HOW

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2022

☐ 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)
6565 Hillcrest Avenue
Dallas, TX	75205
(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 April 22, 2022 was 79,439,118.

HILLTOP HOLDINGS INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2022

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 (Loss)	5
	Consolidated Statements of Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	79
Item 4.	Controls and Procedures	83
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	84
Item 1A.	Risk Factors	84
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	84
Item 6.	Exhibits	85

2

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(Unaudited)

	March 31,		December 31,
	2022		2021
Assets
Cash and due from banks	$	2,886,812	$	2,823,138
Federal funds sold		383		385
Assets segregated for regulatory purposes		128,408		221,740
Securities purchased under agreements to resell		256,991		118,262
Securities:
Trading, at fair value		471,763		647,998
Available for sale, at fair value, net (amortized cost of $1,526,614 and $2,148,635, respectively)		1,462,340		2,130,568
Held to maturity, at amortized cost, net (fair value of $949,034 and $276,296, respectively)		953,107		267,684
Equity, at fair value		225		250
		2,887,435		3,046,500
Loans held for sale		1,643,994		1,878,190
Loans held for investment, net of unearned income		7,797,903		7,879,904
Allowance for credit losses		(91,185)		(91,352)
Loans held for investment, net		7,706,718		7,788,552
Broker-dealer and clearing organization receivables		1,610,352		1,672,946
Premises and equipment, net		198,906		204,438
Operating lease right-of-use assets		108,180		112,328
Mortgage servicing rights		100,475		86,990
Other assets		546,622		452,880
Goodwill		267,447		267,447
Other intangible assets, net		14,233		15,284
Total assets	$	18,356,956	$	18,689,080
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing	$	4,694,592	$	4,577,183
Interest-bearing		7,972,110		8,240,894
Total deposits		12,666,702		12,818,077
Broker-dealer and clearing organization payables		1,397,836		1,477,300
Short-term borrowings		835,054		859,444
Securities sold, not yet purchased, at fair value		97,629		96,586
Notes payable		395,479		387,904
Operating lease liabilities		125,919		130,960
Other liabilities		347,742		369,606
Total liabilities		15,866,361		16,139,877
Commitments and contingencies (see Notes 13 and 14)
Stockholders' equity:
Hilltop stockholders' equity:
Common stock, $0.01 par value, 125,000,000 shares authorized; 79,438,610 and 78,964,978 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		794		790
Additional paid-in capital		1,275,649		1,274,446
Accumulated other comprehensive income (loss)		(80,565)		(10,219)
Retained earnings		1,267,415		1,257,014
Deferred compensation employee stock trust, net		744		752
Employee stock trust (5,234 and 5,749 shares, at cost, at March 31, 2022 and December 31, 2021, respectively)		(104)		(115)
Total Hilltop stockholders' equity		2,463,933		2,522,668
Noncontrolling interests		26,662		26,535
Total stockholders' equity		2,490,595		2,549,203
Total liabilities and stockholders' equity	$	18,356,956	$	18,689,080

See accompanying notes.

3

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2022		2021
Interest income:
Loans, including fees	$	90,408	$	104,277
Securities borrowed		8,817		28,972
Securities:
Taxable		15,581		10,251
Tax-exempt		2,419		2,102
Other		2,312		1,321
Total interest income		119,537		146,923
Interest expense:
Deposits		4,193		7,741
Securities loaned		7,472		25,486
Short-term borrowings		2,045		2,013
Notes payable		4,437		4,797
Junior subordinated debentures		—		562
Other		1,399		642
Total interest expense		19,546		41,241
Net interest income		99,991		105,682
Provision for (reversal of) credit losses		115		(5,109)
Net interest income after provision for (reversal of) credit losses		99,876		110,791
Noninterest income:
Net gains from sale of loans and other mortgage production income		110,894		267,080
Mortgage loan origination fees		32,062		43,155
Securities commissions and fees		37,146		38,314
Investment and securities advisory fees and commissions		29,705		27,695
Other		6,621		41,341
Total noninterest income		216,428		417,585
Noninterest expense:
Employees' compensation and benefits		200,019		270,353
Occupancy and equipment, net		24,766		24,429
Professional services		10,063		13,585
Other		51,502		58,295
Total noninterest expense		286,350		366,662
Income before income taxes		29,954		161,714
Income tax expense		5,815		37,770
Net income		24,139		123,944
Less: Net income attributable to noncontrolling interest		1,889		3,599
Income attributable to Hilltop	$	22,250	$	120,345
Earnings per common share:
Basic	$	0.28	$	1.46
Diluted	$	0.28	$	1.46
Weighted average share information:
Basic		79,114		82,169
Diluted		79,356		82,657

See accompanying notes.

