10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2019

☐ 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)
2323 Victory Avenue, Suite 1400
Dallas, TX	75219
(Address of principal executive offices)	(Zip Code)

(214) 855-2177

(Registrant’s telephone number, including area code)

Securities registered pursuant to section 12(b) of the Act:

Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	HTH	New York Stock Exchange

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 every Interactive Data File required to be submitted 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 such files). Yes ☒   No ◻

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

Large accelerated filer ⌧	Accelerated filer ◻
Non-accelerated filer ◻ ​	Smaller reporting company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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 November 18, 2019 was 90,632,962.

HILLTOP HOLDINGS INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2019

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	8
	Notes to Consolidated Financial Statements	9
	Schedule I - Insurance Incurred and Cumulative Paid Losses and Allocated Loss and Loss Adjustment Expenses, Net of Reinsurance	52
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	88
Item 4.	Controls and Procedures	92
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	93
Item 1A.	Risk Factors	93
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	93
Item 6.	Exhibits	94

2

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(Unaudited)

	September 30,		December 31,
	2019		2018
Assets
Cash and due from banks	$	326,129	$	644,073
Federal funds sold		423		400
Assets segregated for regulatory purposes		83,878		133,993
Securities purchased under agreements to resell		49,998		61,611
Securities:
Trading, at fair value		707,268		745,466
Available for sale, at fair value (amortized cost of $987,992 and $886,799, respectively)		1,003,850		875,658
Held to maturity, at amortized cost (fair value of $377,337 and $341,124, respectively)		371,361		351,012
Equity, at fair value		19,494		19,679
		2,101,973		1,991,815
Loans held for sale		1,984,231		1,393,246
Loans held for investment, net of unearned income		7,321,208		6,930,458
Allowance for loan losses		(55,604)		(59,486)
Loans held for investment, net		7,265,604		6,870,972
Broker-dealer and clearing organization receivables		1,731,979		1,440,287
Premises and equipment, net		213,757		237,373
Operating lease right-of-use assets		121,838		—
Other assets		633,794		580,362
Goodwill		291,435		291,435
Other intangible assets, net		31,990		38,005
Total assets	$	14,837,029	$	13,683,572
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing	$	2,732,325	$	2,560,750
Interest-bearing		5,998,547		5,975,406
Total deposits		8,730,872		8,536,156
Broker-dealer and clearing organization payables		1,546,163		1,294,925
Short-term borrowings		1,502,755		1,065,807
Securities sold, not yet purchased, at fair value		59,249		81,667
Notes payable		245,341		228,872
Operating lease liabilities		131,133		—
Junior subordinated debentures		67,012		67,012
Other liabilities		471,077		435,240
Total liabilities		12,753,602		11,709,679
Commitments and contingencies (see Notes 13 and 14)
Stockholders' equity:
Hilltop stockholders' equity:
Common stock, $0.01 par value, 125,000,000 shares authorized; 90,629,208 and 93,610,217 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		906		936
Additional paid-in capital		1,441,604		1,489,816
Accumulated other comprehensive income (loss)		12,305		(8,627)
Retained earnings		602,835		466,737
Deferred compensation employee stock trust, net		789		825
Employee stock trust (8,508 and 11,672 shares, at cost, at September 30, 2019 and December 31, 2018, respectively)		(170)		(217)
Total Hilltop stockholders' equity		2,058,269		1,949,470
Noncontrolling interests		25,158		24,423
Total stockholders' equity		2,083,427		1,973,893
Total liabilities and stockholders' equity	$	14,837,029	$	13,683,572

See accompanying notes.

3

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Interest income:
Loans, including fees	$	119,580	$	113,535	$	344,775	$	317,403
Securities borrowed		21,010		16,346		53,386		50,132
Securities:
Taxable		15,764		11,994		46,064		35,463
Tax-exempt		1,576		1,717		4,587		5,186
Other		4,026		4,734		13,240		13,542
Total interest income		161,956		148,326		462,052		421,726
Interest expense:
Deposits		18,887		12,353		54,029		31,164
Securities loaned		17,889		13,984		46,097		42,798
Short-term borrowings		8,166		7,831		20,534		18,340
Notes payable		2,715		2,702		7,985		7,636
Junior subordinated debentures		955		955		2,942		2,695
Other		132		160		446		484
Total interest expense		48,744		37,985		132,033		103,117
Net interest income		113,212		110,341		330,019		318,609
Provision (recovery) for loan losses		47		(371)		326		(1,838)
Net interest income after provision (recovery) for loan losses		113,165		110,712		329,693		320,447
Noninterest income:
Net gains from sale of loans and other mortgage production income		157,050		116,243		384,362		354,488
Mortgage loan origination fees		37,782		27,004		93,064		76,948
Securities commissions and fees		34,426		36,968		104,537		114,005
Investment and securities advisory fees and commissions		28,685		23,487		71,704		63,806
Net insurance premiums earned		32,654		34,185		99,323		102,605
Other		50,804		31,810		153,750		72,422
Total noninterest income		341,401		269,697		906,740		784,274
Noninterest expense:
Employees' compensation and benefits		235,197		205,575		640,838		588,807
Occupancy and equipment, net		27,202		29,015		83,444		84,695
Professional services		24,346		27,984		71,041		78,959
Loss and loss adjustment expenses		14,677		18,712		54,584		58,653
Other		48,687		54,425		152,964		171,316
Total noninterest expense		350,109		335,711		1,002,871		982,430
Income before income taxes		104,457		44,698		233,562		122,291
Income tax expense		22,750		7,600		52,287		26,122
Net income		81,707		37,098		181,275		96,169
Less: Net income attributable to noncontrolling interest		2,289		1,293		5,260		2,843
Income attributable to Hilltop	$	79,418	$	35,805	$	176,015	$	93,326
Earnings per common share:
Basic	$	0.87	$	0.38	$	1.89	$	0.98
Diluted	$	0.86	$	0.38	$	1.89	$	0.98
Weighted average share information:
Basic		91,745		94,554		92,931		95,264
Diluted		91,824		94,610		92,959		95,355

See accompanying notes.

4

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net income	$	81,707	$	37,098	$	181,275	$	96,169
Other comprehensive income:
Net unrealized gains (losses) on securities available for sale, net of tax of $1,238, $(847), $6,030 and $(3,335), respectively		6,468		(2,900)		22,973		(11,751)
Reclassification adjustment for gains included in net income, net of tax of $(531), $7, $(536) and $7, respectively		(2,025)		24		(2,041)		24
Comprehensive income		86,150		34,222		202,207		84,442
Less: comprehensive income attributable to noncontrolling interest		2,289		1,293		5,260		2,843
Comprehensive income applicable to Hilltop	$	83,861	$	32,929	$	196,947	$	81,599

See accompanying notes.

5

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)

						Accumulated				Deferred					Total
				Additional		Other				Compensation		Employee			Hilltop				Total
	Common Stock			Paid-in		Comprehensive		Retained		Employee Stock		Stock Trust			Stockholders’		Noncontrolling		Stockholders’
	Shares	Amount		Capital		Income (Loss)		Earnings		Trust, Net		Shares	Amount		Equity		Interest		Equity
Balance, June 30, 2018	94,571	$	946	$	1,502,105	$	(11,846)	$	419,683	$	857	11	$	(252)	$	1,911,493	$	4,920	$	1,916,413
Net income	—		—		—		—		35,805		—	—		—		35,805		1,293		37,098
Other comprehensive loss	—		—		—		(2,876)		—		—	—		—		(2,876)		—		(2,876)
Stock-based compensation expense	—		—		2,176		—		—		—	—		—		2,176		—		2,176
Common stock issued to board members	12		—		265		—		—		—	—		—		265		—		265
Issuance of common stock related to share-based awards, net	11		—		(79)		—		—		—	—		—		(79)		—		(79)
Dividends received on repurchased common stock	—		—		—		—		56		—	—		—		56		—		56
Dividends on common stock ($0.07 per share)	—		—		—		—		(6,621)		—	—		—		(6,621)		—		(6,621)
Deferred compensation plan	—		—		—		—		—		3	—		—		3		—		3
Net cash distributed from noncontrolling interest	—		—		—		—		—		—	—		—		—		17,723		17,723
Balance, September 30, 2018	94,594	$	946	$	1,504,467	$	(14,722)	$	448,923	$	860	11	$	(252)	$	1,940,222	$	23,936	$	1,964,158
Balance, June 30, 2019	92,775	$	928	$	1,473,599	$	7,862	$	544,275	$	788	9	$	(171)	$	2,027,281	$	24,524	$	2,051,805
Net income	—		—		—		—		79,418		—	—		—		79,418		2,289		81,707
Other comprehensive income	—		—		—		4,443		—		—	—		—		4,443		—		4,443
Stock-based compensation expense	—		—		2,978		—		—		—	—		—		2,978		—		2,978
Common stock issued to board members	6		—		145		—		—		—	—		—		145		—		145
Issuance of common stock related to share-based awards, net	23		—		(200)		—		—		—	—		—		(200)		—		(200)
Repurchases of common stock	(2,175)		(22)		(34,918)		—		(13,465)		—	—		—		(48,405)		—		(48,405)
Dividends on common stock ($0.08 per share)	—		—		—		—		(7,393)		—	—		—		(7,393)		—		(7,393)
Deferred compensation plan	—		—		—		—		—		1	—		1		2		—		2
Net cash distributed to noncontrolling interest	—		—		—		—		—		—	—		—		—		(1,655)		(1,655)
Balance, September 30, 2019	90,629	$	906	$	1,441,604	$	12,305	$	602,835	$	789	9	$	(170)	$	2,058,269	$	25,158	$	2,083,427

See accompanying notes.

6

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(in thousands)

(Unaudited)

						Accumulated				Deferred					Total
				Additional		Other				Compensation		Employee			Hilltop				Total
	Common Stock			Paid-in		Comprehensive		Retained		Employee Stock		Stock Trust			Stockholders’		Noncontrolling		Stockholders’
	Shares	Amount		Capital		Income (Loss)		Earnings		Trust, Net		Shares	Amount		Equity		Interest		Equity
Balance, December 31, 2017	95,982	$	960	$	1,526,369	$	(394)	$	384,545	$	848	12	$	(247)	$	1,912,081	$	2,726	$	1,914,807
Net income	—		—		—		—		93,326		—	—		—		93,326		2,843		96,169
Other comprehensive loss	—		—		—		(11,727)		—		—	—		—		(11,727)		—		(11,727)
Stock-based compensation expense	—		—		6,725		—		—		—	—		—		6,725		—		6,725
Common stock issued to board members	22		—		513		—		—		—	—		—		513		—		513
Issuance of common stock related to share-based awards, net	292		3		(1,811)		—		—		—	—		—		(1,808)		—		(1,808)
Repurchases of common stock	(1,702)		(17)		(27,329)		—		(11,475)		—	—		—		(38,821)		—		(38,821)
Dividends on common stock ($0.21 per share)	—		—		—		—		(20,074)		—	—		—		(20,074)		—		(20,074)
Deferred compensation plan	—		—		—		—		—		12	(1)		(5)		7		—		7
Adoption of accounting standards	—		—		—		(2,601)		2,601		—	—		—		—		—		—
Net cash distributed from noncontrolling interest	—		—		—		—		—		—	—		—		—		18,367		18,367
Balance, September 30, 2018	94,594	$	946	$	1,504,467	$	(14,722)	$	448,923	$	860	11	$	(252)	$	1,940,222	$	23,936	$	1,964,158
Balance, December 31, 2018	93,610	$	936	$	1,489,816	$	(8,627)	$	466,737	$	825	11	$	(217)	$	1,949,470	$	24,423	$	1,973,893
Net income	—		—		—		—		176,015		—	—		—		176,015		5,260		181,275
Other comprehensive income	—		—		—		20,932		—		—	—		—		20,932		—		20,932
Stock-based compensation expense	—		—		7,717		—		—		—	—		—		7,717		—		7,717
Common stock issued to board members	21		—		426		—		—		—	—		—		426		—		426
Issuance of common stock related to share-based awards, net	388		4		(1,938)		—		—		—	—		—		(1,934)		—		(1,934)
Repurchases of common stock	(3,390)		(34)		(54,417)		—		(18,934)		—	—		—		(73,385)		—		(73,385)
Dividends on common stock ($0.24 per share)	—		—		—		—		(22,376)		—	—		—		(22,376)		—		(22,376)
Deferred compensation plan	—		—		—		—		—		(36)	(2)		47		11		—		11
Adoption of accounting standards (Note 2)	—		—		—		—		1,393		—	—		—		1,393		—		1,393
Net cash distributed to noncontrolling interest	—		—		—		—		—		—	—		—		—		(4,525)		(4,525)
Balance, September 30, 2019	90,629	$	906	$	1,441,604	$	12,305	$	602,835	$	789	9	$	(170)	$	2,058,269	$	25,158	$	2,083,427

See accompanying notes.

7

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2019		2018
Operating Activities
Net income	$	181,275	$	96,169
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision (recovery) for loan losses		326		(1,838)
Depreciation, amortization and accretion, net		(455)		3,558
Net change in fair value of equity securities		(1,368)		396
Deferred income taxes		1,065		653
Other, net		10,695		6,355
Net change in securities purchased under agreements to resell		11,613		21,881
Net change in trading securities		38,198		70,371
Net change in broker-dealer and clearing organization receivables		(271,474)		(42,516)
Net change in other assets		(48,122)		39,208
Net change in broker-dealer and clearing organization payables		132,964		85,409
Net change in other liabilities		87,990		(79,283)
Net change in securities sold, not yet purchased		(22,418)		(53,239)
Proceeds from sale of mortgage servicing rights asset		—		9,303
Net gains from sales of loans		(384,362)		(354,488)
Loans originated for sale		(11,858,761)		(11,148,919)
Proceeds from loans sold		11,638,303		11,665,782
Net cash provided by (used in) operating activities		(484,531)		318,802
Investing Activities
Proceeds from maturities and principal reductions of securities held to maturity		53,051		36,729
Proceeds from sales, maturities and principal reductions of securities available for sale		219,351		190,266
Proceeds from sales, maturities and principal reductions of equity securities		1,860		3
Purchases of securities held to maturity		(73,652)		(29,377)
Purchases of securities available for sale		(324,609)		(276,710)
Purchases of equity securities		(307)		(719)
Net change in loans held for investment		(387,952)		(113,918)
Purchases of premises and equipment and other assets		(27,200)		(60,473)
Proceeds from sales of premises and equipment and other real estate owned		12,570		18,440
Net cash paid for Federal Home Loan Bank and Federal Reserve Bank stock		(20,381)		(5,447)
Net cash paid for acquisition		—		(63,245)
Net cash used in investing activities		(547,269)		(304,451)
Financing Activities
Net change in deposits		312,990		(40,850)
Net change in short-term borrowings		436,948		10,225
Proceeds from notes payable		675,086		455,776
Payments on notes payable		(658,677)		(444,312)
Payments to repurchase common stock		(73,385)		(38,821)
Dividends paid on common stock		(22,376)		(20,074)
Net cash received from (distributed to) noncontrolling interest		(4,525)		18,367
Taxes paid on employee stock awards netting activity		(1,934)		(1,806)
Other, net		(363)		(551)
Net cash provided by (used in) financing activities		663,764		(62,046)
Net change in cash, cash equivalents and restricted cash		(368,036)		(47,695)
Cash, cash equivalents and restricted cash, beginning of period		778,466		673,960
Cash, cash equivalents and restricted cash, end of period	$	410,430	$	626,265
Reconciliation of Cash, Cash Equivalents and Restricted Cash to Consolidated Balance Sheets
Cash and due from banks	$	326,129	$	405,682
Federal funds sold		423		468
Assets segregated for regulatory purposes		83,878		220,115
Total cash, cash equivalents and restricted cash	$	410,430	$	626,265
Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	125,928	$	101,402
Cash paid for income taxes, net of refunds	$	32,227	$	5,806
Supplemental Schedule of Non-Cash Activities
Derecognition of construction in progress related to build-to-suit lease obligations	$	—	$	23,773
Conversion of loans to other real estate owned	$	3,502	$	5,868
Additions to mortgage servicing rights	$	8,574	$	21,090

See accompanying notes.

8

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, headquartered in Dallas, Texas, provides its products and services through three primary business units, PlainsCapital Corporation (“PCC”), Hilltop Securities Holdings LLC (“Securities Holdings”) and National Lloyds Corporation (“NLC”). PCC is a financial holding company 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 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 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.

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, 2018 (“2018 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, 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 PCC. PCC owns 100% of the outstanding stock of the Bank and 100% of the membership interest in Hilltop Opportunity Partners LLC, a merchant bank utilized to facilitate investments in companies engaged in non-financial activities. The Bank owns 100% of the outstanding stock of PrimeLending, a PlainsCapital Company (“PrimeLending”).

PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC (“Ventures Management”), which holds an ownership interest in and is the managing member of certain affiliated business arrangements (“ABAs”).

PCC 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

9

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

(“VIE”) 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 Inc. (“Hilltop Securities”), Hilltop Securities Independent Network Inc. (“HTS Independent Network”) (collectively, the “Hilltop Broker-Dealers”) and Hilltop Securities Asset Management, LLC. Hilltop Securities is a broker-dealer registered with the SEC and 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 Hilltop Securities Asset Management, LLC is a registered investment adviser under the Investment Advisers Act of 1940.

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

In addition, Hilltop owns 100% of the membership interest in each of HTH Hillcrest Project LLC (“HTH Project LLC”) and Hilltop Investments I, LLC. Hilltop Investments I, LLC owns 50% of the membership interest in HTH Diamond Hillcrest Land LLC (“Hillcrest Land LLC”) which is consolidated under the aforementioned VIE Subsections of the ASC. These entities are related to the Hilltop Plaza investment discussed in detail in Note 13 to the consolidated financial statements and are collectively referred to as the “Hilltop Plaza Entities.”

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.

Certain reclassifications have been made to the prior period consolidated financial statements to conform with the current period presentation, including reclassifications due to the adoption of new accounting pronouncements. In preparing these consolidated financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all stockholders and other financial statement users, or filed with the SEC.

Significant accounting policies are detailed in Note 1 to the consolidated financial statements included in the Company’s 2018 Form 10-K. As a result of the adoption of ASU 2016-02 and related amendments and technical corrections (collectively, the “Leasing Standard”), the Company has included a new significant accounting policy related to lease accounting as summarized below.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases with a term of greater than one year are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Company’s consolidated balance sheets. Finance leases are included in premises and equipment and other liabilities on the Company’s consolidated balance sheets. The Company has lease agreements with lease and nonlease components, which are generally accounted for as a single lease component. Leases of low-value assets are assessed on a lease-by-lease basis to determine the need for balance sheet capitalization.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate commensurate with the lease term based on the information available at the lease commencement date in determining the present value of lease payments. No significant judgments or assumptions were involved in developing the estimated operating lease liabilities as the Company’s operating lease liabilities largely represent the future rental expenses associated with operating leases, and the incremental borrowing rates are based on publicly available interest rates. The operating lease

10

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease. These options to extend or terminate are assessed on a lease-by-lease basis, and the ROU assets and lease liabilities are adjusted when it is reasonably certain that an option will be exercised. Rental expense for lease payments is recognized on a straight-line basis over the lease term and is included in occupancy and equipment, net within our consolidated statements of operations.

2. Recently Issued Accounting Standards

Accounting Standards Adopted During 2019

In July 2018, the FASB issued ASU 2018-09 which clarifies, corrects and makes minor improvements to a wide variety of topics in the ASC. The amendments make the ASC easier to understand and apply by eliminating inconsistencies and providing clarifications. The transition and effective dates are based on the facts and circumstances of each amendment, with some amendments becoming effective upon issuance of the ASU, and others becoming effective for annual periods beginning after December 15, 2018. The Company adopted the amendments as of January 1, 2019, which did not have a material effect on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12 which provides targeted improvements to accounting for hedging activities. The FASB has issued various updates, improvements and technical corrections since the issuance of ASU 2017-12. The purpose of the amendment is to better align a company’s risk management activities with its financial reporting for hedging relationships, to simplify the hedge accounting requirements and to improve the disclosures of hedging arrangements. The amendment is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. The Company adopted the standard on January 1, 2019. The Company has not historically applied hedge accounting to its derivative transactions, so the provisions of the amendment did not have a material effect on the Company’s consolidated financial statements.

In February 2016, the FASB issued the Leasing Standard, which is codified in ASC 842, Leases, and is intended to increase transparency and comparability among organizations and require lessees to record an ROU asset and a liability representing the obligation to make lease payments for long-term leases. Accounting by lessors remains largely unchanged. The Company adopted the standard on January 1, 2019, using the modified retrospective transition under the option to apply the Leasing Standard at its effective date without adjusting the prior period comparative financial statements. The Company elected the package of practical expedients to not reassess: (i) whether any existing contracts are or contain a lease, (ii) the lease classification of any existing leases and (iii) initial direct costs related to existing leases. The Company also elected to apply an additional practical expedient to include both the lease and nonlease components of all leases as a single component and account for it as a lease. The Company implemented internal controls and key system functionality to enable the preparation of financial information upon adoption. The implementation of the Leasing Standard had a material impact on our consolidated balance sheets but did not have a material impact on our consolidated statements of operations. On January 1, 2019, the Company recorded operating lease liabilities of $121.8 million and ROU assets of $111.9 million upon adoption of the Leasing Standard. The lease liabilities (at their present value) represent predominantly all of the future minimum lease payments required under operating leases. The balance sheet effects of the new lease accounting standard also impacted regulatory capital ratios, performance ratios and other measures which are dependent upon asset or liability balances. In addition, the Company reassessed its accounting ownership of the Hilltop Plaza assets under construction as of January 1, 2019, under the build-to-suit provisions of ASC 842 and concluded it is not the accounting owner. As such, the assets and liabilities of the project were derecognized during the first quarter of 2019, with the $1.4 million offset representing deferred expenses recognized on the project to date through January 1, 2019, recorded as an increase to retained earnings. Refer to Note 13 for more details regarding the Hilltop Plaza transaction.

Accounting Standards Issued But Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15 which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software licenses). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the

11

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

amendments in this update. The amendment also includes presentation and disclosure provisions regarding capitalized implementation costs. The amendment is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. The Company will adopt the provisions of this amendment in the first quarter of 2020 with the impact to be limited to presentation and disclosure changes that are not expected to have an impact on its future consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, which includes various removals, modifications and additions to existing guidance regarding fair value disclosures. The amendments are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. The Company will adopt the provisions of this amendment in the first quarter of 2020 with the impact to be limited to presentation and disclosure changes that are not expected to have an impact on its future consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13 which sets forth a “current expected credit loss” (CECL) model that requires entities to measure all credit losses expected over the life of an exposure (or pool of exposures) for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The FASB has issued various updates, improvements and technical corrections to the standard since the issuance of ASU 2016-13. The new standard, which is codified in ASC 326, Financial Instruments – Credit Losses, replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. The new standard also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. The new standard is effective for the Company for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2019 with a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. The Company’s cross-functional team has substantially completed development of credit forecasting models and a credit scoring system for significant loan portfolio segments. The Company is in the final stages of testing these models and validating data inputs, while continuing to develop the policies, systems and controls that will be required to fully implement CECL. Based on the work completed to date and the current loan portfolio, the Company estimates that the allowance for credit losses will be between approximately $80 million and $110 million when CECL is adopted on January 1, 2020, inclusive of the change in reserve for unfunded commitments currently included in other liabilities within the consolidated balance sheets. The estimated increase is driven by the fact that the allowance will cover expected credit losses over the entire expected life of the loan portfolios and will also take into account forecasts of expected future macroeconomic conditions. This estimated increase, net of tax, will largely be reflected within the banking segment and as a decrease to opening retained earnings at January 1, 2020. While not expected to be material, the impact of the adoption of CECL will also affect the Company’s regulatory capital, performance and other asset quality ratios. The Company will continue to produce parallel credit loss calculations during the remainder of 2019. The estimated range noted above and ultimate magnitude of the increase in allowance for credit losses upon adoption is expected to be volatile given dependence upon, among other things, the portfolio composition and quality, as well as the impact of significant drivers, including prepayment assumptions and macroeconomic conditions and forecasts at the time of adoption.

3. Acquisition

BORO Acquisition

On August 1, 2018, to expand its Houston-area banking operations, the Company acquired privately-held The Bank of River Oaks (“BORO”) in an all-cash transaction (the “BORO Acquisition”). Pursuant to the terms of the definitive agreement, the Company paid cash in the aggregate amount of $85 million to the shareholders and option holders of BORO. The operations of BORO are included in the Bank’s operating results beginning August 1, 2018. BORO’s results of operations prior to the acquisition date are not included in the Company’s consolidated operating results.

12

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The BORO Acquisition 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 resulting fair values of the identifiable assets acquired and liabilities assumed from BORO at August 1, 2018 are summarized in the following table (in thousands).

Cash and due from banks	$	21,756
Securities		60,477
Loans held for investment		326,618
Other assets		25,912
Total identifiable assets acquired		434,763
Deposits		376,393
Short-term borrowings		10,000
Other liabilities		2,996
Total liabilities assumed		389,389
Net identifiable assets acquired		45,374
Goodwill resulting from the acquisition		39,627
Net assets acquired	$	85,001

The goodwill of $39.6 million resulting from the BORO Acquisition represents the inherent long-term value expected from the business opportunities created from combining BORO with the Company. The Company used significant estimates and assumptions to value the identifiable assets acquired and liabilities assumed. The amount of goodwill recorded in connection with the Company’s acquisition of BORO is not deductible for tax purposes.

Included within the fair value of other assets in the table above are $10.0 million of identifiable core deposits intangible assets recorded in connection with the BORO Acquisition which are being amortized on an accelerated basis over an estimated useful life of six years. The fair value of the core deposit intangible assets was estimated using the net cost savings method, a variation of the income approach. This involved the use of the following significant assumptions: cost of deposits, customer attrition rate, and discount rate.

In connection with the BORO Acquisition, the Company 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 Loans Held
	PCI Loans		Loans		for Investment
Commercial real estate	$	119,188	$	5,350	$	124,538
1 - 4 family residential		55,487		39		55,526
Construction and land development		37,134		—		37,134
Commercial and industrial		98,259		2,127		100,386
Consumer		9,021		13		9,034
Total	$	319,089	$	7,529	$	326,618

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

Contractually required principal and interest payments	$	10,730
Nonaccretable difference		2,859
Cash flows expected to be collected		7,871
Accretable difference		342
Fair value of loans acquired with a deterioration of credit quality	$	7,529

13

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

Contractually required principal and interest payments	$	381,551
Contractual cash flows not expected to be collected		15,286
Fair value at acquisition		319,089

4. 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 includes 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 September 30, 2019 and December 31, 2018, the aggregate fair value of PrimeLending’s mortgage loans held for sale accounted for under the Fair Value Option was $1.85 billion and $1.26 billion, respectively, and the unpaid principal balance of those loans was $1.80 billion and $1.21 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

14

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

dealers and data from independent pricing services. The fair value of loans held for sale is determined using an exit price method.

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

	Level 1		Level 2		Level 3		Total
September 30, 2019	Inputs		Inputs		Inputs		Fair Value
Trading securities	$	6,562	$	700,706	$	—	$	707,268
Available for sale securities		—		1,003,850		—		1,003,850
Equity securities		19,494		—		—		19,494
Loans held for sale		—		1,792,321		60,904		1,853,225
Derivative assets		—		40,791		—		40,791
MSR asset		—		—		51,297		51,297
Securities sold, not yet purchased		33,454		25,795		—		59,249
Derivative liabilities		—		6,083		—		6,083

	Level 1		Level 2		Level 3			Total
December 31, 2018	Inputs		Inputs		Inputs			Fair Value
Trading securities	$	7,947	$	737,519	$	—	$	745,466
Available for sale securities		—		875,658		—		875,658
Equity securities		19,679		—		—		19,679
Loans held for sale		—		1,207,311		50,464		1,257,775
Derivative assets		—		35,010		—		35,010
MSR asset		—		—		66,102		66,102
Securities sold, not yet purchased		33,000		48,667		—		81,667
Derivative liabilities		—		26,355		—		26,355

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/		Transfers to		Included in		Comprehensive		Balance at
	Period		Additions		Reductions		(from) Level 3		Net Income		Income (Loss)		End of Period
Three months ended September 30, 2019
Loans held for sale	$	56,799	$	15,347	$	(9,364)	$	711	$	(2,589)	$	—	$	60,904
MSR asset		53,695		4,166		—		—		(6,564)		—		51,297
Total	$	110,494	$	19,513	$	(9,364)	$	711	$	(9,153)	$	—	$	112,201
Nine months ended September 30, 2019
Loans held for sale	$	50,464	$	44,827	$	(27,448)	$	1,136	$	(8,075)	$	—	$	60,904
MSR asset		66,102		8,574		—		—		(23,379)		—		51,297
Total	$	116,566	$	53,401	$	(27,448)	$	1,136	$	(31,454)	$	—	$	112,201
Three months ended September 30, 2018
Loans held for sale	$	40,781	$	19,156	$	(4,614)		—	$	(958)	$	—	$	54,365
MSR asset		57,373		11,361		—		—		70		—		68,804
Total	$	98,154	$	30,517	$	(4,614)	$	—	$	(888)	$	—	$	123,169
Nine months ended September 30, 2018
Loans held for sale	$	36,972	$	39,706	$	(17,127)		—	$	(5,186)	$	—	$	54,365
MSR asset		54,714		21,090		(9,303)		—		2,303		—		68,804
Total	$	91,686	$	60,796	$	(26,430)	$	—	$	(2,883)	$	—	$	123,169

All net realized and unrealized gains (losses) in the tables above are reflected in the accompanying consolidated financial statements. The unrealized gains (losses) relate to financial instruments still held at September 30, 2019.

15

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

For Level 3 financial instruments measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018, the significant unobservable inputs used in the fair value measurements were as follows.

			Range (Weighted-Average)
			September 30,							December 31,
Financial instrument	Valuation Technique	Unobservable Inputs	2019							2018
Loans held for sale	Discounted cash flows / Market comparable	Projected price	92	-	96	%	(	95	%)	95	-	96	%	(	95	%)
MSR asset	Discounted cash flows	Constant prepayment rate			14.40		%					10.51		%
		Discount rate			11.13		%					11.11		%

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 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 reported at fair value using Level 3 inputs. The MSR asset 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. Any transfers are based on changes in the observability and/or significance of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which they occur.

The following table presents those changes in fair value of instruments recognized in the consolidated statements of operations that are accounted for under the Fair Value Option (in thousands).

	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
			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	$	4,117	$	—	$	4,117	$	(20,417)	$	—	$	(20,417)
MSR asset		(6,564)		—		(6,564)		70		—		70

	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
			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	$	7,972	$	—	$	7,972	$	(12,693)	$	—	$	(12,693)
MSR asset		(23,379)		—		(23,379)		2,303		—		2,303

The Company also determines the fair value of certain assets and liabilities on a non-recurring basis. In particular, the fair value of all assets acquired and liabilities assumed in an acquisition of a business are determined at their respective acquisition date fair values. 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 individually impaired loans based on the underlying fair value of the collateral through specific allowances within the allowance for loan losses. PCI loans were acquired by the Company upon completion of the merger with PCC (the “PlainsCapital Merger”), the FDIC-assisted transaction whereby the Bank acquired certain assets and assumed certain liabilities of Edinburg, Texas-based First National Bank (“FNB”) on September 13, 2013 (the “FNB Transaction”), the acquisition of SWS Group, Inc. (“SWS”) in a stock and cash transaction (the "SWS Merger"), whereby SWS’s banking subsidiary, Southwest Securities, FSB, was merged into the Bank, and the BORO Acquisition (collectively, the “Bank Transactions”). The fair value of PCI loans was determined

16

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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.

Estimates for these significant unobservable inputs and the resulting weighted average expected loss on PCI loans were as follows.

	PCI Loans
	PlainsCapital		FNB		SWS		BORO
September 30, 2019	Merger		Transaction		Merger		Acquisition
Weighted average default rate	84	%	30	%	66	%	59	%
Weighted average loss severity rate	58	%	12	%	28	%	43	%
Weighted average prepayment speed	0	%	5	%	0	%	0	%
Resulting weighted average expected loss on PCI loans	49	%	4	%	18	%	25	%
	PCI Loans
	PlainsCapital		FNB		SWS		BORO
December 31, 2018	Merger		Transaction		Merger		Acquisition
Weighted average default rate	81	%	34	%	71	%	63	%
Weighted average loss severity rate	59	%	12	%	28	%	42	%
Weighted average prepayment speed	0	%	6	%	0	%	0	%
Resulting weighted average expected loss on PCI loans	48	%	4	%	20	%	26	%

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 inputs. At September 30, 2019 and December 31, 2018, the estimated fair value of OREO was $18.7 million and $27.6 million, respectively, and the underlying fair value measurements utilized Level 2 inputs. The amounts are included in other assets within the consolidated balance sheets. During the reported periods, all fair value measurements for 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				Total Gains (Losses) for the
	Level 1		Level 2		Level 3		Total		Three Months Ended September 30,				Nine Months Ended September 30,
September 30, 2019	Inputs		Inputs		Inputs		Fair Value		2019		2018		2019		2018
Impaired loans held for investment	$	—	$	—	$	67,097	$	67,097	$	(1,730)	$	668	$	(2,925)	$	(57)
Other real estate owned		—		12,112		—		12,112		(177)		(394)		(790)		(2,194)

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. There have been changes to the methods for determining estimated fair value for financial assets and liabilities as described in detail in Note 3 to the consolidated financial statements included in the Company’s 2018 Form 10-K.

17

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
September 30, 2019	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and cash equivalents	$	326,552	$	326,552	$	—	$	—	$	326,552
Assets segregated for regulatory purposes		83,878		83,878		—		—		83,878
Securities purchased under agreements to resell		49,998		—		49,998		—		49,998
Held to maturity securities		371,361		—		377,337		—		377,337
Loans held for sale		131,006		—		131,006		—		131,006
Loans held for investment, net		7,265,604		—		558,144		6,930,261		7,488,405
Broker-dealer and clearing organization receivables		1,731,979		—		1,731,979		—		1,731,979
Other assets		70,975		—		69,889		1,086		70,975
Financial liabilities:
Deposits		8,730,872		—		8,732,668		—		8,732,668
Broker-dealer and clearing organization payables		1,546,163		—		1,546,163		—		1,546,163
Short-term borrowings		1,502,755		—		1,502,755		—		1,502,755
Debt		312,353		—		310,129		—		310,129
Other liabilities		9,084		—		9,084		—		9,084

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
December 31, 2018	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and cash equivalents	$	644,473	$	644,473	$	—	$	—	$	644,473
Assets segregated for regulatory purposes		133,993		133,993		—		—		133,993
Securities purchased under agreements to resell		61,611		—		61,611		—		61,611
Held to maturity securities		351,012		—		341,124		—		341,124
Loans held for sale		135,471		—		135,471		—		135,471
Loans held for investment, net		6,870,972		—		578,363		6,445,810		7,024,173
Broker-dealer and clearing organization receivables		1,440,287		—		1,440,287		—		1,440,287
Other assets		69,720		—		68,573		1,147		69,720
Financial liabilities:
Deposits		8,536,156		—		8,528,947		—		8,528,947
Broker-dealer and clearing organization payables		1,294,925		—		1,294,925		—		1,294,925
Short-term borrowings		1,065,807		—		1,065,807		—		1,065,807
Debt		295,884		—		293,685		—		293,685
Other liabilities		3,482		—		3,482		—		3,482

18

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The Company held equity investments other than securities of $36.1 million and $35.8 million at September 30, 2019 and December 31, 2018, respectively, which are included within other assets in the consolidated balance sheets. Of the $36.1 million of such equity investments held at September 30, 2019, $19.7 million do not have readily determinable fair values and each is measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The following table presents the adjustments to the carrying value of these investments during the periods presented (in thousands).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Balance, beginning of period	$	19,906	$	26,151	$	20,376	$	22,946
Additional investments		—		—		—		1,411
Upward adjustments		101		265		303		3,642
Impairments and downward adjustments		(346)		(1)		(1,018)		(1,584)
Dispositions		—		—		—		—
Balance, end of period	$	19,661	$	26,415	$	19,661	$	26,415

5. Securities

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

	September 30,		December 31,
	2019		2018
U.S. Treasury securities	$	6,561	$	7,945
U.S. government agencies:
Bonds		8,316		1,494
Residential mortgage-backed securities		152,582		309,455
Commercial mortgage-backed securities		2,177		4,239
Collateralized mortgage obligations		281,561		206,813
Corporate debt securities		52,257		59,293
States and political subdivisions		160,244		126,748
Unit investment trusts		31,567		19,913
Private-label securitized product		7,830		5,680
Other		4,173		3,886
Totals	$	707,268	$	745,466

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 obligations 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 sheets, had a value of $59.2 million and $81.7 million at September 30, 2019 and December 31, 2018, respectively.

19

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).

	Available for Sale
	Amortized		Unrealized		Unrealized
September 30, 2019	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	9,864	$	216	$	(5)	$	10,075
U.S. government agencies:
Bonds		85,208		1,212		(3)		86,417
Residential mortgage-backed securities		487,487		7,006		(137)		494,356
Commercial mortgage-backed securities		11,541		678		—		12,219
Collateralized mortgage obligations		308,941		4,103		(499)		312,545
Corporate debt securities		44,841		1,973		—		46,814
States and political subdivisions		40,110		1,316		(2)		41,424
Totals	$	987,992	$	16,504	$	(646)	$	1,003,850

	Available for Sale
	Amortized		Unrealized		Unrealized
December 31, 2018	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	11,552	$	30	$	(44)	$	11,538
U.S. government agencies:
Bonds		85,492		552		(433)		85,611
Residential mortgage-backed securities		391,428		608		(6,962)		385,074
Commercial mortgage-backed securities		11,703		189		(120)		11,772
Collateralized mortgage obligations		281,450		385		(5,436)		276,399
Corporate debt securities		53,614		268		(580)		53,302
States and political subdivisions		51,560		608		(206)		51,962
Totals	$	886,799	$	2,640	$	(13,781)	$	875,658

	Held to Maturity
	Amortized		Unrealized		Unrealized
September 30, 2019	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	9,990	$	5	$	—	$	9,995
U.S. government agencies:
Bonds		24,020		11		(7)		24,024
Residential mortgage-backed securities		18,914		259		—		19,173
Commercial mortgage-backed securities		140,875		4,924		(50)		145,749
Collateralized mortgage obligations		122,061		431		(583)		121,909
States and political subdivisions		55,501		1,064		(78)		56,487
Totals	$	371,361	$	6,694	$	(718)	$	377,337

	Held to Maturity
	Amortized		Unrealized		Unrealized
December 31, 2018	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	9,903	$	3	$	—	$	9,906
U.S. government agencies:
Bonds		39,018		—		(1,479)		37,539
Residential mortgage-backed securities		21,903		—		(263)		21,640
Commercial mortgage-backed securities		87,065		271		(1,462)		85,874
Collateralized mortgage obligations		142,474		—		(5,000)		137,474
States and political subdivisions		50,649		91		(2,049)		48,691
Totals	$	351,012	$	365	$	(10,253)	$	341,124

Additionally, the Company had unrealized net gains of $0.6 million and unrealized net losses of $0.9 million from equity securities with fair values of $19.5 million and $19.7 million held at September 30, 2019 and December 31, 2018,

20

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

respectively. The Company recognized net losses of $0.1 million and net gains of $0.1 million during the three months ended September 30, 2019 and 2018, respectively, and net gains of $1.4 million and net losses of $0.4 million during the nine months ended September 30, 2019 and 2018, respectively, due to changes in the fair value of equity securities still held at the balance sheet date. During the three and nine months ended September 30, 2019 and 2018, net gains recognized from equity securities sold were nominal.

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).

	September 30, 2019					December 31, 2018
	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	—	$	—	$	—	1	$	981	$	6
Unrealized loss for twelve months or longer	1		1,893		5	3		3,556		39
	1		1,893		5	4		4,537		45
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	—		—		—	3		24,772		5
Unrealized loss for twelve months or longer	1		9,997		3	3		30,472		428
	1		9,997		3	6		55,244		433
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	4		26,128		39	8		66,791		432
Unrealized loss for twelve months or longer	3		14,951		98	27		194,228		6,530
	7		41,079		137	35		261,019		6,962
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	—		—		—	—		—		—
Unrealized loss for twelve months or longer	—		—		—	1		4,953		120
	—		—		—	1		4,953		120
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	11		64,055		191	11		44,394		498
Unrealized loss for twelve months or longer	12		49,027		308	28		140,483		4,938
	23		113,082		499	39		184,877		5,436
Corporate debt securities:
Unrealized loss for less than twelve months	—		—		—	8		16,256		282
Unrealized loss for twelve months or longer	—		—		—	8		15,665		297
	—		—		—	16		31,921		579
States and political subdivisions:
Unrealized loss for less than twelve months	1		545		1	29		8,590		27
Unrealized loss for twelve months or longer	1		484		1	18		9,029		179
	2		1,029		2	47		17,619		206
Total available for sale:
Unrealized loss for less than twelve months	16		90,728		231	60		161,784		1,250
Unrealized loss for twelve months or longer	18		76,352		415	88		398,386		12,531
	34	$	167,080	$	646	148	$	560,170	$	13,781

21

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

	September 30, 2019					December 31, 2018
	Number of			Unrealized		Number of			Unrealized
	Securities	Fair Value		Losses		Securities	Fair Value		Losses
Held to Maturity
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	2	$	9,693	$	7	—	$	—	$	—
Unrealized loss for twelve months or longer	—		—		—	4		37,539		1,479
	2		9,693		7	4		37,539		1,479
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	—		—		—	1		8,411		89
Unrealized loss for twelve months or longer	—		—		—	3		13,229		174
	—		—		—	4		21,640		263
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	2		9,767		50	1		4,973		27
Unrealized loss for twelve months or longer	—		—		—	13		59,670		1,435
	2		9,767		50	14		64,643		1,462
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	4		10,093		43	1		2,051		26
Unrealized loss for twelve months or longer	9		63,128		540	24		135,423		4,974
	13		73,221		583	25		137,474		5,000
States and political subdivisions:
Unrealized loss for less than twelve months	16		7,108		46	9		6,431		56
Unrealized loss for twelve months or longer	4		1,102		32	86		32,909		1,993
	20		8,210		78	95		39,340		2,049
Total held to maturity:
Unrealized loss for less than twelve months	24		36,661		146	12		21,866		198
Unrealized loss for twelve months or longer	13		64,230		572	130		278,770		10,055
	37	$	100,891	$	718	142	$	300,636	$	10,253

During the three and nine months ended September 30, 2019 and 2018, the Company did not record any other-than-temporary impairment (“OTTI”). While some of the securities held in the Company’s investment portfolio have decreased in value since the date of acquisition, the severity of loss and the duration of the loss position are not significant enough to warrant OTTI of the securities. 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. The Company does not intend to sell, nor does the Company believe that it is 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 equity securities, at September 30, 2019 are shown by contractual maturity below (in thousands).

	Available for Sale				Held to Maturity
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	35,701	$	35,719	$	9,990	$	9,995
Due after one year through five years		88,540		91,393		25,969		25,987
Due after five years through ten years		37,858		38,873		5,543		5,598
Due after ten years		17,924		18,745		48,009		48,926
		180,023		184,730		89,511		90,506
Residential mortgage-backed securities		487,487		494,356		18,914		19,173
Collateralized mortgage obligations		308,941		312,545		122,061		121,909
Commercial mortgage-backed securities		11,541		12,219		140,875		145,749
	$	987,992	$	1,003,850	$	371,361	$	377,337

The Company recognized net gains of $4.4 million and $3.2 million from its trading portfolio during the three months ended September 30, 2019 and 2018, respectively, and $15.1 million and $5.1 million during the nine months ended September 30, 2019 and 2018, respectively. In addition, the Hilltop Broker-Dealers realized net gains from structured

22

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

product trading activities of $43.3 million and $12.2 million during the three months ended September 30, 2019 and 2018, respectively, and $99.0 million and $29.7 million during the nine months ended September 30, 2019 and 2018, respectively. During both the three and nine months ended September 30, 2019, the Company had other realized losses on securities of $2.6 million. All such realized net gains and losses are recorded as a component of other noninterest income within the consolidated statements of operations.

Securities with a carrying amount of $573.2 million and $612.3 million (with a fair value of $581.5 million and $600.0 million, respectively) at September 30, 2019 and December 31, 2018, respectively, were pledged by the Bank 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 September 30, 2019 and December 31, 2018.

Mortgage-backed securities and collateralized mortgage obligations consist primarily 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 September 30, 2019 and December 31, 2018, NLC had investments on deposit in custody for various state insurance departments with aggregate carrying values of $9.3 million and $9.5 million, respectively.

6. Loans Held for Investment and Allowance for Loan Losses

The loans acquired in the FNB Transaction were subject to loss-share agreements with the FDIC. During the fourth quarter of 2018, the Bank and the FDIC entered into a Termination Agreement pursuant to which all rights and obligations of the Bank and the FDIC under the FDIC loss-share agreements were resolved and terminated. Accordingly, loans which were previously referred to as either “covered loans” if covered by the loss-share agreements or otherwise “non-covered loans” are now collectively referred to as “loans held for investment.” Disclosures associated with loans that were previously covered by the FDIC loss-share agreements during the three and nine months ended September 30, 2018 are included in the “covered” portfolio segment in the applicable tables that follow. The majority of the loans previously covered by the FDIC loss-share agreements are comprised primarily of commercial real estate and 1-4 family residential loans. Loans held for investment summarized by portfolio segment are as follows (in thousands).

	September 30,		December 31,
	2019		2018
Commercial real estate	$	2,933,424	$	2,940,120
Commercial and industrial		1,390,531		1,508,451
Construction and land development		972,226		932,909
1-4 family residential		698,251		679,263
Mortgage warehouse		725,852		243,806
Consumer		42,780		47,546
Broker-dealer (1)		558,144		578,363
		7,321,208		6,930,458
Allowance for loan losses		(55,604)		(59,486)
Total loans held for investment, net of allowance	$	7,265,604	$	6,870,972

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

In connection with the Bank Transactions, the Company acquired loans both with and without evidence of credit quality deterioration since origination. The following table presents the carrying values and the outstanding balances of PCI loans (in thousands).

	September 30,		December 31,
	2019		2018
Carrying amount	$	84,205	$	93,072
Outstanding balance		147,926		172,808

23

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Balance, beginning of period	$	69,305	$	86,652	$	80,693	$	98,846
Additions		—		340		—		340
Reclassifications from nonaccretable difference, net (1)		7,183		6,702		12,626		16,967
Disposals of loans		(132)		—		(835)		(98)
Accretion		(8,614)		(8,491)		(24,742)		(30,005)
Transfer of loans to OREO (2)		—		(142)		—		(989)
Balance, end of period	$	67,742	$	85,061	$	67,742	$	85,061

(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 non-accrual and expected cash flows are no longer predictable and the accretable yield is eliminated.

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

The remaining nonaccretable difference for PCI loans was $53.6 million and $64.2 million at September 30, 2019 and December 31, 2018, respectively.

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

The amounts shown in the following tables include loans accounted for on an individual basis, as well as acquired Pooled Loans. For Pooled Loans, the recorded investment and the related allowance consider impairment measured at the pool level. 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
September 30, 2019	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial real estate:
Non-owner occupied	$	29,625	$	5,281	$	7,436	$	12,717	$	1,507
Owner occupied		27,926		2,292		10,408		12,700		980
Commercial and industrial		24,485		4,459		1,137		5,596		14
Construction and land development		7,412		6		21		27		3
1-4 family residential		92,733		499		52,664		53,163		2,472
Mortgage warehouse		—		—		—		—		—
Consumer		1,750		2		—		2		—
Broker-dealer		—		—		—		—		—
		183,931		12,539		71,666		84,205		4,976
Non-PCI
Commercial real estate:
Non-owner occupied		3,904		199		3,698		3,897		690
Owner occupied		4,910		3,734		—		3,734		—
Commercial and industrial		24,691		9,200		2,332		11,532		903
Construction and land development		1,504		1,358		—		1,358		—
1-4 family residential		10,442		7,514		—		7,514		—
Mortgage warehouse		—		—		—		—		—
Consumer		42		30		—		30		—
Broker-dealer		—		—		—		—		—
		45,493		22,035		6,030		28,065		1,593
	$	229,424	$	34,574	$	77,696	$	112,270	$	6,569

24

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, 2018	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial real estate:
Non-owner occupied	$	42,668	$	5,549	$	7,540	$	13,089	$	1,125
Owner occupied		36,246		11,657		2,967		14,624		304
Commercial and industrial		27,403		5,491		1,068		6,559		72
Construction and land development		10,992		74		390		464		92
1-4 family residential		106,503		646		57,681		58,327		1,299
Mortgage warehouse		—		—		—		—		—
Consumer		2,185		9		—		9		—
Broker-dealer		—		—		—		—		—
		225,997		23,426		69,646		93,072		2,892
Non-PCI
Commercial real estate:
Non-owner occupied		—		—		—		—		—
Owner occupied		5,231		4,098		—		4,098		—
Commercial and industrial		22,277		9,891		1,740		11,631		721
Construction and land development		3,430		2,711		535		3,246		31
1-4 family residential		8,695		6,922		—		6,922		—
Mortgage warehouse		—		—		—		—		—
Consumer		149		42		—		42		—
Broker-dealer		—		—		—		—		—
		39,782		23,664		2,275		25,939		752
	$	265,779	$	47,090	$	71,921	$	119,011	$	3,644

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Commercial real estate:
Non-owner occupied	$	14,781	$	41,305	$	14,852	$	46,691
Owner occupied		16,489		67,759		17,578		73,531
Commercial and industrial		17,616		24,705		17,659		24,617
Construction and land development		1,432		2,803		2,548		3,090
1-4 family residential		61,587		—		62,963		—
Mortgage warehouse		—		—		—		—
Consumer		35		52		42		119
Broker-dealer		—		—		—		—
Covered		—		—		—		—
	$	111,940	$	136,624	$	115,642	$	148,048

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

	September 30,		December 31,
	2019		2018
Commercial real estate:
Non-owner occupied	$	4,993	$	1,226
Owner occupied		3,734		4,098
Commercial and industrial		13,313		14,870
Construction and land development		1,358		3,278
1-4 family residential		7,567		7,026
Mortgage warehouse		—		—
Consumer		30		41
Broker-dealer		—		—
	$	30,995	$	30,539

25

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

At September 30, 2019 and December 31, 2018, non-accrual loans included PCI loans of $4.2 million and $4.9 million, respectively, for which discount accretion has been suspended because the extent and timing of cash flows from these PCI loans can no longer be reasonably estimated. In addition to the non-accrual loans in the table above, $4.5 million and $3.4 million of real estate loans secured by residential properties and classified as held for sale were in non-accrual status at September 30, 2019 and December 31, 2018, respectively.

Interest income, including recoveries and cash payments, recorded on impaired loans was $0.3 million and $0.5 million during the three months ended September 30, 2019 and 2018, respectively, and $1.1 million and $0.9 million during the nine months ended September 30, 2019 and 2018, respectively. Except as noted above, 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 may also reconfigure a single loan into two or more loans (“A/B Note”). The typical A/B Note restructure results in a “bad” loan which is charged off and a “good” loan or loans, the terms of which comply with the Bank’s customary underwriting policies. The debt charged off on the “bad” loan is not forgiven to the debtor.

Information regarding TDRs granted during the three and nine months ended September 30, 2019, is shown in the following table (dollars in thousands). There were no TDRs granted during the three or nine months ended September 30, 2018. At September 30, 2019 and December 31, 2018, the Bank had nominal unadvanced commitments to borrowers whose loans have been restructured in TDRs.

	Three Months Ended September 30, 2019					Nine Months Ended September 30, 2019
	Number of	Balance at		Balance at		Number of	Balance at		Balance at
	Loans	Extension		End of Period		Loans	Extension		End of Period
Commercial real estate:
Non-owner occupied	—	$	—	$	—	—	$	—	$	—
Owner occupied	—		—		—	—		—		—
Commercial and industrial	2		1,640		1,587	5		9,632		9,113
Construction and land development	—		—		—	—		—		—
1-4 family residential	—		—		—	—		—		—
Mortgage warehouse	—		—		—	—		—		—
Consumer	—		—		—	—		—		—
Broker-dealer	—		—		—	—		—		—
Covered	—		—		—	—		—		—
	2	$	1,640	$	1,587	5	$	9,632	$	9,113

26

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

There were no TDRs granted during the twelve months preceding September 30, 2019 for which a payment was at least 30 days past due. The following table presents information regarding TDRs granted during the twelve months preceding September 30, 2018, for which a payment was at least 30 days past due (dollars in thousands).

	Twelve Months Preceding September 30, 2018
	Number of	Balance at		Balance at
	Loans	Extension		End of Period
Commercial real estate:
Non-owner occupied	—	$	—	$	—
Owner occupied	1		3,294		3,130
Commercial and industrial	—		—		—
Construction and land development	—		—		—
1-4 family residential	—		—		—
Mortgage warehouse	—		—		—
Consumer	—		—		—
Broker-dealer	—		—		—
Covered	—		—		—
	1	$	3,294	$	3,130

An analysis of the aging of the Company’s 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
September 30, 2019	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial real estate:
Non-owner occupied	$	4,565	$	15	$	199	$	4,779	$	1,657,864	$	12,717	$	1,675,360	$	—
Owner occupied		2,915		213		2,347		5,475		1,239,889		12,700		1,258,064		—
Commercial and industrial		9,353		2,449		1,301		13,103		1,371,832		5,596		1,390,531		80
Construction and land development		881		—		—		881		971,318		27		972,226		—
1-4 family residential		2,297		1,904		3,044		7,245		637,843		53,163		698,251		—
Mortgage warehouse		—		—		—		—		725,852		—		725,852		—
Consumer		133		32		—		165		42,613		2		42,780		—
Broker-dealer		—		—		—		—		558,144		—		558,144		—
	$	20,144	$	4,613	$	6,891	$	31,648	$	7,205,355	$	84,205	$	7,321,208	$	80

															Accruing Loans (Non-PCI)
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
December 31, 2018	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial real estate:
Non-owner occupied	$	1,174	$	199	$	—	$	1,373	$	1,708,160	$	13,089	$	1,722,622	$	—
Owner occupied		1,364		—		4,173		5,537		1,197,337		14,624		1,217,498		75
Commercial and industrial		1,792		1,049		11,051		13,892		1,488,000		6,559		1,508,451		3
Construction and land development		3,549		—		—		3,549		928,896		464		932,909		—
1-4 family residential		5,987		2,484		1,950		10,421		610,515		58,327		679,263		—
Mortgage warehouse		—		—		—		0		243,806		—		243,806		—
Consumer		254		147		—		401		47,136		9		47,546		—
Broker-dealer		—		—		—		—		578,363		—		578,363		—
	$	14,120	$	3,879	$	17,174	$	35,173	$	6,802,213	$	93,072	$	6,930,458	$	78

In addition to the loans shown in the tables above, PrimeLending had $81.6 million and $83.1 million of loans included in loans held for sale (with an aggregate unpaid principal balance of $82.7 million and $84.0 million, respectively) that were 90 days past due and accruing interest at September 30, 2019 and December 31, 2018, 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 state and local markets.

27

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The Company utilizes a risk grading matrix to assign a risk grade to each of the loans in its portfolio with the exception of broker-dealer margin loans. 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 Company. 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 Company 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 Company 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 Company’s credit position at some future date. Special Mention loans are not adversely classified and do not expose the Company 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 have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Many substandard loans are considered impaired.

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

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

September 30, 2019	Pass		Special Mention		Substandard		PCI		Total
Commercial real estate:
Non-owner occupied	$	1,613,156	$	—	$	49,487	$	12,717	$	1,675,360
Owner occupied		1,211,767		816		32,781		12,700		1,258,064
Commercial and industrial		1,328,903		881		55,151		5,596		1,390,531
Construction and land development		969,661		—		2,538		27		972,226
1-4 family residential		627,962		—		17,126		53,163		698,251
Mortgage warehouse		725,852		—		—		—		725,852
Consumer		42,736		—		42		2		42,780
Broker-dealer		558,144		—		—		—		558,144
	$	7,078,181	$	1,697	$	157,125	$	84,205	$	7,321,208

December 31, 2018	Pass		Special Mention		Substandard		PCI		Total
Commercial real estate:
Non-owner occupied	$	1,673,424	$	—	$	36,109	$	13,089	$	1,722,622
Owner occupied		1,175,225		2,083		25,566		14,624		1,217,498
Commercial and industrial		1,433,227		15,320		53,345		6,559		1,508,451
Construction and land development		929,130		—		3,315		464		932,909
1-4 family residential		601,264		393		19,279		58,327		679,263
Mortgage warehouse		243,806		—		—		—		243,806
Consumer		47,416		—		121		9		47,546
Broker-dealer		578,363		—		—		—		578,363
	$	6,681,855	$	17,796	$	137,735	$	93,072	$	6,930,458

28

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Allowance for Loan Losses

The allowance for loan losses is subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance. 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 2018 Form 10-K.

