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Section 1: 10-Q (10-Q)

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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 June 30, 2018

 

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)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 ☐
(Do not check if a smaller reporting company)

 

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 July 26, 2018 was 94,576,828.

 

 

 

 

 


 

Table of Contents

HILLTOP HOLDINGS INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2018

 

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

7

 

Notes to Consolidated Financial Statements

8

 

Schedule I - Insurance Incurred and Cumulative Paid Losses and Allocated Loss and Loss Adjustment Expenses, Net of Reinsurance

59

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

60

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

98

 

 

 

Item 4. 

Controls and Procedures

101

 

 

 

 

 

 

PART II — OTHER INFORMATION 

 

 

 

Item 1. 

Legal Proceedings

102

 

 

 

Item 1A. 

Risk Factors

102

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

103

 

 

 

Item 6. 

Exhibits

104

2


 

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

    

2018

    

2017

 

Assets

 

 

 

 

 

 

 

Cash and due from banks

 

$

353,432

 

$

486,977

 

Federal funds sold

 

 

403

 

 

405

 

Securities purchased under agreements to resell

 

 

229,172

 

 

186,537

 

Assets segregated for regulatory purposes

 

 

128,417

 

 

186,578

 

Securities:

 

 

 

 

 

 

 

Trading, at fair value

 

 

634,197

 

 

730,685

 

Available for sale, at fair value (amortized cost of $826,515 and $748,255, respectively)

 

 

811,218

 

 

744,319

 

Held to maturity, at amortized cost (fair value of $339,702 and $349,939, respectively)

 

 

353,192

 

 

355,849

 

Equity, at fair value

 

 

21,218

 

 

21,241

 

 

 

 

1,819,825

 

 

1,852,094

 

 

 

 

 

 

 

 

 

Loans held for sale

 

 

1,953,562

 

 

1,715,357

 

Non-covered loans, net of unearned income

 

 

6,384,660

 

 

6,273,669

 

Allowance for non-covered loan losses

 

 

(59,996)

 

 

(60,957)

 

Non-covered loans, net

 

 

6,324,664

 

 

6,212,712

 

 

 

 

 

 

 

 

 

Covered loans, net of allowance of $1,974 and $2,729, respectively

 

 

158,996

 

 

179,400

 

Broker-dealer and clearing organization receivables

 

 

1,614,951

 

 

1,464,378

 

Premises and equipment, net

 

 

172,911

 

 

177,577

 

FDIC indemnification asset

 

 

23,525

 

 

29,340

 

Covered other real estate owned

 

 

34,895

 

 

36,744

 

Other assets

 

 

589,897

 

 

549,447

 

Goodwill

 

 

251,808

 

 

251,808

 

Other intangible assets, net

 

 

32,716

 

 

36,432

 

Total assets

 

$

13,689,174

 

$

13,365,786

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Noninterest-bearing

 

$

2,468,332

 

$

2,411,849

 

Interest-bearing

 

 

5,345,290

 

 

5,566,270

 

Total deposits

 

 

7,813,622

 

 

7,978,119

 

 

 

 

 

 

 

 

 

Broker-dealer and clearing organization payables

 

 

1,409,904

 

 

1,287,563

 

Short-term borrowings

 

 

1,610,735

 

 

1,206,424

 

Securities sold, not yet purchased, at fair value

 

 

251,581

 

 

232,821

 

Notes payable

 

 

227,736

 

 

208,809

 

Junior subordinated debentures

 

 

67,012

 

 

67,012

 

Other liabilities

 

 

392,171

 

 

470,231

 

Total liabilities

 

 

11,772,761

 

 

11,450,979

 

Commitments and contingencies (see Notes 12 and 13)

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Hilltop stockholders' equity:

 

 

 

 

 

 

 

Common stock, $0.01 par value, 125,000,000 shares authorized; 94,570,757 and 95,982,184 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

 

 

946

 

 

960

 

Additional paid-in capital

 

 

1,502,105

 

 

1,526,369

 

Accumulated other comprehensive income (loss)

 

 

(11,846)

 

 

(394)

 

Retained earnings

 

 

419,683

 

 

384,545

 

Deferred compensation employee stock trust, net

 

 

857

 

 

848

 

Employee stock trust (11,217 and 11,672 shares, at cost, respectively)

 

 

(252)

 

 

(247)

 

Total Hilltop stockholders' equity

 

 

1,911,493

 

 

1,912,081

 

Noncontrolling interests

 

 

4,920

 

 

2,726

 

Total stockholders' equity

 

 

1,916,413

 

 

1,914,807

 

Total liabilities and stockholders' equity

 

$

13,689,174

 

$

13,365,786

 

 

See accompanying notes.