4

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2022		2021
Net income	$	24,139	$	123,944
Other comprehensive income (loss):
Change in fair value of cash flow and fair value hedges, net of tax of $2,103 and $505, respectively		21,877		6,035
Net unrealized gains (losses) on securities available for sale, net of tax of $(10,677) and $(5,974), respectively		(35,543)		(20,241)
Reclassification adjustment for gains (losses) included in net income, net of tax of $3 and $(21), respectively		10		(71)
Adjustment for unrealized losses on securities transferred from available-for sale to held-to-maturity, net of tax $(17,033) and $0, respectively		(56,690)		—
Comprehensive income (loss)		(46,207)		109,667
Less: comprehensive income attributable to noncontrolling interest		1,889		3,599
Comprehensive income (loss) applicable to Hilltop	$	(48,096)	$	106,068

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, December 31, 2020	82,185	$	822	$	1,317,929	$	17,763	$	986,792	$	771	7	$	(138)	$	2,323,939	$	26,708	$	2,350,647
Net income	—		—		—		—		120,345		—	—		—		120,345		3,599		123,944
Other comprehensive loss	—		—		—		(14,277)		—		—	—		—		(14,277)		—		(14,277)
Stock-based compensation expense	—		—		4,594		—		—		—	—		—		4,594		—		4,594
Common stock issued to board members	4		—		147		—		—		—	—		—		147		—		147
Issuance of common stock related to share-based awards, net	222		2		(748)		—		—		—	—		—		(746)		—		(746)
Repurchases of common stock	(150)		(1)		(2,404)		—		(2,545)		—	—		—		(4,950)		—		(4,950)
Dividends on common stock ($0.12 per share)	—		—		—		—		(9,865)		—	—		—		(9,865)		—		(9,865)
Deferred compensation plan	—		—		—		—		—		(19)	(1)		17		(2)		—		(2)
Net cash distributed to noncontrolling interest	—		—		—		—		—		—	—		—		—		(3,477)		(3,477)
Balance, March 31, 2021	82,261	$	823	$	1,319,518	$	3,486	$	1,094,727	$	752	6	$	(121)	$	2,419,185	$	26,830	$	2,446,015
Balance, December 31, 2021	78,965	$	790	$	1,274,446	$	(10,219)	$	1,257,014	$	752	6	$	(115)	$	2,522,668	$	26,535	$	2,549,203
Net income	—		—		—		—		22,250		—	—		—		22,250		1,889		24,139
Other comprehensive loss	—		—		—		(70,346)		—		—	—		—		(70,346)		—		(70,346)
Stock-based compensation expense	—		—		5,114		—		—		—	—		—		5,114		—		5,114
Common stock issued to board members	5		—		152		—		—		—	—		—		152		—		152
Issuance of common stock related to share-based awards, net	469		4		(4,063)		—		—		—	—		—		(4,059)		—		(4,059)
Dividends on common stock ($0.15 per share)	—		—		—		—		(11,849)		—	—		—		(11,849)		—		(11,849)
Deferred compensation plan	—		—		—		—		—		(8)	(1)		11		3		—		3
Net cash distributed to noncontrolling interest	—		—		—		—		—		—	—		—		—		(1,762)		(1,762)
Balance, March 31, 2022	79,439	$	794	$	1,275,649	$	(80,565)	$	1,267,415	$	744	5	$	(104)	$	2,463,933	$	26,662	$	2,490,595

See accompanying notes.

