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