Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

hth_Current folio_10Q

Table of Contents

 

 

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, 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 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 25, 2018 was 94,595,843.

 

 

 

 

 


 

Table of Contents

HILLTOP HOLDINGS INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 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

62

 

 

 

Item 2. 

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

63

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

103

 

 

 

Item 4. 

Controls and Procedures

106

 

 

 

 

 

 

PART II — OTHER INFORMATION 

 

 

 

Item 1. 

Legal Proceedings

107

 

 

 

Item 1A. 

Risk Factors

107

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

108

 

 

 

Item 6. 

Exhibits

109

2


 

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2018

    

2017

 

Assets

 

 

 

 

 

 

 

Cash and due from banks

 

$

405,682

 

$

486,977

 

Federal funds sold

 

 

468

 

 

405

 

Assets segregated for regulatory purposes

 

 

220,115

 

 

186,578

 

Securities purchased under agreements to resell

 

 

164,656

 

 

186,537

 

Securities:

 

 

 

 

 

 

 

Trading, at fair value

 

 

660,314

 

 

730,685

 

Available for sale, at fair value (amortized cost of $893,500 and $748,255, respectively)

 

 

874,496

 

 

744,319

 

Held to maturity, at amortized cost (fair value of $332,388 and $349,939, respectively)

 

 

348,163

 

 

355,849

 

Equity, at fair value

 

 

21,555

 

 

21,241

 

 

 

 

1,904,528

 

 

1,852,094

 

 

 

 

 

 

 

 

 

Loans held for sale

 

 

1,524,980

 

 

1,715,357

 

Non-covered loans, net of unearned income

 

 

6,796,278

 

 

6,273,669

 

Allowance for non-covered loan losses

 

 

(58,861)

 

 

(60,957)

 

Non-covered loans, net

 

 

6,737,417

 

 

6,212,712

 

 

 

 

 

 

 

 

 

Covered loans, net of allowance of $1,291 and $2,729, respectively

 

 

142,737

 

 

179,400

 

Broker-dealer and clearing organization receivables

 

 

1,491,507

 

 

1,464,378

 

Premises and equipment, net

 

 

236,172

 

 

177,577

 

FDIC indemnification asset

 

 

22,831

 

 

29,340

 

Covered other real estate owned

 

 

29,856

 

 

36,744

 

Other assets

 

 

551,758

 

 

549,447

 

Goodwill

 

 

291,435

 

 

251,808

 

Other intangible assets, net

 

 

40,394

 

 

36,432

 

Total assets

 

$

13,764,536

 

$

13,365,786

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Noninterest-bearing

 

$

2,525,677

 

$

2,411,849

 

Interest-bearing

 

 

5,764,556

 

 

5,566,270

 

Total deposits

 

 

8,290,233

 

 

7,978,119

 

 

 

 

 

 

 

 

 

Broker-dealer and clearing organization payables

 

 

1,396,401

 

 

1,287,563

 

Short-term borrowings

 

 

1,216,649

 

 

1,206,424

 

Securities sold, not yet purchased, at fair value

 

 

179,582

 

 

232,821

 

Notes payable

 

 

220,192

 

 

208,809

 

Junior subordinated debentures

 

 

67,012

 

 

67,012

 

Other liabilities

 

 

430,309

 

 

470,231

 

Total liabilities

 

 

11,800,378

 

 

11,450,979

 

Commitments and contingencies (see Notes 13 and 14)

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Hilltop stockholders' equity:

 

 

 

 

 

 

 

Common stock, $0.01 par value, 125,000,000 shares authorized; 94,593,561 and 95,982,184 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

946

 

 

960

 

Additional paid-in capital

 

 

1,504,467

 

 

1,526,369

 

Accumulated other comprehensive loss

 

 

(14,722)

 

 

(394)

 

Retained earnings

 

 

448,923

 

 

384,545

 

Deferred compensation employee stock trust, net

 

 

860

 

 

848

 

Employee stock trust (10,971 and 11,672 shares, at cost, respectively)

 

 

(252)

 

 

(247)

 

Total Hilltop stockholders' equity

 

 

1,940,222

 

 

1,912,081

 

Noncontrolling interests

 

 

23,936

 

 

2,726

 

Total stockholders' equity

 

 

1,964,158

 

 

1,914,807

 

Total liabilities and stockholders' equity

 

$

13,764,536

 

$

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 September 30,

 

Nine Months Ended September 30,

 

 

    

2018

    

2017

    

2018

    

2017

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

113,535

 

$

102,546

 

$

317,403

 

$

306,330

 

Securities borrowed

 

 

16,346

 

 

11,404

 

 

50,132

 

 

29,054

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

11,994

 

 

10,214

 

 

35,463

 

 

25,647

 

Tax-exempt

 

 

