuant to the terms of this Section 1 are collectively referred to herein as “Vested RSUs.”  All other Awarded Units are collectively referred to herein as “Unvested RSUs.”

2. Issuance of Shares. 

The Company shall convert the Vested RSUs into the number of whole Shares equal to the number of Vested RSUs, subject to the provisions of the Plan and this Agreement, including, without limitation, the forfeiture provisions of Section 1(c) and Section 5, and the clawback provisions of Section 16, and shall either electronically register such Shares in the Participant’s name or issue certificates for the number of Shares equal to the Vested RSUs in the Participant’s name, on the first of the following events:

(i)on the third anniversary of the Grant Date;

2

(ii) within thirty (30) days following the Participant’s Termination of Employment due to death, Disability, Retirement or by the Company without Cause, provided, that if such thirty (30) day period begins in one taxable year and ends in a second taxable year, the Vested RSUs shall be converted into Shares in the second taxable year; or

(iii)on the effective date of a Change in Control (so long as such Change in Control qualifies as a permissible payment event pursuant to Section 409A(a)(2)(A)(v) of the Code and the regulations issued thereunder).

The Company shall electronically register such shares, or issue certificates for the number of Shares, equal to the Vested RSUs in the Participant’s name or in the name of such person or persons to whom the Participant’s rights under the Award passed by will or the applicable laws of descent and distribution.  From and after the date of registration or receipt of such Shares, the Participant, or such person or persons to whom the Participant’s rights under the Award passed by will or the applicable laws of descent and distribution, as the case may be, shall have full rights of transfer or resale with respect to such Shares, subject to Section 5 hereof and applicable state and federal regulations.

3. Who May Receive Converted Vested RSUs. 

During the lifetime of the Participant, the Shares received upon conversion of Vested RSUs shall only be received by the Participant or the Participant’s legal representative.  If the Participant dies prior to the date his or her Vested RSUs are converted into Shares as described in Section 2 above, the Shares relating to such converted Vested RSUs may be received by any individual who is entitled to receive the property of the Participant pursuant to the applicable laws of descent and distribution.

4. Nontransferability of the Restricted Stock Units. 

Subject to the provisions of the Plan and this Agreement, the Unvested RSUs shall not be transferable by the Participant by means of sale, assignment, exchange, encumbrance, pledge, or otherwise.

5. Non-Solicitation.  

The Participant covenants and agrees that during his or her employment with the Company or its Affiliates and for a period of twelve (12) months subsequent to the Participant’s Termination of Employment for any reason, whether involuntary or voluntary, the Participant shall not directly or indirectly, as an owner, stockholder, director, employee, partner, agent, broker, or consultant recruit, hire or attempt to recruit or hire other employees of the Company or its Affiliates, directly or by assisting other employees of the Company and its Affiliates, nor shall the Participant contact or communicate with any other employees of the Company or its Affiliates for the purpose of inducing other employees to terminate their employment with the Company or its Affiliates.  For purposes of this Section 5, “other employees” shall refer to employees who are still actively employed by or doing business with the Company or its Affiliates at the time of the

3

attempted recruiting or hiring.Notwithstanding anything to the contrary contained herein, in the event the Participant fails to comply with the non-solicitation provisions set forth in this Section 5, or the non-solicitation provisions contained in any written agreement by and between the Participant and the Company, then (i) the Awarded Units shall immediately cease to vest as of the date of such violation, and (ii) any Vested RSUs that had not been converted into Shares prior to the date of such violation and any Unvested RSUs shall be immediately forfeited and this Agreement (other than the provisions of this Section 5) will be terminated on the date of such violation.

6. Rights as a Stockholder.

The Participant will have no rights as a stockholder with respect to any Shares covered by this Agreement until the electronic registration of, or the issuance of certificates for, such Shares in the Participant’s name with respect to the Awarded Units.  The Awarded Units shall be subject to the terms and conditions of this Agreement regarding such Shares.  No adjustment shall be made for dividends or other rights for which the record date is prior to the registration of, or the issue of certificates for, such Shares in the Participant’s name.

7. Adjustments.

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

8. Conditions for Issuance.

The Committee may, in its discretion, require the Participant to represent to, and agree with, the Company in writing that such person is acquiring the Shares without a view toward the distribution thereof.  The certificates for such Shares may include any legend that the Committee deems appropriate to reflect any restrictions on transfer.  Notwithstanding any other provision of the Plan or this Agreement, the Company shall not be required to issue or deliver any certificate or certificates for Shares under the Plan prior to fulfillment of all of the following conditions: (i) listing, or approval for listing upon notice of issuance, of such Shares on the Applicable Exchange; (ii) any registration or other qualification of such Shares of the Company under any state or federal law or regulation, or the maintaining in effect of any such registration or other qualification that the Committee shall, in its absolute discretion upon the advice of counsel, deem necessary or advisable; and (iii) obtaining any other consent, approval or permit from any state or federal governmental agency that the Committee shall, in its absolute discretion after receiving the advice of counsel, determine to be necessary or advisable. Notwithstanding any of the provisions hereof, the Participant hereby agrees that he or she will not acquire any Shares, and that the Company will not be obligated to issue any Shares to the Participant hereunder, if the issuance of such Shares shall constitute a violation by the Participant or the Company of any provision of any law or regulation of any governmental authority.  Any determination in this connection by the Company shall be final, binding and conclusive.  The obligations of the Company and the rights of the Participant are subject to all applicable laws, rules and regulations. 

4

9. Taxes and Withholding.

No later than the date as of which an amount with respect to this Agreement first becomes includible in the gross income of the Participant or subject to withholding for federal, state, local or foreign income or employment or other tax purposes, the Participant shall pay to the Company or the applicable Affiliate, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign taxes of any kind required by applicable law and regulations to be withheld with respect to such amount.  Unless the Participant has made separate arrangements satisfactory to the Company, the Company may elect, but shall not be obligated, to withhold Shares deliverable upon vesting of the Awarded Units having a Fair Market Value on the date of withholding equal to the minimum amount (and not any greater amount) required to be withheld for tax purposes, all in accordance with such procedures as the Committee establishes.  The obligations of the Company under this Agreement and the Plan shall be conditional on compliance by the Participant with this Section 9, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise payable to the Participant.  The Committee may establish such procedures as it deems appropriate, including making irrevocable elections, for the settlement of withholding obligations with Shares. 

10. Notices.

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

If to the Participant:  At the most recent address maintained by the Company in its personnel records.

If to the Company:Hilltop Holdings Inc.

__________________

__________________

Attention:__________________

Facsimile:__________________

or to such other address or facsimile number as any party shall have furnished to the other in writing in accordance with this Section 10.  Notice and communications shall be effective when actually received by the addressee.

11. Successors and Assigns.

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

5

12. Laws Applicable to Construction.

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

13. Severability.

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

14. Conflicts and Interpretation.

In the event of any conflict between this Agreement and the Plan, the Plan shall control.  In the event of any ambiguity in this Agreement, or any matters as to which this Agreement is silent, the Plan shall govern, including, without limitation, the provisions thereof pursuant to which the Committee has the power, among others, to (i) interpret the Plan; (ii) prescribe, amend and rescind rules and regulations relating to the Plan; and (iii) make all other determinations deemed necessary or advisable for the administration of the Plan.  The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any question arising under this Agreement. 

15. Amendment.

This Agreement may be unilaterally amended or modified by the Committee at any time; provided that no amendment or modification shall cause a Qualified Performance-Based Award to cease to qualify for the Section 162(m) Exemption or, without the Participant’s written consent, materially impair the rights of the Participant as provided by this Agreement, except such an amendment made to cause the terms of this Agreement or the Awarded Units granted hereunder to comply with applicable law (including tax law), Applicable Exchange listing standards or accounting rules.  The waiver by either party of compliance with any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.

16. Clawback.

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

6

17. Headings.

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

18. Counterparts.

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

19. Entire Agreement.

This Agreement, together with the Plan, supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to said subject matter.  All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement.  Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan, and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.

20. Section 409A; Six Month Delay. 

The Awarded Units granted under this Agreement are intended to be exempt from Section 409A of the Code, and the provisions of this Agreement will be administered, interpreted and construed accordingly.  Notwithstanding anything to the contrary contained herein, in the event any distribution made on account of the Participant’s Termination of Employment as provided in Section 1 above is deemed to be subject to (and not otherwise exempt from) the requirements of Section 409A of the Code and the Participant is deemed a “specified employee” (within the meaning of Section 409A of the Code and the regulations issued thereunder), then the Participant shall not be entitled to any such distributions that are subject to Section 409A of the Code until the earliest of: (i) the first day of the seventh month following the Participant’s Termination of Employment; (ii) the date of the Participant’s death; or (iii) such earlier date as complies with the requirements of Section 409A of the Code.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

7

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

HILLTOP HOLDINGS INC.

By:

Name:

Title:

Agreed and acknowledged:

PARTICIPANT

___________________________

Name:

8

EX-31.1

Exhibit31.1

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: April 28, 2016	By:	/s/ Jeremy B. Ford
		Jeremy B. Ford
		President and Chief Executive Officer

EX-31.2

Exhibit31.2

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: April 28, 2016	By:	/s/ Darren Parmenter
		Darren Parmenter
		Executive Vice President — Principal Financial Officer

EX-32.1

Exhibit32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION1350,

AS ADOPTED PURSUANT TO

SECTION906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form10-Q for the period ended March 31, 2016 (the “Report”) of Hilltop Holdings Inc. (the “Company”), the undersigned hereby certify in their capacities as President and Chief Executive Officer, and Executive Vice President — Principal Financial Officer, respectively, pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section906 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: April 28, 2016	By:	/s/ Jeremy B. Ford
		Jeremy B. Ford
		President and Chief Executive Officer

Date: April 28, 2016	By:	/s/ Darren Parmenter
		Darren Parmenter
		Executive Vice President — Principal Financial Officer

The foregoing certification is furnished as an exhibit to the Report and will not be deemed “filed” for purposes of Section18 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.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	Apr. 28, 2016
Document and Entity Information
Entity Registrant Name	Hilltop Holdings Inc.
Entity Central Index Key	0001265131
Trading Symbol	hth
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		98,498,077

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Assets
Cash and due from banks	$ 512,103	$ 652,036
Federal funds sold	15,406	17,409
Securities purchased under agreements to resell	96,646	105,660
Assets segregated for regulatory purposes	120,714	158,613
Securities:
Trading, at fair value	368,425	214,146
Available for sale, at fair value (amortized cost of $655,989 and $670,003 respectively)	666,328	673,706
Held to maturity, at amortized cost (fair value of $313,553 and $331,468, respectively)	310,478	332,022
Total securities	1,345,231	1,219,874
Loans held for sale	1,344,333	1,533,678
Non-covered loans, net of unearned income	5,366,065	5,220,040
Allowance for non-covered loan losses	(48,450)	(45,415)
Non-covered loans, net	5,317,615	5,174,625
Covered loans, net of allowance of $1,217 and $1,532, respectively	346,169	378,762
Broker-dealer and clearing organization receivables	1,370,622	1,362,499
Premises and equipment, net	198,414	200,618
FDIC indemnification asset	80,522	91,648
Covered other real estate owned	78,890	99,090
Other assets	601,181	565,813
Goodwill	251,808	251,808
Other intangible assets, net	52,274	54,868
Total assets	11,731,928	11,867,001
Deposits:
Noninterest-bearing	2,233,608	2,235,436
Interest-bearing	4,750,567	4,717,247
Total deposits	6,984,175	6,952,683
Broker-dealer and clearing organization payables	1,284,016	1,338,305
Short-term borrowings	832,921	947,373
Securities sold, not yet purchased, at fair value	165,704	130,044
Notes payable	232,190	238,716
Junior subordinated debentures	67,012	67,012
Other liabilities	405,899	454,743
Total liabilities	$ 9,971,917	$ 10,128,876
Commitments and contingencies (see Notes 12 and 13)
Hilltop stockholders' equity:
Common stock, $0.01 par value, 125,000,000 shares authorized; 98,584,947 and 98,896,184 shares issued and outstanding, respectively	$ 986	$ 989
Additional paid-in capital	1,567,150	1,577,270
Accumulated other comprehensive income	6,878	2,629
Retained earnings	183,042	155,475
Deferred compensation employee stock trust, net	1,020	1,034
Employee stock trust (21,453 and 22,196 shares, at cost, respectively)	(428)	(443)
Total Hilltop stockholders' equity	1,758,648	1,736,954
Noncontrolling interests	1,363	1,171
Total stockholders' equity	1,760,011	1,738,125
Total liabilities and stockholders' equity	$ 11,731,928	$ 11,867,001

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
CONSOLIDATED BALANCE SHEETS
Available for sale, amortized cost (in dollars)	$ 655,989	$ 670,003
Held to maturity, fair value	313,553	331,468
Covered loans, allowance	$ 1,217	$ 1,532
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	125,000,000	125,000,000
Common stock, shares issued	98,584,947	98,896,184
Common stock, shares outstanding	98,584,947	98,896,184
Employee stock trust, shares	21,453	22,196

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Interest income:
Loans, including fees	$ 91,551	$ 87,388
Securities borrowed	7,589	10,018
Securities:
Taxable	6,367	7,049
Tax-exempt	1,637	1,741
Other	1,009	1,473
Total interest income	108,153	107,669
Interest expense:
Deposits	4,102	4,315
Securities loaned	5,987	7,506
Short-term borrowings	1,120	1,024
Notes payable	2,582	669
Junior subordinated debentures	645	585
Other	176	178
Total interest expense	14,612	14,277
Net interest income	93,541	93,392
Provision for loan losses	3,407	2,687
Net interest income after provision for loan losses	90,134	90,705
Noninterest income:
Net realized gains on securities	46	4,403
Net gains from sale of loans and other mortgage production income	127,297	120,545
Mortgage loan origination fees	18,813	14,589
Net insurance premiums earned	39,733	39,567
Securities commissions and fees	38,752	42,918
Investment and securities advisory fees and commissions	23,819	24,922
Bargain purchase gain		81,289
Other	29,226	24,613
Total noninterest income	277,686	352,846
Noninterest expense:
Employees' compensation and benefits	182,655	182,504
Loss and loss adjustment expenses	21,959	18,860
Policy acquisition and other underwriting expenses	11,252	11,674
Occupancy and equipment, net	27,791	29,185
Other	81,544	72,253
Total noninterest expense	325,201	314,476
Income before income taxes	42,619	129,075
Income tax expense	14,423	15,420
Net income	28,196	113,655
Less: Net income attributable to noncontrolling interest	629	353
Income attributable to Hilltop	27,567	113,302
Dividends on preferred stock		1,426
Income applicable to Hilltop common stockholders	$ 27,567	$ 111,876
Earnings per common share:
Basic (in dollars per share)	$ 0.28	$ 1.12
Diluted (in dollars per share)	$ 0.28	$ 1.11
Weighted average share information:
Basic (in shares)	98,153	99,741
Diluted (in shares)	98,669	100,627

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 28,196	$ 113,655
Other comprehensive income:
Net unrealized gains on securities available for sale, net of tax of $2,390 and $4,454, respectively	4,279	7,913
Reclassification adjustment for gains included in net income, net of tax of $(16) and $(1,589), respectively	(30)	(2,814)
Comprehensive income	32,445	118,754
Less: comprehensive income attributable to noncontrolling interest	629	353
Comprehensive income applicable to Hilltop	$ 31,816	$ 118,401

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net unrealized gains on securities available for sale and other, tax	$ 2,390	$ 4,454
Other comprehensive income reclassification adjustment, tax	$ (16)	$ (1,589)

XML

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands	Parent	Preferred Stock	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income	Retained Earnings (Accumulated Deficit).	Deferred Compensation Employee Stock Trust, Net	Employee Stock Trust	Noncontrolling Interest	Total
Balance at Dec. 31, 2014	$ 1,460,452	$ 114,068	$ 902	$ 1,390,788	$ 651	$ (45,957)			$ 787	$ 1,461,239
Balance (in shares) at Dec. 31, 2014		114	90,182
Increase (Decrease) in Stockholders' Equity
Net income	113,302					113,302			353	113,655
Other comprehensive income	5,099				5,099					5,099
Issuance of common stock	200,033		$ 101	199,932						200,033
Issuance of common stock (in shares)			10,113
Stock-based compensation expense	1,814			1,814						1,814
Common stock issued to board members	51			51						51
Common stock issued to board members (in shares)			2
Issuance of common stock related to share-based awards, net (in shares)			(11)
Dividends on preferred stock	(1,427)					(1,427)				(1,427)
Deferred compensation plan	592						$ 1,189	$ (597)		592
Deferred compensation plan (in shares)								30
Net cash distributed to noncontrolling interest									(264)	(264)
Balance at Mar. 31, 2015	1,779,916	$ 114,068	$ 1,003	1,592,585	5,750	65,918	1,189	$ (597)	876	1,780,792
Balance (in shares) at Mar. 31, 2015		114	100,286					30
Balance at Dec. 31, 2015	1,736,954		$ 989	1,577,270	2,629	155,475	1,034	$ (443)	1,171	1,738,125
Balance (in shares) at Dec. 31, 2015			98,896					22
Increase (Decrease) in Stockholders' Equity
Net income	27,567					27,567			629	28,196
Other comprehensive income	4,249				4,249					4,249
Issuance of common stock	3,850		$ 5	3,845						3,850
Issuance of common stock (in shares)			500
Stock-based compensation expense	2,228			2,228						2,228
Common stock issued to board members	108			108						108
Common stock issued to board members (in shares)			6
Issuance of common stock related to share-based awards, net	(33)			(33)						(33)
Issuance of common stock related to share-based awards, net (in shares)			(1)
Retirement of common stock	(16,276)		$ (8)	(16,268)						(16,276)
Retirement of common stock (in shares)			(816)
Deferred compensation plan	1						(14)	$ 15		1
Deferred compensation plan (in shares)								(1)
Net cash distributed to noncontrolling interest									(437)	(437)
Balance at Mar. 31, 2016	$ 1,758,648		$ 986	$ 1,567,150	$ 6,878	$ 183,042	$ 1,020	$ (428)	$ 1,363	$ 1,760,011
Balance (in shares) at Mar. 31, 2016			98,585					21

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Operating Activities
Net income	$ 28,196	$ 113,655
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses	3,407	2,687
Depreciation, amortization and accretion, net	(11,830)	(14,486)
Net realized gains on securities	(46)	(4,403)
Bargain purchase gain		(81,289)
Deferred income taxes	494	(2,545)
Other, net	8,320	(3,814)
Net change in securities purchased under agreements to resell	9,014	(22,486)
Net change in assets segregated for regulatory purposes	37,899	(20,657)
Net change in trading securities	(154,279)	11,632
Net change in broker-dealer and clearing organization receivables	130,858	(793,613)
Net change in FDIC Indemnification Asset	11,214	23,376
Net change in other assets	(14,890)	(34,554)
Net change in broker-dealer and clearing organization payables	(162,722)	690,552
Net change in other liabilities	(48,283)	(52,528)
Net gains from sales of loans	(127,297)	(120,545)
Loans originated for sale	(3,052,579)	(2,904,331)
Proceeds from loans sold	3,352,409	3,094,705
Net cash provided by (used in) operating activities	9,885	(118,644)
Investing Activities
Proceeds from maturities and principal reductions of securities held to maturity	21,398	6,329
Proceeds from sales, maturities and principal reductions of securities available for sale	64,918	449,892
Purchases of securities available for sale	(51,531)	(2,623)
Net change in loans	(233,309)	(2,080)
Purchases of premises and equipment and other assets	(9,948)	(5,565)
Proceeds from sales of premises and equipment and other real estate owned	22,068	31,818
Net cash received for Federal Home Loan Bank and Federal Reserve Bank stock	12,311	4,044
Net cash from acquisitions		41,097
Net cash provided by (used in) investing activities	(174,093)	522,912
Financing Activities
Net change in deposits	139,925	(556,657)
Net change in short-term borrowings	(114,452)	72,540
Proceeds from notes payable	5,553	1,000
Payments on notes payable	(12,028)	(23,904)
Proceeds from issuance of common stock	3,850
Dividends paid on preferred stock		(1,426)
Net cash distributed to noncontrolling interest	(437)	(264)
Other, net	(139)	(99)
Net cash provided by (used in) financing activities	22,272	(508,810)
Net change in cash and cash equivalents	(141,936)	(104,542)
Cash and cash equivalents, beginning of period	669,445	813,075
Cash and cash equivalents, end of period	527,509	708,533
Supplemental Disclosures of Cash Flow Information
Cash paid for interest	16,377	14,325
Cash paid for income taxes, net of refunds	831	45,981
Supplemental Schedule of Non-Cash Activities
Conversion of loans to other real estate owned	4,726	$ 26,211
Common stock issued at acquisition		200,626
Additions to mortgage servicing rights	$ 1,639	$ 2,690

XML

Summary of Significant Accounting and Reporting Policies

3 Months Ended

Mar. 31, 2016

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. The Company’s primary line of business is to provide business and consumer banking services from offices located throughout Texas through PlainsCapital Bank (the “Bank”). In addition, the Company provides an array of financial products and services through its broker-dealer, mortgage origination and insurance subsidiaries.

The Company provides its products and services through three primary operating subsidiaries, PlainsCapital Corporation (“PlainsCapital”), Hilltop Securities Holdings LLC (“Securities Holdings”) and National Lloyds Corporation (“NLC”). PlainsCapital is a financial holding company, headquartered in Dallas, Texas, that provides, through its subsidiaries, traditional banking, wealth and investment management and treasury management services primarily in Texas and residential mortgage lending throughout the United States. Securities Holdings is a holding company, headquartered in Dallas, Texas, that provides, through its subsidiaries, investment banking and other related financial services, including municipal advisory, sales, trading and underwriting of taxable and tax-exempt fixed income securities, equity trading, clearing, securities lending, structured finance and retail brokerage services throughout the United States. NLC is a property and casualty insurance holding company, headquartered in Waco, Texas, that provides, through its subsidiaries, fire and homeowners insurance to low value dwellings and manufactured homes primarily in Texas and other areas of the southern United States.

On January 1, 2015, Hilltop completed its acquisition of SWS Group, Inc. (“SWS”) in a stock and cash transaction (the “SWS Merger”), whereby SWS’s broker-dealer subsidiaries, Southwest Securities, Inc. and SWS Financial Services, Inc., became subsidiaries of Securities Holdings, and SWS’s banking subsidiary, Southwest Securities, FSB (“SWS FSB”), was merged into the Bank. On October 5, 2015, Southwest Securities, Inc. and SWS Financial Services, Inc. were renamed “Hilltop Securities Inc.” (“Hilltop Securities”) and “Hilltop Securities Independent Network Inc.” (“HTS Independent Network”), respectively.

On October 22, 2015, the Financial Industry Regulatory Authority (“FINRA”) granted approval to combine First Southwest Company, LLC (“FSC”) and Hilltop Securities, subject to customary conditions. FSC, Hilltop Securities and HTS Independent Network operated as separate broker-dealers, under coordinated leadership from the date of the SWS Merger until January 22, 2016, when FSC was merged into Hilltop Securities to form a combined firm operating under the “Hilltop Securities” name. We use the term “Hilltop Broker-Dealers” to refer to FSC, Hilltop Securities and HTS Independent Network prior to January 22, 2016 and Hilltop Securities and HTS Independent Network after such date.

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, 2015 (“2015 Form 10-K”). 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 amounts receivable from the Federal Deposit Insurance Corporation (the “FDIC”) under loss-share agreements (the “FDIC Indemnification Asset”), reserves for losses and loss adjustment expenses (“LAE”), 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.

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”) and has a 100% membership interest in PlainsCapital Securities, LLC.

PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC, the controlling and sole managing member of PrimeLending Ventures, LLC (“Ventures”).

PlainsCapital also owns 100% of the outstanding common securities 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), because the primary beneficiaries of the Trusts are not within the consolidated group.

Hilltop has a 100% membership interest in Securities Holdings, which operates through its wholly-owned subsidiaries, Hilltop Securities, HTS Independent Network and First Southwest Holdings, LLC (“First Southwest”). Hilltop Securities is a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority (“FINRA”) and a member of the New York Stock Exchange (“NYSE”), HTS Independent Network is an introducing broker-dealer that is also registered with the SEC and FINRA, and First Southwest Asset Management, LLC, a wholly-owned subsidiary of First Southwest, is a registered investment advisor under the Investment Advisors Act of 1940. As discussed above, prior to January 22, 2016, Securities Holdings’ subsidiaries also included FSC, First Southwest’s principal subsidiary and formerly a broker-dealer registered with the SEC and FINRA and a member of the NYSE.

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

The consolidated financial statements include the accounts of the above-named entities. 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 ASC.

The operations acquired in the SWS Merger were included in the Company’s operating results beginning January 1, 2015 and such operations included a preliminary bargain purchase gain of $82.8 million as disclosed in the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2015. During 2015, certain adjustments were recorded that resulted in an aggregate decrease in the preliminary bargain purchase gain associated with the SWS Merger to $81.3 million, which also decreased net income for the three months ended March 31, 2015 by $1.5 million as compared with amounts previously reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015. Accordingly, our results for the quarter ended March 31, 2015 and related disclosures have been revised to reflect these adjustments.

Certain reclassifications have been made to the prior period consolidated financial statements to conform with the current period presentation. Additionally, during the preparation of the condensed consolidated financial statements for the period ended September 30, 2015, the Company determined that its previously reported unaudited consolidated statements of cash flows contained in the previously filed Quarterly Reports on Form 10-Q filed with SEC on May 6, 2015 and July 29, 2015 contained a classification error related to how certain acquired balances related to its acquisition of SWS were reflected. Management has evaluated the quantitative and qualitative impact of the classification error to previously issued unaudited consolidated statements of cash flows and concluded that the previously issued condensed consolidated financial statements were not materially misstated. However, in order to correctly present the cash flow statements, management has elected to revise the unaudited consolidated statements of cash flows for each of the three months ended March 31, 2015 included herein and the six months ended June 30, 2015 in its future filings. The correction had no impact on the Company’s financial condition or results of operations for the periods presented.

The following table summarizes the revisions made to the Company’s unaudited consolidated statements of cash flows for the noted periods (in thousands).

	Three Months Ended March 31, 2015
	As Originally Reported		As Revised
Operating Activities
Net change in broker-dealer and clearing organization receivables	$	(1,062,969)	$	(793,613)
Net change in broker-dealer and clearing organization payables		1,039,786		690,552
Net cash used in operating activities		(38,766)		(118,644)
Investing Activities
Net change in loans		267,275		(2,080)
Net cash provided by investing activities		792,267		522,912
Financing Activities
Net change in deposits		(905,890)		(556,657)
Net cash used in financing activities		(858,043)		(508,810)
Net change in cash and cash equivalents		(104,542)		(104,542)

XML

Acquisition

3 Months Ended

Mar. 31, 2016

Acquisition

Acquisition

2. Acquisition

SWS Merger

On January 1, 2015, Hilltop completed its acquisition of SWS in a stock and cash transaction, whereby each outstanding share of SWS common stock was converted into the right to receive 0.2496 shares of Hilltop common stock and $1.94 in cash, equating to $6.92 per share based on Hilltop’s closing price on December 31, 2014 and resulting in an aggregate purchase price of $349.1 million, consisting of 10.1 million shares of common stock, $78.2 million in cash and $70.3 million associated with Hilltop’s existing investment in SWS common stock. The operations of SWS are included in the Company’s operating results beginning January 1, 2015. Such operating results include a bargain purchase gain of $81.3 million and are not necessarily indicative of future operating results. SWS’s results of operations prior to the acquisition date are not included in the Company’s consolidated operating results.

The SWS Merger was accounted for using the acquisition method of accounting, and accordingly, purchased assets, including identifiable intangible assets, and assumed liabilities were recorded at their respective acquisition date fair values. The components of the consideration paid are shown in the following table (in thousands).

Fair value of consideration paid:
Common stock issued	$	200,626
Cash		78,217
Fair value of Hilltop’s existing investment in SWS		70,282
Total consideration paid	$	349,125

The resulting fair values of the identifiable assets acquired, and liabilities assumed, acquired in the SWS Merger at January 1, 2015 are summarized in the following table (in thousands).

Cash and due from banks	$	119,314
Federal funds sold and securities purchased under agreements to resell		44,741
Assets segregated for regulatory purposes		181,610
Securities		707,476
Non-covered loans, net		863,819
Broker-dealer and clearing organization receivables		1,221,793
Other assets		159,906
Total identifiable assets acquired		3,298,659
Deposits		(1,287,509)
Broker-dealer and clearing organization payables		(1,109,978)
Short-term borrowings		(164,240)
Securities sold, not yet purchased, at fair value		(140,409)
Notes payable		(76,643)
Other liabilities		(89,466)
Total liabilities assumed		(2,868,245)
Bargain purchase gain		(81,289)
		349,125
Less Hilltop existing investment in SWS		(70,282)
Net identifiable assets acquired	$	278,843

The bargain purchase gain represents the excess of the estimated fair value of the underlying net tangible assets and intangible assets over the merger consideration. The SWS Merger was a tax-free reorganization under Section 368(a) of the Internal Revenue Code, therefore no income taxes were recorded in connection with the bargain purchase gain. The Company used significant estimates and assumptions to value certain identifiable assets acquired and liabilities assumed. The bargain purchase gain was primarily driven by the Company’s ability to realize acquired deferred tax assets through its consolidated core earnings and the decline in the price of the Company’s common stock between the date the fixed conversion ratio was agreed upon and the closing date.

Included within the fair value of other assets in the table above are identifiable intangible assets recorded in connection with the SWS Merger. The allocation to intangible assets is as follows (in thousands).

	Estimated Useful	Gross Intangible
	Life (Years)	Assets
Customer relationships	14	$	7,300
Core deposits	4		160
		$	7,460

In connection with the SWS Merger, Hilltop acquired loans both with and without evidence of credit quality deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan losses. Acquired loans were segregated between those considered to be purchased credit impaired (“PCI”) loans and those without credit impairment at acquisition.

The following table presents details on acquired loans at the acquisition date (in thousands).

	Loans, excluding		PCI		Total
	PCI Loans		Loans		Loans
Commercial and industrial	$	178,603	$	9,850	$	188,453
Real estate		324,477		62,218		386,695
Construction and land development		14,708		1,391		16,099
Consumer		3,216		—		3,216
Broker-dealer (1)		269,356		—		269,356
Total	$	790,360	$	73,459	$	863,819

(1)    Represents acquired margin loans to customers and correspondents associated with acquired broker-dealer segment operations.

The following table presents information about the PCI loans at acquisition (in thousands).

Contractually required principal and interest payments	$	120,078
Nonaccretable difference		32,040
Cash flows expected to be collected		88,038
Accretable difference		14,579
Fair value of loans acquired with a deterioration of credit quality	$	73,459

The following table presents information about the acquired loans without credit impairment at acquisition (in thousands).

Contractually required principal and interest payments	$	901,672
Contractual cash flows not expected to be collected		39,721
Fair value at acquisition		790,360

XML

Fair Value Measurements

3 Months Ended

Mar. 31, 2016

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 (such as interest rates, yield curves, prepayment speeds, default rates, credit risks and loss severities), 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 and retained mortgage servicing rights (“MSR”) asset at fair value, under the provisions of the 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. At March 31, 2016 and December 31, 2015, the aggregate fair value of PrimeLending’s mortgage loans held for sale accounted for under the Fair Value Option was $1.29 billion and $1.46 billion, respectively, and the unpaid principal balance of those loans was $1.23 billion and $1.41 billion, respectively. 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 and data from independent pricing services.

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

	Level 1		Level 2		Level 3		Total
March 31, 2016	Inputs		Inputs		Inputs		Fair Value
Trading securities	$	12,916	$	355,508	$	1	$	368,425
Available for sale securities		17,979		648,349		—		666,328
Loans held for sale		—		1,244,799		40,545		1,285,344
Derivative assets		—		90,981		—		90,981
MSR asset		—		—		39,863		39,863
Securities sold, not yet purchased		60,149		105,555		—		165,704
Derivative liabilities		—		43,945		—		43,945

	Level 1		Level 2		Level 3			Total
December 31, 2015	Inputs		Inputs		Inputs			Fair Value
Trading securities	$	21,807	$	192,338	$	1	$	214,146
Available for sale securities		17,409		656,297		—		673,706
Loans held for sale		—		1,434,955		25,880		1,460,835
Derivative assets		—		35,676		—		35,676
MSR asset		—		—		52,285		52,285
Securities sold, not yet purchased		27,648		102,396		—		130,044
Derivative liabilities		—		5,426		—		5,426

The following tables include a rollforward 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		Purchases/		Sales/		Included in		Comprehensive		Balance at
	Period		Additions		Reductions		Net Income		Income (Loss)		End of Period
Three months ended  March 31, 2016
Trading securities	$	1	$	—	$	—	$	—	$	—	$	1
Loans held for sale		25,880		23,236		(4,237)		(4,334)		—		40,545
MSR asset		52,285		1,639		—		(14,061)		—		39,863
Total	$	78,166	$	24,875	$	(4,237)	$	(18,395)	$	—	$	80,409
Three months ended  March 31, 2015
Available for sale securities	$	—	$	7,301	$	—	$	(1,369)	$	—	$	5,932
Loans held for sale		9,017		11,136		(271)		(387)		—		19,495
MSR asset		36,155		2,690		—		(7,197)		—		31,648
Total	$	45,172	$	21,127	$	(271)	$	(8,953)	$	—	$	57,075

All net realized and unrealized gains (losses) in the table above are reflected in the accompanying consolidated financial statements. The unrealized gains (losses) relate to financial instruments still held at March 31, 2016.

For Level 3 financial instruments measured at fair value on a recurring basis at March 31, 2016, the significant unobservable inputs used in the fair value measurements were as follows.

			Range
Financialinstrument	ValuationTechnique	UnobservableInput	(Weighted-Average)
Trading securities	Discounted cash flow	Discount rate	8	-	17	%	(	10	%)
Loansheld for sale	Discountedcash flow / Market comparable	Projected price	88	-	96	%	(	96	%)
MSR asset	Discounted cash flow	Constant prepayment rate			16.92		%
		Discount rate			10.79		%

Trading securities include corporate debt securities that are valued using a discounted cash flow model with observable market data; however, due to the distressed nature of these bonds, the Company has determined that these securities should be valued as a Level 3 financial instrument.

The fair value of certain loans held for sale that cannot be sold through normal sale channels or are non-performing is measured using Level 3, or unobservable, inputs. The fair value of such loans is generally based upon estimates of expected cash flows using unobservable inputs, including listing prices of comparable assets, uncorroborated expert opinions, and/or management’s knowledge of underlying collateral.

The MSR asset, which is included in other assets within the Company’s consolidated balance sheets, is valued by projecting net servicing cash flows, which are then discounted to estimate the fair value. The fair value of the MSR asset is impacted by a variety of factors. Prepayment rates and discount rates, the most significant unobservable inputs, are discussed further in Note 7 to the consolidated financial statements.

The Company had notransfersbetween Levels 1 and 2 during the periods presented.

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

	Three Months Ended March 31, 2016						Three Months Ended March 31, 2015
			Other		Total				Other		Total
	Net		Noninterest		Changes in		Net		Noninterest		Changes in
	Gains (Losses)		Income		Fair Value		Gains (Losses)		Income		Fair Value
Loans held for sale	$	447	$	—	$	447	$	(6,695)	$	—	$	(6,695)
MSR asset		(14,061)		—		(14,061)		(7,197)		—		(7,197)

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 SWS Merger was determined at the acquisition 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. PCI loans with a fair value of $172.9 million, $822.8 million and $73.5 million were acquired by the Company upon completion of the merger with PlainsCapital (the “PlainsCapital Merger”), the FDIC-assisted transaction (the “FNB Transaction”) whereby the Bank acquired certain assets and assumed certain liabilities of First National Bank (“FNB”) and the SWS Merger, respectively (collectively, the “Bank Transactions”). 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 significant unobservable inputs regarding default rates, loss severity rates assuming default, prepayment speeds on acquired loans accounted for in pools (“Pooled Loans”), and estimated collateral values.

