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 September 30, 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 October 21, 2022 was 64,591,491.
HILLTOP HOLDINGS INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION | ||
Item 1. | Financial Statements | |
3 | ||
4 | ||
5 | ||
6 | ||
8 | ||
9 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 42 | |
84 | ||
88 | ||
89 | ||
89 | ||
89 | ||
89 |
2
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
| September 30, | December 31, | ||||
| 2022 |
| 2021 | |||
Assets | ||||||
Cash and due from banks | $ | 1,777,584 | $ | 2,823,138 | ||
Federal funds sold |
| 663 |
| 385 | ||
Assets segregated for regulatory purposes | 109,358 | 221,740 | ||||
Securities purchased under agreements to resell | 145,365 | 118,262 | ||||
Securities: | ||||||
Trading, at fair value |
| 641,864 |
| 647,998 | ||
Available for sale, at fair value, net (amortized cost of $1,753,205 and $2,148,635, respectively) |
| 1,584,724 |
| 2,130,568 | ||
Held to maturity, at amortized cost, net (fair value of $792,559 and $276,296, respectively) | 889,452 | 267,684 | ||||
Equity, at fair value | 209 | 250 | ||||
| 3,116,249 |
| 3,046,500 | |||
Loans held for sale |
| 1,003,605 |
| 1,878,190 | ||
Loans held for investment, net of unearned income |
| 7,944,246 |
| 7,879,904 | ||
Allowance for credit losses |
| (91,783) |
| (91,352) | ||
Loans held for investment, net |
| 7,852,463 |
| 7,788,552 | ||
Broker-dealer and clearing organization receivables |
| 1,255,052 |
| 1,672,946 | ||
Premises and equipment, net |
| 191,423 |
| 204,438 | ||
Operating lease right-of-use assets | 103,099 | 112,328 | ||||
Mortgage servicing rights | 156,539 | 86,990 | ||||
Other assets |
| 624,235 |
| 452,880 | ||
Goodwill |
| 267,447 |
| 267,447 | ||
Other intangible assets, net |
| 12,209 |
| 15,284 | ||
Total assets | $ | 16,615,291 | $ | 18,689,080 | ||
Liabilities and Stockholders' Equity | ||||||
Deposits: | ||||||
Noninterest-bearing | $ | 4,546,816 | $ | 4,577,183 | ||
Interest-bearing |
| 6,805,198 |
| 8,240,894 | ||
Total deposits |
| 11,352,014 |
| 12,818,077 | ||
Broker-dealer and clearing organization payables |
| 1,176,156 |
| 1,477,300 | ||
Short-term borrowings |
| 942,309 |
| 859,444 | ||
Securities sold, not yet purchased, at fair value | 99,515 | 96,586 | ||||
Notes payable |
| 390,354 |
| 387,904 | ||
Operating lease liabilities | 120,635 | 130,960 | ||||
Other liabilities |
| 475,425 |
| 369,606 | ||
Total liabilities |
| 14,556,408 |
| 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; 64,591,491 and 78,964,978 shares and at September 30, 2022 and December 31, 2021, respectively |
| 646 |
| 790 | ||
Additional paid-in capital |
| 1,043,605 |
| 1,274,446 | ||
Accumulated other comprehensive income (loss) |
| (119,864) |
| (10,219) | ||
Retained earnings | 1,107,586 | 1,257,014 | ||||
Deferred compensation employee stock trust, net | 479 | 752 | ||||
Employee stock trust (22,606 and 5,749 shares, at cost, at September 30, 2022 and December 31, 2021, respectively) | (641) | (115) | ||||
Total Hilltop stockholders' equity |
| 2,031,811 |
| 2,522,668 | ||
Noncontrolling interests |
| 27,072 |
| 26,535 | ||
Total stockholders' equity |