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

	Balance,		Provision (Recovery)		Loans		Recoveries on		Balance,
Three Months Ended September 30, 2019	Beginning of Period		for Loan Losses		Charged Off		Charged Off Loans		End of Period
Commercial real estate	$	25,114	$	757	$	(9)	$	—	$	25,862
Commercial and industrial		20,414		(1,625)		(1,000)		1,393		19,182
Construction and land development		4,396		392		—		—		4,788
1-4 family residential		4,924		485		(12)		14		5,411
Mortgage warehouse		—		—		—		—		—
Consumer		283		(9)		(12)		6		268
Broker-dealer		46		47		—		—		93
Total	$	55,177	$	47	$	(1,033)	$	1,413	$	55,604

	Balance,		Provision (Recovery)		Loans		Recoveries on		Balance,
Nine Months Ended September 30, 2019	Beginning of Period		for Loan Losses		Charged Off		Charged Off loans		End of Period
Commercial real estate	$	27,100	$	(1,229)	$	(9)	$	—	$	25,862
Commercial and industrial		21,980		87		(5,247)		2,362		19,182
Construction and land development		6,061		(1,273)		—		—		4,788
1-4 family residential		3,956		2,321		(911)		45		5,411
Mortgage warehouse		—		—		—		—		—
Consumer		267		449		(476)		28		268
Broker-dealer		122		(29)		—		—		93
Total	$	59,486	$	326	$	(6,643)	$	2,435	$	55,604

	Balance,		Provision (Recovery)		Loans		Recoveries on		Balance,
Three Months Ended September 30, 2018	Beginning of Period		for Loan Losses		Charged Off		Charged Off Loans		End of Period
Commercial real estate	$	26,032	$	309	$	—	$	—	$	26,341
Commercial and industrial		23,517		(242)		(1,820)		366		21,821
Construction and land development		7,271		443		—		—		7,714
1-4 family residential		2,552		141		—		31		2,724
Mortgage warehouse		—		—		—		—		—
Consumer		207		27		(26)		7		215
Broker-dealer		417		(371)		—		—		46
Covered		1,974		(678)		(6)		1		1,291
Total	$	61,970	$	(371)	$	(1,852)	$	405	$	60,152

	Balance,		Provision (Recovery)		Loans		Recoveries on		Balance,
Nine Months Ended September 30, 2018	Beginning of Period		for Loan Losses		Charged Off		Charged Off Loans		End of Period
Commercial real estate	$	26,413	$	(54)	$	(18)	$	—	$	26,341
Commercial and industrial		23,674		(123)		(5,236)		3,506		21,821
Construction and land development		7,844		(130)		—		—		7,714
1-4 family residential		2,362		240		(12)		134		2,724
Mortgage warehouse		—		—		—		—		—
Consumer		311		(82)		(69)		55		215
Broker-dealer		353		(307)		—		—		46
Covered		2,729		(1,382)		(63)		7		1,291
Total	$	63,686	$	(1,838)	$	(5,398)	$	3,702	$	60,152

29

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

	Loans Individually		Loans Collectively
	Evaluated for		Evaluated for		PCI
September 30, 2019	Impairment		Impairment		Loans			Total
Commercial real estate	$	7,239	$	2,900,768	$	25,417	$	2,933,424
Commercial and industrial		10,767		1,374,168		5,596		1,390,531
Construction and land development		1,271		970,928		27		972,226
1-4 family residential		608		644,480		53,163		698,251
Mortgage warehouse		—		725,852		—		725,852
Consumer		—		42,778		2		42,780
Broker-dealer		—		558,144		—		558,144
Total	$	19,885	$	7,217,118	$	84,205	$	7,321,208

	Loans Individually		Loans Collectively
	Evaluated for		Evaluated for		PCI
December 31, 2018	Impairment		Impairment		Loans			Total
Commercial real estate	$	3,909	$	2,908,498	$	27,713	$	2,940,120
Commercial and industrial		10,741		1,491,151		6,559		1,508,451
Construction and land development		3,241		929,204		464		932,909
1-4 family residential		—		620,936		58,327		679,263
Mortgage warehouse		—		243,806		—		243,806
Consumer		—		47,537		9		47,546
Broker-dealer		—		578,363		—		578,363
Total	$	17,891	$	6,819,495	$	93,072	$	6,930,458

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

	Loans Individually		Loans Collectively
	Evaluated for		Evaluated for		PCI
September 30, 2019	Impairment		Impairment		Loans			Total
Commercial real estate	$	690	$	22,685	$	2,487	$	25,862
Commercial and industrial		903		18,265		14		19,182
Construction and land development		—		4,785		3		4,788
1-4 family residential		—		2,939		2,472		5,411
Mortgage warehouse		—		—		—		—
Consumer		—		268		—		268
Broker-dealer		—		93		—		93
Total	$	1,593	$	49,035	$	4,976	$	55,604

	Loans Individually		Loans Collectively
	Evaluated for		Evaluated for		PCI
December 31, 2018	Impairment		Impairment		Loans			Total
Commercial real estate	$	—	$	25,671	$	1,429	$	27,100
Commercial and industrial		721		21,187		72		21,980
Construction and land development		31		5,938		92		6,061
1-4 family residential		—		2,657		1,299		3,956
Mortgage warehouse		—		—		—		—
Consumer		—		267		—		267
Broker-dealer		—		122		—		122
Total	$	752	$	55,842	$	2,892	$	59,486

30

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 asset, as included in other assets within the consolidated balance sheets, and other information related to the serviced portfolio (dollars in thousands).

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019		2018
Balance, beginning of period	$	53,695		$	57,373		$	66,102	$	54,714
Additions		4,166			11,361			8,574		21,090
Sales		—			—			—		(9,303)
Changes in fair value:
Due to changes in model inputs or assumptions (1)		(3,769)			1,311			(17,541)		5,984
Due to customer payoffs		(2,795)			(1,241)			(5,838)		(3,681)
Balance, end of period	$	51,297		$	68,804		$	51,297	$	68,804
	September 30,			December 31,
	2019			2018
Mortgage loans serviced for others	$	4,969,855		$	5,086,461
MSR asset as a percentage of serviced mortgage loans		1.03	%		1.30	%

(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 asset were as follows.

	September 30,		December 31,
	2019		2018
Weighted average constant prepayment rate	14.40	%	10.51	%
Weighted average discount rate	11.13	%	11.11	%
Weighted average life (in years)	5.6		7.1

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

	September 30,		December 31,
	2019		2018
Constant prepayment rate:
Impact of 10% adverse change	$	(3,099)	$	(2,512)
Impact of 20% adverse change		(5,960)		(4,980)
Discount rate:
Impact of 10% adverse change		(1,839)		(2,677)
Impact of 20% adverse change		(3,542)		(5,139)

This sensitivity analysis presents the effect of hypothetical changes in key assumptions on the fair value of the MSR asset. 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 asset 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 $6.3 million and $5.4 million during the three months ended September 30, 2019 and 2018, respectively, and $19.2 million and $17.3 million during the nine months ended September 30, 2019 and 2018, respectively, were included in net gains from sale of loans and other mortgage production income within the consolidated statements of operations.

31

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

8. Deposits

Deposits are summarized as follows (in thousands).

	September 30,		December 31,
	2019		2018
Noninterest-bearing demand	$	2,732,325	$	2,560,750
Interest-bearing:
NOW accounts		1,393,216		1,358,196
Money market		2,584,244		2,725,541
Brokered - money market		5,000		5,000
Demand		318,484		393,685
Savings		187,433		184,700
Time		1,510,170		1,308,284
	$	8,730,872	$	8,536,156

9. Short-term Borrowings

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

	September 30,		December 31,
	2019		2018
Federal funds purchased	$	72,200	$	100,100
Securities sold under agreements to repurchase		514,055		576,707
Federal Home Loan Bank		700,000		200,000
Short-term bank loans		216,500		189,000
	$	1,502,755	$	1,065,807

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 other 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).

	Nine Months Ended September 30,
	2019			2018
Average balance during the period	$	609,162		$	683,835
Average interest rate during the period		2.57	%		1.76	%
	September 30,			December 31,
	2019			2018
Average interest rate at end of period		2.52	%		2.43	%
Securities underlying the agreements at end of period:
Carrying value	$	519,875		$	587,609
Estimated fair value	$	554,107		$	618,231

32

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).

	Nine Months Ended September 30,
	2019			2018
Average balance during the period	$	280,824		$	253,022
Average interest rate during the period		2.34	%		2.04	%
		September 30,			December 31,
		2019			2018
Average interest rate at end of period		1.91	%		2.65	%

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 September 30, 2019 and December 31, 2018 was 2.76% and 3.35%, respectively.

10. Notes Payable

Notes payable consisted of the following (in thousands).

	September 30,		December 31,
	2019		2018
Senior Notes due April 2025, net of discount of $1,273 and $1,393, respectively	$	148,727	$	148,607
FHLB notes, including premium of $163 and $222, respectively, with maturities ranging from September 2020 to June 2030		3,943		4,391
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
Ventures Management lines of credit due May 2020		65,171		48,374
	$	245,341	$	228,872

11. Leases

Hilltop and its subsidiaries lease space, primarily for corporate offices, branch facilities and automated teller machines, under both operating and finance leases. Certain of the Company’s leases have options to extend, with the longest extension option being ten years, and some of the Company’s leases include options to terminate within one year. The Company’s leases contain customary restrictions and covenants. The Company has certain intercompany leases and subleases between its subsidiaries, and these transactions and balances have been eliminated in consolidation and are not reflected in the tables and information presented below.

Supplemental balance sheet information related to finance leases is as follows (in thousands).

	September 30,
	2019
Finance leases:
Premises and equipment	$	7,780
Accumulated depreciation		(4,031)
Premises and equipment, net	$	3,749

33

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Operating lease rental cost and finance lease amortization of ROU assets is included within occupancy and equipment, net in the consolidated statements of operations. Finance lease interest expense is included within other interest expense in the consolidated statements of operations. The Company does not generally enter into leases which contain variable payments, other than due to the passage of time. The components of lease costs, including short-term lease costs, are as follows (in thousands).

	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Operating lease cost	$	11,123	$	32,253
Less operating lease and sublease income		(846)		(1,897)
Net operating lease cost	$	10,277	$	30,356
Finance lease cost:
Amortization of lease assets	$	147	$	442
Interest on lease liabilities		148		450
Total finance lease cost	$	295	$	892

Supplemental cash flow information related to leases is as follows (in thousands):

	Nine Months Ended
	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	29,047
Operating cash flows from finance leases		450
Financing cash flows from finance leases		438
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	25,951
Finance leases		—

Information regarding the lease terms and discount rates of the Company’s leases is as follows.

	September 30, 2019
	Weighted Average	Weighted Average
Lease Classification	Remaining Lease Term (Years)	Discount Rate
Operating	5.8	5.35	%
Finance	6.8	4.78	%

Future minimum lease payments under the Leasing Standard as of September 30, 2019, under lease agreements that had commenced as of or subsequent to January 1, 2019, are presented below (in thousands).

	Operating Leases		Finance Leases
2019	$	9,221	$	298
2020		34,509		1,197
2021		28,671		1,212
2022		22,459		1,241
2023		17,757		1,280
Thereafter		42,761		3,460
Total minimum lease payments	$	155,378	$	8,688
Less amount representing interest		(24,245)		(3,041)
Lease liabilities	$	131,133	$	5,647

As of September 30, 2019, the Company had additional operating leases that have not yet commenced with aggregate future minimum lease payments of approximately $0.2 million. These operating leases are expected to commence in October 2019 with lease terms ranging from two to five years.

34

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

A related party is the lessor in an operating lease with Hilltop. Hilltop’s minimum payment under the lease is $0.5 million annually through 2028, for an aggregate remaining obligation of $4.6 million at September 30, 2019.

The Company adopted the Leasing Standard on January 1, 2019, using the modified retrospective transition under the option to apply the new standard at its effective date without adjusting the prior period comparative financial statements. As such, disclosures for comparative periods under the predecessor standard, ASC 840, Leases, are required in the year of transition. Future minimum lease payments under ASC 840 as of December 31, 2018, under lease agreements that had commenced as of December 31, 2018, are presented below (in thousands).

	Operating Leases		Capital Leases
2019	$	36,171	$	1,186
2020		29,109		1,197
2021		21,058		1,212
2022		16,386		1,241
2023		12,361		1,280
Thereafter		18,264		3,460
Total minimum lease payments	$	133,349		9,576
Amount representing interest				(1,221)
Present value of minimum lease payments			$	8,355

12. 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 rates were 21.8% and 17.0% for the three months ended September 30, 2019 and 2018, respectively, and 22.4% and 21.4% for the nine months ended September 30, 2019 and 2018, respectively. The 2018 effective tax rates are lower than the applicable statutory rates due to tax planning strategies in conjunction with the Tax Legislation and research and development studies. In addition, a tax benefit was recognized in 2018 from the portion of the indemnification reserve that was a deductible settlement amount from the PrimeLending inquiry from the United States Department of Justice (“DOJ”) as described in detail in Note 18 to the consolidated financial statements included in the Company’s 2018 Form 10-K. The 2019 effective tax rates are lower than the applicable statutory rates as a result of prior period tax adjustments.

13. 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 probable 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.

35

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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 is complete; whether meaningful settlement discussions have 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.

While the final outcome of litigation and claims exposures is inherently unpredictable, management is currently of the opinion that the outcome of pending and threatened litigation 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 matter could be material to the Company’s business, consolidated financial position, results of operations or cash flows for any particular reporting period of occurrence.

Indemnification Liability Reserve

The mortgage origination segment may be responsible to agencies, investors, or other parties 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 or indemnifies the claimant against loss. The mortgage origination segment has established an indemnification liability reserve for such probable losses.

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

An additional reserve has been established for probable agency, investor or other party 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 claimant requests, actual 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 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 claims to date, and therefore, are not a primary factor considered in the calculation of this reserve.

At September 30, 2019 and December 31, 2018, the mortgage origination segment’s indemnification liability reserve totaled $11.5 million and $10.7 million, respectively. The provision for indemnification losses was $1.0 million and $0.9 million during the three months ended September 30, 2019 and 2018, respectively, and $2.2 million and $2.6 million during the nine months ended September 30, 2019 and 2018, respectively.

36

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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Balance, beginning of period	$	33,074	$	30,545	$	33,784	$	33,702
Claims made		6,423		5,477		16,110		17,827
Claims resolved with no payment		(7,022)		(578)		(14,289)		(12,331)
Repurchases		(1,506)		(3,513)		(4,150)		(6,847)
Indemnification payments		(243)		—		(729)		(420)
Balance, end of period	$	30,726	$	31,931	$	30,726	$	31,931
	Indemnification Liability Reserve Activity (1)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Balance, beginning of period	$	10,833	$	23,910	$	10,701	$	23,472
Additions for new sales		954		857		2,236		2,599
Repurchases		(117)		(228)		(325)		(474)
Early payment defaults		(51)		(72)		(290)		(259)
Indemnification payments		(87)		(4)		(182)		(124)
Change in reserves for loans sold in prior years		(81)		(292)		(689)		(1,043)
Balance, end of period	$	11,451	$	24,171	$	11,451	$	24,171
	September 30,		December 31,
	2019		2018
Reserve for Indemnification Liability:
Specific claims	$	958	$	676
Incurred but not reported claims		10,493		10,025
Total	$	11,451	$	10,701

(1) The Reserve for Indemnification Liability at September 30, 2018 reflected $13.5 million of specific claims related to an inquiry by the U.S. Department of Housing and Urban Development (“HUD”) and the U.S. Department of Justice which was resolved in the fourth quarter of 2018. The resolution of this matter is discussed in detail in Note 18 to the consolidated financial statements included in the Company’s 2018 Form 10-K.

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.

Hilltop Plaza Investment

On July 31, 2018, Hillcrest Land LLC purchased approximately 1.7 acres of land in the City of University Park, Texas for $38.5 million. Hillcrest Land LLC is owned equally between Hilltop Investments I, LLC, a wholly owned entity of Hilltop, and Diamond Ground, LLC, an affiliate of Mr. Gerald J. Ford, Chairman of the Board of Directors. Each of Hilltop Investments I, LLC and Diamond Ground, LLC contributed $19.3 million to Hillcrest Land LLC to complete the purchase. As the voting rights of Hillcrest Land LLC are shared equally between the Company and Diamond Ground, LLC, there is no primary beneficiary, and Diamond Ground, LLC’s interest in Hillcrest Land LLC has been reflected as a noncontrolling interest in the Company’s consolidated financial statements. Therefore, the Company has consolidated Hillcrest Land LLC under the VIE model according to the “most-closely associated” test. The purchased land is included within premises and equipment, net in the consolidated balance sheets. Any income (loss) associated with Hillcrest Land LLC is included within other noninterest income in the consolidated statements of operations. Trusts for which Jeremy

37

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Ford, President and Chief Executive Officer, and the wife of Corey Prestidge, Executive Vice President, General Counsel and Secretary, are a beneficiary own 10.2% and 10.1%, respectively, of Diamond Ground, LLC.

In connection with the purchase of the land, Hillcrest Land LLC entered into a 99-year ground lease of the land with three tenants-in-common: SPC Park Plaza Partners LLC (“Park Plaza LLC”), an unaffiliated entity which received an undivided 50% leasehold interest; HTH Project LLC, a wholly owned subsidiary of Hilltop, which received an undivided 25% leasehold interest; and Diamond Hillcrest, LLC (“Diamond Hillcrest”), an entity owned by Mr. Gerald J. Ford, which received an undivided 25% leasehold interest (collectively, the “Co-Owners”). The ground lease is triple net. The base rent from the Co-Owners under the ground lease commences 18 months after the ground lease was signed at $1.8 million per year and increases 1.0% per year each January 1 thereafter. The ground lease was classified as an operating lease, and the accounting commencement date was determined to be July 31, 2018, the date the land was available to the Co-Owners.

Concurrent with the ground lease, the Co-Owners entered into an agreement to purchase the improvements currently being constructed on the land, which is a mixed-use project containing a six-story building (“Hilltop Plaza”). HTH Project LLC and Diamond Hillcrest each own an undivided 25% interest in Hilltop Plaza. Park Plaza LLC owns the remaining undivided 50% interest in Hilltop Plaza. Park Plaza LLC has agreed to serve as the Co-Owner property manager under the Co-Owners Agreement; however, certain actions require unanimous approval of all Co-Owners. Funding for Hilltop Plaza includes a $41.0 million construction loan from an unaffiliated third party bank, as well as cash contributions of $5.3 million from each of HTH Project LLC and Diamond Hillcrest. HTH Project LLC’s undivided interest in Hilltop Plaza is accounted for as an equity method investment as the tenants-in-common have joint control over decisions regarding Hilltop Plaza. The investment is included within other assets in the consolidated balance sheets and any income (loss) is included within other noninterest income in the consolidated statements of operations.

Hilltop and the Bank entered into leases for an aggregate of approximately 72,000 of the total 119,000 square feet of rentable space in Hilltop Plaza to serve as the headquarters for both companies. Affiliates of Mr. Gerald J. Ford also entered into leases for approximately 11,000 square feet of office space in the building. The two separate 129-month office and retail leases of Hilltop and the Bank, respectively, have combined total base rent of approximately $35 million with the first nine months of rent abated. The accounting commencement date of both leases was determined to be June 29, 2019, the date the building was delivered in order for tenant improvement work to commence. The combined operating lease liability, net of lease incentives, recognized during the second quarter of 2019 as a result of the commencement of these leases was $18.9 million. The office and retail leases were considered under the build-to-suit provisions of ASC 840, and the Company was determined to be the accounting owner of the project as its affiliate, HTH Project LLC, has an equity investment in the project. As such, the assets of Hilltop Plaza were recognized during the construction period through December 31, 2018, as costs were incurred to construct the asset, with a corresponding liability representing the costs paid for by the lessor (the Co-Owners). At December 31, 2018, the $27.8 million of costs incurred to date were included within premises and equipment and other liabilities, respectively, in the consolidated balance sheets. The Company reassessed its accounting ownership of the Hilltop Plaza assets under construction as of January 1, 2019, under the build-to-suit provisions of the newly adopted Leasing Standard and concluded it is not the accounting owner. As such, the assets and liabilities of the project were derecognized on January 1, 2019, with the $1.4 million offset representing deferred expenses recognized on the project to date through December 31, 2018, recorded as an increase to retained earnings.

All intercompany transactions associated with the Hilltop Plaza investment and the related transactions discussed above are eliminated in consolidation.

14. 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.

38

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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 $2.2 billion at September 30, 2019 and outstanding financial and performance standby letters of credit of $91.2 million at September 30, 2019.

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 and to hedge changes in the fair value of certain securities, 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.

15. 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. In the aggregate, 4,000,000 shares of common stock may be delivered pursuant to awards granted under the 2012 Plan. At September 30, 2019, 681,484 shares of common stock remained available for issuance pursuant to awards granted under the 2012 Plan, excluding shares that may be delivered pursuant to outstanding awards. Compensation expense related to the 2012 Plan was $3.1 million and $2.4 million during the three months ended September 30, 2019 and 2018, respectively, and $8.1 million and $7.2 million during the nine months ended September 30, 2019 and 2018, respectively.

During the nine months ended September 30, 2019 and 2018, Hilltop granted 20,806 and 22,269 shares of common stock, respectively, pursuant to the 2012 Plan to certain non-employee members of the Company’s board of directors for services rendered to the Company.

Restricted Stock Units

The following table summarizes information about nonvested RSU activity for the nine months ended September 30, 2019 (shares in thousands).

		RSUs
			Weighted
			Average
			Grant Date
		Outstanding	Fair Value
Balance, December 31, 2018		1,270	$	22.44
	Granted	592	$	19.30
	Vested/Released	(488)	$	18.08
	Forfeited	(43)	$	24.79
Balance, September 30, 2019		1,331	$	22.57

39

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

Vested/Released RSUs include an aggregate of 99,709 shares withheld to satisfy employee statutory tax obligations during the nine months ended September 30, 2019. Pursuant to certain RSU award agreements, an aggregate of 17,692 vested RSUs at September 30, 2019 require deferral of the settlement in shares and statutory tax obligations to a future date.

During the nine months ended September 30, 2019, the Compensation Committee of the board of directors of the Company awarded certain executives and key employees an aggregate of 583,961 RSUs pursuant to the 2012 Plan. Of the RSUs granted during the nine months ended September 30, 2019, 485,962 that were outstanding at September 30, 2019, are subject to time-based vesting conditions and generally cliff vest on the third anniversary of the grant date. Of the RSUs granted during the nine months ended September 30, 2019, 91,249 that were outstanding at September 30, 2019, provide for cliff vesting based upon the achievement of certain performance goals over a three-year period.

At September 30, 2019, in the aggregate, 1,093,383 of the outstanding RSUs are subject to time-based vesting conditions and generally cliff vest on the third anniversary of the grant date, and 238,145 outstanding RSUs cliff vest based upon the achievement of certain performance goals over a three-year period. At September 30, 2019, unrecognized compensation expense related to outstanding RSUs of $15.3 million is expected to be recognized over a weighted average period of 1.66 years.  

16. Regulatory Matters

Banking and Hilltop

PlainsCapital, which includes the Bank and PrimeLending, and Hilltop are subject to various regulatory capital requirements administered by 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 PlainsCapital 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 Company performs reviews of the classification and calculation of risk-weighted assets to ensure accuracy and compliance with the Basel III regulatory capital requirements as implemented by the Board of Governors of the Federal Reserve System. 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).

In order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary bonus payments to executive officers, Basel III requires banking organizations to maintain a capital conservation buffer above minimum risk-based capital requirements measured relative to risk-weighted assets. The phase-in of the capital conservation buffer requirements began on January 1, 2016 for PlainsCapital and Hilltop, and the requirements were fully phased in as of January 1, 2019.

40

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

The following tables show PlainsCapital’s and Hilltop’s actual capital amounts and ratios in accordance with Basel III compared to the regulatory minimum capital requirements including conservation buffer in effect at the end of the period and on a fully phased-in basis as if such requirements were currently in effect at December 31, 2018 (dollars in thousands). Based on actual capital amounts and ratios shown in the following table, PlainsCapital’s ratios place it in the “well capitalized” (as defined) capital category under regulatory requirements.

					Minimum Capital Requirements
					Including Conservation Buffer
					In Effect at		Fully		To Be Well
	Actual				End of Period		Phased In		Capitalized
	Amount		Ratio		Ratio		Ratio		Ratio
September 30, 2019
Tier 1 capital (to average assets):
PlainsCapital	$	1,226,270	11.79	%	4.0	%	4.0	%	5.0	%
Hilltop		1,775,755	12.67	%	4.0	%	4.0	%	N/A
Common equity Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,226,270	13.25	%	7.0	%	7.0	%	6.5	%
Hilltop		1,729,166	16.15	%	7.0	%	7.0	%	N/A
Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,226,270	13.25	%	8.5	%	8.5	%	8.0	%
Hilltop		1,775,755	16.58	%	8.5	%	8.5	%	N/A
Total capital (to risk-weighted assets):
PlainsCapital		1,283,967	13.87	%	10.5	%	10.5	%	10.0	%
Hilltop		1,815,134	16.95	%	10.5	%	10.5	%	N/A
					Minimum Capital Requirements
					Including Conservation Buffer
					In Effect at		Fully		To Be Well
	Actual				End of Period		Phased In		Capitalized
	Amount		Ratio		Ratio		Ratio		Ratio
December 31, 2018
Tier 1 capital (to average assets):
PlainsCapital	$	1,183,447	12.47	%	4.0	%	4.0	%	5.0	%
Hilltop		1,680,364	12.53	%	4.0	%	4.0	%	N/A
Common equity Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,183,447	13.90	%	6.375	%	7.0	%	6.5	%
Hilltop		1,634,978	16.58	%	6.375	%	7.0	%	N/A
Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,183,447	13.90	%	7.875	%	8.5	%	8.0	%
Hilltop		1,680,364	17.04	%	7.875	%	8.5	%	N/A
Total capital (to risk-weighted assets):
PlainsCapital		1,245,177	14.63	%	9.875	%	10.5	%	10.0	%
Hilltop		1,722,602	17.47	%	9.875	%	10.5	%	N/A

41

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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 September 30, 2019, the net capital position of each of the Hilltop Broker-Dealers was as follows (in thousands).

				HTS
	Hilltop			Independent
	Securities			Network
Net capital	$	265,752		$	3,076
Less: required net capital		9,152			250
Excess net capital	$	256,600		$	2,826
Net capital as a percentage of aggregate debit items		58.1	%
Net capital in excess of 5% aggregate debit items	$	242,873

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 September 30, 2019 and December 31, 2018, the Hilltop Broker-Dealers held cash of $83.9 million and $134.0 million, respectively, segregated in special reserve bank accounts for the benefit of customers. The Hilltop Broker-Dealers were not required to segregate cash and securities in special reserve accounts for the benefit of proprietary accounts of introducing broker-dealers at September 30, 2019 or December 31, 2018.

Mortgage Origination

As a mortgage originator, PrimeLending and its subsidiaries are subject to minimum net worth and liquidity requirements established by HUD and GNMA, as applicable. On an annual basis, PrimeLending and its subsidiaries submit audited financial statements to HUD and GNMA, as applicable, documenting their respective compliance with minimum net worth and liquidity requirements. As of September 30, 2019, PrimeLending and its subsidiaries’ net worth and liquidity exceeded the amounts required by both HUD and GNMA, as applicable.

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.

42

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

	September 30,		December 31,
	2019		2018
Statutory capital and surplus:
National Lloyds Insurance Company	$	63,586	$	78,637
American Summit Insurance Company		19,463		17,908

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Statutory net income (loss):
National Lloyds Insurance Company	$	4,797	$	5,442	$	4,388	$	6,576
American Summit Insurance Company		470		(2,765)		1,186		(1,482)

Regulations of the Texas Department of Insurance require insurance companies to maintain minimum levels of statutory surplus to ensure their ability to meet their obligations to policyholders. At September 30, 2019, 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 September 30, 2019, the Company's insurance subsidiaries' RBC ratio exceeded the level at which regulatory action would be required.

17. Stockholders’ Equity

Dividends

During the nine months ended September 30, 2019 and 2018, the Company declared and paid cash dividends of $0.24 and $0.21 per common share, or an aggregate of $22.4 million and $20.1 million, respectively.

On October 24, 2019, the Company’s board of directors declared a quarterly cash dividend of $0.08 per common share, payable on December 3, 2019, to all common stockholders of record as of the close of business on November 15, 2019.

Stock Repurchases

In January 2019, the Hilltop board of directors authorized a new stock repurchase program through January 2020, pursuant to which the Company was authorized to repurchase, in the aggregate, up to $50.0 million of its outstanding common stock, inclusive of repurchases to offset dilution related to grants of stock-based compensation.

On August 19, 2019, the Company entered into a Securities Purchase Agreement to purchase 2,175,404 shares of its common stock from Oak Hill Capital Partners III, L.P., Oak Hill Capital Management Partners III, L.P. and Oak Hill Capital Management, LLC (collectively, “Oak Hill Capital”). The Hilltop board of directors, other than Messrs. J. Taylor Crandall and Gerald J. Ford, considered and approved the purchase of the shares of Hilltop common stock from Oak Hill Capital. Hilltop director J. Taylor Crandall is a founding Managing Partner of Oak Hill Capital Management, LLC. The purchase was consummated on August 20, 2019 at a purchase price of $48.4 million, or $22.25 per share. The purchase price per share was determined by the weighted average of the closing prices of Hilltop common stock as reported by the New York Stock Exchange for each trading day commencing on August 12, 2019 and ending on August 16, 2019. The repurchase of shares by Hilltop from Oak Hill Capital fully utilized all remaining availability of the stock repurchase program previously authorized in January 2019.

43

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Notes to Consolidated Financial Statements (continued)

(Unaudited)

During the nine months ended September 30, 2019, the Company paid $73.4 million to repurchase an aggregate of 3,390,247 shares of common stock at an average price of $21.64 per share. These amounts are inclusive of the repurchase of shares by Hilltop from Oak Hill Capital discussed above. These shares were returned to the Company’s pool of authorized but unissued shares of common stock. The purchases were funded from available cash balances. The Company’s stock repurchase program, prior year repurchases and related accounting policy are discussed in detail in Note 1 and Note 22 to the consolidated financial statements included in the Company’s 2018 Form 10-K.

18. 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 Bank’s 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”) and Eurodollar futures. Additionally, PrimeLending has interest rate risk relative to its MSR asset and uses derivative instruments, including interest rate swaps and U.S. Treasury bond futures and options 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. Additionally, Hilltop Securities uses U.S. Treasury bond, Eurodollar futures and municipal market data, or MMD, rate locks to hedge changes in the fair value of its securities.

Non-Hedging Derivative Instruments and the Fair Value Option

As discussed in Note 4 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 hedge accounting provisions. The fair values of PrimeLending’s IRLCs and forward commitments are recorded in other assets or other liabilities, as appropriate, and changes in the fair values of these derivative instruments are recorded as a component of net gains from sale of loans and other mortgage production income. These 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 4 to the consolidated financial statements. The fair values of the Hilltop Broker-Dealers’ and the Bank’s derivative instruments are recorded in other assets or other liabilities, as appropriate.

Changes in the fair value of derivatives are presented in the following table (in thousands).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Increase (decrease) in fair value of derivatives during period:
PrimeLending	$	5,881	$	2,171	$	23,285	$	9,036
Hilltop Broker-Dealers		(5,984)		3,648		4,790		1,411
Bank		(25)		(16)		(171)		143

44

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

	September 30, 2019				December 31, 2018
	Notional		Estimated		Notional		Estimated
	Amount		Fair Value		Amount		Fair Value
Derivative instruments:
IRLCs	$	1,695,917	$	31,392	$	677,267	$	17,421
Customer-based written options		31,200		—		31,200		(49)
Customer-based purchased options		31,200		—		31,200		49
Commitments to purchase MBSs		3,847,878		9,175		2,359,630		10,467
Commitments to sell MBSs		7,056,929		(5,994)		3,711,477		(19,315)
Interest rate swaps		37,067		135		15,104		82
U.S. Treasury bond futures and options (1)		268,700		—		367,200		—
Eurodollar futures (1)		48,000		—		104,000		—

(1)    Changes in the fair value of these contracts are settled daily with the respective counterparties of PrimeLending and the Hilltop Broker-Dealers.

PrimeLending had cash collateral advances totaling $0.1 million and $11.9 million to offset net liability derivative positions on its commitments to sell MBSs at September 30, 2019 and December 31, 2018, respectively. In addition, PrimeLending and the Hilltop Broker-Dealers advanced cash collateral totaling $2.7 million and $3.4 million on U.S. Treasury bond futures and options and Eurodollar futures at September 30, 2019 and December 31, 2018, respectively. These amounts are included in other assets within the consolidated balance sheets.

19. 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
September 30, 2019
Securities borrowed:
Institutional counterparties	$	1,636,796	$	—	$	1,636,796	$	(1,583,664)	$	—	$	53,132
Interest rate options:
Customer counterparties		—		—		—		—		—		—
Interest rate swaps:
Institutional counterparties		392		(168)		224		(224)		—		—
Reverse repurchase agreements:
Institutional counterparties		49,998		—		49,998		(49,840)		—		158
Forward MBS derivatives:
Institutional counterparties		9,175		—		9,175		(9,175)		—		—
	$	1,696,361	$	(168)	$	1,696,193	$	(1,642,903)	$	—	$	53,290
December 31, 2018
Securities borrowed:
Institutional counterparties	$	1,365,547	$	—	$	1,365,547	$	(1,307,121)	$	—	$	58,426
Interest rate options:
Customer counterparties		49		—		49		—		—		49
Interest rate swaps:
Institutional counterparties		88		—		88		—		—		88
Reverse repurchase agreements:
Institutional counterparties		61,611		—		61,611		(61,390)		—		221
Forward MBS derivatives:
Institutional counterparties		10,469		—		10,469		(10,469)		—		—
	$	1,437,764	$	—	$	1,437,764	$	(1,378,980)	$	—	$	58,784

45

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

							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
September 30, 2019
Securities loaned:
Institutional counterparties	$	1,505,118	$	—	$	1,505,118	$	(1,454,240)	$	—	$	50,878
Interest rate options:
Institutional counterparties		—		—		—		—		—		—
Interest rate swaps:
Institutional counterparties		89		—		89		—		—		89
Repurchase agreements:
Institutional counterparties		495,564		—		495,564		(495,564)		—		—
Customer counterparties		18,491		—		18,491		(18,491)		—		—
Forward MBS derivatives:
Institutional counterparties		8,555		(2,561)		5,994		(3,720)		—		2,274
	$	2,027,817	$	(2,561)	$	2,025,256	$	(1,972,015)	$	—	$	53,241
December 31, 2018
Securities loaned:
Institutional counterparties	$	1,186,073	$	—	$	1,186,073	$	(1,136,033)	$	—	$	50,040
Interest rate options:
Institutional counterparties		49		—		49		—		—		49
Interest rate swaps:
Institutional counterparties		6		—		6		—		—		6
Repurchase agreements:
Institutional counterparties		533,441		—		533,441		(533,441)		—		—
Customer counterparties		43,266		—		43,266		(43,266)		—		—
Forward MBS derivatives:
Institutional counterparties		19,331		(15)		19,316		(7,728)		—		11,588
	$	1,782,166	$	(15)	$	1,782,151	$	(1,720,468)	$	—	$	61,683

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 one to thirty days from the transaction date or involve arrangements with no definite termination 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 include 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

46

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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 September 30, 2019 and December 31, 2018.

	Remaining Contractual Maturities
	Overnight and						Greater Than
September 30, 2019	Continuous		Up to 30 Days		30-90 Days		90 Days		Total
Repurchase agreement transactions:
U.S. Treasury and agency securities	$	35,335	$	—	$	—	$	—	$	35,335
Asset-backed securities		478,720		—		—		—		478,720
Securities lending transactions:
Corporate securities		113		—		—		—		113
Equity securities		1,505,005		—		—		—		1,505,005
Total	$	2,019,173	$	—	$	—	$	—	$	2,019,173
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above									$	2,019,173
Amount related to agreements not included in offsetting disclosure above									$	—
	Remaining Contractual Maturities
	Overnight and						Greater Than
December 31, 2018	Continuous		Up to 30 Days		30-90 Days		90 Days		Total
Repurchase agreement transactions:
U.S. Treasury and agency securities	$	131,848	$	—	$	—	$	—	$	131,848
Asset-backed securities		444,859		—		—		—		444,859
Securities lending transactions:
Corporate securities		113		—		—		—		113
Equity securities		1,185,960		—		—		—		1,185,960
Total	$	1,762,780	$	—	$	—	$	—	$	1,762,780
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above									$	1,762,780
Amount related to agreements not included in offsetting disclosure above									$	—

20. Broker-Dealer and Clearing Organization Receivables and Payables

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

	September 30,		December 31,
	2019		2018
Receivables:
Securities borrowed	$	1,636,796	$	1,365,547
Securities failed to deliver		15,878		16,300
Trades in process of settlement		55,982		32,993
Other		23,323		25,447
	$	1,731,979	$	1,440,287
Payables:
Securities loaned	$	1,505,118	$	1,186,073
Correspondents		24,670		29,311
Securities failed to receive		10,485		75,015
Other		5,890		4,526
	$	1,546,163	$	1,294,925

47

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

21. Reserve for Losses and Loss Adjustment Expenses

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

	September 30,		December 31,
	2019		2018
Reserve for unpaid losses and allocated LAE balance, net	$	18,403	$	16,498
Reinsurance recoverables on unpaid losses		847		3,214
Unallocated LAE		788		840
Reserve for unpaid losses and LAE balance, gross	$	20,038	$	20,552

A summary of claims loss reserve development activity is presented in the following table (dollars in thousands).

					September 30, 2019
					Total of
					IBNR Reserves
					Plus Expected		Cumulative
Accident	Nine Months Ended September 30, 2019				Development on		Number of
Year	Paid		Incurred		Reported Claims		Reported Claims
2016	$	83,540	$	83,978	$	272		20,180
2017		87,039		87,743		418		20,738
2018		69,823		73,703		2,128		15,290
2019		38,936		52,183		5,656		11,701
Total	$	279,338	$	297,607
		134	All outstanding reserves prior to 2016, net of reinsurance
	$	18,403	Reserve for unpaid losses and allocated LAE, net of reinsurance

22. Reinsurance Activity

NLC limits the maximum net loss that can arise from large risks or risks in concentrated areas of exposure by reinsuring (ceding) certain levels of risk. Substantial amounts of business are ceded, and these reinsurance contracts do not relieve NLC from its obligations to policyholders. Such reinsurance includes quota share, excess of loss, catastrophe, and other forms of reinsurance on essentially all property and casualty lines of insurance. Net insurance premiums earned, losses and LAE and policy acquisition and other underwriting expenses are reported net of the amounts related to reinsurance ceded to other companies. Amounts recoverable from reinsurers related to the portions of the liability for losses and LAE and unearned insurance premiums ceded to them are reported as assets. Failure of reinsurers to honor their obligations could result in losses to NLC; consequently, allowances are established for amounts deemed uncollectible as NLC evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. At September 30, 2019, total reinsurance recoverables and receivables had a carrying value of $1.1 million, which is included in other assets within the consolidated balance sheets. There was no allowance for uncollectible accounts at September 30, 2019, based on NLC’s quality requirements.

48

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
	Written		Earned		Written		Earned		Written		Earned		Written		Earned
Premiums from direct business	$	31,269	$	31,698	$	32,738	$	33,399	$	97,621	$	95,161	$	101,624	$	100,139
Reinsurance assumed		3,440		3,289		3,414		3,181		10,191		9,736		10,023		9,292
Reinsurance ceded		(2,333)		(2,333)		(2,353)		(2,395)		(5,574)		(5,574)		(6,698)		(6,826)
Net premiums	$	32,376	$	32,654	$	33,799	$	34,185	$	102,238	$	99,323	$	104,949	$	102,605

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Losses and LAE incurred	$	14,508	$	19,158	$	53,450	$	56,479
Reinsurance recoverables		169		(446)		1,134		2,174
Net loss and LAE incurred	$	14,677	$	18,712	$	54,584	$	58,653

Catastrophic coverage

Effective July 1, 2019, NLC renewed its catastrophic excess of loss reinsurance coverage for a one-year period. At September 30, 2019, NLC had catastrophic excess of loss reinsurance coverage of losses per event in excess of $8 million retention by NLIC and $2 million retention by ASIC. ASIC maintained an underlying layer of coverage, providing $6 million of reinsurance coverage in excess of its $2 million retention to bridge to the primary program. The reinsurance for NLIC and ASIC in excess of $8 million is comprised of three layers of protection: $12 million in excess of $8 million retention and/or loss; $25 million in excess of $20 million loss; and $50 million in excess of $45 million loss. NLIC and ASIC retain no participation in any of the layers, beyond the first $8 million and $2 million, respectively. At September 30, 2019, total retention for any one catastrophe that affects both NLIC and ASIC was limited to $8 million in the aggregate.

Effective January 1, 2019, NLC renewed its underlying excess of loss contract that provides $10 million aggregate coverage in excess of NLC’s per event retention of $1 million and aggregate retention of $15 million for sub-catastrophic events. As of January 1, 2019, NLC retains 37.5% participation in this coverage, up from 17.5% participation during 2018.

23. 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 chief operating decision maker, the Company’s President and Chief Executive Officer, to evaluate segment performance, develop strategy and allocate resources.

The banking segment includes the operations of the Bank, and since August 1, 2018, the operations acquired in the BORO Acquisition. The broker-dealer segment includes the operations of Securities Holdings, 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, merchant banking investment opportunities and management and administrative services to support the overall operations of the Company.

49

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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 September 30, 2019	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	97,642	$	13,724	$	(2,725)	$	566	$	(1,384)	$	5,389	$	113,212
Provision (recovery) for loan losses		—		47		—		—		—		—		47
Noninterest income		8,856		107,742		194,857		34,896		460		(5,410)		341,401
Noninterest expense		53,767		94,411		160,634		28,923		12,561		(187)		350,109
Income (loss) before income taxes	$	52,731	$	27,008	$	31,498	$	6,539	$	(13,485)	$	166	$	104,457
					Mortgage						All Other and		Hilltop
Nine Months Ended September 30, 2019	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	283,755	$	37,984	$	(4,224)	$	1,802	$	(4,045)	$	14,747	$	330,019
Provision (recovery) for loan losses		355		(29)		—		—		—		—		326
Noninterest income		30,219		304,607		477,438		107,539		1,850		(14,913)		906,740
Noninterest expense		172,744		277,088		417,032		98,850		37,397		(240)		1,002,871
Income (loss) before income taxes	$	140,875	$	65,532	$	56,182	$	10,491	$	(39,592)	$	74	$	233,562
					Mortgage						All Other and		Hilltop
Three Months Ended September 30, 2018	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	94,921	$	12,432	$	363	$	733	$	(3,275)	$	5,167	$	110,341
Provision (recovery) for loan losses		—		(371)		—		—		—		—		(371)
Noninterest income		11,365		82,834		144,400		36,724		523		(6,149)		269,697
Noninterest expense		67,714		85,713		140,006		33,807		8,656		(185)		335,711
Income (loss) before income taxes	$	38,572	$	9,924	$	4,757	$	3,650	$	(11,408)	$	(797)	$	44,698

					Mortgage						All Other and		Hilltop
Nine Months Ended September 30, 2018	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	269,517	$	37,873	$	2,009	$	2,313	$	(7,848)	$	14,745	$	318,609
Provision (recovery) for loan losses		(1,531)		(307)		—		—		—		—		(1,838)
Noninterest income		32,188		224,969		434,262		108,288		1,246		(16,679)		784,274
Noninterest expense		192,626		241,456		420,736		104,532		23,399		(319)		982,430
Income (loss) before income taxes	$	110,610	$	21,693	$	15,535	$	6,069	$	(30,001)	$	(1,615)	$	122,291

					Mortgage						All Other and		Hilltop
	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
September 30, 2019
Goodwill	$	247,368	$	7,008	$	13,071	$	23,988	$	—	$	—	$	291,435
Total assets	$	10,938,112	$	3,368,574	$	2,242,522	$	254,243	$	2,365,800	$	(4,332,222)	$	14,837,029
December 31, 2018
Goodwill	$	247,368	$	7,008	$	13,071	$	23,988	$	—	$	—	$	291,435
Total assets	$	10,004,971	$	3,213,115	$	1,627,134	$	253,513	$	2,243,182	$	(3,658,343)	$	13,683,572

50

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

24. Earnings per Common Share

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, if applicable. 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. The Company calculated basic earnings per common share using the treasury method instead of the two-class method since there were no instruments which qualified as participating securities during the three or nine months ended September 30, 2019 or 2018.

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 and nine months ended September 30, 2019 and 2018, RSUs were 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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Basic earnings per share:
Net earnings available to Hilltop common stockholders	$	79,418	$	35,805	$	176,015	$	93,326
Weighted average shares outstanding - basic		91,745		94,554		92,931		95,264
Basic earnings per common share	$	0.87	$	0.38	$	1.89	$	0.98
Diluted earnings per share:
Income attributable to Hilltop	$	79,418	$	35,805	$	176,015	$	93,326
Weighted average shares outstanding - basic		91,745		94,554		92,931		95,264
Effect of potentially dilutive securities		79		56		28		91
Weighted average shares outstanding - diluted		91,824		94,610		92,959		95,355
Diluted earnings per common share	$	0.86	$	0.38	$	1.89	$	0.98

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SCHEDULE I – Insurance Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses,

Net of Reinsurance

(dollars in thousands)

	Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance								September 30, 2019
									Total of
									Incurred
									But Not
									Reported
									Reserves Plus		Cumulative
									Development		Number of
Accident	September 30, 2019								On Reported		Reported
Year	2016		2017		2018		2019		Claims		Claims
2016	$	84,771	$	85,189	$	84,076	$	83,978	$	272	20,180
2017				87,899		88,025		87,743		418	20,738
2018						75,217		73,703		2,128	15,290
2019								52,183		5,656	11,701
							$	297,607
	Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident	September 30, 2019
Year	2016		2017		2018		2019
2016	$	71,543	$	81,682	$	83,169	$	83,540
2017				77,675		86,319		87,039
2018						61,922		69,823
2019								38,936
Total							$	279,338
All outstanding reserves prior to 2016, net of reinsurance								134
Reserve for unpaid losses and allocated loss adjustment expenses, net of reinsurance							$	18,403

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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 “PCC” 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), references to “HTS Independent Network” refer to Hilltop Securities Independent Network Inc. (a wholly owned subsidiary of Securities Holdings), Hilltop Securities and HTS Independent Network are collectively referred to as the “Hilltop Broker-Dealers”, references to the “Bank” refer to PlainsCapital Bank (a wholly owned subsidiary of PCC), references to “FNB” refer to First National Bank, references to “SWS” refer to the former SWS Group, Inc., 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 revenue, our liquidity and sources of funding, market trends, operations and business, taxes, information technology expenses, capital levels, mortgage servicing rights (“MSR”) assets, stock repurchases, dividend payments, expectations concerning mortgage loan origination volume and interest rate compression, expected levels of refinancing as a percentage of total loan origination volume, projected losses on mortgage loans originated, loss estimates related to natural disasters, total expenses and cost savings expected from PrimeLending’s cost reduction efforts, the effects of government regulation applicable to our operations, the appropriateness of, and changes in, our allowance for loan losses and provision for loan losses, including as a result of the “current expected credit losses” (CECL) model, anticipated investment yields, our expectations regarding accretion of discount on loans in future periods, the collectability of loans, cybersecurity incidents and the outcome of 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:

● the credit risks of lending activities, including our ability to estimate loan losses and increases to the allowance for loan losses as a result of the implementation of CECL, as well as the effects of changes in the level of, and trends in, loan delinquencies and write-offs;

● changes in the interest rate environment;

● 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;

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

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

● the effects of our indebtedness on our ability to manage our business successfully, including the restrictions imposed by the indenture governing our indebtedness;

● cost and availability of capital;

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

● 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;

● legal and regulatory proceedings;

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

● risks associated with merger and acquisition integration; and

● our ability to use excess capital in an effective manner.

For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ materially from those anticipated in these forward-looking statements, see “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”), which was filed with the Securities and Exchange Commission (the “SEC”) on February 15, 2019, 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 business units.

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

Securities Holdings. Securities Holdings is a holding company 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. NLC is a property and casualty insurance holding company 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.

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During the three and nine months ended September 30, 2019, our net income to common stockholders was $79.4 million, or $0.86 per diluted share, and $176.0 million, or $1.89 per diluted share, respectively. We declared total common dividends of $0.08 and $0.24 per share during the three and nine months ended September 30, 2019, respectively, which resulted in dividend payout ratios of 9.24% and 12.67%, respectively. Dividend payout ratio is defined as cash dividends declared per common share divided by basic earnings per common share. We also paid an aggregate of $73.4 million to repurchase our common stock during the nine months ended September 30, 2019.

We reported $104.5 million and $233.6 million of consolidated income before income taxes during the three and nine months ended September 30, 2019, respectively, including the following contributions from our four reportable business segments.

● The banking segment contributed $52.7 million and $140.9 million of income before income taxes during the three and nine months ended September 30, 2019, respectively;

● The broker-dealer segment contributed $27.0 million and $65.5 million of income before income taxes during the three and nine months ended September 30, 2019, respectively;

● The mortgage origination segment contributed $31.5 million and $56.2 million of income before income taxes during the three and nine months ended September 30, 2019, respectively; and

● The insurance segment contributed $6.5 million and $10.5 million of income before income taxes during the three and nine months ended September 30, 2019.

At September 30, 2019, on a consolidated basis, we had total assets of $14.8 billion, total deposits of $8.7 billion, total loans, including loans held for sale, of $9.2 billion and stockholders’ equity of $2.1 billion.

Factors Affecting Results of Operations

Changes in Management and Efficiency Initiative-Related Charges

On February 21, 2019, we entered into a Separation and Release Agreement (the “Separation Agreement”) with Alan B. White, our Vice Chairman and Co-Chief Executive Officer, in connection with his retirement effective April 1, 2019 (the “Retirement Date”). Pursuant to the Separation Agreement, effective as of the Retirement Date, Mr. White resigned from all positions with Hilltop and its subsidiaries, including, without limitation, Vice Chairman of our Board of Directors and Co-Chief Executive Officer of Hilltop. The Separation Agreement also provides that Mr. White’s retention agreement with the Company, as amended, terminated on the Retirement Date, except for certain provisions that addressed, among other items, non-competition, non-solicitation, confidential information and arbitration. Effective April 1, 2019, Jeremy B. Ford became Hilltop’s sole Chief Executive Officer, Chairman of the Executive Committee of the Board of Directors of Hilltop and the Chairman of the Bank. The Separation Agreement, in accordance with Mr. White’s retention agreement, provided for aggregate payments of $12.4 million to Mr. White, subject to any delay required under Section 409A of the Internal Revenue Code. During the nine months ended September 30, 2019, our financial results included the recognition within corporate of a pre-tax charge within employees’ compensation and benefits of $5.8 million in the first quarter of 2019 associated with Mr. White’s retirement.

On February 19, 2019, we entered into a retention agreement with Hill A. Feinberg (the “Feinberg Retention Agreement") to set forth the terms of his ongoing role with the Company. The Feinberg Retention Agreement provides that, as of February 20, 2019, Mr. Feinberg resign as President and Chief Executive Officer of Hilltop Securities and from all other positions with Hilltop and its subsidiaries, other than as Chairman of the Board of Directors of Hilltop Securities, as a member of the Board of Directors of Hilltop and a member of Executive Committee of the Board of Directors of Hilltop. Pursuant to the Feinberg Retention Agreement, Mr. Feinberg served as the Chairman of the Board of Directors of Hilltop Securities until June 30, 2019, at which time he became Chairman Emeritus of Hilltop Securities and resigned from his membership on the Executive Committee of the Board of Directors of Hilltop. The Feinberg Retention Agreement provides for aggregate payments of $1.4 million to Mr. Feinberg upon his termination, resignation or death, of which $0.9 million was paid during the first quarter of 2019. Mr. Feinberg may resign or be terminated at any time. We appointed M. Bradley Winges to succeed Mr. Feinberg as President and Chief Executive Officer of Hilltop Securities effective February 20, 2019. In connection with the appointment of Mr. Winges, Hilltop and Mr. Winges entered into an employment agreement providing for a sign-on cash bonus of $1.5 million, among other benefits, on the effective date of his employment. During the nine months ended September 30, 2019, the broker-dealer segment’s

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financial results reflect aggregate pre-tax charges within employees’ compensation and benefits noninterest expenses of $2.2 million related to these items, all of which were recognized in the first quarter of 2019.

During the nine months ended September 30, 2019, the total impact of the above noted changes in management was $8.0 million before income taxes, all of which was recognized during the first quarter of 2019. These changes and the related impact on our results of operations are collectively referred to as the “Leadership Changes.”

In addition to the costs associated with the Leadership Changes, during the nine months ended September 30, 2019, Corporate and the broker-dealer segment recognized $0.4 million and $1.0 million, respectively, in efficiency initiative-related charges.

Technology Enhancements and Corporate Initiatives

In furtherance of our goal of building a premier, diversified financial services company, we regularly evaluate strategic opportunities to invest in our business and technology platforms. Such investments are intended to support long-term technological competitiveness and improve operational efficiencies throughout our organization. During 2018, we began the significant investment in new technological solutions, substantial core system upgrades and other technology enhancements. Such significant investments specifically include single, enterprise-wide general ledger and procurement solutions, a mortgage loan origination system and a core system replacement within our broker-dealer segment (collectively referred to as “Core System Improvements”). In combination with these technology enhancements, we are continuing our efforts to consolidate common back office functions. We believe that costs incurred related to these Core System Improvements and the consolidation of common back office functions will continue to represent an increasingly significant portion of our noninterest expenses in the near term, but we are making such investments with the expectation that they will result in cost savings over the long term. Costs related to our Core System Improvements, disaggregated by segment between internal-use software costs that were capitalized as premises and equipment and costs that were recorded to noninterest expense, were as follows (in thousands).

					Mortgage						Hilltop
Three Months Ended September 30, 2019	Banking		Broker-Dealer		Origination		Insurance		Corporate		Consolidated
Premises and equipment	$	—	$	810	$	1,033	$	—	$	1,488	$	3,331
Noninterest expense		—		1,431		708		—		873		3,012
Total	$	—	$	2,241	$	1,741	$	—	$	2,361	$	6,343

					Mortgage						Hilltop
Nine Months Ended September 30, 2019	Banking		Broker-Dealer		Origination		Insurance		Corporate		Consolidated
Premises and equipment	$	—	$	2,664	$	5,401	$	—	$	2,825	$	10,890
Noninterest expense		—		3,557		2,478		—		2,732		8,767
Total	$	—	$	6,221	$	7,879	$	—	$	5,557	$	19,657

					Mortgage						Hilltop
Three Months Ended September 30, 2018	Banking		Broker-Dealer		Origination		Insurance		Corporate		Consolidated
Premises and equipment	$	—	$	984	$	1,457	$	—	$	1,033	$	3,474
Noninterest expense		—		1,052		129		—		410		1,591
Total	$	—	$	2,036	$	1,586	$	—	$	1,443	$	5,065

					Mortgage						Hilltop
Nine Months Ended September 30, 2018	Banking		Broker-Dealer		Origination		Insurance		Corporate		Consolidated
Premises and equipment	$	—	$	2,131	$	1,457	$	—	$	1,938	$	5,526
Noninterest expense		—		3,028		1,849		—		1,661		6,538
Total	$	—	$	5,159	$	3,306	$	—	$	3,599	$	12,064

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Factors Affecting Comparability of Results of Operations

Prior Year Acquisition

On August 1, 2018, we acquired privately-held, Houston-based The Bank of River Oaks (“BORO”) in an all-cash transaction (the “BORO Acquisition”). Pursuant to the terms of the definitive agreement, we paid cash in the aggregate amount of $85 million to the shareholders and option holders of BORO. The fair value of the assets acquired was $434.8 million, including $326.6 million in loans, while the fair value of liabilities assumed was $389.4 million, consisting primarily of $376.4 million in deposits. The operations of BORO were included in our operating results beginning August 1, 2018. The estimated fair value of the core deposit intangible asset acquired as of August 1, 2018 was $10.0 million and resulting goodwill was $39.6 million. In connection with the acquisition, we merged BORO into the Bank, and all customer accounts were converted to the PlainsCapital Bank platform.

Termination of FDIC Loss-Share Agreements

In the fourth quarter of 2018, the Bank terminated its loss-share agreements with the FDIC which were entered into in connection with the FNB Transaction, resulting in a $6.26 million payment from the FDIC to the Bank. Prior to the termination, the Bank recorded “true-up” accruals of $0.3 million during the nine months ended September 30, 2018, with respect to the FDIC-assisted transaction whereby the Bank acquired certain assets and assumed certain liabilities of Edinburg, Texas-based First National Bank (“FNB”) on September 13, 2013 (the “FNB Transaction”). The true-up accrual was based on a formula within the loss-share agreements, pursuant to which we agreed to reimburse the FDIC if actual losses incurred and billed to the FDIC through loss sharing were below a stated threshold. During the three and nine months ended September 30, 2018, the Bank also recorded $0.7 million and $6.5 million, respectively, of amortization of excess book value of its receivables under the loss-share agreements (the “FDIC Indemnification Asset”) due to lower projected collections from the FDIC than were initially estimated at the acquisition date.

Segment Information

We have three primary business units, PCC (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. 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 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, and since August 1, 2018, the operations acquired in the BORO Acquisition. The banking segment 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. The Bank also derives revenue from other sources, including service charges on customer deposit accounts and trust fees.

The broker-dealer segment includes the operations of Securities Holdings, which operates through its wholly owned subsidiaries Hilltop Securities and HTS Independent Network. 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. Hilltop Securities, HTS Independent Network and Hilltop Securities Asset Management, LLC are registered investment advisers under the Investment Advisers 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 and servicing 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, in Texas and other areas of the southern United States. Insurance segment income is primarily generated from

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revenue earned on net insurance premiums less loss and loss adjustment expenses (“LAE”) and policy acquisition and other underwriting expenses.

Corporate includes certain activities not allocated to specific business segments. These activities include holding company financing and investing activities, merchant banking investment opportunities, and management and administrative services to support the overall operations of the Company.

The eliminations of intercompany transactions are included in “All Other and Eliminations.” Additional information concerning our reportable segments is presented in Note 23, Segment and Related Information, in the notes to our consolidated financial statements. The following table presents certain information about the operating results of our reportable segments (in thousands). This table serves as a basis for the discussion and analysis in the segment operating results sections that follow.