At March 31, 2016, estimates for these significant unobservable inputs were as follows.

	PCI Loans
	PlainsCapital		FNB		SWS
	Merger		Transaction		Merger
Weighted average default rate	60	%	55	%	51	%
Weighted average loss severity rate	51	%	34	%	30	%
Weighted average prepayment speed	0	%	6	%	0	%

At  March 31, 2016,  the resulting weighted average expected loss on PCI loans associated with the PlainsCapital Merger, FNB Transaction and SWS Merger was 31%,  19% and 15%, respectively.

The Company obtains updated appraisals of the fair value of collateral securing impaired collateral dependent loans at least annually, in accordance with regulatory guidelines. The Company also reviews the fair value of such collateral on a quarterly basis. If the quarterly review indicates that the fair value of the collateral may have deteriorated, the Company orders an updated appraisal of the fair value of the collateral. Because the Company obtains updated appraisals when evidence of a decline in the fair value of collateral exists, it typically does not adjust appraised values.

Other Real Estate Owned — The Company determines fair value primarily using independent appraisals of other real estate owned (“OREO”) properties. The resulting fair value measurements are classified as Level 2 or Level 3 inputs, depending upon the extent to which unobservable inputs determine the fair value measurement. The Company considers a number of factors in determining the extent to which specific fair value measurements utilize unobservable inputs, including, but not limited to, the inherent subjectivity in appraisals, the length of time elapsed since the receipt of independent market price or appraised value, and current market conditions. At March 31, 2016, the most significant unobservable input used in the determination of fair value of OREO was a discount to independent appraisals for estimated holding periods of OREO properties. Level 3 inputs were used to determine the initial fair value at acquisition of a large group of smaller balance properties that were acquired in the FNB Transaction. In the FNB Transaction, the Bank acquired OREO of $135.2 million, all of which is covered by FDIC loss-share agreements. At March 31, 2016 and December 31, 2015, the estimated fair value of covered OREO was $78.9 million and $99.1 million, respectively, and the underlying fair value measurements utilize Level 2 and Level 3 inputs. The fair value of non-covered OREO at March 31, 2016 and December 31, 2015 was $0.5 million and $0.4 million, respectively, and is included in other assets within the consolidated balance sheets. During the reported periods, all fair value measurements for non-covered OREO subsequent to initial recognition utilized Level 2 inputs.

The following table presents information regarding certain assets and liabilities measured at fair value on a non-recurring basis for which a change in fair value has been recorded during reporting periods subsequent to initial recognition (in thousands).

									Total Gains (Losses) for the
	Level 1		Level 2		Level 3		Total		Three Months Ended March 31,
March 31, 2016	Inputs		Inputs		Inputs		Fair Value		2016		2015
Non-covered impaired loans	$	—	$	—	$	39,722	$	39,722	$	(33)	$	349
Covered impaired loans		—		—		45,025		45,025		332		3,218
Non-covered other real estate owned		—		—		—		—		—		(28)
Covered other real estate owned		—		11,322		—		11,322		(9,765)		(950)

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 the Company’s 2015 Form 10-K.

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
March 31, 2016	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and cash equivalents	$	527,509	$	527,509	$	—	$	—	$	527,509
Securities purchased under agreements to resell		96,646		—		96,646		—		96,646
Assets segregated for regulatory purposes		120,714		120,714		—		—		120,714
Held to maturity securities		310,478		—		313,553		—		313,553
Loans held for sale		58,989		—		58,989		—		58,989
Non-covered loans, net		5,317,615		—		463,987		4,891,840		5,355,827
Covered loans, net		346,169		—		—		484,424		484,424
Broker-dealer and clearing organization receivables		1,370,622		—		1,370,622		—		1,370,622
FDIC indemnification asset		80,522		—		—		77,817		77,817
Other assets		60,468		—		54,412		6,056		60,468
Financial liabilities:
Deposits		6,984,175		—		6,987,315		—		6,987,315
Broker-dealer and clearing organization payables		1,284,016		—		1,284,016		—		1,284,016
Short-term borrowings		832,921		—		832,921		—		832,921
Debt		299,202		—		292,817		—		292,817
Other liabilities		5,389		—		5,389		—		5,389

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
December 31, 2015	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and cash equivalents	$	669,445	$	669,445	$	—	$	—	$	669,445
Securities purchased under agreements to resell		105,660		—		105,660		—		105,660
Assets segregated for regulatory purposes		158,613		158,613		—		—		158,613
Held to maturity securities		332,022		—		331,468		—		331,468
Loans held for sale		72,843		—		72,843		—		72,843
Non-covered loans, net		5,174,625		—		602,968		4,600,406		5,203,374
Covered loans, net		378,762		—		—		527,201		527,201
Broker-dealer and clearing organization receivables		1,362,499		—		1,362,499		—		1,362,499
FDIC indemnification asset		91,648		—		—		91,648		91,648
Other assets		68,786		—		53,214		15,572		68,786
Financial liabilities:
Deposits		6,952,683		—		6,955,919		—		6,955,919
Broker-dealer and clearing organization payables		1,338,305		—		1,338,305		—		1,338,305
Short-term borrowings		947,373		—		947,373		—		947,373
Debt		305,728		—		299,257		—		299,257
Other liabilities		3,699		—		3,699		—		3,699

XML

Securities

3 Months Ended

Mar. 31, 2016

Securities

Securities

4. Securities

The fair value of trading securities are summarized as follows (in thousands).

	March 31,		December 31,
	2016		2015
U.S. Treasury securities	$	11,436	$	20,481
U.S. government agencies:
Bonds		75,015		36,244
Residential mortgage-backed securities		55,526		12,505
Commercial mortgage-backed securities		21,717		19,280
Collateralized mortgage obligations		3,150		264
Corporate debt securities		53,277		34,735
States and political subdivisions		101,655		58,588
Unit investment trusts		37,897		18,400
Private-label securitized product		7,443		12,324
Other		1,309		1,325
Totals	$	368,425	$	214,146

The Hilltop Broker-Dealers enter into transactions that represent commitments to purchase and deliver securities at prevailing future market prices to facilitate customer transactions and satisfy such commitments. Accordingly, the Hilltop Broker-Dealers’ ultimate obligation may exceed the amount recognized in the financial statements. These securities, which are carried at fair value and reported as securities sold, not yet purchased in the consolidated balance sheet, had a value of $165.7 million and $130.0 million at March 31, 2016 and December 31, 2015, respectively.

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

	Availablefor Sale
	Amortized		Unrealized		Unrealized
March 31, 2016	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	44,409	$	483	$	(8)	$	44,884
U.S. government agencies:
Bonds		301,690		1,703		(280)		303,113
Residential mortgage-backed securities		32,253		1,103		(14)		33,342
Commercial mortgage-backed securities		9,090		283		(2)		9,371
Collateralized mortgage obligations		49,082		81		(641)		48,522
Corporate debt securities		90,080		5,160		(17)		95,223
States and political subdivisions		110,515		2,863		(14)		113,364
Commercial mortgage-backed securities		499		31		—		530
Equity securities		18,371		666		(1,058)		17,979
Totals	$	655,989	$	12,373	$	(2,034)	$	666,328

	Availablefor Sale
	Amortized		Unrealized		Unrealized
December 31, 2015	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	44,430	$	206	$	(33)	$	44,603
U.S. government agencies:
Bonds		297,448		1,135		(1,947)		296,636
Residential mortgage-backed securities		34,864		1,008		(19)		35,853
Commercial mortgage-backed securities		9,174		35		(2)		9,207
Collateralized mortgage obligations		54,297		48		(1,644)		52,701
Corporate debt securities		94,877		3,399		(326)		97,950
States and political subdivisions		116,246		2,581		(102)		118,725
Commercial mortgage-backed securities		498		33		—		531
Equity securities		18,169		574		(1,243)		17,500
Totals	$	670,003	$	9,019	$	(5,316)	$	673,706

	Held toMaturity
	Amortized		Unrealized		Unrealized
March 31, 2016	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	25,073	$	1	$	—	$	25,074
U.S. government agencies:
Bonds		60,428		191		—		60,619
Residential mortgage-backed securities		23,099		634		—		23,733
Commercial mortgage-backed securities		18,577		543		(10)		19,110
Collateralized mortgage obligations		157,455		1,491		(2)		158,944
States and political subdivisions		25,846		235		(8)		26,073
Totals	$	310,478	$	3,095	$	(20)	$	313,553

	Held toMaturity
	Amortized		Unrealized		Unrealized
December 31, 2015	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	25,146	$	—	$	(30)	$	25,116
U.S. government agencies:
Bonds		69,379		145		(372)		69,152
Residential mortgage-backed securities		23,735		311		—		24,046
Commercial mortgage-backed securities		18,658		27		(92)		18,593
Collateralized mortgage obligations		167,541		302		(970)		166,873
States and political subdivisions		27,563		168		(43)		27,688
Totals	$	332,022	$	953	$	(1,507)	$	331,468

Information regarding available for sale and held to maturity securities that were in an unrealized loss position is shown in the following tables (dollars in thousands).

	March 31, 2016					December 31, 2015
	Number of			Unrealized		Number of			Unrealized
	Securities	Fair Value		Losses		Securities	Fair Value		Losses
Available for sale
U.S. treasury securities:
Unrealized loss for less than twelve months	3	$	4,304	$	5	8	$	33,791	$	33
Unrealized loss for twelve months or longer	2		2,457		3	—		—		—
	5		6,761		8	8		33,791		33
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	1		54,820		152	7		148,327		896
Unrealized loss for twelve months or longer	1		34,865		128	3		44,321		1,051
	2		89,685		280	10		192,648		1,947
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	1		1,311		1	3		3,407		5
Unrealized loss for twelve months or longer	1		976		13	1		982		14
	2		2,287		14	4		4,389		19
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	1		1,605		2	1		1,611		2
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	1		1,605		2	1		1,611		2
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	2		933		4	2		1,590		4
Unrealized loss for twelve months or longer	8		40,304		637	8		42,399		1,640
	10		41,237		641	10		43,989		1,644
Corporate debt securities:
Unrealized loss for less than twelve months	2		2,820		17	16		16,635		277
Unrealized loss for twelve months or longer	—		—		—	1		1,949		49
	2		2,820		17	17		18,584		326
States and political subdivisions:
Unrealized loss for less than twelve months	3		702		2	2		3,018		9
Unrealized loss for twelve months or longer	8		5,125		12	35		24,423		93
	11		5,827		14	37		27,441		102
Equity securities:
Unrealized loss for less than twelve months	1		8,523		709	2		8,949		909
Unrealized loss for twelve months or longer	2		2,321		349	1		1,927		334
	3		10,844		1,058	3		10,876		1,243
Total available for sale:
Unrealized loss for less than twelve months	14		75,018		892	41		217,328		2,135
Unrealized loss for twelve months or longer	22		86,048		1,142	49		116,001		3,181
	36	$	161,066	$	2,034	90	$	333,329	$	5,316

	March 31, 2016					December 31, 2015
	Number of			Unrealized		Number of			Unrealized
	Securities	Fair Value		Losses		Securities	Fair Value		Losses
Held to Maturity
U.S. treasury securities:
Unrealized loss for less than twelve months	—	$	—	$	—	1	$	25,115	$	30
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	—		—		—	1		25,115		30
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	—		—		—	6		46,607		372
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	—		—		—	6		46,607		372
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	1		1,416		10	7		16,098		92
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	1		1,416		10	7		16,098		92
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	1		6,648		2	10		127,393		970
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	1		6,648		2	10		127,393		970
States and political subdivisions:
Unrealized loss for less than twelve months	7		2,756		8	18		7,900		35
Unrealized loss for twelve months or longer	—		—		—	1		2,664		8
	7		2,756		8	19		10,564		43
Total held to maturity:
Unrealized loss for less than twelve months	9		10,820		20	42		223,113		1,499
Unrealized loss for twelve months or longer	—		—		—	1		2,664		8
	9	$	10,820	$	20	43	$	225,777	$	1,507

During the three months ended March 31, 2016 and 2015, the Company did not record any other-than-temporary impairments (“OTTI”). 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 OTTI of the securities. The Company does not intend, nor does the Company believe that is it likely that the Company will be required, to sell these securities before the recovery of the cost basis.

Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties. The amortized cost and fair value of securities, excluding trading and available for sale equity securities, at March 31, 2016 are shown by contractual maturity below (in thousands).

	Available for Sale				Heldto Maturity
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	105,633	$	105,938	$	26,360	$	26,364
Due after one year through five years		73,027		76,352		18,060		18,228
Due after five years through ten years		66,653		70,937		3,185		3,223
Due after ten years		301,381		303,357		63,742		63,951
		546,694		556,584		111,347		111,766
Residential mortgage-backed securities		32,253		33,342		23,099		23,733
Collateralized mortgage obligations		49,082		48,522		157,455		158,944
Commercial mortgage-backed securities		9,589		9,901		18,577		19,110
	$	637,618	$	648,349	$	310,478	$	313,553

The Company realized net gains of $11.3 million and $3.4 million from its trading securities portfolio during the three months ended March 31, 2016 and 2015, respectively,which are recorded as a component of other noninterest income within the consolidated statements of operations.

Securities with a carrying amount of $753.5 million and $789.9 million (with a fair value of $761.3 million and $790.2 million, respectively) at March 31, 2016 and December 31, 2015, 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. Substantially all of these pledged securities were included in our available for sale and held to maturity securities portfolios at March 31, 2016 and December 31, 2015.

Mortgage-backed securities and collateralized mortgage obligations consist principally of Government National Mortgage Association (“GNMA”), Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) pass-through and participation certificates. GNMA securities are guaranteed by the full faith and credit of the United States, while FNMA and FHLMC securities are fully guaranteed by those respective United States government-sponsored agencies, and conditionally guaranteed by the full faith and credit of the United States.

At March 31, 2016 and December 31, 2015, NLC had investments on deposit in custody for various state insurance departments with carrying values of $9.7 million and $9.2 million, respectively.

XML

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

3 Months Ended

Mar. 31, 2016

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. Covered loans are discussed in Note 6 to the consolidated financial statements. Non-covered loans summarized by portfolio segment are as follows (in thousands).

	March 31,		December 31,
	2016		2015
Commercial and industrial	$	1,619,567	$	1,552,805
Real estate		2,536,302		2,313,239
Construction and land development		701,358		705,356
Consumer		44,851		45,672
Broker-dealer (1)		463,987		602,968
		5,366,065		5,220,040
Allowance for non-covered loan losses		(48,450)		(45,415)
Total non-covered loans, net of allowance	$	5,317,615	$	5,174,625

(1) Represents margin loans to customers and correspondents associated with our broker-dealer segment operations.

In connection with the Bank Transactions, 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 balances of the non-covered PCI loans (in thousands).

	March 31,		December 31,
	2016		2015
Carrying amount	$	68,053	$	72,054
Outstanding balance		87,345		92,682

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

	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	17,744	$	12,814
Additions		—		14,579
Reclassifications from (to) nonaccretable difference, net(1)		2,343		281
Disposals of loans		—		(448)
Accretion		(3,919)		(2,749)
Balance, end of period	$	16,168	$	24,477

(1) Reclassifications from nonaccretable difference are primarily due to net increases in expected cash flows in the quarterly recasts. Reclassifications to nonaccretable difference occur when accruing loans are moved to nonaccrual and expected cash flows are no longer predictable and the accretable yield is eliminated.

The remaining nonaccretable difference for non-covered PCI loans was $28.0 million and $28.5 million at March 31, 2016 and December 31, 2015, respectively.

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.

The amounts shown in following tables include loans accounted for on an individual basis, as well as acquired Pooled Loans. For Pooled Loans, the recorded investment with allowance and the related allowance consider impairment measured at the pool level. Non-covered impaired loans, segregated between those considered to be PCI loans and those without credit impairment at acquisition, are summarized by class in the following tables (in thousands).

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
March 31, 2016	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial and industrial:
Secured	$	28,379	$	4,085	$	9,032	$	13,117	$	1,027
Unsecured		2,559		—		—		—		—
Real estate:
Secured by commercial properties		47,718		14,159		24,457		38,616		3,187
Secured by residential properties		15,516		8,888		2,806		11,694		175
Construction and land development:
Residential construction loans		—		—		—		—		—
Commercial construction loans and land development		6,914		3,115		983		4,098		138
Consumer		3,826		490		38		528		28
Broker-dealer		—		—		—		—		—
		104,912		30,737		37,316		68,053		4,555
Non-PCI
Commercial and industrial:
Secured		21,778		6,137		6,952		13,089		1,344
Unsecured		181		35		—		35		—
Real estate:
Secured by commercial properties		668		607		—		607		—
Secured by residential properties		1,088		789		—		789		—
Construction and land development:
Residential construction loans		—		—		—		—		—
Commercial construction loans and land development		122		102		—		102		—
Consumer		2		1		—		1		—
Broker-dealer		—		—		—		—		—
		23,839		7,671		6,952		14,623		1,344
	$	128,751	$	38,408	$	44,268	$	82,676	$	5,899

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
December 31, 2015	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial and industrial:
Secured	$	32,597	$	5,520	$	7,830	$	13,350	$	1,341
Unsecured		2,572		—		—		—		—
Real estate:
Secured by commercial properties		57,607		15,914		25,214		41,128		2,756
Secured by residential properties		15,278		8,957		2,690		11,647		175
Construction and land development:
Residential construction loans		395		—		221		221		8
Commercial construction loans and land development		7,929		3,283		1,646		4,929		174
Consumer		4,162		734		45		779		32
Broker-dealer		—		—		—		—		—
		120,540		34,408		37,646		72,054		4,486
Non-PCI
Commercial and industrial:
Secured		21,222		6,736		6,017		12,753		1,380
Unsecured		224		47		—		47		—
Real estate:
Secured by commercial properties		436		390		—		390		—
Secured by residential properties		1,229		918		—		918		—
Construction and land development:
Residential construction loans		—		—		—		—		—
Commercial construction loans and land development		131		114		—		114		—
Consumer		—		1		—		1		—
Broker-dealer		—		—		—		—		—
		23,242		8,206		6,017		14,223		1,380
	$	143,782	$	42,614	$	43,663	$	86,277	$	5,866

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

	Three Months Ended March 31,
	2016		2015
Commercial and industrial:
Secured	$	26,155	$	32,684
Unsecured		41		80
Real estate:
Secured by commercial properties		40,371		43,013
Secured by residential properties		12,524		12,205
Construction and land development:
Residential construction loans		111		117
Commercial construction loans and land development		4,622		10,068
Consumer		655		1,844
Broker-dealer		—		—
	$	84,479	$	100,011

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

	March 31,		December 31,
	2016		2015
Commercial and industrial:
Secured	$	19,144	$	17,717
Unsecured		35		47
Real estate:
Secured by commercial properties		4,813		4,597
Secured by residential properties		870		999
Construction and land development:
Residential construction loans		—		—
Commercial construction loans and land development		102		114
Consumer		1		7
Broker-dealer		—		—
	$	24,965	$	23,481

At March 31, 2016 and December 31, 2015, non-covered non-accrual loans included non-covered PCI loans of $10.3 million and $9.3 million, respectively, 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. In addition to the non-covered non-accrual loans in the table above, $2.1 million and $1.6 million of real estate loans secured by residential properties and classified as held for sale were in non-accrual status at March 31, 2016 and December 31, 2015, respectively.

Interest income, including recoveries and cash payments, recorded on non-covered impaired loans was $0.1 million and $0.6 million during the three months ended March 31, 2016 and 2015, respectively. Except as noted above, non-covered PCI loans are considered to be performing due to the application of the accretion method.

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.

The outstanding balance of TDRs granted in the three months ended March 31, 2016 and 2015, respectively, is shown in the following tables (in thousands). The TDR granted during the three months ended March 31, 2015 was paid off as of June 30, 2015. At March 31, 2016 and December 31, 2015, the Bank had nominal 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  March 31, 2016	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	1,196	$	1,196
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		—		—		—		—
Broker-dealer		—		—		—		—
	$	—	$	—	$	1,196	$	1,196

	Recorded Investment in Loans Modified by
			Interest Rate		Payment Term		Total
Three months ended  March 31, 2015	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	—	$	—
Unsecured		—		—		—		—
Real estate:
Secured by commercial properties		—		—		—		—
Secured by residential properties		—		—		—		—
Construction and land development:
Residential construction loans		—		—		—		—
Commercial construction loans and land development		—		—		75		75
Consumer		—		—		—		—
Broker-dealer		—		—		—		—
	$	—	$	—	$	75	$	75

There were no TDRs granted during the three months ended March 31, 2016 and 2015, for which a payment was at least 30 days past due in the three months ended March 31, 2016 and 2015, respectively.

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

															Accruing Loans (Non-PCI)
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
March 31, 2016	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	2,347	$	915	$	7,819	$	11,081	$	1,496,644	$	13,117	$	1,520,842	$	46
Unsecured		637		51		—		688		98,037		—		98,725		—
Real estate:
Secured by commercial properties		1,153		—		1,519		2,672		1,684,700		38,616		1,725,988		1,183
Secured by residential properties		4,483		22		—		4,505		794,115		11,694		810,314		—
Construction and land development:
Residential construction loans		28		—		—		28		97,276		—		97,304		—
Commercial construction loans and land development		—		—		—		—		599,956		4,098		604,054		—
Consumer		443		27		1		471		43,852		528		44,851		—
Broker-dealer		—		—		—		—		463,987		—		463,987		—
	$	9,091	$	1,015	$	9,339	$	19,445	$	5,278,567	$	68,053	$	5,366,065	$	1,229

															Accruing Loans (Non-PCI)
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
December 31, 2015	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	14,869	$	3,960	$	8,414	$	27,243	$	1,406,537	$	13,350	$	1,447,130	$	12
Unsecured		18		1		—		19		105,656		—		105,675		—
Real estate:
Secured by commercial properties		1,008		964		293		2,265		1,528,084		41,128		1,571,477		—
Secured by residential properties		726		35		336		1,097		729,018		11,647		741,762		—
Construction and land development:
Residential construction loans		343		—		—		343		103,819		221		104,383		—
Commercial construction loans and land development		733		1,845		114		2,692		593,352		4,929		600,973		—
Consumer		359		17		—		376		44,517		779		45,672		—
Broker-dealer		—		—		—		—		602,968		—		602,968		—
	$	18,056	$	6,822	$	9,157	$	34,035	$	5,113,951	$	72,054	$	5,220,040	$	12

In addition to the non-covered loans shown in the table above, $50.7 million and $50.8 million of loans included in loans held for sale (with an unpaid principal balance of $51.2 million and $51.1 million, respectively) were 90 days past due and accruing interest at March 31, 2016 and December 31, 2015, respectively. These loans are guaranteed by U.S. government agencies and include loans that are subject to repurchase, or have been repurchased, by PrimeLending.

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).

March 31, 2016	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,434,976	$	2,568	$	70,181	$	13,117	$	1,520,842
Unsecured		98,560		—		165		—		98,725
Real estate:
Secured by commercial properties		1,674,739		—		12,633		38,616		1,725,988
Secured by residential properties		793,399		—		5,221		11,694		810,314
Construction and land development:
Residential construction loans		97,304		—		—		—		97,304
Commercial construction loans and land development		599,273		—		683		4,098		604,054
Consumer		44,242		—		81		528		44,851
Broker-dealer		463,987		—		—		—		463,987
	$	5,206,480	$	2,568	$	88,964	$	68,053	$	5,366,065

December 31, 2015	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,372,671	$	—	$	61,109	$	13,350	$	1,447,130
Unsecured		105,569		—		106		—		105,675
Real estate:
Secured by commercial properties		1,517,049		1,536		11,764		41,128		1,571,477
Secured by residential properties		724,701		—		5,414		11,647		741,762
Construction and land development:
Residential construction loans		104,162		—		—		221		104,383
Commercial construction loans and land development		594,614		—		1,430		4,929		600,973
Consumer		44,736		35		122		779		45,672
Broker-dealer		602,968		—		—		—		602,968
	$	5,066,470	$	1,571	$	79,945	$	72,054	$	5,220,040

Allowance for Loan Losses

The allowance for both originated and acquired loans 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. The Company’s analysis of 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 is described in detail in Note 5 to the consolidated financial statements included in the Company’s 2015 Form 10-K.

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 March 31, 2016	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Balance, beginning of period	$	19,845	$	18,983	$	6,064	$	314	$	209	$	45,415
Provision charged to (recapture from) operations		1,016		3,233		(503)		32		(93)		3,685
Loans charged off		(1,350)		—		—		(52)		(2)		(1,404)
Recoveries on charged off loans		658		56		—		40		—		754
Balance, end of period	$	20,169	$	22,272	$	5,561	$	334	$	114	$	48,450

	Commercial and				Construction and
Three Months Ended March 31, 2015	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Balance, beginning of period	$	18,833	$	11,131	$	6,450	$	461	$	166	$	37,041
Provision charged to (recapture from) operations		1,670		1,807		(608)		(276)		201		2,794
Loans charged off		(942)		(278)		—		(34)		—		(1,254)
Recoveries on charged off loans		592		44		—		25		123		784
Balance, end of period	$	20,153	$	12,704	$	5,842	$	176	$	490	$	39,365

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

	Commercial and				Construction and
March 31, 2016	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Loans individually evaluated for impairment	$	11,572	$	—	$	—	$	—	$	—	$	11,572
Loans collectively evaluated for impairment		1,594,878		2,485,992		697,260		44,323		463,987		5,286,440
PCI Loans		13,117		50,310		4,098		528		—		68,053
	$	1,619,567	$	2,536,302	$	701,358	$	44,851	$	463,987	$	5,366,065

	Commercial and				Construction and
December 31, 2015	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Loans individually evaluated for impairment	$	11,354	$	97	$	—	$	—	$	—	$	11,451
Loans collectively evaluated for impairment		1,528,101		2,260,367		700,206		44,893		602,968		5,136,535
PCI Loans		13,350		52,775		5,150		779		—		72,054
	$	1,552,805	$	2,313,239	$	705,356	$	45,672	$	602,968	$	5,220,040

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

	Commercial and				Construction and
March 31, 2016	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Loans individually evaluated for impairment	$	1,344	$	—	$	—	$	—	$	—	$	1,344
Loans collectively evaluated for impairment		17,798		18,910		5,423		306		114		42,551
PCI Loans		1,027		3,362		138		28		—		4,555
	$	20,169	$	22,272	$	5,561	$	334	$	114	$	48,450

	Commercial and				Construction and
December 31, 2015	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Loans individually evaluated for impairment	$	1,380	$	—	$	—	$	—	$	—	$	1,380
Loans collectively evaluated for impairment		17,124		16,052		5,882		282		209		39,549
PCI Loans		1,341		2,931		182		32		—		4,486
	$	19,845	$	18,983	$	6,064	$	314	$	209	$	45,415

XML

Covered Assets and Indemnification Asset

3 Months Ended

Mar. 31, 2016

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 (the “Bank Closing Date”). As part of the Purchase and Assumption Agreement by and among the FDIC (as receiver of FNB), the Bank and the FDIC (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 sheets. 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: (i) 80% of net losses on the first $240.4 million of net losses incurred; (ii) 0% of net losses in excess of $240.4million up to and including $365.7million of net losses incurred; and (iii) 80% of net losses in excess of $365.7 million of net losses incurred. Net losses are defined as book value losses plus certain defined expenses incurred in the resolution of assets, less subsequent recoveries. Under the loss-share agreement for commercial assets, the amount of subsequent recoveries that are reimbursable to the FDIC for a particular asset is limited to book value losses and expenses actually billed plus any book value charge-offs incurred prior to the Bank Closing Date. There is no limit on the amount of subsequent recoveries reimbursable to the FDIC under the loss-share agreement for single family residential assets. The loss-share agreements for commercial and single family residential assets 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. The asset arising from the loss-share agreements, referred 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 its actual net realized losses over the life of the loss-share agreements are less than the FDIC’s initial estimate of losses on covered assets. The “true-up” payment is calculated using a defined formula set forth in the P&A Agreement. At March 31, 2016, the Bank recorded a related “true-up” payment accrual of $7.5 million based on the current estimate of aggregate realized losses on covered assets over the life of the loss-share agreements.

Covered Loans and Allowance for Covered Loan Losses

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

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 segregated between those considered to be PCI loans and those without credit impairment at acquisition.

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 those 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 (in thousands).

	March 31,		December 31,
	2016		2015
Commercial and industrial	$	9,070	$	8,801
Real estate		318,921		341,048
Construction and land development		19,395		30,445
		347,386		380,294
Allowance for covered loans		(1,217)		(1,532)
Total covered loans, net of allowance	$	346,169	$	378,762

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

	March 31,		December 31,
	2016		2015
Carrying amount	$	197,865	$	221,974
Outstanding balance		371,802		408,221

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

	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	176,719	$	193,493
Reclassifications from (to) nonaccretable difference, net(1)		9,633		16,263
Transfer of loans to covered OREO(2)		(109)		1,172
Accretion		(17,110)		(16,931)
Balance, end of period	$	169,133	$	193,997

(1) Reclassifications from nonaccretable difference are primarily due to net increases in expected cash flows in the quarterly recasts, but may also include the reclassification and immediate income recognition of nonaccretable difference due to the favorable resolution of loans accounted for individually. Reclassifications to nonaccretable difference occur when accruing loans are moved to nonaccrual and expected cash flows are no longer predictable and the accretable yield is eliminated.

(2) Transfer of loans to covered OREO is the difference between the value removed from the pool and the expected cash flows for the loan.

The remaining nonaccretable difference for covered PCI loans was $150.6 million and $172.2 million at March 31, 2016 and December 31, 2015, respectively. During the three months ended March 31, 2016 and 2015, a combination of factors affecting the inputs to the Bank’s quarterly recast process led to the reclassifications from nonaccretable difference to accretable yield. These transfers resulted from revised cash flows that reflect better-than-expected performance of the covered PCI loan portfolio as a result of the Bank’s strategic decision to dedicate resources to the liquidation of covered loans during the noted periods.

Covered impaired loans include non-accrual loans, TDRs, PCI loans and partially charged-off loans. The amounts shown in following tables include Pooled Loans, as well as loans accounted for on an individual basis. For Pooled Loans, the recorded investment with allowance and the related allowance consider impairment measured at the pool level. Covered impaired loans, segregated between those considered to be PCI loans and those without credit impairment at acquisition, are summarized by class in the following tables (in thousands).

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
March 31, 2016	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial and industrial:
Secured	$	13,790	$	1,680	$	3,483	$	5,163	$	361
Unsecured		8,757		1,145		645		1,790		61
Real estate:
Secured by commercial properties		197,972		77,867		10,210		88,077		189
Secured by residential properties		172,472		86,001		2,863		88,864		522
Construction and land development:
Residential construction loans		1,223		—		165		165		35
Commercial construction loans and land development		44,743		13,806		—		13,806		—
		438,957		180,499		17,366		197,865		1,168
Non-PCI
Commercial and industrial:
Secured		72		60		—		60		—
Unsecured		—		—		—		—		—
Real estate:
Secured by commercial properties		508		433		—		433		—
Secured by residential properties		3,827		3,062		—		3,062		—
Construction and land development:
Residential construction loans		787		520		—		520		—
Commercial construction loans and land development		48		13		—		13		—
		5,242		4,088		—		4,088		—
	$	444,199	$	184,587	$	17,366	$	201,953	$	1,168

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
December 31, 2015	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial and industrial:
Secured	$	15,454	$	3,312	$	2,415	$	5,727	$	495
Unsecured		9,377		618		1,162		1,780		246
Real estate:
Secured by commercial properties		211,145		67,540		29,388		96,928		245
Secured by residential properties		182,698		93,438		3,180		96,618		514
Construction and land development:
Residential construction loans		1,225		121		—		121		—
Commercial construction loans and land development		55,947		20,800		—		20,800		—
		475,846		185,829		36,145		221,974		1,500
Non-PCI
Commercial and industrial:
Secured		78		68		—		68		—
Unsecured		—		1		—		1		—
Real estate:
Secured by commercial properties		512		443		—		443		—
Secured by residential properties		3,745		3,031		—		3,031		—
Construction and land development:
Residential construction loans		799		540		—		540		—
Commercial construction loans and land development		123		110		—		110		—
		5,257		4,193		—		4,193		—
	$	481,103	$	190,022	$	36,145	$	226,167	$	1,500

Average recorded investment in covered impaired loans is summarized by class in the following table (in thousands).

	Three Months Ended March 31,
	2016		2015
Commercial and industrial:
Secured	$	5,509	$	13,170
Unsecured		1,786		5,851
Real estate:
Secured by commercial properties		92,941		203,506
Secured by residential properties		95,788		135,164
Construction and land development:
Residential construction loans		673		1,336
Commercial construction loans and land development		17,365		42,364
	$	214,062	$	401,391

Covered non-accrual loans are summarized by class in the following table (in thousands).

	March 31,		December 31,
	2016		2015
Commercial and industrial:
Secured	$	60	$	68
Unsecured		—		—
Real estate:
Secured by commercial properties		433		442
Secured by residential properties		2,550		2,516
Construction and land development:
Residential construction loans		520		541
Commercial construction loans and land development		13		5,411
	$	3,576	$	8,978

At March 31, 2016, there were no covered PCI loans included within non-accrual loans for which discount accretion has been suspended. At December 31, 2015, covered non-accrual loans included covered PCI loans of $5.3 million for which discount accretion has been suspended because the extent and timing of cash flows from these covered PCI loans can no longer be reasonably estimated.

Interest income, including recoveries and cash payments, recorded on covered impaired loans during the three months ended March 31, 2016 and 2015 was nominal. Except as noted above, covered PCI loans are considered to be performing due to the application of the accretion method.

The Bank classifies loan modifications of covered loans as TDRs in a manner consistent with that of non-covered loans as discussed in Note 5 to the consolidated financial statements. There were no TDRs granted during the three months ended March 31, 2016. The outstanding balance of TDRs granted during three months ended March 31, 2015 is shown in the following table (in thousands). Pooled Loans are not in the scope of the disclosure requirements for TDRs. At March 31, 2016 and December 31, 2015, the Bank had nominal unadvanced commitments to borrowers whose loans have been restructured in TDRs.

	RecordedInvestmentinLoansModifiedby
			InterestRate		PaymentTerm		Total
Three Months Ended March 31, 2015	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	—	$	—
Unsecured		—		—		—		—
Real estate:
Secured by commercial properties		—		—		573		573
Secured by residential properties		—		—		280		280
Construction and land development:
Residential construction loans		—		—		—		—
Commercial construction loans and land development		—		—		—		—
	$	—	$	—	$	853	$	853

The following table presents information regarding TDRs granted during the three months ended March 31, 2015 for  which a payment was at least 30 days past due in the three months ended March 31, 2015 (dollars in thousands).