| 2,058,883 |
| 2,549,203 | ||
Total liabilities and stockholders' equity | $ | 16,615,291 | $ | 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 September 30, | Nine Months Ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Interest income: | ||||||||||||
Loans, including fees | $ | 109,165 | $ | 99,769 | $ | 298,301 | $ | 308,208 | ||||
Securities borrowed | 10,938 | 8,585 | 30,252 | 53,143 | ||||||||
Securities: | ||||||||||||
Taxable |
| 19,642 |
| 12,341 |
| 52,512 |
| 33,717 | ||||
Tax-exempt |
| 2,451 |
| 2,687 |
| 7,011 |
| 7,127 | ||||
Other |
| 14,276 |
| 1,796 |
| 23,066 |
| 4,723 | ||||
Total interest income |
| 156,472 |
| 125,178 |
| 411,142 |
| 406,918 | ||||
Interest expense: | ||||||||||||
Deposits |
| 12,525 |
| 5,303 |
| 22,174 |
| 19,220 | ||||
Securities loaned | 9,407 | 6,519 | 25,390 | 44,350 | ||||||||
Short-term borrowings |
| 5,550 |
| 2,400 |
| 10,615 |
| 6,786 | ||||
Notes payable |
| 3,907 |
| 5,465 |
| 12,154 |
| 15,515 | ||||
Junior subordinated debentures |
| — |
| 419 |
| — |
| 1,558 | ||||
Other |
| 1,597 |
| (18) |
| 5,276 |
| 801 | ||||
Total interest expense |
| 32,986 |
| 20,088 |
| 75,609 |
| 88,230 | ||||
Net interest income |
| 123,486 |
| 105,090 |
| 335,533 |
| 318,688 | ||||
Provision for (reversal of) credit losses |
| (780) |
| (5,819) |
| 4,671 |
| (39,648) | ||||
Net interest income after provision for (reversal of) credit losses |
| 124,266 |
| 110,909 |
| 330,862 |
| 358,336 | ||||
Noninterest income: | ||||||||||||
Net gains from sale of loans and other mortgage production income |
| 57,998 |
| 203,152 |
| 266,435 |
| 669,857 | ||||
Mortgage loan origination fees |
| 39,960 |
| 38,780 |
| 114,400 |
| 124,081 | ||||
Securities commissions and fees |
| 34,076 |
| 34,412 |
| 105,979 |
| 111,026 | ||||
Investment and securities advisory fees and commissions | 35,031 |
| 49,646 | 96,738 |
| 109,609 | ||||||
Other |
| 39,910 |
| 41,955 |
| 79,124 |
| 110,856 | ||||
Total noninterest income |
| 206,975 |
| 367,945 |
| 662,676 |
| 1,125,429 | ||||
Noninterest expense: | ||||||||||||
Employees' compensation and benefits |
| 200,450 |
| 258,679 |
| 605,796 |
| 777,518 | ||||
Occupancy and equipment, net |
| 25,041 |
| 25,428 |
| 74,038 |
| 74,861 | ||||
Professional services |
| 10,631 |
| 14,542 |
| 36,939 |
| 44,366 | ||||
Other |
| 52,616 |
| 56,525 |
| 156,858 |
| 168,459 | ||||
Total noninterest expense |
| 288,738 |
| 355,174 |
| 873,631 |
| 1,065,204 | ||||
Income before income taxes |
| 42,503 |
| 123,680 |
| 119,907 |
| 418,561 | ||||
Income tax expense |
| 9,249 |
| 28,257 |
| 27,191 |
| 97,261 | ||||
Net income |
| 33,254 |
| 95,423 |
| 92,716 |
| 321,300 | ||||
Less: Net income attributable to noncontrolling interest |
| 1,186 |
| 2,517 |
| 5,138 |
| 8,990 | ||||
Income attributable to Hilltop | $ | 32,068 | $ | 92,906 | $ | 87,578 | $ | 312,310 | ||||
Earnings per common share: | ||||||||||||
Basic | $ | 0.50 | $ | 1.16 | $ | 1.21 | $ | 3.84 | ||||
Diluted | $ | 0.50 | $ | 1.15 | $ | 1.21 | $ | 3.82 | ||||
Weighted average share information: | ||||||||||||
Basic |
| 64,552 |
| 80,109 |
| 72,400 |
| 81,306 | ||||
Diluted |
| 64,669 |
| 80,542 |
| 72,557 |
| 81,763 |
See accompanying notes.
