Securities

6 Months Ended

Jun. 30, 2022

Securities

Securities

4. Securities

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

	June 30,		December 31,
	2022		2021
U.S. Treasury securities	$	3,689	$	3,728
U.S. government agencies:
Bonds		17,303		3,410
Residential mortgage-backed securities		133,290		152,093
Collateralized mortgage obligations		124,997		126,389
Corporate debt securities		64,543		60,671
States and political subdivisions		226,986		285,376
Private-label securitized product		16,529		11,377
Other		5,936		4,954
Totals	$	593,273	$	647,998

In addition to the securities shown above, 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 $136.0 million and $96.6 million at June 30, 2022 and December 31, 2021, 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
June 30, 2022	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	24,937	$	—	$	(600)	$	24,337
U.S. government agencies:
Bonds		77,283		482		(443)		77,322
Residential mortgage-backed securities		486,800		80		(32,942)		453,938
Commercial mortgage-backed securities		189,572		62		(23,618)		166,016
Collateralized mortgage obligations		848,031		76		(45,584)		802,523
States and political subdivisions		41,214		163		(3,291)		38,086
Totals	$	1,667,837	$	863	$	(106,478)	$	1,562,222

	Available for Sale
	Amortized		Unrealized		Unrealized
December 31, 2021	Cost		Gains		Losses		Fair Value
U.S. Treasury securities	$	14,937	$	—	$	(75)	$	14,862
U.S. government agencies:
Bonds		43,448		838		(153)		44,133
Residential mortgage-backed securities		900,084		7,979		(9,617)		898,446
Commercial mortgage-backed securities		219,460		367		(9,128)		210,699
Collateralized mortgage obligations		926,783		2,547		(12,464)		916,866
States and political subdivisions		43,923		1,839		(200)		45,562
Totals	$	2,148,635	$	13,570	$	(31,637)	$	2,130,568

	Held to Maturity
	Amortized		Unrealized		Unrealized
June 30, 2022	Cost		Gains		Losses		Fair Value
U.S. government agencies:
Residential mortgage-backed securities	$	315,666	$	—	$	(15,987)	$	299,679
Commercial mortgage-backed securities		196,733		19		(6,543)		190,209
Collateralized mortgage obligations		336,313		—		(15,802)		320,511
States and political subdivisions		71,871		28		(5,767)		66,132
Totals	$	920,583	$	47	$	(44,099)	$	876,531

	Held to Maturity
	Amortized		Unrealized		Unrealized
December 31, 2021	Cost		Gains		Losses		Fair Value
U.S. government agencies:
Residential mortgage-backed securities	$	9,892	$	400	$	—	$	10,292
Commercial mortgage-backed securities		145,742		5,311		—		151,053
Collateralized mortgage obligations		43,990		476		—		44,466
States and political subdivisions		68,060		2,428		(3)		70,485
Totals	$	267,684	$	8,615	$	(3)	$	276,296

Additionally, the Company had unrealized net gains of $0.1 million and $0.2 million at June 30, 2022 and December 31, 2021 from equity securities with fair values of $0.2 million and $0.2 million held at June 30, 2022 and December 31, 2021. The Company recognized net losses of $0.1 million during both the three and six months ended June 30, 2022 and 2021, due to changes in the fair value of equity securities still held at the balance sheet date. During the three and six months ended June 30, 2022 and 2021, net losses and gains recognized from equity securities sold were nominal.

The Company transferred certain agency-issued securities from the available-for-sale to held-to-maturity portfolio on March 31, 2022 having a book value of approximately $782 million and a market value of approximately $708 million. As of the date of transfer, the related pre-tax net unrecognized losses of approximately $74 million within the accumulated other comprehensive loss balance are being amortized over the remaining term of the securities using the effective interest method. This transfer was completed after careful consideration of the Company’s intent and ability to hold these securities to maturity. Factors used in assessing the ability to hold these securities to maturity were future liquidity needs and sources of funding.

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).