1,717

 

 

1,471

 

 

5,186

 

 

4,090

 

Other

 

 

4,734

 

 

3,309

 

 

13,542

 

 

8,370

 

Total interest income

 

 

148,326

 

 

128,944

 

 

421,726

 

 

373,491

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

12,353

 

 

6,841

 

 

31,164

 

 

16,995

 

Securities loaned

 

 

13,984

 

 

8,935

 

 

42,798

 

 

22,756

 

Short-term borrowings

 

 

7,831

 

 

4,567

 

 

18,340

 

 

9,633

 

Notes payable

 

 

2,702

 

 

2,680

 

 

7,636

 

 

8,320

 

Junior subordinated debentures

 

 

955

 

 

774

 

 

2,695

 

 

2,229

 

Other

 

 

160

 

 

167

 

 

484

 

 

502

 

Total interest expense

 

 

37,985

 

 

23,964

 

 

103,117

 

 

60,435

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

110,341

 

 

104,980

 

 

318,609

 

 

313,056

 

Provision (recovery) for loan losses

 

 

(371)

 

 

1,260

 

 

(1,838)

 

 

8,818

 

Net interest income after provision (recovery) for loan losses

 

 

110,712

 

 

103,720

 

 

320,447

 

 

304,238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains from sale of loans and other mortgage production income

 

 

116,243

 

 

138,498

 

 

354,488

 

 

416,336

 

Mortgage loan origination fees

 

 

27,004

 

 

25,256

 

 

76,948

 

 

70,788

 

Securities commissions and fees

 

 

36,968

 

 

38,735

 

 

114,005

 

 

115,596

 

Investment and securities advisory fees and commissions

 

 

23,487

 

 

25,620

 

 

63,806

 

 

73,359

 

Net insurance premiums earned

 

 

34,185

 

 

34,493

 

 

102,605

 

 

106,653

 

Other

 

 

31,810

 

 

35,875

 

 

72,422

 

 

131,876

 

Total noninterest income

 

 

269,697

 

 

298,477

 

 

784,274

 

 

914,608

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Employees' compensation and benefits

 

 

205,575

 

 

209,747

 

 

588,807

 

 

611,352

 

Occupancy and equipment, net

 

 

29,015

 

 

29,073

 

 

84,695

 

 

84,285

 

Professional services

 

 

27,984

 

 

25,560

 

 

78,959

 

 

77,301

 

Loss and loss adjustment expenses

 

 

18,712

 

 

31,234

 

 

58,653

 

 

86,118

 

Other

 

 

54,425

 

 

58,228

 

 

171,316

 

 

181,529

 

Total noninterest expense

 

 

335,711

 

 

353,842

 

 

982,430

 

 

1,040,585

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

44,698

 

 

48,355

 

 

122,291

 

 

178,261

 

Income tax expense

 

 

7,600

 

 

18,003

 

 

26,122

 

 

58,792

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

37,098

 

 

30,352

 

 

96,169

 

 

119,469

 

Less: Net income attributable to noncontrolling interest

 

 

1,293

 

 

146

 

 

2,843

 

 

353

 

Income attributable to Hilltop

 

$

35,805

 

$

30,206

 

$

93,326

 

$

119,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.38

 

$

0.31

 

$

0.98

 

$

1.22

 

Diluted

 

$

0.38

 

$

0.31

 

$

0.98

 

$

1.22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.07

 

$

0.06

 

$

0.21

 

$

0.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average share information:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

94,554

 

 

96,096

 

 

95,264

 

 

97,554

 

Diluted

 

 

94,610

 

 

96,306

 

 

95,355

 

 

97,803

 

 

See accompanying notes.

 

 

4


 

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

   

2018

    

2017

   

2018

   

2017

 

Net income

 

$

37,098

 

$

30,352

 

$

96,169

 

$

119,469

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) on securities available for sale, net of tax of $(847), $263, $(3,335) and $1,190, respectively

 

 

(2,900)

 

 

473

 

 

(11,751)

 

 

2,109

 

Reclassification adjustment for gains (losses) included in net income, net of tax of $7,  $0,  $7 and $(5), respectively

 

 

24

 

 

 —

 

 

24

 

 

(9)

 

Comprehensive income

 

 

34,222

 

 

30,825

 

 

84,442

 

 

121,569

 

Less: comprehensive income attributable to noncontrolling interest

 

 

1,293

 

 

146

 

 

2,843

 

 

353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income applicable to Hilltop

 

$

32,929

 

$

30,679

 

$

81,599

 

$

121,216

 

 

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

 —

 

 

 —

 

 

 —

 

 

 —

 

 

119,116

 

 

 —

 

 —

 

 

 —

 

 

119,116

 

 

353

 

 

119,469

Other comprehensive income

 —

 

