UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
o 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.) |
|
|
|
200 Crescent Court, Suite 1330 |
|
|
Dallas, TX |
|
75201 |
(Address of principal executive offices) |
|
(Zip Code) |
(214) 855-2177
(Registrants 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 x No o
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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
|
Accelerated filer x |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The number of shares of the registrants common stock outstanding at May 3, 2013 was 83,955,870.
HILLTOP HOLDINGS INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2013
|
|
|
PART I FINANCIAL INFORMATION |
| |
|
|
|
Item 1. |
Financial Statements. |
|
|
3 | |
|
4 | |
|
5 | |
|
6 | |
|
7 | |
|
8 | |
|
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
35 | |
|
|
|
52 | ||
|
|
|
55 | ||
|
|
|
| ||
|
|
|
55 | ||
|
|
|
55 |
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
(in thousands, except share and per share data)
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
|
|
(Unaudited) |
|
|
| ||
Assets |
|
|
|
|
| ||
Cash and due from banks |
|
$ |
588,838 |
|
$ |
722,039 |
|
Federal funds sold and securities purchased under agreements to resell |
|
23,691 |
|
4,421 |
| ||
Securities: |
|
|
|
|
| ||
Trading, at fair value |
|
60,769 |
|
90,113 |
| ||
Available for sale, at fair value (amortized cost of $1,132,701 and $978,502, respectively) |
|
1,146,505 |
|
990,953 |
| ||
|
|
1,207,274 |
|
1,081,066 |
| ||
|
|
|
|
|
| ||
Loans held for sale |
|
1,242,322 |
|
1,401,507 |
| ||
Loans, net of unearned income |
|
3,248,367 |
|
3,152,396 |
| ||
Allowance for loan losses |
|
(16,637 |
) |
(3,409 |
) | ||
Loans, net |
|
3,231,730 |
|
3,148,987 |
| ||
|
|
|
|
|
| ||
Broker-dealer and clearing organization receivables |
|
187,833 |
|
145,564 |
| ||
Insurance premiums receivable |
|
24,924 |
|
24,615 |
| ||
Deferred policy acquisition costs |
|
20,301 |
|
19,812 |
| ||
Reinsurance receivable, net of uncollectible amounts |
|
18,210 |
|
18,567 |
| ||
Premises and equipment, net |
|
111,894 |
|
111,381 |
| ||
Other assets |
|
233,033 |
|
277,398 |
| ||
Goodwill |
|
251,808 |
|
253,770 |
| ||
Other intangible assets, net |
|
75,052 |
|
77,738 |
| ||
Total assets |
|
$ |
7,216,910 |
|
$ |
7,286,865 |
|
|
|
|
|
|
| ||
Liabilities and Stockholders Equity |
|
|
|
|
| ||
Deposits: |
|
|
|
|
| ||
Noninterest-bearing |
|
$ |
249,678 |
|
$ |
323,367 |
|
Interest-bearing |
|
4,508,760 |
|
4,377,094 |
| ||
Total deposits |
|
4,758,438 |
|
4,700,461 |
| ||
|
|
|
|
|
| ||
Broker-dealer and clearing organization payables |
|
250,280 |
|
187,990 |
| ||
Reserve for losses and loss adjustment expenses |
|
32,070 |
|
34,012 |
| ||
Unearned insurance premiums |
|
84,032 |
|
82,598 |
| ||
Short-term borrowings |
|
576,730 |
|
728,250 |
| ||
Notes payable |
|
140,747 |
|
141,539 |
| ||
Junior subordinated debentures |
|
67,012 |
|
67,012 |
| ||
Other liabilities |
|
129,016 |
|
198,453 |
| ||
Total liabilities |
|
6,038,325 |
|
6,140,315 |
| ||
Commitments and contingencies (see Notes 9 and 10) |
|
|
|
|
| ||
Stockholders equity: |
|
|
|
|
| ||
Hilltop Holdings stockholders equity: |
|
|
|
|
| ||
Preferred stock, $0.01 par value, 10,000,000 shares authorized; |
|
|
|
|
| ||
Series B, liquidation value per share of $1,000; 114,068 shares issued and outstanding, respectively |
|
114,068 |
|
114,068 |
| ||
Common stock, $0.01 par value, 100,000,000 shares authorized; 83,487,340 shares issued and outstanding, respectively |
|
835 |
|
835 |
| ||
Additional paid-in capital |
|
1,304,771 |
|
1,304,707 |
| ||
Accumulated other comprehensive income |
|
8,973 |
|
8,094 |
| ||
Accumulated deficit |
|
(250,838 |
) |
(283,208 |
) | ||
Total Hilltop Holdings stockholders equity |
|
1,177,809 |
|
1,144,496 |
| ||
Noncontrolling interest |
|
776 |
|
2,054 |
| ||
Total stockholders equity |
|
1,178,585 |
|
1,146,550 |
| ||
Total liabilities and stockholders equity |
|
$ |
7,216,910 |
|
$ |
7,286,865 |
|
See accompanying notes.