	Number of	Recorded
	Loans	Investment
Commercial and industrial:
Secured	—	$	—
Unsecured	—		—
Real estate:
Secured by commercial properties	—		—
Secured by residential properties	1		280
Construction and land development:
Residential construction loans	—		—
Commercial construction loans and land development	—		—
	1	$	280

An analysis of the aging of the Bank’s 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		(Non‑PCI)Past Due
March 31, 2016	30‑59 Days		60‑89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	—	$	—	$	162	$	162	$	1,955	$	5,163	$	7,280	$	102
Unsecured		—		—		—		—		—		1,790		1,790		—
Real estate:
Secured by commercial properties		—		—		98		98		26,999		88,077		115,174		—
Secured by residential properties		3,379		121		1,075		4,575		110,308		88,864		203,747		—
Construction and land development:
Residential construction loans		—		—		520		520		—		165		685		—
Commercial construction loans and land development		87		—		—		87		4,817		13,806		18,710		—
	$	3,466	$	121	$	1,855	$	5,442	$	144,079	$	197,865	$	347,386	$	102

															Accruing Loans
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		(Non‑PCI)Past Due
December 31, 2015	30‑59 Days		60‑89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	51	$	—	$	68	$	119	$	1,175	$	5,727	$	7,021	$	—
Unsecured		—		—		—		—		—		1,780		1,780		—
Real estate:
Secured by commercial properties		—		—		100		100		28,957		96,928		125,985		—
Secured by residential properties		3,399		418		1,104		4,921		113,524		96,618		215,063		—
Construction and land development:
Residential construction loans		—		—		540		540		264		121		925		—
Commercial construction loans and land development		47		1		95		143		8,577		20,800		29,520		—
	$	3,497	$	419	$	1,907	$	5,823	$	152,497	$	221,974	$	380,294	$	—

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. The following tables present the internal risk grades of covered loans in the portfolio by class (in thousands).

March 31, 2016	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,118	$	—	$	999	$	5,163	$	7,280
Unsecured		—		—		—		1,790		1,790
Real estate:
Secured by commercial properties		22,565		—		4,532		88,077		115,174
Secured by residential properties		107,719		484		6,680		88,864		203,747
Construction and land development:
Residential construction loans		—		—		520		165		685
Commercial construction loans and land development		3,204		—		1,700		13,806		18,710
	$	134,606	$	484	$	14,431	$	197,865	$	347,386

December 31, 2015	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	758	$	—	$	536	$	5,727	$	7,021
Unsecured		—		—		—		1,780		1,780
Real estate:
Secured by commercial properties		24,070		—		4,987		96,928		125,985
Secured by residential properties		111,128		491		6,826		96,618		215,063
Construction and land development:
Residential construction loans		264		—		540		121		925
Commercial construction loans and land development		6,847		—		1,873		20,800		29,520
	$	143,067	$	491	$	14,762	$	221,974	$	380,294

The Bank’s impairment methodology for the covered loans is consistent with that of non-covered loans as discussed in detail in Notes 5 and 6 to the consolidated financial statements included in the Company’s 2015 Form 10-K.

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

	Commercial and				Construction and
Three months ended  March 31, 2016	Industrial		Real Estate		Land Development		Total
Balance, beginning of period	$	758	$	774	$	—	$	1,532
Provision charged to (recapture from) operations		(314)		(23)		59		(278)
Loans charged off		(6)		(16)		(22)		(44)
Recoveries on charged off loans		—		7		—		7
Balance, end of period	$	438	$	742	$	37	$	1,217

	Commercial and				Construction and
Three months ended  March 31, 2015	Industrial		Real Estate		Land Development		Total
Balance, beginning of period	$	1,193	$	3,334	$	84	$	4,611
Provision charged to (recapture from) operations		71		(192)		14		(107)
Loans charged off		(900)		(2,215)		(1)		(3,116)
Recoveries on charged off loans		—		—		—		—
Balance, end of period	$	364	$	927	$	97	$	1,388

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

	Commercial and				Construction and
March 31, 2016	Industrial		Real Estate		Land Development		Total
Loans individually evaluated for impairment	$	—	$	—	$	520	$	520
Loans collectively evaluated for impairment		2,117		141,980		4,904		149,001
PCI Loans		6,953		176,941		13,971		197,865
	$	9,070	$	318,921	$	19,395	$	347,386

	Commercial and				Construction and
December 31, 2015	Industrial		Real Estate		Land Development		Total
Loans individually evaluated for impairment	$	—	$	—	$	540	$	540
Loans collectively evaluated for impairment		1,294		147,502		8,984		157,780
PCI Loans		7,507		193,546		20,921		221,974
	$	8,801	$	341,048	$	30,445	$	380,294

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

	Commercial and				Construction and
March 31, 2016	Industrial		Real Estate		Land Development		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment		16		31		2		49
PCI Loans		422		711		35		1,168
	$	438	$	742	$	37	$	1,217

	Commercial and				Construction and
December 31, 2015	Industrial		Real Estate		Land Development		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment		17		15		—		32
PCI Loans		741		759		—		1,500
	$	758	$	774	$	—	$	1,532

Covered Other Real Estate Owned

A summary of the activity in covered OREO is as follows (in thousands).

	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	99,090	$	136,945
Additions to covered OREO		4,542		24,042
Dispositions of covered OREO		(14,977)		(22,334)
Valuation adjustments in the period		(9,765)		(950)
Balance, end of period	$	78,890	$	137,703

During the three months ended March 31, 2016 and 2015, the Bank wrote down certain covered OREO assets to fair value to reflect new appraisals on certain OREO acquired in the FNB Transaction and OREO acquired from the foreclosure on certain FNB loans acquired in the FNB Transaction. Although the Bank recorded a fair value discount on the acquired assets upon acquisition, in some cases additional downward valuations were required.

These additional downward valuation adjustments reflect changes to the assumptions regarding the fair value of the OREO, including in some cases the intended use of the OREO due to the availability of more information, as well as the passage of time. The process of determining fair value is subjective in nature and requires the use of significant estimates and assumptions. Although the Bank makes market-based assumptions when valuing acquired assets, new information may come to light that causes estimates to increase or decrease. When the Bank determines, based on subsequent information, that its estimates require adjustment, the Bank records the adjustment. The accounting for such adjustments requires that the decreases to fair value be recorded at the time such new information is received, while increases to fair value are recorded when the asset is subsequently sold.

FDIC Indemnification Asset

A summary of the activity in the FDIC Indemnification Asset is as follows (in thousands).

	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	91,648	$	130,437
FDIC Indemnification Asset accretion (amortization)		87		506
Transfers to due from FDIC and other		(11,213)		(23,376)
Balance, end of period	$	80,522	$	107,567

As of March 31, 2016, the Bank had billed and collected $111.5 million from the FDIC, which represented reimbursable covered losses and expenses through December 31, 2015.

XML

Mortgage Servicing Rights

3 Months Ended

Mar. 31, 2016

Mortgage Servicing Rights

Mortgage Servicing Rights

7. Mortgage Servicing Rights

The following tables present the changes in fair value of the Company’s MSR, as included in other assets within the consolidated balance sheets, and other information related to the serviced portfolio (dollars in thousands).

	Three Months Ended March 31,
	2016			2015
Balance, beginning of period	$	52,285		$	36,155
Additions		1,639			2,690
Changes in fair value:
Due to changes in model inputs or assumptions(1)		(12,842)			(5,044)
Due to customer payoffs		(1,219)			(2,153)
Balance, end of period	$	39,863		$	31,648
	March 31,			December 31,
	2016			2015
Mortgage loans serviced for others	$	5,004,100		$	5,051,884
MSR asset as a percentage of serviced mortgage loans		0.80	%		1.03	%

(1) Primarily represents normal customer payments, changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates and the refinement of other MSR model assumptions.

The key assumptions used in measuring the fair value of the Company’s MSR were as follows.

	March 31,		December 31,
	2016		2015
Weighted average constant prepayment rate	16.92	%	11.51	%
Weighted average discount rate	10.79	%	10.92	%
Weighted average life (in years)	4.8		6.5

A sensitivity analysis of the fair value of the Company’s MSR to certain key assumptions is presented in the following table (in thousands).

	March 31,		December 31,
	2016		2015
Constant prepayment rate:
Impact of 10% adverse change	$	(1,831)	$	(2,177)
Impact of 20% adverse change		(3,494)		(4,195)
Discount rate:
Impact of 10% adverse change		(1,073)		(2,073)
Impact of 20% adverse change		(2,076)		(3,989)

This sensitivity analysis presents the effect of hypothetical changes in key assumptions on the fair value of the MSR. The effect of such hypothetical change in assumptions generally cannot be extrapolated because the relationship of the change in one key assumption to the change in the fair value of the MSR is not linear. In addition, in the analysis, the impact of an adverse change in one key assumption is calculated independent of any impact on other assumptions. In reality, changes in one assumption may change another assumption.

Contractually specified servicing fees, late fees and ancillary fees earned of $5.9 million and $4.2 million during the three months ended March 31, 2016 and 2015, respectively, were included in other noninterest income within the consolidated statements of operations.

XML

Deposits

3 Months Ended

Mar. 31, 2016

Deposits

Deposits

8. Deposits

Deposits are summarized as follows (in thousands).

	March 31,		December 31,
	2016		2015
Noninterest-bearing demand	$	2,233,608	$	2,235,436
Interest-bearing:
NOW accounts		1,171,481		1,077,576
Money market		1,447,155		1,500,780
Brokered - money market		97,472		133,380
Demand		343,083		380,214
Savings		330,307		273,390
Time		1,361,069		1,325,342
Brokered - time		—		26,565
	$	6,984,175	$	6,952,683

XML

Short-term Borrowings

3 Months Ended

Mar. 31, 2016

Short-term Borrowings

Short-term Borrowings

9. Short-term Borrowings

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

	March 31,		December 31,
	2016		2015
Federal funds purchased	$	62,900	$	58,925
Securities sold under agreements to repurchase		320,021		217,748
Federal Home Loan Bank		300,000		600,000
Short-term bank loans		150,000		70,700
	$	832,921	$	947,373

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 the Hilltop Broker-Dealers 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, the Hilltop Broker-Dealers or a third-party dealer.

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

	Three Months Ended March 31,
	2016			2015
Average balance during the period	$	329,392		$	361,600
Average interest rate during the period		0.49	%		0.25	%

	March 31,			December 31,
	2016			2015
Average interest rate at end of period		0.41	%		0.26	%
Securities underlying the agreements at end of period:
Carrying value	$	333,973		$	250,981
Estimated fair value	$	337,695		$	250,045

Federal Home Loan Bank (“FHLB”) short-term borrowings 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 short-term borrowings is shown in the following tables (dollars in thousands).

	Three Months Ended March 31,
	2016			2015
Average balance during the period	$	234,341		$	235,111
Average interest rate during the period		0.44	%		0.22	%

	March 31,		December 31,
	2016		2015
Average interest rate at end of period	0.47	%	0.35	%

The Hilltop Broker-Dealers use short-term bank loans periodically to finance securities owned, margin loans to customers and correspondents, and underwriting activities. Interest on the borrowings varies with the federal funds rate. The weighted average interest rate on the borrowings at both March 31, 2016 and December 31, 2015 was 1.26%.

XML

Notes Payable

3 Months Ended

Mar. 31, 2016

Notes Payable

Notes Payable

10. Notes Payable

	March 31,		December 31,
	2016		2015
NLIC note payable due May 2033	$	10,000	$	10,000
NLIC note payable due September 2033		10,000		10,000
ASIC note payable due April 2034		7,500		7,500
Insurance company note payable due March 2035		20,000		20,000
Federal Home Loan Bank notes, maturities ranging from May 2016 to June 2030		32,524		36,042
Insurance company line of credit due December 31, 2016		1,500		7,000
Ventures line of credit due August 2016		2,459		—
Senior Notes due April 2025, net		148,207		148,174
	$	232,190	$	238,716

XML

Income Taxes

3 Months Ended

Mar. 31, 2016

Income Taxes

Income Taxes

11. 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 tax rate was 33.8% and 11.9% during the three months ended March 31, 2016 and 2015, respectively. The effective tax rate during the three months ended March 31, 2016 was lower than the statutory rate primarily due to recognition of excess tax benefits on share-based payment awards as a result of the Company’s adoption of the provisions of Accounting Standards Update (“ASU”) 2016-09 as of January 1, 2016 as discussed in Note 23 to the consolidated financial statements. The lower effective tax rate during the three months ended March 31, 2015 was primarily due to no income taxes being recorded during 2015 in connection with the bargain purchase gain of $81.3 million associated with the SWS Merger because the acquisition was a tax-free reorganization under Section 368(a) of the Internal Revenue Code. In addition, the Company recorded an income tax benefit during 2015 of $2.1 million as a result of the SWS Merger to reverse the deferred tax liability for the difference between book and tax basis on Hilltop’s investment in SWS common stock.

XML

Commitments and Contingencies

3 Months Ended

Mar. 31, 2016

Commitments and Contingencies

Commitments and Contingencies

12. Commitments and Contingencies

Legal Matters

The Company is subject to loss contingencies related to litigation, claims, investigations and legal and administrative cases and proceedings arising in the ordinary course of business. The Company evaluates these contingencies based on information currently available, including advice of counsel. The Company establishes accruals for those matters when a loss contingency is considered probable and the related amount is reasonably estimable. Any accruals are periodically reviewed and may be adjusted as circumstances change. A portion of the Company’s exposure with respect to loss contingencies may be offset by applicable insurance coverage. In determining the amounts of any accruals or estimates of possible loss contingencies, the Company does not take into account the availability of insurance coverage, other than that provided by reinsurers in the insurance segment. When it is practicable, the Company estimates loss contingencies for possible litigation and claims, whether or not there is an accrued probable loss. When the Company is able to estimate such possible losses, and when it estimates that it is reasonably possible it could incur losses, in excess of amounts accrued, the Company is required to make a disclosure of the aggregate estimation. As available information changes, however, the matters for which the Company is able to estimate, as well as the estimates themselves will be adjusted, accordingly.

Assessments of litigation and claims exposures are difficult due to many factors that involve inherent unpredictability. Those factors include the following: the varying stages of the proceedings, particularly in the early stages; unspecified, unsupported, or uncertain damages; damages other than compensatory, such as punitive damages; a matter presenting meaningful legal uncertainties, including novel issues of law; multiple defendants and jurisdictions; whether discovery has begun or not or discovery is not complete; meaningful settlement discussions have not commenced; and whether the claim involves a class action and if so, how the class is defined. As a result of some of these factors, the Company may be unable to estimate reasonably possible losses with respect to some or all of the pending and threatened litigation and claims asserted against the Company.

Following completion of Hilltop’s acquisition of SWS, several purported holders of shares of SWS common stock filed petitions in the Court of Chancery of the State of Delaware seeking appraisal for their shares pursuant to Section 262 of the Delaware General Corporation Law. These petitions were consolidated as In re SWS Group, Inc., C.A. No. 10554-VCG. The consolidated matter represents a total of approximately 5.2 million shares of SWS common stock. The Company intends to vigorously defend this matter.

On or about November 2, 2012, FSC, along with thirteen other defendants, was named in a lawsuit pending in the state of Rhode Island Superior Court styled Rhode Island Economic Development Corporation v. Wells Fargo Securities, LLC, et al. FSC is included in connection with its role as financial advisor to the State of Rhode Island, specifically in connection with the Rhode Island Economic Development Corporation’s issuance of $75 million in bonds to finance a loan to 38 Studios, LLC. 38 Studios, LLC ultimately failed to repay the loan and the Rhode Island Economic Development Corporation is seeking recovery to repay the bonds it issued to make such loan. FSC intends to defend itself vigorously in this action.

The Company is involved in information-gathering requests and investigations (both formal and informal), as well as reviews, examinations and proceedings (collectively, “Inquiries”) by various governmental regulatory agencies, law enforcement authorities and self-regulatory bodies regarding certain of its businesses, business practices and policies, as well as the conduct of persons with whom it does business. Additional Inquiries will arise from time to time. In connection with those Inquiries, the Company receives document requests, subpoenas and other requests for information. The Inquiries, including the Inquiry described below, could develop into administrative, civil or criminal proceedings or enforcement actions that could result in consequences that have a material effect on the Company's consolidated financial position, results of operations or cash flows as a whole. Such consequences could include adverse judgments, findings, settlements, penalties, fines, orders, injunctions, restitution, or alterations in the Company’s business practices, and could result in additional expenses and collateral costs, including reputational damage.

As a part of an industry-wide Inquiry, PrimeLending received a subpoena from the Office of Inspector General of the U.S. Department of Housing and Urban Development regarding mortgage-related practices, including those relating to origination practices for loans insured by the Federal Housing Administration (the “FHA”). On August 20, 2014, PrimeLending received a Civil Investigative Demand from the United States Department of Justice (the “DOJ”) related to this Inquiry. According to the Civil Investigative Demand, the DOJ is conducting an investigation to determine whether PrimeLending has violated the False Claims Act in connection with originating and underwriting single-family residential mortgage loans insured by the FHA. No claims or demands have been asserted against PrimeLending. PrimeLending cannot predict the ultimate outcome of this investigation, and cannot make a reasonable estimate of potential liability, if any, at this time. PrimeLending continues to cooperate with the investigation.

While the final outcome of litigation and claims exposures or of any Inquiries is inherently unpredictable, management is currently of the opinion that the outcome of pending and threatened litigation and Inquiries will not have a material effect on the Company’s business, consolidated financial position, results of operations or cash flows as a whole. However, in the event of unexpected future developments, it is reasonably possible that an adverse outcome in any of the matters discussed above could be material to the Company’s business, consolidated financial position, results of operations or cash flows for any particular reporting period of occurrence.

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 the mortgage origination segment’s 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 March 31, 2016 and December 31, 2015, the mortgage origination segment’s indemnification liability reserve totaled $17.1 million and $16.6 million, respectively. The provision for indemnification losses was $0.9 million and $0.8 million during the three months ended March 31, 2016 and 2015, respectively.

The following tables provide for a rollforward 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 March 31,
	2016		2015
Balance, beginning of period	$	57,298	$	53,906
Claims made		4,548		37,323
Claims resolved with no payment		(6,115)		(11,687)
Repurchases		(1,157)		(5,239)
Indemnification payments		(372)		(203)
Balance, end of period	$	54,202	$	74,100
	Indemnification Liability Reserve Activity
	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	16,640	$	17,619
Additions for new sales		878		844
Repurchases		(112)		(498)
Early payment defaults		(90)		(10)
Indemnification payments		(169)		(162)
Change in estimate		—		(451)
Balance, end of period	$	17,147	$	17,342

	March 31,		December 31,
	2016		2015
Reserve for Indemnification Liability:
Specific claims	$	4,754	$	5,210
Incurred but not reported claims		12,393		11,430
Total	$	17,147	$	16,640

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 $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 net losses on the first $240.4 million of net losses incurred; (ii) 0% of net losses in excess of $240.4 million up to and including $365.7 million of net losses incurred; and (iii) 80% of net losses in excess of $365.7 million of net losses incurred. Net losses are defined as book value losses plus certain defined expenses incurred in the resolution of assets, less subsequent recoveries. Under the loss-share agreement for commercial assets, the amount of subsequent recoveries that are reimbursable to the FDIC for a particular asset is limited to book value losses and expenses actually billed plus any book value charge-offs incurred prior to the Bank Closing Date. There is no limit on the amount of subsequent recoveries reimbursable to the FDIC under the loss-share agreement for single family residential assets. The loss-share agreements for commercial and single family residential assets 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 tenyears following the Bank Closing Date if its actual net realized losses over the life of the loss-share agreements are less than the FDIC’s initial estimate of losses on covered assets. The “true-up” payment is calculated using a defined formula set forth in the P&A Agreement. As of March 31, 2016, the Bank estimated that the sum of covered losses and reimbursable expenses subject to the loss-share agreements will exceed $240.4 million, but will not exceed $365.7 million. Unless actual plus projected covered losses and reimbursable expenses exceed $365.7 million, the Bank will not record additional amounts to the FDIC Indemnification Asset. As of March 31, 2016, the Bank had billed $139.4 million of covered net losses to the FDIC, of which 80%, or $111.5 million, were reimbursable under the loss-share agreements. As of March 31, 2016, the Bank had received aggregate reimbursements of $111.5 million from the FDIC, which represented reimbursable covered losses and expenses through December 31, 2015.

XML

Financial Instruments with Off-Balance Sheet Risk

3 Months Ended

Mar. 31, 2016

Financial Instruments with Off-Balance Sheet Risk

Financial Instruments with Off-Balance Sheet Risk

13. 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 $1.6 billion at March 31, 2016 and outstanding financial and performance standby letters of credit of $38.4 million at March 31, 2016.

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, the Hilltop Broker-Dealers execute, settle, and finance various securities transactions that may expose the Hilltop Broker-Dealers 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 accounts of the Hilltop Broker-Dealers, use of derivatives to support certain non-profit housing organization clients, clearing agreements between the Hilltop Broker-Dealers and various clearinghouses and broker-dealers, secured financing arrangements that involve pledged securities, and when-issued underwriting and purchase commitments.

XML

Stock-Based Compensation

3 Months Ended

Mar. 31, 2016

Stock-Based Compensation

Stock-Based Compensation

14. Stock-Based Compensation

Pursuant to the Hilltop Holdings Inc. 2012 Equity Incentive Plan (the “2012 Plan”), the Company may grant nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance awards, dividend equivalent rights and other awards to employees of the Company, its subsidiaries and outside directors of the Company. Upon the approval by stockholders and 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. At March 31, 2016,  2,293,228 shares of common stock remained available for issuance pursuant to the 2012 Plan, including shares that may be delivered pursuant to outstanding awards. Compensation expense related to the 2012 Plan and the 2003 Plan was $2.3 million and $1.9 million during the three months ended March 31, 2016 and 2015, respectively.

During the three months ended March 31, 2016 and 2015, Hilltop granted 5,516 and 2,545 shares of common stock, respectively, to certain non-employee members of the Company’s Board of Directors for services rendered to the Company pursuant to the 2012 Plan.

Restricted Stock Awards and RSUs

The following table summarizes information about nonvested Restricted Stock Award and RSU activity for the three months ended March 31, 2016 (shares in thousands).

		Restricted Stock Awards			RSUs
			Weighted			Weighted
			Average			Average
			Grant Date			Grant Date
		Outstanding	Fair Value		Outstanding	Fair Value
Balance, December 31, 2015		453	$	13.50	875	$	21.22
	Granted	-	$	-	277	$	16.04
	Vested/Released	(3)	$	13.25	(5)	$	22.24
	Forfeited	(2)	$	19.72	(2)	$	21.41
Balance, March 31, 2016		448	$	13.47	1,145	$	20.00

Vested/Released Restricted Stock Awards and RSUs include an aggregate of 2,128 shares withheld to satisfy employee statutory tax obligations during the three months ended March 31, 2016. Pursuant to certain RSU award agreements, an aggregate of 8,247 vested RSUs at March 31, 2016 require deferral of the settlement in shares and statutory tax obligations to a future date.

At March 31, 2016, unrecognized compensation expense related to outstanding Restricted Stock Awards of $0.1 million is expected to be recognized over a weighted average period of 1.05 years.

During the three months ended March 31, 2016, the Compensation Committee of the Board of Directors of the Company awarded certain executives and key employees an aggregate of 276,551 RSUs pursuant to the 2012 Plan. These awards include 158,028 RSUs subject to time-based vesting conditions and generally cliff vest on the third anniversary of the grant date, and 118,523 RSUs that cliff vest based upon the achievement of certain performance goals over a three-year period. Total compensation expense related to these RSUs is expected to be $4.4 million, which will amortized through February 2019.

At March 31, 2016,  860,321 of the outstanding RSUs are subject to time-based vesting conditions and generally cliff vest on the third anniversary of the grant date, and 284,398 outstanding RSUs cliff vest based upon the achievement of certain performance goals over a three-year period. At March 31, 2016, unrecognized compensation expense related to outstanding RSUs of $14.4 million is expected to be recognized over a weighted average period of 1.92 years.

Stock Options

Stock options granted on November 2, 2011 to two senior executives 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 fully vested and exercisable at November 2, 2015. As of March 31, 2016, an aggregate of 100,000 Stock Option Awards remain outstanding and will expire on November 2, 2016 if unexercised. 

XML

Regulatory Matters

3 Months Ended

Mar. 31, 2016

Regulatory Matters

Regulatory Matters

15. Regulatory Matters

Banking and Hilltop

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 the Bank and Hilltop 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 common equity Tier 1, Tier 1 and total capital (as defined) to risk-weighted assets (as defined).

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 in accordance with Basel III as measured at March 31, 2016 and December 31, 2015, respectively (dollars in thousands).

									To Be Well Capitalized
					Minimum Capital				Minimum Capital
	Actual				Requirements				Requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2016
Tier 1 capital (to average assets):
Bank	$	1,035,022	12.70	%	$	326,044	4.0	%	$	407,555	5.0	%
Hilltop		1,532,458	13.35	%		459,069	4.0	%		N/A	N/A
Common equity Tier 1 capital (to risk-weighted assets):
Bank		1,033,659	15.10	%		308,020	4.5	%		444,918	6.5	%
Hilltop		1,481,394	17.56	%		379,562	4.5	%		N/A	N/A
Tier 1 capital (to risk-weighted assets):
Bank		1,035,022	15.12	%		410,693	6.0	%		547,591	8.0	%
Hilltop		1,532,458	18.17	%		506,082	6.0	%		N/A	N/A
Total capital (to risk-weighted assets):
Bank		1,086,214	15.87	%		547,591	8.0	%		684,489	10.0	%
Hilltop		1,568,465	18.60	%		674,776	8.0	%		N/A	N/A
December 31, 2015
Tier 1 capital (to average assets):
Bank	$	1,064,212	13.22	%	$	322,104	4.0	%	$	402,630	5.0	%
Hilltop		1,520,514	12.65	%		480,928	4.0	%		N/A	N/A
Common equity Tier 1 capital (to risk-weighted assets):
Bank		1,063,041	16.23	%		294,716	4.5	%		425,701	6.5	%
Hilltop		1,469,642	17.87	%		370,156	4.5	%		N/A	N/A
Tier 1 capital (to risk-weighted assets):
Bank		1,064,212	16.25	%		392,954	6.0	%		523,939	8.0	%
Hilltop		1,520,514	18.48	%		493,541	6.0	%		N/A	N/A
Total capital (to risk-weighted assets):
Bank		1,112,654	16.99	%		523,939	8.0	%		654,924	10.0	%
Hilltop		1,553,867	18.89	%		658,055	8.0	%		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 of 4%, common equity Tier 1 capital to risk-weighted assets of 4.5%, Tier 1 capital to risk-weighted assets ratios of 6%, 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.

In order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary bonus payments to executive officers, Basel III also implemented a capital conservation buffer, which requires a banking organization to hold a buffer above its minimum risk-based capital requirements. This buffer will help to ensure that banking organizations conserve capital when it is most needed, allowing them to better weather periods of economic stress. The buffer is measured relative to risk-weighted assets. The phase-in of the capital conservation buffer requirements began on January 1, 2016 for Hilltop and the Bank. Based on the actual ratios as shown in the table above, Hilltop and the Bank exceed each of the capital conservation buffer requirements in effect as of March 31, 2016, as well as the fully phased-in requirements through 2019.

Broker-Dealer

Pursuant to the net capital requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Hilltop Securities has elected to determine its net capital requirements using the alternative method. Accordingly, Hilltop Securities is required to maintain minimum net capital, as defined in Rule 15c3-1 promulgated under the Exchange Act, equal to the greater of $250,000 and $1,000,000, respectively, or 2% of aggregate debit balances, as defined in Rule 15c3-3 promulgated under the Exchange Act. Additionally, the net capital rule of the NYSE provides that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than 5% of the aggregate debit items. HTS Independent Network follows the primary (aggregate indebtedness) method, as defined in Rule 15c3-1 promulgated under the Exchange Act, which requires the maintenance of the larger of minimum net capital of $250,000 or 1/15 of aggregate indebtedness.

At March 31, 2016, the net capital position of each of the Hilltop Broker-Dealers was as follows (in thousands). 

				HTS
	Hilltop			Independent
	Securities			Network
Net capital	$	132,718		$	1,195
Less required net capital		9,484			250
Excess net capital	$	123,234		$	945
Net capital as a percentage of aggregate debit items		28.0	%
Net capital in excess of 5% aggregate debit items	$	109,007

Under certain conditions, Hilltop Securities may be required to segregate cash and securities in a special reserve account for the benefit of customers under Rule 15c3-3 promulgated under the Exchange Act. Assets segregated under the provisions of the Exchange Act are not available for general corporate purposes. At March 31, 2016, Hilltop Securities held cash of $120.7 million segregated in special reserve bank accounts for the benefit of customers. Hilltop Securities was not required to segregate cash and securities in special reserve accounts for the benefit of proprietary accounts of introducing broker-dealers at March 31, 2016. The fair values of these segregated assets included in special reserve accounts were determined using Level 1 inputs.

Mortgage Origination

As a mortgage originator, PrimeLending is subject to minimum net worth requirements established by the U.S. Department of Housing and Urban Development (“HUD”) and the 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 March 31, 2016, 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 statutory accounting practices of the National Association of Insurance Commissioners (“NAIC”) 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 of each insurance subsidiary is as follows (in thousands).

	March 31,		December 31,
	2016		2015
Capital and surplus:
National Lloyds Insurance Company	$	119,836	$	121,750
American Summit Insurance Company		28,980		30,592

	Three Months Ended March 31,
	2016		2015
Statutory net income:
National Lloyds Insurance Company	$	3,557	$	4,759
American Summit Insurance Company		852		909

Regulations of the Texas Department of Insurance require insurance companies to maintain minimum levels of statutory surplus to ensure their ability to meet their obligations to policyholders. At March 31, 2016, 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 March 31, 2016, the Company's insurance subsidiaries' RBC ratio exceeded the level at which regulatory action would be required.

XML

Derivative Financial Instruments

3 Months Ended

Mar. 31, 2016

Derivative Financial Instruments

Derivative Financial Instruments

16. 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 managing the re-pricing characteristics of certain assets and liabilities to mitigate potential adverse impacts from changes in interest rates on 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 interest 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”). Additionally, PrimeLending has interest rate risk relative to its MSR asset and uses derivative instruments, including interest rate swaps and swaptions, to hedge this risk. The Hilltop Broker-Dealers use forward commitments to both purchase and sell MBSs to facilitate customer transactions and as a means to hedge related exposure to interest rate 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, forward commitments, and interest rate swaps and swaptions are recorded in other assets or other liabilities, as appropriate, and changes in the fair values of these derivative instruments are recorded as a component of net gains from sale of loans and other mortgage production income. The fair value of PrimeLending’s derivative instruments increased $12.5 million during the three months ended March 31, 2016, compared with an increase of $18.9 million during the same period in 2015. Changes in fair value are attributable to changes in the volume of IRLCs, mortgage loans held for sale, commitments to purchase and sell MBSs and MSR assets, and changes in market interest rates. Changes in market interest rates also conversely affect the value of PrimeLending’s mortgage loans held for sale and its MSR asset, 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 and MSR asset is discussed in Note 3 to the consolidated financial statements. The fair values of the Hilltop Broker-Dealers’ derivative instruments are recorded in other assets or other liabilities, as appropriate, and the fair values of the Hilltop Broker-Dealers’ derivatives increased $6.9 million and $8.6 million during the three months ended March 31, 2016 and 2015, respectively. The changes in fair value were recorded as a component of other noninterest income.

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

	March 31, 2016				December 31, 2015
	Notional		Estimated		Notional		Estimated
	Amount		Fair Value		Amount		Fair Value
Derivative instruments:
IRLCs	$	1,505,457	$	44,915	$	944,942	$	23,762
Commitments to purchase MBSs		3,761,758		23,811		3,151,862		8,350
Commitments to sell MBSs		6,194,817		(23,294)		5,038,565		(2,352)
Interest rate swaps and swaptions		587,418		1,604		409,982		490

PrimeLending had cash collateral advances totaling $7.3 million and $0.8 million to offset net liability derivative positions on its commitments to sell MBSs at March 31, 2016 and December 31, 2015, respectively. In addition, PrimeLending advanced cash collateral totaling $8.7 million and $6.4 million in initial margin on its interest rate swaps and swaptions at March 31, 2016 and December 31, 2015, respectively. These amounts are included in other assets within the consolidated balance sheets.

XML

Balance Sheet Offsetting

3 Months Ended

Mar. 31, 2016

Balance Sheet Offsetting

Balance Sheet Offsetting

17. 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 sheets and/or subject to master netting arrangements or similar agreements. The following tables present the assets and liabilities subject to enforceable master netting arrangements, repurchase agreements, or similar agreements with offsetting rights (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
March 31, 2016
Securities borrowed:
Institutional counterparties	$	1,315,940	$	—	$	1,315,940	$	(1,315,940)	$	—	$	—
Interest rate swaps and swaptions:
Institutional counterparties		3,114		(404)		2,710		—		—		2,710
Reverse repurchase agreements:
Institutional counterparties		96,646		—		96,646		(96,462)		—		184
Forward MBS derivatives:
Institutional counterparties		23,811		—		23,811		(23,811)		—		—
	$	1,439,511	$	(404)	$	1,439,107	$	(1,436,213)	$	—	$	2,894
December 31, 2015
Securities borrowed:
Institutional counterparties	$	1,307,741	$	—	$	1,307,741	$	(1,307,741)	$	—	$	—
Interest rate swaps and swaptions:
Institutional counterparties		1,526		(393)		1,133		—		—		1,133
Reverse repurchase agreements:
Institutional counterparties		105,660		—		105,660		(105,412)		—		248
Forward MBS derivatives:
Institutional counterparties		1,377		—		1,377		(1,377)		—		—
	$	1,416,304	$	(393)	$	1,415,911	$	(1,414,530)	$	—	$	1,381

							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
	Liabilities		Balance Sheet		Balance Sheet		Instruments		Pledged		Amount
March 31, 2016
Securities loaned:
Institutional counterparties	$	1,222,522	$	—	$	1,222,522	$	(1,222,522)	$	—	$	—
Interest rate swaps and swaptions:
Institutional counterparties		1,106		—		1,106		(2,518)		—		(1,412)
Repurchase agreements:
Institutional counterparties		164,647		—		164,647		(164,647)		—		—
Customer counterparties		155,374		—		155,374		(155,374)		—		—
Forward MBS derivatives:
Institutional counterparties		23,582		(288)		23,294		(11,882)		—		11,412
	$	1,567,231	$	(288)	$	1,566,943	$	(1,556,943)	$	—	$	10,000
December 31, 2015
Securities loaned:
Institutional counterparties	$	1,235,466		—		1,235,466		(1,235,466)		—		—
Interest rate swaps and swaptions:
Institutional counterparties		643		—		643		(2,519)		—		(1,876)
Repurchase agreements:
Institutional counterparties		69,748		—		69,748		(69,748)		—		—
Customer counterparties		148,000		—		148,000		(148,000)		—		—
Forward MBS derivatives:
Institutional counterparties		4,385		(1,769)		2,616		(1,420)		—		1,196
	$	1,458,242	$	(1,769)	$	1,456,473	$	(1,457,153)	$	—	$	(680)

Secured Borrowing Arrangements

Secured Borrowings (Repurchase Agreements)  — The Company participates in transactions involving securities sold under repurchase agreements, which are secured borrowings and generally mature within one to thirty days from the transaction date. Securities sold under repurchase agreements are reflected at the amount of cash received in connection with the transactions. The Company may be required to provide additional collateral based on the fair value of the underlying securities, which is monitored on a daily basis.

Securities Lending Activities — The Company’s securities lending activities includes lending securities for other broker-dealers, lending institutions and its own clearing and retail operations. These activities involve lending securities to other broker-dealers to cover short sales, to complete transactions in which there has been a failure to deliver securities by the required settlement date and as a conduit for financing activities.