	Three Months Ended September 30,				Variance 2019 vs 2018				Nine Months Ended September 30,				Variance 2019 vs 2018
	2019		2018		Amount		Percent		2019		2018		Amount		Percent
Net interest income (expense):
Banking	$	97,642	$	94,921	$	2,721	3	%	$	283,755	$	269,517	$	14,238	5	%
Broker-Dealer		13,724		12,432		1,292	10	%		37,984		37,873		111	0	%
Mortgage Origination		(2,725)		363		(3,088)	(851)	%		(4,224)		2,009		(6,233)	(310)	%
Insurance		566		733		(167)	(23)	%		1,802		2,313		(511)	(22)	%
Corporate		(1,384)		(3,275)		1,891	58	%		(4,045)		(7,848)		3,803	48	%
All Other and Eliminations		5,389		5,167		222	4	%		14,747		14,745		2	0	%
Hilltop Consolidated	$	113,212	$	110,341	$	2,871	3	%	$	330,019	$	318,609	$	11,410	4	%
Provision (recovery) for loan losses:
Banking	$	—	$	—	$	—	—	%	$	355	$	(1,531)	$	1,886	123	%
Broker-Dealer		47		(371)		418	113	%		(29)		(307)		278	91	%
Mortgage Origination		—		—		—	—	%		—		—		—	—	%
Insurance		—		—		—	—	%		—		—		—	—	%
Corporate		—		—		—	—	%		—		—		—	—	%
All Other and Eliminations		—		—		—	—	%		—		—		—	—	%
Hilltop Consolidated	$	47	$	(371)	$	418	113	%	$	326	$	(1,838)	$	2,164	118	%
Noninterest income:
Banking	$	8,856	$	11,365	$	(2,509)	(22)	%	$	30,219	$	32,188	$	(1,969)	(6)	%
Broker-Dealer		107,742		82,834		24,908	30	%		304,607		224,969		79,638	35	%
Mortgage Origination		194,857		144,400		50,457	35	%		477,438		434,262		43,176	10	%
Insurance		34,896		36,724		(1,828)	(5)	%		107,539		108,288		(749)	(1)	%
Corporate		460		523		(63)	(12)	%		1,850		1,246		604	48	%
All Other and Eliminations		(5,410)		(6,149)		739	12	%		(14,913)		(16,679)		1,766	11	%
Hilltop Consolidated	$	341,401	$	269,697	$	71,704	27	%	$	906,740	$	784,274	$	122,466	16	%
Noninterest expense:
Banking	$	53,767	$	67,714	$	(13,947)	(21)	%	$	172,744	$	192,626	$	(19,882)	(10)	%
Broker-Dealer		94,411		85,713		8,698	10	%		277,088		241,456		35,632	15	%
Mortgage Origination		160,634		140,006		20,628	15	%		417,032		420,736		(3,704)	(1)	%
Insurance		28,923		33,807		(4,884)	(14)	%		98,850		104,532		(5,682)	(5)	%
Corporate		12,561		8,656		3,905	45	%		37,397		23,399		13,998	60	%
All Other and Eliminations		(187)		(185)		(2)	(1)	%		(240)		(319)		79	25	%
Hilltop Consolidated	$	350,109	$	335,711	$	14,398	4	%	$	1,002,871	$	982,430	$	20,441	2	%
Income (loss) before income taxes:
Banking	$	52,731	$	38,572	$	14,159	37	%	$	140,875	$	110,610	$	30,265	27	%
Broker-Dealer		27,008		9,924		17,084	172	%		65,532		21,693		43,839	202	%
Mortgage Origination		31,498		4,757		26,741	562	%		56,182		15,535		40,647	262	%
Insurance		6,539		3,650		2,889	79	%		10,491		6,069		4,422	73	%
Corporate		(13,485)		(11,408)		(2,077)	(18)	%		(39,592)		(30,001)		(9,591)	(32)	%
All Other and Eliminations		166		(797)		963	121	%		74		(1,615)		1,689	105	%
Hilltop Consolidated	$	104,457	$	44,698	$	59,759	134	%	$	233,562	$	122,291	$	111,271	91	%

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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 and is primarily earned by our banking segment. 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. Net interest income increased during the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018, primarily due to an increase within our banking segment and, to a lesser extent within corporate, partially offset by a decrease within our mortgage origination segment.

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

(i)Income from broker-dealer operations. Through Securities Holdings, we provide investment banking and other related financial services. We generated $176.2 million and $177.8 million in securities commissions and fees and investment and securities advisory fees and commissions, and $118.8 million and $36.2 million in gains from derivative and trading portfolio activities (included within other noninterest income), during the nine months ended September 30, 2019 and 2018, respectively.

(ii)Income from mortgage operations. Through PrimeLending, we generate noninterest income by originating and selling mortgage loans. During the nine months ended September 30, 2019 and 2018, we generated $477.4 million and $431.4 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 $99.3 million and $102.6 million in net insurance premiums earned during the nine months ended September 30, 2019 and 2018, respectively.

The increase in noninterest income noted in the segment results table previously presented was primarily due to increases of $82.6 million in gains from derivative and trading portfolio activities within our broker-dealer segment and $46.0 million in net gains from sale of loans, other mortgage production income and mortgage loan origination fees within our mortgage origination 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 September 30, 2019 was $79.4 million, or $0.86 per diluted share, compared with net income applicable to common stockholders of $35.8 million, or $0.38 per diluted share, during the three months ended September 30, 2018. Net income applicable to common stockholders during the nine months ended September 30, 2019 was $176.0 million, or $1.89 per diluted share, compared with net income applicable to common stockholders of $93.3 million, or $0.98 per diluted share, during the nine months ended September 30, 2018. The nine months ended September 30, 2019 included costs incurred associated with significant Leadership Changes and efficiency initiative-related charges which, in the aggregate, totaled $9.4 million before income taxes.

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Certain items included in net income for the three and nine months ended September 30, 2019 and 2018 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 Federal Deposit Insurance Corporation (“FDIC”) -assisted transaction (the “FNB Transaction”) whereby the Bank acquired certain assets and assumed certain liabilities of FNB, the acquisition of SWS Group, Inc. in a stock and cash transaction (the “SWS Merger”) and the BORO Acquisition (collectively, the “Bank Transactions”). Income before taxes included the following purchase accounting items related to the Bank Transactions (in thousands).

Three Months Ended September 30, 2019		PlainsCapital Merger		FNB Transaction		SWS Merger		BORO Acquisition		Total
Net accretion on earning assets and liabilities	$	732	$	5,874	$	300	$	928	$	7,835
Amortization of identifiable intangibles		(1,000)		(69)		(174)		(635)		(1,878)

Nine Months Ended September 30, 2019		PlainsCapital Merger		FNB Transaction		SWS Merger		BORO Acquisition		Total
Net accretion on earning assets and liabilities	$	1,834	$	15,813	$	1,307	$	3,909	$	22,862
Amortization of identifiable intangibles		(3,002)		(221)		(522)		(2,063)		(5,808)

Three Months Ended September 30, 2018		PlainsCapital Merger		FNB Transaction		SWS Merger		BORO Acquisition		Total
Net accretion on earning assets and liabilities	$	610	$	4,236	$	416	$	2,560	$	7,822
Amortization of identifiable intangibles		(1,448)		(107)		(195)		(476)		(2,226)

Nine Months Ended September 30, 2018		PlainsCapital Merger		FNB Transaction		SWS Merger		BORO Acquisition		Total
Net accretion on earning assets and liabilities	$	1,550	$	19,530	$	1,665	$	2,560	$	25,305
Amortization of identifiable intangibles		(4,344)		(336)		(585)		(476)		(5,741)

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Return on average stockholder's equity	15.55	%	7.41	%	11.81	%	6.52	%
Return on average assets	2.26	%	1.07	%	1.76	%	0.96	%
Net interest margin (1) (3) (4)	3.45	%	3.48	%	3.54	%	3.49	%
Net interest margin (taxable equivalent) (2) (3) (4)	3.46	%	3.49	%	3.55	%	3.50	%

(1) Net interest margin is defined as net interest income divided by average interest-earning assets.

(2) Net interest margin (taxable equivalent), a non-GAAP measure, is defined as taxable equivalent net interest income divided by average interest-earning assets. Annualized taxable equivalent adjustments are based on the applicable corporate federal income tax rate of 21%. The interest income earned on certain earnings assets is completely or partially exempt from federal income tax. See footnote 2 to the consolidated net interest income tables for the taxable equivalent adjustments to interest income.

(3) The securities financing operations within our broker-dealer segment had the effect of lowering both the net interest margin and taxable equivalent net interest margin by 36 basis points and 41 basis points during the three months ended September 30, 2019 and 2018, respectively, and 41 basis points during both the nine months ended September 30, 2019 and 2018, respectively.

(4) During the three months ended September 30, 2019 and 2018, purchase accounting contributed 26 basis points and 28 basis points, respectively, to both net interest margin and taxable equivalent net interest margin. During the nine months ended September 30, 2019 and 2018, purchase accounting contributed 27 and 31 basis points, respectively, to both net interest margin and taxable equivalent net interest margin.

We present net interest margin in the table above, and net interest margin and net interest income below, on a taxable equivalent basis. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest margins for all earning assets, we use net interest income on a taxable- equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments.

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During the three months ended September 30, 2019 and 2018, purchase accounting contributed 26 and 28 basis points, respectively, to our consolidated taxable equivalent net interest margin of 3.46% and 3.49%, respectively. During the nine months ended September 30, 2019 and 2018, purchase accounting contributed 27 and 31 basis points, respectively, to our consolidated taxable equivalent net interest margin of 3.55% and 3.50%, respectively, and primarily related to the following purchase accounting items associated with the Bank Transactions (in thousands).

Three Months Ended September 30, 2019		PlainsCapital Merger		FNB Transaction		SWS Merger		BORO Acquisition		Total
Accretion of discount on loans	$	847	$	5,874	$	276	$	870	$	7,868
Accretion (amortization) of discount (premium) on acquired securities		(115)		—		8		58		(49)

Nine Months Ended September 30, 2019		PlainsCapital Merger		FNB Transaction		SWS Merger		BORO Acquisition		Total
Accretion of discount on loans	$	2,287	$	15,813	$	1,225	$	3,723	$	23,047
Accretion (amortization) of discount (premium) on acquired securities		(453)		—		22		186		(245)

Three Months Ended September 30, 2018		PlainsCapital Merger		FNB Transaction		SWS Merger		BORO Acquisition		Total
Accretion of discount on loans	$	915	$	4,236	$	435	$	2,560	$	8,147
Amortization of premium on acquired securities		(305)		—		—		—		(305)

Nine Months Ended September 30, 2018		PlainsCapital Merger		FNB Transaction		SWS Merger		BORO Acquisition		Total
Accretion of discount on loans	$	2,602	$	19,530	$	1,665	$	2,560	$	26,357
Amortization of premium on acquired securities		(1,052)		—		—		—		(1,052)

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

	Three Months Ended September 30,
	2019						2018
	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 held for sale	$	1,754,975	$	18,178	4.14	%	$	1,718,410	$	20,409	4.75	%
Loans held for investment, gross (1)		7,167,169		101,402	5.57	%		6,767,004		93,126	5.41	%
Investment securities - taxable		1,815,454		15,733	3.47	%		1,625,368		11,964	2.94	%
Investment securities - non-taxable (2)		240,595		1,694	2.82	%		250,042		1,950	3.12	%
Federal funds sold and securities purchased under agreements to resell		50,522		251	1.97	%		202,274		956	1.87	%
Interest-bearing deposits in other financial institutions		330,968		1,928	2.31	%		379,160		1,915	2.00	%
Securities borrowed		1,565,608		21,010	5.25	%		1,550,902		16,346	4.12	%
Other		83,379		1,862	8.89	%		89,718		1,879	8.33	%
Interest-earning assets, gross (2)		13,008,670		162,058	4.92	%		12,582,878		148,545	4.66	%
Allowance for loan losses		(55,710)						(61,736)
Interest-earning assets, net		12,952,960						12,521,142
Noninterest-earning assets		1,389,963						1,299,974
Total assets	$	14,342,923					$	13,821,116
Liabilities and Stockholders' Equity
Interest-bearing liabilities
Interest-bearing deposits	$	5,943,901	$	18,887	1.26	%	$	5,608,748	$	12,353	0.87	%
Securities loaned		1,448,345		17,889	4.90	%		1,415,231		13,984	3.92	%
Notes payable and other borrowings		1,605,598		11,968	2.94	%		1,720,823		11,648	2.68	%
Total interest-bearing liabilities		8,997,844		48,744	2.15	%		8,744,802		37,985	1.72	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		2,680,729						2,538,833
Other liabilities		611,337						602,983
Total liabilities		12,289,910						11,886,618
Stockholders’ equity		2,029,511						1,918,977
Noncontrolling interest		23,502						15,521
Total liabilities and stockholders' equity	$	14,342,923					$	13,821,116
Net interest income (2)			$	113,314					$	110,560
Net interest spread (2)					2.77	%					2.94	%
Net interest margin (2)					3.46	%					3.49	%

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	Nine Months Ended September 30,
	2019						2018
	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 held for sale	$	1,361,789	$	45,706	4.48	%	$	1,535,489	$	53,264	4.63	%
Loans held for investment, gross (1)		7,030,961		299,069	5.63	%		6,485,223		264,139	5.39	%
Investment securities - taxable		1,780,581		45,972	3.44	%		1,634,095		35,378	2.89	%
Investment securities - non-taxable (2)		230,119		5,040	2.92	%		253,756		5,892	3.10	%
Federal funds sold and securities purchased under agreements to resell		62,021		1,008	2.17	%		206,940		2,296	1.48	%
Interest-bearing deposits in other financial institutions		386,587		7,061	2.44	%		476,035		6,283	1.76	%
Securities borrowed		1,537,131		53,386	4.58	%		1,544,198		50,132	4.28	%
Other		71,292		5,215	9.77	%		76,718		5,021	8.74	%
Interest-earning assets, gross (2)		12,460,481		462,457	4.92	%		12,212,454		422,405	4.59	%
Allowance for loan losses		(58,218)						(63,615)
Interest-earning assets, net		12,402,263						12,148,839
Noninterest-earning assets		1,407,649						1,271,811
Total assets	$	13,809,912					$	13,420,650
Liabilities and Stockholders' Equity
Interest-bearing liabilities
Interest-bearing deposits	$	5,854,440	$	54,029	1.23	%	$	5,490,398	$	31,164	0.76	%
Securities loaned		1,402,467		46,097	4.39	%		1,387,949		42,798	4.12	%
Notes payable and other borrowings		1,355,420		31,907	3.13	%		1,503,572		29,155	2.58	%
Total interest-bearing liabilities		8,612,327		132,033	2.05	%		8,381,919		103,117	1.64	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		2,584,114						2,484,040
Other liabilities		595,419						634,524
Total liabilities		11,791,860						11,500,483
Stockholders’ equity		1,994,877						1,913,513
Noncontrolling interest		23,175						6,654
Total liabilities and stockholders' equity	$	13,809,912					$	13,420,650
Net interest income (2)			$	330,424					$	319,288
Net interest spread (2)					2.87	%					2.94	%
Net interest margin (2)					3.55	%					3.50	%

(1) Average balance includes non-accrual loans.

(2) Presented on a taxable equivalent basis with annualized taxable equivalent adjustments based on the applicable corporate federal income tax rate of 21% for the periods presented. The adjustment to interest income was $0.1 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively, and $0.5 million and $0.7 million for the nine months ended September 30, 2019 and 2018, 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 during the three and nine months ended September 30, 2019, compared with the same periods in 2018, primarily due to changes attributable to both volumes and yields within our banking segment, partially offset by a decrease in accretion of discount on loans. Refer to the discussion in the “Banking Segment” section that follows for more details on the changes in net interest income, 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.

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The provision (recovery) for loan losses is determined by management as the amount to be added to (recovered from) 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. Substantially all of our consolidated provision (recovery) for loan losses is related to the banking segment. During the nine months ended September 30, 2019, the provision for loan losses was impacted by the banking segment’s release of a $2.0 million reserve associated with previously estimated hurricane loss exposures due to improved customer performance. The provision for loan losses was comprised of the following (in thousands).

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
Charges (recovery of charges) relating to newly originated loans and acquired loans without credit impairment at acquisition	$	(932)	$	477	$	(1,630)	$	272
Charges (recovery of charges) on PCI loans		979		(848)		1,956		(2,110)
Provision (recovery) for loan losses	$	47	$	(371)	$	326	$	(1,838)

Consolidated noninterest income increased during the three months ended September 30, 2019, compared with the same period in 2018, primarily due to increases in noninterest income within our mortgage origination and broker-dealer segments, partially offset by decreases within our banking and insurance segments. Consolidated noninterest income increased during the nine months ended September 30, 2019, compared with the same period in 2018, primarily due to increases in noninterest income within our broker-dealer and mortgage origination segments, partially offset by decreases within our banking and insurance segments.

Consolidated noninterest expense increased during the three months ended September 30, 2019, compared with the same period in 2018, primarily due to increases in noninterest expense within our mortgage origination and broker-dealer segments as well as corporate, partially offset by decreases within our banking and insurance segments. Consolidated noninterest expense increased during the nine months ended September 30, 2019, compared with the same period in 2018, primarily due to increases within our broker-dealer segment and corporate, partially offset by decreases within our banking, insurance and mortgage origination segments.

Consolidated effective income tax rates during the three months ended September 30, 2019 and 2018, were 21.8% and 17.0%, respectively, and for the nine months ended September 30, 2019 and 2018, were 22.4% and 21.4%, respectively. The 2018 effective tax rates are lower than the applicable statutory rates due to tax planning strategies in conjunction with the enactment of the Tax Cuts and Jobs Act of 2017 (“Tax Legislation”) and research and development tax planning studies. In addition, a tax benefit was recognized in 2018 from the portion of the indemnification reserve that was a deductible settlement amount from the PrimeLending inquiry from the United States Department of Justice (“DOJ”) as described in detail in Note 18 to the consolidated financial statements included in the Company’s 2018 Form 10-K. The 2019 effective tax rates are lower than the applicable statutory rates as a result of prior period tax adjustments.

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Segment Results

Banking Segment

The following table presents certain information about the operating results of our banking segment (in thousands).

	Three Months Ended September 30,				Variance		Nine Months Ended September 30,				Variance
	2019		2018		2019 vs 2018		2019		2018		2019 vs 2018
Net interest income	$	97,642	$	94,921	$	2,721	$	283,755	$	269,517	$	14,238
Provision (recovery) for loan losses		—		—		—		355		(1,531)		1,886
Noninterest income		8,856		11,365		(2,509)		30,219		32,188		(1,969)
Noninterest expense		53,767		67,714		(13,947)		172,744		192,626		(19,882)
Income before income taxes	$	52,731	$	38,572	$	14,159	$	140,875	$	110,610	$	30,265

Income before income taxes increased during the three and nine months ended September 30, 2019, compared with the same periods in 2018. The increase during the three months ended September 30, 2019, compared with the same period in 2018, was due to a decrease in noninterest expenses, comprising primarily transaction expenses related to the BORO Acquisition. The increase during the nine months ended September 30, 2019, compared with the same period in 2018, was due to the decrease in BORO transaction expenses as well as an increase in net interest income associated with net volume and yield changes, partially offset by an increase in deposit rates and a decline in accretion of discount on loans. Changes to net interest income related to 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 are discussed in more detail below.

The ratios shown in the table below include certain key indicators of the performance and asset quality of our banking segment.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Efficiency ratio (1)	50.49	%	63.71	%	55.02	%	63.85	%
Return on average assets	1.51	%	1.19	%	1.43	%	1.20	%
Net interest margin (2) (4)	3.97	%	4.13	%	4.08	%	4.13	%
Net interest margin (taxable equivalent) (3) (4)	3.98	%	4.14	%	4.09	%	4.14	%
Net recoveries (charge-offs) to average loans outstanding	0.02	%	(0.09)	%	(0.09)	%	(0.04)	%

(1) Efficiency ratio is defined as noninterest expenses divided by the sum of total noninterest income and net interest income for the period.

(2) Net interest margin is defined as net interest income divided by average interest-earning assets.

(3) Net interest margin (taxable equivalent), a non-GAAP measure, is defined as taxable equivalent net interest income divided by average interest-earning assets. Annualized taxable equivalent adjustments are based on the applicable corporate federal income tax rate of 21% for the periods presented. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. See footnote 2 to the following tables for the taxable equivalent adjustments to interest income.

(4) During the three months ended September 30, 2019 and 2018, purchase accounting contributed 35 basis points and 39 basis points, respectively, to net interest margin and taxable equivalent net interest margin. During the nine months ended September 30, 2019 and 2018, purchase accounting contributed 37 basis points and 44 basis points, respectively, to net interest margin and taxable equivalent net interest margin.

The banking segment presents net interest margin in the table above, and net interest margin and net interest income in the following discussion and tables below, on a taxable equivalent basis. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest margins for all earning assets, we use net interest income on a taxable equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments.

During the three months ended September 30, 2019 and 2018, purchase accounting contributed 35 and 39 basis points, respectively, to the banking segment’s taxable equivalent net interest margin of 3.98% and 4.14%, respectively. During the nine months ended September 30, 2019 and 2018, purchase accounting contributed 37 and 44 basis points, respectively, to the banking segment’s taxable equivalent net interest margin of 4.09% and 4.14%, respectively. These purchase accounting items are associated with the Bank Transactions as detailed in the tables previously presented in the Consolidated Operating Results section.

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

	Three Months Ended September 30,
	2019						2018
	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 held for investment, gross (1)	$	6,611,749	$	94,087	5.60	%	$	6,161,885	$	87,086	5.56	%
Subsidiary warehouse lines of credit		1,591,926		18,282	4.49	%		1,589,914		17,495	4.31	%
Investment securities - taxable		1,210,813		7,613	2.51	%		989,634		5,894	2.38	%
Investment securities - non-taxable (2)		93,574		799	3.42	%		113,326		946	3.34	%
Federal funds sold and securities purchased under agreements to resell		460		—	0.24	%		2,672		14	2.14	%
Interest-bearing deposits in other financial institutions		172,373		950	2.19	%		189,945		929	1.94	%
Other		63,659		703	4.42	%		65,532		687	4.19	%
Interest-earning assets, gross (2)		9,744,554		122,434	4.95	%		9,112,908		113,051	4.88	%
Allowance for loan losses		(55,565)						(61,564)
Interest-earning assets, net		9,688,989						9,051,344
Noninterest-earning assets		949,816						924,395
Total assets	$	10,638,805					$	9,975,739
Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Interest-bearing deposits	$	5,682,456	$	20,963	1.46	%	$	5,293,104	$	14,572	1.09	%
Notes payable and other borrowings		646,286		3,679	2.23	%		694,383		3,372	1.90	%
Total interest-bearing liabilities		6,328,742		24,642	1.54	%		5,987,487		17,944	1.19	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		2,681,915						2,522,622
Other liabilities		102,976						48,549
Total liabilities		9,113,633						8,558,658
Stockholders’ equity		1,525,172						1,417,081
Total liabilities and stockholders’ equity	$	10,638,805					$	9,975,739
Net interest income (2)			$	97,792					$	95,107
Net interest spread (2)					3.40	%					3.69	%
Net interest margin (2)					3.98	%					4.14	%

	Nine Months Ended September 30,
	2019						2018
	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 held for investment, gross (1)	$	6,512,444	$	277,708	5.64	%	$	5,927,810	$	245,451	5.48	%
Subsidiary warehouse lines of credit		1,238,650		43,431	4.62	%		1,423,044		44,638	4.14	%
Investment securities - taxable		1,170,534		22,356	2.55	%		946,201		16,053	2.26	%
Investment securities - non-taxable (2)		94,773		2,424	3.41	%		114,329		2,871	3.35	%
Federal funds sold and securities purchased under agreements to resell		444		1	0.18	%		1,259		16	1.69	%
Interest-bearing deposits in other financial institutions		218,231		3,868	2.37	%		253,723		3,254	1.71	%
Other		51,326		1,856	4.82	%		52,569		1,734	4.40	%
Interest-earning assets, gross (2)		9,286,402		351,644	5.01	%		8,718,935		314,017	4.77	%
Allowance for loan losses		(58,099)						(63,138)
Interest-earning assets, net		9,228,303						8,655,797
Noninterest-earning assets		942,364						898,958
Total assets	$	10,170,667					$	9,554,755
Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Interest-bearing deposits	$	5,577,755	$	59,897	1.44	%	$	5,157,673	$	38,227	0.99	%
Notes payable and other borrowings		441,910		7,530	2.25	%		478,608		5,693	1.57	%
Total interest-bearing liabilities		6,019,665		67,427	1.50	%		5,636,281		43,920	1.04	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		2,563,305						2,465,268
Other liabilities		90,067						47,906
Total liabilities		8,673,037						8,149,455
Stockholders’ equity		1,497,630						1,405,300
Total liabilities and stockholders’ equity	$	10,170,667					$	9,554,755
Net interest income (2)			$	284,217					$	270,097
Net interest spread (2)					3.51	%					3.72	%
Net interest margin (2)					4.09	%					4.14	%

(1) Average balance includes non-accrual loans.

(2) Presented on a taxable equivalent basis with annualized taxable equivalent adjustments based on the applicable corporate federal income tax rate of 21% for the periods presented. The adjustments to interest income were $0.1 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively, and $0.5 million and $0.6 million for the nine months ended September 30, 2019 and 2018, respectively.

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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.

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 September 30,						Nine Months Ended September 30,
	2019 vs. 2018						2019 vs. 2018
	Change Due To (1)						Change Due To (1)
	Volume		Yield/Rate		Change		Volume		Yield/Rate		Change
Interest income
Loans held for investment, gross	$	6,305	$	696	$	7,001	$	8,075	$	24,182	$	32,257
Subsidiary warehouse lines of credit		22		765		787		(1,924)		717		(1,207)
Investment securities - taxable		1,327		392		1,719		1,278		5,025		6,303
Investment securities - non-taxable (2)		(166)		19		(147)		(165)		(282)		(447)
Federal funds sold and securities purchased under agreements to resell		(12)		(2)		(14)		(3)		(12)		(15)
Interest-bearing deposits in other financial institutions		(86)		107		21		(153)		767		614
Other		(20)		36		16		(14)		136		122
Total interest income (2)		7,370		2,013		9,383		7,094		30,533		37,627
Interest expense
Deposits	$	1,070	$	5,321	$	6,391	$	1,048	$	20,622	$	21,670
Notes payable and other borrowings		(230)		537		307		(145)		1,982		1,837
Total interest expense		840		5,858		6,698		903		22,604		23,507
Net interest income (2)	$	6,530	$	(3,845)	$	2,685	$	6,191	$	7,929	$	14,120

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

(2) Annualized taxable equivalent.

Changes in the yields earned on interest-earning assets increased taxable equivalent net interest income during the three and nine months ended September 30, 2019, compared to the same periods in 2018, primarily as a result of higher loan yields due to increased market rates, partially offset by decreases in accretion of discount on loans of $0.3 million and $3.3 million during the respective periods. Accretion of discount on loans is expected to continue to decrease in future periods as loans acquired in the Bank Transactions are repaid, refinanced or renewed. Changes in the volume of interest-earning assets, primarily due to increases in the loan portfolio as a result of the BORO Acquisition and seasonal increases in mortgage warehouse lending volume, increased taxable equivalent net interest income during the three and nine months ended September 30, 2019, compared with the same periods in 2018. Changes in rates paid on interest-bearing liabilities decreased taxable equivalent net interest income during the three and nine months ended September 30, 2019, compared with the same periods in 2018, due to increases in market interest rates and increased competitive pressure for deposits. Our portfolio includes loans that periodically reprice or mature prior to the end of an amortized term. Some of our variable-rate loans remain at applicable rate floors, which may delay and/or limit changes in interest income during a period of changing rates. If interest rates were to fall further, the impact on our interest income for certain variable-rate loans would be limited by these rate floors. In addition, declining interest rates may negatively affect our cost of funds on deposits. The extent of this impact will ultimately be driven by the timing, magnitude and frequency of interest rate and yield curve movements, as well as changes in market conditions and timing of management strategies. If interest rates were to rise, yields on the portion of our loan portfolio that remain at applicable rate floors would rise more slowly than increases in market interest rates. Any changes in interest rates across the term structure will continue to impact net interest income and net interest margin. The impact of rate movements will change

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with the shape of the yield curve, including any changes in steepness or flatness and inversions at any points on the yield curve.

The banking segment’s noninterest income decreased during the three and nine months ended September 30, 2019, compared to the same periods in 2018, primarily due to sales activity in our available-for-sale investment portfolio.

The banking segment’s noninterest expenses decreased during the three and nine months ended September 30, 2019, compared to the same periods in 2018, primarily due to a reduction in transaction expenses related to the BORO Acquisition from those incurred during the third quarter of 2018, as well as a reduction in net expenses associated with previously covered assets, including the FDIC Indemnification Asset discussed in the “Factors Affecting Comparability of Results of Operations” section above. Additionally, during the second quarter of 2018, the Bank was the victim of a “spear phishing” attack which resulted in a wire fraud loss of approximately $4.0 million and approximately $0.3 million of other related expenses. We have not recorded an accrual for future claims related to this matter as we have not concluded that such a loss is probable.

Broker-Dealer Segment

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

	Three Months Ended September 30,					Variance	Nine Months Ended September 30,				Variance
	2019		2018			2019 vs 2018	2019		2018		2019 vs 2018
Net interest income:
Securities lending	$	3,121	$	2,362	$	759	$	7,289	$	7,334	$	(45)
Structured finance		1,445		2,485		(1,040)		5,070		7,717		(2,647)
Clearing		3,034		3,393		(359)		8,770		9,561		(791)
Other		6,124		4,192		1,932		16,855		13,261		3,594
Total net interest income		13,724		12,432		1,292		37,984		37,873		111
Noninterest income:
Securities commissions and fees by business line (1):
Capital markets (5)		8,843		10,044		(1,201)		29,000		31,489		(2,489)
Retail		19,092		19,991		(899)		55,948		61,019		(5,071)
Clearing		8,494		8,747		(253)		25,763		26,606		(843)
Other (5)		880		1,029		(149)		2,401		3,267		(866)
		37,309		39,811		(2,502)		113,112		122,381		(9,269)
Investment and securities advisory fees and commissions by business line:
Public banking (5)		18,917		15,717		3,200		46,536		43,030		3,506
Capital markets (5)		2,768		1,735		1,033		5,663		3,316		2,347
Retail		5,487		4,841		646		15,190		13,891		1,299
Structured finance		1,152		870		282		3,306		2,584		722
Clearing		330		295		35		925		872		53
Other		31		29		2		84		113		(29)
		28,685		23,487		5,198		71,704		63,806		7,898
Other:
Structured finance		31,100		15,646		15,454		92,647		25,546		67,101
Capital markets (5)		10,634		3,778		6,856		26,198		10,762		15,436
Other (5)		14		112		(98)		946		2,474		(1,528)
		41,748		19,536		22,212		119,791		38,782		81,009
Total noninterest income		107,742		82,834		24,908		304,607		224,969		79,638
Net revenue (2)		121,466		95,266		26,200		342,591		262,842		79,749
Noninterest expense:
Variable compensation (3)		44,921		33,574		11,347		124,335		84,204		40,131
Non-variable compensation and benefits		25,033		25,961		(928)		79,027		80,014		(987)
Segment operating costs (4)		24,504		25,807		(1,303)		73,697		76,931		(3,234)
Total noninterest expense		94,458		85,342		9,116		277,059		241,149		35,910
Income before income taxes	$	27,008	$	9,924	$	17,084	$	65,532	$	21,693	$	43,839

(1) Securities commissions and fees includes income of $2.9 million and $2.8 million during the three months ended September 30, 2019 and 2018, respectively, and $8.6 million and $8.4 million during the nine months ended September 30, 2019 and 2018, respectively, that is eliminated in consolidation.

(2) Net revenue is defined as the sum of total net interest income and total noninterest income.

(3) Variable compensation represents performance-based commissions and incentives.

(4) Segment operating costs include provision for loan losses associated with the broker-dealer segment.

(5) Noted balances during all prior periods include certain reclassifications to conform with current period presentation.

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Income before income taxes increased during the three and nine months ended September 30, 2019, compared with the same periods in 2018, primarily as a result of 28% and 30% respective increases in net revenues, most notably in trading gains earned from our derivative and trading portfolio activities, primarily from our structured finance and capital markets businesses. The increases in trading gains during the three and nine months ended September 30, 2019, compared to the same periods in 2018, were primarily due to a more favorable market environment resulting in 53% and 28% respective increases in trading volumes, enhanced spreads and 29% and 22% respective increases in the structured finance business line’s to-be-announced (“TBA”) mortgage-backed securities volume. We have experienced a more robust business environment in 2019 than we observed in 2018 primarily as a result of recent decreases in interest rates (see other noninterest income discussion that follows), increased customer demand, improved product distribution, and other strategic enhancements. These increases were offset by $11.3 million and $40.1 million increases in variable compensation based on more robust financial results during the three and nine months ended September 30, 2019, respectively, and the respective $1.0 million and $3.2 million in pre-tax costs associated with Leadership Changes and efficiency initiative-related charges as noted in the “Factors Affecting Results of Operations” section above.

The broker-dealer segment is subject to interest rate risk as a consequence of maintaining inventory positions, trading in interest rate sensitive financial instruments and maintaining a matched stock loan book. Changes in interest rates are likely to have a meaningful impact on our overall financial performance. Our broker-dealer segment has historically earned a significant portion of its revenues from advisory fees upon the successful completion of client transactions. Rapid or significant changes in interest rates could adversely affect the broker-dealer segment’s bond trading, sales, underwriting activities and other interest spread-sensitive activities described below. The broker-dealer segment also receives administrative fees for providing money market and FDIC investment alternatives to clients, which tend to be sensitive to short term interest rates. In addition, the profitability of the broker-dealer segment depends, to an extent, on the spread between revenues earned on customer loans and excess customer cash balances, and the interest expense paid on customer cash balances, as well as the interest revenue earned on trading securities, net of financing costs.

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. Net interest income increased between the three and nine months ended September 30, 2019, and the comparable periods in 2018, primarily resulting from increases in net interest earned on trading securities and the slight increase in our spread for the three months ended September 30, 2019 from the segment’s stock lending activities. These increases in net interest income were partially offset by decreases in net interest income from our structured finance operations due to a decline in pool inventory from September 30, 2018 to September 30, 2019 and decreases in average customer margin balances within the segment’s clearing business of 5% and 1%, respectively for the three and nine months ended September 30, 2019.

Noninterest income increased between the three and nine months ended September 30, 2019, and the comparable periods in 2018, primarily due to increases in other noninterest income and investment and securities advisory fees and commissions, partially offset by decreases in securities commissions and fees.

Securities commissions and fees decreased during the three and nine months ended September 30, 2019, compared with the same periods in 2018, primarily due to decreases in commissions earned on municipal bond, over-the-counter securities and bid fees transactions, as well as insurance and mutual fund transactions for the nine months ended September 30, 2019, compared to the same period in 2018.

Investment and securities advisory fees and commissions increased during the three and nine months ended September 30, 2019, compared with the same periods in 2018, primarily due to improved trading volumes.

Other noninterest income increased during the three and nine months ended September 30, 2019, compared with the same periods in 2018, primarily as a result of $22.7 million and $82.6 million respective increases in trading gains earned from our derivative and trading portfolio activities, most notably in our structured finance business, which accounted for $15.5 million and $67.1 million of the respective increases, while our capital markets business accounted for $6.9 million and $15.4 million of the respective increases. The $15.5 million and $67.1 million increases in our structured finance business were primarily due to the 32 and 101 respective basis-point declines in the 10-year treasury bond yield during the three and nine months ended September 30, 2019 compared to 20 and 65 respective basis-point increases during the same periods in 2018, and 29% and 22% respective increases in the TBA mortgage-backed securities volume. The $6.9 million and $15.4 million respective increases in our capital markets business were attributable to an improved market environment, improved spreads and 53% and 28% respective increases in trading volume.

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Noninterest expenses increased during the three and nine months ended September 30, 2019, compared to the same periods in 2018, primarily due to increases in variable compensation and the respective $1.0 million and $3.2 million in pre-tax costs associated with Leadership Changes and efficiency initiative-related charges as noted in the “Factors Affecting Results of Operations” section above. The decreases in other non-interest expenses for the three and nine months ended September 30, 2019, compared with the same periods in 2018, partially offset the increases in variable compensation. These decreases primarily related to decreases in our software maintenance expense. With the segment’s core system replacement, as discussed in the “Factors Affecting Results of Operations” section above, the segment is no longer upgrading or making enhancements to the current business and technology platforms.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019				2018		2019				2018
Total compensation as a % of net revenue		57.6	%		62.5	%		59.4	%		62.5	%
FDIC insured program balances at the Bank (end of period)							$	1,308,226		$	1,300,316
Other FDIC insured program balances (end of period)							$	692,004		$	873,141
Customer margin balances (end of period)							$	339,686		$	351,453
Customer funds on deposit, including short credits (end of period)							$	318,528		$	407,104
Public banking:
Number of issues		308			285			871			889
Aggregate amount of offerings	$	14,041,781		$	17,261,534		$	40,167,405		$	42,977,058
Capital markets:
Total volumes	$	22,623,984		$	14,771,008		$	65,226,806		$	51,147,735
Net inventory (end of period)							$	645,576		$	471,263
Retail:
Retail employee representatives (end of period)								125			125
Independent registered representatives (end of period)								200			210
Structured finance:
Lock production/TBA volume	$	1,555,727		$	1,201,811		$	4,354,538		$	3,581,407
Clearing:
Total tickets		431,189			384,642			1,445,956			1,164,158
Correspondents (end of period)								147			153
Securities lending:
Interest-earning assets - stock borrowed (end of period)							$	1,636,796		$	1,453,985
Interest-bearing liabilities - stock loaned (end of period)							$	1,505,118		$	1,340,502

Mortgage Origination Segment

The following table presents certain information regarding the operating results of our mortgage origination segment (in thousands).

	Three Months Ended September 30,				Variance		Nine Months Ended September 30,				Variance
	2019		2018		2019 vs 2018		2019		2018		2019 vs 2018
Net interest income (expense)	$	(2,725)	$	363	$	(3,088)	$	(4,224)	$	2,009	$	(6,233)
Noninterest income		194,857		144,400		50,457		477,438		434,262		43,176
Noninterest expense		160,634		140,006		20,628		417,032		420,736		(3,704)
Income before income taxes	$	31,498	$	4,757	$	26,741	$	56,182	$	15,535	$	40,647

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. As average mortgage interest rates have decreased between the three and nine months ended September 30, 2018 and the comparable periods in 2019, refinancing volume as a percentage of total origination volume has increased from 11.4% to 29.2% and 14.1% to 21.6%, respectively. Changes in mortgage interest rates have historically had a lesser impact on home purchases volume than on refinancing volume. If current mortgage rates remain relatively unchanged, we anticipate a higher percentage of refinancing volumes relative to total loan origination volume for the remainder of 2019 as compared to the same period in 2018.

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The mortgage origination segment primarily originates its mortgage loans through a retail channel, with limited lending through its affiliated business arrangements (“ABAs”). For the nine months ended September 30, 2019, funded volume through ABAs was approximately 8% of the mortgage origination segment’s total loan volume. Currently, PrimeLending owns a 51% membership interest in four ABAs. We expect production within the ABA channel to remain between 8% and 10% of the total loan volume of the mortgage origination for 2019.

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 September 30,										Nine Months Ended September 30,
	2019				2018						2019				2018
			% of				% of			Variance			% of				% of			Variance
	Amount		Total		Amount		Total			2019 vs 2018	Amount		Total		Amount		Total			2019 vs 2018
Mortgage Loan Originations - units		18,251				15,414				2,837		44,289				44,732				(443)
Mortgage Loan Originations - volume	$	4,771,801			$	3,653,645			$	1,118,156	$	11,178,932			$	10,720,817			$	458,115
Mortgage Loan Originations:
Conventional	$	2,957,245	61.97	%	$	2,196,734	60.13	%	$	760,511	$	6,836,395	61.15	%	$	6,485,804	60.50	%	$	350,591
Government		1,157,693	24.26	%		938,732	25.69	%		218,961		2,732,608	24.44	%		2,693,597	25.12	%		39,011
Jumbo		402,091	8.43	%		299,652	8.20	%		102,439		931,938	8.34	%		929,536	8.67	%		2,402
Other		254,772	5.34	%		218,527	5.98	%		36,245		677,991	6.07	%		611,880	5.71	%		66,111
	$	4,771,801	100.00	%	$	3,653,645	100.00	%	$	1,118,156	$	11,178,932	100.00	%	$	10,720,817	100.00	%	$	458,115
Home purchases	$	3,380,812	70.85	%	$	3,237,444	88.61	%	$	143,368	$	8,760,596	78.37	%	$	9,212,128	85.93	%	$	(451,532)
Refinancings		1,390,989	29.15	%		416,201	11.39	%		974,788		2,418,336	21.63	%		1,508,689	14.07	%		909,647
	$	4,771,801	100.00	%	$	3,653,645	100.00	%	$	1,118,156	$	11,178,932	100.00	%	$	10,720,817	100.00	%	$	458,115
Texas	$	894,846	18.75	%	$	655,977	17.95	%	$	238,869	$	2,122,314	18.98	%	$	1,984,938	18.51	%	$	137,376
California		487,579	10.22	%		370,555	10.14	%		117,024		1,101,699	9.86	%		1,206,787	11.26	%		(105,088)
Florida		315,523	6.61	%		271,743	7.44	%		43,780		801,560	7.17	%		798,463	7.45	%		3,097
Arizona		210,296	4.41	%		153,113	4.19	%		57,183		499,755	4.47	%		444,562	4.15	%		55,193
Ohio		187,400	3.93	%		160,685	4.40	%		26,715		465,517	4.16	%		461,646	4.31	%		3,871
Washington		199,883	4.19	%		145,102	3.97	%		54,781		444,888	3.98	%		406,957	3.80	%		37,931
South Carolina		180,493	3.78	%		137,433	3.76	%		43,060		430,824	3.85	%		371,068	3.46	%		59,756
Missouri		166,004	3.48	%		125,622	3.44	%		40,382		376,065	3.36	%		353,766	3.30	%		22,299
North Carolina		151,089	3.17	%		101,454	2.78	%		49,635		352,928	3.16	%		323,559	3.02	%		29,369
Maryland		140,694	2.95	%		102,411	2.80	%		38,283		349,043	3.12	%		312,948	2.92	%		36,095
All other states		1,837,994	38.51	%		1,429,550	39.13	%		408,444		4,234,339	37.89	%		4,056,123	37.82	%		178,216
	$	4,771,801	100.00	%	$	3,653,645	100.00	%	$	1,118,156	$	11,178,932	100.00	%	$	10,720,817	100.00	%	$	458,115
Mortgage Loan Sales - volume	$	4,316,118			$	4,015,051			$	301,067	$	10,365,302			$	10,727,093			$	(361,791)

The mortgage origination segment’s total loan origination volume during the three and nine months ended September 30, 2019 increased 30.6% and 4.3%, respectively, compared to the same periods in 2018, while income before income taxes during the three and nine months ended September 30, 2019 increased 562.1% and 261.6%, respectively, compared to the same periods in 2018. The increase in income before taxes during the three months ended September 30, 2019, compared to the same period in 2018, was primarily due to increases in the change in net fair value and related derivative activity of interest rate lock commitments (“IRLCs”) and loans held for sale, net gains on sale of loans, and mortgage loan origination fees and other related income. These changes were partially offset by an increase in variable compensation and benefits and a decrease in net interest income. The increase in income before income taxes during the nine months ended September 30, 2019, compared to the same period in 2018, was primarily due to an increase in the change in net fair value and related derivative activity of IRLCs and loans held for sale, a decrease in segment operating costs and an increase in mortgage loan origination fees and other related income. These changes were partially offset by an increase in variable compensation and benefits and a decrease in net interest income.

Net interest income (expense) decreased $3.1 million and $6.2 million during the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. Net interest income (expense) during the three and nine months ended September 30, 2019 and 2018 was primarily comprised of interest incurred on warehouse lines of credit held with the Bank as well as related intercompany financing costs, partially offset by interest earned on loans held for sale. The primary reason for the decreases in net interest income was the result of decreases in interest income associated with average mortgage interest rates, which contributed to decreases in yield on loans held for sale. Interest expense increased slightly during the three months ended September 30, 2019 due to an increase in the average

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warehouse line rate. Interest expense decreased slightly during the nine months ended September 30, 2019, compared to the same period in 2018, due to a decrease in the average warehouse line balance, which was partially offset by an increase in the average warehouse line rate.

Noninterest income was comprised of the items set forth in the table below (in thousands).

	Three Months Ended September 30,				Variance		Nine Months Ended September 30,				Variance
	2019		2018		2019 vs 2018		2019		2018		2019 vs 2018
Net gains from sale of loans	$	144,389	$	132,331	$	12,058	$	344,737	$	350,155	$	(5,418)
Mortgage loan origination fees and other related income		37,782		27,304		10,478		93,065		77,848		15,217
Other mortgage production income:
Change in net fair value and related derivative activity:
IRLCs and loans held for sale		10,082		(19,199)		29,281		32,006		(6,705)		38,711
Mortgage servicing rights asset		(3,657)		(1,475)		(2,182)		(11,521)		(4,305)		(7,216)
Servicing fees		6,261		5,439		822		19,151		17,269		1,882
Total noninterest income	$	194,857	$	144,400	$	50,457	$	477,438	$	434,262	$	43,176

The increase in net gains from sale of loans during the three months ended September 30, 2019, compared with the same period in 2018, was primarily a result of an increase in total loan sales volume, in addition to an increase in average loan sales margin. The decrease in net gains from sale of loans during the nine months ended September 30, 2019, compared with the same period in 2018, was primarily a result of a decrease in total loan sales volume, partially offset by an increase in average loan sales margin. The increase in mortgage loan origination fees during the three months ended September 30, 2019, compared with the same period in 2018, was primarily the result of an increase in loan sales volume, in addition to an increase in average mortgage loan origination fees. The increase in mortgage loan origination fees during the nine months ended September 30, 2019, compared with the same period in 2018 was primarily the result of an increase in average mortgage loan origination fees, partially offset by a decrease in loan sales volume.

Noninterest income included the impact of changes between periods in the net fair value of the mortgage origination segment’s 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. The increases during the three and nine months ended September 30, 2019, were primarily the result of increases in the volume of IRLCs and loans held for sale, partially offset by decreases in the average value of individual IRLCs and loans held for sale.

The mortgage origination segment sells substantially all mortgage loans it originates to various investors in the secondary market, the majority servicing released. In addition, the mortgage origination segment originates loans on behalf of the Bank. During the three months ended September 30, 2019, the mortgage origination segment retained servicing on approximately 7% of loans sold, compared to 18% during the same period in 2018. During the nine months ended September 30, 2019, the mortgage origination segment retained servicing on approximately 6% of loans sold, compared to 14% during the same period in 2018. 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 MSR asset was valued at $52.6 million on $5.1 billion of serviced loan volume at September 30, 2019, compared with a value of $67.9 million on $5.3 billion of serviced loan volume at December 31, 2018. 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 U.S. Treasury bond futures and options, Eurodollar futures and forward commitments to sell mortgage-backed securities, as a means to mitigate interest rate risk associated with its MSR asset. Changes in the net fair value of the MSR asset and the related derivatives associated with normal customer payments, changes in discount rates, prepayment speed assumptions and customer payoffs resulted in net losses of $3.7 million and $11.5 million during the three and nine months ended September 30, 2019, respectively, compared to net losses of $1.5 million and $4.3 million during the three and nine months ended September 30, 2018, respectively. Additionally, net servicing income was $2.9 million and $9.5 million during the three and nine months ended September 30, 2019, respectively, compared with $2.4 million and $7.8 million during the same periods in 2018.

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Noninterest expenses were comprised of the items set forth in the table below (in thousands).

	Three Months Ended September 30,				Variance		Nine Months Ended September 30,				Variance
	2019		2018		2019 vs 2018		2019		2018		2019 vs 2018
Variable compensation	$	81,287	$	58,686	$	22,601	$	185,732	$	171,509	$	14,223
Non-variable compensation and benefits		42,603		43,339		(736)		123,650		133,288		(9,638)
Segment operating costs		27,658		29,691		(2,033)		83,827		90,396		(6,569)
Lender paid closing costs		5,760		5,270		490		14,182		16,096		(1,914)
Servicing expense		3,326		3,020		306		9,641		9,447		194
Total noninterest expense	$	160,634	$	140,006	$	20,628	$	417,032	$	420,736	$	(3,704)

During the third quarter of 2018, PrimeLending committed to close certain underperforming branches, while at the same time reducing its fulfillment and corporate support staff. The purpose of this initiative was to better align resources and lower PrimeLending’s cost structure. The decreases in non-variable compensation and benefits and segment operating costs during the three and nine months ended September 30, 2019, compared to the same periods in 2018, were primarily the result of this initiative. Decreases in noninterest expense as a result of this initiative have been partially offset by costs related to the “Technology Enhancements and Corporate Initiatives” discussed in detail within the “Overview” above.

Total employees’ compensation and benefits accounted for the majority of noninterest expenses incurred during all periods presented. Specifically, variable compensation comprised 65.6% and 57.5% of total employees’ compensation and benefits expenses during the three months ended September 30, 2019 and 2018, respectively, and 60.0% and 56.3% during the nine months ended September 30, 2019 and 2018, respectively. The increase in the percentage concentration of variable compensation and benefits was primarily due to an increase in loan origination volume, as well as a reduction in non-variable compensation and benefits. Variable compensation, which is primarily driven by loan origination volume, tends to fluctuate to a greater degree than loan origination volume because mortgage loan originator and fulfillment staff incentive compensation plans are structured to pay at increasing rates as higher monthly volume tiers are achieved. However, certain other incentive compensation plans driven by non-mortgage production criteria may alter this trend. In addition to increases in loan origination volume between the three and nine months ended September 30, 2019 and 2018 primarily driving the increases in variable compensation and benefits, there were also increases in the average incentive rate paid.

While total loan origination volume increased 30.6% and 4.3% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018, the aggregate non-variable compensation and benefits and segment operating costs of the mortgage origination segment decreased 3.8% and 7.2%, respectively. The aforementioned decreases during the three months ended September 30, 2019, compared to the same period in 2018, was primarily due to decreases in occupancy, professional fees, advertising costs, and non-variable compensation and benefits. The decrease during the nine months ended September 30, 2019, compared to the same period in 2018, was primarily due to decreases in non-variable compensation and benefits, occupancy costs, professional fees and advertising costs, partially offset by an increase in software and licensing costs. The decreases in non-variable compensation and benefits and occupancy costs during the three and nine months ended September 30, 2019, were due to a reduction in fulfillment and corporate staff and the closure of certain underperforming branches primarily resulting from PrimeLending’s cost reduction initiative discussed above and implemented during the third quarter of 2018.

In exchange for a higher interest rate, customers may opt to have PrimeLending pay certain costs associated with the origination of their mortgage loans (“lender paid closing costs”). Fluctuations in lender paid closing costs are not always aligned with fluctuations in loan origination volume. 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 influence fluctuations in lender paid closing costs.

Between January 1, 2010 and September 30, 2019, the mortgage origination segment sold mortgage loans totaling $118.0 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 2010, it does not anticipate experiencing significant losses in the future on loans originated prior to 2010 as a result of investor claims under these provisions of its sales contracts.

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When a claim for indemnification of a loan sold is made by an agency, investor, or other party, the mortgage origination segment evaluates the claim and determines if the claim can be satisfied through additional documentation or other deliverables. If the claim is valid and cannot be satisfied in that manner, the mortgage origination segment negotiates with the claimant to reach a settlement of the claim. Settlements typically result in either the repurchase of a loan or reimbursement to the claimant for losses incurred on the loan.

Following is a summary of the mortgage origination segment’s claims resolution activity relating to loans sold between January 1, 2010 and September 30, 2019 (dollars in thousands).

	Original Loan Balance			Loss Recognized
			% of			% of
			Loans			Loans
	Amount		Sold	Amount		Sold
Claims resolved with no payment	$	212,871	0.18%	$	—	0.00%
Claims resolved because of a loan repurchase or payment to an investor for losses incurred (1)		204,495	0.17%		9,525	0.01%
	$	417,366	0.35%	$	9,525	0.01%

(1) Losses incurred include refunded purchased servicing rights.

For each loan it concludes its obligation to a claimant is both probable and reasonably estimable, the mortgage origination segment has established a specific claims indemnification liability reserve. An additional indemnification liability reserve has been established for probable agency, investor or other party losses that may have been incurred, but not yet reported to the mortgage origination segment based upon a reasonable estimate of such losses.

At September 30, 2019 and December 31, 2018, the mortgage origination segment’s indemnification liability reserve totaled $11.5 million and $10.7 million, respectively. The related provision for indemnification losses was $1.0 million and $0.9 million during the three months ended September 30, 2019 and 2018, respectively, and $2.2 million and $2.6 million during the nine months ended September 30, 2019 and 2018, respectively.

Insurance Segment

The following table presents certain information regarding the operating results of our insurance segment (in thousands).

	Three Months Ended September 30,				Variance		Nine Months Ended September 30,				Variance
	2019		2018		2019 vs 2018		2019		2018		2019 vs 2018
Net interest income	$	566	$	733	$	(167)	$	1,802	$	2,313	$	(511)
Noninterest income		34,896		36,724		(1,828)		107,539		108,288		(749)
Noninterest expense		28,923		33,807		(4,884)		98,850		104,532		(5,682)
Income (loss) before income taxes	$	6,539	$	3,650	$	2,889	$	10,491	$	6,069	$	4,422

The increases in income before income taxes during the three and nine months ended September 30, 2019, compared with the same periods in 2018, were primarily due to decreases in loss and LAE and larger increases in the fair value associated with the equity securities held by the insurance segment, partially offset by declines in net insurance premiums earned. The declines net insurance premiums earned include the effects of the non-renewal of commercial policies and the discontinuation of writing new policies in five non-core states.

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, monsoons 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 adjust rates as deemed necessary. The benefit of these rate actions are not fully realized until all policies under the old rates expire, which typically occurs

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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. The insurance segment has historically utilized rate actions to reduce 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. We believe that current initiatives to evaluate product offerings and pricing, streamline business activities and expenses and mitigate the impact of future significant weather-related events are critical to improving the insurance segment’s long-term financial condition and operating results.

The insurance segment’s operations resulted in combined ratios of 83.2% and 93.5% during the three months ended September 30, 2019 and 2018, respectively, and 94.4% and 96.6% during the nine months ended September 30, 2019 and 2018, respectively. The decreases in the combined ratios during the three and nine months ended September 30, 2019, compared with the same periods in 2018, were primarily driven by decreases in the loss and LAE ratio. 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 during the three months ended September 30, 2019 and 2018, was primarily comprised of net insurance premiums earned of $32.7 million and $34.2 million, respectively. Noninterest income during the nine months ended September 30, 2019 and 2018, was primarily comprised of net insurance premiums earned of $99.3 million and $102.6 million, respectively. The year-over-year decrease in net insurance premiums earned were driven by the effect of decreases in net premiums written as discussed below.

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

	Three Months Ended September 30,				Variance		Nine Months Ended September 30,				Variance
	2019		2018		2019 vs 2018		2019		2018		2019 vs 2018
Direct Insurance Premiums Written:
Homeowners	$	13,036	$	13,029	$	7	$	39,861	$	39,750	$	111
Fire		9,957		10,412		(455)		30,533		31,584		(1,051)
Mobile Home		8,276		8,658		(382)		27,227		28,236		(1,009)
Other		—		639		(639)		—		2,054		(2,054)
	$	31,269	$	32,738	$	(1,469)	$	97,621	$	101,624	$	(4,003)

The aggregate direct insurance premiums written for our three largest insurance product lines decreased by $0.8 million and $1.9 million during the three and nine months ended September 30, 2019, respectively, compared with the same periods in 2018. The decrease in total direct insurance premiums written during the nine months ended September 30, 2019, compared to the same period in 2018, was due to competition, rationalization of product offerings, including the non-renewal of commercial policies, and continued review of geographic concentrations. In the fourth quarter of 2018, in connection with a strategic initiative to focus on our insurance segment’s key markets, we discontinued writing new insurance policies in five non-core states. The premiums written and earned related to the commercial policies and the five non-core states is included within “Other” in the table above and the table that follows. Approximately 1% of total net insurance premiums earned during both the three and nine months ended September 30, 2019 were from these five non-core states, compared to approximately 3% of total net insurance premiums earned during both the three and nine months ended September 30, 2018. As our insurance policies are generally in effect for one year, we anticipate that the full impact of this initiative on premiums earned will be complete by the end of 2019.

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

	Three Months Ended September 30,				Variance		Nine Months Ended September 30,				Variance
	2019		2018		2019 vs 2018		2019		2018		2019 vs 2018
Net Insurance Premiums Earned:
Homeowners	$	13,603	$	13,592	$	11	$	40,555	$	40,134	$	421
Fire		10,392		10,861		(469)		31,066		31,889		(823)
Mobile Home		8,659		9,064		(405)		27,702		28,509		(807)
Other		—		668		(668)		—		2,073		(2,073)
	$	32,654	$	34,185	$	(1,531)	$	99,323	$	102,605	$	(3,282)

Net insurance premiums earned during the three and nine months ended September 30, 2019 decreased compared to the same periods in 2018, primarily due to the decrease in direct insurance premiums written noted above.

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Noninterest expenses during the three and nine months ended September 30, 2019 and 2018 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 ratios during the three months ended September 30, 2019 and 2018, were 44.9% and 54.7%, respectively, and during the nine months ended September 30, 2019 and 2018, were 55.0% and 57.2%, respectively. The decreases in the loss and LAE ratios during the three and nine months ended September 30, 2019, compared to the same periods in 2018, were primarily driven by 21.6% and 6.9% respective decreases in loss and LAE expense, while premiums earned decreased by 4.5% and 3.2%, respectively.

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.

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

	Three Months Ended September 30,						Variance			Nine Months Ended September 30,						Variance
	2019			2018			2019 vs 2018			2019			2018			2019 vs 2018
Amortization of deferred policy acquisition costs	$	7,808		$	8,719		$	(911)		$	25,002		$	27,287		$	(2,285)
Other underwriting expenses		5,696			5,598			98			17,018			16,175			843
Total		13,504			14,317			(813)			42,020			43,462			(1,442)
Agency expenses		(1,001)			(1,063)			62			(2,885)			(3,045)			160
Total less agency expenses	$	12,503		$	13,254		$	(751)		$	39,135		$	40,417		$	(1,282)
Net insurance premiums earned	$	32,654		$	34,185		$	(1,531)		$	99,323		$	102,605		$	(3,282)
Expense ratio		38.3	%		38.8	%		(0.5)	%		39.4	%		39.4	%		—	%

Corporate

The following table presents certain financial information regarding the operating results of our corporate segment (in thousands).