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
|
|
Three Months Ended March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
Interest income: |
|
|
|
|
| ||
Loans, including fees |
|
$ |
64,886 |
|
$ |
|
|
Securities: |
|
|
|
|
| ||
Taxable |
|
5,863 |
|
3,355 |
| ||
Tax-exempt |
|
1,347 |
|
|
| ||
Federal funds sold and securities purchased under agreements to resell |
|
21 |
|
|
| ||
Interest-bearing deposits with banks |
|
333 |
|
|
| ||
Other |
|
2,105 |
|
|
| ||
Total interest income |
|
74,555 |
|
3,355 |
| ||
|
|
|
|
|
| ||
Interest expense: |
|
|
|
|
| ||
Deposits |
|
3,450 |
|
|
| ||
Short-term borrowings |
|
513 |
|
|
| ||
Notes payable |
|
2,322 |
|
2,139 |
| ||
Junior subordinated debentures |
|
608 |
|
|
| ||
Other |
|
450 |
|
|
| ||
Total interest expense |
|
7,343 |
|
2,139 |
| ||
|
|
|
|
|
| ||
Net interest income |
|
67,212 |
|
1,216 |
| ||
Provision for loan losses |
|
13,005 |
|
|
| ||
Net interest income after provision for loan losses |
|
54,207 |
|
1,216 |
| ||
|
|
|
|
|
| ||
Noninterest income: |
|
|
|
|
| ||
Net gains from sale of loans and other mortgage production income |
|
127,596 |
|
|
| ||
Mortgage loan origination fees |
|
18,893 |
|
|
| ||
Net insurance premiums earned |
|
37,473 |
|
35,155 |
| ||
Investment and securities advisory fees and commissions |
|
22,009 |
|
|
| ||
Other |
|
7,356 |
|
1,732 |
| ||
Total noninterest income |
|
213,327 |
|
36,887 |
| ||
|
|
|
|
|
| ||
Noninterest expense: |
|
|
|
|
| ||
Employees compensation and benefits |
|
116,190 |
|
2,226 |
| ||
Loss and loss adjustment expenses |
|
21,185 |
|
22,542 |
| ||
Policy acquisition and other underwriting expenses |
|
10,803 |
|
10,901 |
| ||
Occupancy and equipment, net |
|
19,412 |
|
244 |
| ||
Other |
|
47,401 |
|
1,644 |
| ||
Total noninterest expense |
|
214,991 |
|
37,557 |
| ||
|
|
|
|
|
| ||
Income before income taxes |
|
52,543 |
|
546 |
| ||
Income tax expense |
|
19,170 |
|
203 |
| ||
|
|
|
|
|
| ||
Net income |
|
33,373 |
|
343 |
| ||
Less: Net income attributable to noncontrolling interest |
|
300 |
|
|
| ||
|
|
|
|
|
| ||
Income attributable to Hilltop Holdings |
|
33,073 |
|
343 |
| ||
Dividends on preferred stock |
|
703 |
|
|
| ||
Income applicable to Hilltop Holdings common stockholders |
|
$ |
32,370 |
|
$ |
343 |
|
|
|
|
|
|
| ||
Earnings per common share: |
|
|
|
|
| ||
Basic |
|
$ |
0.39 |
|
$ |
0.01 |
|
Diluted |
|
$ |
0.39 |
|
$ |
0.01 |
|
|
|
|
|
|
| ||
Weighted average share information: |
|
|
|
|
| ||
Basic |
|
83,487 |
|
56,499 |
| ||
Diluted |
|
83,743 |
|
56,555 |
|
See accompanying notes.
