Regulatory Matters

3 Months Ended

Mar. 31, 2020

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 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 ratio in effect at the end of the period (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. Actual capital amounts and ratios as of March 31, 2020 reflect PlainsCapital’s and Hilltop’s decision to elect the transition option as recently issued by the federal banking regulatory agencies in March 2020 that permits banking institutions to mitigate the estimated cumulative regulatory capital effects from CECL over a five-year transitionary period.

					Minimum Capital
					Requirements
					Including		To Be Well
	Actual				Conservation Buffer		Capitalized
	Amount		Ratio		Ratio		Ratio
March 31, 2020
Tier 1 capital (to average assets):
PlainsCapital	$	1,263,998	12.06	%	4.0	%	5.0	%
Hilltop		1,863,770	13.03	%	4.0	%	N/A
Common equity Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,263,998	13.33	%	7.0	%	6.5	%
Hilltop		1,815,640	15.96	%	7.0	%	N/A
Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,263,998	13.33	%	8.5	%	8.0	%
Hilltop		1,863,770	16.38	%	8.5	%	N/A
Total capital (to risk-weighted assets):
PlainsCapital		1,352,722	14.26	%	10.5	%	10.0	%
Hilltop		1,934,982	17.00	%	10.5	%	N/A
					Minimum Capital
					Requirements
					Including		To Be Well
	Actual				Conservation Buffer		Capitalized
	Amount		Ratio		Ratio		Ratio
December 31, 2019
Tier 1 capital (to average assets):
PlainsCapital	$	1,236,289	11.61	%	4.0	%	5.0	%
Hilltop		1,822,970	12.71	%	4.0	%	N/A
Common equity Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,236,289	13.45	%	7.0	%	6.5	%
Hilltop		1,776,381	16.70	%	7.0	%	N/A
Tier 1 capital (to risk-weighted assets):
PlainsCapital		1,236,289	13.45	%	8.5	%	8.0	%
Hilltop		1,822,970	17.13	%	8.5	%	N/A
Total capital (to risk-weighted assets):
PlainsCapital		1,299,453	14.13	%	10.5	%	10.0	%
Hilltop		1,867,771	17.55	%	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 $250,000 or 6-2/3% of aggregate indebtedness.

At March 31, 2020, the net capital position of each of the Hilltop Broker-Dealers was as follows (in thousands).

				HTS
	Hilltop			Independent
	Securities			Network
Net capital	$	245,293		$	3,179
Less: required net capital		9,502			250
Excess net capital	$	235,791		$	2,929
Net capital as a percentage of aggregate debit items		51.6	%
Net capital in excess of 5% aggregate debit items	$	221,539

Under certain conditions, Hilltop Securities may be required to segregate cash and securities in a special reserve account for the benefit of customers under Rule 15c3-3 promulgated under the Exchange Act. Assets segregated under the provisions of the Exchange Act are not available for general corporate purposes. At March 31, 2020 and December 31, 2019, the Hilltop Broker-Dealers held cash of $178.8 million and $157.4 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 March 31, 2020 or December 31, 2019.

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 March 31, 2020, PrimeLending and its subsidiaries’ net worth and liquidity exceeded the amounts required by both HUD and GNMA, as applicable.