3


 

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

   

2018

    

2017

   

2018

    

2017

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

103,924

 

$

113,793

 

$

203,868

 

$

203,784

 

Securities borrowed

 

 

17,486

 

 

9,597

 

 

33,786

 

 

17,650

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

12,516

 

 

8,833

 

 

23,469

 

 

15,433

 

Tax-exempt

 

 

1,697

 

 

1,375

 

 

3,469

 

 

2,619

 

Other

 

 

4,417

 

 

2,708

 

 

8,808

 

 

5,061

 

Total interest income

 

 

140,040

 

 

136,306

 

 

273,400

 

 

244,547

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

10,136

 

 

5,464

 

 

18,811

 

 

10,154

 

Securities loaned

 

 

15,075

 

 

7,481

 

 

28,814

 

 

13,821

 

Short-term borrowings

 

 

6,466

 

 

3,648

 

 

10,509

 

 

5,066

 

Notes payable

 

 

2,437

 

 

2,826

 

 

4,934

 

 

5,640

 

Junior subordinated debentures

 

 

918

 

 

744

 

 

1,740

 

 

1,455

 

Other

 

 

160

 

 

167

 

 

324

 

 

335

 

Total interest expense

 

 

35,192

 

 

20,330

 

 

65,132

 

 

36,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

104,848

 

 

115,976

 

 

208,268

 

 

208,076

 

Provision (recovery) for loan losses

 

 

340

 

 

5,853

 

 

(1,467)

 

 

7,558

 

Net interest income after provision (recovery) for loan losses

 

 

104,508

 

 

110,123

 

 

209,735

 

 

200,518

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains from sale of loans and other mortgage production income

 

 

132,478

 

 

153,688

 

 

238,245

 

 

277,838

 

Mortgage loan origination fees

 

 

29,318

 

 

25,976

 

 

49,944

 

 

45,532

 

Securities commissions and fees

 

 

38,320

 

 

37,804

 

 

77,037

 

 

76,861

 

Investment and securities advisory fees and commissions

 

 

21,965

 

 

25,537

 

 

40,319

 

 

47,739

 

Net insurance premiums earned

 

 

34,105

 

 

36,020

 

 

68,420

 

 

72,160

 

Other

 

 

23,248

 

 

65,667

 

 

40,612

 

 

96,001

 

Total noninterest income

 

 

279,434

 

 

344,692

 

 

514,577

 

 

616,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Employees' compensation and benefits

 

 

200,632

 

 

214,719

 

 

383,232

 

 

401,605

 

Occupancy and equipment, net

 

 

27,893

 

 

27,919

 

 

55,723

 

 

55,212

 

Professional services

 

 

26,020

 

 

26,696

 

 

50,724

 

 

51,741

 

Loss and loss adjustment expenses

 

 

24,409

 

 

33,184

 

 

39,941

 

 

54,884

 

Other

 

 

59,563

 

 

63,733

 

 

117,099

 

 

123,301

 

Total noninterest expense

 

 

338,517

 

 

366,251

 

 

646,719

 

 

686,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

45,425

 

 

88,564

 

 

77,593

 

 

129,906

 

Income tax expense

 

 

11,034

 

 

25,754

 

 

18,522

 

 

40,789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

34,391

 

 

62,810

 

 

59,071

 

 

89,117

 

Less: Net income attributable to noncontrolling interest

 

 

1,311

 

 

334

 

 

1,550

 

 

207

 

Income attributable to Hilltop

 

$

33,080

 

$

62,476

 

$

57,521

 

$

88,910

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.35

 

$

0.64

 

$

0.60

 

$

0.90

 

Diluted

 

$

0.35

 

$

0.63

 

$

0.60

 

$

0.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.07

 

$

0.06

 

$

0.14

 

$

0.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average share information:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

95,270

 

 

98,154

 

 

95,625

 

 

98,295

 

Diluted

 

 

95,358

 

 

98,414

 

 

95,727

 

 

98,576

 

 

See accompanying notes.

 

 

4


 

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

    

2018

    

2017

   

2018

    

2017

 

Net income

 

$

34,391

 

$

62,810

 

$

59,071

 

$

89,117

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) on securities available for sale, net of tax of $(602), $696, $(2,495) and $927, respectively

 

 

(2,148)

 

 

1,224

 

 

(8,851)

 

 

1,636

 

Reclassification adjustment for gains included in net income, net of tax of $0, $(5), $0 and $(5), respectively

 

 

 —

 

 

(9)

 

 

 —

 

 

(9)

 

Comprehensive income

 

 

32,243

 

 

64,025

 

 

50,220

 

 

90,744

 

Less: comprehensive income attributable to noncontrolling interest

 

 

1,311

 

 

334

 

 

1,550

 

 

207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income applicable to Hilltop

 

$

30,932

 

$

63,691

 

$

48,670

 

$

90,537

 

 

See accompanying notes.