	Three Months Ended September 30,				Variance		Nine Months Ended September 30,				Variance
	2019		2018		2019 vs 2018		2019		2018		2019 vs 2018
Net interest income	$	(1,384)	$	(3,275)	$	1,891	$	(4,045)	$	(7,848)	$	3,803
Noninterest income		460		523		(63)		1,850		1,246		604
Noninterest expense		12,561		8,656		3,905		37,397		23,399		13,998
Income (loss) before income taxes	$	(13,485)	$	(11,408)	$	(2,077)	$	(39,592)	$	(30,001)	$	(9,591)

Corporate includes certain activities not allocated to specific business segments. These activities include holding company financing and investing activities, merchant banking investment opportunities and management and administrative services to support the overall operations of the Company. Hilltop’s merchant banking investment activities include the identification of attractive opportunities for capital deployment in companies engaged in non-financial activities through its merchant bank subsidiary, Hilltop Opportunity Partners LLC.

As a holding company, Hilltop’s primary investment objectives are to support capital deployment for organic growth and to preserve capital to be deployed through acquisitions, dividend payments and potential stock repurchases. Investment and interest income during the three and nine months ended September 30, 2019, was primarily comprised of dividend income from merchant banking investment activities, in addition to interest income earned on intercompany notes.

Interest expense during each period was primarily associated with recurring quarterly interest expense of $1.9 million incurred on our $150.0 million aggregate principal amount of 5% senior notes due 2025 (“Senior Notes”). Additionally, we incurred interest expense of $1.0 million and $1.0 million during the three months ended September 30, 2019 and 2018, respectively, and $3.0 million and $2.7 million during the nine months ended September 30, 2019 and 2018, respectively, on junior subordinated debentures of $67.0 million issued by PCC (the “Debentures”).

Noninterest income during the three and nine months ended September 30, 2019, included activity associated with our investment in the development of the land and an office building that will serve as our future headquarters. Noninterest

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income during the three and nine months ended September 30, 2018, also included net noninterest income associated with activity within our merchant bank subsidiary.

Noninterest expenses during the three and nine months ended September 30, 2019 and 2018, were primarily comprised of employees’ compensation and benefits, occupancy expenses and professional fees, including corporate governance, legal and transaction costs. Noninterest expenses increased $3.9 million and $14.0 million during the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. The increase during the three months ended September 30, 2019, compared to the same period in 2018, was primarily due to the technology enhancements and corporate initiatives discussed in the “Overview” section. In addition to costs incurred related to the aforementioned technology enhancements and corporate initiatives, the increase during the nine months ended September 30, 2019, was due to $6.2 million of aggregate pre-tax costs associated with the Leadership Changes and efficiency initiative-related charges discussed in the “Factors Affecting Results of Operations” section.

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Financial Condition

The following discussion contains a more detailed analysis of our financial condition at September 30, 2019, as compared with December 31, 2018.

Securities Portfolio

At September 30, 2019, 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, as well as mortgage-backed, corporate debt, and equity securities. We may categorize investments as trading, available for sale, held to maturity and equity securities.

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 classified as available for sale may, from time to time, be bought and sold in response to changes in market interest rates, changes in securities’ prepayment risk, increases in loan demand, general liquidity needs and to take advantage of market conditions that create more economically attractive returns. Such securities are carried at estimated fair value, with unrealized gains and losses recorded in accumulated other comprehensive income (loss). Equity investments are carried at fair value, with all changes in fair value recognized in net income. 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).

	September 30,		December 31,
	2019		2018
Trading securities, at fair value
U.S. Treasury securities	$	6,561	$	7,945
U.S. government agencies:
Bonds		8,316		1,494
Residential mortgage-backed securities		152,582		309,455
Commercial mortgage-backed securities		2,177		4,239
Collateralized mortgage obligations		281,561		206,813
Corporate debt securities		52,257		59,293
States and political subdivisions		160,244		126,748
Unit investment trusts		31,567		19,913
Private-label securitized product		7,830		5,680
Other		4,173		3,886
		707,268		745,466
Securities available for sale, at fair value
U.S. Treasury securities		10,075		11,538
U.S. government agencies:
Bonds		86,417		85,611
Residential mortgage-backed securities		494,356		385,074
Commercial mortgage-backed securities		12,219		11,772
Collateralized mortgage obligations		312,545		276,399
Corporate debt securities		46,814		53,302
States and political subdivisions		41,424		51,962
		1,003,850		875,658
Securities held to maturity, at amortized cost
U.S. Treasury securities		9,990		9,903
U.S. government agencies:
Bonds		24,020		39,018
Residential mortgage-backed securities		18,914		21,903
Commercial mortgage-backed securities		140,875		87,065
Collateralized mortgage obligations		122,061		142,474
States and political subdivisions		55,501		50,649
		371,361		351,012
Equity securities, at fair value		19,494		19,679
Total securities portfolio	$	2,101,973	$	1,991,815

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We had net unrealized gains of $15.9 million and net unrealized losses of $11.1 million at September 30, 2019 and December 31, 2018, respectively, related to the available for sale investment portfolio, and net unrealized gains of $6.0 million and net unrealized losses of $9.9 million associated with the securities held to maturity portfolio at September 30, 2019 and December 31, 2018, respectively. We had net unrealized gains of $0.6 million and net unrealized losses of $0.9 million at September 30, 2019 and December 31, 2018, respectively, related to equity securities.

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 and equity securities portfolios serve as a source of liquidity. Historically, the Bank’s policy has been to invest primarily in securities of the U.S. government and its agencies, obligations of municipalities in the State of Texas and other high grade fixed income securities to minimize credit risk. At September 30, 2019, the banking segment’s securities portfolio of $1.3 billion was comprised of trading securities of $2.4 million, available for sale securities of $915.3 million, equity securities of $0.1 million and held to maturity securities of $371.4 million, in addition to $13.4 million of other investments included in other assets within the consolidated balance sheets.

Broker-Dealer Segment

The broker-dealer segment holds securities to support sales, underwriting and other customer activities. The interest rate risk inherent in holding these securities is managed by setting and monitoring limits on the size and duration of positions and on the length of time the securities can be held. 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 $704.8 million at September 30, 2019. 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 obligations 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 sheets, had a value of $59.2 million at September 30, 2019.

Insurance Segment

The insurance segment’s primary investment objective is to preserve capital and manage for a total rate of return. NLC’s strategy is to purchase securities in sectors that represent the most attractive relative value. Our insurance segment invests the premiums it receives from policyholders until they are needed to pay policyholder claims or other expenses. At September 30, 2019, the insurance segment’s securities portfolio was comprised of $88.5 million in available for sale securities, $19.3 million of equity securities and $5.8 million of other investments included in other assets within the consolidated balance sheets.

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Loan Portfolio

Consolidated loans held for investment are detailed in the tables below, classified by portfolio segment and segregated between those considered to be purchased credit impaired, or 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 Loans Held
September 30, 2019	PCI Loans		Loans		for Investment
Commercial real estate	$	2,908,007	$	25,417	$	2,933,424
Commercial and industrial		1,384,935		5,596		1,390,531
Construction and land development		972,199		27		972,226
1-4 family residential		645,088		53,163		698,251
Mortgage warehouse		725,852		—		725,852
Consumer		42,778		2		42,780
Broker-dealer		558,144		—		558,144
Loans held for investment, gross		7,237,003		84,205		7,321,208
Allowance for loan losses		(50,628)		(4,976)		(55,604)
Loans held for investment, net of allowance	$	7,186,375	$	79,229	$	7,265,604

	Loans, excluding		PCI		Total Loans Held
December 31, 2018	PCI Loans		Loans		for Investment
Commercial real estate	$	2,912,407	$	27,713	$	2,940,120
Commercial and industrial		1,501,892		6,559		1,508,451
Construction and land development		932,445		464		932,909
1-4 family residential		620,936		58,327		679,263
Mortgage warehouse		243,806		—		243,806
Consumer		47,537		9		47,546
Broker-dealer		578,363		—		578,363
Loans held for investment, gross		6,837,386		93,072		6,930,458
Allowance for loan losses		(56,594)		(2,892)		(59,486)
Loans held for investment, net of allowance	$	6,780,792	$	90,180	$	6,870,972

Banking Segment

The loan portfolio constitutes the major earning asset of the banking segment and typically offers the best alternative for obtaining the maximum interest spread above the banking segment’s cost of funds. The overall economic strength of the banking segment generally parallels the quality and yield of its loan portfolio.

The banking segment’s total loans held for investment, net of the allowance for loan losses, were $8.5 billion and $7.5 billion at September 30, 2019 and December 31, 2018, respectively. The banking segment’s loan portfolio includes warehouse lines of credit extended to PrimeLending of $2.2 billion, of which $1.7 million and $1.2 billion was drawn at September 30, 2019 and December 31, 2018, respectively. Amounts advanced against the warehouse lines of credit are eliminated from net loans held for investment 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 September 30, 2019, the banking segment had loan concentrations (loans to borrowers engaged in similar activities) that exceeded 10% of total loans in its real estate portfolio. The areas of concentration within our real estate portfolio were non-construction commercial real estate loans, construction and land development loans and non-construction residential real estate loans, which represented 43.4%, 14.4% and 10.3%, respectively, of the banking segment’s total loans held for investment (excluding warehouse lines of credit extended to PrimeLending) at September 30, 2019. The banking segment’s loan concentrations were within regulatory guidelines at September 30, 2019.

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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 loans held for investment, net of the allowance for loan losses, were $558.1 million and $578.2 million at September 30, 2019 and December 31, 2018, respectively. This decrease from December 31, 2018 to September 30, 2019 was primarily attributable to a decrease of $25.1 million, or 10.3%, in receivables from correspondents.

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).

	September 30,		December 31,
	2019		2018
Loans held for sale:
Unpaid principal balance	$	1,800,546	$	1,213,068
Fair value adjustment		52,679		44,707
	$	1,853,225	$	1,257,775
IRLCs:
Unpaid principal balance	$	1,695,917	$	677,267
Fair value adjustment		31,392		17,421
	$	1,727,309	$	694,688

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 September 30, 2019 and December 31, 2018 were $3.1 billion and $1.4 billion, respectively, while the related estimated fair values were ($2.3) million and ($11.6) million, respectively.

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 loan portfolio. 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.

The allowance for loan losses is subject to regulatory examination, 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 loan portfolio at September 30, 2019, additional provisions for losses on existing loans may be necessary in the future.

For additional information regarding the allowance for loan losses, refer to the sections captioned “Allowance for Loan Losses” and “Critical Accounting Policies and Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2018 Form 10-K. There have been no significant changes in our application of critical accounting policies related to the allowance for loan losses since December 31, 2018.

The Bank acquired certain assets and assumed certain liabilities of FNB in connection with the FNB Transaction. The FNB Transaction is discussed in detail in Note 6 to the consolidated financial statements included in the Company’s 2018 Form 10-K. As discussed in the “Factors Affecting Comparability of Results of Operations” section above, the loss-share agreements with the FDIC were terminated during the fourth quarter of 2018. Accordingly, loans which were previously referred to as either “covered loans” if covered by the loss-share agreements or otherwise “non-covered loans” are now collectively referred to as “loans held for investment.”

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

	Three Months Ended September 30,				Nine Months Ended September 30,
Loans Held for Investment	2019		2018		2019			2018
Balance, beginning of period	$	55,177	$	61,970	$	59,486		$	63,686
Provision (recovery) for loan losses		47		(371)		326			(1,838)
Recoveries of loans previously charged off:
Commercial real estate		—		—		—			—
Commercial and industrial		1,393		366		2,362			3,506
Construction and land development		—		—		—			—
1-4 family residential		14		31		45			134
Mortgage warehouse		—		—		—			—
Consumer		6		7		28			55
Broker-dealer		—		—		—			—
Covered		—		1		—			7
Total recoveries		1,413		405		2,435			3,702
Loans charged off:
Commercial real estate		9		—		9			18
Commercial and industrial		1,000		1,820		5,247			5,236
Construction and land development		—		—		—			—
1-4 family residential		12		—		911			12
Mortgage warehouse		—		—		—			—
Consumer		12		26		476			69
Broker-dealer		—		—		—			—
Covered		—		6		—			63
Total charge-offs		1,033		1,852		6,643			5,398
Net recoveries (charge-offs)		380		(1,447)		(4,208)			(1,696)
Balance, end of period	$	55,604	$	60,152	$	55,604		$	60,152
Allowance for loan losses as a percentage of gross loans held for investment						0.76	%		0.87	%

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 loan portfolio are presented in the tables below (dollars in thousands).

	September 30, 2019				December 31, 2018
			% of				% of
			Gross				Gross
Loans Held for Investment	Reserve		Loans		Reserve		Loans
Commercial real estate	$	25,862	40.07	%	$	27,100	42.42	%
Commercial and industrial		19,182	18.99	%		21,980	21.77	%
Construction and land development		4,788	13.28	%		6,061	13.46	%
1-4 family residential		5,411	9.54	%		3,956	9.80	%
Mortgage warehouse		—	9.91	%		—	3.52	%
Consumer		268	0.59	%		267	0.69	%
Broker-dealer		93	7.62	%		122	8.34	%
Total	$	55,604	100.00	%	$	59,486	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

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collected. Within our loan portfolio, we had two credit relationships totaling $1.7 million of potential problem loans at September 30, 2019, compared with seven credit relationships totaling $17.8 million of potential problem loans at December 31, 2018.

Non-Performing Assets

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

	September 30,			December 31,
	2019			2018			Variance
Loans accounted for on a non-accrual basis:
Commercial real estate	$	8,727		$	5,324		$	3,403
Commercial and industrial		13,313			14,870			(1,557)
Construction and land development		1,358			3,278			(1,920)
1-4 family residential		12,103			10,437			1,666
Mortgage warehouse		—			—			—
Consumer		30			41			(11)
Broker-dealer		—			—			—
	$	35,531		$	33,950		$	1,581
Non-performing loans as a percentage of total loans		0.38	%		0.41	%		(0.03)	%
Other real estate owned	$	18,738		$	27,578		$	(8,840)
Other repossessed assets	$	—		$	68		$	(68)
Non-performing assets	$	54,269		$	61,596		$	(7,327)
Non-performing assets as a percentage of total assets		0.37	%		0.45	%		(0.08)	%
Non-PCI loans past due 90 days or more and still accruing	$	81,678		$	83,131		$	(1,453)
Troubled debt restructurings included in accruing loans held for investment	$	2,222		$	1,339		$	883

At September 30, 2019, non-accrual loans included 24 commercial and industrial relationships with loans secured by accounts receivable, life insurance, oil and gas, livestock and equipment. Non-accrual loans at September 30, 2019 also included $4.5 million of loans secured by residential real estate which were classified as loans held for sale. At December 31, 2018, non-accrual loans included 16 commercial and industrial relationships with loans secured by accounts receivable, life insurance, oil and gas, livestock, and equipment. Non-accrual loans at December 31, 2018 included $3.4 million of loans secured by residential real estate which were classified as loans held for sale.

Other real estate owned (“OREO”) decreased from December 31, 2018 to September 30, 2019, due to $12.2 million of disposals and fair valuation decreases related to 53 properties, partially offset by the addition of 32 properties totaling $3.3 million. At both September 30, 2019 and December 31, 2018, OREO was primarily comprised of commercial properties.

Non-PCI loans past due 90 days or more and still accruing at September 30, 2019 and December 31, 2018, were primarily comprised of loans held for sale and guaranteed by U.S. government agencies, including loans that are subject to repurchase, or have been repurchased, by PrimeLending. Loans past due 90 days or more and still accruing include Government National Mortgage Association related loans subject to repurchase within our mortgage origination segment.

At September 30, 2019, troubled debt restructurings (“TDRs”) were comprised of $2.2 million of loans that are considered to be performing and non-performing loans of $12.3 million reported in non-accrual loans. At December 31, 2018, TDRs were comprised of $1.3 million of loans that are considered to be performing and non-performing loans of $5.9 million reported in non-accrual loans.

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Current Expected Credit Loss (CECL) Standard

In June 2016, the FASB issued ASU 2016-13 which sets forth a “current expected credit loss” (CECL) model for measuring credit losses on certain exposures. The new model will require the measurement of expected credit losses to reflect the lifetime of an exposure (or pool of exposures) represented by certain financial instruments to be based on historical experience, current conditions and reasonable and supportable forecasts. Under the current “incurred loss” model, the allowance for loan losses is based only on estimates of loan losses that currently exist in the portfolio as of the reporting date. The new model will become effective for us on January 1, 2020, and applies to most debt instruments, trade receivables, lease receivables, reinsurance receivables, financial guarantees and loan commitments. Our ongoing CECL transition efforts include reassessing risk ratings, developing and validating the new model, collecting and processing new data and establishing internal controls and accounting policies. New model development has increased expenses associated with the collection and processing of data, and these increases in expenses will continue for the remainder of 2019 as we perform parallel calculations of our allowance for credit losses under both the current allowance model and under the CECL model. Based on the work completed to date, the current loan portfolio and the weighted average of a range of current forecasts of future economic conditions, we estimate that the allowance for credit losses will be between approximately $80 million and $110 million, inclusive of the change in reserve for unfunded commitments, when CECL is adopted. This estimated increase, net of tax, will largely be reflected within our banking segment and as a decrease to opening retained earnings at January 1, 2020. While not expected to be material, the impact of the adoption of CECL will also affect our regulatory capital, performance and other asset quality ratios. We will continue to produce parallel credit loss calculations during the remainder of 2019. The estimated range noted above and ultimate magnitude of the increase in allowance for credit losses upon adoption is expected to be volatile given dependence upon, among other things, the portfolio composition and quality, as well as the impact of significant drivers, including prepayment assumptions and macroeconomic conditions and forecasts at the time of adoption.

Insurance Losses and Loss Adjustment Expenses

At September 30, 2019 and December 31, 2018, our gross reserve for unpaid losses and LAE was $20.0 million and $20.6 million, respectively, including estimated recoveries from reinsurance of $0.8 million and $3.2 million, respectively. The liability for insurance losses and LAE represents estimates of the ultimate unpaid cost of all losses incurred, including losses for claims that have not yet been reported, 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.

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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.

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

	Nine Months Ended September 30,								Year Ended December 31,
	2019				2018				2018
	Average		Average		Average		Average		Average		Average
	Balance		Rate Paid		Balance		Rate Paid		Balance		Rate Paid
Noninterest-bearing demand deposits	$	2,584,114	0.00	%	$	2,484,040	0.00	%	$	2,504,599	0.00	%
Interest-bearing demand deposits		4,260,216	1.03	%		3,934,066	0.44	%		4,025,259	0.66	%
Savings deposits		184,161	0.19	%		207,197	0.13	%		201,328	0.11	%
Time deposits		1,410,063	1.98	%		1,349,135	1.32	%		1,341,886	1.42	%
	$	8,438,554	0.86	%	$	7,974,438	0.44	%	$	8,073,072	0.57	%

Borrowings

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

	September 30, 2019				December 31, 2018
			Average				Average
	Balance		Rate Paid		Balance		Rate Paid		Variance
Short-term borrowings	$	1,502,755	2.56	%	$	1,065,807	2.15	%	$	436,948
Notes payable		245,341	5.04	%		228,872	4.95	%		16,469
Junior subordinated debentures		67,012	5.87	%		67,012	5.47	%		—
	$	1,815,108	3.12	%	$	1,361,691	2.70	%	$	453,417

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 increase in short-term borrowings at September 30, 2019, compared with December 31, 2018, included an increase in borrowings in our banking segment primarily associated with the increased utilization of available internal funds partially offset by a net decrease in securities sold under agreements to repurchase and short-term loans used by the Hilltop Broker-Dealers to finance their activities. Notes payable at September 30, 2019, was comprised of $148.7 million related to the Senior Notes, net of loan origination fees, FHLB borrowings with an original maturity greater than one year within the banking segment of $3.9 million, insurance segment term notes of $27.5 million, and mortgage origination segment borrowings of $65.2 million.

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 support capital deployment for organic growth and to preserve capital to be deployed through acquisitions, dividend payments and potential stock repurchases. At September 30, 2019, Hilltop had $87.4 million in cash and cash equivalents, an increase of $43.5 million from $43.9 million at December 31, 2018. This increase in cash and cash equivalents was primarily due to $145.0 million of dividends from subsidiaries, partially offset by $73.4 million of stock repurchases, $22.4 million in cash dividends declared, and other general corporate expenses. Subject to regulatory restrictions, Hilltop has received, and may also continue to receive, dividends from its subsidiaries. If necessary or appropriate, we may also finance acquisitions with the proceeds from equity or debt issuances. We believe that Hilltop’s liquidity is sufficient for the foreseeable future, with current short-term liquidity needs including operating expenses, interest on debt obligations, dividend payments to stockholders and potential stock repurchases.

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Dividend Declaration

On October 24, 2019, our board of directors declared a quarterly cash dividend of $0.08 per common share, payable on December 3, 2019 to all common stockholders of record as of the close of business on November 15, 2019.

Future dividends on our common stock are subject to the determination by the board of directors based on an evaluation of our earnings and financial condition, liquidity and capital resources, the general economic and regulatory climate, our ability to service any equity or debt obligations senior to our common stock and other factors.

Stock Repurchases

In January 2019, our board of directors authorized a new stock repurchase program through January 2020, pursuant to which we are authorized to repurchase, in the aggregate, up to $50.0 million of our outstanding common stock, inclusive of repurchases to offset dilution related to grants of stock-based compensation. Under the stock repurchase program authorized, we may repurchase shares in the open market or through privately negotiated transactions as permitted under Rule 10b-18 promulgated under the Exchange Act. The extent to which we repurchase our shares and the timing of such repurchases depends upon market conditions and other corporate considerations, as determined by Hilltop’s management team. Repurchased shares will be returned to our pool of authorized but unissued shares of common stock.

On August 19, 2019, we entered into a Securities Purchase Agreement to purchase 2,175,404 shares of Hilltop common stock from Oak Hill Capital Partners III, L.P., Oak Hill Capital Management Partners III, L.P. and Oak Hill Capital Management, LLC (collectively, “Oak Hill Capital”). The Hilltop board of directors, other than Messrs. J. Taylor Crandall and Gerald J. Ford, considered and approved the purchase of the shares of Hilltop common stock from Oak Hill Capital. Hilltop director J. Taylor Crandall is a founding Managing Partner of Oak Hill Capital Management, LLC. The purchase was consummated on August 20, 2019 at a purchase price of $48.4 million, or $22.25 per share. The purchase price per share was determined by the weighted average of the closing prices of Hilltop common stock as reported by the New York Stock Exchange for each trading day commencing on August 12, 2019 and ending on August 16, 2019. As a result, the repurchase of shares by Hilltop from Oak Hill Capital fully utilized the stock repurchase program previously authorized in January 2019.

During the nine months ended September 30, 2019, we paid $73.4 million to repurchase an aggregate of 3,390,247 shares of common stock at an average price of $21.64 per share. These amounts are inclusive of the repurchase of shares by Hilltop from Oak Hill Capital discussed above. The purchases were funded from available cash balances.

Senior Notes due 2025

The Senior Notes bear interest at a 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 September 30, 2019, $150.0 million of our Senior Notes was outstanding.

Junior Subordinated Debentures

The Debentures have a stated term of 30 years with maturities ranging from July 2031 to February 2038 with interest payable quarterly. The rate on the Debentures, which resets quarterly, is 3-month LIBOR plus an average spread of 3.22%. The total average interest rate at September 30, 2019 was 5.38%. The Debentures are callable at PCC’s discretion with a minimum of a 45- to 60- day notice. At September 30, 2019, $67.0 million of PCC’s Debentures were outstanding.

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-

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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 order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary bonus payments to executive officers, Basel III requires banking organizations to maintain a capital conservation buffer above minimum risk-based capital requirements measured relative to risk-weighted assets. The phase-in of the capital conservation buffer requirements began on January 1, 2016 for Hilltop and PlainsCapital, and the requirements were fully phased in as of January 1, 2019.

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 September 30, 2019, under guidance issued by the Board of Governors of the Federal Reserve System.

At September 30, 2019, Hilltop had a total capital to risk weighted assets ratio of 16.95%, Tier 1 capital to risk weighted assets ratio of 16.58%, common equity Tier 1 capital to risk weighted assets ratio of 16.15% and a Tier 1 capital to average assets, or leverage, ratio of 12.67%. Accordingly, Hilltop’s actual capital amounts and ratios in accordance with Basel III exceeded the regulatory capital requirements including conservation buffer in effect at the end of the period.

At September 30, 2019, PlainsCapital had a total capital to risk weighted assets ratio of 13.87%, Tier 1 capital to risk weighted assets ratio of 13.25%, common equity Tier 1 capital to risk weighted assets ratio of 13.25% and a Tier 1 capital to average assets, or leverage, ratio of 11.79%. Accordingly, PlainsCapital’s actual capital amounts and ratios in accordance with Basel III resulted in it being considered “well-capitalized” and exceeded the regulatory capital requirements including conservation buffer in effect at the end of the period.

We discuss regulatory capital requirements in more detail in Note 16 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 2018 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.

Within our banking segment, 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. The Bank regularly evaluates its deposit products and pricing structures relative to the market to maintain competitiveness over time.

The Bank’s 15 largest depositors, excluding Hilltop and Hilltop Securities, accounted for 8.36% of the Bank’s total deposits, and the Bank’s five largest depositors, excluding Hilltop and Hilltop Securities, accounted for 4.48% of the Bank’s total deposits at September 30, 2019. 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

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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 September 30, 2019, Hilltop Securities had credit arrangements with five unaffiliated banks with maximum aggregate commitments of up to $725.0 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 $50.0 million. At September 30, 2019, Hilltop Securities had borrowed $216.5 million under its credit arrangements and had no borrowings under its credit facility.

Mortgage Origination Segment

PrimeLending funds the mortgage loans it originates through warehouse lines of credit maintained with the Bank which have an aggregate commitment of $2.2 billion, of which $1.7 billion was drawn at September 30, 2019. 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 an unaffiliated bank of up to $1.0 million, of which no borrowings were outstanding at September 30, 2019.

PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC (“Ventures Management”) which holds an ownership interest in and is the managing member of certain ABAs. At September 30, 2019, these ABAs had combined available lines of credit totaling $150.0 million, $100.0 million of which was with a single unaffiliated bank, and the remaining $50.0 million of which was with the Bank. At September 30, 2019, Ventures Management had outstanding borrowings of $79.6 million, $14.4 million of which was with the Bank.

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 $133.2 million, or 84.1%, equity investments of $19.3 million and other investments of $5.8 million comprised NLC’s $158.3 million in total cash and investments at September 30, 2019. 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 an unaffiliated bank and an investment management agreement with DTF Holdings, LLC which is owned by current Hilltop director, Jonathan S. Sobel.

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

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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 $2.2 billion at September 30, 2019 and outstanding financial and performance standby letters of credit of $91.2 million at September 30, 2019.

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.

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, reserve for losses and LAE, goodwill and identifiable intangible assets, mortgage loan indemnification liability, mortgage servicing rights asset and acquisition accounting. Since December 31, 2018, 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 2018 Form 10-K, except that we no longer consider estimates related to the FDIC Indemnification Asset to be a critical accounting policy.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our assessment of market risk as of September 30, 2019 indicates there are no material changes in the quantitative and qualitative disclosures from those previously reported in our 2018 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

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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 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.

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

	September 30, 2019
	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	$	5,299,210		$	1,166,090		$	1,556,739		$	424,977		$	64,984		$	8,512,000
Securities		198,273			122,479			317,319			266,754			381,978			1,286,803
Federal funds sold and securities purchased under agreements to resell		423			—			—			—			—			423
Other interest sensitive assets		158,595			—			—			—			29,251			187,846
Total interest sensitive assets		5,656,501			1,288,569			1,874,058			691,731			476,213			9,987,072
Interest sensitive liabilities:
Interest bearing checking	$	4,066,093		$	—		$	—		$	—		$	—		$	4,066,093
Savings		187,433			—			—			—			—			187,433
Time deposits		360,053			965,694			123,055			61,367			—			1,510,169
Notes payable and other borrowings		791,014			2,581			1,365			1,189			4,132			800,281
Total interest sensitive liabilities		5,404,593			968,275			124,420			62,556			4,132			6,563,976
Interest sensitivity gap	$	251,908		$	320,294		$	1,749,638		$	629,175		$	472,081		$	3,423,096
Cumulative interest sensitivity gap	$	251,908		$	572,202		$	2,321,840		$	2,951,015		$	3,423,096
Percentage of cumulative gap to total interest sensitive assets		2.52	%		5.73	%		23.25	%		29.55	%		34.28	%

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 a range of changes in interest rates on net interest income and on economic value of equity for the banking segment at September 30, 2019 (dollars in thousands).

Change in	Changes in				Changes in
Interest Rates	Net Interest Income				Economic Value of Equity
(basis points)	Amount		Percent		Amount		Percent
+200	$	35,034	9.93	%	$	320,291	19.56	%
+100	$	17,330	4.91	%	$	182,889	11.17	%
-50	$	(4,768)	(1.35)	%	$	(112,961)	(6.90)	%
-100	$	(5,096)	(1.44)	%	$	(272,936)	(16.67)	%

The projected changes in net interest income and economic value of equity to changes in interest rates at September 30, 2019 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.

Our portfolio includes loans that periodically reprice or mature prior to the end of an amortized term. Some of our variable-rate loans remain at applicable rate floors, which may delay and/or limit changes in interest income during a period of changing rates. If interest rates were to fall, the impact on our interest income would be limited by these rate floors. In addition, declining interest rates may negatively affect our cost of funds on deposits. The extent of this impact will ultimately be driven by the timing, magnitude and frequency of interest rate and yield curve movements, as well as

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changes in market conditions and timing of management strategies. If interest rates were to rise, yields on the portion of our portfolio that remain at applicable rate floors would rise more slowly than increases in market interest rates. Any changes in interest rates across the term structure will continue to impact net interest income and net interest margin. The impact of rate movements will change with the shape of the yield curve, including any changes in steepness or flatness and inversions at any points on the yield curve.

Broker-Dealer Segment

Our broker-dealer segment is exposed to market risk primarily due to its role as a financial intermediary in customer transactions, which may include purchases and sales of securities, use of derivatives and securities lending activities, and in our trading activities, which are used to support sales, underwriting and other customer activities. We are subject to the risk of loss that may result from the potential change in value of a financial instrument as a result of fluctuations in interest rates, market prices, investor expectations and changes in credit ratings of the issuer.

Our broker-dealer segment is exposed to interest rate risk as a result of maintaining inventories of interest rate sensitive financial instruments and other interest earning assets including customer and correspondent margin loans and receivables and securities borrowing activities. Our exposure to interest rate risk is also from our funding sources including customer and correspondent cash balances, bank borrowings, repurchase agreements and securities lending activities. Interest rates on customer and correspondent balances and securities produce a positive spread with rates generally fluctuating in parallel.

With respect to securities held, our interest rate risk is managed by setting and monitoring limits on the size and duration of positions and on the length of time securities can be held. Much of the interest rates on customer and correspondent margin loans are indexed and can vary daily. Our funding sources are generally short term with interest rates that can vary daily.

The following table categorizes the broker-dealer segment’s net trading securities which are subject to interest rate and market price risk (dollars in thousands).

	September 30, 2019
	1 Year			> 1 Year			> 5 Years
	or Less			to 5 Years			to 10 Years			> 10 Years			Total
Trading securities, at fair value
Municipal obligations	$	1,059		$	7,547		$	26,329		$	125,309		$	160,244
U.S. government and government agency obligations		531			1,587			(8,654)			433,505			426,969
Corporate obligations		(708)			(3,460)			12,848			25,612			34,292
Total debt securities		882			5,674			30,523			584,426			621,505
Corporate equity securities		(11,668)			—			—			—			(11,668)
Other		35,739			—			—			—			35,739
	$	24,953		$	5,674		$	30,523		$	584,426		$	645,576
Weighted average yield
Municipal obligations		1.80	%		1.67	%		1.87	%		3.08	%		2.79	%
U.S. government and government agency obligations		1.91	%		1.65	%		1.73	%		4.31	%		4.13	%
Corporate obligations		2.32	%		2.28	%		3.54	%		4.50	%		3.37	%

Derivatives are used to support certain customer programs and hedge our related exposure to interest rate risks.

Our broker-dealer segment is engaged in various brokerage and trading activities that expose us to credit risk arising from potential non-performance from counterparties, customers or issuers of securities. This risk is managed by setting and monitoring position limits for each counterparty, conducting periodic credit reviews of counterparties, reviewing concentrations of securities and conducting business through central clearing organizations.

Collateral underlying margin loans to customers and correspondents and with respect to securities lending activities is marked to market daily and additional collateral is required as necessary.

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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 on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that as of the end of the period covered by this report our disclosure controls and procedures were not effective because of material weaknesses identified in our internal control over financial reporting. Management determined that (1) the Company did not design and maintain effective controls over certain aspects relating to the determination of the qualitative factors considered by management in the allowance for loan losses estimation process, specifically control activities to adequately support the analysis and the impact of such support on the loss measurement and (2) certain control enhancements implemented as a part of the Company’s process for the approval of customer wires were not operating as designed. As of September 30, 2019, these material weaknesses were not remediated. These control deficiencies could result in misstatements of the interim or annual consolidated financial statements and disclosures that would result in a material misstatement that would not be prevented or detected.

Notwithstanding these material weaknesses, the Company has concluded that no material misstatements exist in the consolidated financial statements, and such financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2019 and December 31, 2018, the results of its operations for the three and nine months ended September 30, 2019 and 2018, and its cash flows for the nine months ended September 30, 2019 and September 30, 2018, in conformity with accounting principles generally accepted in the United States of America.

Plan for Remediation of Material Weaknesses

The Company and its Board of Directors are committed to maintaining a strong internal control environment. Management has evaluated the material weaknesses described above and has made significant progress updating its design and implementation of internal controls to remediate the aforementioned deficiencies and enhance the Company’s internal control environment. The respective remediation plans are being implemented and include (1) enhanced the analysis to support the qualitative factors considered in the estimation of the allowance for loan losses and (2) enhanced processes with respect to approval of customer wires. Management is committed to successfully implementing the respective remediation plans and currently plans to evaluate its updated internal controls design and determine whether the controls have operated effectively during the fourth quarter of 2019.

Changes in Internal Control over Financial Reporting

Except for the changes described above, 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.

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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 13 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 2018 Form 10-K. For additional information concerning our risk factors, please refer to “Item 1A. Risk Factors” of our 2018 Form 10-K.

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

On September 30, 2019, we issued an aggregate of 5,911 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 third quarter of 2019. 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 September 30, 2019.

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 (1)
July 1 - July 31, 2019	—		$	—	—	$	25,019,744
August 1 - August 31, 2019	2,175,404	(2)		22.25	1,124,483		—
September 1 - September 30, 2019	—			—	—		—
Total	2,175,404		$	—	1,124,483

(1) On January 25, 2019, we announced that our board of directors authorized a new stock repurchase program under which we may repurchase, in the aggregate, up to $50.0 million of our outstanding common stock through January 2020, which is inclusive of repurchases to offset dilution related to grants of stock-based compensation (the “Repurchase Program”). As of September 30, 2019, we had repurchased an aggregate of $50.0 million of our outstanding common stock under the Repurchase Program.

(2) On August 19, 2019, the Hilltop board of directors approved the repurchase of, and the Company repurchased, 2,175,404 shares of Hilltop common stock from Oak Hill Capital at an aggregate purchase price of $48.4 million, of which 1,124,483 of the repurchased shares resulted in the full utilization of the Repurchase Program previously authorized in January 2019 and 1,050,921 of the repurchased shares were acquired outside of the Repurchase Program.

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Item 6. Exhibits.

Exhibit Number	Description of Exhibit
2.1	Termination Agreement among Federal Deposit Insurance Corporation, as Receiver of First National Bank, Edinburg, Texas, PlainsCapital Bank and Federal Deposit Insurance Corporation, acting in its corporate capacity, dated as of October 17, 2018 (filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed October 22, 2018 (File no. 001-31987) and incorporated herein by reference).
10.1	Securities Purchase Agreement, dated as of August 19, 2019, by and between Oak Hill Capital Partners III, L.P., Oak Hill Capital Management Partners III, L.P., Oak Hill Capital Management, LLC and Hilltop Holdings Inc. (filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed August 22, 2019 (File no. 001-31987) and incorporated herein by reference).
10.2	First Amendment to Employment Agreement by and between Hilltop Holdings Inc. and William B. Furr, dated as of August 30, 2019 (filed as Exhibit 10.7.2 to the Registrant’s Current Report on Form 8-K filed September 6, 2019 (File no. 001-31987) and incorporated herein by reference).
10.3	Retention Agreement by and between Hilltop Holdings Inc. and Todd Salmans, dated as of October 25, 2019, but effective January 1, 2020 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed October 30, 2019 (File no. 001-31987) and incorporated herein by reference).
10.4	Employment Agreement by and between Hilltop Holdings Inc. and Steve Thompson, dated as of October 25, 2019, but effective January 1, 2020 (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed October 30, 2019 (File no. 001-31987) and incorporated herein by reference).
31.1*	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1*	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	Inline XBRL Taxonomy Extension Schema
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase
104	Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

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SIGNATURES

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

	HILLTOP HOLDINGS INC.
Date: November 18, 2019	By:	/s/ William B. Furr
		William B. Furr
		Chief Financial Officer (Principal Financial Officer and duly authorized officer)

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EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Jeremy B. Ford, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: November 18, 2019	By:	/s/ Jeremy B. Ford
		Jeremy B. Ford
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, William B. Furr, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: November 18, 2019	By:	/s/ William B. Furr
		William B. Furr
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2019 (the “Report”) of Hilltop Holdings Inc. (the “Company”), the undersigned hereby certify in their capacities as President and Chief Executive Officer and Chief Financial Officer, respectively, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to their knowledge:

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

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

Date: November 18, 2019	By:	/s/ Jeremy B. Ford
		Jeremy B. Ford
		President and Chief Executive Officer

Date: November 18, 2019	By:	/s/ William B. Furr
		William B. Furr
		Chief Financial Officer

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

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 81,707	$ 37,098	$ 181,275	$ 96,169
Other comprehensive income:
Net unrealized gains (losses) on securities available for sale, net of tax of $1,238, $(847), $6,030 and $(3,335), respectively	6,468	(2,900)	22,973	(11,751)
Reclassification adjustment for gains included in net income, net of tax of $(531), $7, $(536) and $7, respectively	(2,025)	24	(2,041)	24
Comprehensive income	86,150	34,222	202,207	84,442
Less: comprehensive income attributable to noncontrolling interest	2,289	1,293	5,260	2,843
Comprehensive income applicable to Hilltop	$ 83,861	$ 32,929	$ 196,947	$ 81,599

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2019

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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Balance, beginning of period	$	33,074	$	30,545	$	33,784	$	33,702
Claims made		6,423		5,477		16,110		17,827
Claims resolved with no payment		(7,022)		(578)		(14,289)		(12,331)
Repurchases		(1,506)		(3,513)		(4,150)		(6,847)
Indemnification payments		(243)		—		(729)		(420)
Balance, end of period	$	30,726	$	31,931	$	30,726	$	31,931
	Indemnification Liability Reserve Activity (1)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Balance, beginning of period	$	10,833	$	23,910	$	10,701	$	23,472
Additions for new sales		954		857		2,236		2,599
Repurchases		(117)		(228)		(325)		(474)
Early payment defaults		(51)		(72)		(290)		(259)
Indemnification payments		(87)		(4)		(182)		(124)
Change in reserves for loans sold in prior years		(81)		(292)		(689)		(1,043)
Balance, end of period	$	11,451	$	24,171	$	11,451	$	24,171
	September 30,		December 31,
	2019		2018
Reserve for Indemnification Liability:
Specific claims	$	958	$	676
Incurred but not reported claims		10,493		10,025
Total	$	11,451	$	10,701

(1) The Reserve for Indemnification Liability at September 30, 2018 reflected $13.5 million of specific claims related to an inquiry by the U.S. Department of Housing and Urban Development (“HUD”) and the U.S. Department of Justice which was resolved in the fourth quarter of 2018. The resolution of this matter is discussed in detail in Note 18 to the consolidated financial statements included in the Company’s 2018 Form 10-K.

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Deposits (Tables)

9 Months Ended

Sep. 30, 2019

Deposits

Summary of deposits

Deposits are summarized as follows (in thousands).

	September 30,		December 31,
	2019		2018
Noninterest-bearing demand	$	2,732,325	$	2,560,750
Interest-bearing:
NOW accounts		1,393,216		1,358,196
Money market		2,584,244		2,725,541
Brokered - money market		5,000		5,000
Demand		318,484		393,685
Savings		187,433		184,700
Time		1,510,170		1,308,284
	$	8,730,872	$	8,536,156

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 18, 2019
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2019
Document Transition Report	false
Entity File Number	1-31987
Entity Registrant Name	Hilltop Holdings Inc.
Entity Incorporation, State or Country Code	MD
Entity Tax Identification Number	84-1477939
Entity Address, Address Line One	2323 Victory Avenue
Entity Address, Address Line Two	Suite 1400
Entity Address, City or Town	Dallas
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75219
City Area Code	214
Local Phone Number	855-2177
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	HTH
Security Exchange Name	NYSE
Entity Common Stock, Shares Outstanding		90,632,962
Entity Central Index Key	0001265131
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Operating Activities
Net income	$ 181,275	$ 96,169
Adjustments to reconcile net income to net cash used in operating activities:
Provision (recovery) for loan losses	326	(1,838)
Depreciation, amortization and accretion, net	(455)	3,558
Net change in fair value of equity securities	(1,368)	396
Deferred income taxes	1,065	653
Other, net	10,695	6,355
Net change in securities purchased under agreements to resell	11,613	21,881
Net change in trading securities	38,198	70,371
Net change in broker-dealer and clearing organization receivables	(271,474)	(42,516)
Net change in other assets	(48,122)	39,208
Net change in broker-dealer and clearing organization payables	132,964	85,409
Net change in other liabilities	87,990	(79,283)
Net change in securities sold, not yet purchased	(22,418)	(53,239)
Proceeds from sale of mortgage servicing rights asset		9,303
Net gains from sales of loans	(384,362)	(354,488)
Loans originated for sale	(11,858,761)	(11,148,919)
Proceeds from loans sold	11,638,303	11,665,782
Net cash provided by (used in) operating activities	(484,531)	318,802
Investing Activities
Proceeds from maturities and principal reductions of securities held to maturity	53,051	36,729
Proceeds from sales, maturities and principal reductions of securities available for sale	219,351	190,266
Proceeds from sales, maturities and principal reductions of equity securities	1,860	3
Purchases of securities held to maturity	(73,652)	(29,377)
Purchases of securities available for sale	(324,609)	(276,710)
Purchases of equity securities	(307)	(719)
Net change in loans held for investment	(387,952)	(113,918)
Purchases of premises and equipment and other assets	(27,200)	(60,473)
Proceeds from sales of premises and equipment and other real estate owned	12,570	18,440
Net cash paid for Federal Home Loan Bank and Federal Reserve Bank stock	(20,381)	(5,447)
Net cash paid for acquisition		(63,245)
Net cash used in investing activities	(547,269)	(304,451)
Financing Activities
Net change in deposits	312,990	(40,850)
Net change in short-term borrowings	436,948	10,225
Proceeds from notes payable	675,086	455,776
Payments on notes payable	(658,677)	(444,312)
Payments to repurchase common stock	(73,385)	(38,821)
Dividends paid on common stock	(22,376)	(20,074)
Net cash received from (distributed to) noncontrolling interest	(4,525)	18,367
Taxes paid on employee stock awards netting activity	(1,934)	(1,806)
Other, net	(363)	(551)
Net cash provided by (used in) financing activities	663,764	(62,046)
Net change in cash, cash equivalents and restricted cash	(368,036)	(47,695)
Cash, cash equivalents and restricted cash, beginning of period	778,466	673,960
Cash, cash equivalents and restricted cash, end of period	410,430	626,265
Supplemental Disclosures of Cash Flow Information
Cash paid for interest	125,928	101,402
Cash paid for income taxes, net of refunds	32,227	5,806
Supplemental Schedule of Non-Cash Activities
Derecognition of construction in progress related to build-to-suit lease obligations		23,773
Conversion of loans to other real estate owned	3,502	5,868
Additions to mortgage servicing rights	$ 8,574	$ 21,090

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Lease - Components of lease costs (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
Components of operating lease costs
Operating lease cost	$ 11,123	$ 32,253
Less operating lease and sublease income	(846)	(1,897)
Net operating lease cost	10,277	30,356
Amortization of lease assets	147	442
Interest on lease liabilities	148	450
Total finance lease cost	$ 295	$ 892

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Fair Value Measurements - FV Option (Details) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Fair Value Measurements
Mortgage loans held for sale, fair value	$ 1,850	$ 1,260
Mortgage loans held for sale, unpaid principal balance	$ 1,800	$ 1,210

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Fair Value Measurements - Change in FV (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Fair Value, Transfers Between Level 1 and Level 2
Transfers of assets from level 1 to level 2	$ 0	$ 0	$ 0	$ 0
Transfers of assets from level 2 to level 1	0	0	0	0
Transfers of liabilities from level 1 to level 2	0	0	0	0
Transfers of liabilities from level 2 to level 1	0	0	0	0
Fair Value Option
Net Gains (Losses)	157,050	116,243	384,362	354,488
Other Noninterest Income	50,804	31,810	153,750	72,422
Loans Held for Sale
Fair Value Option
Net Gains (Losses)	4,117	(20,417)	7,972	(12,693)
Total Changes in Fair Value	4,117	(20,417)	7,972	(12,693)
MSR
Fair Value Option
Net Gains (Losses)	(6,564)	70	(23,379)	2,303
Total Changes in Fair Value	$ (6,564)	$ 70	$ (23,379)	$ 2,303

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Lease - Operating leases that have not yet commenced (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Leases
Additional operating leases that have not yet commenced	$ 200
Aggregate remaining lease obligation	$ 155,378
Minimum
Leases
Expected to commence	2 years
Maximum
Leases
Expected to commence	5 years
Related party
Leases
Minimum annual lease payment	$ 500
Aggregate remaining lease obligation	$ 4,600

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Commitments and Contingencies - Hilltop Plaza Investment (Details) $ in Thousands			9 Months Ended	12 Months Ended
	Jan. 01, 2019 USD ($)	Jul. 31, 2018 USD ($) a ft² tenant item	Sep. 30, 2019 USD ($) ft²	Dec. 31, 2018 USD ($)	Jun. 30, 2019 USD ($)
Commitments and Contingencies
Primary Beneficiary | item		0
Ground lease term		99 years
Operating lease liabilities			$ 131,133
Deferred expenses recognized, recorded as an increase to retained earnings			$ 1,393
Restatement | ASU 2016-02
Commitments and Contingencies
Operating lease liabilities	$ 121,800
Deferred expenses recognized, recorded as an increase to retained earnings	$ 1,400
Jeremy Ford | Diamond Ground, LLC
Commitments and Contingencies
Ownership interest (as a percent)			10.20%
Wife of Corey Prestidge | Diamond Ground, LLC
Commitments and Contingencies
Ownership interest (as a percent)			10.10%
Hilltop Plaza
Commitments and Contingencies
Construction Loan		$ 41,000
Net Rentable Area | ft²		119,000
Operating lease liabilities					$ 18,900
Costs incurred and capitalized				$ 27,800
Hilltop Plaza | Gerald J. Ford
Commitments and Contingencies
Area of building subject to lease | ft²			11,000
Hilltop Plaza | Hilltop and the Bank
Commitments and Contingencies
Area of building subject to lease | ft²		72,000
Number of office and retail lease | item		2
Total base rent		$ 35,000
Rent abated		9 months
Hilltop Plaza | Hilltop
Commitments and Contingencies
Term of contract		129 months
Hilltop Plaza | PlainsCapital (the Bank)
Commitments and Contingencies
Term of contract		129 months
Hilltop Plaza | Park Plaza
Commitments and Contingencies
Ownership interest (as percent)		50.00%
Hilltop Plaza | HTH Hillcrest Project LLC
Commitments and Contingencies
Ownership interest (as percent)		25.00%
Cash contributions		$ 5,300
Hilltop Plaza | Diamond Hillcrest
Commitments and Contingencies
Ownership interest (as percent)		25.00%
Cash contributions		$ 5,300
Hillcrest Land LLC
Commitments and Contingencies
Acres of land | a		1.7
Payments to acquire land		$ 38,500
Number of tenants | tenant		3
Ground lease commences		18 months
Ground lease		$ 1,800
Annual ground lease increase (as percent)		1.00%
Hillcrest Land LLC | Hilltop Investments I, LLC
Commitments and Contingencies
Investment contribution		$ 19,300
Hillcrest Land LLC | Diamond Ground, LLC
Commitments and Contingencies
Investment contribution		$ 19,300
Hillcrest Land LLC | Park Plaza
Commitments and Contingencies
Leasehold interest		50.00%
Hillcrest Land LLC | HTH Hillcrest Project LLC
Commitments and Contingencies
Leasehold interest		25.00%
Hillcrest Land LLC | Diamond Hillcrest
Commitments and Contingencies
Leasehold interest		25.00%

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Fair Value Measurements - Adjustments to the carrying value of investments (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Adjustments to the carrying value of these investments
Balance, beginning of period	$ 19,906	$ 26,151	$ 20,376	$ 22,946
Additional investments				1,411
Upward adjustments	101	265	303	3,642
Impairments and downward adjustments	(346)	(1)	(1,018)	(1,584)
Balance, end of period	19,661	$ 26,415	19,661	$ 26,415
Other Assets
Equity Securities without Readily Determinable Fair Value
Other equity investments	$ 36,100		$ 36,100		$ 35,800

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Reserve for Losses and Loss Adjustment Expenses - Reserve (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Information regarding of the reserve for unpaid losses and loss adjustment expenses
Reserve for unpaid losses and allocated LAE balance, net	$ 18,403	$ 16,498
Reinsurance recoverables on unpaid losses	847	3,214
Unallocated LAE	788	840
Reserve for unpaid losses and LAE balance, gross	$ 20,038	$ 20,552

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Reinsurance Activity - Coverage (Details) $ in Millions			9 Months Ended	12 Months Ended
	Jul. 01, 2019	Jan. 01, 2019 USD ($)	Sep. 30, 2019 USD ($) item	Dec. 31, 2018
Catastrophic Coverage | First Layer of Protection
Reinsurance activity
Retention amount			$ 8
Reinsurance in excess of retention			12
Catastrophic Coverage | Second Layer of Protection
Reinsurance activity
Retention amount			20
Reinsurance coverage in losses per event			25
Catastrophic Coverage | Third Layer of Protection
Reinsurance activity
Retention amount			45
Reinsurance coverage in losses per event			$ 50
NLC
Reinsurance activity
Number of layers of protection under reinsurance | item			3
Aggregate coverage in excess of retention for per event retention and sub-catastrophic event		$ 10
Retention amount per event		1
NLC | Catastrophic Coverage
Reinsurance activity
Renewal period of reinsurance contract	1 year
NLC | Catastrophic Coverage | Sub-catastrophic
Reinsurance activity
Retention amount		$ 15
NLIC and ASIC | Catastrophic Coverage
Reinsurance activity
Number of catastrophe that could be experienced with limited retention | item			1
NLIC and ASIC | Catastrophic Coverage | Maximum
Reinsurance activity
Retention amount			$ 8
NLIC | Catastrophic Coverage
Reinsurance activity
Retention amount			8
Participation retained (as a percent)		37.50%		17.50%
ASIC | Catastrophic Coverage
Reinsurance activity
Retention amount			2
ASIC | Underlying Coverage
Reinsurance activity
Retention amount			2
Reinsurance in excess of retention			$ 6

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies

Commitments and Contingencies

13. 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 probable 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 is complete; whether meaningful settlement discussions have 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.

While the final outcome of litigation and claims exposures is inherently unpredictable, management is currently of the opinion that the outcome of pending and threatened litigation 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 matter could be material to the Company’s business, consolidated financial position, results of operations or cash flows for any particular reporting period of occurrence.

Indemnification Liability Reserve

The mortgage origination segment may be responsible to agencies, investors, or other parties 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 or indemnifies the claimant against loss. The mortgage origination segment has established an indemnification liability reserve for such probable losses.

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

An additional reserve has been established for probable agency, investor or other party 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 claimant requests, actual 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 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 claims to date, and therefore, are not a primary factor considered in the calculation of this reserve.

At September 30, 2019 and December 31, 2018, the mortgage origination segment’s indemnification liability reserve totaled $11.5 million and $10.7 million, respectively. The provision for indemnification losses was $1.0 million and $0.9 million during the three months ended September 30, 2019 and 2018, respectively, and $2.2 million and $2.6 million during the nine months ended September 30, 2019 and 2018, 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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Balance, beginning of period	$	33,074	$	30,545	$	33,784	$	33,702
Claims made		6,423		5,477		16,110		17,827
Claims resolved with no payment		(7,022)		(578)		(14,289)		(12,331)
Repurchases		(1,506)		(3,513)		(4,150)		(6,847)
Indemnification payments		(243)		—		(729)		(420)
Balance, end of period	$	30,726	$	31,931	$	30,726	$	31,931
	Indemnification Liability Reserve Activity (1)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Balance, beginning of period	$	10,833	$	23,910	$	10,701	$	23,472
Additions for new sales		954		857		2,236		2,599
Repurchases		(117)		(228)		(325)		(474)
Early payment defaults		(51)		(72)		(290)		(259)
Indemnification payments		(87)		(4)		(182)		(124)
Change in reserves for loans sold in prior years		(81)		(292)		(689)		(1,043)
Balance, end of period	$	11,451	$	24,171	$	11,451	$	24,171
	September 30,		December 31,
	2019		2018
Reserve for Indemnification Liability:
Specific claims	$	958	$	676
Incurred but not reported claims		10,493		10,025
Total	$	11,451	$	10,701

(1) The Reserve for Indemnification Liability at September 30, 2018 reflected $13.5 million of specific claims related to an inquiry by the U.S. Department of Housing and Urban Development (“HUD”) and the U.S. Department of Justice which was resolved in the fourth quarter of 2018. The resolution of this matter is discussed in detail in Note 18 to the consolidated financial statements included in the Company’s 2018 Form 10-K.

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.

Hilltop Plaza Investment

On July 31, 2018, Hillcrest Land LLC purchased approximately 1.7 acres of land in the City of University Park, Texas for $38.5 million. Hillcrest Land LLC is owned equally between Hilltop Investments I, LLC, a wholly owned entity of Hilltop, and Diamond Ground, LLC, an affiliate of Mr. Gerald J. Ford, Chairman of the Board of Directors. Each of Hilltop Investments I, LLC and Diamond Ground, LLC contributed $19.3 million to Hillcrest Land LLC to complete the purchase. As the voting rights of Hillcrest Land LLC are shared equally between the Company and Diamond Ground, LLC, there is no primary beneficiary, and Diamond Ground, LLC’s interest in Hillcrest Land LLC has been reflected as a noncontrolling interest in the Company’s consolidated financial statements. Therefore, the Company has consolidated Hillcrest Land LLC under the VIE model according to the “most-closely associated” test. The purchased land is included within premises and equipment, net in the consolidated balance sheets. Any income (loss) associated with Hillcrest Land LLC is included within other noninterest income in the consolidated statements of operations. Trusts for which Jeremy

Ford, President and Chief Executive Officer, and the wife of Corey Prestidge, Executive Vice President, General Counsel and Secretary, are a beneficiary own 10.2% and 10.1%, respectively, of Diamond Ground, LLC.

In connection with the purchase of the land, Hillcrest Land LLC entered into a 99-year ground lease of the land with three tenants-in-common: SPC Park Plaza Partners LLC (“Park Plaza LLC”), an unaffiliated entity which received an undivided 50% leasehold interest; HTH Project LLC, a wholly owned subsidiary of Hilltop, which received an undivided 25% leasehold interest; and Diamond Hillcrest, LLC (“Diamond Hillcrest”), an entity owned by Mr. Gerald J. Ford, which received an undivided 25% leasehold interest (collectively, the “Co-Owners”). The ground lease is triple net. The base rent from the Co-Owners under the ground lease commences 18 months after the ground lease was signed at $1.8 million per year and increases 1.0% per year each January 1 thereafter. The ground lease was classified as an operating lease, and the accounting commencement date was determined to be July 31, 2018, the date the land was available to the Co-Owners.

Concurrent with the ground lease, the Co-Owners entered into an agreement to purchase the improvements currently being constructed on the land, which is a mixed-use project containing a six-story building (“Hilltop Plaza”). HTH Project LLC and Diamond Hillcrest each own an undivided 25% interest in Hilltop Plaza. Park Plaza LLC owns the remaining undivided 50% interest in Hilltop Plaza. Park Plaza LLC has agreed to serve as the Co-Owner property manager under the Co-Owners Agreement; however, certain actions require unanimous approval of all Co-Owners. Funding for Hilltop Plaza includes a $41.0 million construction loan from an unaffiliated third party bank, as well as cash contributions of $5.3 million from each of HTH Project LLC and Diamond Hillcrest. HTH Project LLC’s undivided interest in Hilltop Plaza is accounted for as an equity method investment as the tenants-in-common have joint control over decisions regarding Hilltop Plaza. The investment is included within other assets in the consolidated balance sheets and any income (loss) is included within other noninterest income in the consolidated statements of operations.

Hilltop and the Bank entered into leases for an aggregate of approximately 72,000 of the total 119,000 square feet of rentable space in Hilltop Plaza to serve as the headquarters for both companies. Affiliates of Mr. Gerald J. Ford also entered into leases for approximately 11,000 square feet of office space in the building. The two separate 129-month office and retail leases of Hilltop and the Bank, respectively, have combined total base rent of approximately $35 million with the first nine months of rent abated. The accounting commencement date of both leases was determined to be June 29, 2019, the date the building was delivered in order for tenant improvement work to commence. The combined operating lease liability, net of lease incentives, recognized during the second quarter of 2019 as a result of the commencement of these leases was $18.9 million. The office and retail leases were considered under the build-to-suit provisions of ASC 840, and the Company was determined to be the accounting owner of the project as its affiliate, HTH Project LLC, has an equity investment in the project. As such, the assets of Hilltop Plaza were recognized during the construction period through December 31, 2018, as costs were incurred to construct the asset, with a corresponding liability representing the costs paid for by the lessor (the Co-Owners). At December 31, 2018, the $27.8 million of costs incurred to date were included within premises and equipment and other liabilities, respectively, in the consolidated balance sheets. The Company reassessed its accounting ownership of the Hilltop Plaza assets under construction as of January 1, 2019, under the build-to-suit provisions of the newly adopted Leasing Standard and concluded it is not the accounting owner. As such, the assets and liabilities of the project were derecognized on January 1, 2019, with the $1.4 million offset representing deferred expenses recognized on the project to date through December 31, 2018, recorded as an increase to retained earnings.