When lending securities, the Company receives cash or similar collateral and generally pays interest (based on the amount of cash deposited) to the other party to the transaction. Securities lending transactions are executed pursuant to written agreements with counterparties that generally require securities loaned to be marked-to-market on a daily basis.  The Company receives collateral in the form of cash in an amount generally in excess of the fair value of securities loaned. The Company monitors the fair value of securities loaned on a daily basis, with additional collateral obtained or refunded, as necessary. Collateral adjustments are made on a daily basis through the facilities of various clearinghouses. The Company is a principal in these securities lending transactions and is liable for losses in the event of a failure of any other party to honor its contractual obligation. Management sets credit limits with each counterparty and reviews these limits regularly to monitor the risk level with each counterparty. The Company is subject to credit risk through its securities lending activities if securities prices decline rapidly because the value of the Company’s collateral could fall below the amount of the indebtedness it secures. In rapidly appreciating markets, credit risk increases due to short positions. The Company’s securities lending business subjects the Company to credit risk if a counterparty fails to perform or if collateral securing its obligations is insufficient. In securities transactions, the Company is subject to credit risk during the period between the execution of a trade and the settlement by the customer.

The following tables present the remaining contractual maturities of repurchase agreement and securities lending transactions accounted for as secured borrowings (in thousands). The Company had no repurchase-to-maturity transactions outstanding at both March 31, 2016 and December 31, 2015.

	Remaining Contractual Maturities
	Overnight and						Greater Than
March 31, 2016	Continuous		Up to 30 Days		30-90 Days		90 Days		Total
Repurchase agreement transactions:
U.S. Treasury and agency securities	$	232,974	$	87,047	$	—	$	—	$	320,021
Securities lending transactions:
Corporate securities		11,582		—		—		—		11,582
Equity securities		1,210,928		—		—		—		1,210,928
Other		12		—		—		—		12
Total	$	1,455,496	$	87,047	$	—	$	—	$	1,542,543
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above									$	1,542,543
Amount related to agreements not included in offsetting disclosure above									$	—
	Remaining Contractual Maturities
	Overnight and						Greater Than
December 31, 2015	Continuous		Up to 30 Days		30-90 Days		90 Days		Total
Repurchase agreement transactions:
U.S. Treasury and agency securities	$	201,090	$	16,658	$	—	$	—	$	217,748
Securities lending transactions:
U.S. Treasury and agency securities		12,646		—		—		—		12,646
Corporate securities		5,993		—		—		—		5,993
Equity securities		1,216,827		—		—		—		1,216,827
Total	$	1,436,556	$	16,658	$	—	$	—	$	1,453,214
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above									$	1,453,214
Amount related to agreements not included in offsetting disclosure above									$	—

XML

Broker-Dealer and Clearing Organization Receivables and Payables

3 Months Ended

Mar. 31, 2016

Broker-Dealer and Clearing Organization Receivables and Payables

Broker-Dealer and Clearing Organization Receivables and Payables

18. Broker-Dealer and Clearing Organization Receivables and Payables

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

	March 31,		December 31,
	2016		2015
Receivables:
Securities borrowed	$	1,315,940	$	1,307,741
Securities failed to deliver		29,910		25,087
Clearing organizations		—		16,701
Trades in process of settlement, net		16,023		5,707
Other		8,749		7,263
	$	1,370,622	$	1,362,499
Payables:
Securities loaned	$	1,222,522	$	1,235,466
Correspondents		27,888		69,046
Securities failed to receive		30,780		28,352
Clearing organizations		2,826		5,441
	$	1,284,016	$	1,338,305

XML

Reserves for Losses and Loss Adjustment Expenses

3 Months Ended

Mar. 31, 2016

Reserves for Losses and Loss Adjustment Expenses

Reserve for Losses and Loss Adjustment Expenses

19. Reserve for Losses and Loss Adjustment Expenses

A rollforward of NLC’s reserve for unpaid losses and LAE, as included in other liabilities within the consolidated balance sheets, is as follows (in thousands).

	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	44,357	$	29,716
Less reinsurance recoverables		(13,502)		(4,315)
Net balance, beginning of period		30,855		25,401
Incurred related to:
Current year		21,604		14,290
Prior years		355		4,570
Total incurred		21,959		18,860
Payments related to:
Current year		(9,538)		(7,174)
Prior years		(9,129)		(8,094)
Total payments		(18,667)		(15,268)
Net balance, end of period		34,147		28,993
Plus reinsurance recoverables		8,831		8,451
Balance, end of period	$	42,978	$	37,444

The increase in NLC’s reserves at March 31, 2016 as compared with March 31,2015 of $5.5 million is primarily due to increased reserves attributable to an increase in frequency and severity of severe weather events in our geographic coverage area.

XML

Reinsurance Activity

3 Months Ended

Mar. 31, 2016

Reinsurance Activity.

Reinsurance Activity

20. 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 March 31, 2016, reinsurance receivables had a carrying value of $13.1 million, which is included in other assets within the consolidated balance sheet. There was no allowance for uncollectible accounts at March 31, 2016, based on NLC’s quality requirements.

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

	Three Months Ended March 31,
	2016				2015
	Written		Earned		Written		Earned
Premiums from direct business	$	39,079	$	40,886	$	42,749	$	42,089
Reinsurance assumed		2,679		2,669		2,516		2,443
Reinsurance ceded		(3,498)		(3,822)		(4,705)		(4,965)
Net premiums	$	38,260	$	39,733	$	40,560	$	39,567

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

	Three Months Ended March 31,
	2016		2015
Loss and LAE incurred	$	23,489	$	23,331
Reinsurance recoverables		(1,530)		(4,471)
Net loss and LAE incurred	$	21,959	$	18,860

Catastrophic coverage

At March 31, 2016, NLC had catastrophic excess of loss reinsurance coverage of losses per event in excess of $8.0 million retention by NLIC and $1.5 million retention by ASIC. ASIC maintained 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 $8.0 million is comprised of four layers of protection: $17 million in excess of $8 million retention; $25 million in excess of $25 million loss; $25 million in excess of $50 million loss and $50 million in excess of $75 million loss. NLIC and ASIC retain no participation in any of the layers, beyond the first $8 million and $1.5 million, respectively. At March 31, 2016, total retention for any one catastrophe that affects both NLIC and ASIC was limited to $8 million in the aggregate.

Effective January 1, 2016, NLC did not renew its multi-line excess of loss coverage that previously limited each risk with respect to property and liability. NLC renewed its underlying excess of loss contract that provides $10.0 million aggregate coverage in excess of NLC’s per event retention and aggregate retention for sub-catastrophic events. NLC retains no participation beyond the first $1 million, down from 9% participation in this coverage during 2015.

XML

Segment and Related Information

3 Months Ended

Mar. 31, 2016

Segment and Related Information

Segment and Related Information

21. Segment and Related Information

The Company currently has four reportable business segments that are organized primarily by the core products offered to the segments’ respective customers. These segments reflect the manner in which operations are managed and the criteria used by the Company’s chief operating decision maker function to evaluate segment performance, develop strategy and allocate resources. The chief operating decision maker function consists of the President and Chief Executive Officer of the Company and the Chief Executive Officer of PlainsCapital. For the third quarter of 2015, the Company began presenting the bargain purchase gain associated with the SWS Merger, previously allocated to the banking and broker-dealer reportable business segments, within corporate to better reflect segment performance. This change is reflected in the segment operating results within noninterest income for the three months ended March 31, 2015. Additionally, related amounts previously reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 will be revised in future filings. This change had no impact on the Company’s consolidated results of operations.

The banking segment includes the operations of the Bank. The broker-dealer segment includes the operations of the Hilltop Broker-Dealers, while the mortgage origination segment is composed of PrimeLending, and the insurance segment is composed of NLC.

Corporate includes certain activities not allocated to specific business segments. These activities include holding company financing and investing activities, and management and administrative services to support the overall operations of the Company including, but not limited to, certain executive management, corporate relations, legal, finance and acquisition costs.

Balance sheet amounts not discussed previously and the elimination of intercompany transactions are included in “All Other and Eliminations.” The following tables present certain information about reportable business segment revenues, operating results, goodwill and assets (in thousands).

					Mortgage						All Other and		Hilltop
Three Months Ended March 31, 2016	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	86,105	$	7,051	$	(2,569)	$	740	$	(1,714)	$	3,928	$	93,541
Provision for loan losses		3,500		(93)		—		—		—		—		3,407
Noninterest income		12,956		80,883		146,338		41,804		1		(4,296)		277,686
Noninterest expense		64,357		84,261		134,671		36,375		5,849		(312)		325,201
Income (loss) before income taxes	$	31,204	$	3,766	$	9,098	$	6,169	$	(7,562)	$	(56)	$	42,619

					Mortgage						All Other and		Hilltop
Three Months Ended March 31, 2015	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	83,442	$	7,996	$	(3,014)	$	757	$	109	$	4,102	$	93,392
Provision for loan losses		2,486		201		—		—		—		—		2,687
Noninterest income		19,309		79,528		135,292		41,845		81,289		(4,417)		352,846
Noninterest expense		58,532		90,795		122,302		33,466		9,626		(245)		314,476
Income (loss) before income taxes	$	41,733	$	(3,472)	$	9,976	$	9,136	$	71,772	$	(70)	$	129,075
March 31, 2016
Goodwill	$	207,741	$	7,008	$	13,071	$	23,988	$	—	$	—	$	251,808
Total assets	$	8,591,995	$	2,692,691	$	1,570,635	$	347,328	$	1,926,204	$	(3,396,925)	$	11,731,928
December 31, 2015
Goodwill	$	207,741	$	7,008	$	13,071	$	23,988	$	—	$	—	$	251,808
Total assets	$	8,707,433	$	2,673,455	$	1,737,843	$	349,259	$	1,905,547	$	(3,506,536)	$	11,867,001

XML

Earnings per Common Share

3 Months Ended

Mar. 31, 2016

Earnings per Common Share

Earnings per Common Share

22. Earnings 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. Restricted Stock Awards are the only instruments issued by Hilltop 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 stockholders 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. During the three months ended March 31, 2016 and 2015, stock options and RSUs are the only potentially dilutive non-participating instruments issued by Hilltop. Next, the Company determines and includes in the 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 per common share (in thousands, except per share data).

	Three Months Ended March 31,
	2016		2015
Basic earnings per share:
Income applicable to Hilltop common stockholders	$	27,567	$	111,876
Less: income applicable to participating shares		(125)		(574)
Net earnings available to Hilltop common stockholders	$	27,442	$	111,302
Weighted average shares outstanding - basic		98,153		99,741
Basic earnings per common share	$	0.28	$	1.12
Diluted earnings per share:
Income applicable to Hilltop common stockholders	$	27,567	$	111,876
Weighted average shares outstanding - basic		98,153		99,741
Effect of potentially dilutive securities		516		886
Weighted average shares outstanding - diluted		98,669		100,627
Diluted earnings per common share	$	0.28	$	1.11

XML

Recently Issued Accounting Standards

3 Months Ended

Mar. 31, 2016

Recently Issued Accounting Standards

Recently Issued Accounting Standards

23. Recently Issued Accounting Standards

In March 2016, FASB issued ASU 2016-09 as part of its simplification initiative and affects all entities that issue share-based payment awards to their employees. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash flows. The amendments are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2016 using either prospective, retrospective or modified retrospective transition method, depending on the area covered in this update. As permitted within the amendment, the Company elected to early adopt and prospectively apply the provisions of this amendment as of January 1, 2016.

In February 2016, FASB issued ASU 2016-02 related to leases. The new standard is intended to increase transparency and comparability among organizations and require lessees to record a right-to-use asset and liability representing the obligation to make lease payments for long-term leases. Accounting by lessors will remain largely unchanged. The amendments are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. Adoption will require a modified retrospective transition where the lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented. The Company is currently evaluating the provisions of the amendment and the impact on its future consolidated financial statements.

In January 2016, FASB issued ASU 2016-01 related to financial instruments. This pronouncement requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The pronouncement also impacts financial liabilities under the Fair Value Option and the presentation and disclosure requirements for financial instruments. The amendment is effective for annual periods, and interim periods within those fiscal periods, beginning after December 15, 2017. The Company is currently evaluating the provisions of the amendment and the impact on its future consolidated financial statements.

In May 2015, the FASB issued ASU 2015-09 requiring enhanced disclosures for insurers relating to short-duration insurance contract claims and the unpaid claims liability rollforward for long and short-duration contracts. The amendment is effective for annual periods beginning after December 15, 2015 and interim reporting periods thereafter. The Company adopted the amendment as of January 1, 2016 and will include the enhanced disclosures beginning with its Annual Report on Form 10-K for the year ended December 31, 2016.

XML

Subsequent Event

3 Months Ended

Mar. 31, 2016

Subsequent Event

Subsequent Event

24. Subsequent Event

On April 1, 2016, the Company awarded certain key employees a total of 268,906 RSUs pursuant to the 2012 Plan at a grant date fair value of $18.68 per share. These RSUs generally cliff vest on the third anniversary of the grant date and are subject to service conditions set forth in the award agreements. Total compensation expense related to these RSUs is expected to be $5.0 million, which will be amortized through March 2019.

XML

Summary of Significant Accounting and Reporting Policies (Policies)

3 Months Ended

Mar. 31, 2016

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. The Company’s primary line of business is to provide business and consumer banking services from offices located throughout Texas through PlainsCapital Bank (the “Bank”). In addition, the Company provides an array of financial products and services through its broker-dealer, mortgage origination and insurance subsidiaries.

The Company provides its products and services through three primary operating subsidiaries, PlainsCapital Corporation (“PlainsCapital”), Hilltop Securities Holdings LLC (“Securities Holdings”) and National Lloyds Corporation (“NLC”). PlainsCapital is a financial holding company, headquartered in Dallas, Texas, that provides, through its subsidiaries, traditional banking, wealth and investment management and treasury management services primarily in Texas and residential mortgage lending throughout the United States. Securities Holdings is a holding company, headquartered in Dallas, Texas, that provides, through its subsidiaries, investment banking and other related financial services, including municipal advisory, sales, trading and underwriting of taxable and tax-exempt fixed income securities, equity trading, clearing, securities lending, structured finance and retail brokerage services throughout the United States. NLC is a property and casualty insurance holding company, headquartered in Waco, Texas, that provides, through its subsidiaries, fire and homeowners insurance to low value dwellings and manufactured homes primarily in Texas and other areas of the southern United States.

On January 1, 2015, Hilltop completed its acquisition of SWS Group, Inc. (“SWS”) in a stock and cash transaction (the “SWS Merger”), whereby SWS’s broker-dealer subsidiaries, Southwest Securities, Inc. and SWS Financial Services, Inc., became subsidiaries of Securities Holdings, and SWS’s banking subsidiary, Southwest Securities, FSB (“SWS FSB”), was merged into the Bank. On October 5, 2015, Southwest Securities, Inc. and SWS Financial Services, Inc. were renamed “Hilltop Securities Inc.” (“Hilltop Securities”) and “Hilltop Securities Independent Network Inc.” (“HTS Independent Network”), respectively.

On October 22, 2015, the Financial Industry Regulatory Authority (“FINRA”) granted approval to combine First Southwest Company, LLC (“FSC”) and Hilltop Securities, subject to customary conditions. FSC, Hilltop Securities and HTS Independent Network operated as separate broker-dealers, under coordinated leadership from the date of the SWS Merger until January 22, 2016, when FSC was merged into Hilltop Securities to form a combined firm operating under the “Hilltop Securities” name. We use the term “Hilltop Broker-Dealers” to refer to FSC, Hilltop Securities and HTS Independent Network prior to January 22, 2016 and Hilltop Securities and HTS Independent Network after such date.

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, 2015 (“2015 Form 10-K”). 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 amounts receivable from the Federal Deposit Insurance Corporation (the “FDIC”) under loss-share agreements (the “FDIC Indemnification Asset”), reserves for losses and loss adjustment expenses (“LAE”), 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.

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”) and has a 100% membership interest in PlainsCapital Securities, LLC.

PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC, the controlling and sole managing member of PrimeLending Ventures, LLC (“Ventures”).

PlainsCapital also owns 100% of the outstanding common securities 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), because the primary beneficiaries of the Trusts are not within the consolidated group.

Hilltop has a 100% membership interest in Securities Holdings, which operates through its wholly-owned subsidiaries, Hilltop Securities, HTS Independent Network and First Southwest Holdings, LLC (“First Southwest”). Hilltop Securities is a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority (“FINRA”) and a member of the New York Stock Exchange (“NYSE”), HTS Independent Network is an introducing broker-dealer that is also registered with the SEC and FINRA, and First Southwest Asset Management, LLC, a wholly-owned subsidiary of First Southwest, is a registered investment advisor under the Investment Advisors Act of 1940. As discussed above, prior to January 22, 2016, Securities Holdings’ subsidiaries also included FSC, First Southwest’s principal subsidiary and formerly a broker-dealer registered with the SEC and FINRA and a member of the NYSE.

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

The consolidated financial statements include the accounts of the above-named entities. 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 ASC.

The operations acquired in the SWS Merger were included in the Company’s operating results beginning January 1, 2015 and such operations included a preliminary bargain purchase gain of $82.8 million as disclosed in the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2015. During 2015, certain adjustments were recorded that resulted in an aggregate decrease in the preliminary bargain purchase gain associated with the SWS Merger to $81.3 million, which also decreased net income for the three months ended March 31, 2015 by $1.5 million as compared with amounts previously reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015. Accordingly, our results for the quarter ended March 31, 2015 and related disclosures have been revised to reflect these adjustments.

Certain reclassifications have been made to the prior period consolidated financial statements to conform with the current period presentation. Additionally, during the preparation of the condensed consolidated financial statements for the period ended September 30, 2015, the Company determined that its previously reported unaudited consolidated statements of cash flows contained in the previously filed Quarterly Reports on Form 10-Q filed with SEC on May 6, 2015 and July 29, 2015 contained a classification error related to how certain acquired balances related to its acquisition of SWS were reflected. Management has evaluated the quantitative and qualitative impact of the classification error to previously issued unaudited consolidated statements of cash flows and concluded that the previously issued condensed consolidated financial statements were not materially misstated. However, in order to correctly present the cash flow statements, management has elected to revise the unaudited consolidated statements of cash flows for each of the three months ended March 31, 2015 included herein and the six months ended June 30, 2015 in its future filings. The correction had no impact on the Company’s financial condition or results of operations for the periods presented.

The following table summarizes the revisions made to the Company’s unaudited consolidated statements of cash flows for the noted periods (in thousands).

	Three Months Ended March 31, 2015
	As Originally Reported		As Revised
Operating Activities
Net change in broker-dealer and clearing organization receivables	$	(1,062,969)	$	(793,613)
Net change in broker-dealer and clearing organization payables		1,039,786		690,552
Net cash used in operating activities		(38,766)		(118,644)
Investing Activities
Net change in loans		267,275		(2,080)
Net cash provided by investing activities		792,267		522,912
Financing Activities
Net change in deposits		(905,890)		(556,657)
Net cash used in financing activities		(858,043)		(508,810)
Net change in cash and cash equivalents		(104,542)		(104,542)

XML

Summary of Significant Accounting and Reporting (Tables)

3 Months Ended

Mar. 31, 2016

Summary of Significant Accounting and Reporting Policies

Schedule of revisions made to the consolidated statements of cash flows

The following table summarizes the revisions made to the Company’s unaudited consolidated statements of cash flows for the noted periods (in thousands).

	Three Months Ended March 31, 2015
	As Originally Reported		As Revised
Operating Activities
Net change in broker-dealer and clearing organization receivables	$	(1,062,969)	$	(793,613)
Net change in broker-dealer and clearing organization payables		1,039,786		690,552
Net cash used in operating activities		(38,766)		(118,644)
Investing Activities
Net change in loans		267,275		(2,080)
Net cash provided by investing activities		792,267		522,912
Financing Activities
Net change in deposits		(905,890)		(556,657)
Net cash used in financing activities		(858,043)		(508,810)
Net change in cash and cash equivalents		(104,542)		(104,542)

XML

Acquisition (Tables) - SWS

3 Months Ended

Mar. 31, 2016

Acquisitions

Schedule of components of the consideration paid

The components of the consideration paid are shown in the following table (in thousands).

Fair value of consideration paid:
Common stock issued	$	200,626
Cash		78,217
Fair value of Hilltop’s existing investment in SWS		70,282
Total consideration paid	$	349,125

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

The resulting fair values of the identifiable assets acquired, and liabilities assumed, acquired in the SWS Merger at January 1, 2015 are summarized in the following table (in thousands).

Cash and due from banks	$	119,314
Federal funds sold and securities purchased under agreements to resell		44,741
Assets segregated for regulatory purposes		181,610
Securities		707,476
Non-covered loans, net		863,819
Broker-dealer and clearing organization receivables		1,221,793
Other assets		159,906
Total identifiable assets acquired		3,298,659
Deposits		(1,287,509)
Broker-dealer and clearing organization payables		(1,109,978)
Short-term borrowings		(164,240)
Securities sold, not yet purchased, at fair value		(140,409)
Notes payable		(76,643)
Other liabilities		(89,466)
Total liabilities assumed		(2,868,245)
Bargain purchase gain		(81,289)
		349,125
Less Hilltop existing investment in SWS		(70,282)
Net identifiable assets acquired	$	278,843

Schedule of allocation to intangible assets

The allocation to intangible assets is as follows (in thousands).

	Estimated Useful	Gross Intangible
	Life (Years)	Assets
Customer relationships	14	$	7,300
Core deposits	4		160
		$	7,460

Schedule of loans acquired in business combination

The following table presents details on acquired loans at the acquisition date (in thousands).

	Loans, excluding		PCI		Total
	PCI Loans		Loans		Loans
Commercial and industrial	$	178,603	$	9,850	$	188,453
Real estate		324,477		62,218		386,695
Construction and land development		14,708		1,391		16,099
Consumer		3,216		—		3,216
Broker-dealer (1)		269,356		—		269,356
Total	$	790,360	$	73,459	$	863,819

(1)    Represents acquired margin loans to customers and correspondents associated with acquired broker-dealer segment operations.

PCI loans

Acquisitions

Schedule of PCI Loans at acquisition

The following table presents information about the PCI loans at acquisition (in thousands).

Contractually required principal and interest payments	$	120,078
Nonaccretable difference		32,040
Cash flows expected to be collected		88,038
Accretable difference		14,579
Fair value of loans acquired with a deterioration of credit quality	$	73,459

Loans excluding PCI Loans

Acquisitions

Schedule of acquired loans without credit impairment

The following table presents information about the acquired loans without credit impairment at acquisition (in thousands).

Contractually required principal and interest payments	$	901,672
Contractual cash flows not expected to be collected		39,721
Fair value at acquisition		790,360

XML

Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2016

Fair Value Measurements

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

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

	Level 1		Level 2		Level 3		Total
March 31, 2016	Inputs		Inputs		Inputs		Fair Value
Trading securities	$	12,916	$	355,508	$	1	$	368,425
Available for sale securities		17,979		648,349		—		666,328
Loans held for sale		—		1,244,799		40,545		1,285,344
Derivative assets		—		90,981		—		90,981
MSR asset		—		—		39,863		39,863
Securities sold, not yet purchased		60,149		105,555		—		165,704
Derivative liabilities		—		43,945		—		43,945

	Level 1		Level 2		Level 3			Total
December 31, 2015	Inputs		Inputs		Inputs			Fair Value
Trading securities	$	21,807	$	192,338	$	1	$	214,146
Available for sale securities		17,409		656,297		—		673,706
Loans held for sale		—		1,434,955		25,880		1,460,835
Derivative assets		—		35,676		—		35,676
MSR asset		—		—		52,285		52,285
Securities sold, not yet purchased		27,648		102,396		—		130,044
Derivative liabilities		—		5,426		—		5,426

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

The following tables include a rollforward 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		Purchases/		Sales/		Included in		Comprehensive		Balance at
	Period		Additions		Reductions		Net Income		Income (Loss)		End of Period
Three months ended  March 31, 2016
Trading securities	$	1	$	—	$	—	$	—	$	—	$	1
Loans held for sale		25,880		23,236		(4,237)		(4,334)		—		40,545
MSR asset		52,285		1,639		—		(14,061)		—		39,863
Total	$	78,166	$	24,875	$	(4,237)	$	(18,395)	$	—	$	80,409
Three months ended  March 31, 2015
Available for sale securities	$	—	$	7,301	$	—	$	(1,369)	$	—	$	5,932
Loans held for sale		9,017		11,136		(271)		(387)		—		19,495
MSR asset		36,155		2,690		—		(7,197)		—		31,648
Total	$	45,172	$	21,127	$	(271)	$	(8,953)	$	—	$	57,075

Schedule of significant unobservable inputs used in the fair value measurements

			Range
Financialinstrument	ValuationTechnique	UnobservableInput	(Weighted-Average)
Trading securities	Discounted cash flow	Discount rate	8	-	17	%	(	10	%)
Loansheld for sale	Discountedcash flow / Market comparable	Projected price	88	-	96	%	(	96	%)
MSR asset	Discounted cash flow	Constant prepayment rate			16.92		%
		Discount rate			10.79		%

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

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

	Three Months Ended March 31, 2016						Three Months Ended March 31, 2015
			Other		Total				Other		Total
	Net		Noninterest		Changes in		Net		Noninterest		Changes in
	Gains (Losses)		Income		Fair Value		Gains (Losses)		Income		Fair Value
Loans held for sale	$	447	$	—	$	447	$	(6,695)	$	—	$	(6,695)
MSR asset		(14,061)		—		(14,061)		(7,197)		—		(7,197)

Schedule of significant unobservable inputs weighted average rates on Impaired Loans

At March 31, 2016, estimates for these significant unobservable inputs were as follows.

	PCI Loans
	PlainsCapital		FNB		SWS
	Merger		Transaction		Merger
Weighted average default rate	60	%	55	%	51	%
Weighted average loss severity rate	51	%	34	%	30	%
Weighted average prepayment speed	0	%	6	%	0	%

Schedule of information regarding certain assets and liabilities measured at fair value on a non-recurring basis for which a change in fair value has been recorded during reporting periods subsequent to initial recognition

The following table presents information regarding certain assets and liabilities measured at fair value on a non-recurring basis for which a change in fair value has been recorded during reporting periods subsequent to initial recognition (in thousands).

									Total Gains (Losses) for the
	Level 1		Level 2		Level 3		Total		Three Months Ended March 31,
March 31, 2016	Inputs		Inputs		Inputs		Fair Value		2016		2015
Non-covered impaired loans	$	—	$	—	$	39,722	$	39,722	$	(33)	$	349
Covered impaired loans		—		—		45,025		45,025		332		3,218
Non-covered other real estate owned		—		—		—		—		—		(28)
Covered other real estate owned		—		11,322		—		11,322		(9,765)		(950)

Schedule of carrying values and estimated fair values of financial instruments

The following tables present the carrying values and estimated fair values of financial instruments 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
March 31, 2016	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and cash equivalents	$	527,509	$	527,509	$	—	$	—	$	527,509
Securities purchased under agreements to resell		96,646		—		96,646		—		96,646
Assets segregated for regulatory purposes		120,714		120,714		—		—		120,714
Held to maturity securities		310,478		—		313,553		—		313,553
Loans held for sale		58,989		—		58,989		—		58,989
Non-covered loans, net		5,317,615		—		463,987		4,891,840		5,355,827
Covered loans, net		346,169		—		—		484,424		484,424
Broker-dealer and clearing organization receivables		1,370,622		—		1,370,622		—		1,370,622
FDIC indemnification asset		80,522		—		—		77,817		77,817
Other assets		60,468		—		54,412		6,056		60,468
Financial liabilities:
Deposits		6,984,175		—		6,987,315		—		6,987,315
Broker-dealer and clearing organization payables		1,284,016		—		1,284,016		—		1,284,016
Short-term borrowings		832,921		—		832,921		—		832,921
Debt		299,202		—		292,817		—		292,817
Other liabilities		5,389		—		5,389		—		5,389

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
December 31, 2015	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and cash equivalents	$	669,445	$	669,445	$	—	$	—	$	669,445
Securities purchased under agreements to resell		105,660		—		105,660		—		105,660
Assets segregated for regulatory purposes		158,613		158,613		—		—		158,613
Held to maturity securities		332,022		—		331,468		—		331,468
Loans held for sale		72,843		—		72,843		—		72,843
Non-covered loans, net		5,174,625		—		602,968		4,600,406		5,203,374
Covered loans, net		378,762		—		—		527,201		527,201
Broker-dealer and clearing organization receivables		1,362,499		—		1,362,499		—		1,362,499
FDIC indemnification asset		91,648		—		—		91,648		91,648
Other assets		68,786		—		53,214		15,572		68,786
Financial liabilities:
Deposits		6,952,683		—		6,955,919		—		6,955,919
Broker-dealer and clearing organization payables		1,338,305		—		1,338,305		—		1,338,305
Short-term borrowings		947,373		—		947,373		—		947,373
Debt		305,728		—		299,257		—		299,257
Other liabilities		3,699		—		3,699		—		3,699

XML

Securities (Tables)

3 Months Ended

Mar. 31, 2016

Securities

Summary of trading securities

The fair value of trading securities are summarized as follows (in thousands).

	March 31,		December 31,
	2016		2015
U.S. Treasury securities	$	11,436	$	20,481
U.S. government agencies:
Bonds		75,015		36,244
Residential mortgage-backed securities		55,526		12,505
Commercial mortgage-backed securities		21,717		19,280
Collateralized mortgage obligations		3,150		264
Corporate debt securities		53,277		34,735
States and political subdivisions		101,655		58,588
Unit investment trusts		37,897		18,400
Private-label securitized product		7,443		12,324
Other		1,309		1,325
Totals	$	368,425	$	214,146

Summary of amortized cost and fair value of available for sale securities

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

	Availablefor Sale
	Amortized		Unrealized		Unrealized
March 31, 2016	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	44,409	$	483	$	(8)	$	44,884
U.S. government agencies:
Bonds		301,690		1,703		(280)		303,113
Residential mortgage-backed securities		32,253		1,103		(14)		33,342
Commercial mortgage-backed securities		9,090		283		(2)		9,371
Collateralized mortgage obligations		49,082		81		(641)		48,522
Corporate debt securities		90,080		5,160		(17)		95,223
States and political subdivisions		110,515		2,863		(14)		113,364
Commercial mortgage-backed securities		499		31		—		530
Equity securities		18,371		666		(1,058)		17,979
Totals	$	655,989	$	12,373	$	(2,034)	$	666,328

	Availablefor Sale
	Amortized		Unrealized		Unrealized
December 31, 2015	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	44,430	$	206	$	(33)	$	44,603
U.S. government agencies:
Bonds		297,448		1,135		(1,947)		296,636
Residential mortgage-backed securities		34,864		1,008		(19)		35,853
Commercial mortgage-backed securities		9,174		35		(2)		9,207
Collateralized mortgage obligations		54,297		48		(1,644)		52,701
Corporate debt securities		94,877		3,399		(326)		97,950
States and political subdivisions		116,246		2,581		(102)		118,725
Commercial mortgage-backed securities		498		33		—		531
Equity securities		18,169		574		(1,243)		17,500
Totals	$	670,003	$	9,019	$	(5,316)	$	673,706

Summary of amortized cost and fair value of held to maturity securities

	Held toMaturity
	Amortized		Unrealized		Unrealized
March 31, 2016	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	25,073	$	1	$	—	$	25,074
U.S. government agencies:
Bonds		60,428		191		—		60,619
Residential mortgage-backed securities		23,099		634		—		23,733
Commercial mortgage-backed securities		18,577		543		(10)		19,110
Collateralized mortgage obligations		157,455		1,491		(2)		158,944
States and political subdivisions		25,846		235		(8)		26,073
Totals	$	310,478	$	3,095	$	(20)	$	313,553

	Held toMaturity
	Amortized		Unrealized		Unrealized
December 31, 2015	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	25,146	$	—	$	(30)	$	25,116
U.S. government agencies:
Bonds		69,379		145		(372)		69,152
Residential mortgage-backed securities		23,735		311		—		24,046
Commercial mortgage-backed securities		18,658		27		(92)		18,593
Collateralized mortgage obligations		167,541		302		(970)		166,873
States and political subdivisions		27,563		168		(43)		27,688
Totals	$	332,022	$	953	$	(1,507)	$	331,468

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

Information regarding available for sale and held to maturity securities that were in an unrealized loss position is shown in the following tables (dollars in thousands).

	March 31, 2016					December 31, 2015
	Number of			Unrealized		Number of			Unrealized
	Securities	Fair Value		Losses		Securities	Fair Value		Losses
Available for sale
U.S. treasury securities:
Unrealized loss for less than twelve months	3	$	4,304	$	5	8	$	33,791	$	33
Unrealized loss for twelve months or longer	2		2,457		3	—		—		—
	5		6,761		8	8		33,791		33
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	1		54,820		152	7		148,327		896
Unrealized loss for twelve months or longer	1		34,865		128	3		44,321		1,051
	2		89,685		280	10		192,648		1,947
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	1		1,311		1	3		3,407		5
Unrealized loss for twelve months or longer	1		976		13	1		982		14
	2		2,287		14	4		4,389		19
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	1		1,605		2	1		1,611		2
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	1		1,605		2	1		1,611		2
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	2		933		4	2		1,590		4
Unrealized loss for twelve months or longer	8		40,304		637	8		42,399		1,640
	10		41,237		641	10		43,989		1,644
Corporate debt securities:
Unrealized loss for less than twelve months	2		2,820		17	16		16,635		277
Unrealized loss for twelve months or longer	—		—		—	1		1,949		49
	2		2,820		17	17		18,584		326
States and political subdivisions:
Unrealized loss for less than twelve months	3		702		2	2		3,018		9
Unrealized loss for twelve months or longer	8		5,125		12	35		24,423		93
	11		5,827		14	37		27,441		102
Equity securities:
Unrealized loss for less than twelve months	1		8,523		709	2		8,949		909
Unrealized loss for twelve months or longer	2		2,321		349	1		1,927		334
	3		10,844		1,058	3		10,876		1,243
Total available for sale:
Unrealized loss for less than twelve months	14		75,018		892	41		217,328		2,135
Unrealized loss for twelve months or longer	22		86,048		1,142	49		116,001		3,181
	36	$	161,066	$	2,034	90	$	333,329	$	5,316

Schedule of information regarding held to maturity securities that were in an unrealized loss position

	March 31, 2016					December 31, 2015
	Number of			Unrealized		Number of			Unrealized
	Securities	Fair Value		Losses		Securities	Fair Value		Losses
Held to Maturity
U.S. treasury securities:
Unrealized loss for less than twelve months	—	$	—	$	—	1	$	25,115	$	30
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	—		—		—	1		25,115		30
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	—		—		—	6		46,607		372
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	—		—		—	6		46,607		372
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	1		1,416		10	7		16,098		92
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	1		1,416		10	7		16,098		92
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	1		6,648		2	10		127,393		970
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	1		6,648		2	10		127,393		970
States and political subdivisions:
Unrealized loss for less than twelve months	7		2,756		8	18		7,900		35
Unrealized loss for twelve months or longer	—		—		—	1		2,664		8
	7		2,756		8	19		10,564		43
Total held to maturity:
Unrealized loss for less than twelve months	9		10,820		20	42		223,113		1,499
Unrealized loss for twelve months or longer	—		—		—	1		2,664		8
	9	$	10,820	$	20	43	$	225,777	$	1,507

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, at March 31, 2016 are shown by contractual maturity below (in thousands).