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)
|
|
Three Months Ended March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
Net income |
|
$ |
33,373 |
|
$ |
343 |
|
Other comprehensive income (loss): |
|
|
|
|
| ||
Unrealized gains (losses) on securities available for sale, net of tax of $473 and $(1,831) |
|
879 |
|
(3,401 |
) | ||
Comprehensive income (loss) |
|
34,252 |
|
(3,058 |
) | ||
Less: comprehensive income attributable to noncontrolling interest |
|
300 |
|
|
| ||
|
|
|
|
|
| ||
Comprehensive income (loss) applicable to Hilltop Holdings |
|
$ |
33,952 |
|
$ |
(3,058 |
) |
See accompanying notes.
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
Total |
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
Additional |
|
Other |
|
|
|
Hilltop Holdings |
|
|
|
Total |
| ||||||||
|
|
Preferred Stock |
|
Common Stock |
|
Paid-in |
|
Comprehensive |
|
Accumulated |
|
Stockholders |
|
Noncontrolling |
|
Stockholders |
| ||||||||||||
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Income |
|
Deficit |
|
Equity |
|
Interest |
|
Equity |
| ||||||||
Balance, December 31, 2011 |
|
|
|
$ |
|
|
56,501 |
|
$ |
565 |
|
$ |
918,192 |
|
$ |
13,983 |
|
$ |
(277,357 |
) |
$ |
655,383 |
|
$ |
|
|
$ |
655,383 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
343 |
|
343 |
|
|
|
343 |
| ||||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
(3,401 |
) |
|
|
(3,401 |
) |
|
|
(3,401 |
) | ||||||||
Common stock issued to board members |
|
|
|
|
|
1 |
|
|
|
12 |
|
|
|
|
|
12 |
|
|
|
12 |
| ||||||||
Repurchase and retirement of common stock |
|
|
|
|
|
(141 |
) |
(1 |
) |
(1,161 |
) |
|
|
|
|
(1,162 |
) |
|
|
(1,162 |
) | ||||||||
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
122 |
|
|
|
|
|
122 |
|
|
|
122 |
| ||||||||
Balance, March 31, 2012 |
|
|
|
$ |
|
|
56,361 |
|
$ |
564 |
|
$ |
917,165 |
|
$ |
10,582 |
|
$ |
(277,014 |
) |
$ |
651,297 |
|
$ |
|
|
$ |
651,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, December 31, 2012 |
|
114 |
|
$ |
114,068 |
|
83,487 |
|
$ |
835 |
|
$ |
1,304,707 |
|
$ |
8,094 |
|
$ |
(283,208 |
) |
$ |
1,144,496 |
|
$ |
2,054 |
|
$ |
1,146,550 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
33,073 |
|
33,073 |
|
300 |
|
33,373 |
| ||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
879 |
|
|
|
879 |
|
|
|
879 |
| ||||||||
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
64 |
|
|
|
64 |
| ||||||||
Dividends on preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
(703 |
) |
(703 |
) |
|
|
(703 |
) | ||||||||
Cash distributions to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,578 |
) |
(1,578 |
) | ||||||||
Balance, March 31, 2013 |
|
114 |
|
$ |
114,068 |
|
83,487 |
|
$ |
835 |
|
$ |
1,304,771 |
|
$ |
8,973 |
|
$ |
(250,838 |
) |
$ |
1,177,809 |
|
$ |
776 |
|
$ |
1,178,585 |
|
See accompanying notes.