4
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net income | $ | 33,254 | $ | 95,423 | $ | 92,716 | $ | 321,300 | ||||
Other comprehensive income (loss): | ||||||||||||
Change in fair value of cash flow and fair value hedges, net of tax of $2,188, $88, $5,099 and $522, respectively | 21,749 | 1,417 | 58,158 | 5,061 | ||||||||
Net unrealized gains (losses) on securities available for sale, net of tax of $(14,506), $0, $(34,747) and $(6,619), respectively |
| (48,361) |
| (8,143) |
| (115,679) |
| (22,385) | ||||
Reclassification adjustment for gains (losses) included in net income, net of tax of $0, $0, $3 and $(21), respectively |
| — |
| — |
| 10 |
| (72) | ||||
Adjustment for unrealized losses on securities transferred from available-for sale to held-to-maturity, net of tax of $0, $0, $(17,033) and $0, respectively | — | — | (56,690) | — | ||||||||
Amortization of unrealized losses on securities transferred from available-for-sale to held-maturity, net of tax $609, $0, $1,369 and $0, respectively | 2,027 | — | 4,556 | — | ||||||||
Comprehensive income (loss) |
| 8,669 |
| 88,697 |
| (16,929) |
| 303,904 | ||||
Less: comprehensive income attributable to noncontrolling interest |
| 1,186 |
| 2,517 |
| 5,138 |
| 8,990 | ||||
Comprehensive income (loss) applicable to Hilltop | $ | 7,483 | $ | 86,180 | $ | (22,067) | $ | 294,914 |
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, 2021 | 81,153 | $ | 812 | $ | 1,302,439 | $ | 7,093 | $ | 1,159,304 | $ | 754 | 6 | $ | (121) | $ | 2,470,281 | $ | 26,095 | $ | 2,496,376 | ||||||||||
Net income | — | — | — | — | 92,906 | — | — | — | 92,906 | 2,517 | 95,423 | |||||||||||||||||||
Other comprehensive loss | — | — | — | (6,726) | — | — | — | — | (6,726) | — | (6,726) | |||||||||||||||||||
Stock-based compensation expense | — | — | 4,103 | — | — | — | — | — | 4,103 | — | 4,103 | |||||||||||||||||||
Common stock issued to board members | 5 | — | 152 | — | — | — | — | — | 152 | — | 152 | |||||||||||||||||||
Issuance of common stock related to share-based awards, net | 43 | — | (441) | — | — | — | — | — | (441) | — | (441) | |||||||||||||||||||
Repurchases of common stock | (2,242) | (22) | (35,981) | — | (38,157) | — | — | — | (74,160) | — | (74,160) | |||||||||||||||||||
Dividends on common stock ($0.12 per share) | — | — | — | — | (9,746) | — | — | — | (9,746) | — | (9,746) | |||||||||||||||||||
Deferred compensation plan | — | — | — | — | — | (3) | — | 5 | 2 | — | 2 | |||||||||||||||||||
Net cash distributed to noncontrolling interest | — | — | — | — | — | — | — | — | — | (2,641) | (2,641) | |||||||||||||||||||
Balance, September 30, 2021 | 78,959 | $ | 790 | $ | 1,270,272 | $ | 367 | $ | 1,204,307 | $ | 751 | 6 | $ | (116) | $ | 2,476,371 | $ | 25,971 | $ | 2,502,342 | ||||||||||
Balance, June 30, 2022 | 64,576 | $ | 646 | $ | 1,039,261 | $ | (95,279) | $ | 1,085,208 | $ | 695 | 34 | $ | (954) | $ | 2,029,577 | $ | 27,826 | $ | 2,057,403 | ||||||||||
Net income | — | — | — | — | 32,068 | — | — | — | 32,068 | 1,186 | 33,254 | |||||||||||||||||||
Other comprehensive loss | — | — | — | (24,585) | — | — | — | — | (24,585) | — | (24,585) | |||||||||||||||||||
Stock-based compensation expense | — | — | 4,334 | — | — | — | — | — | 4,334 | — | 4,334 | |||||||||||||||||||
Common stock issued to board members | 6 | — | 146 | — | — | — | — | — | 146 | — | 146 | |||||||||||||||||||