	June 30, 2022					December 31, 2021
	Number of			Unrealized		Number of			Unrealized
	Securities	Fair Value		Losses		Securities	Fair Value		Losses
Available for Sale
U.S. treasury securities:
Unrealized loss for less than twelve months	3	$	24,337	$	600	2	$	14,862	$	75
Unrealized loss for twelve months or longer	—		—		—	—		—		—
	3		24,337		600	2		14,862		75
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months	1		4,831		168	2		9,904		94
Unrealized loss for twelve months or longer	2		10,841		275	1		6,184		59
	3		15,672		443	3		16,088		153
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	108		388,795		25,793	52		548,392		6,915
Unrealized loss for twelve months or longer	8		58,313		7,149	17		104,378		2,702
	116		447,108		32,942	69		652,770		9,617
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	10		109,985		13,622	5		65,636		1,776
Unrealized loss for twelve months or longer	5		49,979		9,996	14		138,619		7,352
	15		159,964		23,618	19		204,255		9,128
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	117		748,245		42,634	72		618,464		11,316
Unrealized loss for twelve months or longer	8		22,853		2,950	10		62,647		1,148
	125		771,098		45,584	82		681,111		12,464
States and political subdivisions:
Unrealized loss for less than twelve months	42		22,054		2,535	14		5,576		200
Unrealized loss for twelve months or longer	6		1,970		756	—		—		—
	48		24,024		3,291	14		5,576		200
Total available for sale:
Unrealized loss for less than twelve months	281		1,298,247		85,352	147		1,262,834		20,376
Unrealized loss for twelve months or longer	29		143,956		21,126	42		311,828		11,261
	310	$	1,442,203	$	106,478	189	$	1,574,662	$	31,637

	June 30, 2022					December 31, 2021
	Number of			Unrealized		Number of			Unrealized
	Securities	Fair Value		Losses		Securities	Fair Value		Losses
Held to Maturity
Residential mortgage-backed securities:
Unrealized loss for less than twelve months	30	$	196,968	$	9,481	—	$	—	$	—
Unrealized loss for twelve months or longer	15		102,710		6,506	—		—		—
	45		299,678		15,987	—		—		—
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months	31		180,360		6,347	—		—		—
Unrealized loss for twelve months or longer	1		3,073		196	—		—		—
	32		183,433		6,543	—		—		—
Collateralized mortgage obligations:
Unrealized loss for less than twelve months	47		247,023		11,557	—		—		—
Unrealized loss for twelve months or longer	9		73,481		4,245	—		—		—
	56		320,504		15,802	—		—		—
States and political subdivisions:
Unrealized loss for less than twelve months	161		57,790		5,713	2		558		1
Unrealized loss for twelve months or longer	1		214		54	1		266		2
	162		58,004		5,767	3		824		3
Total held to maturity:
Unrealized loss for less than twelve months	269		682,141		33,098	2		558		1
Unrealized loss for twelve months or longer	26		179,478		11,001	1		266		2
	295	$	861,619	$	44,099	3	$	824	$	3

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 June 30, 2022 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	$	34,547	$	34,413	$	275	$	275
Due after one year through five years		23,446		22,607		1,386		1,359
Due after five years through ten years		21,963		21,878		16,580		15,840
Due after ten years		63,478		60,847		53,630		48,658
		143,434		139,745		71,871		66,132
Residential mortgage-backed securities		486,800		453,938		315,666		299,679
Commercial mortgage-backed securities		189,572		166,016		196,733		190,209
Collateralized mortgage obligations		848,031		802,523		336,313		320,511
	$	1,667,837	$	1,562,222	$	920,583	$	876,531

The Company recognized net gains of $6.8 million and $11.1 million from its trading portfolio during the three months ended June 30, 2022 and 2021, respectively, and net losses of $4.7 million and net gains of $19.8 million during the six months ended June 30, 2022 and 2021. In addition, the Hilltop Broker-Dealers realized net gains from structured product trading activities of $2.4 million and net losses from structured product trading activities of $8.9 million during the three months ended June 30, 2022 and 2021, respectively, and net gains from structured product trading activities of $9.1 million and $35.1 million during the six months ended June 30, 2022 and 2021. The Company had nominal other realized gains and losses on securities during the three months ended June 30, 2022 and 2021, respectively. Other realized gains on securities during the six months ended June 30, 2022 were nominal, compared with other realized losses on securities of $0.1 million during the six months ended June 30, 2021. All such realized gains and losses are recorded as a component of other noninterest income within the consolidated statements of operations.

Securities with a carrying amount of $806.5 million and $809.9 million (with a fair value of $753.9 million and $817.7 million, respectively) at June 30, 2022 and December 31, 2021, 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 the available for sale and held to maturity securities portfolios at June 30, 2022 and December 31, 2021.

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 enterprises, and conditionally guaranteed by the full faith and credit of the United States.