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
|
|
Three Months Ended March 31, |
| ||||
|
|
2013 |
|
2012 |
| ||
Operating Activities |
|
|
|
|
| ||
Net income |
|
$ |
33,373 |
|
$ |
343 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
| ||
Provision for loan losses |
|
13,005 |
|
|
| ||
Depreciation, amortization and accretion, net |
|
(9,548 |
) |
339 |
| ||
Deferred income taxes |
|
(7,067 |
) |
174 |
| ||
Other, net |
|
85 |
|
179 |
| ||
Net change in securities purchased under resale agreements |
|
(3,254 |
) |
|
| ||
Net change in trading securities |
|
29,344 |
|
|
| ||
Net change in prepaid FDIC assessments |
|
625 |
|
|
| ||
Net change in broker-dealer and clearing organization receivables |
|
(77,077 |
) |
|
| ||
Net change in assets segregated for regulatory purposes |
|
19,000 |
|
|
| ||
Net change in other assets |
|
27,937 |
|
(1,481 |
) | ||
Net change in broker-dealer and clearing organization payables |
|
34,075 |
|
|
| ||
Net change in loss and loss adjustment expense reserve |
|
(1,942 |
) |
3,026 |
| ||
Net change in unearned insurance premiums |
|
1,434 |
|
2,135 |
| ||
Net change in other liabilities |
|
(56,899 |
) |
(2,161 |
) | ||
Net gains from sale of loans |
|
(127,596 |
) |
|
| ||
Loans originated for sale |
|
(3,025,709 |
) |
|
| ||
Proceeds from loans sold |
|
3,310,115 |
|
|
| ||
Net cash provided by operating activities |
|
159,901 |
|
2,554 |
| ||
|
|
|
|
|
| ||
Investing Activities |
|
|
|
|
| ||
Proceeds from sales, maturities and principal reductions of securities available for sale |
|
53,759 |
|
2,345 |
| ||
Purchases of securities available for sale |
|
(209,507 |
) |
(2,556 |
) | ||
Net change in loans |
|
(41,872 |
) |
|
| ||
Purchases of premises and equipment and other assets |
|
(5,041 |
) |
(62 |
) | ||
Proceeds from sales of premises and equipment and other real estate owned |
|
3,880 |
|
|
| ||
Net cash received for Federal Home Loan Bank and Federal Reserve Bank stock |
|
6,702 |
|
|
| ||
Net cash used in investing activities |
|
(192,079 |
) |
(273 |
) | ||
|
|
|
|
|
| ||
Financing Activities |
|
|
|
|
| ||
Net change in deposits |
|
68,948 |
|
|
| ||
Net change in short-term borrowings |
|
(151,520 |
) |
|
| ||
Payments on notes payable |
|
(792 |
) |
|
| ||
Payments to repurchase common stock |
|
|
|
(1,162 |
) | ||
Net cash distributed to noncontrolling interest |
|
(1,578 |
) |
|
| ||
Other, net |
|
(65 |
) |
|
| ||
Net cash used in financing activities |
|
(85,007 |
) |
(1,162 |
) | ||
|
|
|
|
|
| ||
Net change in cash and cash equivalents |
|
(117,185 |
) |
1,119 |
| ||
Cash and cash equivalents, beginning of period |
|
726,460 |
|
578,520 |
| ||
Cash and cash equivalents, end of period |
|
$ |
609,275 |
|
$ |
579,639 |
|
|
|
|
|
|
| ||
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
| ||
Cash paid for interest |
|
$ |
8,313 |
|
$ |
3,667 |
|
Cash paid for income taxes, net of refunds |
|
$ |
2,205 |
|
$ |
|
|
Supplemental Schedule of Non-Cash Activities |
|
|
|
|
| ||
Conversion of loans to other real estate owned |
|
$ |
284 |
|
$ |
|
|
See accompanying notes.