All intercompany transactions associated with the Hilltop Plaza investment and the related transactions discussed above are eliminated in consolidation.

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Stockholders' Equity

9 Months Ended

Sep. 30, 2019

Stockholders' Equity

Stockholders' Equity

17. Stockholders’ Equity

Dividends

During the nine months ended September 30, 2019 and 2018, the Company declared and paid cash dividends of $0.24 and $0.21 per common share, or an aggregate of $22.4 million and $20.1 million, respectively.

On October 24, 2019, the Company’s board of directors declared a quarterly cash dividend of $0.08 per common share, payable on December 3, 2019, to all common stockholders of record as of the close of business on November 15, 2019.

Stock Repurchases

In January 2019, the Hilltop board of directors authorized a new stock repurchase program through January 2020, pursuant to which the Company was authorized to repurchase, in the aggregate, up to $50.0 million of its outstanding common stock, inclusive of repurchases to offset dilution related to grants of stock-based compensation.

On August 19, 2019, the Company entered into a Securities Purchase Agreement to purchase 2,175,404 shares of its common stock from Oak Hill Capital Partners III, L.P., Oak Hill Capital Management Partners III, L.P. and Oak Hill Capital Management, LLC (collectively, “Oak Hill Capital”). The Hilltop board of directors, other than Messrs. J. Taylor Crandall and Gerald J. Ford, considered and approved the purchase of the shares of Hilltop common stock from Oak Hill Capital. Hilltop director J. Taylor Crandall is a founding Managing Partner of Oak Hill Capital Management, LLC. The purchase was consummated on August 20, 2019 at a purchase price of $48.4 million, or $22.25 per share. The purchase price per share was determined by the weighted average of the closing prices of Hilltop common stock as reported by the New York Stock Exchange for each trading day commencing on August 12, 2019 and ending on August 16, 2019. The repurchase of shares by Hilltop from Oak Hill Capital fully utilized all remaining availability of the stock repurchase program previously authorized in January 2019.

During the nine months ended September 30, 2019, the Company paid $73.4 million to repurchase an aggregate of 3,390,247 shares of common stock at an average price of $21.64 per share. These amounts are inclusive of the repurchase of shares by Hilltop from Oak Hill Capital discussed above. These shares were returned to the Company’s pool of authorized but unissued shares of common stock. The purchases were funded from available cash balances. The Company’s stock repurchase program, prior year repurchases and related accounting policy are discussed in detail in Note 1 and Note 22 to the consolidated financial statements included in the Company’s 2018 Form 10-K.

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Summary of Significant Accounting and Reporting Policies

9 Months Ended

Sep. 30, 2019

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, headquartered in Dallas, Texas, provides its products and services through three primary business units, PlainsCapital Corporation (“PCC”), Hilltop Securities Holdings LLC (“Securities Holdings”) and National Lloyds Corporation (“NLC”). PCC is a financial holding company 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 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 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.

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, 2018 (“2018 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, 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 PCC. PCC owns 100% of the outstanding stock of the Bank and 100% of the membership interest in Hilltop Opportunity Partners LLC, a merchant bank utilized to facilitate investments in companies engaged in non-financial activities. The Bank owns 100% of the outstanding stock of PrimeLending, a PlainsCapital Company (“PrimeLending”).

PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC (“Ventures Management”), which holds an ownership interest in and is the managing member of certain affiliated business arrangements (“ABAs”).

PCC 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

(“VIE”) 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 Inc. (“Hilltop Securities”), Hilltop Securities Independent Network Inc. (“HTS Independent Network”) (collectively, the “Hilltop Broker-Dealers”) and Hilltop Securities Asset Management, LLC. Hilltop Securities is a broker-dealer registered with the SEC and 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 Hilltop Securities Asset Management, LLC is a registered investment adviser under the Investment Advisers Act of 1940.

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

In addition, Hilltop owns 100% of the membership interest in each of HTH Hillcrest Project LLC (“HTH Project LLC”) and Hilltop Investments I, LLC. Hilltop Investments I, LLC owns 50% of the membership interest in HTH Diamond Hillcrest Land LLC (“Hillcrest Land LLC”) which is consolidated under the aforementioned VIE Subsections of the ASC. These entities are related to the Hilltop Plaza investment discussed in detail in Note 13 to the consolidated financial statements and are collectively referred to as the “Hilltop Plaza Entities.”

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.

Certain reclassifications have been made to the prior period consolidated financial statements to conform with the current period presentation, including reclassifications due to the adoption of new accounting pronouncements. In preparing these consolidated financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all stockholders and other financial statement users, or filed with the SEC.

Significant accounting policies are detailed in Note 1 to the consolidated financial statements included in the Company’s 2018 Form 10-K. As a result of the adoption of ASU 2016-02 and related amendments and technical corrections (collectively, the “Leasing Standard”), the Company has included a new significant accounting policy related to lease accounting as summarized below.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases with a term of greater than one year are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Company’s consolidated balance sheets. Finance leases are included in premises and equipment and other liabilities on the Company’s consolidated balance sheets. The Company has lease agreements with lease and nonlease components, which are generally accounted for as a single lease component. Leases of low-value assets are assessed on a lease-by-lease basis to determine the need for balance sheet capitalization.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate commensurate with the lease term based on the information available at the lease commencement date in determining the present value of lease payments. No significant judgments or assumptions were involved in developing the estimated operating lease liabilities as the Company’s operating lease liabilities largely represent the future rental expenses associated with operating leases, and the incremental borrowing rates are based on publicly available interest rates. The operating lease

ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease. These options to extend or terminate are assessed on a lease-by-lease basis, and the ROU assets and lease liabilities are adjusted when it is reasonably certain that an option will be exercised. Rental expense for lease payments is recognized on a straight-line basis over the lease term and is included in occupancy and equipment, net within our consolidated statements of operations.

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Regulatory Matters - Insurance Subsidiaries (Details) - Texas Department of Insurance - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
NLIC
Insurance
Statutory capital and surplus	$ 63,586		$ 63,586		$ 78,637
Statutory net income	4,797	$ 5,442	4,388	$ 6,576
ASIC
Insurance
Statutory capital and surplus	19,463		19,463		$ 17,908
Statutory net income	$ 470	$ (2,765)	$ 1,186	$ (1,482)

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Securities

9 Months Ended

Sep. 30, 2019

Securities

Securities

5. Securities

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

	September 30,		December 31,
	2019		2018
U.S. Treasury securities	$	6,561	$	7,945
U.S. government agencies:
Bonds		8,316		1,494
Residential mortgage-backed securities		152,582		309,455
Commercial mortgage-backed securities		2,177		4,239
Collateralized mortgage obligations		281,561		206,813
Corporate debt securities		52,257		59,293
States and political subdivisions		160,244		126,748
Unit investment trusts		31,567		19,913
Private-label securitized product		7,830		5,680
Other		4,173		3,886
Totals	$	707,268	$	745,466

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 obligations 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 sheets, had a value of $59.2 million and $81.7 million at September 30, 2019 and December 31, 2018, respectively.

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

	Available for Sale
	Amortized		Unrealized		Unrealized
September 30, 2019	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	9,864	$	216	$	(5)	$	10,075
U.S. government agencies:
Bonds		85,208		1,212		(3)		86,417
Residential mortgage-backed securities		487,487		7,006		(137)		494,356
Commercial mortgage-backed securities		11,541		678		—		12,219
Collateralized mortgage obligations		308,941		4,103		(499)		312,545
Corporate debt securities		44,841		1,973		—		46,814
States and political subdivisions		40,110		1,316		(2)		41,424
Totals	$	987,992	$	16,504	$	(646)	$	1,003,850

	Available for Sale
	Amortized		Unrealized		Unrealized
December 31, 2018	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	11,552	$	30	$	(44)	$	11,538
U.S. government agencies:
Bonds		85,492		552		(433)		85,611
Residential mortgage-backed securities		391,428		608		(6,962)		385,074
Commercial mortgage-backed securities		11,703		189		(120)		11,772
Collateralized mortgage obligations		281,450		385		(5,436)		276,399
Corporate debt securities		53,614		268		(580)		53,302
States and political subdivisions		51,560		608		(206)		51,962
Totals	$	886,799	$	2,640	$	(13,781)	$	875,658

	Held to Maturity
	Amortized		Unrealized		Unrealized
September 30, 2019	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	9,990	$	5	$	—	$	9,995
U.S. government agencies:
Bonds		24,020		11		(7)		24,024
Residential mortgage-backed securities		18,914		259		—		19,173
Commercial mortgage-backed securities		140,875		4,924		(50)		145,749
Collateralized mortgage obligations		122,061		431		(583)		121,909
States and political subdivisions		55,501		1,064		(78)		56,487
Totals	$	371,361	$	6,694	$	(718)	$	377,337

	Held to Maturity
	Amortized		Unrealized		Unrealized
December 31, 2018	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	9,903	$	3	$	—	$	9,906
U.S. government agencies:
Bonds		39,018		—		(1,479)		37,539
Residential mortgage-backed securities		21,903		—		(263)		21,640
Commercial mortgage-backed securities		87,065		271		(1,462)		85,874
Collateralized mortgage obligations		142,474		—		(5,000)		137,474
States and political subdivisions		50,649		91		(2,049)		48,691
Totals	$	351,012	$	365	$	(10,253)	$	341,124

Additionally, the Company had unrealized net gains of $0.6 million and unrealized net losses of $0.9 million from equity securities with fair values of $19.5 million and $19.7 million held at September 30, 2019 and December 31, 2018,

respectively. The Company recognized net losses of $0.1 million and net gains of $0.1 million during the three months ended September 30, 2019 and 2018, respectively, and net gains of $1.4 million and net losses of $0.4 million during the nine months ended September 30, 2019 and 2018, respectively, due to changes in the fair value of equity securities still held at the balance sheet date. During the three and nine months ended September 30, 2019 and 2018, net gains recognized from equity securities sold were nominal.

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).

	September 30, 2019					December 31, 2018
	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	—	$	—	$	—	1	$	981	$	6
Unrealized loss for twelve months or longer	1		1,893		5	3		3,556		39
	1		1,893		5	4		4,537		45
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	—		—		—	3		24,772		5
Unrealized loss for twelve months or longer	1		9,997		3	3		30,472		428
	1		9,997		3	6		55,244		433
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	4		26,128		39	8		66,791		432
Unrealized loss for twelve months or longer	3		14,951		98	27		194,228		6,530
	7		41,079		137	35		261,019		6,962
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	—		—		—	—		—		—
Unrealized loss for twelve months or longer	—		—		—	1		4,953		120
	—		—		—	1		4,953		120
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	11		64,055		191	11		44,394		498
Unrealized loss for twelve months or longer	12		49,027		308	28		140,483		4,938
	23		113,082		499	39		184,877		5,436
Corporate debt securities:
Unrealized loss for less than twelve months	—		—		—	8		16,256		282
Unrealized loss for twelve months or longer	—		—		—	8		15,665		297
	—		—		—	16		31,921		579
States and political subdivisions:
Unrealized loss for less than twelve months	1		545		1	29		8,590		27
Unrealized loss for twelve months or longer	1		484		1	18		9,029		179
	2		1,029		2	47		17,619		206
Total available for sale:
Unrealized loss for less than twelve months	16		90,728		231	60		161,784		1,250
Unrealized loss for twelve months or longer	18		76,352		415	88		398,386		12,531
	34	$	167,080	$	646	148	$	560,170	$	13,781

	September 30, 2019					December 31, 2018
	Number of			Unrealized		Number of			Unrealized
	Securities	Fair Value		Losses		Securities	Fair Value		Losses
Held to Maturity
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	2	$	9,693	$	7	—	$	—	$	—
Unrealized loss for twelve months or longer	—		—		—	4		37,539		1,479
	2		9,693		7	4		37,539		1,479
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	—		—		—	1		8,411		89
Unrealized loss for twelve months or longer	—		—		—	3		13,229		174
	—		—		—	4		21,640		263
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	2		9,767		50	1		4,973		27
Unrealized loss for twelve months or longer	—		—		—	13		59,670		1,435
	2		9,767		50	14		64,643		1,462
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	4		10,093		43	1		2,051		26
Unrealized loss for twelve months or longer	9		63,128		540	24		135,423		4,974
	13		73,221		583	25		137,474		5,000
States and political subdivisions:
Unrealized loss for less than twelve months	16		7,108		46	9		6,431		56
Unrealized loss for twelve months or longer	4		1,102		32	86		32,909		1,993
	20		8,210		78	95		39,340		2,049
Total held to maturity:
Unrealized loss for less than twelve months	24		36,661		146	12		21,866		198
Unrealized loss for twelve months or longer	13		64,230		572	130		278,770		10,055
	37	$	100,891	$	718	142	$	300,636	$	10,253

During the three and nine months ended September 30, 2019 and 2018, the Company did not record any other-than-temporary impairment (“OTTI”). While some of the securities held in the Company’s investment portfolio have decreased in value since the date of acquisition, the severity of loss and the duration of the loss position are not significant enough to warrant OTTI of the securities. 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. The Company does not intend to sell, nor does the Company believe that it is 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 equity securities, at September 30, 2019 are shown by contractual maturity below (in thousands).

	Available for Sale				Held to Maturity
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	35,701	$	35,719	$	9,990	$	9,995
Due after one year through five years		88,540		91,393		25,969		25,987
Due after five years through ten years		37,858		38,873		5,543		5,598
Due after ten years		17,924		18,745		48,009		48,926
		180,023		184,730		89,511		90,506
Residential mortgage-backed securities		487,487		494,356		18,914		19,173
Collateralized mortgage obligations		308,941		312,545		122,061		121,909
Commercial mortgage-backed securities		11,541		12,219		140,875		145,749
	$	987,992	$	1,003,850	$	371,361	$	377,337

The Company recognized net gains of $4.4 million and $3.2 million from its trading portfolio during the three months ended September 30, 2019 and 2018, respectively, and $15.1 million and $5.1 million during the nine months ended September 30, 2019 and 2018, respectively. In addition, the Hilltop Broker-Dealers realized net gains from structured

product trading activities of $43.3 million and $12.2 million during the three months ended September 30, 2019 and 2018, respectively, and $99.0 million and $29.7 million during the nine months ended September 30, 2019 and 2018, respectively. During both the three and nine months ended September 30, 2019, the Company had other realized losses on securities of $2.6 million. All such realized net gains and losses are recorded as a component of other noninterest income within the consolidated statements of operations.

Securities with a carrying amount of $573.2 million and $612.3 million (with a fair value of $581.5 million and $600.0 million, respectively) at September 30, 2019 and December 31, 2018, respectively, were pledged by the Bank 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 September 30, 2019 and December 31, 2018.

Mortgage-backed securities and collateralized mortgage obligations consist primarily 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 September 30, 2019 and December 31, 2018, NLC had investments on deposit in custody for various state insurance departments with aggregate carrying values of $9.3 million and $9.5 million, respectively.

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Stock-Based Compensation - RSU Activity (Details) - 2012 Plan - RSUs shares in Thousands	9 Months Ended
	Sep. 30, 2019 $ / shares shares
Number of shares outstanding
Balance at the beginning of the period ( in shares) | shares	1,270
Granted (in shares) | shares	592
Vested/Released (in shares) | shares	(488)
Forfeited (in shares) | shares	(43)
Balance at the end of the period ( in shares) | shares	1,331
Weighted Average Grant Date Fair Value
Balance at the beginning of the period (in dollars per share) | $ / shares	$ 22.44
Grant date fair value (in dollars per share) | $ / shares	19.30
Vested/Released (in dollars per share) | $ / shares	18.08
Forfeited (in dollars per share) | $ / shares	24.79
Balance at the end of the period (in dollars per share) | $ / shares	$ 22.57

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Short-term Borrowings

9 Months Ended

Sep. 30, 2019

Short-term Borrowings

Short-term Borrowings

9. Short-term Borrowings

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

	September 30,		December 31,
	2019		2018
Federal funds purchased	$	72,200	$	100,100
Securities sold under agreements to repurchase		514,055		576,707
Federal Home Loan Bank		700,000		200,000
Short-term bank loans		216,500		189,000
	$	1,502,755	$	1,065,807

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 other 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).

	Nine Months Ended September 30,
	2019			2018
Average balance during the period	$	609,162		$	683,835
Average interest rate during the period		2.57	%		1.76	%
	September 30,			December 31,
	2019			2018
Average interest rate at end of period		2.52	%		2.43	%
Securities underlying the agreements at end of period:
Carrying value	$	519,875		$	587,609
Estimated fair value	$	554,107		$	618,231

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).

	Nine Months Ended September 30,
	2019			2018
Average balance during the period	$	280,824		$	253,022
Average interest rate during the period		2.34	%		2.04	%
		September 30,			December 31,
		2019			2018
Average interest rate at end of period		1.91	%		2.65	%

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 September 30, 2019 and December 31, 2018 was 2.76% and 3.35%, respectively.

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Summary of Significant Accounting and Reporting Policies (Policies)

9 Months Ended

Sep. 30, 2019

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, headquartered in Dallas, Texas, provides its products and services through three primary business units, PlainsCapital Corporation (“PCC”), Hilltop Securities Holdings LLC (“Securities Holdings”) and National Lloyds Corporation (“NLC”). PCC is a financial holding company 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 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 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.

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, 2018 (“2018 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, 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 PCC. PCC owns 100% of the outstanding stock of the Bank and 100% of the membership interest in Hilltop Opportunity Partners LLC, a merchant bank utilized to facilitate investments in companies engaged in non-financial activities. The Bank owns 100% of the outstanding stock of PrimeLending, a PlainsCapital Company (“PrimeLending”).

PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC (“Ventures Management”), which holds an ownership interest in and is the managing member of certain affiliated business arrangements (“ABAs”).

PCC 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

(“VIE”) 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 Inc. (“Hilltop Securities”), Hilltop Securities Independent Network Inc. (“HTS Independent Network”) (collectively, the “Hilltop Broker-Dealers”) and Hilltop Securities Asset Management, LLC. Hilltop Securities is a broker-dealer registered with the SEC and 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 Hilltop Securities Asset Management, LLC is a registered investment adviser under the Investment Advisers Act of 1940.

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

In addition, Hilltop owns 100% of the membership interest in each of HTH Hillcrest Project LLC (“HTH Project LLC”) and Hilltop Investments I, LLC. Hilltop Investments I, LLC owns 50% of the membership interest in HTH Diamond Hillcrest Land LLC (“Hillcrest Land LLC”) which is consolidated under the aforementioned VIE Subsections of the ASC. These entities are related to the Hilltop Plaza investment discussed in detail in Note 13 to the consolidated financial statements and are collectively referred to as the “Hilltop Plaza Entities.”

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.

Certain reclassifications have been made to the prior period consolidated financial statements to conform with the current period presentation, including reclassifications due to the adoption of new accounting pronouncements. In preparing these consolidated financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all stockholders and other financial statement users, or filed with the SEC.

Significant accounting policies are detailed in Note 1 to the consolidated financial statements included in the Company’s 2018 Form 10-K. As a result of the adoption of ASU 2016-02 and related amendments and technical corrections (collectively, the “Leasing Standard”), the Company has included a new significant accounting policy related to lease accounting as summarized below.

Leases

Leases

The Company determines if an arrangement is a lease at inception. Operating leases with a term of greater than one year are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Company’s consolidated balance sheets. Finance leases are included in premises and equipment and other liabilities on the Company’s consolidated balance sheets. The Company has lease agreements with lease and nonlease components, which are generally accounted for as a single lease component. Leases of low-value assets are assessed on a lease-by-lease basis to determine the need for balance sheet capitalization.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate commensurate with the lease term based on the information available at the lease commencement date in determining the present value of lease payments. No significant judgments or assumptions were involved in developing the estimated operating lease liabilities as the Company’s operating lease liabilities largely represent the future rental expenses associated with operating leases, and the incremental borrowing rates are based on publicly available interest rates. The operating lease

ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease. These options to extend or terminate are assessed on a lease-by-lease basis, and the ROU assets and lease liabilities are adjusted when it is reasonably certain that an option will be exercised. Rental expense for lease payments is recognized on a straight-line basis over the lease term and is included in occupancy and equipment, net within our consolidated statements of operations.

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Reinsurance Activity

9 Months Ended

Sep. 30, 2019

Reinsurance Activity

Reinsurance Activity

22. Reinsurance Activity

NLC limits the maximum net loss that can arise from large risks or risks in concentrated areas of exposure by reinsuring (ceding) certain levels of risk. Substantial amounts of business are ceded, and these reinsurance contracts do not relieve NLC from its obligations to policyholders. Such reinsurance includes quota share, excess of loss, catastrophe, and other forms of reinsurance on essentially all property and casualty lines of insurance. Net insurance premiums earned, losses and LAE and policy acquisition and other underwriting expenses are reported net of the amounts related to reinsurance ceded to other companies. Amounts recoverable from reinsurers related to the portions of the liability for losses and LAE and unearned insurance premiums ceded to them are reported as assets. Failure of reinsurers to honor their obligations could result in losses to NLC; consequently, allowances are established for amounts deemed uncollectible as NLC evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. At September 30, 2019, total reinsurance recoverables and receivables had a carrying value of $1.1 million, which is included in other assets within the consolidated balance sheets. There was no allowance for uncollectible accounts at September 30, 2019, based on NLC’s quality requirements.

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
	Written		Earned		Written		Earned		Written		Earned		Written		Earned
Premiums from direct business	$	31,269	$	31,698	$	32,738	$	33,399	$	97,621	$	95,161	$	101,624	$	100,139
Reinsurance assumed		3,440		3,289		3,414		3,181		10,191		9,736		10,023		9,292
Reinsurance ceded		(2,333)		(2,333)		(2,353)		(2,395)		(5,574)		(5,574)		(6,698)		(6,826)
Net premiums	$	32,376	$	32,654	$	33,799	$	34,185	$	102,238	$	99,323	$	104,949	$	102,605

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Losses and LAE incurred	$	14,508	$	19,158	$	53,450	$	56,479
Reinsurance recoverables		169		(446)		1,134		2,174
Net loss and LAE incurred	$	14,677	$	18,712	$	54,584	$	58,653

Catastrophic coverage

Effective July 1, 2019, NLC renewed its catastrophic excess of loss reinsurance coverage for a one-year period. At September 30, 2019, NLC had catastrophic excess of loss reinsurance coverage of losses per event in excess of $8 million retention by NLIC and $2 million retention by ASIC. ASIC maintained an underlying layer of coverage, providing $6 million of reinsurance coverage in excess of its $2 million retention to bridge to the primary program. The reinsurance for NLIC and ASIC in excess of $8 million is comprised of three layers of protection: $12 million in excess of $8 million retention and/or loss; $25 million in excess of $20 million loss; and $50 million in excess of $45 million loss. NLIC and ASIC retain no participation in any of the layers, beyond the first $8 million and $2 million, respectively. At September 30, 2019, total retention for any one catastrophe that affects both NLIC and ASIC was limited to $8 million in the aggregate.

Effective January 1, 2019, NLC renewed its underlying excess of loss contract that provides $10 million aggregate coverage in excess of NLC’s per event retention of $1 million and aggregate retention of $15 million for sub-catastrophic events. As of January 1, 2019, NLC retains 37.5% participation in this coverage, up from 17.5% participation during 2018.

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Reinsurance Activity (Tables)

9 Months Ended

Sep. 30, 2019

Reinsurance Activity

Schedule of effects of reinsurance on premiums written and earned

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
	Written		Earned		Written		Earned		Written		Earned		Written		Earned
Premiums from direct business	$	31,269	$	31,698	$	32,738	$	33,399	$	97,621	$	95,161	$	101,624	$	100,139
Reinsurance assumed		3,440		3,289		3,414		3,181		10,191		9,736		10,023		9,292
Reinsurance ceded		(2,333)		(2,333)		(2,353)		(2,395)		(5,574)		(5,574)		(6,698)		(6,826)
Net premiums	$	32,376	$	32,654	$	33,799	$	34,185	$	102,238	$	99,323	$	104,949	$	102,605

Schedule of effects of reinsurance on incurred losses

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Losses and LAE incurred	$	14,508	$	19,158	$	53,450	$	56,479
Reinsurance recoverables		169		(446)		1,134		2,174
Net loss and LAE incurred	$	14,677	$	18,712	$	54,584	$	58,653

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Recently Issued Accounting Standards (Details) - USD ($) $ in Thousands		9 Months Ended
	Jan. 01, 2019	Sep. 30, 2019	Jan. 01, 2020
Recent Accounting Pronouncements
Operating lease liabilities		$ 131,133
Operating lease right-of-use assets		121,838
Deferred expenses recognized, recorded as an increase to retained earnings		$ 1,393
ASU 2016-02 | Restatement
Recent Accounting Pronouncements
Operating lease liabilities	$ 121,800
Operating lease right-of-use assets	111,900
Deferred expenses recognized, recorded as an increase to retained earnings	$ 1,400
ASU 2016-13 | Forecast adjustment | Minimum
Recent Accounting Pronouncements
Allowance for credit losses			$ 80,000
ASU 2016-13 | Forecast adjustment | Maximum
Recent Accounting Pronouncements
Allowance for credit losses			$ 110,000

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Loans Held for Investment and Allowance for Loan Losses - PCI Loans (Details) - PCI loans - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Carrying values and the outstanding contractual balances of the PCI loans
Carrying amount	$ 84,205		$ 84,205		$ 93,072
Outstanding balance	147,926		147,926		172,808
Changes in the accretable yield for the acquired impaired loans
Balance, beginning of year	69,305	$ 86,652	80,693	$ 98,846
Additions		340		340
Reclassifications from nonaccretable difference, net	7,183	6,702	12,626	16,967
Disposals of loans	(132)		(835)	(98)
Accretion	(8,614)	(8,491)	(24,742)	(30,005)
Transfer of loans to OREO		(142)		(989)
Balance, end of year	67,742	$ 85,061	67,742	$ 85,061
Nonaccretable difference	$ 53,600		$ 53,600		$ 64,200

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Notes Payable (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Debt Instrument
Notes payable	$ 245,341	$ 228,872
Senior Notes due April 2025
Debt Instrument
Notes payable	148,727	148,607
Unamortized discount	1,273	1,393
FHLB notes
Debt Instrument
Notes payable	3,943	4,391
Unamortized premium	163	222
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
Ventures Management line of credit
Debt Instrument
Notes payable	$ 65,171	$ 48,374

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Mortgage Servicing Rights (Details) - MSR - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Change in fair value of mortgage servicing rights
Balance, beginning of year	$ 53,695	$ 57,373	$ 66,102	$ 54,714	$ 54,714
Additions	4,166	11,361	8,574	21,090
Sales				(9,303)
Changes in fair value: Due to changes in model inputs or assumptions	(3,769)	1,311	(17,541)	5,984
Changes in fair value: Due to customer payoffs	(2,795)	(1,241)	(5,838)	(3,681)
Balance, end of year	51,297	$ 68,804	51,297	$ 68,804	66,102
Mortgage loans serviced for others	$ 4,969,855		$ 4,969,855		$ 5,086,461
MSR asset as a percentage of serviced mortgage loans	1.03%		1.03%		1.30%
Key Assumptions
Weighted average constant prepayment rate (as a percent)			14.40%		10.51%
Weighted average discount rate (as a percent)			11.13%		11.11%
Weighted average life (in years)			5 years 7 months 6 days		7 years 1 month 6 days

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Securities - AFS Contractual Maturities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
AFS, Amortized Cost, Rolling Maturity
Due in one year or less	$ 35,701
Due after one year through five years	88,540
Due after five years through ten years	37,858
Due after ten years	17,924
Total	180,023
Total amortized cost	987,992	$ 886,799
AFS, Fair Value, Rolling Maturity
Due in one year or less	35,719
Due after one year through five years	91,393
Due after five years through ten years	38,873
Due after ten years	18,745
Total	184,730
Fair Value	1,003,850	875,658
Residential Mortgage Backed Securities
AFS, Amortized Cost, Rolling Maturity
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	487,487
Total amortized cost	487,487	391,428
AFS, Fair Value, Rolling Maturity
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	494,356
Fair Value	494,356	385,074
Collateralized Mortgage Obligations
AFS, Amortized Cost, Rolling Maturity
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	308,941
Total amortized cost	308,941	281,450
AFS, Fair Value, Rolling Maturity
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	312,545
Fair Value	312,545	$ 276,399
Commercial Mortgage Backed Securities
AFS, Amortized Cost, Rolling Maturity
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	11,541
AFS, Fair Value, Rolling Maturity
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	$ 12,219

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Securities - Trading Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Schedule of fair value of trading securities
Debt Securities, Trading	$ 707,268	$ 745,466
Investment-related Liabilities
Securities sold, not yet purchased, at fair value	59,249	81,667
US Treasury Securities
Schedule of fair value of trading securities
Debt Securities, Trading	6,561	7,945
Bonds
Schedule of fair value of trading securities
Debt Securities, Trading	8,316	1,494
Residential Mortgage Backed Securities
Schedule of fair value of trading securities
Debt Securities, Trading	152,582	309,455
Commercial mortgage-backed securities
Schedule of fair value of trading securities
Debt Securities, Trading	2,177	4,239
Collateralized Mortgage Obligations
Schedule of fair value of trading securities
Debt Securities, Trading	281,561	206,813
Corporate debt securities
Schedule of fair value of trading securities
Debt Securities, Trading	52,257	59,293
States and political subdivisions
Schedule of fair value of trading securities
Debt Securities, Trading	160,244	126,748
Unit investment trusts
Schedule of fair value of trading securities
Debt Securities, Trading	31,567	19,913
Private-label securitized product
Schedule of fair value of trading securities
Debt Securities, Trading	7,830	5,680
Other
Schedule of fair value of trading securities
Debt Securities, Trading	$ 4,173	$ 3,886

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Loans Held for Investment and Allowance for Loan Losses - TDRs (Details) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019 USD ($) loan	Sep. 30, 2018 loan	Sep. 30, 2019 USD ($) item loan	Sep. 30, 2018 loan	Sep. 30, 2018 USD ($) loan
TDRs, Non-covered loans
Number of TDR loans granted | loan		0		0
Number of TDRs granted in preceding twelve months for which payment was at least 30 days past due | loan			0
AB Note | Minimum | PlainsCapital (the Bank)
TDRs, Non-covered loans
Number of loans into which a single loan may be reconfigured | item			2
Payment Term Extension
TDRs, Non-covered loans
Number of TDR loans granted | loan	2		5
Number of TDRs granted in preceding twelve months for which payment was at least 30 days past due | loan					1
TDR at extension	$ 1,640		$ 9,632		$ 3,294
TDR modifications, end of period	$ 1,587		$ 9,113
TDR with payment at least 30 days past due					$ 3,130
Owner occupied | Payment Term Extension
TDRs, Non-covered loans
Number of TDRs granted in preceding twelve months for which payment was at least 30 days past due | loan					1
TDR at extension					$ 3,294
TDR with payment at least 30 days past due					$ 3,130
Commercial and Industrial | Payment Term Extension
TDRs, Non-covered loans
Number of TDR loans granted | loan	2		5
TDR at extension	$ 1,640		$ 9,632
TDR modifications, end of period	$ 1,587		$ 9,113

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Deposits

9 Months Ended

Sep. 30, 2019

Deposits

Deposits

8. Deposits

Deposits are summarized as follows (in thousands).

	September 30,		December 31,
	2019		2018
Noninterest-bearing demand	$	2,732,325	$	2,560,750
Interest-bearing:
NOW accounts		1,393,216		1,358,196
Money market		2,584,244		2,725,541
Brokered - money market		5,000		5,000
Demand		318,484		393,685
Savings		187,433		184,700
Time		1,510,170		1,308,284
	$	8,730,872	$	8,536,156

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Reconciliation of Cash, Cash Equivalents and Restricted Cash to Consolidated Balance Sheets
Cash and due from banks	$ 326,129	$ 644,073	$ 405,682
Federal funds sold	423	400	468
Assets segregated for regulatory purposes	83,878	133,993	220,115
Total cash, cash equivalents and restricted cash	$ 410,430	$ 778,466	$ 626,265	$ 673,960

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Stockholders' Equity (Details) - USD ($) $ / shares in Units, $ in Thousands			3 Months Ended		9 Months Ended
	Oct. 24, 2019	Aug. 20, 2019	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Jan. 31, 2019
Stock repurchase program
Cash dividends declared per common share	$ 0.08		$ 0.08	$ 0.07	$ 0.24	$ 0.21
Cash dividends paid					$ 22,400	$ 20,100
Repurchase common stock authorized amount							$ 50,000
Payments to repurchase shares					$ 73,385	38,821
Repurchase of common stock (in shares)					3,390,247
Purchase price value of common stock			$ 48,405		$ 73,385	$ 38,821
Average price (per share)					$ 21.64
Securities Purchase Agreement
Stock repurchase program
Repurchase of common stock (in shares)		2,175,404
Purchase price value of common stock		$ 48,400
Average price (per share)		$ 22.25

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Fair Value Measurements

9 Months Ended

Sep. 30, 2019

Fair Value Measurements

Fair Value Measurements

4. 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 includes 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 September 30, 2019 and December 31, 2018, the aggregate fair value of PrimeLending’s mortgage loans held for sale accounted for under the Fair Value Option was $1.85 billion and $1.26 billion, respectively, and the unpaid principal balance of those loans was $1.80 billion and $1.21 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 fair value of loans held for sale is determined using an exit price method.

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

	Level 1		Level 2		Level 3		Total
September 30, 2019	Inputs		Inputs		Inputs		Fair Value
Trading securities	$	6,562	$	700,706	$	—	$	707,268
Available for sale securities		—		1,003,850		—		1,003,850
Equity securities		19,494		—		—		19,494
Loans held for sale		—		1,792,321		60,904		1,853,225
Derivative assets		—		40,791		—		40,791
MSR asset		—		—		51,297		51,297
Securities sold, not yet purchased		33,454		25,795		—		59,249
Derivative liabilities		—		6,083		—		6,083

	Level 1		Level 2		Level 3			Total
December 31, 2018	Inputs		Inputs		Inputs			Fair Value
Trading securities	$	7,947	$	737,519	$	—	$	745,466
Available for sale securities		—		875,658		—		875,658
Equity securities		19,679		—		—		19,679
Loans held for sale		—		1,207,311		50,464		1,257,775
Derivative assets		—		35,010		—		35,010
MSR asset		—		—		66,102		66,102
Securities sold, not yet purchased		33,000		48,667		—		81,667
Derivative liabilities		—		26,355		—		26,355

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/		Transfers to		Included in		Comprehensive		Balance at
	Period		Additions		Reductions		(from) Level 3		Net Income		Income (Loss)		End of Period
Three months ended September 30, 2019
Loans held for sale	$	56,799	$	15,347	$	(9,364)	$	711	$	(2,589)	$	—	$	60,904
MSR asset		53,695		4,166		—		—		(6,564)		—		51,297
Total	$	110,494	$	19,513	$	(9,364)	$	711	$	(9,153)	$	—	$	112,201
Nine months ended September 30, 2019
Loans held for sale	$	50,464	$	44,827	$	(27,448)	$	1,136	$	(8,075)	$	—	$	60,904
MSR asset		66,102		8,574		—		—		(23,379)		—		51,297
Total	$	116,566	$	53,401	$	(27,448)	$	1,136	$	(31,454)	$	—	$	112,201
Three months ended September 30, 2018
Loans held for sale	$	40,781	$	19,156	$	(4,614)		—	$	(958)	$	—	$	54,365
MSR asset		57,373		11,361		—		—		70		—		68,804
Total	$	98,154	$	30,517	$	(4,614)	$	—	$	(888)	$	—	$	123,169
Nine months ended September 30, 2018
Loans held for sale	$	36,972	$	39,706	$	(17,127)		—	$	(5,186)	$	—	$	54,365
MSR asset		54,714		21,090		(9,303)		—		2,303		—		68,804
Total	$	91,686	$	60,796	$	(26,430)	$	—	$	(2,883)	$	—	$	123,169

All net realized and unrealized gains (losses) in the tables above are reflected in the accompanying consolidated financial statements. The unrealized gains (losses) relate to financial instruments still held at September 30, 2019.

For Level 3 financial instruments measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018, the significant unobservable inputs used in the fair value measurements were as follows.

			Range (Weighted-Average)
			September 30,							December 31,
Financial instrument	Valuation Technique	Unobservable Inputs	2019							2018
Loans held for sale	Discounted cash flows / Market comparable	Projected price	92	-	96	%	(	95	%)	95	-	96	%	(	95	%)
MSR asset	Discounted cash flows	Constant prepayment rate			14.40		%					10.51		%
		Discount rate			11.13		%					11.11		%

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 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 reported at fair value using Level 3 inputs. The MSR asset 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. Any transfers are based on changes in the observability and/or significance of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which they occur.

The following table presents those changes in fair value of instruments recognized in the consolidated statements of operations that are accounted for under the Fair Value Option (in thousands).

	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
			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	$	4,117	$	—	$	4,117	$	(20,417)	$	—	$	(20,417)
MSR asset		(6,564)		—		(6,564)		70		—		70

	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
			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	$	7,972	$	—	$	7,972	$	(12,693)	$	—	$	(12,693)
MSR asset		(23,379)		—		(23,379)		2,303		—		2,303

The Company also determines the fair value of certain assets and liabilities on a non-recurring basis. In particular, the fair value of all assets acquired and liabilities assumed in an acquisition of a business are determined at their respective acquisition date fair values. 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 individually impaired loans based on the underlying fair value of the collateral through specific allowances within the allowance for loan losses. PCI loans were acquired by the Company upon completion of the merger with PCC (the “PlainsCapital Merger”), the FDIC-assisted transaction whereby the Bank acquired certain assets and assumed certain liabilities of Edinburg, Texas-based First National Bank (“FNB”) on September 13, 2013 (the “FNB Transaction”), the acquisition of SWS Group, Inc. (“SWS”) in a stock and cash transaction (the "SWS Merger"), whereby SWS’s banking subsidiary, Southwest Securities, FSB, was merged into the Bank, and the BORO Acquisition (collectively, the “Bank Transactions”). 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.

Estimates for these significant unobservable inputs and the resulting weighted average expected loss on PCI loans were as follows.

	PCI Loans
	PlainsCapital		FNB		SWS		BORO
September 30, 2019	Merger		Transaction		Merger		Acquisition
Weighted average default rate	84	%	30	%	66	%	59	%
Weighted average loss severity rate	58	%	12	%	28	%	43	%
Weighted average prepayment speed	0	%	5	%	0	%	0	%
Resulting weighted average expected loss on PCI loans	49	%	4	%	18	%	25	%
	PCI Loans
	PlainsCapital		FNB		SWS		BORO
December 31, 2018	Merger		Transaction		Merger		Acquisition
Weighted average default rate	81	%	34	%	71	%	63	%
Weighted average loss severity rate	59	%	12	%	28	%	42	%
Weighted average prepayment speed	0	%	6	%	0	%	0	%
Resulting weighted average expected loss on PCI loans	48	%	4	%	20	%	26	%

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 inputs. At September 30, 2019 and December 31, 2018, the estimated fair value of OREO was $18.7 million and $27.6 million, respectively, and the underlying fair value measurements utilized Level 2 inputs. The amounts are included in other assets within the consolidated balance sheets. During the reported periods, all fair value measurements for 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				Total Gains (Losses) for the
	Level 1		Level 2		Level 3		Total		Three Months Ended September 30,				Nine Months Ended September 30,
September 30, 2019	Inputs		Inputs		Inputs		Fair Value		2019		2018		2019		2018
Impaired loans held for investment	$	—	$	—	$	67,097	$	67,097	$	(1,730)	$	668	$	(2,925)	$	(57)
Other real estate owned		—		12,112		—		12,112		(177)		(394)		(790)		(2,194)

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. There have been changes to the methods for determining estimated fair value for financial assets and liabilities as described in detail in Note 3 to the consolidated financial statements included in the Company’s 2018 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
September 30, 2019	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and cash equivalents	$	326,552	$	326,552	$	—	$	—	$	326,552
Assets segregated for regulatory purposes		83,878		83,878		—		—		83,878
Securities purchased under agreements to resell		49,998		—		49,998		—		49,998
Held to maturity securities		371,361		—		377,337		—		377,337
Loans held for sale		131,006		—		131,006		—		131,006
Loans held for investment, net		7,265,604		—		558,144		6,930,261		7,488,405
Broker-dealer and clearing organization receivables		1,731,979		—		1,731,979		—		1,731,979
Other assets		70,975		—		69,889		1,086		70,975
Financial liabilities:
Deposits		8,730,872		—		8,732,668		—		8,732,668
Broker-dealer and clearing organization payables		1,546,163		—		1,546,163		—		1,546,163
Short-term borrowings		1,502,755		—		1,502,755		—		1,502,755
Debt		312,353		—		310,129		—		310,129
Other liabilities		9,084		—		9,084		—		9,084

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
December 31, 2018	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and cash equivalents	$	644,473	$	644,473	$	—	$	—	$	644,473
Assets segregated for regulatory purposes		133,993		133,993		—		—		133,993
Securities purchased under agreements to resell		61,611		—		61,611		—		61,611
Held to maturity securities		351,012		—		341,124		—		341,124
Loans held for sale		135,471		—		135,471		—		135,471
Loans held for investment, net		6,870,972		—		578,363		6,445,810		7,024,173
Broker-dealer and clearing organization receivables		1,440,287		—		1,440,287		—		1,440,287
Other assets		69,720		—		68,573		1,147		69,720
Financial liabilities:
Deposits		8,536,156		—		8,528,947		—		8,528,947
Broker-dealer and clearing organization payables		1,294,925		—		1,294,925		—		1,294,925
Short-term borrowings		1,065,807		—		1,065,807		—		1,065,807
Debt		295,884		—		293,685		—		293,685
Other liabilities		3,482		—		3,482		—		3,482

The Company held equity investments other than securities of $36.1 million and $35.8 million at September 30, 2019 and December 31, 2018, respectively, which are included within other assets in the consolidated balance sheets. Of the $36.1 million of such equity investments held at September 30, 2019, $19.7 million do not have readily determinable fair values and each is measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The following table presents the adjustments to the carrying value of these investments during the periods presented (in thousands).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Balance, beginning of period	$	19,906	$	26,151	$	20,376	$	22,946
Additional investments		—		—		—		1,411
Upward adjustments		101		265		303		3,642
Impairments and downward adjustments		(346)		(1)		(1,018)		(1,584)
Dispositions		—		—		—		—
Balance, end of period	$	19,661	$	26,415	$	19,661	$	26,415

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Stock-Based Compensation - Additional Information (Details) - 2012 Plan - RSUs $ in Millions	9 Months Ended
	Sep. 30, 2019 USD ($) shares
Stock based compensation
Vested/Released number of shares withheld to satisfy employee statutory tax obligations (in shares)	99,709
Vested RSUs which require deferral of share settlement and statutory tax obligations	17,692
Number of shares awarded (in shares)	592,000
Number of awards subject to time-based vesting (in shares)	1,093,383
Number of awards vesting upon achievement of performance goals (in shares)	238,145
Performance period	3 years
Vesting period	3 years
Unrecognized compensation expense | $	$ 15.3
Weighted average period for unrecognized compensation expense (in years)	1 year 7 months 28 days
Certain Executives and Key Employees
Stock based compensation
Number of shares awarded (in shares)	583,961
Number of awards subject to time-based vesting (in shares)	485,962
Number of awards vesting upon achievement of performance goals (in shares)	91,249
Performance period	3 years
Vesting period	3 years

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Acquisition (Tables)

9 Months Ended

Sep. 30, 2019

Acquisition

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

The resulting fair values of the identifiable assets acquired and liabilities assumed from BORO at August 1, 2018 are summarized in the following table (in thousands).

Cash and due from banks	$	21,756
Securities		60,477
Loans held for investment		326,618
Other assets		25,912
Total identifiable assets acquired		434,763
Deposits		376,393
Short-term borrowings		10,000
Other liabilities		2,996
Total liabilities assumed		389,389
Net identifiable assets acquired		45,374
Goodwill resulting from the acquisition		39,627
Net assets acquired	$	85,001

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 Loans Held
	PCI Loans		Loans		for Investment
Commercial real estate	$	119,188	$	5,350	$	124,538
1 - 4 family residential		55,487		39		55,526
Construction and land development		37,134		—		37,134
Commercial and industrial		98,259		2,127		100,386
Consumer		9,021		13		9,034
Total	$	319,089	$	7,529	$	326,618

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	$	10,730
Nonaccretable difference		2,859
Cash flows expected to be collected		7,871
Accretable difference		342
Fair value of loans acquired with a deterioration of credit quality	$	7,529

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	$	381,551
Contractual cash flows not expected to be collected		15,286
Fair value at acquisition		319,089

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Schedule I - Insurance Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net Of Reinsurance (Details) $ in Thousands	Sep. 30, 2019 USD ($) claim	Dec. 31, 2018 USD ($)
Incurred losses and allocated loss adjustment expenses, net of reinsurance
Total incurred	$ 297,607
Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
Total paid	279,338
All outstanding reserves prior to 2016, net of reinsurance	134
Reserve for unpaid losses and allocated loss adjustment expenses, net of reinsurance	18,403	$ 16,498
2016
Incurred losses and allocated loss adjustment expenses, net of reinsurance
2016	84,771
2017	85,189
2018	84,076
Total incurred	83,978
Total of incurred but not reported reserves plus expected development on reported claims	$ 272
Cumulative Number of Reported Claims | claim	20,180
Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
2016	$ 71,543
2017	81,682
2018	83,169
Total paid	83,540
2017
Incurred losses and allocated loss adjustment expenses, net of reinsurance
2017	87,899
2018	88,025
Total incurred	87,743
Total of incurred but not reported reserves plus expected development on reported claims	$ 418
Cumulative Number of Reported Claims | claim	20,738
Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
2017	$ 77,675
2018	86,319
Total paid	87,039
2018
Incurred losses and allocated loss adjustment expenses, net of reinsurance
2018	75,217
Total incurred	73,703
Total of incurred but not reported reserves plus expected development on reported claims	$ 2,128
Cumulative Number of Reported Claims | claim	15,290
Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
2018	$ 61,922
Total paid	69,823
2019
Incurred losses and allocated loss adjustment expenses, net of reinsurance
Total incurred	52,183
Total of incurred but not reported reserves plus expected development on reported claims	$ 5,656
Cumulative Number of Reported Claims | claim	11,701
Cumulative paid losses and allocated loss adjustment expenses, net of reinsurance
Total paid	$ 38,936

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Segment and Related Information

9 Months Ended

Sep. 30, 2019

Segment and Related Information

Segment and Related Information

23. 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 chief operating decision maker, the Company’s President and Chief Executive Officer, to evaluate segment performance, develop strategy and allocate resources.

The banking segment includes the operations of the Bank, and since August 1, 2018, the operations acquired in the BORO Acquisition. The broker-dealer segment includes the operations of Securities Holdings, 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, merchant banking investment opportunities and management and administrative services to support the overall operations of the Company.

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 September 30, 2019	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	97,642	$	13,724	$	(2,725)	$	566	$	(1,384)	$	5,389	$	113,212
Provision (recovery) for loan losses		—		47		—		—		—		—		47
Noninterest income		8,856		107,742		194,857		34,896		460		(5,410)		341,401
Noninterest expense		53,767		94,411		160,634		28,923		12,561		(187)		350,109
Income (loss) before income taxes	$	52,731	$	27,008	$	31,498	$	6,539	$	(13,485)	$	166	$	104,457
					Mortgage						All Other and		Hilltop
Nine Months Ended September 30, 2019	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	283,755	$	37,984	$	(4,224)	$	1,802	$	(4,045)	$	14,747	$	330,019
Provision (recovery) for loan losses		355		(29)		—		—		—		—		326
Noninterest income		30,219		304,607		477,438		107,539		1,850		(14,913)		906,740
Noninterest expense		172,744		277,088		417,032		98,850		37,397		(240)		1,002,871
Income (loss) before income taxes	$	140,875	$	65,532	$	56,182	$	10,491	$	(39,592)	$	74	$	233,562
					Mortgage						All Other and		Hilltop
Three Months Ended September 30, 2018	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	94,921	$	12,432	$	363	$	733	$	(3,275)	$	5,167	$	110,341
Provision (recovery) for loan losses		—		(371)		—		—		—		—		(371)
Noninterest income		11,365		82,834		144,400		36,724		523		(6,149)		269,697
Noninterest expense		67,714		85,713		140,006		33,807		8,656		(185)		335,711
Income (loss) before income taxes	$	38,572	$	9,924	$	4,757	$	3,650	$	(11,408)	$	(797)	$	44,698

					Mortgage						All Other and		Hilltop
Nine Months Ended September 30, 2018	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	269,517	$	37,873	$	2,009	$	2,313	$	(7,848)	$	14,745	$	318,609
Provision (recovery) for loan losses		(1,531)		(307)		—		—		—		—		(1,838)
Noninterest income		32,188		224,969		434,262		108,288		1,246		(16,679)		784,274
Noninterest expense		192,626		241,456		420,736		104,532		23,399		(319)		982,430
Income (loss) before income taxes	$	110,610	$	21,693	$	15,535	$	6,069	$	(30,001)	$	(1,615)	$	122,291

					Mortgage						All Other and		Hilltop
	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
September 30, 2019
Goodwill	$	247,368	$	7,008	$	13,071	$	23,988	$	—	$	—	$	291,435
Total assets	$	10,938,112	$	3,368,574	$	2,242,522	$	254,243	$	2,365,800	$	(4,332,222)	$	14,837,029
December 31, 2018
Goodwill	$	247,368	$	7,008	$	13,071	$	23,988	$	—	$	—	$	291,435
Total assets	$	10,004,971	$	3,213,115	$	1,627,134	$	253,513	$	2,243,182	$	(3,658,343)	$	13,683,572

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Reserve for Losses and Loss Adjustment Expenses (Tables)

9 Months Ended

Sep. 30, 2019

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

	September 30,		December 31,
	2019		2018
Reserve for unpaid losses and allocated LAE balance, net	$	18,403	$	16,498
Reinsurance recoverables on unpaid losses		847		3,214
Unallocated LAE		788		840
Reserve for unpaid losses and LAE balance, gross	$	20,038	$	20,552

Summary of claims loss reserve development activity

A summary of claims loss reserve development activity is presented in the following table (dollars in thousands).