	Available for Sale				Heldto Maturity
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	105,633	$	105,938	$	26,360	$	26,364
Due after one year through five years		73,027		76,352		18,060		18,228
Due after five years through ten years		66,653		70,937		3,185		3,223
Due after ten years		301,381		303,357		63,742		63,951
		546,694		556,584		111,347		111,766
Residential mortgage-backed securities		32,253		33,342		23,099		23,733
Collateralized mortgage obligations		49,082		48,522		157,455		158,944
Commercial mortgage-backed securities		9,589		9,901		18,577		19,110
	$	637,618	$	648,349	$	310,478	$	313,553

XML

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

3 Months Ended

Mar. 31, 2016

Loans

Summary of non-covered loans by portfolio segment

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

	March 31,		December 31,
	2016		2015
Commercial and industrial	$	1,619,567	$	1,552,805
Real estate		2,536,302		2,313,239
Construction and land development		701,358		705,356
Consumer		44,851		45,672
Broker-dealer (1)		463,987		602,968
		5,366,065		5,220,040
Allowance for non-covered loan losses		(48,450)		(45,415)
Total non-covered loans, net of allowance	$	5,317,615	$	5,174,625

(1) Represents margin loans to customers and correspondents associated with our broker-dealer segment operations.

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

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

	March 31,		December 31,
	2016		2015
Carrying amount	$	68,053	$	72,054
Outstanding balance		87,345		92,682

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 March 31,
	2016		2015
Balance, beginning of period	$	17,744	$	12,814
Additions		—		14,579
Reclassifications from (to) nonaccretable difference, net(1)		2,343		281
Disposals of loans		—		(448)
Accretion		(3,919)		(2,749)
Balance, end of period	$	16,168	$	24,477

(1) Reclassifications from nonaccretable difference are primarily due to net increases in expected cash flows in the quarterly recasts. Reclassifications to nonaccretable difference occur when accruing loans are moved to nonaccrual and expected cash flows are no longer predictable and the accretable yield is eliminated.

Summary of impaired loans by class

Non-covered impaired loans, segregated between those considered to be PCI loans and those without credit impairment at acquisition, are summarized by class in the following tables (in thousands).

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
March 31, 2016	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial and industrial:
Secured	$	28,379	$	4,085	$	9,032	$	13,117	$	1,027
Unsecured		2,559		—		—		—		—
Real estate:
Secured by commercial properties		47,718		14,159		24,457		38,616		3,187
Secured by residential properties		15,516		8,888		2,806		11,694		175
Construction and land development:
Residential construction loans		—		—		—		—		—
Commercial construction loans and land development		6,914		3,115		983		4,098		138
Consumer		3,826		490		38		528		28
Broker-dealer		—		—		—		—		—
		104,912		30,737		37,316		68,053		4,555
Non-PCI
Commercial and industrial:
Secured		21,778		6,137		6,952		13,089		1,344
Unsecured		181		35		—		35		—
Real estate:
Secured by commercial properties		668		607		—		607		—
Secured by residential properties		1,088		789		—		789		—
Construction and land development:
Residential construction loans		—		—		—		—		—
Commercial construction loans and land development		122		102		—		102		—
Consumer		2		1		—		1		—
Broker-dealer		—		—		—		—		—
		23,839		7,671		6,952		14,623		1,344
	$	128,751	$	38,408	$	44,268	$	82,676	$	5,899

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
December 31, 2015	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial and industrial:
Secured	$	32,597	$	5,520	$	7,830	$	13,350	$	1,341
Unsecured		2,572		—		—		—		—
Real estate:
Secured by commercial properties		57,607		15,914		25,214		41,128		2,756
Secured by residential properties		15,278		8,957		2,690		11,647		175
Construction and land development:
Residential construction loans		395		—		221		221		8
Commercial construction loans and land development		7,929		3,283		1,646		4,929		174
Consumer		4,162		734		45		779		32
Broker-dealer		—		—		—		—		—
		120,540		34,408		37,646		72,054		4,486
Non-PCI
Commercial and industrial:
Secured		21,222		6,736		6,017		12,753		1,380
Unsecured		224		47		—		47		—
Real estate:
Secured by commercial properties		436		390		—		390		—
Secured by residential properties		1,229		918		—		918		—
Construction and land development:
Residential construction loans		—		—		—		—		—
Commercial construction loans and land development		131		114		—		114		—
Consumer		—		1		—		1		—
Broker-dealer		—		—		—		—		—
		23,242		8,206		6,017		14,223		1,380
	$	143,782	$	42,614	$	43,663	$	86,277	$	5,866

Summary of average investment in impaired loans by class

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

	Three Months Ended March 31,
	2016		2015
Commercial and industrial:
Secured	$	26,155	$	32,684
Unsecured		41		80
Real estate:
Secured by commercial properties		40,371		43,013
Secured by residential properties		12,524		12,205
Construction and land development:
Residential construction loans		111		117
Commercial construction loans and land development		4,622		10,068
Consumer		655		1,844
Broker-dealer		—		—
	$	84,479	$	100,011

Summary of non-accrual loans by class

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

	March 31,		December 31,
	2016		2015
Commercial and industrial:
Secured	$	19,144	$	17,717
Unsecured		35		47
Real estate:
Secured by commercial properties		4,813		4,597
Secured by residential properties		870		999
Construction and land development:
Residential construction loans		—		—
Commercial construction loans and land development		102		114
Consumer		1		7
Broker-dealer		—		—
	$	24,965	$	23,481

Schedule of information regarding TDRs granted

The outstanding balance of TDRs granted in the three months ended March 31, 2016 and 2015, respectively, is shown in the following tables (in thousands). The TDR granted during the three months ended March 31, 2015 was paid off as of June 30, 2015. At March 31, 2016 and December 31, 2015, the Bank had nominal 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  March 31, 2016	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	1,196	$	1,196
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		—		—		—		—
Broker-dealer		—		—		—		—
	$	—	$	—	$	1,196	$	1,196

	Recorded Investment in Loans Modified by
			Interest Rate		Payment Term		Total
Three months ended  March 31, 2015	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	—	$	—
Unsecured		—		—		—		—
Real estate:
Secured by commercial properties		—		—		—		—
Secured by residential properties		—		—		—		—
Construction and land development:
Residential construction loans		—		—		—		—
Commercial construction loans and land development		—		—		75		75
Consumer		—		—		—		—
Broker-dealer		—		—		—		—
	$	—	$	—	$	75	$	75

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 (Non-PCI)
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
March 31, 2016	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	2,347	$	915	$	7,819	$	11,081	$	1,496,644	$	13,117	$	1,520,842	$	46
Unsecured		637		51		—		688		98,037		—		98,725		—
Real estate:
Secured by commercial properties		1,153		—		1,519		2,672		1,684,700		38,616		1,725,988		1,183
Secured by residential properties		4,483		22		—		4,505		794,115		11,694		810,314		—
Construction and land development:
Residential construction loans		28		—		—		28		97,276		—		97,304		—
Commercial construction loans and land development		—		—		—		—		599,956		4,098		604,054		—
Consumer		443		27		1		471		43,852		528		44,851		—
Broker-dealer		—		—		—		—		463,987		—		463,987		—
	$	9,091	$	1,015	$	9,339	$	19,445	$	5,278,567	$	68,053	$	5,366,065	$	1,229

															Accruing Loans (Non-PCI)
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
December 31, 2015	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	14,869	$	3,960	$	8,414	$	27,243	$	1,406,537	$	13,350	$	1,447,130	$	12
Unsecured		18		1		—		19		105,656		—		105,675		—
Real estate:
Secured by commercial properties		1,008		964		293		2,265		1,528,084		41,128		1,571,477		—
Secured by residential properties		726		35		336		1,097		729,018		11,647		741,762		—
Construction and land development:
Residential construction loans		343		—		—		343		103,819		221		104,383		—
Commercial construction loans and land development		733		1,845		114		2,692		593,352		4,929		600,973		—
Consumer		359		17		—		376		44,517		779		45,672		—
Broker-dealer		—		—		—		—		602,968		—		602,968		—
	$	18,056	$	6,822	$	9,157	$	34,035	$	5,113,951	$	72,054	$	5,220,040	$	12

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).

March 31, 2016	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,434,976	$	2,568	$	70,181	$	13,117	$	1,520,842
Unsecured		98,560		—		165		—		98,725
Real estate:
Secured by commercial properties		1,674,739		—		12,633		38,616		1,725,988
Secured by residential properties		793,399		—		5,221		11,694		810,314
Construction and land development:
Residential construction loans		97,304		—		—		—		97,304
Commercial construction loans and land development		599,273		—		683		4,098		604,054
Consumer		44,242		—		81		528		44,851
Broker-dealer		463,987		—		—		—		463,987
	$	5,206,480	$	2,568	$	88,964	$	68,053	$	5,366,065

December 31, 2015	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,372,671	$	—	$	61,109	$	13,350	$	1,447,130
Unsecured		105,569		—		106		—		105,675
Real estate:
Secured by commercial properties		1,517,049		1,536		11,764		41,128		1,571,477
Secured by residential properties		724,701		—		5,414		11,647		741,762
Construction and land development:
Residential construction loans		104,162		—		—		221		104,383
Commercial construction loans and land development		594,614		—		1,430		4,929		600,973
Consumer		44,736		35		122		779		45,672
Broker-dealer		602,968		—		—		—		602,968
	$	5,066,470	$	1,571	$	79,945	$	72,054	$	5,220,040

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 March 31, 2016	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Balance, beginning of period	$	19,845	$	18,983	$	6,064	$	314	$	209	$	45,415
Provision charged to (recapture from) operations		1,016		3,233		(503)		32		(93)		3,685
Loans charged off		(1,350)		—		—		(52)		(2)		(1,404)
Recoveries on charged off loans		658		56		—		40		—		754
Balance, end of period	$	20,169	$	22,272	$	5,561	$	334	$	114	$	48,450

	Commercial and				Construction and
Three Months Ended March 31, 2015	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Balance, beginning of period	$	18,833	$	11,131	$	6,450	$	461	$	166	$	37,041
Provision charged to (recapture from) operations		1,670		1,807		(608)		(276)		201		2,794
Loans charged off		(942)		(278)		—		(34)		—		(1,254)
Recoveries on charged off loans		592		44		—		25		123		784
Balance, end of period	$	20,153	$	12,704	$	5,842	$	176	$	490	$	39,365

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
March 31, 2016	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Loans individually evaluated for impairment	$	11,572	$	—	$	—	$	—	$	—	$	11,572
Loans collectively evaluated for impairment		1,594,878		2,485,992		697,260		44,323		463,987		5,286,440
PCI Loans		13,117		50,310		4,098		528		—		68,053
	$	1,619,567	$	2,536,302	$	701,358	$	44,851	$	463,987	$	5,366,065

	Commercial and				Construction and
December 31, 2015	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Loans individually evaluated for impairment	$	11,354	$	97	$	—	$	—	$	—	$	11,451
Loans collectively evaluated for impairment		1,528,101		2,260,367		700,206		44,893		602,968		5,136,535
PCI Loans		13,350		52,775		5,150		779		—		72,054
	$	1,552,805	$	2,313,239	$	705,356	$	45,672	$	602,968	$	5,220,040

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
March 31, 2016	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Loans individually evaluated for impairment	$	1,344	$	—	$	—	$	—	$	—	$	1,344
Loans collectively evaluated for impairment		17,798		18,910		5,423		306		114		42,551
PCI Loans		1,027		3,362		138		28		—		4,555
	$	20,169	$	22,272	$	5,561	$	334	$	114	$	48,450

	Commercial and				Construction and
December 31, 2015	Industrial		Real Estate		Land Development		Consumer		Broker-Dealer		Total
Loans individually evaluated for impairment	$	1,380	$	—	$	—	$	—	$	—	$	1,380
Loans collectively evaluated for impairment		17,124		16,052		5,882		282		209		39,549
PCI Loans		1,341		2,931		182		32		—		4,486
	$	19,845	$	18,983	$	6,064	$	314	$	209	$	45,415

XML

Covered Assets and Indemnification Asset (Tables) - Covered

3 Months Ended

Mar. 31, 2016

Loans

Summary of carrying value of the loans

The following table presents the carrying value of the covered loans summarized by portfolio segment (in thousands).

	March 31,		December 31,
	2016		2015
Commercial and industrial	$	9,070	$	8,801
Real estate		318,921		341,048
Construction and land development		19,395		30,445
		347,386		380,294
Allowance for covered loans		(1,217)		(1,532)
Total covered loans, net of allowance	$	346,169	$	378,762

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

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

	March 31,		December 31,
	2016		2015
Carrying amount	$	197,865	$	221,974
Outstanding balance		371,802		408,221

Schedule of changes in the accretable yield for the PCI loans

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

	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	176,719	$	193,493
Reclassifications from (to) nonaccretable difference, net(1)		9,633		16,263
Transfer of loans to covered OREO(2)		(109)		1,172
Accretion		(17,110)		(16,931)
Balance, end of period	$	169,133	$	193,997

(1) Reclassifications from nonaccretable difference are primarily due to net increases in expected cash flows in the quarterly recasts, but may also include the reclassification and immediate income recognition of nonaccretable difference due to the favorable resolution of loans accounted for individually. Reclassifications to nonaccretable difference occur when accruing loans are moved to nonaccrual and expected cash flows are no longer predictable and the accretable yield is eliminated.

(2) Transfer of loans to covered OREO is the difference between the value removed from the pool and the expected cash flows for the loan.

Summary of impaired loans by class

Covered impaired loans, segregated between those considered to be PCI loans and those without credit impairment at acquisition, are summarized by class in the following tables (in thousands).

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
March 31, 2016	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial and industrial:
Secured	$	13,790	$	1,680	$	3,483	$	5,163	$	361
Unsecured		8,757		1,145		645		1,790		61
Real estate:
Secured by commercial properties		197,972		77,867		10,210		88,077		189
Secured by residential properties		172,472		86,001		2,863		88,864		522
Construction and land development:
Residential construction loans		1,223		—		165		165		35
Commercial construction loans and land development		44,743		13,806		—		13,806		—
		438,957		180,499		17,366		197,865		1,168
Non-PCI
Commercial and industrial:
Secured		72		60		—		60		—
Unsecured		—		—		—		—		—
Real estate:
Secured by commercial properties		508		433		—		433		—
Secured by residential properties		3,827		3,062		—		3,062		—
Construction and land development:
Residential construction loans		787		520		—		520		—
Commercial construction loans and land development		48		13		—		13		—
		5,242		4,088		—		4,088		—
	$	444,199	$	184,587	$	17,366	$	201,953	$	1,168

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
December 31, 2015	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial and industrial:
Secured	$	15,454	$	3,312	$	2,415	$	5,727	$	495
Unsecured		9,377		618		1,162		1,780		246
Real estate:
Secured by commercial properties		211,145		67,540		29,388		96,928		245
Secured by residential properties		182,698		93,438		3,180		96,618		514
Construction and land development:
Residential construction loans		1,225		121		—		121		—
Commercial construction loans and land development		55,947		20,800		—		20,800		—
		475,846		185,829		36,145		221,974		1,500
Non-PCI
Commercial and industrial:
Secured		78		68		—		68		—
Unsecured		—		1		—		1		—
Real estate:
Secured by commercial properties		512		443		—		443		—
Secured by residential properties		3,745		3,031		—		3,031		—
Construction and land development:
Residential construction loans		799		540		—		540		—
Commercial construction loans and land development		123		110		—		110		—
		5,257		4,193		—		4,193		—
	$	481,103	$	190,022	$	36,145	$	226,167	$	1,500

Summary of average investment in impaired loans by class

Average recorded investment in covered impaired loans is summarized by class in the following table (in thousands).

	Three Months Ended March 31,
	2016		2015
Commercial and industrial:
Secured	$	5,509	$	13,170
Unsecured		1,786		5,851
Real estate:
Secured by commercial properties		92,941		203,506
Secured by residential properties		95,788		135,164
Construction and land development:
Residential construction loans		673		1,336
Commercial construction loans and land development		17,365		42,364
	$	214,062	$	401,391

Summary of non-accrual loans by class

Covered non-accrual loans are summarized by class in the following table (in thousands).

	March 31,		December 31,
	2016		2015
Commercial and industrial:
Secured	$	60	$	68
Unsecured		—		—
Real estate:
Secured by commercial properties		433		442
Secured by residential properties		2,550		2,516
Construction and land development:
Residential construction loans		520		541
Commercial construction loans and land development		13		5,411
	$	3,576	$	8,978

Schedule of information regarding TDRs granted

The outstanding balance of TDRs granted during three months ended March 31, 2015 is shown in the following table (in thousands). Pooled Loans are not in the scope of the disclosure requirements for TDRs. At March 31, 2016 and December 31, 2015, the Bank had nominal unadvanced commitments to borrowers whose loans have been restructured in TDRs.

	RecordedInvestmentinLoansModifiedby
			InterestRate		PaymentTerm		Total
Three Months Ended March 31, 2015	A/B Note		Adjustment		Extension		Modification
Commercial and industrial:
Secured	$	—	$	—	$	—	$	—
Unsecured		—		—		—		—
Real estate:
Secured by commercial properties		—		—		573		573
Secured by residential properties		—		—		280		280
Construction and land development:
Residential construction loans		—		—		—		—
Commercial construction loans and land development		—		—		—		—
	$	—	$	—	$	853	$	853

The following table presents information regarding TDRs granted during the three months ended March 31, 2015 for  which a payment was at least 30 days past due in the three months ended March 31, 2015 (dollars in thousands).

	Number of	Recorded
	Loans	Investment
Commercial and industrial:
Secured	—	$	—
Unsecured	—		—
Real estate:
Secured by commercial properties	—		—
Secured by residential properties	1		280
Construction and land development:
Residential construction loans	—		—
Commercial construction loans and land development	—		—
	1	$	280

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

An analysis of the aging of the Bank’s 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		(Non‑PCI)Past Due
March 31, 2016	30‑59 Days		60‑89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	—	$	—	$	162	$	162	$	1,955	$	5,163	$	7,280	$	102
Unsecured		—		—		—		—		—		1,790		1,790		—
Real estate:
Secured by commercial properties		—		—		98		98		26,999		88,077		115,174		—
Secured by residential properties		3,379		121		1,075		4,575		110,308		88,864		203,747		—
Construction and land development:
Residential construction loans		—		—		520		520		—		165		685		—
Commercial construction loans and land development		87		—		—		87		4,817		13,806		18,710		—
	$	3,466	$	121	$	1,855	$	5,442	$	144,079	$	197,865	$	347,386	$	102

															Accruing Loans
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		(Non‑PCI)Past Due
December 31, 2015	30‑59 Days		60‑89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial and industrial:
Secured	$	51	$	—	$	68	$	119	$	1,175	$	5,727	$	7,021	$	—
Unsecured		—		—		—		—		—		1,780		1,780		—
Real estate:
Secured by commercial properties		—		—		100		100		28,957		96,928		125,985		—
Secured by residential properties		3,399		418		1,104		4,921		113,524		96,618		215,063		—
Construction and land development:
Residential construction loans		—		—		540		540		264		121		925		—
Commercial construction loans and land development		47		1		95		143		8,577		20,800		29,520		—
	$	3,497	$	419	$	1,907	$	5,823	$	152,497	$	221,974	$	380,294	$	—

Schedule of internal risk grades of loans

The following tables present the internal risk grades of covered loans in the portfolio by class (in thousands).

March 31, 2016	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	1,118	$	—	$	999	$	5,163	$	7,280
Unsecured		—		—		—		1,790		1,790
Real estate:
Secured by commercial properties		22,565		—		4,532		88,077		115,174
Secured by residential properties		107,719		484		6,680		88,864		203,747
Construction and land development:
Residential construction loans		—		—		520		165		685
Commercial construction loans and land development		3,204		—		1,700		13,806		18,710
	$	134,606	$	484	$	14,431	$	197,865	$	347,386

December 31, 2015	Pass		Special Mention		Substandard		PCI		Total
Commercial and industrial:
Secured	$	758	$	—	$	536	$	5,727	$	7,021
Unsecured		—		—		—		1,780		1,780
Real estate:
Secured by commercial properties		24,070		—		4,987		96,928		125,985
Secured by residential properties		111,128		491		6,826		96,618		215,063
Construction and land development:
Residential construction loans		264		—		540		121		925
Commercial construction loans and land development		6,847		—		1,873		20,800		29,520
	$	143,067	$	491	$	14,762	$	221,974	$	380,294

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

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

	Commercial and				Construction and
Three months ended  March 31, 2016	Industrial		Real Estate		Land Development		Total
Balance, beginning of period	$	758	$	774	$	—	$	1,532
Provision charged to (recapture from) operations		(314)		(23)		59		(278)
Loans charged off		(6)		(16)		(22)		(44)
Recoveries on charged off loans		—		7		—		7
Balance, end of period	$	438	$	742	$	37	$	1,217

	Commercial and				Construction and
Three months ended  March 31, 2015	Industrial		Real Estate		Land Development		Total
Balance, beginning of period	$	1,193	$	3,334	$	84	$	4,611
Provision charged to (recapture from) operations		71		(192)		14		(107)
Loans charged off		(900)		(2,215)		(1)		(3,116)
Recoveries on charged off loans		—		—		—		—
Balance, end of period	$	364	$	927	$	97	$	1,388

Schedule of loan portfolio distributed by portfolio segment and impairment methodology

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

	Commercial and				Construction and
March 31, 2016	Industrial		Real Estate		Land Development		Total
Loans individually evaluated for impairment	$	—	$	—	$	520	$	520
Loans collectively evaluated for impairment		2,117		141,980		4,904		149,001
PCI Loans		6,953		176,941		13,971		197,865
	$	9,070	$	318,921	$	19,395	$	347,386

	Commercial and				Construction and
December 31, 2015	Industrial		Real Estate		Land Development		Total
Loans individually evaluated for impairment	$	—	$	—	$	540	$	540
Loans collectively evaluated for impairment		1,294		147,502		8,984		157,780
PCI Loans		7,507		193,546		20,921		221,974
	$	8,801	$	341,048	$	30,445	$	380,294

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

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

	Commercial and				Construction and
March 31, 2016	Industrial		Real Estate		Land Development		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment		16		31		2		49
PCI Loans		422		711		35		1,168
	$	438	$	742	$	37	$	1,217

	Commercial and				Construction and
December 31, 2015	Industrial		Real Estate		Land Development		Total
Loans individually evaluated for impairment	$	—	$	—	$	—	$	—
Loans collectively evaluated for impairment		17		15		—		32
PCI Loans		741		759		—		1,500
	$	758	$	774	$	—	$	1,532

Summary of the activity in covered OREO

A summary of the activity in covered OREO is as follows (in thousands).

	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	99,090	$	136,945
Additions to covered OREO		4,542		24,042
Dispositions of covered OREO		(14,977)		(22,334)
Valuation adjustments in the period		(9,765)		(950)
Balance, end of period	$	78,890	$	137,703

Summary of the activity in the FDIC Indemnification Asset

A summary of the activity in the FDIC Indemnification Asset is as follows (in thousands).

	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	91,648	$	130,437
FDIC Indemnification Asset accretion (amortization)		87		506
Transfers to due from FDIC and other		(11,213)		(23,376)
Balance, end of period	$	80,522	$	107,567

XML

Mortgage Servicing Rights (Tables)

3 Months Ended

Mar. 31, 2016

Mortgage Servicing Rights

Schedule of change in fair value of the Company's MSR, as included in other assets within the consolidated balance sheets

The following tables present the changes in fair value of the Company’s MSR, as included in other assets within the consolidated balance sheets, and other information related to the serviced portfolio (dollars in thousands).

	Three Months Ended March 31,
	2016			2015
Balance, beginning of period	$	52,285		$	36,155
Additions		1,639			2,690
Changes in fair value:
Due to changes in model inputs or assumptions(1)		(12,842)			(5,044)
Due to customer payoffs		(1,219)			(2,153)
Balance, end of period	$	39,863		$	31,648
	March 31,			December 31,
	2016			2015
Mortgage loans serviced for others	$	5,004,100		$	5,051,884
MSR asset as a percentage of serviced mortgage loans		0.80	%		1.03	%

(1) Primarily represents normal customer payments, changes in discount rates and prepayment speed assumptions, which are primarily affected by changes in interest rates and the refinement of other MSR model assumptions.

Schedule of key assumptions used in measuring the fair value of the Company's MSR

	March 31,		December 31,
	2016		2015
Weighted average constant prepayment rate	16.92	%	11.51	%
Weighted average discount rate	10.79	%	10.92	%
Weighted average life (in years)	4.8		6.5

Schedule of sensitivity analysis of fair value of the Company's MSR to certain key assumptions

A sensitivity analysis of the fair value of the Company’s MSR to certain key assumptions is presented in the following table (in thousands).

	March 31,		December 31,
	2016		2015
Constant prepayment rate:
Impact of 10% adverse change	$	(1,831)	$	(2,177)
Impact of 20% adverse change		(3,494)		(4,195)
Discount rate:
Impact of 10% adverse change		(1,073)		(2,073)
Impact of 20% adverse change		(2,076)		(3,989)

XML

Deposits (Tables)

3 Months Ended

Mar. 31, 2016

Deposits

Summary of deposits

Deposits are summarized as follows (in thousands).

	March 31,		December 31,
	2016		2015
Noninterest-bearing demand	$	2,233,608	$	2,235,436
Interest-bearing:
NOW accounts		1,171,481		1,077,576
Money market		1,447,155		1,500,780
Brokered - money market		97,472		133,380
Demand		343,083		380,214
Savings		330,307		273,390
Time		1,361,069		1,325,342
Brokered - time		—		26,565
	$	6,984,175	$	6,952,683

XML

Short-term Borrowings (Tables)

3 Months Ended

Mar. 31, 2016

Short-term borrowings

Schedule of short-term borrowings

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

	March 31,		December 31,
	2016		2015
Federal funds purchased	$	62,900	$	58,925
Securities sold under agreements to repurchase		320,021		217,748
Federal Home Loan Bank		300,000		600,000
Short-term bank loans		150,000		70,700
	$	832,921	$	947,373

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

Short-term borrowings

Schedule of short-term borrowings

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

	Three Months Ended March 31,
	2016			2015
Average balance during the period	$	329,392		$	361,600
Average interest rate during the period		0.49	%		0.25	%

	March 31,			December 31,
	2016			2015
Average interest rate at end of period		0.41	%		0.26	%
Securities underlying the agreements at end of period:
Carrying value	$	333,973		$	250,981
Estimated fair value	$	337,695		$	250,045

Federal Home Loan Bank notes

Short-term borrowings

Schedule of short-term borrowings

Other information regarding FHLB short-term borrowings is shown in the following tables (dollars in thousands).

	Three Months Ended March 31,
	2016			2015
Average balance during the period	$	234,341		$	235,111
Average interest rate during the period		0.44	%		0.22	%

	March 31,		December 31,
	2016		2015
Average interest rate at end of period	0.47	%	0.35	%

XML

Notes Payable (Tables)

3 Months Ended

Mar. 31, 2016

Notes Payable

Schedule of notes payable

	March 31,		December 31,
	2016		2015
NLIC note payable due May 2033	$	10,000	$	10,000
NLIC note payable due September 2033		10,000		10,000
ASIC note payable due April 2034		7,500		7,500
Insurance company note payable due March 2035		20,000		20,000
Federal Home Loan Bank notes, maturities ranging from May 2016 to June 2030		32,524		36,042
Insurance company line of credit due December 31, 2016		1,500		7,000
Ventures line of credit due August 2016		2,459		—
Senior Notes due April 2025, net		148,207		148,174
	$	232,190	$	238,716

XML

Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2016

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 rollforward 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 March 31,
	2016		2015
Balance, beginning of period	$	57,298	$	53,906
Claims made		4,548		37,323
Claims resolved with no payment		(6,115)		(11,687)
Repurchases		(1,157)		(5,239)
Indemnification payments		(372)		(203)
Balance, end of period	$	54,202	$	74,100
	Indemnification Liability Reserve Activity
	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	16,640	$	17,619
Additions for new sales		878		844
Repurchases		(112)		(498)
Early payment defaults		(90)		(10)
Indemnification payments		(169)		(162)
Change in estimate		—		(451)
Balance, end of period	$	17,147	$	17,342

	March 31,		December 31,
	2016		2015
Reserve for Indemnification Liability:
Specific claims	$	4,754	$	5,210
Incurred but not reported claims		12,393		11,430
Total	$	17,147	$	16,640

XML

Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2016

Stock-Based Compensation

Schedule of nonvested Restricted Stock Award and RSU activity

The following table summarizes information about nonvested Restricted Stock Award and RSU activity for the three months ended March 31, 2016 (shares in thousands).

		Restricted Stock Awards			RSUs
			Weighted			Weighted
			Average			Average
			Grant Date			Grant Date
		Outstanding	Fair Value		Outstanding	Fair Value
Balance, December 31, 2015		453	$	13.50	875	$	21.22
	Granted	-	$	-	277	$	16.04
	Vested/Released	(3)	$	13.25	(5)	$	22.24
	Forfeited	(2)	$	19.72	(2)	$	21.41
Balance, March 31, 2016		448	$	13.47	1,145	$	20.00

XML

Regulatory Matters (Tables)

3 Months Ended

Mar. 31, 2016

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 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 in accordance with Basel III as measured at March 31, 2016 and December 31, 2015, respectively (dollars in thousands).

									To Be Well Capitalized
					Minimum Capital				Minimum Capital
	Actual				Requirements				Requirements
	Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2016
Tier 1 capital (to average assets):
Bank	$	1,035,022	12.70	%	$	326,044	4.0	%	$	407,555	5.0	%
Hilltop		1,532,458	13.35	%		459,069	4.0	%		N/A	N/A
Common equity Tier 1 capital (to risk-weighted assets):
Bank		1,033,659	15.10	%		308,020	4.5	%		444,918	6.5	%
Hilltop		1,481,394	17.56	%		379,562	4.5	%		N/A	N/A
Tier 1 capital (to risk-weighted assets):
Bank		1,035,022	15.12	%		410,693	6.0	%		547,591	8.0	%
Hilltop		1,532,458	18.17	%		506,082	6.0	%		N/A	N/A
Total capital (to risk-weighted assets):
Bank		1,086,214	15.87	%		547,591	8.0	%		684,489	10.0	%
Hilltop		1,568,465	18.60	%		674,776	8.0	%		N/A	N/A
December 31, 2015
Tier 1 capital (to average assets):
Bank	$	1,064,212	13.22	%	$	322,104	4.0	%	$	402,630	5.0	%
Hilltop		1,520,514	12.65	%		480,928	4.0	%		N/A	N/A
Common equity Tier 1 capital (to risk-weighted assets):
Bank		1,063,041	16.23	%		294,716	4.5	%		425,701	6.5	%
Hilltop		1,469,642	17.87	%		370,156	4.5	%		N/A	N/A
Tier 1 capital (to risk-weighted assets):
Bank		1,064,212	16.25	%		392,954	6.0	%		523,939	8.0	%
Hilltop		1,520,514	18.48	%		493,541	6.0	%		N/A	N/A
Total capital (to risk-weighted assets):
Bank		1,112,654	16.99	%		523,939	8.0	%		654,924	10.0	%
Hilltop		1,553,867	18.89	%		658,055	8.0	%		N/A	N/A

Schedule of net capital position

At March 31, 2016, the net capital position of each of the Hilltop Broker-Dealers was as follows (in thousands). 

				HTS
	Hilltop			Independent
	Securities			Network
Net capital	$	132,718		$	1,195
Less required net capital		9,484			250
Excess net capital	$	123,234		$	945
Net capital as a percentage of aggregate debit items		28.0	%
Net capital in excess of 5% aggregate debit items	$	109,007

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

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

	March 31,		December 31,
	2016		2015
Capital and surplus:
National Lloyds Insurance Company	$	119,836	$	121,750
American Summit Insurance Company		28,980		30,592

	Three Months Ended March 31,
	2016		2015
Statutory net income:
National Lloyds Insurance Company	$	3,557	$	4,759
American Summit Insurance Company		852		909

XML

Derivative Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2016

Derivative Financial Instruments

Schedule of derivative positions

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

	March 31, 2016				December 31, 2015
	Notional		Estimated		Notional		Estimated
	Amount		Fair Value		Amount		Fair Value
Derivative instruments:
IRLCs	$	1,505,457	$	44,915	$	944,942	$	23,762
Commitments to purchase MBSs		3,761,758		23,811		3,151,862		8,350
Commitments to sell MBSs		6,194,817		(23,294)		5,038,565		(2,352)
Interest rate swaps and swaptions		587,418		1,604		409,982		490

XML

Balance Sheet Offsetting (Tables)

3 Months Ended

Mar. 31, 2016

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 enforceable master netting arrangements, repurchase agreements, or similar agreements with offsetting rights (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
March 31, 2016
Securities borrowed:
Institutional counterparties	$	1,315,940	$	—	$	1,315,940	$	(1,315,940)	$	—	$	—
Interest rate swaps and swaptions:
Institutional counterparties		3,114		(404)		2,710		—		—		2,710
Reverse repurchase agreements:
Institutional counterparties		96,646		—		96,646		(96,462)		—		184
Forward MBS derivatives:
Institutional counterparties		23,811		—		23,811		(23,811)		—		—
	$	1,439,511	$	(404)	$	1,439,107	$	(1,436,213)	$	—	$	2,894
December 31, 2015
Securities borrowed:
Institutional counterparties	$	1,307,741	$	—	$	1,307,741	$	(1,307,741)	$	—	$	—
Interest rate swaps and swaptions:
Institutional counterparties		1,526		(393)		1,133		—		—		1,133
Reverse repurchase agreements:
Institutional counterparties		105,660		—		105,660		(105,412)		—		248
Forward MBS derivatives:
Institutional counterparties		1,377		—		1,377		(1,377)		—		—
	$	1,416,304	$	(393)	$	1,415,911	$	(1,414,530)	$	—	$	1,381

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
	Liabilities		Balance Sheet		Balance Sheet		Instruments		Pledged		Amount
March 31, 2016
Securities loaned:
Institutional counterparties	$	1,222,522	$	—	$	1,222,522	$	(1,222,522)	$	—	$	—
Interest rate swaps and swaptions:
Institutional counterparties		1,106		—		1,106		(2,518)		—		(1,412)
Repurchase agreements:
Institutional counterparties		164,647		—		164,647		(164,647)		—		—
Customer counterparties		155,374		—		155,374		(155,374)		—		—
Forward MBS derivatives:
Institutional counterparties		23,582		(288)		23,294		(11,882)		—		11,412
	$	1,567,231	$	(288)	$	1,566,943	$	(1,556,943)	$	—	$	10,000
December 31, 2015
Securities loaned:
Institutional counterparties	$	1,235,466		—		1,235,466		(1,235,466)		—		—
Interest rate swaps and swaptions:
Institutional counterparties		643		—		643		(2,519)		—		(1,876)
Repurchase agreements:
Institutional counterparties		69,748		—		69,748		(69,748)		—		—
Customer counterparties		148,000		—		148,000		(148,000)		—		—
Forward MBS derivatives:
Institutional counterparties		4,385		(1,769)		2,616		(1,420)		—		1,196
	$	1,458,242	$	(1,769)	$	1,456,473	$	(1,457,153)	$	—	$	(680)

Schedule of contractual maturities of repurchase agreements and secured borrowing transactions

The following tables present the remaining contractual maturities of repurchase agreement and securities lending transactions accounted for as secured borrowings (in thousands). The Company had no repurchase-to-maturity transactions outstanding at both March 31, 2016 and December 31, 2015.