 

 

5


 

Table of Contents

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

 

Earnings

 

Trust, Net

 

Shares

 

Amount

 

Equity

 

Interest

 

Equity

Balance, December 31, 2016

98,544

 

$

985

 

$

1,572,877

 

$

485

 

$

295,568

 

$

903

 

15

 

$

(309)

 

$

1,870,509

 

$

4,011

 

$

1,874,520

Net income

 —

 

 

 —

 

 

 —

 

 

 —

 

 

88,910

 

 

 —

 

 —

 

 

 —

 

 

88,910

 

 

207

 

 

89,117

Other comprehensive income

 —

 

 

 —

 

 

 —

 

 

1,627

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

1,627

 

 

 —

 

 

1,627

Stock-based compensation expense

 —

 

 

 —

 

 

5,687

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

5,687

 

 

 —

 

 

5,687

Common stock issued to board members

 7

 

 

 —

 

 

212

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

212

 

 

 —

 

 

212

Issuance of common stock related to share-based awards, net

244

 

 

 3

 

 

(2,134)

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(2,131)

 

 

 —

 

 

(2,131)

Repurchases of common stock

(2,462)

 

 

(25)

 

 

(46,739)

 

 

 —

 

 

(16,311)

 

 

 —

 

 —

 

 

 —

 

 

(63,075)

 

 

 —

 

 

(63,075)

Dividends on common stock ($0.12 per share)

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(11,603)

 

 

 —

 

 —

 

 

 —

 

 

(11,603)

 

 

 —

 

 

(11,603)

Deferred compensation plan

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(58)

 

(3)

 

 

61

 

 

 3

 

 

 —

 

 

 3

Net cash distributed to noncontrolling interest

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(1,304)

 

 

(1,304)

Balance, June 30, 2017

96,333

 

$

963

 

$

1,529,903

 

$

2,112

 

$

356,564

 

$

845

 

12

 

$

(248)

 

$

1,890,139

 

$

2,914

 

$

1,893,053

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

95,982

 

$

960

 

$

1,526,369

 

$

(394)

 

$

384,545

 

$

848

 

12

 

$

(247)

 

$

1,912,081

 

$

2,726

 

$

1,914,807

Net income

 —

 

 

 —

 

 

 —

 

 

 —

 

 

57,521

 

 

 —

 

 —

 

 

 —

 

 

57,521

 

 

1,550

 

 

59,071

Other comprehensive loss

 —

 

 

 —

 

 

 —

 

 

(8,851)

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(8,851)

 

 

 —

 

 

(8,851)

Stock-based compensation expense

 —

 

 

 —

 

 

4,549

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

4,549

 

 

 —

 

 

4,549

Common stock issued to board members

10

 

 

 —

 

 

248

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

248

 

 

 —

 

 

248

Issuance of common stock related to share-based awards, net

281

 

 

 3

 

 

(1,732)

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(1,729)

 

 

 —

 

 

(1,729)

Repurchases of common stock

(1,702)

 

 

(17)

 

 

(27,329)

 

 

 —

 

 

(11,531)

 

 

 —

 

 —

 

 

 —

 

 

(38,877)

 

 

 —

 

 

(38,877)

Dividends on common stock ($0.14 per share)

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(13,453)

 

 

 —

 

 —

 

 

 —

 

 

(13,453)

 

 

 —

 

 

(13,453)

Deferred compensation plan

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 9

 

(1)

 

 

(5)

 

 

 4

 

 

 —

 

 

 4

Adoption of accounting standards (Note 2)

 —

 

 

 —

 

 

 —

 

 

(2,601)

 

 

2,601

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net cash distributed from noncontrolling interest

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

644

 

 

644

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

 

See accompanying notes.

 

 

6


 

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

    

2018

    

2017

    

Operating Activities

 

 

 

 

 

 

 

Net income

 

$

59,071

 

$

89,117

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

Provision (recovery) for loan losses

 

 

(1,467)

 

 

7,558

 

Depreciation, amortization and accretion, net

 

 

3,412

 

 

(14,436)

 

Net realized gains on securities

 

 

 —

 

 

(14)

 

Net change in fair value of equity securities

 

 

512

 

 

 —

 

Deferred income taxes

 

 

734

 

 

2,615

 

Other, net

 

 

4,926

 

 

5,264

 

Net change in securities purchased under agreements to resell

 

 

(42,635)

 

 

(35,758)

 

Net change in assets segregated for regulatory purposes

 

 

58,161

 

 

13,428

 

Net change in trading securities

 

 

96,488

 

 

(205,951)

 

Net change in broker-dealer and clearing organization receivables

 

 

(172,846)

 

 

(45,566)

 

Net change in FDIC indemnification asset

 

 

 —

 

 

22,824

 

Net change in other assets

 

 

2,897

 

 

(48,794)

 

Net change in broker-dealer and clearing organization payables

 

 

52,574

 

 

75,004

 

Net change in other liabilities

 

 

(90,078)

 

 

(132,731)

 

Net change in securities sold, not yet purchased

 

 

18,760

 

 

(4,020)

 

Proceeds from sale of mortgage servicing rights asset

 

 

9,303

 

 

17,499

 

Net gains from sales of loans

 

 

(238,245)

 

 

(277,838)

 

Loans originated for sale

 

 

(7,308,972)

 

 

(7,151,419)

 

Proceeds from loans sold

 

 

7,286,188

 

 

7,221,859

 

Net cash used in operating activities

 

 

(261,217)

 

 

(461,359)

 

Investing Activities