6

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Three Months Ended March 31,
	2022		2021
Operating Activities
Net income	$	24,139	$	123,944
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (reversal of) credit losses		115		(5,109)
Depreciation, amortization and accretion, net		7,709		5,930
Deferred income taxes		2,664		1,424
Other, net		5,231		5,775
Net change in securities purchased under agreements to resell		(138,729)		(26,023)
Net change in trading securities		176,235		165,543
Net change in broker-dealer and clearing organization receivables		289,274		(275,257)
Net change in other assets		(53,745)		(97,606)
Net change in broker-dealer and clearing organization payables		(129,753)		171,709
Net change in other liabilities		(20,854)		(13,289)
Net change in securities sold, not yet purchased		1,043		17,266
Proceeds from sale of mortgage servicing rights asset		1,876		52,783
Change in valuation of mortgage servicing rights asset		(8,060)		(16,865)
Net gains from sales of loans		(110,894)		(267,080)
Loans originated for sale		(3,968,559)		(6,960,572)
Proceeds from loans sold		4,310,942		7,431,243
Net cash provided by operating activities		388,634		313,816
Investing Activities
Proceeds from maturities and principal reductions of securities held to maturity		22,851		11,707
Proceeds from sales, maturities and principal reductions of securities available for sale		94,687		249,628
Purchases of securities available for sale		(256,887)		(531,701)
Net change in loans held for investment		(142,451)		(29,151)
Purchases of premises and equipment and other assets		(1,380)		(8,341)
Proceeds from sales of premises and equipment and other real estate owned		843		867
Net cash paid to Federal Home Loan Bank and Federal Reserve Bank stock		(143)		(35)
Net cash used in investing activities		(282,480)		(307,026)
Financing Activities
Net change in deposits		(101,086)		496,605
Net change in short-term borrowings		(24,334)		(18,834)
Proceeds from notes payable		200,416		239,020
Payments on notes payable and junior subordinated debentures		(192,955)		(219,401)
Payments to repurchase common stock		—		(4,950)
Dividends paid on common stock		(11,849)		(9,865)
Net cash distributed to noncontrolling interest		(1,762)		(3,477)
Other, net		(4,244)		(913)
Net cash provided by (used in) financing activities		(135,814)		478,185
Net change in cash, cash equivalents and restricted cash		(29,660)		484,975
Cash, cash equivalents and restricted cash, beginning of period		3,045,263		1,353,303
Cash, cash equivalents and restricted cash, end of period	$	3,015,603	$	1,838,278
Reconciliation of Cash, Cash Equivalents and Restricted Cash to Consolidated Balance Sheets
Cash and due from banks	$	2,886,812	$	1,564,489
Federal funds sold		383		396
Assets segregated for regulatory purposes		128,408		273,393
Total cash, cash equivalents and restricted cash	$	3,015,603	$	1,838,278
Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	14,862	$	37,095
Cash paid for income taxes, net of refunds	$	1,322	$	1,622
Supplemental Schedule of Non-Cash Activities
Conversion of loans to other real estate owned	$	53	$	461
Additions to mortgage services rights	$	7,301	$	34,301
Carrying amount of AFS securities transferred to HTM, net of $73,722 unrealized loss	$	708,701	$	—

See accompanying notes.

7

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. Summary of Significant Accounting and Reporting Policies

Nature of Operations

Hilltop Holdings Inc. (“Hilltop” and, collectively with its subsidiaries, the “Company”) is a financial holding company registered under the Bank Holding Company Act of 1956. The Company’s primary line of business is to provide business and consumer banking services from offices located throughout Texas through PlainsCapital Bank (the “Bank”). In addition, the Company provides an array of financial products and services through its broker-dealer and mortgage origination subsidiaries.

The Company, headquartered in Dallas, Texas, provides its products and services through two primary business units, PlainsCapital Corporation (“PCC”) and Hilltop Securities Holdings LLC (“Securities Holdings”). 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, clearing, securities lending, structured finance and retail brokerage services throughout the United States.

As a result of the spread of the novel coronavirus (“COVID-19”) pandemic and its additional variants, economic uncertainties have contributed to significant volatility in the global economy, as well as banking and other financial activity in the areas in which the Company operates. The effects of COVID-19 have had, and may continue to have, an adverse effect on the financial markets and overall economic conditions on an unprecedented scale. The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. COVID-19 presents uncertainty which could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.

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, 2021 (“2021 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 credit losses, the fair values of financial instruments, the mortgage loan indemnification liability, and the potential impairment of goodwill and identifiable intangible 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. Actual amounts and values as of the balance sheet dates may be materially different than the amounts and values reported due to the inherent uncertainty in the estimation process. Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date.

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”).

8

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

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 owned 100% of the outstanding common securities o