					September 30, 2019
					Total of
					IBNR Reserves
					Plus Expected		Cumulative
Accident	Nine Months Ended September 30, 2019				Development on		Number of
Year	Paid		Incurred		Reported Claims		Reported Claims
2016	$	83,540	$	83,978	$	272		20,180
2017		87,039		87,743		418		20,738
2018		69,823		73,703		2,128		15,290
2019		38,936		52,183		5,656		11,701
Total	$	279,338	$	297,607
		134	All outstanding reserves prior to 2016, net of reinsurance
	$	18,403	Reserve for unpaid losses and allocated LAE, net of reinsurance

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Summary of Significant Accounting and Reporting Policies - Basis of Presentation, Ownership (Details)	9 Months Ended
	Sep. 30, 2019 item
Basis of Presentation
Number of primary business units	3
PPC
Basis of Presentation
Ownership percentage	100.00%
Securities Holdings
Basis of Presentation
Ownership percentage	100.00%
NLC
Basis of Presentation
Ownership percentage	100.00%
HTH Hillcrest Project LLC
Basis of Presentation
Membership ownership percentage	100.00%
Hilltop Investments I, LLC
Basis of Presentation
Membership ownership percentage	100.00%
PPC | PlainsCapital (the Bank)
Basis of Presentation
Ownership percentage	100.00%
PPC | Hilltop Opportunity Partners LLC
Basis of Presentation
Membership ownership percentage	100.00%
PPC | PCC Statutory Trusts
Basis of Presentation
Ownership percentage	100.00%
PlainsCapital (the Bank) | Prime Lending
Basis of Presentation
Ownership percentage	100.00%
Prime Lending | Ventures Management
Basis of Presentation
Membership ownership percentage	100.00%
Hilltop Investments I, LLC | Hillcrest Land LLC
Basis of Presentation
Membership ownership percentage	50.00%

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Mortgage Servicing Rights - Sensitivity Analysis (Details) - MSR - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Sensitivity analysis
Constant prepayment rate: Impact of 10% adverse change	$ (3,099)		$ (3,099)		$ (2,512)
Constant prepayment rate: Impact of 20% adverse change	(5,960)		(5,960)		(4,980)
Discount rate: Impact of 10% adverse change	(1,839)		(1,839)		(2,677)
Discount rate: Impact of 20% adverse change	(3,542)		(3,542)		$ (5,139)
Contractually specified servicing fees, late fees and ancillary fees	$ 6,300	$ 5,400	$ 19,200	$ 17,300

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Securities - HTM Contractual Maturities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
HTM, Amortized Cost, Rolling Maturities
Due in one year or less	$ 9,990
Due after one year through five years	25,969
Due after five years through ten years	5,543
Due after ten years	48,009
Total	89,511
Amortized cost	371,361	$ 351,012
HTM, Fair Value, Rolling Maturities
Due in one year or less	9,995
Due after one year through five years	25,987
Due after five years through ten years	5,598
Due after ten years	48,926
Total	90,506
Fair Value	377,337	341,124
Residential Mortgage Backed Securities
HTM, Amortized Cost, Rolling Maturities
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	18,914
Amortized cost	18,914	21,903
HTM, Fair Value, Rolling Maturities
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	19,173
Fair Value	19,173	21,640
Collateralized Mortgage Obligations
HTM, Amortized Cost, Rolling Maturities
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	122,061
Amortized cost	122,061	142,474
HTM, Fair Value, Rolling Maturities
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	121,909
Fair Value	121,909	$ 137,474
Commercial Mortgage Backed Securities
HTM, Amortized Cost, Rolling Maturities
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	140,875
HTM, Fair Value, Rolling Maturities
Mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities	$ 145,749

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Securities - AFS and HTM, Amortized Cost and FV (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Available for sale
Total amortized cost	$ 987,992		$ 987,992		$ 886,799
Gross Unrealized Gains	16,504		16,504		2,640
Gross Unrealized Losses	(646)		(646)		(13,781)
Fair Value	1,003,850		1,003,850		875,658
Held to maturity
Amortized cost	371,361		371,361		351,012
Unrealized Gains	6,694		6,694		365
Unrealized Losses	(718)		(718)		(10,253)
Held to maturity, fair value	377,337		377,337		341,124
Equity Securities
Unrealized net (losses) gains from equity securities			600		(900)
Equity, at fair value	19,494		19,494		19,679
Recognized net gain (loss) on equity securities	(100)	$ 100	1,400	$ (400)
US Treasury Securities
Available for sale
Total amortized cost	9,864		9,864		11,552
Gross Unrealized Gains	216		216		30
Gross Unrealized Losses	(5)		(5)		(44)
Fair Value	10,075		10,075		11,538
Held to maturity
Amortized cost	9,990		9,990		9,903
Unrealized Gains	5		5		3
Held to maturity, fair value	9,995		9,995		9,906
Bonds
Available for sale
Total amortized cost	85,208		85,208		85,492
Gross Unrealized Gains	1,212		1,212		552
Gross Unrealized Losses	(3)		(3)		(433)
Fair Value	86,417		86,417		85,611
Held to maturity
Amortized cost	24,020		24,020		39,018
Unrealized Gains	11		11
Unrealized Losses	(7)		(7)		(1,479)
Held to maturity, fair value	24,024		24,024		37,539
Residential Mortgage Backed Securities
Available for sale
Total amortized cost	487,487		487,487		391,428
Gross Unrealized Gains	7,006		7,006		608
Gross Unrealized Losses	(137)		(137)		(6,962)
Fair Value	494,356		494,356		385,074
Held to maturity
Amortized cost	18,914		18,914		21,903
Unrealized Gains	259		259
Unrealized Losses					(263)
Held to maturity, fair value	19,173		19,173		21,640
Commercial mortgage-backed securities
Available for sale
Total amortized cost	11,541		11,541		11,703
Gross Unrealized Gains	678		678		189
Gross Unrealized Losses					(120)
Fair Value	12,219		12,219		11,772
Held to maturity
Amortized cost	140,875		140,875		87,065
Unrealized Gains	4,924		4,924		271
Unrealized Losses	(50)		(50)		(1,462)
Held to maturity, fair value	145,749		145,749		85,874
Collateralized Mortgage Obligations
Available for sale
Total amortized cost	308,941		308,941		281,450
Gross Unrealized Gains	4,103		4,103		385
Gross Unrealized Losses	(499)		(499)		(5,436)
Fair Value	312,545		312,545		276,399
Held to maturity
Amortized cost	122,061		122,061		142,474
Unrealized Gains	431		431
Unrealized Losses	(583)		(583)		(5,000)
Held to maturity, fair value	121,909		121,909		137,474
Corporate debt securities
Available for sale
Total amortized cost	44,841		44,841		53,614
Gross Unrealized Gains	1,973		1,973		268
Gross Unrealized Losses					(580)
Fair Value	46,814		46,814		53,302
States and political subdivisions
Available for sale
Total amortized cost	40,110		40,110		51,560
Gross Unrealized Gains	1,316		1,316		608
Gross Unrealized Losses	(2)		(2)		(206)
Fair Value	41,424		41,424		51,962
Held to maturity
Amortized cost	55,501		55,501		50,649
Unrealized Gains	1,064		1,064		91
Unrealized Losses	(78)		(78)		(2,049)
Held to maturity, fair value	$ 56,487		$ 56,487		$ 48,691

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Loans Held for Investment and Allowance for Loan Losses - Aging (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	$ 31,648	$ 35,173
Current Loans	7,205,355	6,802,213
Loans held for investment	7,321,208	6,930,458
Accruing Loans Past Due 90 Days or More	80	78
Financing Receivables, 30 to 59 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	20,144	14,120
Financing Receivables, 60 to 89 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	4,613	3,879
Financing Receivables, Equal to Greater than 90 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	6,891	17,174
PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans held for investment	84,205	93,072
Non-owner occupied
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	4,779	1,373
Current Loans	1,657,864	1,708,160
Loans held for investment	1,675,360	1,722,622
Non-owner occupied | Financing Receivables, 30 to 59 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	4,565	1,174
Non-owner occupied | Financing Receivables, 60 to 89 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	15	199
Non-owner occupied | Financing Receivables, Equal to Greater than 90 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	199
Non-owner occupied | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans held for investment	12,717	13,089
Owner occupied
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	5,475	5,537
Current Loans	1,239,889	1,197,337
Loans held for investment	1,258,064	1,217,498
Accruing Loans Past Due 90 Days or More		75
Owner occupied | Financing Receivables, 30 to 59 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	2,915	1,364
Owner occupied | Financing Receivables, 60 to 89 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	213
Owner occupied | Financing Receivables, Equal to Greater than 90 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	2,347	4,173
Owner occupied | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans held for investment	12,700	14,624
Commercial and Industrial
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	13,103	13,892
Current Loans	1,371,832	1,488,000
Loans held for investment	1,390,531	1,508,451
Accruing Loans Past Due 90 Days or More	80	3
Commercial and Industrial | Financing Receivables, 30 to 59 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	9,353	1,792
Commercial and Industrial | Financing Receivables, 60 to 89 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	2,449	1,049
Commercial and Industrial | Financing Receivables, Equal to Greater than 90 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	1,301	11,051
Commercial and Industrial | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans held for investment	5,596	6,559
Construction and land development
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	881	3,549
Current Loans	971,318	928,896
Loans held for investment	972,226	932,909
Construction and land development | Financing Receivables, 30 to 59 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	881	3,549
Construction and land development | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans held for investment	27	464
1 - 4 family residential
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	7,245	10,421
Current Loans	637,843	610,515
Loans held for investment	698,251	679,263
1 - 4 family residential | Financing Receivables, 30 to 59 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	2,297	5,987
1 - 4 family residential | Financing Receivables, 60 to 89 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	1,904	2,484
1 - 4 family residential | Financing Receivables, Equal to Greater than 90 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	3,044	1,950
1 - 4 family residential | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans held for investment	53,163	58,327
Mortgage warehouse
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans		0
Current Loans	725,852	243,806
Loans held for investment	725,852	243,806
Consumer
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	165	401
Current Loans	42,613	47,136
Loans held for investment	42,780	47,546
Consumer | Financing Receivables, 30 to 59 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	133	254
Consumer | Financing Receivables, 60 to 89 Days Past Due
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Total Past Due Loans	32	147
Consumer | PCI loans
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Loans held for investment	2	9
Broker-dealer
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Current Loans	558,144	578,363
Loans held for investment	558,144	578,363
Prime Lending | U.S. Government Agencies
Non-Covered Loans and Allowance for Non-Covered Loan Losses
Accruing Loans Past Due 90 Days or More	81,600	83,100
Unpaid principal balance loans past due 90 days or more	$ 82,700	$ 84,000

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Loans Held for Investment and Allowance for Loan Losses - Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Impaired loans
Days outstanding loans and leases receivable are generally considered past due			90 days
Non-covered impaired loans
Unpaid Contractual Principal balance	$ 229,424		$ 229,424		$ 265,779
Recorded Investment with No Allowance	34,574		34,574		47,090
Recorded Investment with Allowance	77,696		77,696		71,921
Total Recorded Investment	112,270		112,270		119,011
Related Allowance	6,569		6,569		3,644
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	111,940	$ 136,624	115,642	$ 148,048
Non-accrual loans
Non-accrual loans	30,995		30,995		30,539
Interest income recorded on accruing impaired loans	300	500	1,100	900
Non-owner occupied
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	14,781	41,305	14,852	46,691
Non-accrual loans
Non-accrual loans	4,993		4,993		1,226
Owner occupied
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	16,489	67,759	17,578	73,531
Non-accrual loans
Non-accrual loans	3,734		3,734		4,098
Commercial and Industrial
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	17,616	24,705	17,659	24,617
Non-accrual loans
Non-accrual loans	13,313		13,313		14,870
Secured by Residential Properties
Non-accrual loans
Non-accrual loans held for sale	4,500		4,500		3,400
Construction and land development
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	1,432	2,803	2,548	3,090
Non-accrual loans
Non-accrual loans	1,358		1,358		3,278
1 - 4 family residential
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	61,587		62,963
Non-accrual loans
Non-accrual loans	7,567		7,567		7,026
Consumer
Average investment in non-covered impaired loans
Average investment in non-covered impaired loans	35	$ 52	42	$ 119
Non-accrual loans
Non-accrual loans	30		30		41
PCI loans
Non-covered impaired loans
Unpaid Contractual Principal balance	183,931		183,931		225,997
Recorded Investment with No Allowance	12,539		12,539		23,426
Recorded Investment with Allowance	71,666		71,666		69,646
Total Recorded Investment	84,205		84,205		93,072
Related Allowance	4,976		4,976		2,892
Non-accrual loans
Non-accrual loans	4,200		4,200		4,900
PCI loans | Non-owner occupied
Non-covered impaired loans
Unpaid Contractual Principal balance	29,625		29,625		42,668
Recorded Investment with No Allowance	5,281		5,281		5,549
Recorded Investment with Allowance	7,436		7,436		7,540
Total Recorded Investment	12,717		12,717		13,089
Related Allowance	1,507		1,507		1,125
PCI loans | Owner occupied
Non-covered impaired loans
Unpaid Contractual Principal balance	27,926		27,926		36,246
Recorded Investment with No Allowance	2,292		2,292		11,657
Recorded Investment with Allowance	10,408		10,408		2,967
Total Recorded Investment	12,700		12,700		14,624
Related Allowance	980		980		304
PCI loans | Commercial and Industrial
Non-covered impaired loans
Unpaid Contractual Principal balance	24,485		24,485		27,403
Recorded Investment with No Allowance	4,459		4,459		5,491
Recorded Investment with Allowance	1,137		1,137		1,068
Total Recorded Investment	5,596		5,596		6,559
Related Allowance	14		14		72
PCI loans | Construction and land development
Non-covered impaired loans
Unpaid Contractual Principal balance	7,412		7,412		10,992
Recorded Investment with No Allowance	6		6		74
Recorded Investment with Allowance	21		21		390
Total Recorded Investment	27		27		464
Related Allowance	3		3		92
PCI loans | 1 - 4 family residential
Non-covered impaired loans
Unpaid Contractual Principal balance	92,733		92,733		106,503
Recorded Investment with No Allowance	499		499		646
Recorded Investment with Allowance	52,664		52,664		57,681
Total Recorded Investment	53,163		53,163		58,327
Related Allowance	2,472		2,472		1,299
PCI loans | Consumer
Non-covered impaired loans
Unpaid Contractual Principal balance	1,750		1,750		2,185
Recorded Investment with No Allowance	2		2		9
Total Recorded Investment	2		2		9
Non-PCI
Non-covered impaired loans
Unpaid Contractual Principal balance	45,493		45,493		39,782
Recorded Investment with No Allowance	22,035		22,035		23,664
Recorded Investment with Allowance	6,030		6,030		2,275
Total Recorded Investment	28,065		28,065		25,939
Related Allowance	1,593		1,593		752
Non-PCI | Non-owner occupied
Non-covered impaired loans
Unpaid Contractual Principal balance	3,904		3,904
Recorded Investment with No Allowance	199		199
Recorded Investment with Allowance	3,698		3,698
Total Recorded Investment	3,897		3,897
Related Allowance	690		690
Non-PCI | Owner occupied
Non-covered impaired loans
Unpaid Contractual Principal balance	4,910		4,910		5,231
Recorded Investment with No Allowance	3,734		3,734		4,098
Total Recorded Investment	3,734		3,734		4,098
Non-PCI | Commercial and Industrial
Non-covered impaired loans
Unpaid Contractual Principal balance	24,691		24,691		22,277
Recorded Investment with No Allowance	9,200		9,200		9,891
Recorded Investment with Allowance	2,332		2,332		1,740
Total Recorded Investment	11,532		11,532		11,631
Related Allowance	903		903		721
Non-PCI | Construction and land development
Non-covered impaired loans
Unpaid Contractual Principal balance	1,504		1,504		3,430
Recorded Investment with No Allowance	1,358		1,358		2,711
Recorded Investment with Allowance					535
Total Recorded Investment	1,358		1,358		3,246
Related Allowance					31
Non-PCI | 1 - 4 family residential
Non-covered impaired loans
Unpaid Contractual Principal balance	10,442		10,442		8,695
Recorded Investment with No Allowance	7,514		7,514		6,922
Total Recorded Investment	7,514		7,514		6,922
Non-PCI | Consumer
Non-covered impaired loans
Unpaid Contractual Principal balance	42		42		149
Recorded Investment with No Allowance	30		30		42
Total Recorded Investment	$ 30		$ 30		$ 42

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Lease - Narrative (Details)	9 Months Ended
	Sep. 30, 2019
Leases
Option to extend period - Operating	10 years
Option to extend period - Finance	10 years
Option to extend - Operating	true
Option to extend - Finance	true
Option to terminate period - Operating	1 year
Option to terminate period - Finance	1 year
Option to terminate - Operating	true
Option to terminate - Finance	true

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares		3 Months Ended		9 Months Ended
	Oct. 24, 2019	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Cash dividends declared per common share	$ 0.08	$ 0.08	$ 0.07	$ 0.24	$ 0.21

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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Interest income:
Loans, including fees	$ 119,580	$ 113,535	$ 344,775	$ 317,403
Securities borrowed	21,010	16,346	53,386	50,132
Securities:
Taxable	15,764	11,994	46,064	35,463
Tax-exempt	1,576	1,717	4,587	5,186
Other	4,026	4,734	13,240	13,542
Total interest income	161,956	148,326	462,052	421,726
Interest expense:
Deposits	18,887	12,353	54,029	31,164
Securities loaned	17,889	13,984	46,097	42,798
Short-term borrowings	8,166	7,831	20,534	18,340
Notes payable	2,715	2,702	7,985	7,636
Junior subordinated debentures	955	955	2,942	2,695
Other	132	160	446	484
Total interest expense	48,744	37,985	132,033	103,117
Net interest income	113,212	110,341	330,019	318,609
Provision (recovery) for loan losses	47	(371)	326	(1,838)
Net interest income after provision (recovery) for loan losses	113,165	110,712	329,693	320,447
Noninterest income:
Net gains from sale of loans and other mortgage production income	157,050	116,243	384,362	354,488
Mortgage loan origination fees	37,782	27,004	93,064	76,948
Securities commissions and fees	34,426	36,968	104,537	114,005
Investment and securities advisory fees and commissions	28,685	23,487	71,704	63,806
Net insurance premiums earned	32,654	34,185	99,323	102,605
Other	50,804	31,810	153,750	72,422
Total noninterest income	341,401	269,697	906,740	784,274
Noninterest expense:
Employees' compensation and benefits	235,197	205,575	640,838	588,807
Occupancy and equipment, net	27,202	29,015	83,444	84,695
Professional services	24,346	27,984	71,041	78,959
Loss and loss adjustment expenses	14,677	18,712	54,584	58,653
Other	48,687	54,425	152,964	171,316
Total noninterest expense	350,109	335,711	1,002,871	982,430
Income before income taxes	104,457	44,698	233,562	122,291
Income tax expense	22,750	7,600	52,287	26,122
Net income	81,707	37,098	181,275	96,169
Less: Net income attributable to noncontrolling interest	2,289	1,293	5,260	2,843
Income attributable to Hilltop	$ 79,418	$ 35,805	$ 176,015	$ 93,326
Earnings per common share:
Basic (in dollars per share)	$ 0.87	$ 0.38	$ 1.89	$ 0.98
Diluted (in dollars per share)	$ 0.86	$ 0.38	$ 1.89	$ 0.98
Weighted average share information:
Basic (in shares)	91,745	94,554	92,931	95,264
Diluted (in shares)	91,824	94,610	92,959	95,355

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2019

Stock-Based Compensation

Schedule of nonvested RSU activity

The following table summarizes information about nonvested RSU activity for the nine months ended September 30, 2019 (shares in thousands).

		RSUs
			Weighted
			Average
			Grant Date
		Outstanding	Fair Value
Balance, December 31, 2018		1,270	$	22.44
	Granted	592	$	19.30
	Vested/Released	(488)	$	18.08
	Forfeited	(43)	$	24.79
Balance, September 30, 2019		1,331	$	22.57

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Short-term Borrowings (Tables)

9 Months Ended

Sep. 30, 2019

Short-term borrowings

Schedule of short-term borrowings

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

	September 30,		December 31,
	2019		2018
Federal funds purchased	$	72,200	$	100,100
Securities sold under agreements to repurchase		514,055		576,707
Federal Home Loan Bank		700,000		200,000
Short-term bank loans		216,500		189,000
	$	1,502,755	$	1,065,807

Federal Funds Purchased and Securities Sold under Agreements to Repurchase

Short-term borrowings

Schedule of short-term borrowings

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

	Nine Months Ended September 30,
	2019			2018
Average balance during the period	$	609,162		$	683,835
Average interest rate during the period		2.57	%		1.76	%
	September 30,			December 31,
	2019			2018
Average interest rate at end of period		2.52	%		2.43	%
Securities underlying the agreements at end of period:
Carrying value	$	519,875		$	587,609
Estimated fair value	$	554,107		$	618,231

FHLB 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).

	Nine Months Ended September 30,
	2019			2018
Average balance during the period	$	280,824		$	253,022
Average interest rate during the period		2.34	%		2.04	%
		September 30,			December 31,
		2019			2018
Average interest rate at end of period		1.91	%		2.65	%

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Commitments and Contingencies - Legal (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Dec. 31, 2018
Representation and Warranty Claims
Roll-forward of claims activity for loans put-back to the mortgage origination segment
Balance, beginning of period	$ 33,074	$ 30,545	$ 33,784	$ 33,702
Claims made	6,423	5,477	16,110	17,827
Claims resolved with no payment	(7,022)	(578)	(14,289)	(12,331)
Repurchases	(1,506)	(3,513)	(4,150)	(6,847)
Indemnification payments	(243)		(729)	(420)
Balance, end of period	30,726	31,931	30,726	31,931
Reserve for Indemnification Liability:
Total	33,074	30,545	33,784	33,702	$ 30,726	$ 33,784
Indemnification Agreement
Commitments and Contingencies
Provision for indemnification losses	1,000	900	2,200	2,600
Roll-forward of claims activity for loans put-back to the mortgage origination segment
Balance, beginning of period	10,833	23,910	10,701	23,472
Additions for new sales	954	857	2,236	2,599
Repurchases	(117)	(228)	(325)	(474)
Early payment defaults	(51)	(72)	(290)	(259)
Indemnification payments	(87)	(4)	(182)	(124)
Change in reserves for loans sold in prior years	(81)	(292)	(689)	(1,043)
Balance, end of period	11,451	24,171	11,451	24,171
Reserve for Indemnification Liability:
Specific claims					958	676
Incurred but not reported claims					10,493	10,025
Total	$ 10,833	$ 23,910	$ 11,451	23,472	$ 11,451	$ 10,701
DOJ and HUD agreements increase in specific claims that were included in incurred but not reported claims in prior periods				$ 13,500

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Fair Value Measurements - Estimated Fair Value (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Financial assets:
Held to maturity securities	$ 377,337	$ 341,124
Broker-dealer and clearing organization receivables	1,731,979	1,440,287
Financial liabilities:
Broker-dealer and clearing organization payables	1,546,163	1,294,925
Carrying Amount
Financial assets:
Cash and cash equivalents	326,552	644,473
Assets segregated for regulatory purposes	83,878	133,993
Securities purchased under agreements to resell	49,998	61,611
Held to maturity securities	371,361	351,012
Loans held for sale	131,006	135,471
Loans held for investment, net	7,265,604	6,870,972
Broker-dealer and clearing organization receivables	1,731,979	1,440,287
Other assets	70,975	69,720
Financial liabilities:
Deposits	8,730,872	8,536,156
Broker-dealer and clearing organization payables	1,546,163	1,294,925
Short-term borrowings	1,502,755	1,065,807
Debt	312,353	295,884
Other liabilities	9,084	3,482
Estimate of Fair Value
Financial assets:
Cash and cash equivalents	326,552	644,473
Assets segregated for regulatory purposes	83,878	133,993
Securities purchased under agreements to resell	49,998	61,611
Held to maturity securities	377,337	341,124
Loans held for sale	131,006	135,471
Loans held for investment, net	7,488,405	7,024,173
Broker-dealer and clearing organization receivables	1,731,979	1,440,287
Other assets	70,975	69,720
Financial liabilities:
Deposits	8,732,668	8,528,947
Broker-dealer and clearing organization payables	1,546,163	1,294,925
Short-term borrowings	1,502,755	1,065,807
Debt	310,129	293,685
Other liabilities	9,084	3,482
Estimate of Fair Value | Level 1
Financial assets:
Cash and cash equivalents	326,552	644,473
Assets segregated for regulatory purposes	83,878	133,993
Estimate of Fair Value | Level 2
Financial assets:
Securities purchased under agreements to resell	49,998	61,611
Held to maturity securities	377,337	341,124
Loans held for sale	131,006	135,471
Loans held for investment, net	558,144	578,363
Broker-dealer and clearing organization receivables	1,731,979	1,440,287
Other assets	69,889	68,573
Financial liabilities:
Deposits	8,732,668	8,528,947
Broker-dealer and clearing organization payables	1,546,163	1,294,925
Short-term borrowings	1,502,755	1,065,807
Debt	310,129	293,685
Other liabilities	9,084	3,482
Estimate of Fair Value | Level 3
Financial assets:
Loans held for investment, net	6,930,261	6,445,810
Other assets	$ 1,086	$ 1,147

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Lease - Supplemental balance sheet information (Details) $ in Thousands	Sep. 30, 2019 USD ($)
Finance leases:
Premises and equipment	$ 7,780
Accumulated depreciation	(4,031)
Premises and equipment, net	$ 3,749
Financial position	us-gaap:PropertyPlantAndEquipmentNet

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Acquisition - Loans at Acquisition, Additional Info. and Pro Forma Results (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018	Aug. 01, 2018
PCI loans
Acquisitions
Nonaccretable difference	$ 53,600	$ 64,200
BORO
Acquisitions
Total loans			$ 326,618
BORO | PCI loans
Acquisitions
Contractually required principal and interest payments			10,730
Nonaccretable difference			2,859
Cash flows expected to be collected			7,871
Accretable difference			342
Total loans			7,529
BORO | Non-PCI
Acquisitions
Contractually required principal and interest payments			381,551
Contractual cash flows not expected to be collected			15,286
Total loans			$ 319,089

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Fair Value Measurements - Level 3, Inputs, Recurring (Details) - Level 3 - Recurring	Sep. 30, 2019 item	Dec. 31, 2018 USD ($) item
Loans Held for Sale
Significant unobservable inputs used in the fair value measurements
Loans Held-for-sale, Valuation Technique [Extensible List]	us-gaap:ValuationTechniqueDiscountedCashFlowMember	us-gaap:ValuationTechniqueDiscountedCashFlowMember
Loans Held-for-sale, Measurement Input [Extensible List]	us-gaap:MeasurementInputPriceVolatilityMember	us-gaap:MeasurementInputPriceVolatilityMember
Loans Held for Sale | Weighted average
Significant unobservable inputs used in the fair value measurements
Loans Held-for-sale, Measurement Input	0.95	0.95
Loans Held for Sale | Minimum
Significant unobservable inputs used in the fair value measurements
Loans Held-for-sale, Measurement Input	0.92	0.95
Loans Held for Sale | Maximum
Significant unobservable inputs used in the fair value measurements
Loans Held-for-sale, Measurement Input	0.96	0.96
MSR
Significant unobservable inputs used in the fair value measurements
Servicing Asset, Valuation Technique [Extensible List]	us-gaap:ValuationTechniqueDiscountedCashFlowMember	us-gaap:ValuationTechniqueDiscountedCashFlowMember
MSR | Constant Prepayment Rate
Significant unobservable inputs used in the fair value measurements
Servicing Asset, Measurement Input	0.1440	10.51
MSR | Discount Rate
Significant unobservable inputs used in the fair value measurements
Servicing Asset, Measurement Input	0.1113	11.11

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Lease - Lease maturities - ASC 842 (Details) $ in Thousands	Sep. 30, 2019 USD ($)
Operating leases maturities
2019	$ 9,221
2020	34,509
2021	28,671
2022	22,459
2023	17,757
Thereafter	42,761
Total minimum lease payments	155,378
Amount representing interest	(24,245)
Present value of minimum lease payments	131,133
Finance Leases maturities:
2019	298
2020	1,197
2021	1,212
2022	1,241
2023	1,280
Thereafter	3,460
Total minimum lease payments	8,688
Amount representing interest	(3,041)
Present value of minimum lease payments	$ 5,647

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Broker-Dealer and Clearing Organization Receivables and Payables (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Receivables:
Securities borrowed	$ 1,636,796	$ 1,365,547
Securities failed to deliver	15,878	16,300
Trades in process of settlement	55,982	32,993
Other	23,323	25,447
Total receivables	1,731,979	1,440,287
Payables:
Securities loaned	1,505,118	1,186,073
Correspondents	24,670	29,311
Securities failed to receive	10,485	75,015
Other	5,890	4,526
Total Payables	$ 1,546,163	$ 1,294,925

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Reinsurance Activity - Effects of Reinsurance (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Earned
Net premiums	$ 32,654	$ 34,185	$ 99,323	$ 102,605
Effect of reinsurance on incurred losses
Net loss and LAE incurred	14,677	18,712	54,584	58,653
Property and casualty
Written
Premiums from direct business	31,269	32,738	97,621	101,624
Reinsurance assumed	3,440	3,414	10,191	10,023
Reinsurance ceded	(2,333)	(2,353)	(5,574)	(6,698)
Net premiums	32,376	33,799	102,238	104,949
Earned
Premiums from direct business	31,698	33,399	95,161	100,139
Reinsurance assumed	3,289	3,181	9,736	9,292
Reinsurance ceded	(2,333)	(2,395)	(5,574)	(6,826)
Net premiums	32,654	34,185	99,323	102,605
Effect of reinsurance on incurred losses
Loss and LAE incurred	14,508	19,158	53,450	56,479
Reinsurance recoverables	169	(446)	1,134	2,174
Net loss and LAE incurred	$ 14,677	$ 18,712	$ 54,584	$ 58,653

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Income Taxes

9 Months Ended

Sep. 30, 2019

Income Taxes

Income Taxes

12. 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 rates were 21.8% and 17.0% for the three months ended September 30, 2019 and 2018, respectively, and 22.4% and 21.4% for the nine months ended September 30, 2019 and 2018, respectively. The 2018 effective tax rates are lower than the applicable statutory rates due to tax planning strategies in conjunction with the Tax Legislation and research and development studies. In addition, a tax benefit was recognized in 2018 from the portion of the indemnification reserve that was a deductible settlement amount from the PrimeLending inquiry from the United States Department of Justice (“DOJ”) as described in detail in Note 18 to the consolidated financial statements included in the Company’s 2018 Form 10-K. The 2019 effective tax rates are lower than the applicable statutory rates as a result of prior period tax adjustments.

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Regulatory Matters

9 Months Ended

Sep. 30, 2019

Regulatory Matters

Regulatory Matters

16. Regulatory Matters

Banking and Hilltop

PlainsCapital, which includes the Bank and PrimeLending, and Hilltop are subject to various regulatory capital requirements administered by 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 PlainsCapital 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 Company performs reviews of the classification and calculation of risk-weighted assets to ensure accuracy and compliance with the Basel III regulatory capital requirements as implemented by the Board of Governors of the Federal Reserve System. 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).

In order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary bonus payments to executive officers, Basel III requires banking organizations to maintain a capital conservation buffer above minimum risk-based capital requirements measured relative to risk-weighted assets. The phase-in of the capital conservation buffer requirements began on January 1, 2016 for PlainsCapital and Hilltop, and the requirements were fully phased in as of January 1, 2019.

The following tables show PlainsCapital’s and Hilltop’s actual capital amounts and ratios in accordance with Basel III compared to the regulatory minimum capital requirements including conservation buffer in effect at the end of the period and on a fully phased-in basis as if such requirements were currently in effect at December 31, 2018 (dollars in thousands). Based on actual capital amounts and ratios shown in the following table, PlainsCapital’s ratios place it in the “well capitalized” (as defined) capital category under regulatory requirements.

					Minimum Capital Requirements
					Including Conservation Buffer
					In Effect at		Fully		To Be Well
	Actual				End of Period		Phased In		Capitalized
	Amount		Ratio		Ratio		Ratio		Ratio
September 30, 2019
Tier 1 capital (to average assets):
PlainsCapital	$	1,226,270	11.79	%	4.0	%	4.0	%	5.0	%
Hilltop		1,775,755	12.67	%	4.0	%	4.0	%	N/A
Common equity Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,226,270	13.25	%	7.0	%	7.0	%	6.5	%
Hilltop		1,729,166	16.15	%	7.0	%	7.0	%	N/A
Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,226,270	13.25	%	8.5	%	8.5	%	8.0	%
Hilltop		1,775,755	16.58	%	8.5	%	8.5	%	N/A
Total capital (to risk-weighted assets):
PlainsCapital		1,283,967	13.87	%	10.5	%	10.5	%	10.0	%
Hilltop		1,815,134	16.95	%	10.5	%	10.5	%	N/A
					Minimum Capital Requirements
					Including Conservation Buffer
					In Effect at		Fully		To Be Well
	Actual				End of Period		Phased In		Capitalized
	Amount		Ratio		Ratio		Ratio		Ratio
December 31, 2018
Tier 1 capital (to average assets):
PlainsCapital	$	1,183,447	12.47	%	4.0	%	4.0	%	5.0	%
Hilltop		1,680,364	12.53	%	4.0	%	4.0	%	N/A
Common equity Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,183,447	13.90	%	6.375	%	7.0	%	6.5	%
Hilltop		1,634,978	16.58	%	6.375	%	7.0	%	N/A
Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,183,447	13.90	%	7.875	%	8.5	%	8.0	%
Hilltop		1,680,364	17.04	%	7.875	%	8.5	%	N/A
Total capital (to risk-weighted assets):
PlainsCapital		1,245,177	14.63	%	9.875	%	10.5	%	10.0	%
Hilltop		1,722,602	17.47	%	9.875	%	10.5	%	N/A

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 September 30, 2019, the net capital position of each of the Hilltop Broker-Dealers was as follows (in thousands).

				HTS
	Hilltop			Independent
	Securities			Network
Net capital	$	265,752		$	3,076
Less: required net capital		9,152			250
Excess net capital	$	256,600		$	2,826
Net capital as a percentage of aggregate debit items		58.1	%
Net capital in excess of 5% aggregate debit items	$	242,873

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 September 30, 2019 and December 31, 2018, the Hilltop Broker-Dealers held cash of $83.9 million and $134.0 million, respectively, segregated in special reserve bank accounts for the benefit of customers. The Hilltop Broker-Dealers were not required to segregate cash and securities in special reserve accounts for the benefit of proprietary accounts of introducing broker-dealers at September 30, 2019 or December 31, 2018.

Mortgage Origination

As a mortgage originator, PrimeLending and its subsidiaries are subject to minimum net worth and liquidity requirements established by HUD and GNMA, as applicable. On an annual basis, PrimeLending and its subsidiaries submit audited financial statements to HUD and GNMA, as applicable, documenting their respective compliance with minimum net worth and liquidity requirements. As of September 30, 2019, PrimeLending and its subsidiaries’ net worth and liquidity exceeded the amounts required by both HUD and GNMA, as applicable.

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 (loss) of each insurance subsidiary is as follows (in thousands).

	September 30,		December 31,
	2019		2018
Statutory capital and surplus:
National Lloyds Insurance Company	$	63,586	$	78,637
American Summit Insurance Company		19,463		17,908

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Statutory net income (loss):
National Lloyds Insurance Company	$	4,797	$	5,442	$	4,388	$	6,576
American Summit Insurance Company		470		(2,765)		1,186		(1,482)

Regulations of the Texas Department of Insurance require insurance companies to maintain minimum levels of statutory surplus to ensure their ability to meet their obligations to policyholders. At September 30, 2019, 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 September 30, 2019, the Company's insurance subsidiaries' RBC ratio exceeded the level at which regulatory action would be required.

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Securities (Tables)

9 Months Ended

Sep. 30, 2019

Securities

Summary of trading securities

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

	September 30,		December 31,
	2019		2018
U.S. Treasury securities	$	6,561	$	7,945
U.S. government agencies:
Bonds		8,316		1,494
Residential mortgage-backed securities		152,582		309,455
Commercial mortgage-backed securities		2,177		4,239
Collateralized mortgage obligations		281,561		206,813
Corporate debt securities		52,257		59,293
States and political subdivisions		160,244		126,748
Unit investment trusts		31,567		19,913
Private-label securitized product		7,830		5,680
Other		4,173		3,886
Totals	$	707,268	$	745,466

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).

	Available for Sale
	Amortized		Unrealized		Unrealized
September 30, 2019	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	9,864	$	216	$	(5)	$	10,075
U.S. government agencies:
Bonds		85,208		1,212		(3)		86,417
Residential mortgage-backed securities		487,487		7,006		(137)		494,356
Commercial mortgage-backed securities		11,541		678		—		12,219
Collateralized mortgage obligations		308,941		4,103		(499)		312,545
Corporate debt securities		44,841		1,973		—		46,814
States and political subdivisions		40,110		1,316		(2)		41,424
Totals	$	987,992	$	16,504	$	(646)	$	1,003,850

	Available for Sale
	Amortized		Unrealized		Unrealized
December 31, 2018	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	11,552	$	30	$	(44)	$	11,538
U.S. government agencies:
Bonds		85,492		552		(433)		85,611
Residential mortgage-backed securities		391,428		608		(6,962)		385,074
Commercial mortgage-backed securities		11,703		189		(120)		11,772
Collateralized mortgage obligations		281,450		385		(5,436)		276,399
Corporate debt securities		53,614		268		(580)		53,302
States and political subdivisions		51,560		608		(206)		51,962
Totals	$	886,799	$	2,640	$	(13,781)	$	875,658

Summary of amortized cost and fair value of held to maturity securities

	Held to Maturity
	Amortized		Unrealized		Unrealized
September 30, 2019	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	9,990	$	5	$	—	$	9,995
U.S. government agencies:
Bonds		24,020		11		(7)		24,024
Residential mortgage-backed securities		18,914		259		—		19,173
Commercial mortgage-backed securities		140,875		4,924		(50)		145,749
Collateralized mortgage obligations		122,061		431		(583)		121,909
States and political subdivisions		55,501		1,064		(78)		56,487
Totals	$	371,361	$	6,694	$	(718)	$	377,337

	Held to Maturity
	Amortized		Unrealized		Unrealized
December 31, 2018	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	9,903	$	3	$	—	$	9,906
U.S. government agencies:
Bonds		39,018		—		(1,479)		37,539
Residential mortgage-backed securities		21,903		—		(263)		21,640
Commercial mortgage-backed securities		87,065		271		(1,462)		85,874
Collateralized mortgage obligations		142,474		—		(5,000)		137,474
States and political subdivisions		50,649		91		(2,049)		48,691
Totals	$	351,012	$	365	$	(10,253)	$	341,124

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).

	September 30, 2019					December 31, 2018
	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	—	$	—	$	—	1	$	981	$	6
Unrealized loss for twelve months or longer	1		1,893		5	3		3,556		39
	1		1,893		5	4		4,537		45
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	—		—		—	3		24,772		5
Unrealized loss for twelve months or longer	1		9,997		3	3		30,472		428
	1		9,997		3	6		55,244		433
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	4		26,128		39	8		66,791		432
Unrealized loss for twelve months or longer	3		14,951		98	27		194,228		6,530
	7		41,079		137	35		261,019		6,962
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	—		—		—	—		—		—
Unrealized loss for twelve months or longer	—		—		—	1		4,953		120
	—		—		—	1		4,953		120
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	11		64,055		191	11		44,394		498
Unrealized loss for twelve months or longer	12		49,027		308	28		140,483		4,938
	23		113,082		499	39		184,877		5,436
Corporate debt securities:
Unrealized loss for less than twelve months	—		—		—	8		16,256		282
Unrealized loss for twelve months or longer	—		—		—	8		15,665		297
	—		—		—	16		31,921		579
States and political subdivisions:
Unrealized loss for less than twelve months	1		545		1	29		8,590		27
Unrealized loss for twelve months or longer	1		484		1	18		9,029		179
	2		1,029		2	47		17,619		206
Total available for sale:
Unrealized loss for less than twelve months	16		90,728		231	60		161,784		1,250
Unrealized loss for twelve months or longer	18		76,352		415	88		398,386		12,531
	34	$	167,080	$	646	148	$	560,170	$	13,781

Schedule of information regarding held to maturity securities that were in an unrealized loss position

	September 30, 2019					December 31, 2018
	Number of			Unrealized		Number of			Unrealized
	Securities	Fair Value		Losses		Securities	Fair Value		Losses
Held to Maturity
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	2	$	9,693	$	7	—	$	—	$	—
Unrealized loss for twelve months or longer	—		—		—	4		37,539		1,479
	2		9,693		7	4		37,539		1,479
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	—		—		—	1		8,411		89
Unrealized loss for twelve months or longer	—		—		—	3		13,229		174
	—		—		—	4		21,640		263
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	2		9,767		50	1		4,973		27
Unrealized loss for twelve months or longer	—		—		—	13		59,670		1,435
	2		9,767		50	14		64,643		1,462
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	4		10,093		43	1		2,051		26
Unrealized loss for twelve months or longer	9		63,128		540	24		135,423		4,974
	13		73,221		583	25		137,474		5,000
States and political subdivisions:
Unrealized loss for less than twelve months	16		7,108		46	9		6,431		56
Unrealized loss for twelve months or longer	4		1,102		32	86		32,909		1,993
	20		8,210		78	95		39,340		2,049
Total held to maturity:
Unrealized loss for less than twelve months	24		36,661		146	12		21,866		198
Unrealized loss for twelve months or longer	13		64,230		572	130		278,770		10,055
	37	$	100,891	$	718	142	$	300,636	$	10,253

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

The amortized cost and fair value of securities, excluding trading and equity securities, at September 30, 2019 are shown by contractual maturity below (in thousands).

	Available for Sale				Held to Maturity
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	35,701	$	35,719	$	9,990	$	9,995
Due after one year through five years		88,540		91,393		25,969		25,987
Due after five years through ten years		37,858		38,873		5,543		5,598
Due after ten years		17,924		18,745		48,009		48,926
		180,023		184,730		89,511		90,506
Residential mortgage-backed securities		487,487		494,356		18,914		19,173
Collateralized mortgage obligations		308,941		312,545		122,061		121,909
Commercial mortgage-backed securities		11,541		12,219		140,875		145,749
	$	987,992	$	1,003,850	$	371,361	$	377,337

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Schedule I - Insurance Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance

9 Months Ended

Sep. 30, 2019

Schedule Of Insurance Incurred And Cumulative Paid Losses And Allocated Loss Adjustment Expenses, Net Of Reinsurance

Insurance Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance

SCHEDULE I – Insurance Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses,

Net of Reinsurance

(dollars in thousands)

	Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance								September 30, 2019
									Total of
									Incurred
									But Not
									Reported
									Reserves Plus		Cumulative
									Development		Number of
Accident	September 30, 2019								On Reported		Reported
Year	2016		2017		2018		2019		Claims		Claims
2016	$	84,771	$	85,189	$	84,076	$	83,978	$	272	20,180
2017				87,899		88,025		87,743		418	20,738
2018						75,217		73,703		2,128	15,290
2019								52,183		5,656	11,701
							$	297,607
	Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident	September 30, 2019
Year	2016		2017		2018		2019
2016	$	71,543	$	81,682	$	83,169	$	83,540
2017				77,675		86,319		87,039
2018						61,922		69,823
2019								38,936
Total							$	279,338
All outstanding reserves prior to 2016, net of reinsurance								134
Reserve for unpaid losses and allocated loss adjustment expenses, net of reinsurance							$	18,403

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Reserve for Losses and Loss Adjustment Expenses

9 Months Ended

Sep. 30, 2019

Reserve for Losses and Loss Adjustment Expenses

Reserve for Losses and Loss Adjustment Expenses

21. Reserve for Losses and Loss Adjustment Expenses

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

	September 30,		December 31,
	2019		2018
Reserve for unpaid losses and allocated LAE balance, net	$	18,403	$	16,498
Reinsurance recoverables on unpaid losses		847		3,214
Unallocated LAE		788		840
Reserve for unpaid losses and LAE balance, gross	$	20,038	$	20,552

A summary of claims loss reserve development activity is presented in the following table (dollars in thousands).

					September 30, 2019
					Total of
					IBNR Reserves
					Plus Expected		Cumulative
Accident	Nine Months Ended September 30, 2019				Development on		Number of
Year	Paid		Incurred		Reported Claims		Reported Claims
2016	$	83,540	$	83,978	$	272		20,180
2017		87,039		87,743		418		20,738
2018		69,823		73,703		2,128		15,290
2019		38,936		52,183		5,656		11,701
Total	$	279,338	$	297,607
		134	All outstanding reserves prior to 2016, net of reinsurance
	$	18,403	Reserve for unpaid losses and allocated LAE, net of reinsurance

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Balance Sheet Offsetting - Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Reverse repurchase agreements:
Net Amounts of Assets Presented in the Balance Sheet	$ 49,998	$ 61,611
Total
Gross Amounts of Recognized Assets	1,696,361	1,437,764
Gross Amounts Offset in the Balance Sheet	(168)
Net Amounts of Assets Presented in the Balance Sheet	1,696,193	1,437,764
Gross Amounts Not Offset in the Balance Sheet
Financial Instruments	(1,642,903)	(1,378,980)
Net Amount	53,290	58,784
Institutional Counterparties
Securities borrowed:
Gross Amounts of Recognized Assets	1,636,796	1,365,547
Net Amounts of Assets Presented in the Balance Sheet	1,636,796	1,365,547
Gross Amounts Not Offset in the Balance Sheet
Financial Instruments	(1,583,664)	(1,307,121)
Net Amount	53,132	58,426
Interest Rate Options | Customer Counterparties
Derivatives:
Gross Amounts of Recognized Assets		49
Net Amounts of Assets Presented in the Balance Sheet		49
Gross Amounts Not Offset in the Balance Sheet
Net Amounts of Assets Presented in the Balance Sheet		49
Interest rate swaps | Institutional Counterparties
Derivatives:
Gross Amounts of Recognized Assets	392	88
Gross Amounts Offset in the Balance Sheet	(168)
Net Amounts of Assets Presented in the Balance Sheet	224	88
Gross Amounts Not Offset in the Balance Sheet
Financial Instruments	(224)
Net Amounts of Assets Presented in the Balance Sheet	0	88
Reverse repurchase agreements | Institutional Counterparties
Reverse repurchase agreements:
Gross Amounts of Recognized Assets	49,998	61,611
Net Amounts of Assets Presented in the Balance Sheet	49,998	61,611
Gross Amounts Not Offset in the Balance Sheet
Financial Instruments	(49,840)	(61,390)
Net Amount	158	221
Forward MBS Derivatives | Institutional Counterparties
Derivatives:
Gross Amounts of Recognized Assets	9,175	10,469
Net Amounts of Assets Presented in the Balance Sheet	9,175	10,469
Gross Amounts Not Offset in the Balance Sheet
Financial Instruments	(9,175)	(10,469)
Net Amounts of Assets Presented in the Balance Sheet	$ 0	$ 0

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Regulatory Matters - Net Capital Position, Broker-Dealers (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018
Net Capital
Amount required to be segregated in cash and securities for the benefit of customers	$ 83,878	$ 133,993	$ 220,115
Hilltop Securities
Net Capital
Net capital	265,752
Less required net capital	9,152
Excess net capital	$ 256,600
Net capital as a percentage of aggregate debit items	58.10%
Net capital in excess of 5% aggregate debt items	$ 242,873
HTS Independent Network
Net Capital
Net capital	3,076
Less required net capital	250
Excess net capital	2,826
Hilltop Broker-Dealers
Net Capital
Amount required to be segregated in cash and securities for the benefit of customers	$ 83,900	$ 134,000

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Recently Issued Accounting Standards

9 Months Ended

Sep. 30, 2019

Recently Issued Accounting Standards

Recently Issued Accounting Standards

2. Recently Issued Accounting Standards

Accounting Standards Adopted During 2019

In July 2018, the FASB issued ASU 2018-09 which clarifies, corrects and makes minor improvements to a wide variety of topics in the ASC. The amendments make the ASC easier to understand and apply by eliminating inconsistencies and providing clarifications. The transition and effective dates are based on the facts and circumstances of each amendment, with some amendments becoming effective upon issuance of the ASU, and others becoming effective for annual periods beginning after December 15, 2018. The Company adopted the amendments as of January 1, 2019, which did not have a material effect on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12 which provides targeted improvements to accounting for hedging activities. The FASB has issued various updates, improvements and technical corrections since the issuance of ASU 2017-12. The purpose of the amendment is to better align a company’s risk management activities with its financial reporting for hedging relationships, to simplify the hedge accounting requirements and to improve the disclosures of hedging arrangements. The amendment is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. The Company adopted the standard on January 1, 2019. The Company has not historically applied hedge accounting to its derivative transactions, so the provisions of the amendment did not have a material effect on the Company’s consolidated financial statements.

In February 2016, the FASB issued the Leasing Standard, which is codified in ASC 842, Leases, and is intended to increase transparency and comparability among organizations and require lessees to record an ROU asset and a liability representing the obligation to make lease payments for long-term leases. Accounting by lessors remains largely unchanged. The Company adopted the standard on January 1, 2019, using the modified retrospective transition under the option to apply the Leasing Standard at its effective date without adjusting the prior period comparative financial statements. The Company elected the package of practical expedients to not reassess: (i) whether any existing contracts are or contain a lease, (ii) the lease classification of any existing leases and (iii) initial direct costs related to existing leases. The Company also elected to apply an additional practical expedient to include both the lease and nonlease components of all leases as a single component and account for it as a lease. The Company implemented internal controls and key system functionality to enable the preparation of financial information upon adoption. The implementation of the Leasing Standard had a material impact on our consolidated balance sheets but did not have a material impact on our consolidated statements of operations. On January 1, 2019, the Company recorded operating lease liabilities of $121.8 million and ROU assets of $111.9 million upon adoption of the Leasing Standard. The lease liabilities (at their present value) represent predominantly all of the future minimum lease payments required under operating leases. The balance sheet effects of the new lease accounting standard also impacted regulatory capital ratios, performance ratios and other measures which are dependent upon asset or liability balances. In addition, the Company reassessed its accounting ownership of the Hilltop Plaza assets under construction as of January 1, 2019, under the build-to-suit provisions of ASC 842 and concluded it is not the accounting owner. As such, the assets and liabilities of the project were derecognized during the first quarter of 2019, with the $1.4 million offset representing deferred expenses recognized on the project to date through January 1, 2019, recorded as an increase to retained earnings. Refer to Note 13 for more details regarding the Hilltop Plaza transaction.

Accounting Standards Issued But Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15 which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software licenses). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the

amendments in this update. The amendment also includes presentation and disclosure provisions regarding capitalized implementation costs. The amendment is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. The Company will adopt the provisions of this amendment in the first quarter of 2020 with the impact to be limited to presentation and disclosure changes that are not expected to have an impact on its future consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, which includes various removals, modifications and additions to existing guidance regarding fair value disclosures. The amendments are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. The Company will adopt the provisions of this amendment in the first quarter of 2020 with the impact to be limited to presentation and disclosure changes that are not expected to have an impact on its future consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13 which sets forth a “current expected credit loss” (CECL) model that requires entities to measure all credit losses expected over the life of an exposure (or pool of exposures) for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The FASB has issued various updates, improvements and technical corrections to the standard since the issuance of ASU 2016-13. The new standard, which is codified in ASC 326, Financial Instruments – Credit Losses, replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. The new standard also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. The new standard is effective for the Company for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2019 with a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption. The Company’s cross-functional team has substantially completed development of credit forecasting models and a credit scoring system for significant loan portfolio segments. The Company is in the final stages of testing these models and validating data inputs, while continuing to develop the policies, systems and controls that will be required to fully implement CECL. Based on the work completed to date and the current loan portfolio, the Company estimates that the allowance for credit losses will be between approximately $80 million and $110 million when CECL is adopted on January 1, 2020, inclusive of the change in reserve for unfunded commitments currently included in other liabilities within the consolidated balance sheets. The estimated increase is driven by the fact that the allowance will cover expected credit losses over the entire expected life of the loan portfolios and will also take into account forecasts of expected future macroeconomic conditions. This estimated increase, net of tax, will largely be reflected within the banking segment and as a decrease to opening retained earnings at January 1, 2020. While not expected to be material, the impact of the adoption of CECL will also affect the Company’s regulatory capital, performance and other asset quality ratios. The Company will continue to produce parallel credit loss calculations during the remainder of 2019. The estimated range noted above and ultimate magnitude of the increase in allowance for credit losses upon adoption is expected to be volatile given dependence upon, among other things, the portfolio composition and quality, as well as the impact of significant drivers, including prepayment assumptions and macroeconomic conditions and forecasts at the time of adoption.

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Stock-Based Compensation - Plan Information (Details) - 2012 Plan - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Stock based compensation
Number of awards approved for grant (in shares)	4,000,000		4,000,000
Common stock remaining available for issuance (in shares)	681,484		681,484
Compensation expense	$ 3.1	$ 2.4	$ 8.1	$ 7.2
Board of Directors
Stock based compensation
Common shares granted to members of board of directors as compensation for director services			20,806	22,269

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Loans Held for Investment and Allowance for Loan Losses

9 Months Ended

Sep. 30, 2019

Loans Held for Investment and Allowance for Loan Losses

Loans Held for Investment and Allowance for Loan Losses

6. Loans Held for Investment and Allowance for Loan Losses

The loans acquired in the FNB Transaction were subject to loss-share agreements with the FDIC. During the fourth quarter of 2018, the Bank and the FDIC entered into a Termination Agreement pursuant to which all rights and obligations of the Bank and the FDIC under the FDIC loss-share agreements were resolved and terminated. Accordingly, loans which were previously referred to as either “covered loans” if covered by the loss-share agreements or otherwise “non-covered loans” are now collectively referred to as “loans held for investment.” Disclosures associated with loans that were previously covered by the FDIC loss-share agreements during the three and nine months ended September 30, 2018 are included in the “covered” portfolio segment in the applicable tables that follow. The majority of the loans previously covered by the FDIC loss-share agreements are comprised primarily of commercial real estate and 1-4 family residential loans. Loans held for investment summarized by portfolio segment are as follows (in thousands).

	September 30,		December 31,
	2019		2018
Commercial real estate	$	2,933,424	$	2,940,120
Commercial and industrial		1,390,531		1,508,451
Construction and land development		972,226		932,909
1-4 family residential		698,251		679,263
Mortgage warehouse		725,852		243,806
Consumer		42,780		47,546
Broker-dealer (1)		558,144		578,363
		7,321,208		6,930,458
Allowance for loan losses		(55,604)		(59,486)
Total loans held for investment, net of allowance	$	7,265,604	$	6,870,972

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

In connection with the Bank Transactions, the Company acquired loans both with and without evidence of credit quality deterioration since origination. The following table presents the carrying values and the outstanding balances of PCI loans (in thousands).

	September 30,		December 31,
	2019		2018
Carrying amount	$	84,205	$	93,072
Outstanding balance		147,926		172,808

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Balance, beginning of period	$	69,305	$	86,652	$	80,693	$	98,846
Additions		—		340		—		340
Reclassifications from nonaccretable difference, net (1)		7,183		6,702		12,626		16,967
Disposals of loans		(132)		—		(835)		(98)
Accretion		(8,614)		(8,491)		(24,742)		(30,005)
Transfer of loans to OREO (2)		—		(142)		—		(989)
Balance, end of period	$	67,742	$	85,061	$	67,742	$	85,061

(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 non-accrual and expected cash flows are no longer predictable and the accretable yield is eliminated.

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

The remaining nonaccretable difference for PCI loans was $53.6 million and $64.2 million at September 30, 2019 and December 31, 2018, respectively.

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

The amounts shown in the following tables include loans accounted for on an individual basis, as well as acquired Pooled Loans. For Pooled Loans, the recorded investment and the related allowance consider impairment measured at the pool level. 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
September 30, 2019	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial real estate:
Non-owner occupied	$	29,625	$	5,281	$	7,436	$	12,717	$	1,507
Owner occupied		27,926		2,292		10,408		12,700		980
Commercial and industrial		24,485		4,459		1,137		5,596		14
Construction and land development		7,412		6		21		27		3
1-4 family residential		92,733		499		52,664		53,163		2,472
Mortgage warehouse		—		—		—		—		—
Consumer		1,750		2		—		2		—
Broker-dealer		—		—		—		—		—
		183,931		12,539		71,666		84,205		4,976
Non-PCI
Commercial real estate:
Non-owner occupied		3,904		199		3,698		3,897		690
Owner occupied		4,910		3,734		—		3,734		—
Commercial and industrial		24,691		9,200		2,332		11,532		903
Construction and land development		1,504		1,358		—		1,358		—
1-4 family residential		10,442		7,514		—		7,514		—
Mortgage warehouse		—		—		—		—		—
Consumer		42		30		—		30		—
Broker-dealer		—		—		—		—		—
		45,493		22,035		6,030		28,065		1,593
	$	229,424	$	34,574	$	77,696	$	112,270	$	6,569

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
December 31, 2018	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial real estate:
Non-owner occupied	$	42,668	$	5,549	$	7,540	$	13,089	$	1,125
Owner occupied		36,246		11,657		2,967		14,624		304
Commercial and industrial		27,403		5,491		1,068		6,559		72
Construction and land development		10,992		74		390		464		92
1-4 family residential		106,503		646		57,681		58,327		1,299
Mortgage warehouse		—		—		—		—		—
Consumer		2,185		9		—		9		—
Broker-dealer		—		—		—		—		—
		225,997		23,426		69,646		93,072		2,892
Non-PCI
Commercial real estate:
Non-owner occupied		—		—		—		—		—
Owner occupied		5,231		4,098		—		4,098		—
Commercial and industrial		22,277		9,891		1,740		11,631		721
Construction and land development		3,430		2,711		535		3,246		31
1-4 family residential		8,695		6,922		—		6,922		—
Mortgage warehouse		—		—		—		—		—
Consumer		149		42		—		42		—
Broker-dealer		—		—		—		—		—
		39,782		23,664		2,275		25,939		752
	$	265,779	$	47,090	$	71,921	$	119,011	$	3,644

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Commercial real estate:
Non-owner occupied	$	14,781	$	41,305	$	14,852	$	46,691
Owner occupied		16,489		67,759		17,578		73,531
Commercial and industrial		17,616		24,705		17,659		24,617
Construction and land development		1,432		2,803		2,548		3,090
1-4 family residential		61,587		—		62,963		—
Mortgage warehouse		—		—		—		—
Consumer		35		52		42		119
Broker-dealer		—		—		—		—
Covered		—		—		—		—
	$	111,940	$	136,624	$	115,642	$	148,048

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

	September 30,		December 31,
	2019		2018
Commercial real estate:
Non-owner occupied	$	4,993	$	1,226
Owner occupied		3,734		4,098
Commercial and industrial		13,313		14,870
Construction and land development		1,358		3,278
1-4 family residential		7,567		7,026
Mortgage warehouse		—		—
Consumer		30		41
Broker-dealer		—		—
	$	30,995	$	30,539

At September 30, 2019 and December 31, 2018, non-accrual loans included PCI loans of $4.2 million and $4.9 million, respectively, for which discount accretion has been suspended because the extent and timing of cash flows from these PCI loans can no longer be reasonably estimated. In addition to the non-accrual loans in the table above, $4.5 million and $3.4 million of real estate loans secured by residential properties and classified as held for sale were in non-accrual status at September 30, 2019 and December 31, 2018, respectively.

Interest income, including recoveries and cash payments, recorded on impaired loans was $0.3 million and $0.5 million during the three months ended September 30, 2019 and 2018, respectively, and $1.1 million and $0.9 million during the nine months ended September 30, 2019 and 2018, respectively. Except as noted above, 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 may also reconfigure a single loan into two or more loans (“A/B Note”). The typical A/B Note restructure results in a “bad” loan which is charged off and a “good” loan or loans, the terms of which comply with the Bank’s customary underwriting policies. The debt charged off on the “bad” loan is not forgiven to the debtor.

Information regarding TDRs granted during the three and nine months ended September 30, 2019, is shown in the following table (dollars in thousands). There were no TDRs granted during the three or nine months ended September 30, 2018. At September 30, 2019 and December 31, 2018, the Bank had nominal unadvanced commitments to borrowers whose loans have been restructured in TDRs.

	Three Months Ended September 30, 2019					Nine Months Ended September 30, 2019
	Number of	Balance at		Balance at		Number of	Balance at		Balance at
	Loans	Extension		End of Period		Loans	Extension		End of Period
Commercial real estate:
Non-owner occupied	—	$	—	$	—	—	$	—	$	—
Owner occupied	—		—		—	—		—		—
Commercial and industrial	2		1,640		1,587	5		9,632		9,113
Construction and land development	—		—		—	—		—		—
1-4 family residential	—		—		—	—		—		—
Mortgage warehouse	—		—		—	—		—		—
Consumer	—		—		—	—		—		—
Broker-dealer	—		—		—	—		—		—
Covered	—		—		—	—		—		—
	2	$	1,640	$	1,587	5	$	9,632	$	9,113

There were no TDRs granted during the twelve months preceding September 30, 2019 for which a payment was at least 30 days past due. The following table presents information regarding TDRs granted during the twelve months preceding September 30, 2018, for which a payment was at least 30 days past due (dollars in thousands).

	Twelve Months Preceding September 30, 2018
	Number of	Balance at		Balance at
	Loans	Extension		End of Period
Commercial real estate:
Non-owner occupied	—	$	—	$	—
Owner occupied	1		3,294		3,130
Commercial and industrial	—		—		—
Construction and land development	—		—		—
1-4 family residential	—		—		—
Mortgage warehouse	—		—		—
Consumer	—		—		—
Broker-dealer	—		—		—
Covered	—		—		—
	1	$	3,294	$	3,130

An analysis of the aging of the Company’s 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
September 30, 2019	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial real estate:
Non-owner occupied	$	4,565	$	15	$	199	$	4,779	$	1,657,864	$	12,717	$	1,675,360	$	—
Owner occupied		2,915		213		2,347		5,475		1,239,889		12,700		1,258,064		—
Commercial and industrial		9,353		2,449		1,301		13,103		1,371,832		5,596		1,390,531		80
Construction and land development		881		—		—		881		971,318		27		972,226		—
1-4 family residential		2,297		1,904		3,044		7,245		637,843		53,163		698,251		—
Mortgage warehouse		—		—		—		—		725,852		—		725,852		—
Consumer		133		32		—		165		42,613		2		42,780		—
Broker-dealer		—		—		—		—		558,144		—		558,144		—
	$	20,144	$	4,613	$	6,891	$	31,648	$	7,205,355	$	84,205	$	7,321,208	$	80

															Accruing Loans (Non-PCI)
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
December 31, 2018	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial real estate:
Non-owner occupied	$	1,174	$	199	$	—	$	1,373	$	1,708,160	$	13,089	$	1,722,622	$	—
Owner occupied		1,364		—		4,173		5,537		1,197,337		14,624		1,217,498		75
Commercial and industrial		1,792		1,049		11,051		13,892		1,488,000		6,559		1,508,451		3
Construction and land development		3,549		—		—		3,549		928,896		464		932,909		—
1-4 family residential		5,987		2,484		1,950		10,421		610,515		58,327		679,263		—
Mortgage warehouse		—		—		—		0		243,806		—		243,806		—
Consumer		254		147		—		401		47,136		9		47,546		—
Broker-dealer		—		—		—		—		578,363		—		578,363		—
	$	14,120	$	3,879	$	17,174	$	35,173	$	6,802,213	$	93,072	$	6,930,458	$	78

In addition to the loans shown in the tables above, PrimeLending had $81.6 million and $83.1 million of loans included in loans held for sale (with an aggregate unpaid principal balance of $82.7 million and $84.0 million, respectively) that were 90 days past due and accruing interest at September 30, 2019 and December 31, 2018, 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 state and local markets.

The Company utilizes a risk grading matrix to assign a risk grade to each of the loans in its portfolio with the exception of broker-dealer margin loans. 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 Company. 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 Company 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 Company 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 Company’s credit position at some future date. Special Mention loans are not adversely classified and do not expose the Company 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 have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Many substandard loans are considered impaired.

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

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

September 30, 2019	Pass		Special Mention		Substandard		PCI		Total
Commercial real estate:
Non-owner occupied	$	1,613,156	$	—	$	49,487	$	12,717	$	1,675,360
Owner occupied		1,211,767		816		32,781		12,700		1,258,064
Commercial and industrial		1,328,903		881		55,151		5,596		1,390,531
Construction and land development		969,661		—		2,538		27		972,226
1-4 family residential		627,962		—		17,126		53,163		698,251
Mortgage warehouse		725,852		—		—		—		725,852
Consumer		42,736		—		42		2		42,780
Broker-dealer		558,144		—		—		—		558,144
	$	7,078,181	$	1,697	$	157,125	$	84,205	$	7,321,208

December 31, 2018	Pass		Special Mention		Substandard		PCI		Total
Commercial real estate:
Non-owner occupied	$	1,673,424	$	—	$	36,109	$	13,089	$	1,722,622
Owner occupied		1,175,225		2,083		25,566		14,624		1,217,498
Commercial and industrial		1,433,227		15,320		53,345		6,559		1,508,451
Construction and land development		929,130		—		3,315		464		932,909
1-4 family residential		601,264		393		19,279		58,327		679,263
Mortgage warehouse		243,806		—		—		—		243,806
Consumer		47,416		—		121		9		47,546
Broker-dealer		578,363		—		—		—		578,363
	$	6,681,855	$	17,796	$	137,735	$	93,072	$	6,930,458

Allowance for Loan Losses

The allowance for loan losses is subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance. 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 2018 Form 10-K.