	Remaining Contractual Maturities
	Overnight and						Greater Than
March 31, 2016	Continuous		Up to 30 Days		30-90 Days		90 Days		Total
Repurchase agreement transactions:
U.S. Treasury and agency securities	$	232,974	$	87,047	$	—	$	—	$	320,021
Securities lending transactions:
Corporate securities		11,582		—		—		—		11,582
Equity securities		1,210,928		—		—		—		1,210,928
Other		12		—		—		—		12
Total	$	1,455,496	$	87,047	$	—	$	—	$	1,542,543
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above									$	1,542,543
Amount related to agreements not included in offsetting disclosure above									$	—
	Remaining Contractual Maturities
	Overnight and						Greater Than
December 31, 2015	Continuous		Up to 30 Days		30-90 Days		90 Days		Total
Repurchase agreement transactions:
U.S. Treasury and agency securities	$	201,090	$	16,658	$	—	$	—	$	217,748
Securities lending transactions:
U.S. Treasury and agency securities		12,646		—		—		—		12,646
Corporate securities		5,993		—		—		—		5,993
Equity securities		1,216,827		—		—		—		1,216,827
Total	$	1,436,556	$	16,658	$	—	$	—	$	1,453,214
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above									$	1,453,214
Amount related to agreements not included in offsetting disclosure above									$	—

XML

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

3 Months Ended

Mar. 31, 2016

Broker-Dealer and Clearing Organization Receivables and Payables

Schedule of broker-dealer and clearing organization receivables and payables

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

	March 31,		December 31,
	2016		2015
Receivables:
Securities borrowed	$	1,315,940	$	1,307,741
Securities failed to deliver		29,910		25,087
Clearing organizations		—		16,701
Trades in process of settlement, net		16,023		5,707
Other		8,749		7,263
	$	1,370,622	$	1,362,499
Payables:
Securities loaned	$	1,222,522	$	1,235,466
Correspondents		27,888		69,046
Securities failed to receive		30,780		28,352
Clearing organizations		2,826		5,441
	$	1,284,016	$	1,338,305

XML

Reserves for Losses and Loss Adjustment Expenses (Tables)

3 Months Ended

Mar. 31, 2016

Reserves for Losses and Loss Adjustment Expenses

Schedule of information regarding the reserve for unpaid losses and loss adjustment expenses ("LAE") as included in other liabilities within the consolidated balance sheets

A rollforward of NLC’s reserve for unpaid losses and LAE, as included in other liabilities within the consolidated balance sheets, is as follows (in thousands).

	Three Months Ended March 31,
	2016		2015
Balance, beginning of period	$	44,357	$	29,716
Less reinsurance recoverables		(13,502)		(4,315)
Net balance, beginning of period		30,855		25,401
Incurred related to:
Current year		21,604		14,290
Prior years		355		4,570
Total incurred		21,959		18,860
Payments related to:
Current year		(9,538)		(7,174)
Prior years		(9,129)		(8,094)
Total payments		(18,667)		(15,268)
Net balance, end of period		34,147		28,993
Plus reinsurance recoverables		8,831		8,451
Balance, end of period	$	42,978	$	37,444

XML

Reinsurance Activity (Tables)

3 Months Ended

Mar. 31, 2016

Reinsurance Activity.

Schedule of effects of reinsurance on premiums written and earned

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

	Three Months Ended March 31,
	2016				2015
	Written		Earned		Written		Earned
Premiums from direct business	$	39,079	$	40,886	$	42,749	$	42,089
Reinsurance assumed		2,679		2,669		2,516		2,443
Reinsurance ceded		(3,498)		(3,822)		(4,705)		(4,965)
Net premiums	$	38,260	$	39,733	$	40,560	$	39,567

Schedule of effects of reinsurance on incurred losses

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

	Three Months Ended March 31,
	2016		2015
Loss and LAE incurred	$	23,489	$	23,331
Reinsurance recoverables		(1,530)		(4,471)
Net loss and LAE incurred	$	21,959	$	18,860

XML

Segment and Related Information (Tables)

3 Months Ended

Mar. 31, 2016

Segment and Related Information

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

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

					Mortgage						All Other and		Hilltop
Three Months Ended March 31, 2016	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	86,105	$	7,051	$	(2,569)	$	740	$	(1,714)	$	3,928	$	93,541
Provision for loan losses		3,500		(93)		—		—		—		—		3,407
Noninterest income		12,956		80,883		146,338		41,804		1		(4,296)		277,686
Noninterest expense		64,357		84,261		134,671		36,375		5,849		(312)		325,201
Income (loss) before income taxes	$	31,204	$	3,766	$	9,098	$	6,169	$	(7,562)	$	(56)	$	42,619

					Mortgage						All Other and		Hilltop
Three Months Ended March 31, 2015	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	83,442	$	7,996	$	(3,014)	$	757	$	109	$	4,102	$	93,392
Provision for loan losses		2,486		201		—		—		—		—		2,687
Noninterest income		19,309		79,528		135,292		41,845		81,289		(4,417)		352,846
Noninterest expense		58,532		90,795		122,302		33,466		9,626		(245)		314,476
Income (loss) before income taxes	$	41,733	$	(3,472)	$	9,976	$	9,136	$	71,772	$	(70)	$	129,075
March 31, 2016
Goodwill	$	207,741	$	7,008	$	13,071	$	23,988	$	—	$	—	$	251,808
Total assets	$	8,591,995	$	2,692,691	$	1,570,635	$	347,328	$	1,926,204	$	(3,396,925)	$	11,731,928
December 31, 2015
Goodwill	$	207,741	$	7,008	$	13,071	$	23,988	$	—	$	—	$	251,808
Total assets	$	8,707,433	$	2,673,455	$	1,737,843	$	349,259	$	1,905,547	$	(3,506,536)	$	11,867,001

XML

Earnings per Common Share (Tables)

3 Months Ended

Mar. 31, 2016

Earnings per Common Share

Schedule of the computation of basic and diluted earnings per common share

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

	Three Months Ended March 31,
	2016		2015
Basic earnings per share:
Income applicable to Hilltop common stockholders	$	27,567	$	111,876
Less: income applicable to participating shares		(125)		(574)
Net earnings available to Hilltop common stockholders	$	27,442	$	111,302
Weighted average shares outstanding - basic		98,153		99,741
Basic earnings per common share	$	0.28	$	1.12
Diluted earnings per share:
Income applicable to Hilltop common stockholders	$	27,567	$	111,876
Weighted average shares outstanding - basic		98,153		99,741
Effect of potentially dilutive securities		516		886
Weighted average shares outstanding - diluted		98,669		100,627
Diluted earnings per common share	$	0.28	$	1.11

XML

Summary of Significant Accounting and Reporting Policies - Nature of Operations (Details)	Mar. 31, 2016 item
Summary of Significant Accounting and Reporting Policies
Number of primary operating business units	3

XML

Summary of Significant Accounting and Reporting Policies - Basis of Presentation, Ownership (Details)	3 Months Ended
	Mar. 31, 2016
Plains Capital
Basis of Presentation
Ownership percentage of subsidiary owned by the reporting entity	100.00%
Bank
Basis of Presentation
Ownership percentage of subsidiary owned by subsidiary of the reporting entity	100.00%
Plains Capital Equity LLC
Basis of Presentation
Ownership percentage of subsidiary owned by subsidiary of the reporting entity	100.00%
Prime Lending
Basis of Presentation
Ownership percentage of subsidiary owned by subsidiary of the reporting entity	100.00%
Plains Capital Securities LLC
Basis of Presentation
Ownership percentage of subsidiary owned by subsidiary of the reporting entity	100.00%
Prime Lending Ventures Management LLC
Basis of Presentation
Ownership percentage of subsidiary owned by subsidiary of the reporting entity	100.00%
PCC Statutory Trusts
Basis of Presentation
Ownership percentage of subsidiary owned by subsidiary of the reporting entity	100.00%
Securities Holdings
Basis of Presentation
Ownership percentage of subsidiary owned by the reporting entity	100.00%
NLC
Basis of Presentation
Ownership percentage of subsidiary owned by the reporting entity	100.00%

XML

Summary of Significant Accounting and Reporting Policies - Basis of Presentation - Additional Info. (Details) - USD ($) $ in Thousands		3 Months Ended
	Jan. 01, 2015	Mar. 31, 2016	Mar. 31, 2015
Error Corrections and Prior Period Adjustments Restatement
Bargain purchase gain			$ 81,289
Operating Activities
Net change in broker-dealer and clearing organization receivables		$ 130,858	(793,613)
Net change in broker-dealer and clearing organization payables		(162,722)	690,552
Net cash provided by (used in) operating activities		9,885	(118,644)
Investing Activities
Net change in loans		(233,309)	(2,080)
Net cash provided by investing activities		(174,093)	522,912
Financing Activities
Net change in deposits		139,925	(556,657)
Net cash provided by (used in) financing activities		22,272	(508,810)
Net change in cash and cash equivalents		$ (141,936)	(104,542)
Scenario, Previously Reported
Operating Activities
Net change in broker-dealer and clearing organization receivables			(1,062,969)
Net change in broker-dealer and clearing organization payables			1,039,786
Net cash provided by (used in) operating activities			(38,766)
Investing Activities
Net change in loans			267,275
Net cash provided by investing activities			792,267
Financing Activities
Net change in deposits			(905,890)
Net cash provided by (used in) financing activities			(858,043)
Net change in cash and cash equivalents			(104,542)
SWS
Error Corrections and Prior Period Adjustments Restatement
Bargain purchase gain	$ 81,289
SWS | Scenario, Previously Reported
Error Corrections and Prior Period Adjustments Restatement
Bargain purchase gain			82,800
SWS | Restatement Adjustment
Error Corrections and Prior Period Adjustments Restatement
Bargain purchase gain			$ (1,500)

XML

Acquisition - Consideration Paid (Details) $ / shares in Units, $ in Thousands, shares in Millions		3 Months Ended
	Jan. 01, 2015 USD ($) $ / shares shares	Mar. 31, 2015 USD ($)
Acquisitions
Bargain purchase gain		$ 81,289
SWS
Acquisitions
Conversion of common stock	0.2496
Cash consideration paid per share | $ / shares	$ 1.94
Acquisition price (in dollars per share) | $ / shares	$ 6.92
Aggregate purchase price, stock issued | shares	10.1
Bargain purchase gain	$ 81,289
Fair value of consideration paid:
Common stock issued	200,626
Cash	78,217
Fair value of Hilltop existing investment in SWS	70,282
Total consideration paid	$ 349,125

XML

Acquisition - Identifiable Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands		3 Months Ended	12 Months Ended
	Jan. 01, 2015	Mar. 31, 2015	Dec. 31, 2015
Fair values of the identifiable assets acquired, and liabilities assumed
Bargain purchase gain		$ (81,289)
SWS
Fair values of the identifiable assets acquired, and liabilities assumed
Cash and due from banks	$ 119,314
Federal funds sold and securities purchased under agreements to resell	44,741
Assets segregated for regulatory purposes	181,610
Securities	707,476
Non-covered loans, net	863,819
Broker-dealer and clearing organization receivables	1,221,793
Other assets	159,906
Total identifiable assets acquired	3,298,659
Deposits	(1,287,509)
Broker-dealer and clearing organization payables	(1,109,978)
Short-term borrowings	(164,240)
Securities sold, not yet purchased, at fair value	(140,409)
Notes payable	(76,643)
Other liabilities	(89,466)
Total liabilities assumed	(2,868,245)
Bargain purchase gain	(81,289)
Net identifiable assets acquired	349,125
Less Hilltop existing investment in SWS	(70,282)
Net identifiable assets acquired	278,843
Tax on bargain purchase gain	0		$ 0
Allocation to intangible assets
Gross Intangible Assets	$ 7,460
Customer Relationships | SWS
Allocation to intangible assets
Estimated Useful Life	14 years
Gross Intangible Assets	$ 7,300
Core deposits | SWS
Allocation to intangible assets
Estimated Useful Life	4 years
Gross Intangible Assets	$ 160

XML

Acquisition - Acquired Loans at Acquisition Date (Details) - SWS $ in Thousands	Jan. 01, 2015 USD ($)
Information about the acquired loans at acquisition
Carryover of Allowance for Loan and Lease Losses, Loans Acquired	$ 0
Total loans	863,819
Commercial and industrial
Information about the acquired loans at acquisition
Total loans	188,453
Real estate
Information about the acquired loans at acquisition
Total loans	386,695
Construction and land development
Information about the acquired loans at acquisition
Total loans	16,099
Consumer
Information about the acquired loans at acquisition
Total loans	3,216
Broker-dealer
Information about the acquired loans at acquisition
Total loans	269,356
Loans excluding PCI Loans
Information about the acquired loans at acquisition
Total loans	790,360
Loans excluding PCI Loans | Commercial and industrial
Information about the acquired loans at acquisition
Total loans	178,603
Loans excluding PCI Loans | Real estate
Information about the acquired loans at acquisition
Total loans	324,477
Loans excluding PCI Loans | Construction and land development
Information about the acquired loans at acquisition
Total loans	14,708
Loans excluding PCI Loans | Consumer
Information about the acquired loans at acquisition
Total loans	3,216
Loans excluding PCI Loans | Broker-dealer
Information about the acquired loans at acquisition
Total loans	269,356
PCI loans
Information about the acquired loans at acquisition
Total loans	73,459
PCI loans | Commercial and industrial
Information about the acquired loans at acquisition
Total loans	9,850
PCI loans | Real estate
Information about the acquired loans at acquisition
Total loans	62,218
PCI loans | Construction and land development
Information about the acquired loans at acquisition
Total loans	$ 1,391

XML

Acquisition - Loans at Acquisition, Additional Info. and Pro Forma Results (Details) - SWS $ in Thousands	Jan. 01, 2015 USD ($)
Acquisitions
Total loans	$ 863,819
PCI loans
Acquisitions
Contractually required principal and interest payments	120,078
Nonaccretable difference	32,040
Cash flows expected to be collected	88,038
Accretable difference	14,579
Total loans	73,459
Loans excluding PCI Loans
Acquisitions
Contractually required principal and interest payments	901,672
Contractual cash flows not expected to be collected	39,721
Total loans	$ 790,360

XML

Fair Value Measurements - FV Option (Details) - USD ($) $ in Millions	Mar. 31, 2016	Dec. 31, 2015
Fair Value Measurements
Mortgage loans held for sale, fair value	$ 1,290	$ 1,460
Mortgage loans held for sale, unpaid principal balance	$ 1,230	$ 1,410

XML

Fair Value Measurements - Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Financial assets:
Trading securities	$ 368,425	$ 214,146
Available for sale securities	666,328	673,706
Recurring
Financial assets:
Trading securities	368,425	214,146
Available for sale securities	666,328	673,706
Loans held for sale	1,285,344	1,460,835
Derivative assets	90,981	35,676
Mortgage servicing asset	39,863	52,285
Financial liabilities:
Securities sold, not yet purchased	165,704	130,044
Derivative liabilities	43,945	5,426
Recurring | Level 1
Financial assets:
Trading securities	12,916	21,807
Available for sale securities	17,979	17,409
Financial liabilities:
Securities sold, not yet purchased	60,149	27,648
Recurring | Level 2
Financial assets:
Trading securities	355,508	192,338
Available for sale securities	648,349	656,297
Loans held for sale	1,244,799	1,434,955
Derivative assets	90,981	35,676
Financial liabilities:
Securities sold, not yet purchased	105,555	102,396
Derivative liabilities	43,945	5,426
Recurring | Level 3
Financial assets:
Trading securities	1	1
Loans held for sale	40,545	25,880
Mortgage servicing asset	$ 39,863	$ 52,285

XML

Fair Value Measurements - Roll Forward, Level 3 (Details) - Level 3 - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Rollforward for financial instruments measured at fair value using Level 3 inputs
Asset balance, beginning of period	$ 78,166	$ 45,172
Purchases/Additions	24,875	21,127
Sales/Reductions	(4,237)	(271)
Total gains or losses (realized or unrealized):
Included in Net Income (Loss)	(18,395)	(8,953)
Asset balance, end of period	80,409	57,075
Trading securities.
Rollforward for financial instruments measured at fair value using Level 3 inputs
Asset balance, beginning of period	1
Total gains or losses (realized or unrealized):
Asset balance, end of period	1
Available for sale securities
Rollforward for financial instruments measured at fair value using Level 3 inputs
Purchases/Additions		7,301
Total gains or losses (realized or unrealized):
Included in Net Income (Loss)		(1,369)
Asset balance, end of period		5,932
Loans held for sale
Rollforward for financial instruments measured at fair value using Level 3 inputs
Asset balance, beginning of period	25,880	9,017
Purchases/Additions	23,236	11,136
Sales/Reductions	(4,237)	(271)
Total gains or losses (realized or unrealized):
Included in Net Income (Loss)	(4,334)	(387)
Asset balance, end of period	40,545	19,495
MSR
Rollforward for financial instruments measured at fair value using Level 3 inputs
Asset balance, beginning of period	52,285	36,155
Purchases/Additions	1,639	2,690
Total gains or losses (realized or unrealized):
Included in Net Income (Loss)	(14,061)	(7,197)
Asset balance, end of period	$ 39,863	$ 31,648

XML

Fair Value Measurements - Level 3, Inputs, Recurring (Details) - Level 3 - Recurring - Discounted cash flow	3 Months Ended
	Mar. 31, 2016
Trading securities. | Weighted average
Significant unobservable inputs used in the fair value measurements
Discount rates (as a percent)	10.00%
Trading securities. | Minimum
Significant unobservable inputs used in the fair value measurements
Discount rates (as a percent)	8.00%
Trading securities. | Maximum
Significant unobservable inputs used in the fair value measurements
Discount rates (as a percent)	17.00%
Loans held for sale | Weighted average
Significant unobservable inputs used in the fair value measurements
Projected price (as a percent)	96.00%
Loans held for sale | Minimum
Significant unobservable inputs used in the fair value measurements
Projected price (as a percent)	88.00%
Loans held for sale | Maximum
Significant unobservable inputs used in the fair value measurements
Projected price (as a percent)	96.00%
MSR | Weighted average
Significant unobservable inputs used in the fair value measurements
Constant prepayment rate (as a percent)	16.92%
Discount rates (as a percent)	10.79%

XML

Fair Value Measurements - Change in FV (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Fair Value, Transfers Between Level 1 and Level 2
Transfers of assets from level 1 to level 2	$ 0	$ 0
Transfers of assets from level 2 to level 1	0	0
Transfers of liabilities from level 1 to level 2	0	0
Transfers of liabilities from level 2 to level 1	0	0
Fair Value Option
Net Gains (Losses)	127,297	120,545
Other Noninterest Income	29,226	24,613
Loans held for sale
Fair Value Option
Net Gains (Losses)	447	(6,695)
Total Changes in Fair Value	447	(6,695)
MSR
Fair Value Option
Net Gains (Losses)	(14,061)	(7,197)
Total Changes in Fair Value	$ (14,061)	$ (7,197)

XML

Fair Value Measurements - Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Jan. 01, 2015	Sep. 13, 2013	Nov. 30, 2012
SWS
Fair value measurements
Fair value of loans acquired		$ 863,819
SWS | PCI loans
Fair value measurements
Fair value of loans acquired		73,459
Level 3 | Plains Capital | PCI loans
Fair value measurements
Fair value of loans acquired				$ 172,900
Level 3 | Plains Capital | PCI loans | Weighted average
Fair Value Inputs [Abstract]
Weighted average default rate	60.00%
Weighted average loss severity rate	51.00%
Weighted average prepayment speed	0.00%
Weighted average expected loss	31.00%
Level 3 | FNB | PCI loans
Fair value measurements
Fair value of loans acquired			$ 822,800
Level 3 | FNB | PCI loans | Weighted average
Fair Value Inputs [Abstract]
Weighted average default rate	55.00%
Weighted average loss severity rate	34.00%
Weighted average prepayment speed	6.00%
Weighted average expected loss	19.00%
Level 3 | SWS | PCI loans
Fair value measurements
Fair value of loans acquired		$ 73,500
Level 3 | SWS | PCI loans | Weighted average
Fair Value Inputs [Abstract]
Weighted average default rate	51.00%
Weighted average loss severity rate	30.00%
Weighted average prepayment speed	0.00%
Weighted average expected loss	15.00%

XML

Fair Value Measurements - OREO (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015	Dec. 31, 2014	Sep. 13, 2013
Fair Value
Non-covered impaired loans	$ 5,317,615		$ 5,174,625
Covered impaired loans	346,169		378,762
Covered other real estate owned	78,890	$ 137,703	99,090	$ 136,945
Total Gains (Losses) of impaired loans	(3,407)	(2,687)
Covered
Fair Value
Covered impaired loans	346,169		378,762
Total Gains (Losses) of impaired loans	278	107
Noncovered
Fair Value
Non-covered impaired loans	5,317,615		5,174,625
Total Gains (Losses) of impaired loans	(3,685)	(2,794)
Estimate of Fair Value Measurement
Fair Value
Non-covered impaired loans	5,355,827		5,203,374
Covered impaired loans	484,424		527,201
Level 2 | Estimate of Fair Value Measurement
Fair Value
Non-covered impaired loans	463,987		602,968
Level 3 | Estimate of Fair Value Measurement
Fair Value
Non-covered impaired loans	4,891,840		4,600,406
Covered impaired loans	484,424		527,201
Non-recurring | Covered
Fair Value
Covered impaired loans	45,025
Covered other real estate owned	11,322
Total Gains (Losses) of impaired loans	332	3,218
Total Gains (Losses) of other real estate owned	(9,765)	(950)
Non-recurring | Noncovered
Fair Value
Non-covered impaired loans	39,722
Total Gains (Losses) of impaired loans	(33)	349
Total Gains (Losses) of other real estate owned		$ (28)
Non-recurring | Level 2 | Covered
Fair Value
Covered other real estate owned	11,322
Non-recurring | Level 2 | Estimate of Fair Value Measurement | Noncovered
Fair Value
Non-covered other real estate owned	500		400
Non-recurring | Level 3 | Covered
Fair Value
Covered impaired loans	45,025
Non-recurring | Level 3 | Noncovered
Fair Value
Non-covered impaired loans	39,722
Non-recurring | Level 3 | FNB | Covered | Bank
Fair value measurements
Acquired OREO					$ 135,200
Non-recurring | Level 3 | Estimate of Fair Value Measurement | Covered
Fair Value
Covered other real estate owned	$ 78,900		$ 99,100

XML

Fair Value Measurements - Estimated Fair Value (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015	Dec. 31, 2014
Financial assets:
Held to maturity securities	$ 313,553	$ 331,468
Non-covered loans, net	5,317,615	5,174,625
Covered loans, net	346,169	378,762
Broker-dealer and clearing organization receivables	1,370,622	1,362,499
FDIC indemnification asset	80,522	91,648	$ 107,567	$ 130,437
Financial liabilities:
Broker-dealer and clearing organization payables	1,284,016	1,338,305
Carrying Amount
Financial assets:
Cash and cash equivalents	527,509	669,445
Securities purchased under agreements to resell	96,646	105,660
Assets segregated for regulatory purposes	120,714	158,613
Held to maturity securities	310,478	332,022
Loans held for sale	58,989	72,843
Non-covered loans, net	5,317,615	5,174,625
Covered loans, net	346,169	378,762
Broker-dealer and clearing organization receivables	1,370,622	1,362,499
FDIC indemnification asset	80,522	91,648
Other assets	60,468	68,786
Financial liabilities:
Deposits	6,984,175	6,952,683
Broker-dealer and clearing organization payables	1,284,016	1,338,305
Short-term borrowings	832,921	947,373
Debt	299,202	305,728
Other liabilities	5,389	3,699
Estimate of Fair Value Measurement
Financial assets:
Cash and cash equivalents	527,509	669,445
Securities purchased under agreements to resell	96,646	105,660
Assets segregated for regulatory purposes	120,714	158,613
Held to maturity securities	313,553	331,468
Loans held for sale	58,989	72,843
Non-covered loans, net	5,355,827	5,203,374
Covered loans, net	484,424	527,201
Broker-dealer and clearing organization receivables	1,370,622	1,362,499
FDIC indemnification asset	77,817	91,648
Other assets	60,468	68,786
Financial liabilities:
Deposits	6,987,315	6,955,919
Broker-dealer and clearing organization payables	1,284,016	1,338,305
Short-term borrowings	832,921	947,373
Debt	292,817	299,257
Other liabilities	5,389	3,699
Estimate of Fair Value Measurement | Level 1
Financial assets:
Cash and cash equivalents	527,509	669,445
Assets segregated for regulatory purposes	120,714	158,613
Estimate of Fair Value Measurement | Level 2
Financial assets:
Securities purchased under agreements to resell	96,646	105,660
Held to maturity securities	313,553	331,468
Loans held for sale	58,989	72,843
Non-covered loans, net	463,987	602,968
Broker-dealer and clearing organization receivables	1,370,622	1,362,499
Other assets	54,412	53,214
Financial liabilities:
Deposits	6,987,315	6,955,919
Broker-dealer and clearing organization payables	1,284,016	1,338,305
Short-term borrowings	832,921	947,373
Debt	292,817	299,257
Other liabilities	5,389	3,699
Estimate of Fair Value Measurement | Level 3
Financial assets:
Non-covered loans, net	4,891,840	4,600,406
Covered loans, net	484,424	527,201
FDIC indemnification asset	77,817	91,648
Other assets	$ 6,056	$ 15,572

XML

Securities - Trading Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Schedule of fair value of trading securities
Trading Securities	$ 368,425	$ 214,146
Investment-related Liabilities
Securities sold, not yet purchased, at fair value	165,704	130,044
U.S. Treasury securities
Schedule of fair value of trading securities
Trading Securities	11,436	20,481
Bonds
Schedule of fair value of trading securities
Trading Securities	75,015	36,244
Residential mortgage-backed securities
Schedule of fair value of trading securities
Trading Securities	55,526	12,505
Commercial mortgage-backed securities
Schedule of fair value of trading securities
Trading Securities	21,717	19,280
Collateralized mortgage obligations
Schedule of fair value of trading securities
Trading Securities	3,150	264
Corporate securities
Schedule of fair value of trading securities
Trading Securities	53,277	34,735
States and political subdivisions
Schedule of fair value of trading securities
Trading Securities	101,655	58,588
Unit investment trusts
Schedule of fair value of trading securities
Trading Securities	37,897	18,400
Private-label securitized product
Schedule of fair value of trading securities
Trading Securities	7,443	12,324
Other
Schedule of fair value of trading securities
Trading Securities	$ 1,309	$ 1,325

XML

Securities - AFS and HTM, Amortized Cost and FV (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Available for sale
Amortized Cost	$ 655,989	$ 670,003
Gross Unrealized Gains	12,373	9,019
Gross Unrealized Losses	(2,034)	(5,316)
Fair Value	666,328	673,706
Held to maturity
Amortized cost	310,478	332,022
Unrealized Gains	3,095	953
Unrealized Losses	(20)	(1,507)
Held to maturity, fair value	313,553	331,468
U.S. Treasury securities
Available for sale
Amortized Cost	44,409	44,430
Gross Unrealized Gains	483	206
Gross Unrealized Losses	(8)	(33)
Fair Value	44,884	44,603
Held to maturity
Amortized cost	25,073	25,146
Unrealized Gains	1
Unrealized Losses		(30)
Held to maturity, fair value	25,074	25,116
Bonds
Available for sale
Amortized Cost	301,690	297,448
Gross Unrealized Gains	1,703	1,135
Gross Unrealized Losses	(280)	(1,947)
Fair Value	303,113	296,636
Held to maturity
Amortized cost	60,428	69,379
Unrealized Gains	191	145
Unrealized Losses		(372)
Held to maturity, fair value	60,619	69,152
Residential mortgage-backed securities
Available for sale
Amortized Cost	32,253	34,864
Gross Unrealized Gains	1,103	1,008
Gross Unrealized Losses	(14)	(19)
Fair Value	33,342	35,853
Held to maturity
Amortized cost	23,099	23,735
Unrealized Gains	634	311
Held to maturity, fair value	23,733	24,046
Commercial mortgage-backed securities
Available for sale
Amortized Cost	9,090	9,174
Gross Unrealized Gains	283	35
Gross Unrealized Losses	(2)	(2)
Fair Value	9,371	9,207
Held to maturity
Amortized cost	18,577	18,658
Unrealized Gains	543	27
Unrealized Losses	(10)	(92)
Held to maturity, fair value	19,110	18,593
Collateralized mortgage obligations
Available for sale
Amortized Cost	49,082	54,297
Gross Unrealized Gains	81	48
Gross Unrealized Losses	(641)	(1,644)
Fair Value	48,522	52,701
Held to maturity
Amortized cost	157,455	167,541
Unrealized Gains	1,491	302
Unrealized Losses	(2)	(970)
Held to maturity, fair value	158,944	166,873
Corporate securities
Available for sale
Amortized Cost	90,080	94,877
Gross Unrealized Gains	5,160	3,399
Gross Unrealized Losses	(17)	(326)
Fair Value	95,223	97,950
States and political subdivisions
Available for sale
Amortized Cost	110,515	116,246
Gross Unrealized Gains	2,863	2,581
Gross Unrealized Losses	(14)	(102)
Fair Value	113,364	118,725
Held to maturity
Amortized cost	25,846	27,563
Unrealized Gains	235	168
Unrealized Losses	(8)	(43)
Held to maturity, fair value	26,073	27,688
Commercial mortgage-backed securities
Available for sale
Amortized Cost	499	498
Gross Unrealized Gains	31	33
Fair Value	530	531
Equity securities
Available for sale
Amortized Cost	18,371	18,169
Gross Unrealized Gains	666	574
Gross Unrealized Losses	(1,058)	(1,243)
Fair Value	$ 17,979	$ 17,500

XML

Securities - AFS in an Unrealized Loss Position (Details) $ in Thousands	Mar. 31, 2016 USD ($) item	Dec. 31, 2015 USD ($) item
Number of Securities
Unrealized loss for less than twelve months | item	14	41
Unrealized loss for twelve months or longer | item	22	49
Total | item	36	90
Fair Value
Unrealized loss for less than twelve months	$ 75,018	$ 217,328
Unrealized loss for twelve months or longer	86,048	116,001
Estimated Fair Value, Total	161,066	333,329
Unrealized Loss
Unrealized loss for less than twelve months	892	2,135
Unrealized loss for twelve months or longer	1,142	3,181
Total	$ 2,034	$ 5,316
U.S. Treasury securities
Number of Securities
Unrealized loss for less than twelve months | item	3	8
Unrealized loss for twelve months or longer | item	2
Total | item	5	8
Fair Value
Unrealized loss for less than twelve months	$ 4,304	$ 33,791
Unrealized loss for twelve months or longer	2,457
Estimated Fair Value, Total	6,761	33,791
Unrealized Loss
Unrealized loss for less than twelve months	5	33
Unrealized loss for twelve months or longer	3
Total	$ 8	$ 33
Bonds
Number of Securities
Unrealized loss for less than twelve months | item	1	7
Unrealized loss for twelve months or longer | item	1	3
Total | item	2	10
Fair Value
Unrealized loss for less than twelve months	$ 54,820	$ 148,327
Unrealized loss for twelve months or longer	34,865	44,321
Estimated Fair Value, Total	89,685	192,648
Unrealized Loss
Unrealized loss for less than twelve months	152	896
Unrealized loss for twelve months or longer	128	1,051
Total	$ 280	$ 1,947
Residential mortgage-backed securities
Number of Securities
Unrealized loss for less than twelve months | item	1	3
Unrealized loss for twelve months or longer | item	1	1
Total | item	2	4
Fair Value
Unrealized loss for less than twelve months	$ 1,311	$ 3,407
Unrealized loss for twelve months or longer	976	982
Estimated Fair Value, Total	2,287	4,389
Unrealized Loss
Unrealized loss for less than twelve months	1	5
Unrealized loss for twelve months or longer	13	14
Total	$ 14	$ 19
Commercial mortgage-backed securities
Number of Securities
Unrealized loss for less than twelve months | item	1	1
Total | item	1	1
Fair Value
Unrealized loss for less than twelve months	$ 1,605	$ 1,611
Estimated Fair Value, Total	1,605	1,611
Unrealized Loss
Unrealized loss for less than twelve months	2	2
Total	$ 2	$ 2
Collateralized mortgage obligations
Number of Securities
Unrealized loss for less than twelve months | item	2	2
Unrealized loss for twelve months or longer | item	8	8
Total | item	10	10
Fair Value
Unrealized loss for less than twelve months	$ 933	$ 1,590
Unrealized loss for twelve months or longer	40,304	42,399
Estimated Fair Value, Total	41,237	43,989
Unrealized Loss
Unrealized loss for less than twelve months	4	4
Unrealized loss for twelve months or longer	637	1,640
Total	$ 641	$ 1,644
Corporate securities
Number of Securities
Unrealized loss for less than twelve months | item	2	16
Unrealized loss for twelve months or longer | item		1
Total | item	2	17
Fair Value
Unrealized loss for less than twelve months	$ 2,820	$ 16,635
Unrealized loss for twelve months or longer		1,949
Estimated Fair Value, Total	2,820	18,584
Unrealized Loss
Unrealized loss for less than twelve months	17	277
Unrealized loss for twelve months or longer		49
Total	$ 17	$ 326
States and political subdivisions
Number of Securities
Unrealized loss for less than twelve months | item	3	2
Unrealized loss for twelve months or longer | item	8	35
Total | item	11	37
Fair Value
Unrealized loss for less than twelve months	$ 702	$ 3,018
Unrealized loss for twelve months or longer	5,125	24,423
Estimated Fair Value, Total	5,827	27,441
Unrealized Loss
Unrealized loss for less than twelve months	2	9
Unrealized loss for twelve months or longer	12	93
Total	$ 14	$ 102
Equity securities
Number of Securities
Unrealized loss for less than twelve months | item	1	2
Unrealized loss for twelve months or longer | item	2	1
Total | item	3	3
Fair Value
Unrealized loss for less than twelve months	$ 8,523	$ 8,949
Unrealized loss for twelve months or longer	2,321	1,927
Estimated Fair Value, Total	10,844	10,876
Unrealized Loss
Unrealized loss for less than twelve months	709	909
Unrealized loss for twelve months or longer	349	334
Total	$ 1,058	$ 1,243

XML

Securities - HTM in an Unrealized Loss Position (Details) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2016 USD ($) item	Dec. 31, 2015 USD ($) item
Number of Securities
Unrealized loss for less than twelve months | item	9	42
Unrealized loss for twelve months or longer | item		1
Total | item	9	43
Fair Value
Unrealized loss for less than twelve months	$ 10,820	$ 223,113
Unrealized loss for twelve months or longer		2,664
Total	10,820	225,777
Unrealized Losses
Unrealized loss for less than twelve months	20	1,499
Unrealized loss for twelve months or longer		8
Total	$ 20	$ 1,507
U.S. Treasury securities
Number of Securities
Unrealized loss for less than twelve months | item		1
Total | item		1
Fair Value
Unrealized loss for less than twelve months		$ 25,115
Total		25,115
Unrealized Losses
Unrealized loss for less than twelve months		30
Total		$ 30
Bonds
Number of Securities
Unrealized loss for less than twelve months | item		6
Total | item		6
Fair Value
Unrealized loss for less than twelve months		$ 46,607
Total		46,607
Unrealized Losses
Unrealized loss for less than twelve months		372
Total		$ 372
Commercial mortgage-backed securities
Number of Securities
Unrealized loss for less than twelve months | item	1	7
Total | item	1	7
Fair Value
Unrealized loss for less than twelve months	$ 1,416	$ 16,098
Total	1,416	16,098
Unrealized Losses
Unrealized loss for less than twelve months	10	92
Total	$ 10	$ 92
Collateralized mortgage obligations
Number of Securities
Unrealized loss for less than twelve months | item	1	10
Total | item	1	10
Fair Value
Unrealized loss for less than twelve months	$ 6,648	$ 127,393
Total	6,648	127,393
Unrealized Losses
Unrealized loss for less than twelve months	2	970
Total	$ 2	$ 970
States and political subdivisions
Number of Securities
Unrealized loss for less than twelve months | item	7	18
Unrealized loss for twelve months or longer | item		1
Total | item	7	19
Fair Value
Unrealized loss for less than twelve months	$ 2,756	$ 7,900
Unrealized loss for twelve months or longer		2,664
Total	2,756	10,564
Unrealized Losses
Unrealized loss for less than twelve months	8	35
Unrealized loss for twelve months or longer		8
Total	$ 8	$ 43