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 or the Company) is a holding company that endeavors to make acquisitions or effect business combinations. In connection with this strategy, on November 30, 2012, Hilltop became a financial holding company registered under the Bank Holding Company Act of 1956, as amended by the Gramm-Leach-Bliley Act of 1999, and acquired PlainsCapital Corporation pursuant to an agreement and plan of merger whereby PlainsCapital Corporation merged with and into our wholly owned subsidiary (the Merger), which survived the Merger under the name PlainsCapital Corporation (PlainsCapital).
PlainsCapital is a financial holding company, headquartered in Dallas, Texas, that provides, through its subsidiaries, an array of financial products and services. In addition to traditional banking services, PlainsCapital provides residential mortgage lending, investment banking, public finance advisory, wealth and investment management, treasury management, capital equipment leasing, fixed income sales, asset management, and correspondent clearing services. Certain disclosures within the notes to consolidated financial statements are specific to financial products and services of PlainsCapital and its subsidiaries and, therefore include information at March 31, 2013 and December 31, 2012 and relating to the three months ended March 31, 2013.
Prior to the consummation of the Merger, Hilltops primary operations were limited to providing fire and homeowners insurance to low value dwellings and manufactured homes primarily in Texas and other areas of the southern United States through Hilltops wholly owned property and casualty insurance holding company, NLASCO, Inc. (NLASCO).
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 (consisting primarily of normal recurring accruals) 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 Companys Annual Report on Form 10-K for the year ended December 31, 2012. 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 loan losses, the fair values of financial instruments, reserves for losses and loss adjustment expenses, the mortgage loan indemnification liability and the potential impairment of assets are particularly subject to change.
The presentation of Hilltops historical consolidated financial statements has been modified and certain items in the prior period financial statements have been reclassified to conform to the current period presentation, which is more consistent with that of a financial institution that provides an array of financial products and services.
Hilltop owns 100% of the outstanding stock of PlainsCapital. PlainsCapital owns 100% of the outstanding stock of PlainsCapital Bank (the Bank) and 100% of the membership interest in PlainsCapital Equity, LLC. The Bank owns 100% of the outstanding stock of PrimeLending, a PlainsCapital Company (PrimeLending), PNB Aero Services, Inc. and PCB-ARC, Inc. The Bank has a 100% membership interest in First Southwest Holdings, LLC (First Southwest) and PlainsCapital Securities, LLC, as well as a 51% voting interest in PlainsCapital Insurance Services, LLC.
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Hilltop also owns 100% of NLASCO, which operates through its wholly owned subsidiaries, National Lloyds Insurance Company (NLIC) and American Summit Insurance Company (ASIC).
PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC, the controlling and sole managing member of PrimeLending Ventures, LLC (Ventures). Through a series limited liability company structure, Ventures establishes one or more separate operating divisions with select business partners, such as home builders, to originate residential mortgage loans.
The principal subsidiaries of First Southwest are First Southwest Company (FSC), a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority (FINRA), and First Southwest Asset Management, Inc., a registered investment advisor under the Investment Advisors Act of 1940.
The consolidated financial statements include the accounts of the above-named entities. All significant 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 Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC).
PlainsCapital also owns 100% of the outstanding common stock of PCC Statutory Trusts I, II, III and IV (the Trusts), which are not included in the consolidated financial statements under the requirements of the Variable Interest Entities Subsections of the ASC, because the primary beneficiaries of the Trusts are not within the consolidated group.