Issuance of common stock related to share-based awards, net | 9 | — | (136) | — | — | — | — | — | (136) | — | (136) | |||||||||||||||||||
Repurchases of common stock | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||
Dividends on common stock ($0.15 per share) | — | — | — | — | (9,690) | — | — | — | (9,690) | — | (9,690) | |||||||||||||||||||
Deferred compensation plan | — | — | — | — | — | (216) | (11) | 313 | 97 | — | 97 | |||||||||||||||||||
Net cash distributed to noncontrolling interest | — | — | — | — | — | — | — | — | — | (1,940) | (1,940) | |||||||||||||||||||
Balance, September 30, 2022 | 64,591 | $ | 646 | $ | 1,043,605 | $ | (119,864) | $ | 1,107,586 | $ | 479 | 23 | $ | (641) | $ | 2,031,811 | $ | 27,072 | $ | 2,058,883 |
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, 2020 | 82,185 | $ | 822 | $ | 1,317,929 | $ | 17,763 | $ | 986,792 | $ | 771 | 7 | $ | (138) | $ | 2,323,939 | $ | 26,708 | $ | 2,350,647 | ||||||||||
Net income | — | — | — | — | 312,310 | — | — | — | 312,310 | 8,990 | 321,300 | |||||||||||||||||||
Other comprehensive loss | — | — | — | (17,396) | — | — | — | — | (17,396) | — | (17,396) | |||||||||||||||||||
Stock-based compensation expense | — | — | 12,889 | — | — | — | — | — | 12,889 | — | 12,889 | |||||||||||||||||||
Common stock issued to board members | 13 | — | 449 | — | — | — | — | — | 449 | — | 449 | |||||||||||||||||||
Issuance of common stock related to share-based awards, net | 394 | 3 | (2,694) | — | — | — | — | — | (2,691) | — | (2,691) | |||||||||||||||||||
Repurchases of common stock | (3,633) | (35) | (58,301) | — | (65,295) | — | — | — | (123,631) | — | (123,631) | |||||||||||||||||||
Dividends on common stock ($0.36 per share) | — | — | — | — | (29,500) | — | — | — | (29,500) | — | (29,500) | |||||||||||||||||||
Deferred compensation plan | — | — | — | — | — | (20) | (1) | 22 | 2 | — | 2 | |||||||||||||||||||
Net cash distributed to noncontrolling interest | — | — | — | — | — | — | — | — | — | (9,727) | (9,727) | |||||||||||||||||||
Balance, September 30, 2021 | 78,959 | $ | 790 | $ | 1,270,272 | $ | 367 | $ | 1,204,307 | $ | 751 | 6 | $ | (116) | $ | 2,476,371 | $ | 25,971 | $ | 2,502,342 | ||||||||||
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 | — | — | — | — | 87,578 | — | — | — | 87,578 | 5,138 | 92,716 | |||||||||||||||||||
Other comprehensive loss | — | — | — | (109,645) | — | — | — | — | (109,645) | — | (109,645) | |||||||||||||||||||
Stock-based compensation expense | — | — | 11,553 | — | — | — | — | — | 11,553 | — | 11,553 | |||||||||||||||||||
Common stock issued to board members | 17 | — | 451 | — | — | — | — | — | 451 | — | 451 | |||||||||||||||||||
Issuance of common stock related to share-based awards, net | 478 | 4 | (4,206) | — | — | — | — | — | (4,202) | — | (4,202) | |||||||||||||||||||
Repurchases of common stock | (14,869) | (148) | (238,639) | — | (203,549) | — | — | — | (442,336) | — | (442,336) | |||||||||||||||||||
Dividends on common stock ($0.45 per share) | — | — | — | — | (33,457) | — | — | — | (33,457) | — | (33,457) | |||||||||||||||||||
Deferred compensation plan | — | — | — | — | — | (273) | 17 | (526) | (799) | — | (799) | |||||||||||||||||||
Net cash distributed to noncontrolling interest | — | — | — | — | — | — | — | — | — | (4,601) | (4,601) | |||||||||||||||||||
Balance, September 30, 2022 | 64,591 | $ | 646 | $ | 1,043,605 | $ | (119,864) | $ | 1,107,586 | $ | 479 | 23 | $ | (641) | $ | 2,031,811 | $ | 27,072 | $ | 2,058,883 |
See accompanying notes.