XML

Securities - AFS Contractual Maturities (Details) $ in Thousands	Mar. 31, 2016 USD ($)
AFS, Amortized Cost, Rolling Maturity
Due in one year or less	$ 105,633
Due after one year through five years	73,027
Due after five years through ten years	66,653
Due after ten years	301,381
Total	546,694
Total amortized cost	637,618
AFS, Fair Value, Rolling Maturity
Due in one year or less	105,938
Due after one year through five years	76,352
Due after five years through ten years	70,937
Due after ten years	303,357
Total	556,584
Fair Value	648,349
Residential mortgage-backed securities
AFS, Amortized Cost, Rolling Maturity
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	32,253
AFS, Fair Value, Rolling Maturity
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	33,342
Collateralized mortgage obligations
AFS, Amortized Cost, Rolling Maturity
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	49,082
AFS, Fair Value, Rolling Maturity
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	48,522
Commercial mortgage backed securities
AFS, Amortized Cost, Rolling Maturity
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	9,589
AFS, Fair Value, Rolling Maturity
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	$ 9,901

XML

Securities - HTM Contractual Maturities (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
HTM, Amortized Cost, Rolling Maturities
Due in one year or less	$ 26,360
Due after one year through five years	18,060
Due after five years through ten years	3,185
Due after ten years	63,742
Total	111,347
Amortized cost	310,478	$ 332,022
HTM, Fair Value, Rolling Maturities
Due in one year or less	26,364
Due after one year through five years	18,228
Due after five years through ten years	3,223
Due after ten years	63,951
Total	111,766
Fair Value	313,553	331,468
Residential mortgage-backed securities
HTM, Amortized Cost, Rolling Maturities
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	23,099
Amortized cost	23,099	23,735
HTM, Fair Value, Rolling Maturities
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	23,733
Fair Value	23,733	24,046
Collateralized mortgage obligations
HTM, Amortized Cost, Rolling Maturities
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	157,455
Amortized cost	157,455	167,541
HTM, Fair Value, Rolling Maturities
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	158,944
Fair Value	158,944	$ 166,873
Commercial mortgage backed securities
HTM, Amortized Cost, Rolling Maturities
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	18,577
HTM, Fair Value, Rolling Maturities
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	$ 19,110

XML

Securities - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Realized net gain (loss) from trading securities portfolio	$ 11.3	$ 3.4
Carrying amount of securities pledged	753.5		$ 789.9
Fair value of securities pledged	761.3		790.2
NLC
Deposit with various state insurance departments	$ 9.7		$ 9.2

XML

Non-Covered Loans and Allowance for Non-Covered Loan Losses - Summary (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015	Dec. 31, 2014
Loans
Total loans	$ 5,366,065	$ 5,220,040
Allowance for loan losses	(48,450)	(45,415)
Non-covered loans, net	5,317,615	5,174,625
Noncovered
Loans
Total loans	5,366,065	5,220,040
Allowance for loan losses	(48,450)	(45,415)	$ (39,365)	$ (37,041)
Non-covered loans, net	5,317,615	5,174,625
Noncovered | Commercial and industrial
Loans
Total loans	1,619,567	1,552,805
Allowance for loan losses	(20,169)	(19,845)	(20,153)	(18,833)
Noncovered | Real estate
Loans
Total loans	2,536,302	2,313,239
Allowance for loan losses	(22,272)	(18,983)	(12,704)	(11,131)
Noncovered | Construction and land development
Loans
Total loans	701,358	705,356
Allowance for loan losses	(5,561)	(6,064)	(5,842)	(6,450)
Noncovered | Consumer
Loans
Total loans	44,851	45,672
Allowance for loan losses	(334)	(314)	(176)	(461)
Noncovered | Broker-dealer
Loans
Total loans	463,987	602,968
Allowance for loan losses	$ (114)	$ (209)	$ (490)	$ (166)

XML

Non-Covered Loans and Allowance for Non-Covered Loan Losses - PCI Loans (Details) - Noncovered - PCI loans - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Carrying values and the outstanding contractual balances of the PCI loans
Carrying amount	$ 68,053		$ 72,054
Outstanding balance	87,345		92,682
Changes in the accretable yield for the acquired impaired loans
Balance, beginning of period	17,744	$ 12,814
Additions		14,579
Reclassifications from (to) nonaccretable difference, net	2,343	281
Disposals of loans		(448)
Accretion	(3,919)	(2,749)
Balance, end of period	16,168	$ 24,477
Nonaccretable difference	$ 28,000		$ 28,500

XML

Non-Covered Loans and Allowance for Non-Covered Loan Losses - Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Impaired loans
Days outstanding loans and leases receivable are generally considered past due	90 days
Noncovered
Non-covered impaired loans
Unpaid Contractual Principal balance	$ 128,751		$ 143,782
Recorded Investment with No Allowance	38,408		42,614
Recorded Investment with Allowance	44,268		43,663
Total Recorded Investment	82,676		86,277
Related Allowance	5,899		5,866
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	84,479	$ 100,011
Non-accrual loans
Non-accrual loans	24,965		23,481
Interest income recorded on accruing impaired loans	100	600
Noncovered | Secured
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	26,155	32,684
Non-accrual loans
Non-accrual loans	19,144		17,717
Noncovered | Unsecured
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	41	80
Non-accrual loans
Non-accrual loans	35		47
Noncovered | Secured by commercial properties
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	40,371	43,013
Non-accrual loans
Non-accrual loans	4,813		4,597
Noncovered | Secured by residential properties
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	12,524	12,205
Non-accrual loans
Non-accrual loans	870		999
Non-accrual loans held for sale	2,100		1,600
Noncovered | Residential construction loans
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	111	117
Noncovered | Commercial construction loans and land development
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	4,622	10,068
Non-accrual loans
Non-accrual loans	102		114
Noncovered | Consumer
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	655	$ 1,844
Non-accrual loans
Non-accrual loans	1		7
Noncovered | PCI loans
Non-covered impaired loans
Unpaid Contractual Principal balance	104,912		120,540
Recorded Investment with No Allowance	30,737		34,408
Recorded Investment with Allowance	37,316		37,646
Total Recorded Investment	68,053		72,054
Related Allowance	4,555		4,486
Non-accrual loans
Non-accrual loans	10,300		9,300
Noncovered | PCI loans | Secured
Non-covered impaired loans
Unpaid Contractual Principal balance	28,379		32,597
Recorded Investment with No Allowance	4,085		5,520
Recorded Investment with Allowance	9,032		7,830
Total Recorded Investment	13,117		13,350
Related Allowance	1,027		1,341
Noncovered | PCI loans | Unsecured
Non-covered impaired loans
Unpaid Contractual Principal balance	2,559		2,572
Noncovered | PCI loans | Secured by commercial properties
Non-covered impaired loans
Unpaid Contractual Principal balance	47,718		57,607
Recorded Investment with No Allowance	14,159		15,914
Recorded Investment with Allowance	24,457		25,214
Total Recorded Investment	38,616		41,128
Related Allowance	3,187		2,756
Noncovered | PCI loans | Secured by residential properties
Non-covered impaired loans
Unpaid Contractual Principal balance	15,516		15,278
Recorded Investment with No Allowance	8,888		8,957
Recorded Investment with Allowance	2,806		2,690
Total Recorded Investment	11,694		11,647
Related Allowance	175		175
Noncovered | PCI loans | Residential construction loans
Non-covered impaired loans
Unpaid Contractual Principal balance			395
Recorded Investment with Allowance			221
Total Recorded Investment			221
Related Allowance			8
Noncovered | PCI loans | Commercial construction loans and land development
Non-covered impaired loans
Unpaid Contractual Principal balance	6,914		7,929
Recorded Investment with No Allowance	3,115		3,283
Recorded Investment with Allowance	983		1,646
Total Recorded Investment	4,098		4,929
Related Allowance	138		174
Noncovered | PCI loans | Consumer
Non-covered impaired loans
Unpaid Contractual Principal balance	3,826		4,162
Recorded Investment with No Allowance	490		734
Recorded Investment with Allowance	38		45
Total Recorded Investment	528		779
Related Allowance	28		32
Noncovered | Loans excluding PCI Loans
Non-covered impaired loans
Unpaid Contractual Principal balance	23,839		23,242
Recorded Investment with No Allowance	7,671		8,206
Recorded Investment with Allowance	6,952		6,017
Total Recorded Investment	14,623		14,223
Related Allowance	1,344		1,380
Noncovered | Loans excluding PCI Loans | Secured
Non-covered impaired loans
Unpaid Contractual Principal balance	21,778		21,222
Recorded Investment with No Allowance	6,137		6,736
Recorded Investment with Allowance	6,952		6,017
Total Recorded Investment	13,089		12,753
Related Allowance	1,344		1,380
Noncovered | Loans excluding PCI Loans | Unsecured
Non-covered impaired loans
Unpaid Contractual Principal balance	181		224
Recorded Investment with No Allowance	35		47
Total Recorded Investment	35		47
Noncovered | Loans excluding PCI Loans | Secured by commercial properties
Non-covered impaired loans
Unpaid Contractual Principal balance	668		436
Recorded Investment with No Allowance	607		390
Total Recorded Investment	607		390
Noncovered | Loans excluding PCI Loans | Secured by residential properties
Non-covered impaired loans
Unpaid Contractual Principal balance	1,088		1,229
Recorded Investment with No Allowance	789		918
Total Recorded Investment	789		918
Noncovered | Loans excluding PCI Loans | Commercial construction loans and land development
Non-covered impaired loans
Unpaid Contractual Principal balance	122		131
Recorded Investment with No Allowance	102		114
Total Recorded Investment	102		114
Noncovered | Loans excluding PCI Loans | Consumer
Non-covered impaired loans
Unpaid Contractual Principal balance	2
Recorded Investment with No Allowance	1		1
Total Recorded Investment	$ 1		$ 1

XML

Non-Covered Loans and Allowance for Non-Covered Loan Losses - TDRs (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($) item	Mar. 31, 2015 USD ($) item
AB Note | Minimum | Bank
TDRs, Non-covered loans
Number of loans into which a single loan is reconfigured | item	2
Noncovered
TDRs, Non-covered loans
Total Modifications	$ 1,196	$ 75
Recorded Investment in loans
Number of TDRs granted in preceding twelve months for which payment was at least 30 days past due | item	0	0
Noncovered | Payment Term Extension
TDRs, Non-covered loans
Total Modifications	$ 1,196	$ 75
Noncovered | Secured
TDRs, Non-covered loans
Total Modifications	1,196
Noncovered | Secured | Payment Term Extension
TDRs, Non-covered loans
Total Modifications	$ 1,196
Noncovered | Commercial construction loans and land development
TDRs, Non-covered loans
Total Modifications		75
Noncovered | Commercial construction loans and land development | Payment Term Extension
TDRs, Non-covered loans
Total Modifications		$ 75

XML

Non-Covered Loans and Allowance for Non-Covered Loan Losses - Aging (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	$ 5,366,065	$ 5,220,040
Noncovered
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days	9,091	18,056
Loans past Due 60-89 Days	1,015	6,822
Loans past Due 90 Days or More	9,339	9,157
Total Past Due Loans	19,445	34,035
Current Loans	5,278,567	5,113,951
Total loans	5,366,065	5,220,040
Accruing Loans Past Due 90 Days or More	1,229	12
Noncovered | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	68,053	72,054
Noncovered | Secured
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days	2,347	14,869
Loans past Due 60-89 Days	915	3,960
Loans past Due 90 Days or More	7,819	8,414
Total Past Due Loans	11,081	27,243
Current Loans	1,496,644	1,406,537
Total loans	1,520,842	1,447,130
Accruing Loans Past Due 90 Days or More	46	12
Noncovered | Secured | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	13,117	13,350
Noncovered | Unsecured
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days	637	18
Loans past Due 60-89 Days	51	1
Total Past Due Loans	688	19
Current Loans	98,037	105,656
Total loans	98,725	105,675
Noncovered | Secured by commercial properties
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days	1,153	1,008
Loans past Due 60-89 Days		964
Loans past Due 90 Days or More	1,519	293
Total Past Due Loans	2,672	2,265
Current Loans	1,684,700	1,528,084
Total loans	1,725,988	1,571,477
Accruing Loans Past Due 90 Days or More	1,183
Noncovered | Secured by commercial properties | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	38,616	41,128
Noncovered | Secured by residential properties
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days	4,483	726
Loans past Due 60-89 Days	22	35
Loans past Due 90 Days or More		336
Total Past Due Loans	4,505	1,097
Current Loans	794,115	729,018
Total loans	810,314	741,762
Noncovered | Secured by residential properties | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	11,694	11,647
Noncovered | Residential construction loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days	28	343
Total Past Due Loans	28	343
Current Loans	97,276	103,819
Total loans	97,304	104,383
Noncovered | Residential construction loans | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans		221
Noncovered | Commercial construction loans and land development
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days		733
Loans past Due 60-89 Days		1,845
Loans past Due 90 Days or More		114
Total Past Due Loans		2,692
Current Loans	599,956	593,352
Total loans	604,054	600,973
Noncovered | Commercial construction loans and land development | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	4,098	4,929
Noncovered | Consumer
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans past Due 30-59 Days	443	359
Loans past Due 60-89 Days	27	17
Loans past Due 90 Days or More	1
Total Past Due Loans	471	376
Current Loans	43,852	44,517
Total loans	44,851	45,672
Noncovered | Consumer | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total loans	528	779
Noncovered | Broker-dealer
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Current Loans	463,987	602,968
Total loans	463,987	602,968
Noncovered | Prime Lending
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Accruing Loans Past Due 90 Days or More	50,700
Noncovered | Prime Lending | U.S. Government Agencies
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Accruing Loans Past Due 90 Days or More		50,800
Unpaid principal balance loans past due 90 days or more	$ 51,200	$ 51,100

XML

Non-Covered Loans and Allowance for Non-Covered Loan Losses - Internal Risk Grades (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Internal risk grades of non-covered loans
Total	$ 5,366,065	$ 5,220,040
Noncovered
Internal risk grades of non-covered loans
Total	5,366,065	5,220,040
Noncovered | Pass
Internal risk grades of non-covered loans
Total	5,206,480	5,066,470
Noncovered | Special Mention
Internal risk grades of non-covered loans
Total	2,568	1,571
Noncovered | Substandard
Internal risk grades of non-covered loans
Total	88,964	79,945
Noncovered | Secured
Internal risk grades of non-covered loans
Total	1,520,842	1,447,130
Noncovered | Secured | Pass
Internal risk grades of non-covered loans
Total	1,434,976	1,372,671
Noncovered | Secured | Special Mention
Internal risk grades of non-covered loans
Total	2,568
Noncovered | Secured | Substandard
Internal risk grades of non-covered loans
Total	70,181	61,109
Noncovered | Unsecured
Internal risk grades of non-covered loans
Total	98,725	105,675
Noncovered | Unsecured | Pass
Internal risk grades of non-covered loans
Total	98,560	105,569
Noncovered | Unsecured | Substandard
Internal risk grades of non-covered loans
Total	165	106
Noncovered | Secured by commercial properties
Internal risk grades of non-covered loans
Total	1,725,988	1,571,477
Noncovered | Secured by commercial properties | Pass
Internal risk grades of non-covered loans
Total	1,674,739	1,517,049
Noncovered | Secured by commercial properties | Special Mention
Internal risk grades of non-covered loans
Total		1,536
Noncovered | Secured by commercial properties | Substandard
Internal risk grades of non-covered loans
Total	12,633	11,764
Noncovered | Secured by residential properties
Internal risk grades of non-covered loans
Total	810,314	741,762
Noncovered | Secured by residential properties | Pass
Internal risk grades of non-covered loans
Total	793,399	724,701
Noncovered | Secured by residential properties | Substandard
Internal risk grades of non-covered loans
Total	5,221	5,414
Noncovered | Residential construction loans
Internal risk grades of non-covered loans
Total	97,304	104,383
Noncovered | Residential construction loans | Pass
Internal risk grades of non-covered loans
Total	97,304	104,162
Noncovered | Commercial construction loans and land development
Internal risk grades of non-covered loans
Total	604,054	600,973
Noncovered | Commercial construction loans and land development | Pass
Internal risk grades of non-covered loans
Total	599,273	594,614
Noncovered | Commercial construction loans and land development | Substandard
Internal risk grades of non-covered loans
Total	683	1,430
Noncovered | Consumer
Internal risk grades of non-covered loans
Total	44,851	45,672
Noncovered | Consumer | Pass
Internal risk grades of non-covered loans
Total	44,242	44,736
Noncovered | Consumer | Special Mention
Internal risk grades of non-covered loans
Total		35
Noncovered | Consumer | Substandard
Internal risk grades of non-covered loans
Total	81	122
Noncovered | Broker-dealer
Internal risk grades of non-covered loans
Total	463,987	602,968
Noncovered | Broker-dealer | Pass
Internal risk grades of non-covered loans
Total	463,987	602,968
Noncovered | PCI loans
Internal risk grades of non-covered loans
Total	68,053	72,054
Noncovered | PCI loans | Secured
Internal risk grades of non-covered loans
Total	13,117	13,350
Noncovered | PCI loans | Secured by commercial properties
Internal risk grades of non-covered loans
Total	38,616	41,128
Noncovered | PCI loans | Secured by residential properties
Internal risk grades of non-covered loans
Total	11,694	11,647
Noncovered | PCI loans | Residential construction loans
Internal risk grades of non-covered loans
Total		221
Noncovered | PCI loans | Commercial construction loans and land development
Internal risk grades of non-covered loans
Total	4,098	4,929
Noncovered | PCI loans | Consumer
Internal risk grades of non-covered loans
Total	$ 528	$ 779

XML

Non-Covered Loans and Allowance for Non-Covered Loan Losses - Allowance (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Dec. 31, 2015
Changes in the allowance for loan losses
Balance, beginning of period	$ 45,415
Provision charged to (recapture from) operations operations	3,407	$ 2,687
Balance, end of period	48,450
Loan portfolio distributed by portfolio segment and impairment methodology
Total loans			$ 5,366,065	$ 5,220,040
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	45,415		48,450	45,415
Noncovered
Changes in the allowance for loan losses
Balance, beginning of period	45,415	37,041
Provision charged to (recapture from) operations operations	3,685	2,794
Loans charged off	(1,404)	(1,254)
Recoveries on charged off loans	754	784
Balance, end of period	48,450	39,365
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment			11,572	11,451
Loans collectively evaluated for impairment			5,286,440	5,136,535
Total loans			5,366,065	5,220,040
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment, allowance			1,344	1,380
Loans collectively evaluated for impairment, allowance			42,551	39,549
Total loans, allowance	45,415	37,041	48,450	45,415
Noncovered | Commercial and industrial
Changes in the allowance for loan losses
Balance, beginning of period	19,845	18,833
Provision charged to (recapture from) operations operations	1,016	1,670
Loans charged off	(1,350)	(942)
Recoveries on charged off loans	658	592
Balance, end of period	20,169	20,153
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment			11,572	11,354
Loans collectively evaluated for impairment			1,594,878	1,528,101
Total loans			1,619,567	1,552,805
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment, allowance			1,344	1,380
Loans collectively evaluated for impairment, allowance			17,798	17,124
Total loans, allowance	19,845	18,833	20,169	19,845
Noncovered | Real estate
Changes in the allowance for loan losses
Balance, beginning of period	18,983	11,131
Provision charged to (recapture from) operations operations	3,233	1,807
Loans charged off		(278)
Recoveries on charged off loans	56	44
Balance, end of period	22,272	12,704
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment				97
Loans collectively evaluated for impairment			2,485,992	2,260,367
Total loans			2,536,302	2,313,239
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment, allowance			18,910	16,052
Total loans, allowance	18,983	11,131	22,272	18,983
Noncovered | Construction and land development
Changes in the allowance for loan losses
Balance, beginning of period	6,064	6,450
Provision charged to (recapture from) operations operations	(503)	(608)
Balance, end of period	5,561	5,842
Loan portfolio distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment			697,260	700,206
Total loans			701,358	705,356
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment, allowance			5,423	5,882
Total loans, allowance	6,064	6,450	5,561	6,064
Noncovered | Consumer
Changes in the allowance for loan losses
Balance, beginning of period	314	461
Provision charged to (recapture from) operations operations	32	(276)
Loans charged off	(52)	(34)
Recoveries on charged off loans	40	25
Balance, end of period	334	176
Loan portfolio distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment			44,323	44,893
Total loans			44,851	45,672
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment, allowance			306	282
Total loans, allowance	314	461	334	314
Noncovered | Broker-dealer
Changes in the allowance for loan losses
Balance, beginning of period	209	166
Provision charged to (recapture from) operations operations	(93)	201
Loans charged off	(2)
Recoveries on charged off loans		123
Balance, end of period	114	490
Loan portfolio distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment			463,987	602,968
Total loans			463,987	602,968
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment, allowance			114	209
Total loans, allowance	209	$ 166	114	209
Noncovered | PCI loans
Changes in the allowance for loan losses
Balance, beginning of period	4,486
Balance, end of period	4,555
Loan portfolio distributed by portfolio segment and impairment methodology
Total loans			68,053	72,054
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	4,486		4,555	4,486
Noncovered | PCI loans | Commercial and industrial
Changes in the allowance for loan losses
Balance, beginning of period	1,341
Balance, end of period	1,027
Loan portfolio distributed by portfolio segment and impairment methodology
Total loans			13,117	13,350
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	1,341		1,027	1,341
Noncovered | PCI loans | Real estate
Changes in the allowance for loan losses
Balance, beginning of period	2,931
Balance, end of period	3,362
Loan portfolio distributed by portfolio segment and impairment methodology
Total loans			50,310	52,775
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	2,931		3,362	2,931
Noncovered | PCI loans | Construction and land development
Changes in the allowance for loan losses
Balance, beginning of period	182
Balance, end of period	138
Loan portfolio distributed by portfolio segment and impairment methodology
Total loans			4,098	5,150
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	182		138	182
Noncovered | PCI loans | Consumer
Changes in the allowance for loan losses
Balance, beginning of period	32
Balance, end of period	28
Loan portfolio distributed by portfolio segment and impairment methodology
Total loans			528	779
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	$ 32		$ 28	$ 32

XML

Covered Assets and Indemnification Asset - Indemnification Asset (Details) - Bank - FNB - USD ($) $ in Millions		3 Months Ended
	Sep. 13, 2013	Mar. 31, 2016
Loans
Percentage of net losses to be absorbed by FDIC on the first $240.4 million of net losses incurred as per the loss sharing agreement	80.00%
Threshold amount of net losses incurred for 80% of net losses to be absorbed by FDIC as per the loss sharing agreement, first layer	$ 240.4
Percentage of net losses to be absorbed by FDIC in excess of $240.4 million up to and including $365.7 million of net losses incurred as per the loss sharing agreement	0.00%
Threshold amount of net losses incurred for 0% of net losses to be absorbed by FDIC as per the loss sharing agreement, second layer	$ 365.7
Percentage of net losses to be absorbed by FDIC in excess of $365.7 million of net losses incurred as per the loss sharing agreement	80.00%
Threshold limit of subsequent recoveries reimbursable to the FDIC under the loss share agreement	$ 0.0
Period for which payment is required to be made to the FDIC of true-up amount	10 years
Payment accrual based on the current aggregate estimate of realized losses		$ 7.5
Covered | Commercial loan
Loans
Period of loss-sharing agreements in effect	5 years
Period of loss recovery provisions in effect	8 years
Covered | Single family residential loans
Loans
Period of loss-sharing agreements in effect	10 years
Period of loss recovery provisions in effect	10 years

XML

Covered Assets and Indemnification Asset - Covered Loans Summary (Details) - USD ($) $ in Thousands	Sep. 13, 2013	Mar. 31, 2016	Dec. 31, 2015
Covered Loans
Allowance for covered loans		$ (1,217)	$ (1,532)
Total covered loans, net of allowance		346,169	378,762
Covered
Covered Loans
Total covered loans		347,386	380,294
Allowance for covered loans		(1,217)	(1,532)
Total covered loans, net of allowance		346,169	378,762
Covered | Commercial and industrial
Covered Loans
Total covered loans		9,070	8,801
Covered | Real estate
Covered Loans
Total covered loans		318,921	341,048
Covered | Construction and land development
Covered Loans
Total covered loans		$ 19,395	$ 30,445
Bank | Covered | Acquired loans
Loans
Fair value of loans acquired	$ 1,100,000
Carryover of the allowance for loan losses recorded	$ 0

XML

Covered Assets and Indemnification Asset - Covered PCI Loans (Details) - Covered - PCI loans - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Carrying value and the outstanding contractual balance of the covered PCI loans
Carrying amount	$ 197,865		$ 221,974
Outstanding balance	371,802		408,221
Changes in the accretable yield for the acquired impaired loans
Balance, beginning of period	176,719	$ 193,493
Reclassifications from (to) nonaccretable difference, net	9,633	16,263
Transfer of loans to covered OREO	(109)	1,172
Accretion	(17,110)	(16,931)
Balance, end of period	169,133	$ 193,997
Nonaccretable difference	$ 150,600		$ 172,200

XML

Covered Assets and Indemnification Asset - Impaired Loans (Details) - Covered - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Impaired Financing Receivable, Recorded Investment [Abstract]
Unpaid Contractual Principal Balance	$ 444,199		$ 481,103
Recorded Investment with No Allowance	184,587		190,022
Recorded Investment with Allowance	17,366		36,145
Total Recorded Investment	201,953		226,167
Related Allowance	1,168		1,500
Average investment in covered impaired loans
Average investment	214,062	$ 401,391
Covered, Nonaccrual Loans
Non-accrual loans	3,576		8,978
Secured
Average investment in covered impaired loans
Average investment	5,509	13,170
Covered, Nonaccrual Loans
Non-accrual loans	60		68
Unsecured
Average investment in covered impaired loans
Average investment	1,786	5,851
Secured by commercial properties
Average investment in covered impaired loans
Average investment	92,941	203,506
Covered, Nonaccrual Loans
Non-accrual loans	433		442
Secured by residential properties
Average investment in covered impaired loans
Average investment	95,788	135,164
Covered, Nonaccrual Loans
Non-accrual loans	2,550		2,516
Residential construction loans
Average investment in covered impaired loans
Average investment	673	1,336
Covered, Nonaccrual Loans
Non-accrual loans	520		541
Commercial construction loans and land development
Average investment in covered impaired loans
Average investment	17,365	$ 42,364
Covered, Nonaccrual Loans
Non-accrual loans	13		5,411
PCI loans
Impaired Financing Receivable, Recorded Investment [Abstract]
Unpaid Contractual Principal Balance	438,957		475,846
Recorded Investment with No Allowance	180,499		185,829
Recorded Investment with Allowance	17,366		36,145
Total Recorded Investment	197,865		221,974
Related Allowance	1,168		1,500
Covered, Nonaccrual Loans
Non-accrual loans	0		5,300
PCI loans | Secured
Impaired Financing Receivable, Recorded Investment [Abstract]
Unpaid Contractual Principal Balance	13,790		15,454
Recorded Investment with No Allowance	1,680		3,312
Recorded Investment with Allowance	3,483		2,415
Total Recorded Investment	5,163		5,727
Related Allowance	361		495
PCI loans | Unsecured
Impaired Financing Receivable, Recorded Investment [Abstract]
Unpaid Contractual Principal Balance	8,757		9,377
Recorded Investment with No Allowance	1,145		618
Recorded Investment with Allowance	645		1,162
Total Recorded Investment	1,790		1,780
Related Allowance	61		246
PCI loans | Secured by commercial properties
Impaired Financing Receivable, Recorded Investment [Abstract]
Unpaid Contractual Principal Balance	197,972		211,145
Recorded Investment with No Allowance	77,867		67,540
Recorded Investment with Allowance	10,210		29,388
Total Recorded Investment	88,077		96,928
Related Allowance	189		245
PCI loans | Secured by residential properties
Impaired Financing Receivable, Recorded Investment [Abstract]
Unpaid Contractual Principal Balance	172,472		182,698
Recorded Investment with No Allowance	86,001		93,438
Recorded Investment with Allowance	2,863		3,180
Total Recorded Investment	88,864		96,618
Related Allowance	522		514
PCI loans | Residential construction loans
Impaired Financing Receivable, Recorded Investment [Abstract]
Unpaid Contractual Principal Balance	1,223		1,225
Recorded Investment with No Allowance			121
Recorded Investment with Allowance	165
Total Recorded Investment	165		121
Related Allowance	35
PCI loans | Commercial construction loans and land development
Impaired Financing Receivable, Recorded Investment [Abstract]
Unpaid Contractual Principal Balance	44,743		55,947
Recorded Investment with No Allowance	13,806		20,800
Total Recorded Investment	13,806		20,800
Loans excluding PCI Loans
Impaired Financing Receivable, Recorded Investment [Abstract]
Unpaid Contractual Principal Balance	5,242		5,257
Recorded Investment with No Allowance	4,088		4,193
Total Recorded Investment	4,088		4,193
Loans excluding PCI Loans | Secured
Impaired Financing Receivable, Recorded Investment [Abstract]
Unpaid Contractual Principal Balance	72		78
Recorded Investment with No Allowance	60		68
Total Recorded Investment	60		68
Loans excluding PCI Loans | Unsecured
Impaired Financing Receivable, Recorded Investment [Abstract]
Recorded Investment with No Allowance			1
Total Recorded Investment			1
Loans excluding PCI Loans | Secured by commercial properties
Impaired Financing Receivable, Recorded Investment [Abstract]
Unpaid Contractual Principal Balance	508		512
Recorded Investment with No Allowance	433		443
Total Recorded Investment	433		443
Loans excluding PCI Loans | Secured by residential properties
Impaired Financing Receivable, Recorded Investment [Abstract]
Unpaid Contractual Principal Balance	3,827		3,745
Recorded Investment with No Allowance	3,062		3,031
Total Recorded Investment	3,062		3,031
Loans excluding PCI Loans | Residential construction loans
Impaired Financing Receivable, Recorded Investment [Abstract]
Unpaid Contractual Principal Balance	787		799
Recorded Investment with No Allowance	520		540
Total Recorded Investment	520		540
Loans excluding PCI Loans | Commercial construction loans and land development
Impaired Financing Receivable, Recorded Investment [Abstract]
Unpaid Contractual Principal Balance	48		123
Recorded Investment with No Allowance	13		110
Total Recorded Investment	$ 13		$ 110

XML

Covered Assets and Indemnification Asset - TDRs (Details) - Covered $ in Thousands	3 Months Ended
	Mar. 31, 2016 item	Mar. 31, 2015 USD ($) item
Covered Loans
Total Modifications		$ 853
Number of TDRs granted | item	0
Recorded Investment in loans
Number of Loans | item		1
Recorded Investment		$ 280
Payment Term Extension
Covered Loans
Total Modifications		853
Secured by commercial properties
Covered Loans
Total Modifications		573
Secured by commercial properties | Payment Term Extension
Covered Loans
Total Modifications		573
Secured by residential properties
Covered Loans
Total Modifications		$ 280
Recorded Investment in loans
Number of Loans | item		1
Recorded Investment		$ 280
Secured by residential properties | Payment Term Extension
Covered Loans
Total Modifications		$ 280

XML

Covered Assets and Indemnification Asset - Aging (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Covered Assets and Indemnification Asset
Total loans	$ 5,366,065	$ 5,220,040
Covered
Covered Assets and Indemnification Asset
Loans past Due 30-59 Days	3,466	3,497
Loans past Due 60-89 Days	121	419
Loans past Due 90 Days or More	1,855	1,907
Total Past Due Loans	5,442	5,823
Current Loans	144,079	152,497
Total loans	347,386	380,294
Accruing Loans Past Due 90 Days or More	102
Covered | PCI loans
Covered Assets and Indemnification Asset
Total loans	197,865	221,974
Covered | Secured
Covered Assets and Indemnification Asset
Loans past Due 30-59 Days		51
Loans past Due 90 Days or More	162	68
Total Past Due Loans	162	119
Current Loans	1,955	1,175
Total loans	7,280	7,021
Accruing Loans Past Due 90 Days or More	102
Covered | Secured | PCI loans
Covered Assets and Indemnification Asset
Total loans	5,163	5,727
Covered | Unsecured
Covered Assets and Indemnification Asset
Total loans	1,790	1,780
Covered | Unsecured | PCI loans
Covered Assets and Indemnification Asset
Total loans	1,790	1,780
Covered | Secured by commercial properties
Covered Assets and Indemnification Asset
Loans past Due 90 Days or More	98	100
Total Past Due Loans	98	100
Current Loans	26,999	28,957
Total loans	115,174	125,985
Covered | Secured by commercial properties | PCI loans
Covered Assets and Indemnification Asset
Total loans	88,077	96,928
Covered | Secured by residential properties
Covered Assets and Indemnification Asset
Loans past Due 30-59 Days	3,379	3,399
Loans past Due 60-89 Days	121	418
Loans past Due 90 Days or More	1,075	1,104
Total Past Due Loans	4,575	4,921
Current Loans	110,308	113,524
Total loans	203,747	215,063
Covered | Secured by residential properties | PCI loans
Covered Assets and Indemnification Asset
Total loans	88,864	96,618
Covered | Residential construction loans
Covered Assets and Indemnification Asset
Loans past Due 90 Days or More	520	540
Total Past Due Loans	520	540
Current Loans		264
Total loans	685	925
Covered | Residential construction loans | PCI loans
Covered Assets and Indemnification Asset
Total loans	165	121
Covered | Commercial construction loans and land development
Covered Assets and Indemnification Asset
Loans past Due 30-59 Days	87	47
Loans past Due 60-89 Days		1
Loans past Due 90 Days or More		95
Total Past Due Loans	87	143
Current Loans	4,817	8,577
Total loans	18,710	29,520
Covered | Commercial construction loans and land development | PCI loans
Covered Assets and Indemnification Asset
Total loans	$ 13,806	$ 20,800