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

	Balance,		Provision (Recovery)		Loans		Recoveries on		Balance,
Three Months Ended September 30, 2019	Beginning of Period		for Loan Losses		Charged Off		Charged Off Loans		End of Period
Commercial real estate	$	25,114	$	757	$	(9)	$	—	$	25,862
Commercial and industrial		20,414		(1,625)		(1,000)		1,393		19,182
Construction and land development		4,396		392		—		—		4,788
1-4 family residential		4,924		485		(12)		14		5,411
Mortgage warehouse		—		—		—		—		—
Consumer		283		(9)		(12)		6		268
Broker-dealer		46		47		—		—		93
Total	$	55,177	$	47	$	(1,033)	$	1,413	$	55,604

	Balance,		Provision (Recovery)		Loans		Recoveries on		Balance,
Nine Months Ended September 30, 2019	Beginning of Period		for Loan Losses		Charged Off		Charged Off loans		End of Period
Commercial real estate	$	27,100	$	(1,229)	$	(9)	$	—	$	25,862
Commercial and industrial		21,980		87		(5,247)		2,362		19,182
Construction and land development		6,061		(1,273)		—		—		4,788
1-4 family residential		3,956		2,321		(911)		45		5,411
Mortgage warehouse		—		—		—		—		—
Consumer		267		449		(476)		28		268
Broker-dealer		122		(29)		—		—		93
Total	$	59,486	$	326	$	(6,643)	$	2,435	$	55,604

	Balance,		Provision (Recovery)		Loans		Recoveries on		Balance,
Three Months Ended September 30, 2018	Beginning of Period		for Loan Losses		Charged Off		Charged Off Loans		End of Period
Commercial real estate	$	26,032	$	309	$	—	$	—	$	26,341
Commercial and industrial		23,517		(242)		(1,820)		366		21,821
Construction and land development		7,271		443		—		—		7,714
1-4 family residential		2,552		141		—		31		2,724
Mortgage warehouse		—		—		—		—		—
Consumer		207		27		(26)		7		215
Broker-dealer		417		(371)		—		—		46
Covered		1,974		(678)		(6)		1		1,291
Total	$	61,970	$	(371)	$	(1,852)	$	405	$	60,152

	Balance,		Provision (Recovery)		Loans		Recoveries on		Balance,
Nine Months Ended September 30, 2018	Beginning of Period		for Loan Losses		Charged Off		Charged Off Loans		End of Period
Commercial real estate	$	26,413	$	(54)	$	(18)	$	—	$	26,341
Commercial and industrial		23,674		(123)		(5,236)		3,506		21,821
Construction and land development		7,844		(130)		—		—		7,714
1-4 family residential		2,362		240		(12)		134		2,724
Mortgage warehouse		—		—		—		—		—
Consumer		311		(82)		(69)		55		215
Broker-dealer		353		(307)		—		—		46
Covered		2,729		(1,382)		(63)		7		1,291
Total	$	63,686	$	(1,838)	$	(5,398)	$	3,702	$	60,152

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

	Loans Individually		Loans Collectively
	Evaluated for		Evaluated for		PCI
September 30, 2019	Impairment		Impairment		Loans			Total
Commercial real estate	$	7,239	$	2,900,768	$	25,417	$	2,933,424
Commercial and industrial		10,767		1,374,168		5,596		1,390,531
Construction and land development		1,271		970,928		27		972,226
1-4 family residential		608		644,480		53,163		698,251
Mortgage warehouse		—		725,852		—		725,852
Consumer		—		42,778		2		42,780
Broker-dealer		—		558,144		—		558,144
Total	$	19,885	$	7,217,118	$	84,205	$	7,321,208

	Loans Individually		Loans Collectively
	Evaluated for		Evaluated for		PCI
December 31, 2018	Impairment		Impairment		Loans			Total
Commercial real estate	$	3,909	$	2,908,498	$	27,713	$	2,940,120
Commercial and industrial		10,741		1,491,151		6,559		1,508,451
Construction and land development		3,241		929,204		464		932,909
1-4 family residential		—		620,936		58,327		679,263
Mortgage warehouse		—		243,806		—		243,806
Consumer		—		47,537		9		47,546
Broker-dealer		—		578,363		—		578,363
Total	$	17,891	$	6,819,495	$	93,072	$	6,930,458

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

	Loans Individually		Loans Collectively
	Evaluated for		Evaluated for		PCI
September 30, 2019	Impairment		Impairment		Loans			Total
Commercial real estate	$	690	$	22,685	$	2,487	$	25,862
Commercial and industrial		903		18,265		14		19,182
Construction and land development		—		4,785		3		4,788
1-4 family residential		—		2,939		2,472		5,411
Mortgage warehouse		—		—		—		—
Consumer		—		268		—		268
Broker-dealer		—		93		—		93
Total	$	1,593	$	49,035	$	4,976	$	55,604

	Loans Individually		Loans Collectively
	Evaluated for		Evaluated for		PCI
December 31, 2018	Impairment		Impairment		Loans			Total
Commercial real estate	$	—	$	25,671	$	1,429	$	27,100
Commercial and industrial		721		21,187		72		21,980
Construction and land development		31		5,938		92		6,061
1-4 family residential		—		2,657		1,299		3,956
Mortgage warehouse		—		—		—		—
Consumer		—		267		—		267
Broker-dealer		—		122		—		122
Total	$	752	$	55,842	$	2,892	$	59,486

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Short-term Borrowings (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Short-term borrowings
Short-term borrowings	$ 1,502,755		$ 1,065,807
Hilltop Broker-Dealers
Short-term borrowings
Weighted average interest rate (as a percent)	2.76%		3.35%
Federal Funds Purchased.
Short-term borrowings
Short-term borrowings	$ 72,200		$ 100,100
Securities Sold under Agreements to Repurchase
Short-term borrowings
Short-term borrowings	514,055		576,707
FHLB notes
Short-term borrowings
Short-term borrowings	700,000		$ 200,000
Average balance during the year	$ 280,824	$ 253,022
Average interest rate during the year	2.34%	2.04%
Average interest rate at end of year (as a percent)	1.91%		2.65%
FHLB notes | Maximum
Short-term borrowings
Maturity term of debt	365 days
Short Term Bank Loans.
Short-term borrowings
Short-term borrowings	$ 216,500		$ 189,000
Federal Funds Purchased and Securities Sold under Agreements to Repurchase
Short-term borrowings
Average balance during the year	$ 609,162	$ 683,835
Average interest rate during the year	2.57%	1.76%
Average interest rate at end of year (as a percent)	2.52%		2.43%
Securities underlying the agreements at end of period: Carrying value	$ 519,875		$ 587,609
Securities underlying the agreements at end of period: Estimated fair value	$ 554,107		$ 618,231

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Loans Held for Investment and Allowance for Loan Losses - Summary (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Loans
Loans held for investment	$ 7,321,208		$ 6,930,458
Allowance for loan losses	(55,604)	$ (55,177)	(59,486)	$ (60,152)	$ (61,970)	$ (63,686)
Loans held for investment, net	7,265,604		6,870,972
Commercial real estate
Loans
Loans held for investment	2,933,424		2,940,120
Allowance for loan losses	(25,862)	(25,114)	(27,100)	(26,341)	(26,032)	(26,413)
Commercial and Industrial
Loans
Loans held for investment	1,390,531		1,508,451
Allowance for loan losses	(19,182)	(20,414)	(21,980)	(21,821)	(23,517)	(23,674)
Construction and land development
Loans
Loans held for investment	972,226		932,909
Allowance for loan losses	(4,788)	(4,396)	(6,061)	(7,714)	(7,271)	(7,844)
1 - 4 family residential
Loans
Loans held for investment	698,251		679,263
Allowance for loan losses	(5,411)	(4,924)	(3,956)	(2,724)	(2,552)	(2,362)
Mortgage warehouse
Loans
Loans held for investment	725,852		243,806
Consumer
Loans
Loans held for investment	42,780		47,546
Allowance for loan losses	(268)	(283)	(267)	(215)	(207)	(311)
Broker-dealer
Loans
Loans held for investment	558,144		578,363
Allowance for loan losses	$ (93)	$ (46)	$ (122)	$ (46)	$ (417)	$ (353)

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Securities - HTM in an Unrealized Loss Position (Details) $ in Thousands	Sep. 30, 2019 USD ($) item	Dec. 31, 2018 USD ($) item
Number of Securities
Unrealized loss for less than twelve months | item	24	12
Unrealized loss for twelve months or longer | item	13	130
Total | item	37	142
Fair Value
Unrealized loss for less than twelve months	$ 36,661	$ 21,866
Unrealized loss for twelve months or longer	64,230	278,770
Total	100,891	300,636
Unrealized Losses
Unrealized loss for less than twelve months	146	198
Unrealized loss for twelve months or longer	572	10,055
Total	$ 718	$ 10,253
Bonds
Number of Securities
Unrealized loss for less than twelve months | item	2
Unrealized loss for twelve months or longer | item		4
Total | item	2	4
Fair Value
Unrealized loss for less than twelve months	$ 9,693
Unrealized loss for twelve months or longer		$ 37,539
Total	9,693	37,539
Unrealized Losses
Unrealized loss for less than twelve months	7
Unrealized loss for twelve months or longer		1,479
Total	$ 7	$ 1,479
Residential Mortgage Backed Securities
Number of Securities
Unrealized loss for less than twelve months | item		1
Unrealized loss for twelve months or longer | item		3
Total | item		4
Fair Value
Unrealized loss for less than twelve months		$ 8,411
Unrealized loss for twelve months or longer		13,229
Total		21,640
Unrealized Losses
Unrealized loss for less than twelve months		89
Unrealized loss for twelve months or longer		174
Total		$ 263
Commercial mortgage-backed securities
Number of Securities
Unrealized loss for less than twelve months | item	2	1
Unrealized loss for twelve months or longer | item		13
Total | item	2	14
Fair Value
Unrealized loss for less than twelve months	$ 9,767	$ 4,973
Unrealized loss for twelve months or longer		59,670
Total	9,767	64,643
Unrealized Losses
Unrealized loss for less than twelve months	50	27
Unrealized loss for twelve months or longer		1,435
Total	$ 50	$ 1,462
Collateralized Mortgage Obligations
Number of Securities
Unrealized loss for less than twelve months | item	4	1
Unrealized loss for twelve months or longer | item	9	24
Total | item	13	25
Fair Value
Unrealized loss for less than twelve months	$ 10,093	$ 2,051
Unrealized loss for twelve months or longer	63,128	135,423
Total	73,221	137,474
Unrealized Losses
Unrealized loss for less than twelve months	43	26
Unrealized loss for twelve months or longer	540	4,974
Total	$ 583	$ 5,000
States and political subdivisions
Number of Securities
Unrealized loss for less than twelve months | item	16	9
Unrealized loss for twelve months or longer | item	4	86
Total | item	20	95
Fair Value
Unrealized loss for less than twelve months	$ 7,108	$ 6,431
Unrealized loss for twelve months or longer	1,102	32,909
Total	8,210	39,340
Unrealized Losses
Unrealized loss for less than twelve months	46	56
Unrealized loss for twelve months or longer	32	1,993
Total	$ 78	$ 2,049

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Loans Held for Investment and Allowance for Loan Losses - Allowance (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Dec. 31, 2018
Changes in the allowance for loan losses
Balance, beginning of the year	$ 55,177	$ 61,970	$ 59,486	$ 63,686
Provision (recovery) for loan losses	47	(371)	326	(1,838)
Loans charged off	(1,033)	(1,852)	(6,643)	(5,398)
Recoveries on charged off loans	1,413	405	2,435	3,702
Balance, end of the year	55,604	60,152	55,604	60,152
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment					$ 19,885	$ 17,891
Loans collectively evaluated for impairment					7,217,118	6,819,495
Loans held for investment					7,321,208	6,930,458
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment, allowance					1,593	752
Loans collectively evaluated for impairment, allowance					49,035	55,842
Total loans, allowance	55,604	61,970	55,604	60,152	55,604	59,486
Commercial real estate
Changes in the allowance for loan losses
Balance, beginning of the year	25,114	26,032	27,100	26,413
Provision (recovery) for loan losses	757	309	(1,229)	(54)
Loans charged off	(9)		(9)	(18)
Balance, end of the year	25,862	26,341	25,862	26,341
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment					7,239	3,909
Loans collectively evaluated for impairment					2,900,768	2,908,498
Loans held for investment					2,933,424	2,940,120
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment, allowance					690
Loans collectively evaluated for impairment, allowance					22,685	25,671
Total loans, allowance	25,114	26,032	25,862	26,341	25,862	27,100
Commercial and Industrial
Changes in the allowance for loan losses
Balance, beginning of the year	20,414	23,517	21,980	23,674
Provision (recovery) for loan losses	(1,625)	(242)	87	(123)
Loans charged off	(1,000)	(1,820)	(5,247)	(5,236)
Recoveries on charged off loans	1,393	366	2,362	3,506
Balance, end of the year	19,182	21,821	19,182	21,821
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment					10,767	10,741
Loans collectively evaluated for impairment					1,374,168	1,491,151
Loans held for investment					1,390,531	1,508,451
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment, allowance					903	721
Loans collectively evaluated for impairment, allowance					18,265	21,187
Total loans, allowance	20,414	23,517	19,182	21,821	19,182	21,980
Construction and land development
Changes in the allowance for loan losses
Balance, beginning of the year	4,396	7,271	6,061	7,844
Provision (recovery) for loan losses	392	443	(1,273)	(130)
Balance, end of the year	4,788	7,714	4,788	7,714
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment					1,271	3,241
Loans collectively evaluated for impairment					970,928	929,204
Loans held for investment					972,226	932,909
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment, allowance						31
Loans collectively evaluated for impairment, allowance					4,785	5,938
Total loans, allowance	4,396	7,271	4,788	7,714	4,788	6,061
1 - 4 family residential
Changes in the allowance for loan losses
Balance, beginning of the year	4,924	2,552	3,956	2,362
Provision (recovery) for loan losses	485	141	2,321	240
Loans charged off	(12)		(911)	(12)
Recoveries on charged off loans	14	31	45	134
Balance, end of the year	5,411	2,724	5,411	2,724
Loan portfolio distributed by portfolio segment and impairment methodology
Loans individually evaluated for impairment					608
Loans collectively evaluated for impairment					644,480	620,936
Loans held for investment					698,251	679,263
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment, allowance					2,939	2,657
Total loans, allowance	4,924	2,552	3,956	2,362	5,411	3,956
Mortgage warehouse
Loan portfolio distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment					725,852	243,806
Loans held for investment					725,852	243,806
Consumer
Changes in the allowance for loan losses
Balance, beginning of the year	283	207	267	311
Provision (recovery) for loan losses	(9)	27	449	(82)
Loans charged off	(12)	(26)	(476)	(69)
Recoveries on charged off loans	6	7	28	55
Balance, end of the year	268	215	268	215
Loan portfolio distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment					42,778	47,537
Loans held for investment					42,780	47,546
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment, allowance					268	267
Total loans, allowance	283	207	268	311	268	267
Broker-dealer
Changes in the allowance for loan losses
Balance, beginning of the year	46	417	122	353
Provision (recovery) for loan losses	47	(371)	(29)	(307)
Balance, end of the year	93	46	93	46
Loan portfolio distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment					558,144	578,363
Loans held for investment					558,144	578,363
Allowance for loan losses distributed by portfolio segment and impairment methodology
Loans collectively evaluated for impairment, allowance					93	122
Total loans, allowance	46	417	122	46	93	122
Covered Loan
Changes in the allowance for loan losses
Balance, beginning of the year		1,974		2,729
Provision (recovery) for loan losses		(678)		(1,382)
Loans charged off		(6)		(63)
Recoveries on charged off loans		1		7
Balance, end of the year		1,291		1,291
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance		$ 1,974		$ 1,291
PCI loans
Changes in the allowance for loan losses
Balance, beginning of the year			2,892
Balance, end of the year	4,976		4,976
Loan portfolio distributed by portfolio segment and impairment methodology
Loans held for investment					84,205	93,072
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	4,976		4,976		4,976	2,892
PCI loans | Commercial real estate
Changes in the allowance for loan losses
Balance, beginning of the year			1,429
Balance, end of the year	2,487		2,487
Loan portfolio distributed by portfolio segment and impairment methodology
Loans held for investment					25,417	27,713
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	2,487		2,487		2,487	1,429
PCI loans | Commercial and Industrial
Changes in the allowance for loan losses
Balance, beginning of the year			72
Balance, end of the year	14		14
Loan portfolio distributed by portfolio segment and impairment methodology
Loans held for investment					5,596	6,559
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	14		14		14	72
PCI loans | Construction and land development
Changes in the allowance for loan losses
Balance, beginning of the year			92
Balance, end of the year	3		3
Loan portfolio distributed by portfolio segment and impairment methodology
Loans held for investment					27	464
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	3		3		3	92
PCI loans | 1 - 4 family residential
Changes in the allowance for loan losses
Balance, beginning of the year			1,299
Balance, end of the year	2,472		2,472
Loan portfolio distributed by portfolio segment and impairment methodology
Loans held for investment					53,163	58,327
Allowance for loan losses distributed by portfolio segment and impairment methodology
Total loans, allowance	$ 2,472		$ 2,472		2,472	1,299
PCI loans | Consumer
Loan portfolio distributed by portfolio segment and impairment methodology
Loans held for investment					$ 2	$ 9

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Balance Sheet Offsetting (Tables)

9 Months Ended

Sep. 30, 2019

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
September 30, 2019
Securities borrowed:
Institutional counterparties	$	1,636,796	$	—	$	1,636,796	$	(1,583,664)	$	—	$	53,132
Interest rate options:
Customer counterparties		—		—		—		—		—		—
Interest rate swaps:
Institutional counterparties		392		(168)		224		(224)		—		—
Reverse repurchase agreements:
Institutional counterparties		49,998		—		49,998		(49,840)		—		158
Forward MBS derivatives:
Institutional counterparties		9,175		—		9,175		(9,175)		—		—
	$	1,696,361	$	(168)	$	1,696,193	$	(1,642,903)	$	—	$	53,290
December 31, 2018
Securities borrowed:
Institutional counterparties	$	1,365,547	$	—	$	1,365,547	$	(1,307,121)	$	—	$	58,426
Interest rate options:
Customer counterparties		49		—		49		—		—		49
Interest rate swaps:
Institutional counterparties		88		—		88		—		—		88
Reverse repurchase agreements:
Institutional counterparties		61,611		—		61,611		(61,390)		—		221
Forward MBS derivatives:
Institutional counterparties		10,469		—		10,469		(10,469)		—		—
	$	1,437,764	$	—	$	1,437,764	$	(1,378,980)	$	—	$	58,784

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
September 30, 2019
Securities loaned:
Institutional counterparties	$	1,505,118	$	—	$	1,505,118	$	(1,454,240)	$	—	$	50,878
Interest rate options:
Institutional counterparties		—		—		—		—		—		—
Interest rate swaps:
Institutional counterparties		89		—		89		—		—		89
Repurchase agreements:
Institutional counterparties		495,564		—		495,564		(495,564)		—		—
Customer counterparties		18,491		—		18,491		(18,491)		—		—
Forward MBS derivatives:
Institutional counterparties		8,555		(2,561)		5,994		(3,720)		—		2,274
	$	2,027,817	$	(2,561)	$	2,025,256	$	(1,972,015)	$	—	$	53,241
December 31, 2018
Securities loaned:
Institutional counterparties	$	1,186,073	$	—	$	1,186,073	$	(1,136,033)	$	—	$	50,040
Interest rate options:
Institutional counterparties		49		—		49		—		—		49
Interest rate swaps:
Institutional counterparties		6		—		6		—		—		6
Repurchase agreements:
Institutional counterparties		533,441		—		533,441		(533,441)		—		—
Customer counterparties		43,266		—		43,266		(43,266)		—		—
Forward MBS derivatives:
Institutional counterparties		19,331		(15)		19,316		(7,728)		—		11,588
	$	1,782,166	$	(15)	$	1,782,151	$	(1,720,468)	$	—	$	61,683

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 September 30, 2019 and December 31, 2018.

	Remaining Contractual Maturities
	Overnight and						Greater Than
September 30, 2019	Continuous		Up to 30 Days		30-90 Days		90 Days		Total
Repurchase agreement transactions:
U.S. Treasury and agency securities	$	35,335	$	—	$	—	$	—	$	35,335
Asset-backed securities		478,720		—		—		—		478,720
Securities lending transactions:
Corporate securities		113		—		—		—		113
Equity securities		1,505,005		—		—		—		1,505,005
Total	$	2,019,173	$	—	$	—	$	—	$	2,019,173
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above									$	2,019,173
Amount related to agreements not included in offsetting disclosure above									$	—
	Remaining Contractual Maturities
	Overnight and						Greater Than
December 31, 2018	Continuous		Up to 30 Days		30-90 Days		90 Days		Total
Repurchase agreement transactions:
U.S. Treasury and agency securities	$	131,848	$	—	$	—	$	—	$	131,848
Asset-backed securities		444,859		—		—		—		444,859
Securities lending transactions:
Corporate securities		113		—		—		—		113
Equity securities		1,185,960		—		—		—		1,185,960
Total	$	1,762,780	$	—	$	—	$	—	$	1,762,780
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above									$	1,762,780
Amount related to agreements not included in offsetting disclosure above									$	—

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Segment and Related Information (Tables)

9 Months Ended

Sep. 30, 2019

Segment and Related Information

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

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 September 30, 2019	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	97,642	$	13,724	$	(2,725)	$	566	$	(1,384)	$	5,389	$	113,212
Provision (recovery) for loan losses		—		47		—		—		—		—		47
Noninterest income		8,856		107,742		194,857		34,896		460		(5,410)		341,401
Noninterest expense		53,767		94,411		160,634		28,923		12,561		(187)		350,109
Income (loss) before income taxes	$	52,731	$	27,008	$	31,498	$	6,539	$	(13,485)	$	166	$	104,457
					Mortgage						All Other and		Hilltop
Nine Months Ended September 30, 2019	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	283,755	$	37,984	$	(4,224)	$	1,802	$	(4,045)	$	14,747	$	330,019
Provision (recovery) for loan losses		355		(29)		—		—		—		—		326
Noninterest income		30,219		304,607		477,438		107,539		1,850		(14,913)		906,740
Noninterest expense		172,744		277,088		417,032		98,850		37,397		(240)		1,002,871
Income (loss) before income taxes	$	140,875	$	65,532	$	56,182	$	10,491	$	(39,592)	$	74	$	233,562
					Mortgage						All Other and		Hilltop
Three Months Ended September 30, 2018	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	94,921	$	12,432	$	363	$	733	$	(3,275)	$	5,167	$	110,341
Provision (recovery) for loan losses		—		(371)		—		—		—		—		(371)
Noninterest income		11,365		82,834		144,400		36,724		523		(6,149)		269,697
Noninterest expense		67,714		85,713		140,006		33,807		8,656		(185)		335,711
Income (loss) before income taxes	$	38,572	$	9,924	$	4,757	$	3,650	$	(11,408)	$	(797)	$	44,698

					Mortgage						All Other and		Hilltop
Nine Months Ended September 30, 2018	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
Net interest income (expense)	$	269,517	$	37,873	$	2,009	$	2,313	$	(7,848)	$	14,745	$	318,609
Provision (recovery) for loan losses		(1,531)		(307)		—		—		—		—		(1,838)
Noninterest income		32,188		224,969		434,262		108,288		1,246		(16,679)		784,274
Noninterest expense		192,626		241,456		420,736		104,532		23,399		(319)		982,430
Income (loss) before income taxes	$	110,610	$	21,693	$	15,535	$	6,069	$	(30,001)	$	(1,615)	$	122,291

					Mortgage						All Other and		Hilltop
	Banking		Broker-Dealer		Origination		Insurance		Corporate		Eliminations		Consolidated
September 30, 2019
Goodwill	$	247,368	$	7,008	$	13,071	$	23,988	$	—	$	—	$	291,435
Total assets	$	10,938,112	$	3,368,574	$	2,242,522	$	254,243	$	2,365,800	$	(4,332,222)	$	14,837,029
December 31, 2018
Goodwill	$	247,368	$	7,008	$	13,071	$	23,988	$	—	$	—	$	291,435
Total assets	$	10,004,971	$	3,213,115	$	1,627,134	$	253,513	$	2,243,182	$	(3,658,343)	$	13,683,572

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Acquisition - Identifiable Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands	Aug. 01, 2018	Sep. 30, 2019	Dec. 31, 2018
Fair values of the identifiable assets acquired, and liabilities assumed
Goodwill resulting from the acquisition		$ 291,435	$ 291,435
BORO
Fair values of the identifiable assets acquired, and liabilities assumed
Cash and due from banks	$ 21,756
Securities	60,477
Loans held for investment	326,618
Other assets	25,912
Total identifiable assets acquired	434,763
Deposits	376,393
Short-term borrowings	10,000
Other liabilities	2,996
Total liabilities assumed	389,389
Net identifiable assets acquired	45,374
Goodwill resulting from the acquisition	39,627
Net assets acquired	$ 85,001
Core Deposits | BORO
Allocation to intangible assets
Estimated Useful Life	6 years
Intangible Assets	$ 10,000

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Lease - Supplemental cash flow information (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Leases
Operating cash flows from operating leases	$ 29,047
Operating cash flows from finance leases	450
Financing cash flows from finance leases	438
Right-of-use assets obtained in exchange for new lease obligations - Operating leases	$ 25,951

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Fair Value Measurements - Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Financial assets:
Trading securities	$ 707,268	$ 745,466
Available for sale securities	1,003,850	875,658
Equity securities	19,494	19,679
Financial liabilities:
Securities sold, not yet purchased	59,249	81,667
Recurring
Financial assets:
Trading securities	707,268	745,466
Available for sale securities	1,003,850	875,658
Equity securities	19,494	19,679
Loans held for sale	1,853,225	1,257,775
Derivative assets	40,791	35,010
MSR asset	51,297	66,102
Financial liabilities:
Securities sold, not yet purchased	59,249	81,667
Derivative liabilities	6,083	26,355
Recurring | Level 1
Financial assets:
Trading securities	6,562	7,947
Equity securities	19,494	19,679
Financial liabilities:
Securities sold, not yet purchased	33,454	33,000
Recurring | Level 2
Financial assets:
Trading securities	700,706	737,519
Available for sale securities	1,003,850	875,658
Loans held for sale	1,792,321	1,207,311
Derivative assets	40,791	35,010
Financial liabilities:
Securities sold, not yet purchased	25,795	48,667
Derivative liabilities	6,083	26,355
Recurring | Level 3
Financial assets:
Loans held for sale	60,904	50,464
MSR asset	$ 51,297	$ 66,102

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Fair Value Measurements - Impaired Loans (Details) - Level 3 - Weighted average - PCI loans	Sep. 30, 2019	Dec. 31, 2018
PPC
Fair Value Inputs
Loans, measurement input	0.49	0.48
PPC | Default Rate
Fair Value Inputs
Loans, measurement input	0.84	0.81
PPC | Severity Rate
Fair Value Inputs
Loans, measurement input	0.58	0.59
PPC | Prepayment Rate
Fair Value Inputs
Loans, measurement input	0	0
FNB
Fair Value Inputs
Loans, measurement input	0.04	0.04
FNB | Default Rate
Fair Value Inputs
Loans, measurement input	0.30	0.34
FNB | Severity Rate
Fair Value Inputs
Loans, measurement input	0.12	0.12
FNB | Prepayment Rate
Fair Value Inputs
Loans, measurement input	0.05	0.06
SWS
Fair Value Inputs
Loans, measurement input	0.18	0.20
SWS | Default Rate
Fair Value Inputs
Loans, measurement input	0.66	0.71
SWS | Severity Rate
Fair Value Inputs
Loans, measurement input	0.28	0.28
SWS | Prepayment Rate
Fair Value Inputs
Loans, measurement input	0	0
BORO
Fair Value Inputs
Loans, measurement input	0.25	0.26
BORO | Default Rate
Fair Value Inputs
Loans, measurement input	0.59	0.63
BORO | Severity Rate
Fair Value Inputs
Loans, measurement input	0.43	0.42
BORO | Prepayment Rate
Fair Value Inputs
Loans, measurement input	0	0

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Lease - Lease maturities - ASC 840 (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Future minimum lease payments under operating leases
2019	$ 36,171
2020	29,109
2021	21,058
2022	16,386
2023	12,361
Thereafter	18,264
Total minimum lease payments	133,349
Future minimum lease payments under capital leases
2019	1,186
2020	1,197
2021	1,212
2022	1,241
2023	1,280
Thereafter	3,460
Total minimum lease payments	9,576
Amount representing interest	(1,221)
Present value of minimum lease payments	$ 8,355

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Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2019

Derivative Financial Instruments

Schedule of changes in fair value of derivatives

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Increase (decrease) in fair value of derivatives during period:
PrimeLending	$	5,881	$	2,171	$	23,285	$	9,036
Hilltop Broker-Dealers		(5,984)		3,648		4,790		1,411
Bank		(25)		(16)		(171)		143

Schedule of derivative positions

	September 30, 2019				December 31, 2018
	Notional		Estimated		Notional		Estimated
	Amount		Fair Value		Amount		Fair Value
Derivative instruments:
IRLCs	$	1,695,917	$	31,392	$	677,267	$	17,421
Customer-based written options		31,200		—		31,200		(49)
Customer-based purchased options		31,200		—		31,200		49
Commitments to purchase MBSs		3,847,878		9,175		2,359,630		10,467
Commitments to sell MBSs		7,056,929		(5,994)		3,711,477		(19,315)
Interest rate swaps		37,067		135		15,104		82
U.S. Treasury bond futures and options (1)		268,700		—		367,200		—
Eurodollar futures (1)		48,000		—		104,000		—

(1)    Changes in the fair value of these contracts are settled daily with the respective counterparties of PrimeLending and the Hilltop Broker-Dealers.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net unrealized gains (losses) on securities available for sale, tax	$ 1,238	$ (847)	$ 6,030	$ (3,335)
Other comprehensive income reclassification adjustment, tax	$ (531)	$ 7	$ (536)	$ 7

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Leases (Tables)

9 Months Ended

Sep. 30, 2019

Leases

Schedule of supplemental balance sheet information

Supplemental balance sheet information related to finance leases is as follows (in thousands).

	September 30,
	2019
Finance leases:
Premises and equipment	$	7,780
Accumulated depreciation		(4,031)
Premises and equipment, net	$	3,749

Schedule of components of lease costs

	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Operating lease cost	$	11,123	$	32,253
Less operating lease and sublease income		(846)		(1,897)
Net operating lease cost	$	10,277	$	30,356
Finance lease cost:
Amortization of lease assets	$	147	$	442
Interest on lease liabilities		148		450
Total finance lease cost	$	295	$	892

Schedule of supplemental cash flow information

Supplemental cash flow information related to leases is as follows (in thousands):

	Nine Months Ended
	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	29,047
Operating cash flows from finance leases		450
Financing cash flows from finance leases		438
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	25,951
Finance leases		—

Schedule of lease terms and discount rates

Information regarding the lease terms and discount rates of the Company’s leases is as follows.

	September 30, 2019
	Weighted Average	Weighted Average
Lease Classification	Remaining Lease Term (Years)	Discount Rate
Operating	5.8	5.35	%
Finance	6.8	4.78	%

Future minimum lease payments under the Leasing Standard

Future minimum lease payments under the Leasing Standard as of September 30, 2019, under lease agreements that had commenced as of or subsequent to January 1, 2019, are presented below (in thousands).

	Operating Leases		Finance Leases
2019	$	9,221	$	298
2020		34,509		1,197
2021		28,671		1,212
2022		22,459		1,241
2023		17,757		1,280
Thereafter		42,761		3,460
Total minimum lease payments	$	155,378	$	8,688
Less amount representing interest		(24,245)		(3,041)
Lease liabilities	$	131,133	$	5,647

Future minimum lease payments under ASC 840

	Operating Leases		Capital Leases
2019	$	36,171	$	1,186
2020		29,109		1,197
2021		21,058		1,212
2022		16,386		1,241
2023		12,361		1,280
Thereafter		18,264		3,460
Total minimum lease payments	$	133,349		9,576
Amount representing interest				(1,221)
Present value of minimum lease payments			$	8,355

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Mortgage Servicing Rights (Tables)

9 Months Ended

Sep. 30, 2019

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 asset, as included in other assets within the consolidated balance sheets, and other information related to the serviced portfolio (dollars in thousands).

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019		2018
Balance, beginning of period	$	53,695		$	57,373		$	66,102	$	54,714
Additions		4,166			11,361			8,574		21,090
Sales		—			—			—		(9,303)
Changes in fair value:
Due to changes in model inputs or assumptions (1)		(3,769)			1,311			(17,541)		5,984
Due to customer payoffs		(2,795)			(1,241)			(5,838)		(3,681)
Balance, end of period	$	51,297		$	68,804		$	51,297	$	68,804
	September 30,			December 31,
	2019			2018
Mortgage loans serviced for others	$	4,969,855		$	5,086,461
MSR asset as a percentage of serviced mortgage loans		1.03	%		1.30	%

(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

	September 30,		December 31,
	2019		2018
Weighted average constant prepayment rate	14.40	%	10.51	%
Weighted average discount rate	11.13	%	11.11	%
Weighted average life (in years)	5.6		7.1

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 asset to certain key assumptions is presented in the following table (in thousands).

	September 30,		December 31,
	2019		2018
Constant prepayment rate:
Impact of 10% adverse change	$	(3,099)	$	(2,512)
Impact of 20% adverse change		(5,960)		(4,980)
Discount rate:
Impact of 10% adverse change		(1,839)		(2,677)
Impact of 20% adverse change		(3,542)		(5,139)

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CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets
Cash and due from banks	$ 326,129	$ 644,073
Federal funds sold	423	400
Assets segregated for regulatory purposes	83,878	133,993
Securities purchased under agreements to resell	49,998	61,611
Securities:
Trading, at fair value	707,268	745,466
Available for sale, at fair value (amortized cost of $987,992 and $886,799, respectively)	1,003,850	875,658
Held to maturity, at amortized cost (fair value of $377,337 and $341,124, respectively)	371,361	351,012
Equity, at fair value	19,494	19,679
Total securities	2,101,973	1,991,815
Loans held for sale	1,984,231	1,393,246
Loans held for investment, net of unearned income	7,321,208	6,930,458
Allowance for loan losses	(55,604)	(59,486)
Loans held for investment, net	7,265,604	6,870,972
Broker-dealer and clearing organization receivables	1,731,979	1,440,287
Premises and equipment, net	213,757	237,373
Operating lease right-of-use assets	121,838
Other assets	633,794	580,362
Goodwill	291,435	291,435
Other intangible assets, net	31,990	38,005
Total assets	14,837,029	13,683,572
Deposits:
Noninterest-bearing	2,732,325	2,560,750
Interest-bearing	5,998,547	5,975,406
Total deposits	8,730,872	8,536,156
Broker-dealer and clearing organization payables	1,546,163	1,294,925
Short-term borrowings	1,502,755	1,065,807
Securities sold, not yet purchased, at fair value	59,249	81,667
Notes payable	245,341	228,872
Operating lease liabilities	131,133
Junior subordinated debentures	67,012	67,012
Other liabilities	471,077	435,240
Total liabilities	12,753,602	11,709,679
Commitments and contingencies (see Notes 13 and 14)
Hilltop stockholders' equity:
Common stock, $0.01 par value, 125,000,000 shares authorized; 90,629,208 and 93,610,217 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively	906	936
Additional paid-in capital	1,441,604	1,489,816
Accumulated other comprehensive income (loss)	12,305	(8,627)
Retained earnings	602,835	466,737
Deferred compensation employee stock trust, net	789	825
Employee stock trust (8,508 and 11,672 shares, at cost, at September 30, 2019 and December 31, 2018, respectively)	(170)	(217)
Total Hilltop stockholders' equity	2,058,269	1,949,470
Noncontrolling interests	25,158	24,423
Total stockholders' equity	2,083,427	1,973,893
Total liabilities and stockholders' equity	$ 14,837,029	$ 13,683,572

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Notes Payable

9 Months Ended

Sep. 30, 2019

Notes Payable

Notes Payable

10. Notes Payable

Notes payable consisted of the following (in thousands).

	September 30,		December 31,
	2019		2018
Senior Notes due April 2025, net of discount of $1,273 and $1,393, respectively	$	148,727	$	148,607
FHLB notes, including premium of $163 and $222, respectively, with maturities ranging from September 2020 to June 2030		3,943		4,391
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
Ventures Management lines of credit due May 2020		65,171		48,374
	$	245,341	$	228,872

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Financial Instruments with Off-Balance Sheet Risk

9 Months Ended

Sep. 30, 2019

Financial Instruments with Off-Balance Sheet Risk

Financial Instruments with Off-Balance Sheet Risk

14. 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 $2.2 billion at September 30, 2019 and outstanding financial and performance standby letters of credit of $91.2 million at September 30, 2019.

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 and to hedge changes in the fair value of certain securities, 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.

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Derivative Financial Instruments

9 Months Ended

Sep. 30, 2019

Derivative Financial Instruments

Derivative Financial Instruments

18. 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 Bank’s 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”) and Eurodollar futures. Additionally, PrimeLending has interest rate risk relative to its MSR asset and uses derivative instruments, including interest rate swaps and U.S. Treasury bond futures and options 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. Additionally, Hilltop Securities uses U.S. Treasury bond, Eurodollar futures and municipal market data, or MMD, rate locks to hedge changes in the fair value of its securities.

Non-Hedging Derivative Instruments and the Fair Value Option

As discussed in Note 4 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 hedge accounting provisions. The fair values of PrimeLending’s IRLCs and forward commitments are recorded in other assets or other liabilities, as appropriate, and changes in the fair values of these derivative instruments are recorded as a component of net gains from sale of loans and other mortgage production income. These 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 4 to the consolidated financial statements. The fair values of the Hilltop Broker-Dealers’ and the Bank’s derivative instruments are recorded in other assets or other liabilities, as appropriate.

Changes in the fair value of derivatives are presented in the following table (in thousands).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Increase (decrease) in fair value of derivatives during period:
PrimeLending	$	5,881	$	2,171	$	23,285	$	9,036
Hilltop Broker-Dealers		(5,984)		3,648		4,790		1,411
Bank		(25)		(16)		(171)		143

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

	September 30, 2019				December 31, 2018
	Notional		Estimated		Notional		Estimated
	Amount		Fair Value		Amount		Fair Value
Derivative instruments:
IRLCs	$	1,695,917	$	31,392	$	677,267	$	17,421
Customer-based written options		31,200		—		31,200		(49)
Customer-based purchased options		31,200		—		31,200		49
Commitments to purchase MBSs		3,847,878		9,175		2,359,630		10,467
Commitments to sell MBSs		7,056,929		(5,994)		3,711,477		(19,315)
Interest rate swaps		37,067		135		15,104		82
U.S. Treasury bond futures and options (1)		268,700		—		367,200		—
Eurodollar futures (1)		48,000		—		104,000		—

(1)    Changes in the fair value of these contracts are settled daily with the respective counterparties of PrimeLending and the Hilltop Broker-Dealers.

PrimeLending had cash collateral advances totaling $0.1 million and $11.9 million to offset net liability derivative positions on its commitments to sell MBSs at September 30, 2019 and December 31, 2018, respectively. In addition, PrimeLending and the Hilltop Broker-Dealers advanced cash collateral totaling $2.7 million and $3.4 million on U.S. Treasury bond futures and options and Eurodollar futures at September 30, 2019 and December 31, 2018, respectively. These amounts are included in other assets within the consolidated balance sheets.

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Balance Sheet Offsetting - Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Total
Gross Amounts of Recognized Liabilities	$ 2,027,817	$ 1,782,166
Gross Amounts Offset in the Balance Sheet	(2,561)	(15)
Net Amounts of Liabilities Presented in the Balance Sheet	2,025,256	1,782,151
Gross Amounts Not Offset in the Balance Sheet
Financial Instruments	(1,972,015)	(1,720,468)
Net Amount	53,241	61,683
Institutional Counterparties
Securities loaned:
Gross Amounts of Recognized Liabilities	1,505,118	1,186,073
Net Amounts of Liabilities Presented in the Balance Sheets	1,505,118	1,186,073
Gross Amounts Not Offset in the Balance Sheet
Financial Instruments	(1,454,240)	(1,136,033)
Net Amount	50,878	50,040
Institutional Counterparties | Interest Rate Options
Derivatives:
Gross Amounts of Recognized Liabilities		49
Net Amounts of Liabilities Presented in the Balance Sheet		49
Gross Amounts Not Offset in the Balance Sheet
Net Amount		49
Institutional Counterparties | Interest rate swaps
Derivatives:
Gross Amounts of Recognized Liabilities	89	6
Net Amounts of Liabilities Presented in the Balance Sheet	89	6
Gross Amounts Not Offset in the Balance Sheet
Net Amount	89	6
Institutional Counterparties | Repurchase agreements
Repurchase agreements:
Gross Amounts of Recognized Liabilities	495,564	533,441
Net Amounts of Liabilities Presented in the Balance Sheet	495,564	533,441
Gross Amounts Not Offset in the Balance Sheet
Financial Instruments	(495,564)	(533,441)
Net Amount	0	0
Institutional Counterparties | Forward MBS Derivatives
Derivatives:
Gross Amounts of Recognized Liabilities	8,555	19,331
Gross Amounts Offset in the Balance Sheet	(2,561)	(15)
Net Amounts of Liabilities Presented in the Balance Sheet	5,994	19,316
Gross Amounts Not Offset in the Balance Sheet
Financial Instruments	(3,720)	(7,728)
Net Amount	2,274	11,588
Customer Counterparties | Repurchase agreements
Repurchase agreements:
Gross Amounts of Recognized Liabilities	18,491	43,266
Net Amounts of Liabilities Presented in the Balance Sheet	18,491	43,266
Gross Amounts Not Offset in the Balance Sheet
Financial Instruments	(18,491)	(43,266)
Net Amount	$ 0	$ 0

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Reserve for Losses and Loss Adjustment Expenses - Activity (Details) $ in Thousands	Sep. 30, 2019 USD ($) claim	Dec. 31, 2018 USD ($)
Insurance Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Total paid	$ 279,338
Total incurred	297,607
All outstanding reserves prior to 2016, net of reinsurance	134
Reserve for unpaid losses and allocated LAE, net of reinsurance	18,403	$ 16,498
2016
Insurance Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Total paid	83,540
Total incurred	83,978
Total of IBNR Reserves Plus Expected Development on Reported claims	$ 272
Cumulative Number of Reported Claims | claim	20,180
2017
Insurance Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Total paid	$ 87,039
Total incurred	87,743
Total of IBNR Reserves Plus Expected Development on Reported claims	$ 418
Cumulative Number of Reported Claims | claim	20,738
2018
Insurance Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Total paid	$ 69,823
Total incurred	73,703
Total of IBNR Reserves Plus Expected Development on Reported claims	$ 2,128
Cumulative Number of Reported Claims | claim	15,290
2019
Insurance Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Total paid	$ 38,936
Total incurred	52,183
Total of IBNR Reserves Plus Expected Development on Reported claims	$ 5,656
Cumulative Number of Reported Claims | claim	11,701

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Segment and Related Information (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) segment	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Information about the revenues, operating results, goodwill and assets
Number of reportable segments | segment			4
Net interest income (expense)	$ 113,212	$ 110,341	$ 330,019	$ 318,609
Provision (recovery) for loan losses	47	(371)	326	(1,838)
Noninterest income	341,401	269,697	906,740	784,274
Noninterest expense	350,109	335,711	1,002,871	982,430
Income before income taxes	104,457	44,698	233,562	122,291
Goodwill	291,435		291,435		$ 291,435
Total assets	14,837,029		14,837,029		13,683,572
Operating segment | Banking
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	97,642	94,921	283,755	269,517
Provision (recovery) for loan losses			355	(1,531)
Noninterest income	8,856	11,365	30,219	32,188
Noninterest expense	53,767	67,714	172,744	192,626
Income before income taxes	52,731	38,572	140,875	110,610
Goodwill	247,368		247,368		247,368
Total assets	10,938,112		10,938,112		10,004,971
Operating segment | Broker-Dealer
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	13,724	12,432	37,984	37,873
Provision (recovery) for loan losses	47	(371)	(29)	(307)
Noninterest income	107,742	82,834	304,607	224,969
Noninterest expense	94,411	85,713	277,088	241,456
Income before income taxes	27,008	9,924	65,532	21,693
Goodwill	7,008		7,008		7,008
Total assets	3,368,574		3,368,574		3,213,115
Operating segment | Mortgage Origination Segment
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	(2,725)	363	(4,224)	2,009
Noninterest income	194,857	144,400	477,438	434,262
Noninterest expense	160,634	140,006	417,032	420,736
Income before income taxes	31,498	4,757	56,182	15,535
Goodwill	13,071		13,071		13,071
Total assets	2,242,522		2,242,522		1,627,134
Operating segment | Insurance Segment
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	566	733	1,802	2,313
Noninterest income	34,896	36,724	107,539	108,288
Noninterest expense	28,923	33,807	98,850	104,532
Income before income taxes	6,539	3,650	10,491	6,069
Goodwill	23,988		23,988		23,988
Total assets	254,243		254,243		253,513
Corporate
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	(1,384)	(3,275)	(4,045)	(7,848)
Noninterest income	460	523	1,850	1,246
Noninterest expense	12,561	8,656	37,397	23,399
Income before income taxes	(13,485)	(11,408)	(39,592)	(30,001)
Total assets	2,365,800		2,365,800		2,243,182
All Other and Eliminations.
Information about the revenues, operating results, goodwill and assets
Net interest income (expense)	5,389	5,167	14,747	14,745
Noninterest income	(5,410)	(6,149)	(14,913)	(16,679)
Noninterest expense	(187)	(185)	(240)	(319)
Income before income taxes	166	$ (797)	74	$ (1,615)
Total assets	$ (4,332,222)		$ (4,332,222)		$ (3,658,343)

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Lease - Lease terms and discount rates (Details)	Sep. 30, 2019
Leases
Operating - Weighted Average Remaining Lease Term (Years)	5 years 9 months 18 days
Finance - Weighted Average Remaining Lease Term (Years)	6 years 9 months 18 days
Operating - Weighted Average Discount Rate	5.35%
Finance - Weighted Average Discount Rate	4.78%

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Fair Value Measurements - Roll Forward, Level 3 (Details) - Level 3 - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Rollforward for financial instruments measured at fair value using Level 3 inputs
Asset balance, beginning of period	$ 110,494	$ 98,154	$ 116,566	$ 91,686
Purchases/Additions	19,513	30,517	53,401	60,796
Sales/Reductions	(9,364)	(4,614)	(27,448)	(26,430)
Transfers into Level 3	711		1,136
Total gains or losses (realized or unrealized):
Included in Net Income	(9,153)	(888)	(31,454)	(2,883)
Asset balance, end of period	112,201	123,169	112,201	123,169
Loans Held for Sale
Rollforward for financial instruments measured at fair value using Level 3 inputs
Asset balance, beginning of period	56,799	40,781	50,464	36,972
Purchases/Additions	15,347	19,156	44,827	39,706
Sales/Reductions	(9,364)	(4,614)	(27,448)	(17,127)
Transfers into Level 3	711		1,136
Total gains or losses (realized or unrealized):
Included in Net Income	(2,589)	(958)	(8,075)	(5,186)
Asset balance, end of period	60,904	54,365	60,904	54,365
MSR
Rollforward for financial instruments measured at fair value using Level 3 inputs
Asset balance, beginning of period	53,695	57,373	66,102	54,714
Purchases/Additions	4,166	11,361	8,574	21,090
Sales/Reductions				(9,303)
Total gains or losses (realized or unrealized):
Included in Net Income	(6,564)	70	(23,379)	2,303
Asset balance, end of period	$ 51,297	$ 68,804	$ 51,297	$ 68,804

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Fair Value Measurements - OREO (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Fair Value
Impairment loans held for investment	$ 112,270		$ 112,270		$ 119,011
Total Gains (Losses) of impaired loans	(47)	$ 371	(326)	$ 1,838
Level 2 | Estimate of Fair Value | Other Assets
Fair Value
Other real estate owned	18,700		18,700		$ 27,600
Nonrecurring | Estimate of Fair Value
Fair Value
Impairment loans held for investment	67,097		67,097
Other real estate owned	12,112		12,112
Total Gains (Losses) of impaired loans	(1,730)	668	(2,925)	(57)
Total Gains (Losses) of other real estate owned	(177)	$ (394)	(790)	$ (2,194)
Nonrecurring | Level 2 | Estimate of Fair Value
Fair Value
Other real estate owned	12,112		12,112
Nonrecurring | Level 3 | Estimate of Fair Value
Fair Value
Impairment loans held for investment	$ 67,097		$ 67,097

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Income Taxes - Narrative (Details)	3 Months Ended		9 Months Ended	20 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Aug. 19, 2019
Income Taxes
Effective income tax rate (as a percent)	21.80%	17.00%	22.40%	21.40%

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Parent	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	Retained Earnings	Deferred Compensation Employee Stock Trust, Net	Employee Stock Trust	Noncontrolling Interest	Total
Balance at Dec. 31, 2017	$ 1,912,081	$ 960	$ 1,526,369	$ (394)	$ 384,545	$ 848	$ (247)	$ 2,726	$ 1,914,807
Balance (in shares) at Dec. 31, 2017		95,982,000					12,000
Increase (Decrease) in Stockholders' Equity
Net income	93,326				93,326			2,843	96,169
Other comprehensive income (loss)	(11,727)			(11,727)					(11,727)
Stock-based compensation expense	6,725		6,725						6,725
Common stock issued to board members	513		513						513
Common stock issued to board members (in shares)		22,000
Issuance of common stock related to share-based awards, net	(1,808)	$ 3	(1,811)						(1,808)
Issuance of common stock related to share-based awards, net (in shares)		292,000
Repurchases of common stock	(38,821)	$ (17)	(27,329)		(11,475)				(38,821)
Repurchases of common stock (in shares)		(1,702,000)
Dividends on common stock	(20,074)				(20,074)				(20,074)
Deferred compensation plan	7					12	$ (5)		7
Deferred compensation plan (in shares)							(1,000)
Adoption of accounting standards				(2,601)	2,601
Net cash contributed from noncontrolling interest								18,367	18,367
Balance at Sep. 30, 2018	1,940,222	$ 946	1,504,467	(14,722)	448,923	860	$ (252)	23,936	1,964,158
Balance (in shares) at Sep. 30, 2018		94,594,000					11,000
Balance at Jun. 30, 2018	1,911,493	$ 946	1,502,105	(11,846)	419,683	857	$ (252)	4,920	1,916,413
Balance (in shares) at Jun. 30, 2018		94,571,000					11,000
Increase (Decrease) in Stockholders' Equity
Net income	35,805				35,805			1,293	37,098
Other comprehensive income (loss)	(2,876)			(2,876)					(2,876)
Stock-based compensation expense	2,176		2,176						2,176
Common stock issued to board members	265		265						265
Common stock issued to board members (in shares)		12,000
Issuance of common stock related to share-based awards, net	(79)		(79)						(79)
Issuance of common stock related to share-based awards, net (in shares)		11,000
Dividends received on repurchased common stock	56				56				56
Dividends on common stock	(6,621)				(6,621)				(6,621)
Deferred compensation plan	3					3			3
Net cash contributed from noncontrolling interest								17,723	17,723
Balance at Sep. 30, 2018	1,940,222	$ 946	1,504,467	(14,722)	448,923	860	$ (252)	23,936	1,964,158
Balance (in shares) at Sep. 30, 2018		94,594,000					11,000
Balance at Dec. 31, 2018	1,949,470	$ 936	1,489,816	(8,627)	466,737	825	$ (217)	24,423	1,973,893
Balance (in shares) at Dec. 31, 2018		93,610,000					11,000
Increase (Decrease) in Stockholders' Equity
Net income	176,015				176,015			5,260	181,275
Other comprehensive income (loss)	20,932			20,932					20,932
Stock-based compensation expense	7,717		7,717						7,717
Common stock issued to board members	426		426						426
Common stock issued to board members (in shares)		21,000
Issuance of common stock related to share-based awards, net	(1,934)	$ 4	(1,938)						(1,934)
Issuance of common stock related to share-based awards, net (in shares)		388,000
Repurchases of common stock	(73,385)	$ (34)	(54,417)		(18,934)				$ (73,385)
Repurchases of common stock (in shares)		(3,390,000)							(3,390,247)
Dividends on common stock	(22,376)				(22,376)				$ (22,376)
Deferred compensation plan	11					(36)	$ 47		11
Deferred compensation plan (in shares)							(2,000)
Adoption of accounting standards	1,393				1,393				1,393
Net cash distributed to noncontrolling interest								(4,525)	(4,525)
Balance at Sep. 30, 2019	2,058,269	$ 906	1,441,604	12,305	602,835	789	$ (170)	25,158	2,083,427
Balance (in shares) at Sep. 30, 2019		90,629,000					9,000
Balance at Jun. 30, 2019	2,027,281	$ 928	1,473,599	7,862	544,275	788	$ (171)	24,524	2,051,805
Balance (in shares) at Jun. 30, 2019		92,775,000					9,000
Increase (Decrease) in Stockholders' Equity
Net income	79,418				79,418			2,289	81,707
Other comprehensive income (loss)	4,443			4,443					4,443
Stock-based compensation expense	2,978		2,978						2,978
Common stock issued to board members	145		145						145
Common stock issued to board members (in shares)		6,000
Issuance of common stock related to share-based awards, net	(200)		(200)						(200)
Issuance of common stock related to share-based awards, net (in shares)		23,000
Repurchases of common stock	(48,405)	$ (22)	(34,918)		(13,465)				(48,405)
Repurchases of common stock (in shares)		(2,175,000)
Dividends on common stock	(7,393)				(7,393)				(7,393)
Deferred compensation plan	2					1	$ 1		2
Net cash distributed to noncontrolling interest								(1,655)	(1,655)
Balance at Sep. 30, 2019	$ 2,058,269	$ 906	$ 1,441,604	$ 12,305	$ 602,835	$ 789	$ (170)	$ 25,158	$ 2,083,427
Balance (in shares) at Sep. 30, 2019		90,629,000					9,000

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Notes Payable (Tables)

9 Months Ended

Sep. 30, 2019

Notes Payable

Schedule of notes payable

Notes payable consisted of the following (in thousands).

	September 30,		December 31,
	2019		2018
Senior Notes due April 2025, net of discount of $1,273 and $1,393, respectively	$	148,727	$	148,607
FHLB notes, including premium of $163 and $222, respectively, with maturities ranging from September 2020 to June 2030		3,943		4,391
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
Ventures Management lines of credit due May 2020		65,171		48,374
	$	245,341	$	228,872

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Loans Held for Investment and Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2019

Loans Held for Investment and Allowance for Loan Losses

Summary of non-covered loans by portfolio segment

	September 30,		December 31,
	2019		2018
Commercial real estate	$	2,933,424	$	2,940,120
Commercial and industrial		1,390,531		1,508,451
Construction and land development		972,226		932,909
1-4 family residential		698,251		679,263
Mortgage warehouse		725,852		243,806
Consumer		42,780		47,546
Broker-dealer (1)		558,144		578,363
		7,321,208		6,930,458
Allowance for loan losses		(55,604)		(59,486)
Total loans held for investment, net of allowance	$	7,265,604	$	6,870,972

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

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

	September 30,		December 31,
	2019		2018
Carrying amount	$	84,205	$	93,072
Outstanding balance		147,926		172,808

Schedule of changes in the accretable yield for the PCI loans

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Balance, beginning of period	$	69,305	$	86,652	$	80,693	$	98,846
Additions		—		340		—		340
Reclassifications from nonaccretable difference, net (1)		7,183		6,702		12,626		16,967
Disposals of loans		(132)		—		(835)		(98)
Accretion		(8,614)		(8,491)		(24,742)		(30,005)
Transfer of loans to OREO (2)		—		(142)		—		(989)
Balance, end of period	$	67,742	$	85,061	$	67,742	$	85,061

(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 non-accrual and expected cash flows are no longer predictable and the accretable yield is eliminated.

(2) Transfer of loans to 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

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
September 30, 2019	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial real estate:
Non-owner occupied	$	29,625	$	5,281	$	7,436	$	12,717	$	1,507
Owner occupied		27,926		2,292		10,408		12,700		980
Commercial and industrial		24,485		4,459		1,137		5,596		14
Construction and land development		7,412		6		21		27		3
1-4 family residential		92,733		499		52,664		53,163		2,472
Mortgage warehouse		—		—		—		—		—
Consumer		1,750		2		—		2		—
Broker-dealer		—		—		—		—		—
		183,931		12,539		71,666		84,205		4,976
Non-PCI
Commercial real estate:
Non-owner occupied		3,904		199		3,698		3,897		690
Owner occupied		4,910		3,734		—		3,734		—
Commercial and industrial		24,691		9,200		2,332		11,532		903
Construction and land development		1,504		1,358		—		1,358		—
1-4 family residential		10,442		7,514		—		7,514		—
Mortgage warehouse		—		—		—		—		—
Consumer		42		30		—		30		—
Broker-dealer		—		—		—		—		—
		45,493		22,035		6,030		28,065		1,593
	$	229,424	$	34,574	$	77,696	$	112,270	$	6,569

	Unpaid		Recorded		Recorded		Total
	Contractual		Investment with		Investment with		Recorded		Related
December 31, 2018	Principal Balance		No Allowance		Allowance		Investment		Allowance
PCI
Commercial real estate:
Non-owner occupied	$	42,668	$	5,549	$	7,540	$	13,089	$	1,125
Owner occupied		36,246		11,657		2,967		14,624		304
Commercial and industrial		27,403		5,491		1,068		6,559		72
Construction and land development		10,992		74		390		464		92
1-4 family residential		106,503		646		57,681		58,327		1,299
Mortgage warehouse		—		—		—		—		—
Consumer		2,185		9		—		9		—
Broker-dealer		—		—		—		—		—
		225,997		23,426		69,646		93,072		2,892
Non-PCI
Commercial real estate:
Non-owner occupied		—		—		—		—		—
Owner occupied		5,231		4,098		—		4,098		—
Commercial and industrial		22,277		9,891		1,740		11,631		721
Construction and land development		3,430		2,711		535		3,246		31
1-4 family residential		8,695		6,922		—		6,922		—
Mortgage warehouse		—		—		—		—		—
Consumer		149		42		—		42		—
Broker-dealer		—		—		—		—		—
		39,782		23,664		2,275		25,939		752
	$	265,779	$	47,090	$	71,921	$	119,011	$	3,644

Summary of average investment in impaired loans by class

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Commercial real estate:
Non-owner occupied	$	14,781	$	41,305	$	14,852	$	46,691
Owner occupied		16,489		67,759		17,578		73,531
Commercial and industrial		17,616		24,705		17,659		24,617
Construction and land development		1,432		2,803		2,548		3,090
1-4 family residential		61,587		—		62,963		—
Mortgage warehouse		—		—		—		—
Consumer		35		52		42		119
Broker-dealer		—		—		—		—
Covered		—		—		—		—
	$	111,940	$	136,624	$	115,642	$	148,048

Summary of non-accrual loans by class

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

	September 30,		December 31,
	2019		2018
Commercial real estate:
Non-owner occupied	$	4,993	$	1,226
Owner occupied		3,734		4,098
Commercial and industrial		13,313		14,870
Construction and land development		1,358		3,278
1-4 family residential		7,567		7,026
Mortgage warehouse		—		—
Consumer		30		41
Broker-dealer		—		—
	$	30,995	$	30,539

Schedule of information regarding TDRs granted

Information regarding TDRs granted during the three and nine months ended September 30, 2019, is shown in the following table (dollars in thousands). There were no TDRs granted during the three or nine months ended September 30, 2018. At September 30, 2019 and December 31, 2018, the Bank had nominal unadvanced commitments to borrowers whose loans have been restructured in TDRs.