7
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended September 30, | ||||||
| 2022 |
| 2021 | |||
Operating Activities | ||||||
Net income | $ | 92,716 | $ | 321,300 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Provision for (reversal of) credit losses |
| 4,671 |
| (39,648) | ||
Depreciation, amortization and accretion, net |
| 20,207 |
| 18,393 | ||
Deferred income taxes |
| 2,258 |
| (382) | ||
Other, net |
| 11,814 |
| 14,049 | ||
Net change in securities purchased under agreements to resell |
| (27,103) |
| (75,589) | ||
Net change in trading securities |
| 6,134 |
| 84,442 | ||
Net change in broker-dealer and clearing organization receivables |
| 748,584 |
| (223,819) | ||
Net change in other assets |
| (52,021) |
| (50,625) | ||
Net change in broker-dealer and clearing organization payables |
| (470,426) |
| 152,755 | ||
Net change in other liabilities |
| 66,479 |
| (105,402) | ||
Net change in securities sold, not yet purchased | 2,929 |
| 33,275 | |||
Proceeds from sale of mortgage servicing rights asset |
| 1,876 |
| 116,000 | ||
Change in valuation of mortgage servicing rights asset | (23,575) | (12,821) | ||||
Net gains from sales of loans | (266,435) |
| (669,857) | |||
Loans originated for sale |
| (11,706,056) |
| (21,563,008) | ||
Proceeds from loans sold | 12,823,759 |
| 22,874,493 | |||
Net cash provided by operating activities | 1,235,811 | 873,556 | ||||
Investing Activities | ||||||
Proceeds from maturities and principal reductions of securities held to maturity |
| 78,144 | 34,082 | |||
Proceeds from sales, maturities and principal reductions of securities available for sale |
| 259,774 | 507,365 | |||
Purchases of securities held to maturity |
| (11,432) | — | |||
Purchases of securities available for sale |
| (625,522) | (1,075,154) | |||
Purchases of equity securities |
| (30) | — | |||
Net change in loans held for investment |
| (391,040) | 360,518 | |||
Purchases of premises and equipment and other assets |
| (7,335) | (22,079) | |||
Proceeds from sales of premises and equipment and other real estate owned | 1,808 | 4,252 | ||||
Net cash paid to Federal Home Loan Bank and Federal Reserve Bank stock |
| (175) | (82) | |||
Net cash used in investing activities |
| (695,808) |
| (191,098) | ||
Financing Activities | ||||||
Net change in deposits |
| (1,296,781) |
| 865,638 | ||
Net change in short-term borrowings |
| 82,178 |
| 51,203 | ||
Proceeds from notes payable |
| 638,498 |
| 739,372 | ||
Payments on notes payable and junior subordinated debentures |
| (636,394) |
| (792,893) | ||
Payments to repurchase common stock |
| (442,336) |
| (123,631) | ||
Dividends paid on common stock |
| (33,457) |
| (29,500) | ||
Net cash distributed to noncontrolling interest | (4,601) |
| (9,727) | |||
Other, net | (4,768) |
| (3,200) | |||
Net cash provided by (used in) financing activities |
| (1,697,661) | 697,262 | |||
Net change in cash, cash equivalents and restricted cash |
| (1,157,658) |
| 1,379,720 | ||
Cash, cash equivalents and restricted cash, beginning of period |
| 3,045,263 |
| 1,353,303 | ||
Cash, cash equivalents and restricted cash, end of period | $ | 1,887,605 | $ | 2,733,023 | ||
Reconciliation of Cash, Cash Equivalents and Restricted Cash to Consolidated Balance Sheets | ||||||
Cash and due from banks | $ | 1,777,584 | $ | 2,463,111 | ||
Federal funds sold | 663 | 406 | ||||
Assets segregated for regulatory purposes | 109,358 | 269,506 | ||||
Total cash, cash equivalents and restricted cash | $ | 1,887,605 | $ | 2,733,023 | ||
Supplemental Disclosures of Cash Flow Information | ||||||
Cash paid for interest | $ | 69,681 | $ | 85,069 | ||
Cash paid for income taxes, net of refunds | $ | 14,956 | $ | 83,129 | ||
Supplemental Schedule of Non-Cash Activities | ||||||
Conversion of loans to other real estate owned | $ | 326 | $ | 2,924 | ||
Additions to mortgage servicing rights | $ | 47,850 | $ | 70,368 | ||
Carrying amount of AFS securities transferred to HTM, net of $67,798 unrealized loss | $ | 689,477 | $ | — |
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 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.