 

 —

 

 

 —

 

 

2,100

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

2,100

 

 

 —

 

 

2,100

Stock-based compensation expense

 —

 

 

 —

 

 

8,396

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

8,396

 

 

 —

 

 

8,396

Common stock issued to board members

12

 

 

 —

 

 

327

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

327

 

 

 —

 

 

327

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

264

 

 

 3

 

 

(2,433)

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(2,430)

 

 

 —

 

 

(2,430)

Repurchases of common stock

(2,916)

 

 

(29)

 

 

(53,998)

 

 

 —

 

 

(20,427)

 

 

 —

 

 —

 

 

 —

 

 

(74,454)

 

 

 —

 

 

(74,454)

Dividends on common stock ($0.18 per share)

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(17,384)

 

 

 —

 

 —

 

 

 —

 

 

(17,384)

 

 

 —

 

 

(17,384)

Deferred compensation plan

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(63)

 

(3)

 

 

68

 

 

 5

 

 

 —

 

 

 5

Net cash distributed to noncontrolling interest

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(1,193)

 

 

(1,193)

Balance, September 30, 2017

95,904

 

$

959

 

$

1,525,169

 

$

2,585

 

$

376,873

 

$

840

 

12

 

$

(241)

 

$

1,906,185

 

$

3,171

 

$

1,909,356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 —

 

 

 —

 

 

 —

 

 

 —

 

 

93,326

 

 

 —

 

 —

 

 

 —

 

 

93,326

 

 

2,843

 

 

96,169

Other comprehensive loss

 —

 

 

 —

 

 

 —

 

 

(11,727)

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(11,727)

 

 

 —

 

 

(11,727)

Stock-based compensation expense

 —

 

 

 —

 

 

6,725

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

6,725

 

 

 —

 

 

6,725

Common stock issued to board members

22

 

 

 —

 

 

513

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

513

 

 

 —

 

 

513

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

292

 

 

 3

 

 

(1,811)

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(1,808)

 

 

 —

 

 

(1,808)

Repurchases of common stock

(1,702)

 

 

(17)

 

 

(27,329)

 

 

 —

 

 

(11,475)

 

 

 —

 

 —

 

 

 —

 

 

(38,821)

 

 

 —

 

 

(38,821)

Dividends on common stock ($0.21 per share)

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(20,074)

 

 

 —

 

 —

 

 

 —

 

 

(20,074)

 

 

 —

 

 

(20,074)

Deferred compensation plan

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

12

 

(1)

 

 

(5)

 

 

 7

 

 

 —

 

 

 7

Adoption of accounting standards (Note 2)

 —

 

 

 —

 

 

 —

 

 

(2,601)

 

 

2,601

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net cash contributed from noncontrolling interest

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

18,367

 

 

18,367

Balance, September 30, 2018

94,594

 

$

946

 

$

1,504,467

 

$

(14,722)

 

$

448,923

 

$

860

 

11

 

$

(252)

 

$

1,940,222

 

$

23,936

 

$

1,964,158

 

See accompanying notes.

 

 

6


 

Table of Contents

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

    

2018

    

2017

    

Operating Activities

 

 

 

 

 

 

 

Net income

 

$

96,169

 

$

119,469

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Provision for loan losses

 

 

(1,838)

 

 

8,818

 

Depreciation, amortization and accretion, net

 

 

3,558

 

 

(11,300)

 

Net realized gains on securities

 

 

 —

 

 

(14)

 

Net change in fair value of equity securities

 

 

396

 

 

 —

 

Deferred income taxes

 

 

653

 

 

6,013

 

Other, net

 

 

6,355

 

 

8,540

 

Net change in securities purchased under agreements to resell

 

 

21,881

 

 

(45,224)

 

Net change in trading securities

 

 

70,371

 

 

(410,877)

 

Net change in broker-dealer and clearing organization receivables

 

 

(42,516)

 

 

(157,908)

 

Net change in FDIC indemnification asset

 

 

 —

 

 

24,637

 

Net change in other assets

 

 

39,208

 

 

(35,967)

 

Net change in broker-dealer and clearing organization payables

 

 

85,409

 

 

223,043

 

Net change in other liabilities

 

 

(79,283)

 

 

(100,970)

 

Net change in securities sold, not yet purchased

 

 

(53,239)

 

 

19,620

 

Proceeds from sale of mortgage servicing rights asset

 

 

9,303

 

 

17,499

 

Net gains from sales of loans

 

 

(354,488)

 

 

(416,336)

 

Loans originated for sale

 

 

(11,148,919)

 

 

(11,251,438)

 

Proceeds from loans sold

 

 

11,665,782

 

 

11,520,363

 

Net cash provided by (used in) operating activities

 

 

318,802

 

 

(482,032)

 

Investing Activities