	Three Months Ended September 30, 2019					Nine Months Ended September 30, 2019
	Number of	Balance at		Balance at		Number of	Balance at		Balance at
	Loans	Extension		End of Period		Loans	Extension		End of Period
Commercial real estate:
Non-owner occupied	—	$	—	$	—	—	$	—	$	—
Owner occupied	—		—		—	—		—		—
Commercial and industrial	2		1,640		1,587	5		9,632		9,113
Construction and land development	—		—		—	—		—		—
1-4 family residential	—		—		—	—		—		—
Mortgage warehouse	—		—		—	—		—		—
Consumer	—		—		—	—		—		—
Broker-dealer	—		—		—	—		—		—
Covered	—		—		—	—		—		—
	2	$	1,640	$	1,587	5	$	9,632	$	9,113

There were no TDRs granted during the twelve months preceding September 30, 2019 for which a payment was at least 30 days past due. The following table presents information regarding TDRs granted during the twelve months preceding September 30, 2018, for which a payment was at least 30 days past due (dollars in thousands).

	Twelve Months Preceding September 30, 2018
	Number of	Balance at		Balance at
	Loans	Extension		End of Period
Commercial real estate:
Non-owner occupied	—	$	—	$	—
Owner occupied	1		3,294		3,130
Commercial and industrial	—		—		—
Construction and land development	—		—		—
1-4 family residential	—		—		—
Mortgage warehouse	—		—		—
Consumer	—		—		—
Broker-dealer	—		—		—
Covered	—		—		—
	1	$	3,294	$	3,130

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

An analysis of the aging of the Company’s 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
September 30, 2019	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial real estate:
Non-owner occupied	$	4,565	$	15	$	199	$	4,779	$	1,657,864	$	12,717	$	1,675,360	$	—
Owner occupied		2,915		213		2,347		5,475		1,239,889		12,700		1,258,064		—
Commercial and industrial		9,353		2,449		1,301		13,103		1,371,832		5,596		1,390,531		80
Construction and land development		881		—		—		881		971,318		27		972,226		—
1-4 family residential		2,297		1,904		3,044		7,245		637,843		53,163		698,251		—
Mortgage warehouse		—		—		—		—		725,852		—		725,852		—
Consumer		133		32		—		165		42,613		2		42,780		—
Broker-dealer		—		—		—		—		558,144		—		558,144		—
	$	20,144	$	4,613	$	6,891	$	31,648	$	7,205,355	$	84,205	$	7,321,208	$	80

															Accruing Loans (Non-PCI)
	Loans Past Due		Loans Past Due		Loans Past Due		Total		Current		PCI		Total		Past Due
December 31, 2018	30-59 Days		60-89 Days		90 Days or More		Past Due Loans		Loans		Loans		Loans		90 Days or More
Commercial real estate:
Non-owner occupied	$	1,174	$	199	$	—	$	1,373	$	1,708,160	$	13,089	$	1,722,622	$	—
Owner occupied		1,364		—		4,173		5,537		1,197,337		14,624		1,217,498		75
Commercial and industrial		1,792		1,049		11,051		13,892		1,488,000		6,559		1,508,451		3
Construction and land development		3,549		—		—		3,549		928,896		464		932,909		—
1-4 family residential		5,987		2,484		1,950		10,421		610,515		58,327		679,263		—
Mortgage warehouse		—		—		—		0		243,806		—		243,806		—
Consumer		254		147		—		401		47,136		9		47,546		—
Broker-dealer		—		—		—		—		578,363		—		578,363		—
	$	14,120	$	3,879	$	17,174	$	35,173	$	6,802,213	$	93,072	$	6,930,458	$	78

Schedule of internal risk grades of loans by class

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

September 30, 2019	Pass		Special Mention		Substandard		PCI		Total
Commercial real estate:
Non-owner occupied	$	1,613,156	$	—	$	49,487	$	12,717	$	1,675,360
Owner occupied		1,211,767		816		32,781		12,700		1,258,064
Commercial and industrial		1,328,903		881		55,151		5,596		1,390,531
Construction and land development		969,661		—		2,538		27		972,226
1-4 family residential		627,962		—		17,126		53,163		698,251
Mortgage warehouse		725,852		—		—		—		725,852
Consumer		42,736		—		42		2		42,780
Broker-dealer		558,144		—		—		—		558,144
	$	7,078,181	$	1,697	$	157,125	$	84,205	$	7,321,208

December 31, 2018	Pass		Special Mention		Substandard		PCI		Total
Commercial real estate:
Non-owner occupied	$	1,673,424	$	—	$	36,109	$	13,089	$	1,722,622
Owner occupied		1,175,225		2,083		25,566		14,624		1,217,498
Commercial and industrial		1,433,227		15,320		53,345		6,559		1,508,451
Construction and land development		929,130		—		3,315		464		932,909
1-4 family residential		601,264		393		19,279		58,327		679,263
Mortgage warehouse		243,806		—		—		—		243,806
Consumer		47,416		—		121		9		47,546
Broker-dealer		578,363		—		—		—		578,363
	$	6,681,855	$	17,796	$	137,735	$	93,072	$	6,930,458

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

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

	Balance,		Provision (Recovery)		Loans		Recoveries on		Balance,
Three Months Ended September 30, 2019	Beginning of Period		for Loan Losses		Charged Off		Charged Off Loans		End of Period
Commercial real estate	$	25,114	$	757	$	(9)	$	—	$	25,862
Commercial and industrial		20,414		(1,625)		(1,000)		1,393		19,182
Construction and land development		4,396		392		—		—		4,788
1-4 family residential		4,924		485		(12)		14		5,411
Mortgage warehouse		—		—		—		—		—
Consumer		283		(9)		(12)		6		268
Broker-dealer		46		47		—		—		93
Total	$	55,177	$	47	$	(1,033)	$	1,413	$	55,604

	Balance,		Provision (Recovery)		Loans		Recoveries on		Balance,
Nine Months Ended September 30, 2019	Beginning of Period		for Loan Losses		Charged Off		Charged Off loans		End of Period
Commercial real estate	$	27,100	$	(1,229)	$	(9)	$	—	$	25,862
Commercial and industrial		21,980		87		(5,247)		2,362		19,182
Construction and land development		6,061		(1,273)		—		—		4,788
1-4 family residential		3,956		2,321		(911)		45		5,411
Mortgage warehouse		—		—		—		—		—
Consumer		267		449		(476)		28		268
Broker-dealer		122		(29)		—		—		93
Total	$	59,486	$	326	$	(6,643)	$	2,435	$	55,604

	Balance,		Provision (Recovery)		Loans		Recoveries on		Balance,
Three Months Ended September 30, 2018	Beginning of Period		for Loan Losses		Charged Off		Charged Off Loans		End of Period
Commercial real estate	$	26,032	$	309	$	—	$	—	$	26,341
Commercial and industrial		23,517		(242)		(1,820)		366		21,821
Construction and land development		7,271		443		—		—		7,714
1-4 family residential		2,552		141		—		31		2,724
Mortgage warehouse		—		—		—		—		—
Consumer		207		27		(26)		7		215
Broker-dealer		417		(371)		—		—		46
Covered		1,974		(678)		(6)		1		1,291
Total	$	61,970	$	(371)	$	(1,852)	$	405	$	60,152

	Balance,		Provision (Recovery)		Loans		Recoveries on		Balance,
Nine Months Ended September 30, 2018	Beginning of Period		for Loan Losses		Charged Off		Charged Off Loans		End of Period
Commercial real estate	$	26,413	$	(54)	$	(18)	$	—	$	26,341
Commercial and industrial		23,674		(123)		(5,236)		3,506		21,821
Construction and land development		7,844		(130)		—		—		7,714
1-4 family residential		2,362		240		(12)		134		2,724
Mortgage warehouse		—		—		—		—		—
Consumer		311		(82)		(69)		55		215
Broker-dealer		353		(307)		—		—		46
Covered		2,729		(1,382)		(63)		7		1,291
Total	$	63,686	$	(1,838)	$	(5,398)	$	3,702	$	60,152

Schedule of loan portfolio distributed by portfolio segment and impairment methodology

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

	Loans Individually		Loans Collectively
	Evaluated for		Evaluated for		PCI
September 30, 2019	Impairment		Impairment		Loans			Total
Commercial real estate	$	7,239	$	2,900,768	$	25,417	$	2,933,424
Commercial and industrial		10,767		1,374,168		5,596		1,390,531
Construction and land development		1,271		970,928		27		972,226
1-4 family residential		608		644,480		53,163		698,251
Mortgage warehouse		—		725,852		—		725,852
Consumer		—		42,778		2		42,780
Broker-dealer		—		558,144		—		558,144
Total	$	19,885	$	7,217,118	$	84,205	$	7,321,208

	Loans Individually		Loans Collectively
	Evaluated for		Evaluated for		PCI
December 31, 2018	Impairment		Impairment		Loans			Total
Commercial real estate	$	3,909	$	2,908,498	$	27,713	$	2,940,120
Commercial and industrial		10,741		1,491,151		6,559		1,508,451
Construction and land development		3,241		929,204		464		932,909
1-4 family residential		—		620,936		58,327		679,263
Mortgage warehouse		—		243,806		—		243,806
Consumer		—		47,537		9		47,546
Broker-dealer		—		578,363		—		578,363
Total	$	17,891	$	6,819,495	$	93,072	$	6,930,458

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

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

	Loans Individually		Loans Collectively
	Evaluated for		Evaluated for		PCI
September 30, 2019	Impairment		Impairment		Loans			Total
Commercial real estate	$	690	$	22,685	$	2,487	$	25,862
Commercial and industrial		903		18,265		14		19,182
Construction and land development		—		4,785		3		4,788
1-4 family residential		—		2,939		2,472		5,411
Mortgage warehouse		—		—		—		—
Consumer		—		268		—		268
Broker-dealer		—		93		—		93
Total	$	1,593	$	49,035	$	4,976	$	55,604

	Loans Individually		Loans Collectively
	Evaluated for		Evaluated for		PCI
December 31, 2018	Impairment		Impairment		Loans			Total
Commercial real estate	$	—	$	25,671	$	1,429	$	27,100
Commercial and industrial		721		21,187		72		21,980
Construction and land development		31		5,938		92		6,061
1-4 family residential		—		2,657		1,299		3,956
Mortgage warehouse		—		—		—		—
Consumer		—		267		—		267
Broker-dealer		—		122		—		122
Total	$	752	$	55,842	$	2,892	$	59,486

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
CONSOLIDATED BALANCE SHEETS
Available for sale, amortized cost	$ 987,992	$ 886,799
Held to maturity, fair value	$ 377,337	$ 341,124
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	90,629,208	93,610,217
Common stock, shares outstanding	90,629,208	93,610,217
Employee stock trust, shares	8,508	11,672

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Regulatory Matters (Tables)

9 Months Ended

Sep. 30, 2019

Regulatory Matters

Schedule of comparison of the Plain Capital'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 tables show PlainsCapital’s and Hilltop’s actual capital amounts and ratios in accordance with Basel III compared to the regulatory minimum capital requirements including conservation buffer in effect at the end of the period and on a fully phased-in basis as if such requirements were currently in effect at December 31, 2018 (dollars in thousands). Based on actual capital amounts and ratios shown in the following table, PlainsCapital’s ratios place it in the “well capitalized” (as defined) capital category under regulatory requirements.

					Minimum Capital Requirements
					Including Conservation Buffer
					In Effect at		Fully		To Be Well
	Actual				End of Period		Phased In		Capitalized
	Amount		Ratio		Ratio		Ratio		Ratio
September 30, 2019
Tier 1 capital (to average assets):
PlainsCapital	$	1,226,270	11.79	%	4.0	%	4.0	%	5.0	%
Hilltop		1,775,755	12.67	%	4.0	%	4.0	%	N/A
Common equity Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,226,270	13.25	%	7.0	%	7.0	%	6.5	%
Hilltop		1,729,166	16.15	%	7.0	%	7.0	%	N/A
Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,226,270	13.25	%	8.5	%	8.5	%	8.0	%
Hilltop		1,775,755	16.58	%	8.5	%	8.5	%	N/A
Total capital (to risk-weighted assets):
PlainsCapital		1,283,967	13.87	%	10.5	%	10.5	%	10.0	%
Hilltop		1,815,134	16.95	%	10.5	%	10.5	%	N/A
					Minimum Capital Requirements
					Including Conservation Buffer
					In Effect at		Fully		To Be Well
	Actual				End of Period		Phased In		Capitalized
	Amount		Ratio		Ratio		Ratio		Ratio
December 31, 2018
Tier 1 capital (to average assets):
PlainsCapital	$	1,183,447	12.47	%	4.0	%	4.0	%	5.0	%
Hilltop		1,680,364	12.53	%	4.0	%	4.0	%	N/A
Common equity Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,183,447	13.90	%	6.375	%	7.0	%	6.5	%
Hilltop		1,634,978	16.58	%	6.375	%	7.0	%	N/A
Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,183,447	13.90	%	7.875	%	8.5	%	8.0	%
Hilltop		1,680,364	17.04	%	7.875	%	8.5	%	N/A
Total capital (to risk-weighted assets):
PlainsCapital		1,245,177	14.63	%	9.875	%	10.5	%	10.0	%
Hilltop		1,722,602	17.47	%	9.875	%	10.5	%	N/A

Schedule of net capital position

At September 30, 2019, the net capital position of each of the Hilltop Broker-Dealers was as follows (in thousands).

				HTS
	Hilltop			Independent
	Securities			Network
Net capital	$	265,752		$	3,076
Less: required net capital		9,152			250
Excess net capital	$	256,600		$	2,826
Net capital as a percentage of aggregate debit items		58.1	%
Net capital in excess of 5% aggregate debit items	$	242,873

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 (loss) of each insurance subsidiary is as follows (in thousands).

	September 30,		December 31,
	2019		2018
Statutory capital and surplus:
National Lloyds Insurance Company	$	63,586	$	78,637
American Summit Insurance Company		19,463		17,908

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Statutory net income (loss):
National Lloyds Insurance Company	$	4,797	$	5,442	$	4,388	$	6,576
American Summit Insurance Company		470		(2,765)		1,186		(1,482)

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Balance Sheet Offsetting

9 Months Ended

Sep. 30, 2019

Balance Sheet Offsetting

Balance Sheet Offsetting

19. 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
September 30, 2019
Securities borrowed:
Institutional counterparties	$	1,636,796	$	—	$	1,636,796	$	(1,583,664)	$	—	$	53,132
Interest rate options:
Customer counterparties		—		—		—		—		—		—
Interest rate swaps:
Institutional counterparties		392		(168)		224		(224)		—		—
Reverse repurchase agreements:
Institutional counterparties		49,998		—		49,998		(49,840)		—		158
Forward MBS derivatives:
Institutional counterparties		9,175		—		9,175		(9,175)		—		—
	$	1,696,361	$	(168)	$	1,696,193	$	(1,642,903)	$	—	$	53,290
December 31, 2018
Securities borrowed:
Institutional counterparties	$	1,365,547	$	—	$	1,365,547	$	(1,307,121)	$	—	$	58,426
Interest rate options:
Customer counterparties		49		—		49		—		—		49
Interest rate swaps:
Institutional counterparties		88		—		88		—		—		88
Reverse repurchase agreements:
Institutional counterparties		61,611		—		61,611		(61,390)		—		221
Forward MBS derivatives:
Institutional counterparties		10,469		—		10,469		(10,469)		—		—
	$	1,437,764	$	—	$	1,437,764	$	(1,378,980)	$	—	$	58,784

							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
September 30, 2019
Securities loaned:
Institutional counterparties	$	1,505,118	$	—	$	1,505,118	$	(1,454,240)	$	—	$	50,878
Interest rate options:
Institutional counterparties		—		—		—		—		—		—
Interest rate swaps:
Institutional counterparties		89		—		89		—		—		89
Repurchase agreements:
Institutional counterparties		495,564		—		495,564		(495,564)		—		—
Customer counterparties		18,491		—		18,491		(18,491)		—		—
Forward MBS derivatives:
Institutional counterparties		8,555		(2,561)		5,994		(3,720)		—		2,274
	$	2,027,817	$	(2,561)	$	2,025,256	$	(1,972,015)	$	—	$	53,241
December 31, 2018
Securities loaned:
Institutional counterparties	$	1,186,073	$	—	$	1,186,073	$	(1,136,033)	$	—	$	50,040
Interest rate options:
Institutional counterparties		49		—		49		—		—		49
Interest rate swaps:
Institutional counterparties		6		—		6		—		—		6
Repurchase agreements:
Institutional counterparties		533,441		—		533,441		(533,441)		—		—
Customer counterparties		43,266		—		43,266		(43,266)		—		—
Forward MBS derivatives:
Institutional counterparties		19,331		(15)		19,316		(7,728)		—		11,588
	$	1,782,166	$	(15)	$	1,782,151	$	(1,720,468)	$	—	$	61,683

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 one to thirty days from the transaction date or involve arrangements with no definite termination 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 include 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 September 30, 2019 and December 31, 2018.

	Remaining Contractual Maturities
	Overnight and						Greater Than
September 30, 2019	Continuous		Up to 30 Days		30-90 Days		90 Days		Total
Repurchase agreement transactions:
U.S. Treasury and agency securities	$	35,335	$	—	$	—	$	—	$	35,335
Asset-backed securities		478,720		—		—		—		478,720
Securities lending transactions:
Corporate securities		113		—		—		—		113
Equity securities		1,505,005		—		—		—		1,505,005
Total	$	2,019,173	$	—	$	—	$	—	$	2,019,173
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above									$	2,019,173
Amount related to agreements not included in offsetting disclosure above									$	—
	Remaining Contractual Maturities
	Overnight and						Greater Than
December 31, 2018	Continuous		Up to 30 Days		30-90 Days		90 Days		Total
Repurchase agreement transactions:
U.S. Treasury and agency securities	$	131,848	$	—	$	—	$	—	$	131,848
Asset-backed securities		444,859		—		—		—		444,859
Securities lending transactions:
Corporate securities		113		—		—		—		113
Equity securities		1,185,960		—		—		—		1,185,960
Total	$	1,762,780	$	—	$	—	$	—	$	1,762,780
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above									$	1,762,780
Amount related to agreements not included in offsetting disclosure above									$	—

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Leases

9 Months Ended

Sep. 30, 2019

Leases

Leases

11. Leases

Hilltop and its subsidiaries lease space, primarily for corporate offices, branch facilities and automated teller machines, under both operating and finance leases. Certain of the Company’s leases have options to extend, with the longest extension option being ten years, and some of the Company’s leases include options to terminate within one year. The Company’s leases contain customary restrictions and covenants. The Company has certain intercompany leases and subleases between its subsidiaries, and these transactions and balances have been eliminated in consolidation and are not reflected in the tables and information presented below.

Supplemental balance sheet information related to finance leases is as follows (in thousands).

	September 30,
	2019
Finance leases:
Premises and equipment	$	7,780
Accumulated depreciation		(4,031)
Premises and equipment, net	$	3,749

Operating lease rental cost and finance lease amortization of ROU assets is included within occupancy and equipment, net in the consolidated statements of operations. Finance lease interest expense is included within other interest expense in the consolidated statements of operations. The Company does not generally enter into leases which contain variable payments, other than due to the passage of time. The components of lease costs, including short-term lease costs, are as follows (in thousands).

	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Operating lease cost	$	11,123	$	32,253
Less operating lease and sublease income		(846)		(1,897)
Net operating lease cost	$	10,277	$	30,356
Finance lease cost:
Amortization of lease assets	$	147	$	442
Interest on lease liabilities		148		450
Total finance lease cost	$	295	$	892

Supplemental cash flow information related to leases is as follows (in thousands):

	Nine Months Ended
	September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	29,047
Operating cash flows from finance leases		450
Financing cash flows from finance leases		438
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	25,951
Finance leases		—

Information regarding the lease terms and discount rates of the Company’s leases is as follows.

	September 30, 2019
	Weighted Average	Weighted Average
Lease Classification	Remaining Lease Term (Years)	Discount Rate
Operating	5.8	5.35	%
Finance	6.8	4.78	%

Future minimum lease payments under the Leasing Standard as of September 30, 2019, under lease agreements that had commenced as of or subsequent to January 1, 2019, are presented below (in thousands).

	Operating Leases		Finance Leases
2019	$	9,221	$	298
2020		34,509		1,197
2021		28,671		1,212
2022		22,459		1,241
2023		17,757		1,280
Thereafter		42,761		3,460
Total minimum lease payments	$	155,378	$	8,688
Less amount representing interest		(24,245)		(3,041)
Lease liabilities	$	131,133	$	5,647

As of September 30, 2019, the Company had additional operating leases that have not yet commenced with aggregate future minimum lease payments of approximately $0.2 million. These operating leases are expected to commence in October 2019 with lease terms ranging from two to five years.

A related party is the lessor in an operating lease with Hilltop. Hilltop’s minimum payment under the lease is $0.5 million annually through 2028, for an aggregate remaining obligation of $4.6 million at September 30, 2019.

The Company adopted the Leasing Standard on January 1, 2019, using the modified retrospective transition under the option to apply the new standard at its effective date without adjusting the prior period comparative financial statements. As such, disclosures for comparative periods under the predecessor standard, ASC 840, Leases, are required in the year of transition. Future minimum lease payments under ASC 840 as of December 31, 2018, under lease agreements that had commenced as of December 31, 2018, are presented below (in thousands).

	Operating Leases		Capital Leases
2019	$	36,171	$	1,186
2020		29,109		1,197
2021		21,058		1,212
2022		16,386		1,241
2023		12,361		1,280
Thereafter		18,264		3,460
Total minimum lease payments	$	133,349		9,576
Amount representing interest				(1,221)
Present value of minimum lease payments			$	8,355

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2019

Stock-Based Compensation

Stock-Based Compensation

15. 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. In the aggregate, 4,000,000 shares of common stock may be delivered pursuant to awards granted under the 2012 Plan. At September 30, 2019, 681,484 shares of common stock remained available for issuance pursuant to awards granted under the 2012 Plan, excluding shares that may be delivered pursuant to outstanding awards. Compensation expense related to the 2012 Plan was $3.1 million and $2.4 million during the three months ended September 30, 2019 and 2018, respectively, and $8.1 million and $7.2 million during the nine months ended September 30, 2019 and 2018, respectively.

During the nine months ended September 30, 2019 and 2018, Hilltop granted 20,806 and 22,269 shares of common stock, respectively, pursuant to the 2012 Plan to certain non-employee members of the Company’s board of directors for services rendered to the Company.

Restricted Stock Units

The following table summarizes information about nonvested RSU activity for the nine months ended September 30, 2019 (shares in thousands).

		RSUs
			Weighted
			Average
			Grant Date
		Outstanding	Fair Value
Balance, December 31, 2018		1,270	$	22.44
	Granted	592	$	19.30
	Vested/Released	(488)	$	18.08
	Forfeited	(43)	$	24.79
Balance, September 30, 2019		1,331	$	22.57

Vested/Released RSUs include an aggregate of 99,709 shares withheld to satisfy employee statutory tax obligations during the nine months ended September 30, 2019. Pursuant to certain RSU award agreements, an aggregate of 17,692 vested RSUs at September 30, 2019 require deferral of the settlement in shares and statutory tax obligations to a future date.

During the nine months ended September 30, 2019, the Compensation Committee of the board of directors of the Company awarded certain executives and key employees an aggregate of 583,961 RSUs pursuant to the 2012 Plan. Of the RSUs granted during the nine months ended September 30, 2019, 485,962 that were outstanding at September 30, 2019, are subject to time-based vesting conditions and generally cliff vest on the third anniversary of the grant date. Of the RSUs granted during the nine months ended September 30, 2019, 91,249 that were outstanding at September 30, 2019, provide for cliff vesting based upon the achievement of certain performance goals over a three-year period.

At September 30, 2019, in the aggregate, 1,093,383 of the outstanding RSUs are subject to time-based vesting conditions and generally cliff vest on the third anniversary of the grant date, and 238,145 outstanding RSUs cliff vest based upon the achievement of certain performance goals over a three-year period. At September 30, 2019, unrecognized compensation expense related to outstanding RSUs of $15.3 million is expected to be recognized over a weighted average period of 1.66 years.  

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Earnings per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Basic earnings per share:
Net earnings available to Hilltop common stockholders	$ 79,418	$ 35,805	$ 176,015	$ 93,326
Weighted average shares outstanding - basic	91,745	94,554	92,931	95,264
Basic earnings per common share (in dollars per share)	$ 0.87	$ 0.38	$ 1.89	$ 0.98
Diluted earnings per share:
Income attributable to Hilltop	$ 79,418	$ 35,805	$ 176,015	$ 93,326
Weighted average shares outstanding - basic	91,745	94,554	92,931	95,264
Effect of potentially dilutive securities (in shares)	79	56	28	91
Weighted average shares outstanding - diluted	91,824	94,610	92,959	95,355
Diluted earnings per common share (in dollars per share)	$ 0.86	$ 0.38	$ 1.89	$ 0.98

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Balance Sheet Offsetting - Secured Borrowings (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($) item	Dec. 31, 2018 USD ($) item
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Number of repurchase-to-maturity transactions outstanding | item	0	0
Total borrowings	$ 2,019,173	$ 1,762,780
Gross amount of recognized liabilities for repurchase agreements and securities lending in offsetting disclosure above	$ 2,019,173	1,762,780
Minimum
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Security repurchase agreement maturity period	1 day
Maximum
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Security repurchase agreement maturity period	30 days
Overnight and Continuous
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Total borrowings	$ 2,019,173	1,762,780
US Treasury and agency securities
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Repurchase agreements transactions	35,335	131,848
US Treasury and agency securities | Overnight and Continuous
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Repurchase agreements transactions	35,335	131,848
Assets-backed securities
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Repurchase agreements transactions	478,720	444,859
Assets-backed securities | Overnight and Continuous
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Repurchase agreements transactions	478,720	444,859
Corporate debt securities
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Securities lending transactions	113	113
Corporate debt securities | Overnight and Continuous
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Securities lending transactions	113	113
Equity Securities
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Securities lending transactions	1,505,005	1,185,960
Equity Securities | Overnight and Continuous
Transfer of Certain Financial Assets Accounted for as Secured Borrowings
Securities lending transactions	$ 1,505,005	$ 1,185,960

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Reinsurance Activity - Credit Risk (Details) $ in Thousands	Sep. 30, 2019 USD ($)
Reinsurance Activity
Balances due from Companies	$ 1,100
Allowance for uncollectible accounts	$ 0

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Earnings per Common Share

9 Months Ended

Sep. 30, 2019

Earnings per Common Share

Earnings per Common Share

24. Earnings per Common Share

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, if applicable. 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. The Company calculated basic earnings per common share using the treasury method instead of the two-class method since there were no instruments which qualified as participating securities during the three or nine months ended September 30, 2019 or 2018.

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 and nine months ended September 30, 2019 and 2018, RSUs were 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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Basic earnings per share:
Net earnings available to Hilltop common stockholders	$	79,418	$	35,805	$	176,015	$	93,326
Weighted average shares outstanding - basic		91,745		94,554		92,931		95,264
Basic earnings per common share	$	0.87	$	0.38	$	1.89	$	0.98
Diluted earnings per share:
Income attributable to Hilltop	$	79,418	$	35,805	$	176,015	$	93,326
Weighted average shares outstanding - basic		91,745		94,554		92,931		95,264
Effect of potentially dilutive securities		79		56		28		91
Weighted average shares outstanding - diluted		91,824		94,610		92,959		95,355
Diluted earnings per common share	$	0.86	$	0.38	$	1.89	$	0.98

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Broker-Dealer and Clearing Organization Receivables and Payables

9 Months Ended

Sep. 30, 2019

Broker-Dealer and Clearing Organization Receivables and Payables

Broker-Dealer and Clearing Organization Receivables and Payables

20. Broker-Dealer and Clearing Organization Receivables and Payables

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

	September 30,		December 31,
	2019		2018
Receivables:
Securities borrowed	$	1,636,796	$	1,365,547
Securities failed to deliver		15,878		16,300
Trades in process of settlement		55,982		32,993
Other		23,323		25,447
	$	1,731,979	$	1,440,287
Payables:
Securities loaned	$	1,505,118	$	1,186,073
Correspondents		24,670		29,311
Securities failed to receive		10,485		75,015
Other		5,890		4,526
	$	1,546,163	$	1,294,925

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2019

Fair Value Measurements

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

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

	Level 1		Level 2		Level 3		Total
September 30, 2019	Inputs		Inputs		Inputs		Fair Value
Trading securities	$	6,562	$	700,706	$	—	$	707,268
Available for sale securities		—		1,003,850		—		1,003,850
Equity securities		19,494		—		—		19,494
Loans held for sale		—		1,792,321		60,904		1,853,225
Derivative assets		—		40,791		—		40,791
MSR asset		—		—		51,297		51,297
Securities sold, not yet purchased		33,454		25,795		—		59,249
Derivative liabilities		—		6,083		—		6,083

	Level 1		Level 2		Level 3			Total
December 31, 2018	Inputs		Inputs		Inputs			Fair Value
Trading securities	$	7,947	$	737,519	$	—	$	745,466
Available for sale securities		—		875,658		—		875,658
Equity securities		19,679		—		—		19,679
Loans held for sale		—		1,207,311		50,464		1,257,775
Derivative assets		—		35,010		—		35,010
MSR asset		—		—		66,102		66,102
Securities sold, not yet purchased		33,000		48,667		—		81,667
Derivative liabilities		—		26,355		—		26,355

Rollforward 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/		Transfers to		Included in		Comprehensive		Balance at
	Period		Additions		Reductions		(from) Level 3		Net Income		Income (Loss)		End of Period
Three months ended September 30, 2019
Loans held for sale	$	56,799	$	15,347	$	(9,364)	$	711	$	(2,589)	$	—	$	60,904
MSR asset		53,695		4,166		—		—		(6,564)		—		51,297
Total	$	110,494	$	19,513	$	(9,364)	$	711	$	(9,153)	$	—	$	112,201
Nine months ended September 30, 2019
Loans held for sale	$	50,464	$	44,827	$	(27,448)	$	1,136	$	(8,075)	$	—	$	60,904
MSR asset		66,102		8,574		—		—		(23,379)		—		51,297
Total	$	116,566	$	53,401	$	(27,448)	$	1,136	$	(31,454)	$	—	$	112,201
Three months ended September 30, 2018
Loans held for sale	$	40,781	$	19,156	$	(4,614)		—	$	(958)	$	—	$	54,365
MSR asset		57,373		11,361		—		—		70		—		68,804
Total	$	98,154	$	30,517	$	(4,614)	$	—	$	(888)	$	—	$	123,169
Nine months ended September 30, 2018
Loans held for sale	$	36,972	$	39,706	$	(17,127)		—	$	(5,186)	$	—	$	54,365
MSR asset		54,714		21,090		(9,303)		—		2,303		—		68,804
Total	$	91,686	$	60,796	$	(26,430)	$	—	$	(2,883)	$	—	$	123,169

Schedule of significant unobservable inputs used in the fair value measurements

			Range (Weighted-Average)
			September 30,							December 31,
Financial instrument	Valuation Technique	Unobservable Inputs	2019							2018
Loans held for sale	Discounted cash flows / Market comparable	Projected price	92	-	96	%	(	95	%)	95	-	96	%	(	95	%)
MSR asset	Discounted cash flows	Constant prepayment rate			14.40		%					10.51		%
		Discount rate			11.13		%					11.11		%

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

The following table presents those changes in fair value of instruments recognized in the consolidated statements of operations that are accounted for under the Fair Value Option (in thousands).

	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
			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	$	4,117	$	—	$	4,117	$	(20,417)	$	—	$	(20,417)
MSR asset		(6,564)		—		(6,564)		70		—		70

	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
			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	$	7,972	$	—	$	7,972	$	(12,693)	$	—	$	(12,693)
MSR asset		(23,379)		—		(23,379)		2,303		—		2,303

Schedule of significant unobservable inputs weighted average rates on Impaired Loans

Estimates for these significant unobservable inputs and the resulting weighted average expected loss on PCI loans were as follows.

	PCI Loans
	PlainsCapital		FNB		SWS		BORO
September 30, 2019	Merger		Transaction		Merger		Acquisition
Weighted average default rate	84	%	30	%	66	%	59	%
Weighted average loss severity rate	58	%	12	%	28	%	43	%
Weighted average prepayment speed	0	%	5	%	0	%	0	%
Resulting weighted average expected loss on PCI loans	49	%	4	%	18	%	25	%
	PCI Loans
	PlainsCapital		FNB		SWS		BORO
December 31, 2018	Merger		Transaction		Merger		Acquisition
Weighted average default rate	81	%	34	%	71	%	63	%
Weighted average loss severity rate	59	%	12	%	28	%	42	%
Weighted average prepayment speed	0	%	6	%	0	%	0	%
Resulting weighted average expected loss on PCI loans	48	%	4	%	20	%	26	%

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				Total Gains (Losses) for the
	Level 1		Level 2		Level 3		Total		Three Months Ended September 30,				Nine Months Ended September 30,
September 30, 2019	Inputs		Inputs		Inputs		Fair Value		2019		2018		2019		2018
Impaired loans held for investment	$	—	$	—	$	67,097	$	67,097	$	(1,730)	$	668	$	(2,925)	$	(57)
Other real estate owned		—		12,112		—		12,112		(177)		(394)		(790)		(2,194)

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
September 30, 2019	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and cash equivalents	$	326,552	$	326,552	$	—	$	—	$	326,552
Assets segregated for regulatory purposes		83,878		83,878		—		—		83,878
Securities purchased under agreements to resell		49,998		—		49,998		—		49,998
Held to maturity securities		371,361		—		377,337		—		377,337
Loans held for sale		131,006		—		131,006		—		131,006
Loans held for investment, net		7,265,604		—		558,144		6,930,261		7,488,405
Broker-dealer and clearing organization receivables		1,731,979		—		1,731,979		—		1,731,979
Other assets		70,975		—		69,889		1,086		70,975
Financial liabilities:
Deposits		8,730,872		—		8,732,668		—		8,732,668
Broker-dealer and clearing organization payables		1,546,163		—		1,546,163		—		1,546,163
Short-term borrowings		1,502,755		—		1,502,755		—		1,502,755
Debt		312,353		—		310,129		—		310,129
Other liabilities		9,084		—		9,084		—		9,084

			Estimated Fair Value
	Carrying		Level 1		Level 2		Level 3
December 31, 2018	Amount		Inputs		Inputs		Inputs		Total
Financial assets:
Cash and cash equivalents	$	644,473	$	644,473	$	—	$	—	$	644,473
Assets segregated for regulatory purposes		133,993		133,993		—		—		133,993
Securities purchased under agreements to resell		61,611		—		61,611		—		61,611
Held to maturity securities		351,012		—		341,124		—		341,124
Loans held for sale		135,471		—		135,471		—		135,471
Loans held for investment, net		6,870,972		—		578,363		6,445,810		7,024,173
Broker-dealer and clearing organization receivables		1,440,287		—		1,440,287		—		1,440,287
Other assets		69,720		—		68,573		1,147		69,720
Financial liabilities:
Deposits		8,536,156		—		8,528,947		—		8,528,947
Broker-dealer and clearing organization payables		1,294,925		—		1,294,925		—		1,294,925
Short-term borrowings		1,065,807		—		1,065,807		—		1,065,807
Debt		295,884		—		293,685		—		293,685
Other liabilities		3,482		—		3,482		—		3,482

Schedule of adjustments to the carrying value of these investments

The following table presents the adjustments to the carrying value of these investments during the periods presented (in thousands).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Balance, beginning of period	$	19,906	$	26,151	$	20,376	$	22,946
Additional investments		—		—		—		1,411
Upward adjustments		101		265		303		3,642
Impairments and downward adjustments		(346)		(1)		(1,018)		(1,584)
Dispositions		—		—		—		—
Balance, end of period	$	19,661	$	26,415	$	19,661	$	26,415

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Regulatory Matters - Minimum Capital Requirements (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
PlainsCapital (the Bank)
Tier 1 capital (to average assets)
Actual Amount	$ 1,226,270	$ 1,183,447
Actual Ratio (as a percent)	11.79%	12.47%
Minimum Capital Requirement Including Conservation Buffer in effect at end of period, ratio (as a percent)	4.00%	4.00%
Minimum Capital Requirement Including Conservation Buffer fully phased-in, ratio (as a percent)	4.00%	4.00%
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	$ 1,226,270	$ 1,183,447
Actual Ratio (as a percent)	13.25%	13.90%
Minimum Capital Requirement Including Conservation Buffer in effect at end of period, ratio (as a percent)	7.00%	6.375%
Minimum Capital Requirement Including Conservation Buffer fully phased-in, ratio (as a percent)	7.00%	7.00%
To Be Well Capitalized Minimum Capital Requirements, Ratio (as a percent)	6.50%	6.50%
Tier 1 capital (to risk-weighted assets)
Actual Amount	$ 1,226,270	$ 1,183,447
Actual Ratio (as a percent)	13.25%	13.90%
Minimum Capital Requirement Including Conservation Buffer in effect at end of period, ratio (as a percent)	8.50%	7.875%
Minimum Capital Requirement Including Conservation Buffer fully phased-in, ratio (as a percent)	8.50%	8.50%
To Be Well Capitalized Minimum Capital Requirements, Ratio (as a percent)	8.00%	8.00%
Total capital (to risk-weighted assets)
Actual Amount	$ 1,283,967	$ 1,245,177
Actual Ratio (as a percent)	13.87%	14.63%
Minimum Capital Requirement Including Conservation Buffer in effect at end of period, ratio (as a percent)	10.50%	9.875%
Minimum Capital Requirement Including Conservation Buffer fully phased-in, ratio (as a percent)	10.50%	10.50%
To Be Well Capitalized Minimum Capital Requirements, Ratio (as a percent)	10.00%	10.00%
Hilltop
Tier 1 capital (to average assets)
Actual Amount	$ 1,775,755	$ 1,680,364
Actual Ratio (as a percent)	12.67%	12.53%
Minimum Capital Requirement Including Conservation Buffer in effect at end of period, ratio (as a percent)	4.00%	4.00%
Minimum Capital Requirement Including Conservation Buffer fully phased-in, ratio (as a percent)	4.00%	4.00%
Common equity Tier 1 capital (to risk weighted assets)
Actual Amount	$ 1,729,166	$ 1,634,978
Actual Ratio (as a percent)	16.15%	16.58%
Minimum Capital Requirement Including Conservation Buffer in effect at end of period, ratio (as a percent)	7.00%	6.375%
Minimum Capital Requirement Including Conservation Buffer fully phased-in, ratio (as a percent)	7.00%	7.00%
Tier 1 capital (to risk-weighted assets)
Actual Amount	$ 1,775,755	$ 1,680,364
Actual Ratio (as a percent)	16.58%	17.04%
Minimum Capital Requirement Including Conservation Buffer in effect at end of period, ratio (as a percent)	8.50%	7.875%
Minimum Capital Requirement Including Conservation Buffer fully phased-in, ratio (as a percent)	8.50%	8.50%
Total capital (to risk-weighted assets)
Actual Amount	$ 1,815,134	$ 1,722,602
Actual Ratio (as a percent)	16.95%	17.47%
Minimum Capital Requirement Including Conservation Buffer in effect at end of period, ratio (as a percent)	10.50%	9.875%
Minimum Capital Requirement Including Conservation Buffer fully phased-in, ratio (as a percent)	10.50%	10.50%

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Acquisition

9 Months Ended

Sep. 30, 2019

Acquisition

Acquisition

3. Acquisition

BORO Acquisition

On August 1, 2018, to expand its Houston-area banking operations, the Company acquired privately-held The Bank of River Oaks (“BORO”) in an all-cash transaction (the “BORO Acquisition”). Pursuant to the terms of the definitive agreement, the Company paid cash in the aggregate amount of $85 million to the shareholders and option holders of BORO. The operations of BORO are included in the Bank’s operating results beginning August 1, 2018. BORO’s results of operations prior to the acquisition date are not included in the Company’s consolidated operating results.

The BORO Acquisition 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 resulting fair values of the identifiable assets acquired and liabilities assumed from BORO at August 1, 2018 are summarized in the following table (in thousands).

Cash and due from banks	$	21,756
Securities		60,477
Loans held for investment		326,618
Other assets		25,912
Total identifiable assets acquired		434,763
Deposits		376,393
Short-term borrowings		10,000
Other liabilities		2,996
Total liabilities assumed		389,389
Net identifiable assets acquired		45,374
Goodwill resulting from the acquisition		39,627
Net assets acquired	$	85,001

The goodwill of $39.6 million resulting from the BORO Acquisition represents the inherent long-term value expected from the business opportunities created from combining BORO with the Company. The Company used significant estimates and assumptions to value the identifiable assets acquired and liabilities assumed. The amount of goodwill recorded in connection with the Company’s acquisition of BORO is not deductible for tax purposes.

Included within the fair value of other assets in the table above are $10.0 million of identifiable core deposits intangible assets recorded in connection with the BORO Acquisition which are being amortized on an accelerated basis over an estimated useful life of six years. The fair value of the core deposit intangible assets was estimated using the net cost savings method, a variation of the income approach. This involved the use of the following significant assumptions: cost of deposits, customer attrition rate, and discount rate.

In connection with the BORO Acquisition, the Company 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 Loans Held
	PCI Loans		Loans		for Investment
Commercial real estate	$	119,188	$	5,350	$	124,538
1 - 4 family residential		55,487		39		55,526
Construction and land development		37,134		—		37,134
Commercial and industrial		98,259		2,127		100,386
Consumer		9,021		13		9,034
Total	$	319,089	$	7,529	$	326,618

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

Contractually required principal and interest payments	$	10,730
Nonaccretable difference		2,859
Cash flows expected to be collected		7,871
Accretable difference		342
Fair value of loans acquired with a deterioration of credit quality	$	7,529

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

Contractually required principal and interest payments	$	381,551
Contractual cash flows not expected to be collected		15,286
Fair value at acquisition		319,089

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Financial Instruments with Off-Balance Sheet Risk (Details) $ in Millions	Sep. 30, 2019 USD ($)
Unused commitments to extend credit
Financial Instruments with Off-Balance Sheet Risk
Outstanding commitments	$ 2,200.0
Standby letters of credit
Financial Instruments with Off-Balance Sheet Risk
Outstanding commitments	$ 91.2

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Mortgage Servicing Rights

9 Months Ended

Sep. 30, 2019

Mortgage Servicing Rights

Mortgage Servicing Rights

7. Mortgage Servicing Rights

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019		2018
Balance, beginning of period	$	53,695		$	57,373		$	66,102	$	54,714
Additions		4,166			11,361			8,574		21,090
Sales		—			—			—		(9,303)
Changes in fair value:
Due to changes in model inputs or assumptions (1)		(3,769)			1,311			(17,541)		5,984
Due to customer payoffs		(2,795)			(1,241)			(5,838)		(3,681)
Balance, end of period	$	51,297		$	68,804		$	51,297	$	68,804
	September 30,			December 31,
	2019			2018
Mortgage loans serviced for others	$	4,969,855		$	5,086,461
MSR asset as a percentage of serviced mortgage loans		1.03	%		1.30	%

(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 asset were as follows.

	September 30,		December 31,
	2019		2018
Weighted average constant prepayment rate	14.40	%	10.51	%
Weighted average discount rate	11.13	%	11.11	%
Weighted average life (in years)	5.6		7.1

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

	September 30,		December 31,
	2019		2018
Constant prepayment rate:
Impact of 10% adverse change	$	(3,099)	$	(2,512)
Impact of 20% adverse change		(5,960)		(4,980)
Discount rate:
Impact of 10% adverse change		(1,839)		(2,677)
Impact of 20% adverse change		(3,542)		(5,139)

This sensitivity analysis presents the effect of hypothetical changes in key assumptions on the fair value of the MSR asset. 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 asset 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 $6.3 million and $5.4 million during the three months ended September 30, 2019 and 2018, respectively, and $19.2 million and $17.3 million during the nine months ended September 30, 2019 and 2018, respectively, were included in net gains from sale of loans and other mortgage production income within the consolidated statements of operations.

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Derivative Financial Instruments (Details) - Not Designated as Hedging Instrument - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Prime Lending
Derivative financial instruments
Increase (decrease) in fair value of derivatives during period	$ 5,881	$ 2,171	$ 23,285	$ 9,036
Hilltop Broker-Dealers
Derivative financial instruments
Increase (decrease) in fair value of derivatives during period	(5,984)	3,648	4,790	1,411
PlainsCapital (the Bank)
Derivative financial instruments
Increase (decrease) in fair value of derivatives during period	(25)	$ (16)	(171)	$ 143
Interest Rate Lock Commitments
Derivative financial instruments
Notional Amount	1,695,917		1,695,917		$ 677,267
Estimated Fair Value	31,392		31,392		17,421
Customer-based written options
Derivative financial instruments
Notional Amount	31,200		31,200		31,200
Estimated Fair Value					(49)
Customer-based purchased options
Derivative financial instruments
Notional Amount	31,200		31,200		31,200
Estimated Fair Value					49
Commitments to Purchase MBSs
Derivative financial instruments
Notional Amount	3,847,878		3,847,878		2,359,630
Estimated Fair Value	9,175		9,175		10,467
Commitments to Sell MBSs
Derivative financial instruments
Notional Amount	7,056,929		7,056,929		3,711,477
Estimated Fair Value	(5,994)		(5,994)		(19,315)
Commitments to Sell MBSs | Prime Lending
Derivative financial instruments
Cash collateral advanced to offset net derivative liability	100		100		11,900
Interest rate swaps
Derivative financial instruments
Notional Amount	37,067		37,067		15,104
Estimated Fair Value	135		135		82
U.S. Treasury bond futures and options
Derivative financial instruments
Notional Amount	268,700		268,700		367,200
Eurodollar futures
Derivative financial instruments
Notional Amount	48,000		48,000		104,000
Treasury bond futures and options and Eurodollar futures | PrimeLending and Hilltop Broker-Dealers
Derivative financial instruments
Cash collateral advanced to offset net derivative liability	$ 2,700		$ 2,700		$ 3,400

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Deposits (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Deposits
Noninterest-bearing demand	$ 2,732,325	$ 2,560,750
Interest-bearing:
NOW accounts	1,393,216	1,358,196
Money market	2,584,244	2,725,541
Brokered - money market	5,000	5,000
Demand	318,484	393,685
Savings	187,433	184,700
Time	1,510,170	1,308,284
Total deposits	$ 8,730,872	$ 8,536,156

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Securities - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Securities
Realized net gains from trading securities portfolio	$ 4.4	$ 3.2	$ 15.1	$ 5.1
Realized net losses from other securities	2.6		2.6
Carrying amount of securities pledged	573.2		573.2		$ 612.3
Fair value of securities pledged	581.5		581.5		600.0
Hilltop Broker-Dealers
Securities
Realized net gains from trading securities portfolio	43.3	$ 12.2	99.0	$ 29.7
NLC
Securities
Deposit with various state insurance departments	$ 9.3		$ 9.3		$ 9.5

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Securities - AFS in an Unrealized Loss Position (Details) $ in Thousands	Sep. 30, 2019 USD ($) item	Dec. 31, 2018 USD ($) item
Number of Securities
Unrealized loss for less than twelve months | item	16	60
Unrealized loss for twelve months or longer | item	18	88
Total | item	34	148
Unrealized loss for less than twelve months	$ 90,728	$ 161,784
Unrealized loss for twelve months or longer	76,352	398,386
Total	167,080	560,170
Unrealized Loss
Unrealized loss for less than twelve months	231	1,250
Unrealized loss for twelve months or longer	415	12,531
Total	$ 646	$ 13,781
US Treasury Securities
Number of Securities
Unrealized loss for less than twelve months | item		1
Unrealized loss for twelve months or longer | item	1	3
Total | item	1	4
Unrealized loss for less than twelve months		$ 981
Unrealized loss for twelve months or longer	$ 1,893	3,556
Total	1,893	4,537
Unrealized Loss
Unrealized loss for less than twelve months		6
Unrealized loss for twelve months or longer	5	39
Total	$ 5	$ 45
Bonds
Number of Securities
Unrealized loss for less than twelve months | item		3
Unrealized loss for twelve months or longer | item	1	3
Total | item	1	6
Unrealized loss for less than twelve months		$ 24,772
Unrealized loss for twelve months or longer	$ 9,997	30,472
Total	9,997	55,244
Unrealized Loss
Unrealized loss for less than twelve months		5
Unrealized loss for twelve months or longer	3	428
Total	$ 3	$ 433
Residential Mortgage Backed Securities
Number of Securities
Unrealized loss for less than twelve months | item	4	8
Unrealized loss for twelve months or longer | item	3	27
Total | item	7	35
Unrealized loss for less than twelve months	$ 26,128	$ 66,791
Unrealized loss for twelve months or longer	14,951	194,228
Total	41,079	261,019
Unrealized Loss
Unrealized loss for less than twelve months	39	432
Unrealized loss for twelve months or longer	98	6,530
Total	$ 137	$ 6,962
Commercial mortgage-backed securities
Number of Securities
Unrealized loss for twelve months or longer | item		1
Total | item		1
Unrealized loss for twelve months or longer		$ 4,953
Total		4,953
Unrealized Loss
Unrealized loss for twelve months or longer		120
Total		$ 120
Collateralized Mortgage Obligations
Number of Securities
Unrealized loss for less than twelve months | item	11	11
Unrealized loss for twelve months or longer | item	12	28
Total | item	23	39
Unrealized loss for less than twelve months	$ 64,055	$ 44,394
Unrealized loss for twelve months or longer	49,027	140,483
Total	113,082	184,877
Unrealized Loss
Unrealized loss for less than twelve months	191	498
Unrealized loss for twelve months or longer	308	4,938
Total	$ 499	$ 5,436
Corporate debt securities
Number of Securities
Unrealized loss for less than twelve months | item		8
Unrealized loss for twelve months or longer | item		8
Total | item		16
Unrealized loss for less than twelve months		$ 16,256
Unrealized loss for twelve months or longer		15,665
Total		31,921
Unrealized Loss
Unrealized loss for less than twelve months		282
Unrealized loss for twelve months or longer		297
Total		$ 579
States and political subdivisions
Number of Securities
Unrealized loss for less than twelve months | item	1	29
Unrealized loss for twelve months or longer | item	1	18
Total | item	2	47
Unrealized loss for less than twelve months	$ 545	$ 8,590
Unrealized loss for twelve months or longer	484	9,029
Total	1,029	17,619
Unrealized Loss
Unrealized loss for less than twelve months	1	27
Unrealized loss for twelve months or longer	1	179
Total	$ 2	$ 206

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Loans Held for Investment and Allowance for Loan Losses - Internal Risk Grades (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Internal risk grades of non-covered loans
Loans held for investment	$ 7,321,208	$ 6,930,458
Pass
Internal risk grades of non-covered loans
Loans held for investment	7,078,181	6,681,855
Special Mention
Internal risk grades of non-covered loans
Loans held for investment	1,697	17,796
Substandard
Internal risk grades of non-covered loans
Loans held for investment	157,125	137,735
Non-owner occupied
Internal risk grades of non-covered loans
Loans held for investment	1,675,360	1,722,622
Non-owner occupied | Pass
Internal risk grades of non-covered loans
Loans held for investment	1,613,156	1,673,424
Non-owner occupied | Substandard
Internal risk grades of non-covered loans
Loans held for investment	49,487	36,109
Owner occupied
Internal risk grades of non-covered loans
Loans held for investment	1,258,064	1,217,498
Owner occupied | Pass
Internal risk grades of non-covered loans
Loans held for investment	1,211,767	1,175,225
Owner occupied | Special Mention
Internal risk grades of non-covered loans
Loans held for investment	816	2,083
Owner occupied | Substandard
Internal risk grades of non-covered loans
Loans held for investment	32,781	25,566
Commercial and Industrial
Internal risk grades of non-covered loans
Loans held for investment	1,390,531	1,508,451
Commercial and Industrial | Pass
Internal risk grades of non-covered loans
Loans held for investment	1,328,903	1,433,227
Commercial and Industrial | Special Mention
Internal risk grades of non-covered loans
Loans held for investment	881	15,320
Commercial and Industrial | Substandard
Internal risk grades of non-covered loans
Loans held for investment	55,151	53,345
Construction and land development
Internal risk grades of non-covered loans
Loans held for investment	972,226	932,909
Construction and land development | Pass
Internal risk grades of non-covered loans
Loans held for investment	969,661	929,130
Construction and land development | Substandard
Internal risk grades of non-covered loans
Loans held for investment	2,538	3,315
1 - 4 family residential
Internal risk grades of non-covered loans
Loans held for investment	698,251	679,263
1 - 4 family residential | Pass
Internal risk grades of non-covered loans
Loans held for investment	627,962	601,264
1 - 4 family residential | Special Mention
Internal risk grades of non-covered loans
Loans held for investment		393
1 - 4 family residential | Substandard
Internal risk grades of non-covered loans
Loans held for investment	17,126	19,279
Mortgage warehouse
Internal risk grades of non-covered loans
Loans held for investment	725,852	243,806
Mortgage warehouse | Pass
Internal risk grades of non-covered loans
Loans held for investment	725,852	243,806
Consumer
Internal risk grades of non-covered loans
Loans held for investment	42,780	47,546
Consumer | Pass
Internal risk grades of non-covered loans
Loans held for investment	42,736	47,416
Consumer | Substandard
Internal risk grades of non-covered loans
Loans held for investment	42	121
Broker-dealer
Internal risk grades of non-covered loans
Loans held for investment	558,144	578,363
Broker-dealer | Pass
Internal risk grades of non-covered loans
Loans held for investment	558,144	578,363
PCI loans
Internal risk grades of non-covered loans
Loans held for investment	84,205	93,072
PCI loans | Non-owner occupied
Internal risk grades of non-covered loans
Loans held for investment	12,717	13,089
PCI loans | Owner occupied
Internal risk grades of non-covered loans
Loans held for investment	12,700	14,624
PCI loans | Commercial and Industrial
Internal risk grades of non-covered loans
Loans held for investment	5,596	6,559
PCI loans | Construction and land development
Internal risk grades of non-covered loans
Loans held for investment	27	464
PCI loans | 1 - 4 family residential
Internal risk grades of non-covered loans
Loans held for investment	53,163	58,327
PCI loans | Consumer
Internal risk grades of non-covered loans
Loans held for investment	$ 2	$ 9

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Acquisition - Acquired Loans at Acquisition Date (Details) - BORO $ in Thousands	Aug. 01, 2018 USD ($)
Information about the acquired loans at acquisition
Carryover of the allowance for loan losses recorded	$ 0
Total loans	326,618
Commercial real estate
Information about the acquired loans at acquisition
Total loans	124,538
1 - 4 family residential
Information about the acquired loans at acquisition
Total loans	55,526
Construction and land development
Information about the acquired loans at acquisition
Total loans	37,134
Commercial and Industrial
Information about the acquired loans at acquisition
Total loans	100,386
Consumer
Information about the acquired loans at acquisition
Total loans	9,034
Non-PCI
Information about the acquired loans at acquisition
Total loans	319,089
Non-PCI | Commercial real estate
Information about the acquired loans at acquisition
Total loans	119,188
Non-PCI | 1 - 4 family residential
Information about the acquired loans at acquisition
Total loans	55,487
Non-PCI | Construction and land development
Information about the acquired loans at acquisition
Total loans	37,134
Non-PCI | Commercial and Industrial
Information about the acquired loans at acquisition
Total loans	98,259
Non-PCI | Consumer
Information about the acquired loans at acquisition
Total loans	9,021
PCI loans
Information about the acquired loans at acquisition
Total loans	7,529
PCI loans | Commercial real estate
Information about the acquired loans at acquisition
Total loans	5,350
PCI loans | 1 - 4 family residential
Information about the acquired loans at acquisition
Total loans	39
PCI loans | Commercial and Industrial
Information about the acquired loans at acquisition
Total loans	2,127
PCI loans | Consumer
Information about the acquired loans at acquisition
Total loans	$ 13

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

9 Months Ended

Sep. 30, 2019

Broker-Dealer and Clearing Organization Receivables and Payables

Schedule of broker-dealer and clearing organization receivables and payables

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

	September 30,		December 31,
	2019		2018
Receivables:
Securities borrowed	$	1,636,796	$	1,365,547
Securities failed to deliver		15,878		16,300
Trades in process of settlement		55,982		32,993
Other		23,323		25,447
	$	1,731,979	$	1,440,287
Payables:
Securities loaned	$	1,505,118	$	1,186,073
Correspondents		24,670		29,311
Securities failed to receive		10,485		75,015
Other		5,890		4,526
	$	1,546,163	$	1,294,925

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Earnings per Common Share (Tables)

9 Months Ended

Sep. 30, 2019

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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Basic earnings per share:
Net earnings available to Hilltop common stockholders	$	79,418	$	35,805	$	176,015	$	93,326
Weighted average shares outstanding - basic		91,745		94,554		92,931		95,264
Basic earnings per common share	$	0.87	$	0.38	$	1.89	$	0.98
Diluted earnings per share:
Income attributable to Hilltop	$	79,418	$	35,805	$	176,015	$	93,326
Weighted average shares outstanding - basic		91,745		94,554		92,931		95,264
Effect of potentially dilutive securities		79		56		28		91
Weighted average shares outstanding - diluted		91,824		94,610		92,959		95,355
Diluted earnings per common share	$	0.86	$	0.38	$	1.89	$	0.98