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”).
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 of PCC Statutory Trusts I, II, III and IV (the “Trusts”), which were 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. Following receipt of regulatory approval, during June, July and August 2021, PCC submitted to the trustees of each of the Trusts notices to redeem in full outstanding junior subordinated debentures of $67.0 million issued by PCC, which resulted in the full
9
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
redemption to the holders of the associated preferred securities and common securities during the third quarter of 2021. For further details, see Note 16 to the consolidated financial statements included in the Company’s 2021 Form 10-K.
Hilltop has a 100% membership interest in Securities Holdings, which operates through its wholly owned subsidiaries, Hilltop Securities Inc. (“Hilltop Securities”), Momentum Independent Network Inc. (“Momentum Independent Network” and collectively with Hilltop Securities, 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”). Momentum Independent Network is an introducing broker-dealer that is also registered with the SEC and FINRA. Hilltop Securities, Momentum Independent Network and Hilltop Securities Asset Management, LLC are registered investment advisers under the Investment Advisers Act of 1940.
In addition, Hilltop owns 100% of the membership interest in each of HTH Hillcrest Project LLC (“HTH Project LLC”) and 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 19 to the consolidated financial statements included in the Company’s 2021 Form 10-K and are collectively referred to as the “Hilltop Plaza Entities.”
Investments I, LLC. Hilltop Investments I, LLC owns 50%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. 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 2021 Form 10-K.
2. Recently Issued Accounting Standards
Accounting Standards Adopted During 2022
In March 2022, the FASB issued ASU 2022-01 to expand and clarify the guidance on fair value hedge accounting of interest rate risk for portfolios of financial assets. ASU 2022-01 amends the guidance in ASU 2017-12 that, among other things, established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible. The amendment further improves the last-of-layer (renamed the “portfolio layer”) concepts to expand to nonprepayable financial assets and allows more flexibility in the derivative structures used to hedge the interest rate risk. For entities that have already adopted ASU 2017-12 this update is available for immediate adoption. As permitted within the amendment, the Company elected to early adopt the provisions as of April 1, 2022 on a prospective basis. The adoption of this amendment did not have a material impact on the Company’s consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03 to clarify the guidance on the fair value measurement of an equity security that is subject to a contractual sale restriction, and require specific disclosures for equity securities that are subject to such restrictions. The amendments are effective in periods beginning after December 15, 2023, with early adoption permitted. As permitted within the amendment, the Company elected to early adopt the provisions as of July 1, 2022 on a prospective basis. The adoption of this amendment did not have a material impact on the Company’s consolidated financial statements.
10
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Accounting Standards Issued But Not Yet Adopted
In March 2022, the FASB issued ASU 2022-02 to eliminate the recognition and measurement guidance on troubled debt restructurings for creditors, and require enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. The amendments are effective in periods beginning after December 15, 2022 using either a prospective or modified retrospective transition. Early adoption of certain or all of the amendments is permitted. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated financial statements.
In September 2022, the FASB issued ASU 2022-04 to require entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of such programs and information about obligations outstanding at the end of the reporting period, including a rollforward of those obligations and a description of where in the financial statements outstanding amounts are present. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The amendments are effective in periods beginning after December 15, 2022, except that the amendments to disclose a rollforward of obligations outstanding will be effective beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated financial statements.
3. 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 estimates 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. |
11
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Fair Value Option
The Company has elected to measure substantially all of PrimeLending’s mortgage loans held for sale and the 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 wo