2. PlainsCapital Acquisition
After the close of business on November 30, 2012, Hilltop acquired PlainsCapital Corporation in a stock and cash transaction. PlainsCapital Corporation merged with and into Meadow Corporation, a wholly owned subsidiary of Hilltop, with Meadow Corporation continuing as the surviving entity under the name PlainsCapital Corporation. Based on Hilltops closing stock price on November 30, 2012, the total purchase price was $813.5 million, consisting of 27.1 million shares of common stock, $311.8 million in cash and the issuance of 114,068 shares of Hilltop Non-Cumulative Perpetual Preferred Stock, Series B. The fair market value of assets acquired, excluding goodwill, totaled $6.5 billion, including $3.2 billion of loans, $730.8 million of investment securities and $70.7 million of identifiable intangibles. The fair market value of the liabilities assumed was $5.9 billion, including $4.5 billion of deposits.
The Merger was accounted for using the purchase method of accounting, and accordingly, purchased assets, including identifiable intangible assets, and assumed liabilities were recorded at their respective acquisition date fair values. The Company initially recorded $230.1 million of goodwill in connection with the Merger, representing the inherent long-term value expected from the business opportunities created from combining PlainsCapital with Hilltop. The amount of goodwill recorded in connection with the Companys acquisition of PlainsCapital Corporation is not deductible for tax purposes. The Company used significant estimates and assumptions to value the identifiable assets acquired and liabilities assumed. The purchase date valuations are considered preliminary and are subject to change for up to one year after the acquisition date. During the three months ended March 31, 2013, the Company reduced goodwill related to the PlainsCapital acquisition by $2.0 million for a purchase accounting adjustment related to the valuation of a capital lease obligation.
The operations acquired in the Merger have been included in Hilltops financial results since December 1, 2012. The following table presents pro forma results for the three months ended March 31, 2012 had the acquisition taken place on January 1, 2011 (in thousands). The pro forma financial information combines the historical results of Hilltop and PlainsCapital Corporation and includes the estimated impact of purchase accounting adjustments. The purchase accounting adjustments reflect the impact of recording the acquired loans at fair value, including the estimated accretion of the purchase discount on the loan portfolio and related adjustments to PlainsCapitals provision for loan losses. Accretion estimates were based on the acquisition date purchase discount on the loan portfolio, as it was not practicable to determine the amount of discount that would have been recorded based on economic conditions that existed on January 1, 2011. The pro forma results do not include any potential operating cost savings as a result of the Merger. Further, certain
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
costs associated with any restructuring or integration activities are also not reflected in the pro forma results. Pro forma results include the acquisition-related merger and restructuring charges incurred during the period. The pro forma results are not indicative of what would have occurred had the acquisition taken place on the indicated date.
|
|
Three Months Ended |
| |
|
|
March 31, 2012 |
| |
Net interest income |
|
$ |
53,542 |
|
Other revenues |
|
186,993 |
| |
Net income |
|
22,687 |
| |
3. Fair Value Measurements
Fair Value Measurements and Disclosures
Hilltop 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 creates 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 (e.g., interest rates, yield curves, prepayment speeds, default rates, credit risks, loss severities, etc.), and inputs that are derived from or corroborated by market data, among others.
· Level 3 Inputs: Unobservable inputs that reflect an entitys own assumptions 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.
Fair Value Option
Hilltop has elected to measure substantially all of PrimeLendings mortgage loans held for sale and certain time deposits at fair value under the provisions of the Fair Value Option. Hilltop elected to apply the provisions of the Fair Value Option to these items so that it would have the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Hilltop determines the fair value of the financial instruments accounted for under the provisions of the Fair Value Option in compliance with the provisions of the Fair Value Topic of the ASC discussed above.