XML

Covered Assets and Indemnification Asset - Internal Risk Grades (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Internal risk grades of covered loans in the portfolio
Total	$ 5,366,065	$ 5,220,040
Covered
Internal risk grades of covered loans in the portfolio
Total	347,386	380,294
Covered | PCI loans
Internal risk grades of covered loans in the portfolio
Total	197,865	221,974
Covered | Pass
Internal risk grades of covered loans in the portfolio
Total	134,606	143,067
Covered | Special Mention
Internal risk grades of covered loans in the portfolio
Total	484	491
Covered | Substandard
Internal risk grades of covered loans in the portfolio
Total	14,431	14,762
Covered | Secured
Internal risk grades of covered loans in the portfolio
Total	7,280	7,021
Covered | Secured | PCI loans
Internal risk grades of covered loans in the portfolio
Total	5,163	5,727
Covered | Secured | Pass
Internal risk grades of covered loans in the portfolio
Total	1,118	758
Covered | Secured | Substandard
Internal risk grades of covered loans in the portfolio
Total	999	536
Covered | Unsecured
Internal risk grades of covered loans in the portfolio
Total	1,790	1,780
Covered | Unsecured | PCI loans
Internal risk grades of covered loans in the portfolio
Total	1,790	1,780
Covered | Secured by commercial properties
Internal risk grades of covered loans in the portfolio
Total	115,174	125,985
Covered | Secured by commercial properties | PCI loans
Internal risk grades of covered loans in the portfolio
Total	88,077	96,928
Covered | Secured by commercial properties | Pass
Internal risk grades of covered loans in the portfolio
Total	22,565	24,070
Covered | Secured by commercial properties | Substandard
Internal risk grades of covered loans in the portfolio
Total	4,532	4,987
Covered | Secured by residential properties
Internal risk grades of covered loans in the portfolio
Total	203,747	215,063
Covered | Secured by residential properties | PCI loans
Internal risk grades of covered loans in the portfolio
Total	88,864	96,618
Covered | Secured by residential properties | Pass
Internal risk grades of covered loans in the portfolio
Total	107,719	111,128
Covered | Secured by residential properties | Special Mention
Internal risk grades of covered loans in the portfolio
Total	484	491
Covered | Secured by residential properties | Substandard
Internal risk grades of covered loans in the portfolio
Total	6,680	6,826
Covered | Residential construction loans
Internal risk grades of covered loans in the portfolio
Total	685	925
Covered | Residential construction loans | PCI loans
Internal risk grades of covered loans in the portfolio
Total	165	121
Covered | Residential construction loans | Pass
Internal risk grades of covered loans in the portfolio
Total		264
Covered | Residential construction loans | Substandard
Internal risk grades of covered loans in the portfolio
Total	520	540
Covered | Commercial construction loans and land development
Internal risk grades of covered loans in the portfolio
Total	18,710	29,520
Covered | Commercial construction loans and land development | PCI loans
Internal risk grades of covered loans in the portfolio
Total	13,806	20,800
Covered | Commercial construction loans and land development | Pass
Internal risk grades of covered loans in the portfolio
Total	3,204	6,847
Covered | Commercial construction loans and land development | Substandard
Internal risk grades of covered loans in the portfolio
Total	$ 1,700	$ 1,873

XML

Covered Assets and Indemnification Asset - Allowance (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Dec. 31, 2015
Changes in the allowance for loan losses
Balance, beginning of period	$ 45,415
Provision charged to (recapture from) operations operations	3,407	$ 2,687
Balance, end of period	48,450
Loan portfolio distributed by portfolio segment and impairment methodology
Total loans			$ 5,366,065	$ 5,220,040
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	45,415		48,450	45,415
Covered
Changes in the allowance for loan losses
Balance, beginning of period	1,532	4,611
Provision charged to (recapture from) operations operations	(278)	(107)
Loans charged off	(44)	(3,116)
Recoveries on charged off loans	7
Balance, end of period	1,217	1,388
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment			520	540
Loans collectively evaluated for impairment			149,001	157,780
Total loans			347,386	380,294
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment, allowance			49	32
Total loans, allowance	1,532	4,611	1,217	1,532
Covered | Commercial and industrial
Changes in the allowance for loan losses
Balance, beginning of period	758	1,193
Provision charged to (recapture from) operations operations	(314)	71
Loans charged off	(6)	(900)
Balance, end of period	438	364
Loan portfolio distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment			2,117	1,294
Total loans			9,070	8,801
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment, allowance			16	17
Total loans, allowance	758	1,193	438	758
Covered | Real estate
Changes in the allowance for loan losses
Balance, beginning of period	774	3,334
Provision charged to (recapture from) operations operations	(23)	(192)
Loans charged off	(16)	(2,215)
Recoveries on charged off loans	7
Balance, end of period	742	927
Loan portfolio distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment			141,980	147,502
Total loans			318,921	341,048
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment, allowance			31	15
Total loans, allowance	774	3,334	742	774
Covered | Construction and land development
Changes in the allowance for loan losses
Balance, beginning of period		84
Provision charged to (recapture from) operations operations	59	14
Loans charged off	(22)	(1)
Balance, end of period	37	97
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment			520	540
Loans collectively evaluated for impairment			4,904	8,984
Total loans			19,395	30,445
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment, allowance			2
Total loans, allowance	37	$ 84	37
Covered | PCI loans
Changes in the allowance for loan losses
Balance, beginning of period	1,500
Balance, end of period	1,168
Loan portfolio distributed by portfolio segment and impairment methodology
Total loans			197,865	221,974
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	1,500		1,168	1,500
Covered | PCI loans | Commercial and industrial
Changes in the allowance for loan losses
Balance, beginning of period	741
Balance, end of period	422
Loan portfolio distributed by portfolio segment and impairment methodology
Total loans			6,953	7,507
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	741		422	741
Covered | PCI loans | Real estate
Changes in the allowance for loan losses
Balance, beginning of period	759
Balance, end of period	711
Loan portfolio distributed by portfolio segment and impairment methodology
Total loans			176,941	193,546
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	759		711	759
Covered | PCI loans | Construction and land development
Changes in the allowance for loan losses
Balance, end of period	35
Loan portfolio distributed by portfolio segment and impairment methodology
Total loans			13,971	$ 20,921
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	$ 35		$ 35

XML

Covered Assets and Indemnification Asset - Covered OREO (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Activity in covered OREO
Balance, beginning of period	$ 99,090	$ 136,945
Additions to covered OREO	4,542	24,042
Dispositions of covered OREO	(14,977)	(22,334)
Valuation adjustments in the period	(9,765)	(950)
Balance, end of period	$ 78,890	$ 137,703

XML

Covered Assets and Indemnification Asset - FDIC Indemnification Asset (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Activity in the FDIC Indemnification Asset
Balance, beginning of period	$ 91,648	$ 130,437
FDIC Indemnification Asset accretion (amortization)	87	506
Transfers to due from FDIC and other	(11,213)	(23,376)
Balance, end of period	80,522	$ 107,567
FDIC, collections received	$ 111,500

XML

Mortgage Servicing Rights (Details) - MSR - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Change in fair value of mortgage servicing rights
Balance, beginning of period	$ 52,285	$ 36,155	$ 36,155
Additions	1,639	2,690
Changes in fair value: Due to changes in model inputs or assumptions	(12,842)	(5,044)
Changes in fair value: Due to customer payoffs	(1,219)	(2,153)
Balance, end of period	39,863	31,648	$ 52,285
Mortgage loans serviced for others	$ 5,004,100	$ 5,051,884
MSR asset as a percentage of serviced mortgage loans	0.80%	1.03%
Key Assumptions
Weighted average constant prepayment rate (as a percent)	16.92%		11.51%
Weighted average discount rate (as a percent)	10.79%		10.92%
Weighted average life	4 years 9 months 18 days		6 years 6 months

XML

Mortgage Servicing Rights - Sensitivity Analysis (Details) - MSR - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Sensitivity analysis
Constant prepayment rate: Impact of 10% adverse change	$ (1,831)		$ (2,177)
Constant prepayment rate: Impact of 20% adverse change	(3,494)		(4,195)
Discount rate: Impact of 10% adverse change	(1,073)		(2,073)
Discount rate: Impact of 20% adverse change	(2,076)		$ (3,989)
Contractually specified servicing fees, late fees and ancillary fees	$ 5,900	$ 4,200

XML

Deposits (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Deposits
Noninterest-bearing demand	$ 2,233,608	$ 2,235,436
Interest-bearing:
NOW accounts	1,171,481	1,077,576
Money market	1,447,155	1,500,780
Brokered - money market	97,472	133,380
Demand	343,083	380,214
Savings	330,307	273,390
Time	1,361,069	1,325,342
Brokered - time		26,565
Total deposits	$ 6,984,175	$ 6,952,683

XML

Short-term Borrowings (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Short-term borrowings
Short-term borrowings	$ 832,921		$ 947,373
Hilltop Broker-Dealers
Short-term borrowings
Weighted average interest rate (as a percent)	1.26%		1.26%
Federal funds purchased.
Short-term borrowings
Short-term borrowings	$ 62,900		$ 58,925
Securities sold under agreement to repurchase.
Short-term borrowings
Short-term borrowings	320,021		217,748
Federal Home Loan Bank notes
Short-term borrowings
Short-term borrowings	300,000		$ 600,000
Average balance during the period	$ 234,341	$ 235,111
Average interest rate during the period (as a percent)	0.44%	0.22%
Average interest rate at end of period (as a percent)	0.47%		0.35%
Federal Home Loan Bank notes | Maximum
Short-term borrowings
Maturity term of debt	365 days
Short-term bank loans.
Short-term borrowings
Short-term borrowings	$ 150,000		$ 70,700
Schedule of federal funds purchased and securities sold under agreements to repurchase
Short-term borrowings
Average balance during the period	$ 329,392	$ 361,600
Average interest rate during the period (as a percent)	0.49%	0.25%
Average interest rate at end of period (as a percent)	0.41%		0.26%
Carrying value.	$ 333,973		$ 250,981
Estimated fair value	$ 337,695		$ 250,045

XML

Notes Payable (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Debt Instrument
Notes payable	$ 232,190	$ 238,716
NLIC note payable due May 2033
Debt Instrument
Notes payable	10,000	10,000
NLIC note payable due September 2033
Debt Instrument
Notes payable	10,000	10,000
ASIC note payable due April 2034
Debt Instrument
Notes payable	7,500	7,500
Insurance company note payable due March 2035
Debt Instrument
Notes payable	20,000	20,000
Federal Home Loan Bank notes
Debt Instrument
Notes payable	32,524	36,042
Insurance company line of credit due December 31, 2016
Debt Instrument
Notes payable	1,500	7,000
Ventures line of credit due August 2016
Debt Instrument
Notes payable	2,459
Senior Notes due April 2025, net
Debt Instrument
Notes payable	$ 148,207	$ 148,174

XML

Income Taxes (Details) - USD ($) $ in Thousands		3 Months Ended		12 Months Ended
	Jan. 01, 2015	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Income Taxes
Effective income tax rate (as a percent)		33.80%	11.90%
Bargain purchase gain			$ 81,289
Income tax benefit		$ (14,423)	$ (15,420)
SWS
Income Taxes
Tax on bargain purchase gain	$ 0			$ 0
Bargain purchase gain	$ 81,289
Income tax benefit		$ 2,100

XML

Commitments and Contingencies (Details) $ in Thousands, shares in Millions			3 Months Ended
	Sep. 13, 2013 USD ($) item	Nov. 02, 2012 USD ($) item	Mar. 31, 2016 USD ($) shares	Mar. 31, 2015 USD ($)	Mar. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Reserve for Indemnification Liability:
FDIC, collections received			$ 111,500
Representation and Warranty Claims
Roll-forward of claims activity for loans put-back to the mortgage origination segment
Balance, beginning of period			57,298	$ 53,906
Claims made			4,548	37,323
Claims resolved with no payment			(6,115)	(11,687)
Repurchases			(1,157)	(5,239)
Indemnification payments			(372)	(203)
Balance, end of period			54,202	74,100
Reserve for Indemnification Liability:
Total			57,298	53,906	$ 54,202	$ 57,298
Reserve for Indemnification liability established by mortgage origination segment
Commitments and Contingencies
Provision for indemnification losses			900	800
Roll-forward of claims activity for loans put-back to the mortgage origination segment
Balance, beginning of period			16,640	17,619
Additions for new sales			878	844
Repurchases			(112)	(498)
Early payment defaults			(90)	(10)
Indemnification payments			(169)	(162)
Change in estimate				(451)
Balance, end of period			17,147	17,342
Reserve for Indemnification Liability:
Specific claims					4,754	5,210
Incurred but not reported claims					12,393	11,430
Total			$ 16,640	$ 17,619	$ 17,147	$ 16,640
Shareholder Class Action Lawsuits
Commitments and Contingencies
Number of shares of SWS common stock held by purported shareholders | shares			5.2
Bank | FNB
Reserve for Indemnification Liability:
Number of loss-sharing agreements | item	2
Loans and OREO acquired	$ 1,200,000
Percentage of net losses to be absorbed by FDIC on the first $240.4 million of net losses incurred as per the loss sharing agreement	80.00%
Threshold amount of net losses incurred for 80% of net losses to be absorbed by FDIC as per the loss sharing agreement, first layer	$ 240,400
Percentage of net losses to be absorbed by FDIC in excess of $240.4 million up to and including $365.7 million of net losses incurred as per the loss sharing agreement	0.00%
Threshold amount of net losses incurred for 0% of net losses to be absorbed by FDIC as per the loss sharing agreement, second layer	$ 365,700
Percentage of net losses to be absorbed by FDIC in excess of $365.7 million of net losses incurred as per the loss sharing agreement	80.00%
Threshold limit of subsequent recoveries reimbursable to the FDIC under the loss share agreement	$ 0
Covered net losses billed to the FDIC			$ 139,400
Percentage of covered net losses reimbursable under the loss-share agreements			80.00%
Amount of covered net losses reimbursable under the loss-share agreements			$ 111,500
FDIC, collections received			111,500
Bank | FNB | Covered
Reserve for Indemnification Liability:
Period for which payment is required to be made to the FDIC of true-up amount	10 years
Bank | FNB | Covered | Commercial loan
Reserve for Indemnification Liability:
Period of loss-sharing agreements in effect	5 years
Period of loss recovery provisions in effect	8 years
Bank | FNB | Covered | Single family residential loans
Reserve for Indemnification Liability:
Period of loss-sharing agreements in effect	10 years
Period of loss recovery provisions in effect	10 years
Bank | FNB | Minimum
Reserve for Indemnification Liability:
Covered losses and reimbursable expenses			240,400
Bank | FNB | Maximum
Reserve for Indemnification Liability:
Covered losses and reimbursable expenses			$ 365,700
First Southwest Company
Commitments and Contingencies
Number of defendants other than reporting entity | item		13
Amount of bonds to finance a loan to 38 Studios		$ 75,000

XML

Financial Instruments with Off-Balance Sheet Risk (Details) $ in Millions	Mar. 31, 2016 USD ($)
Unused commitments to extend credit
Financial Instruments with Off-Balance Sheet Risk
Outstanding commitments	$ 1,600.0
Standby letters of credit
Financial Instruments with Off-Balance Sheet Risk
Outstanding commitments	$ 38.4

XML

Stock-Based Compensation (Details) $ / shares in Units, $ in Millions		1 Months Ended	3 Months Ended
	Nov. 02, 2011 item $ / shares shares	Sep. 30, 2012 shares	Mar. 31, 2016 USD ($) $ / shares shares	Mar. 31, 2015 USD ($) shares
Stock based compensation
Compensation expense | $			$ 2.3	$ 1.9
2003 Plan
Stock based compensation
Number of additional awards permissible under the plan		0
2003 Plan | Stock Options Awards
Stock based compensation
Number of senior executive officers to whom awards granted | item	2
Awards granted (in shares)	600,000
Exercise price (in dollars per share) | $ / shares	$ 7.70
Options outstanding and scheduled to expire November 2, 2016 (in shares)			100,000
2012 Plan
Stock based compensation
Number of awards approved for grant (in shares)			4,000,000
Common stock remaining available for issuance (in shares)			2,293,228
2012 Plan | RSUs
Stock based compensation
Number of shares awarded (in shares)			277,000
Number of awards subject to time-based vesting (in shares)			860,321
Number of awards vesting upon achievement of performance goals (in shares)			284,398
Vesting period			3 years
Performance period			3 years
Unrecognized compensation expense | $			$ 14.4
Weighted average period for unrecognized compensation expense (in years)			1 year 11 months 1 day
Vested RSUs which require deferral of share settlement and statutory tax obligations			8,247
Number of shares outstanding
Balance at the beginning of the period ( in shares)			875,000
Granted (in shares)			277,000
Vested/Released (in shares)			(5,000)
Forfeited (in shares)			(2,000)
Balance at the end of the period ( in shares)			1,145,000
Weighted Average Grant Date Fair Value
Balance at the beginning of the period (in dollars per share) | $ / shares			$ 21.22
Grant date fair value (in dollars per share) | $ / shares			16.04
Vested/Released (in dollars per share) | $ / shares			22.24
Forfeited (in dollars per share) | $ / shares			21.41
Balance at the end of the period (in dollars per share) | $ / shares			$ 20.00
2012 Plan | RSUs | 2016 Grant Date
Stock based compensation
Number of shares awarded (in shares)			276,551
Number of awards subject to time-based vesting (in shares)			158,028
Number of awards vesting upon achievement of performance goals (in shares)			118,523
Vesting period			3 years
Performance period			3 years
Unrecognized compensation expense | $			$ 4.4
Number of shares outstanding
Granted (in shares)			276,551
2012 Plan | Restricted Stock Awards
Stock based compensation
Unrecognized compensation expense | $			$ 0.1
Weighted average period for unrecognized compensation expense (in years)			1 year 18 days
Number of shares outstanding
Balance at the beginning of the period ( in shares)			453,000
Vested/Released (in shares)			(3,000)
Forfeited (in shares)			(2,000)
Balance at the end of the period ( in shares)			448,000
Weighted Average Grant Date Fair Value
Balance at the beginning of the period (in dollars per share) | $ / shares			$ 13.50
Vested/Released (in dollars per share) | $ / shares			13.25
Forfeited (in dollars per share) | $ / shares			19.72
Balance at the end of the period (in dollars per share) | $ / shares			$ 13.47
2012 Plan | RSUs and RSAs
Stock based compensation
Vested/Released number of shares withheld to satisfy employee statutory tax obligations (in shares)			2,128
2012 Plan | Board of Directors
Stock based compensation
Common shares granted to members of board of directors as compensation for director services			5,516	2,545

XML

Regulatory Matters - Minimum Capital Requirements (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Bank
Tier 1 capital (to average assets)
Actual Amount	$ 1,035,022	$ 1,064,212
Actual Ratio (as a percent)	12.70%	13.22%
Minimum Capital Requirements, Amount	$ 326,044	$ 322,104
Minimum Capital Requirements, Ratio (as a percent)	4.00%	4.00%
To Be Well Capitalized Minimum Capital Requirements, Amount	$ 407,555	$ 402,630
To Be Well Capitalized Minimum Capital Requirements, Ratio (as a percent)	5.00%	5.00%
Common equity Tier 1 capital (to risk weighted assets)
Actual Amount	$ 1,033,659	$ 1,063,041
Actual Ratio (as a percent)	15.10%	16.23%
Minimum Capital Requirements, Amount	$ 308,020	$ 294,716
Minimum Capital Requirements, Ratio (as a percent)	4.50%	4.50%
To Be Well Capitalized Minimum Capital Requirements, Amount	$ 444,918	$ 425,701
To Be Well Capitalized Minimum Capital Requirements, Ratio (as a percent)	6.50%	6.50%
Tier 1 capital (to risk-weighted assets)
Actual Amount	$ 1,035,022	$ 1,064,212
Actual Ratio (as a percent)	15.12%	16.25%
Minimum Capital Requirements, Amount	$ 410,693	$ 392,954
Minimum Capital Requirements, Ratio (as a percent)	6.00%	6.00%
To Be Well Capitalized Minimum Capital Requirements, Amount	$ 547,591	$ 523,939
To Be Well Capitalized Minimum Capital Requirements, Ratio (as a percent)	8.00%	8.00%
Total capital (to risk-weighted assets)
Actual Amount	$ 1,086,214	$ 1,112,654
Actual Ratio (as a percent)	15.87%	16.99%
Minimum Capital Requirements, Amount	$ 547,591	$ 523,939
Minimum Capital Requirements, Ratio (as a percent)	8.00%	8.00%
To Be Well Capitalized Minimum Capital Requirements, Amount	$ 684,489	$ 654,924
To Be Well Capitalized Minimum Capital Requirements, Ratio (as a percent)	10.00%	10.00%
Hilltop Holdings Inc.
Tier 1 capital (to average assets)
Actual Amount	$ 1,532,458	$ 1,520,514
Actual Ratio (as a percent)	13.35%	12.65%
Minimum Capital Requirements, Amount	$ 459,069	$ 480,928
Minimum Capital Requirements, Ratio (as a percent)	4.00%	4.00%
Common equity Tier 1 capital (to risk weighted assets)
Actual Amount	$ 1,481,394	$ 1,469,642
Actual Ratio (as a percent)	17.56%	17.87%
Minimum Capital Requirements, Amount	$ 379,562	$ 370,156
Minimum Capital Requirements, Ratio (as a percent)	4.50%	4.50%
Tier 1 capital (to risk-weighted assets)
Actual Amount	$ 1,532,458	$ 1,520,514
Actual Ratio (as a percent)	18.17%	18.48%
Minimum Capital Requirements, Amount	$ 506,082	$ 493,541
Minimum Capital Requirements, Ratio (as a percent)	6.00%	6.00%
Total capital (to risk-weighted assets)
Actual Amount	$ 1,568,465	$ 1,553,867
Actual Ratio (as a percent)	18.60%	18.89%
Minimum Capital Requirements, Amount	$ 674,776	$ 658,055
Minimum Capital Requirements, Ratio (as a percent)	8.00%	8.00%

XML

Regulatory Matters - Net Capital Position, Broker-Dealers (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Net Capital
Amount required to be segregated in cash and securities for the benefit of customers	$ 120,714	$ 158,613
Hilltop Securities
Net Capital
Net capital	132,718
Less required net capital	9,484
Excess net capital	$ 123,234
Net capital as a percentage of aggregate debit items	28.00%
Net capital in excess of 5% aggregate debt items	$ 109,007
Amount required to be segregated in cash and securities for the benefit of customers	120,700
HTS Independent Network
Net Capital
Net capital	1,195
Less required net capital	250
Excess net capital	$ 945

XML

Regulatory Matters - Insurance Subsidiaries (Details) - Texas Department of Insurance - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
NLIC
Insurance
Capital and surplus	$ 119,836		$ 121,750
Statutory net income	3,557	$ 4,759
ASIC
Insurance
Capital and surplus	28,980		$ 30,592
Statutory net income	$ 852	$ 909

XML

Derivative Financial Instruments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Not Designated as Hedging Instrument | Prime Lending
Derivative financial instruments
Net gain (loss) due to changes in the fair value of the derivative instruments	$ 12,500	$ 18,900
Not Designated as Hedging Instrument | Hilltop Broker-Dealers
Derivative financial instruments
Net gain (loss) due to changes in the fair value of the derivative instruments	6,900	$ 8,600
Interest Rate Lock Commitments
Derivative financial instruments
Notional Amount	1,505,457		$ 944,942
Estimated Fair Value	44,915		23,762
Commitments to Purchase MBSs
Derivative financial instruments
Notional Amount	3,761,758		3,151,862
Estimated Fair Value	23,811		8,350
Commitments to Sell MBSs
Derivative financial instruments
Notional Amount	6,194,817		5,038,565
Estimated Fair Value	(23,294)		(2,352)
Commitments to Sell MBSs | Prime Lending
Derivative financial instruments
Cash collateral advanced to offset net derivative liability	7,300		800
Interest Rate Swap and Swaptions
Derivative financial instruments
Notional Amount	587,418		409,982
Estimated Fair Value	1,604		490
Interest Rate Swap and Swaptions | Prime Lending
Derivative financial instruments
Cash collateral advanced to offset net derivative liability	$ 8,700		$ 6,400

XML

Balance Sheet Offsetting - Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Reverse Repurchase Agreements
Net Amounts of Assets Presented in the Balance Sheet	$ 96,646	$ 105,660
Total
Gross Amounts of Recognized Assets	1,439,511	1,416,304
Gross Amounts Offset in the Balance Sheet	(404)	(393)
Net Amounts of Assets Presented in the Balance Sheet	1,439,107	1,415,911
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(1,436,213)	(1,414,530)
Net Amount	2,894	1,381
Institutional counterparties
Securities Borrowed:
Gross Amounts of Recognized Assets	1,315,940	1,307,741
Net Amounts of Assets Presented in the Balance Sheets	1,315,940	1,307,741
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(1,315,940)	(1,307,741)
Interest Rate Swap and Swaptions | Institutional counterparties
Derivatives
Gross Amounts of Recognized Assets	3,114	1,526
Gross Amounts Offset in the Balance Sheets	(404)	(393)
Net Amounts of Assets Presented in the Balance Sheets	2,710	1,133
Gross Amounts Not Offset in the Balance Sheets
Net Amount	2,710	1,133
Reverse repurchase agreements | Institutional counterparties
Reverse Repurchase Agreements
Gross Amounts of Recognized Assets	96,646	105,660
Net Amounts of Assets Presented in the Balance Sheet	96,646	105,660
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(96,462)	(105,412)
Net Amount	184	248
Forward MBS Derivatives | Institutional counterparties
Derivatives
Gross Amounts of Recognized Assets	23,811	1,377
Net Amounts of Assets Presented in the Balance Sheets	23,811	1,377
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	$ (23,811)	$ (1,377)

XML

Balance Sheet Offsetting - Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Total
Gross Amounts of Recognized Liabilities	$ 1,567,231	$ 1,458,242
Gross Amounts Offset in the Balance Sheets	(288)	(1,769)
Net Amounts of Liabilities Presented in the Balance Sheets	1,566,943	1,456,473
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(1,556,943)	(1,457,153)
Net Amount	10,000	(680)
Institutional counterparties
Securities Loaned:
Gross Amounts of Recognized Liabilities	1,222,522	1,235,466
Net Amounts of Liabilities Presented in the Balance Sheets	1,222,522	1,235,466
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(1,222,522)	(1,235,466)
Institutional counterparties | Interest Rate Swap and Swaptions
Derivatives:
Gross Amounts of Recognized Liabilities	1,106	643
Net Amounts of Liabilities Presented in the Balance Sheets	1,106	643
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(2,518)	(2,519)
Net Amount	(1,412)	(1,876)
Institutional counterparties | Repurchase agreements
Repurchase Agreement:
Gross Amounts of Recognized Liabilities	164,647	69,748
Net Amounts of Liabilities Presented in the Balance Sheets	164,647	69,748
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(164,647)	(69,748)
Institutional counterparties | Forward MBS Derivatives
Derivatives:
Gross Amounts of Recognized Liabilities	23,582	4,385
Gross Amounts Offset in the Balance Sheets	(288)	(1,769)
Net Amounts of Liabilities Presented in the Balance Sheets	23,294	2,616
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	(11,882)	(1,420)
Net Amount	11,412	1,196
Customer counterparties | Repurchase agreements
Repurchase Agreement:
Gross Amounts of Recognized Liabilities	155,374	148,000
Net Amounts of Liabilities Presented in the Balance Sheets	155,374	148,000
Gross Amounts Not Offset in the Balance Sheets
Financial Instruments	$ (155,374)	$ (148,000)

XML

Balance Sheet Offsetting - Secured Borrowings (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Transfers of Certain Financial Assets Accounted for as Secured Borrowings
Total borrowings	$ 1,542,543	$ 1,453,214
Gross amount of recognized liabilities for repurchase agreements and securities lending in offsetting disclosure above	1,542,543	1,453,214
Overnight and Continuous
Transfers of Certain Financial Assets Accounted for as Secured Borrowings
Total borrowings	1,455,496	1,436,556
Maturity up to 30 days
Transfers of Certain Financial Assets Accounted for as Secured Borrowings
Total borrowings	87,047	16,658
US Treasury and agency securities
Transfers of Certain Financial Assets Accounted for as Secured Borrowings
Repurchase agreements transactions	320,021	217,748
Securities lending transactions		12,646
US Treasury and agency securities | Overnight and Continuous
Transfers of Certain Financial Assets Accounted for as Secured Borrowings
Repurchase agreements transactions	232,974	201,090
Securities lending transactions		12,646
US Treasury and agency securities | Maturity up to 30 days
Transfers of Certain Financial Assets Accounted for as Secured Borrowings
Repurchase agreements transactions	87,047	16,658
Corporate securities
Transfers of Certain Financial Assets Accounted for as Secured Borrowings
Securities lending transactions	11,582	5,993
Corporate securities | Overnight and Continuous
Transfers of Certain Financial Assets Accounted for as Secured Borrowings
Securities lending transactions	11,582	5,993
Equity securities
Transfers of Certain Financial Assets Accounted for as Secured Borrowings
Securities lending transactions	1,210,928	1,216,827
Equity securities | Overnight and Continuous
Transfers of Certain Financial Assets Accounted for as Secured Borrowings
Securities lending transactions	1,210,928	$ 1,216,827
Other
Transfers of Certain Financial Assets Accounted for as Secured Borrowings
Securities lending transactions	12
Other | Overnight and Continuous
Transfers of Certain Financial Assets Accounted for as Secured Borrowings
Securities lending transactions	$ 12

XML

Broker-Dealer and Clearing Organization Receivables and Payables (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Receivables:
Securities borrowed	$ 1,315,940	$ 1,307,741
Securities failed to deliver	29,910	25,087
Clearing organizations		16,701
Trades in process of settlements, net	16,023	5,707
Other	8,749	7,263
Total receivables	1,370,622	1,362,499
Payables:
Securities loaned	1,222,522	1,235,466
Correspondents	27,888	69,046
Securities failed to receive	30,780	28,352
Clearing organizations	2,826	5,441
Total Payables	$ 1,284,016	$ 1,338,305

XML

Reserves for Losses and Loss Adjustment Expenses (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Information regarding of the reserve for unpaid losses and loss adjustment expenses
Balance, beginning of year	$ 44,357	$ 29,716
Less reinsurance recoverables	(13,502)	(4,315)
Net balance, beginning of year	30,855	25,401
Incurred related to:
Current year	21,604	14,290
Prior periods	355	4,570
Total incurred	21,959	18,860
Payments related to:
Current year	(9,538)	(7,174)
Prior periods	(9,129)	(8,094)
Total payments	(18,667)	(15,268)
Net balance, end of year	34,147	28,993
Plus reinsurance recoverables	8,831	8,451
Balance, end of year	42,978	$ 37,444
Increase (decrease) in reserves	$ 5,500

XML

Reinsurance Activity - Credit Risk (Details) $ in Thousands	Mar. 31, 2016 USD ($)
Reinsurance Activity.
Balances due from Companies	$ 13,100
Allowance for uncollectible accounts	$ 0

XML

Reinsurance Activity - Effects of Reinsurance (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Earned
Net premiums, Earned	$ 39,733	$ 39,567
Effect of reinsurance on incurred losses
Loss and LAE incurred	23,489	23,331
Reinsurance recoverables	(1,530)	(4,471)
Net loss and LAE incurred	21,959	18,860
Property and casualty
Written
Premiums from direct business	39,079	42,749
Reinsurance assumed	2,679	2,516
Reinsurance ceded	(3,498)	(4,705)
Net premiums, Written	38,260	40,560
Earned
Premiums from direct business	40,886	42,089
Reinsurance assumed	2,669	2,443
Reinsurance ceded	(3,822)	(4,965)
Net premiums, Earned	$ 39,733	$ 39,567

XML

Reinsurance Activity - Coverage (Details) - Catastrophic coverage $ in Millions		3 Months Ended	12 Months Ended
	Jan. 01, 2016 USD ($)	Mar. 31, 2016 USD ($) item	Dec. 31, 2015
First layer of protection
Reinsurance activity
Loss amount covered under reinsurance contract		$ 17.0
Reinsurance retention amount		8.0
Second layer of protection
Reinsurance activity
Loss amount covered under reinsurance contract		25.0
Reinsurance coverage in losses per event		25.0
Third layer of protection
Reinsurance activity
Loss amount covered under reinsurance contract		25.0
Reinsurance coverage in losses per event		50.0
Fourth layer of protection
Reinsurance activity
Loss amount covered under reinsurance contract		50.0
Reinsurance coverage in losses per event		75.0
ASIC
Reinsurance activity
Loss amount covered under reinsurance contract		6.5
Reinsurance retention amount		1.5
NLIC
Reinsurance activity
Reinsurance retention amount		$ 8.0
NLC
Reinsurance activity
Loss amount covered under reinsurance contract	$ 1.0
Aggregate coverage in excess of retention for sub-catastrophic events	$ 10.0
Number of layers of protection under reinsurance | item		4
Participation retained (as a percent)			9.00%
NLIC and ASIC | Maximum
Reinsurance activity
Reinsurance retention amount		$ 8.0

XML

Segment and Related Information (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($) segment	Mar. 31, 2015 USD ($)	Dec. 31, 2015 USD ($)
Information about the revenues, operating results, goodwill and assets
Number of reportable segments | segment	4
Net interest income (expense)	$ 93,541	$ 93,392
Provision for loan losses	3,407	2,687
Noninterest income	277,686	352,846
Noninterest expense	325,201	314,476
Income before income taxes	42,619	129,075
Goodwill	251,808		$ 251,808
Total assets	11,731,928		11,867,001
Operating segment | Banking
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	86,105	83,442
Provision for loan losses	3,500	2,486
Noninterest income	12,956	19,309
Noninterest expense	64,357	58,532
Income before income taxes	31,204	41,733
Goodwill	207,741		207,741
Total assets	8,591,995		8,707,433
Operating segment | Broker-Dealer
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	7,051	7,996
Provision for loan losses	(93)	201
Noninterest income	80,883	79,528
Noninterest expense	84,261	90,795
Income before income taxes	3,766	(3,472)
Goodwill	7,008		7,008
Total assets	2,692,691		2,673,455
Operating segment | Mortgage origination
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	(2,569)	(3,014)
Noninterest income	146,338	135,292
Noninterest expense	134,671	122,302
Income before income taxes	9,098	9,976
Goodwill	13,071		13,071
Total assets	1,570,635		1,737,843
Operating segment | Insurance
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	740	757
Noninterest income	41,804	41,845
Noninterest expense	36,375	33,466
Income before income taxes	6,169	9,136
Goodwill	23,988		23,988
Total assets	347,328		349,259
Corporate
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	(1,714)	109
Noninterest income	1	81,289
Noninterest expense	5,849	9,626
Income before income taxes	(7,562)	71,772
Total assets	1,926,204		1,905,547
All Other and Eliminations.
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	3,928	4,102
Noninterest income	(4,296)	(4,417)
Noninterest expense	(312)	(245)
Income before income taxes	(56)	$ (70)
Total assets	$ (3,396,925)		$ (3,506,536)

XML

Earnings per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Basic earnings per share:
Income (loss) applicable to Hilltop common stockholders	$ 27,442	$ 111,302
Weighted average shares outstanding - basic	98,153	99,741
Basic earnings (loss) per common share (in dollars per share)	$ 0.28	$ 1.12
Diluted earnings per share:
Weighted average shares outstanding - diluted	98,669	100,627
Effect of potentially dilutive securities (in shares)	516	886
Diluted earnings (loss) per common share (in dollars per share)	$ 0.28	$ 1.11
Restricted Stock Awards
Basic earnings per share:
Less: income applicable to participating shares	$ (125)	$ (574)
Common Stock | Equity and Award Type Excluding Restricted Stock Awards
Basic earnings per share:
Income (loss) applicable to Hilltop common stockholders	27,567	111,876
Diluted earnings per share:
Income (loss) applicable to Hilltop common stockholders	$ 27,567	$ 111,876

XML

Subsequent Event (Details) - RSUs - 2012 Plan - USD ($) $ / shares in Units, $ in Millions		3 Months Ended
	Apr. 01, 2016	Mar. 31, 2016
Subsequent events
Number of shares awarded (in shares)		277,000
Grant date fair value (in dollars per share)		$ 16.04
Vesting period		3 years
Unrecognized compensation expense		$ 14.4
Subsequent Event
Subsequent events
Number of shares awarded (in shares)	268,906
Grant date fair value (in dollars per share)	$ 18.68
Vesting period	3 years
Unrecognized compensation expense	$ 5.0