At March 31, 2013, the aggregate fair value of PrimeLendings mortgage loans held for sale accounted for under the Fair Value Option was $1.24 billion, while the unpaid principal balance of those loans was $1.20 billion. At December 31, 2012, the aggregate fair value of PrimeLendings mortgage loans held for sale accounted for under the Fair Value Option
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
was $1.40 billion, while the unpaid principal balance of those loans was $1.36 billion. The interest component of fair value is reported as interest income on loans in the accompanying consolidated statements of operations.
Hilltop holds a number of financial instruments that are measured at fair value on a recurring basis, either by the application of Fair Value Option or other authoritative pronouncements. The fair values of those instruments are determined primarily using Level 2 inputs. Those inputs include quotes from mortgage loan investors and derivatives dealers, data from independent pricing services and rates paid in the brokered certificate of deposit market.
The following tables present information regarding financial assets and liabilities measured at fair value on a recurring basis (in thousands).
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
March 31, 2013 |
|
Inputs |
|
Inputs |
|
Inputs |
|
Fair Value |
| ||||
Cash and cash equivalents |
|
$ |
612,529 |
|
$ |
|
|
$ |
|
|
$ |
612,529 |
|
Trading securities |
|
|
|
60,769 |
|
|
|
60,769 |
| ||||
Available for sale securities |
|
21,961 |
|
1,065,743 |
|
58,801 |
|
1,146,505 |
| ||||
Loans held for sale |
|
|
|
1,241,578 |
|
|
|
1,241,578 |
| ||||
Derivative assets |
|
|
|
22,600 |
|
|
|
22,600 |
| ||||
Mortgage servicing asset |
|
|
|
|
|
4,430 |
|
4,430 |
| ||||
Time deposits |
|
|
|
1,066 |
|
|
|
1,066 |
| ||||
Trading liabilities |
|
|
|
52 |
|
|
|
52 |
| ||||
Derivative liabilities |
|
|
|
7,481 |
|
|
|
7,481 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
December 31, 2012 |
|
Inputs |
|
Inputs |
|
Inputs |
|
Fair Value |
| ||||
Cash and cash equivalents |
|
$ |
726,460 |
|
$ |
|
|
$ |
|
|
$ |
726,460 |
|
Trading securities |
|
|
|
90,113 |
|
|
|
90,113 |
| ||||
Available for sale securities |
|
20,428 |
|
914,248 |
|
56,277 |
|
990,953 |
| ||||
Loans held for sale |
|
|
|
1,400,737 |
|
|
|
1,400,737 |
| ||||
Derivative assets |
|
|
|
15,697 |
|
|
|
15,697 |
| ||||
Mortgage servicing asset |
|
|
|
|
|
2,080 |
|
2,080 |
| ||||
Time deposits |
|
|
|
1,073 |
|
|
|
1,073 |
| ||||
Trading liabilities |
|
|
|
3,164 |
|
|
|
3,164 |
| ||||
Derivative liabilities |
|
|
|
1,080 |
|
|
|
1,080 |
|
The following tables include a roll forward for those financial instruments measured at fair value using Level 3 inputs (in thousands).
|
|
|
|
|
|
|
|
Total Gains or Losses |
|
|
| ||||||||
|
|
|
|
|
|
|
|
(Realized or Unrealized) |
|
|
| ||||||||
|
|
Balance at |
|
|
|
|
|
|
|
Included in Other |
|
|
| ||||||
|
|
Beginning of |
|
|
|
|
|
Included in |
|
Comprehensive |
|
Balance at |
| ||||||
|
|
Period |
|
Purchases |
|
Issuances |
|
Net Income (Loss) |
|
Income (Loss) |
|
End of Period |
| ||||||
Three months ended March 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Available for sale securities |
|
$ |
56,277 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
2,524 |
|
$ |
58,801 |
|
Mortgage servicing asset |
|
2,080 |
|
|
|
2,125 |
|
225 |
|
|
|
4,430 |
| ||||||
Total |
|
$ |
58,357 |
|
$ |
|
|
$ |
2,125 |
|
$ |
225 |
|
$ |
2,524 |
|
$ |
63,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Three months ended March 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Available for sale securities |
|
$ |
60,377 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
(3,817 |
) |
$ |
56,560 |
|
Total |
|
$ |
60,377 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
(3,817 |
) |
$ |
56,560 |
|
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
All net unrealized gains (losses) in the table above are reflected in the accompanying consolidated financial statements. The unrealized gains (losses) relate to financial instruments still held at March 31, 2013. The available for sale securities noted in the tables above reflect Hilltops note receivable and warrant with SWS Group, Inc. (SWS) as discussed in Note 4 to the consolidated financial statements.
Hilltops note receivable is valued using a cash flow model that estimates yield based on comparable securities in the market. The interest rate used to discount cash flows is the most significant unobservable input. An increase or decrease in the discount rate would result in an increase or decrease in the fair value measurement of the note receivable.
The warrant is valued utilizing a binomial model. The underlying SWS common stock price and its related volatility, an unobservable input, are the most significant inputs into the model and, therefore, decreases or increases to the stock price would result in a significant change in the fair value measurement of the warrant.
The mortgage servicing asset is valued by projecting net servicing cash flows, which are then discounted to estimate the fair value. The fair value of the mortgage servicing asset is impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees, servicing costs and underlying portfolio characteristics.
The Company had no transfers between Levels 1 and 2 during the periods presented.
The following table presents the changes in fair value for instruments that are reported at fair value under the Fair Value Option (in thousands).
|
|
Changes in Fair Value for Assets and Liabilities Reported at Fair Value under Fair Value Option |
| ||||||||||||||||
|
|
Three Months Ended March 31, 2013 |
|
Three Months Ended March 31, 2012 |
| ||||||||||||||
|
|
|
|
Other |
|
Total |
|
|
|
Other |
|
Total |
| ||||||
|
|
Net Gains from |
|
Noninterest |
|
Changes in |
|
Net Gains from |
|
Noninterest |
|
Changes in |
| ||||||
|
|
Sale of Loans |
|
Income |
|
Fair Value |
|
Sale of Loans |
|
Income |
|
Fair Value |
| ||||||
Loans held for sale |
|
$ |
(5,438 |
) |
$ |
|
|
$ |
(5,438 |
) |
$ |
|
|
$ |
|
|
$ |
|
|
Other assets |
|
2,350 |
|
|
|
2,350 |
|
|
|
|
|
|
| ||||||
Time deposits |
|
|
|
8 |
|
8 |
|
|
|
|
|
|
| ||||||
Hilltop also determines the fair value of certain assets and liabilities on a non-recurring basis. Facts and circumstances may dictate a fair value measurement when there is evidence of impairment. Assets and liabilities measured on a non-recurring basis include the items discussed below.
Impaired Loans Hilltop reports impaired loans at fair value through specific allowances within the allowance for loan losses. Hilltop acquired impaired, or purchased credit impaired (PCI) loans with a fair value of $172.9 million at acquisition. The fair value of PCI loans was determined using Level 3 inputs, including estimates of expected cash flows that incorporated assumptions regarding default rates, loss severity rates assuming default, prepayment speeds and estimated collateral values. At March 31, 2013, PCI loans with a carrying amount of $157.0 million had been reduced by specific allowances within the allowance for loan losses of $0.4 million, resulting in a reported fair value of $156.6 million.
Other Real Estate Owned Hilltop reports other real estate owned at fair value less estimated cost to sell. Any excess of recorded investment over fair value less cost to sell is charged against the allowance for loan losses when property is initially transferred to other real estate owned. Subsequent to the initial transfer to other real estate owned, downward valuation adjustments are charged against earnings. Hilltop primarily determines fair value using Level 2 inputs consisting of independent appraisals. At March 31, 2013, the estimated fair value of other real estate owned was $7.5 million.
The Fair Value of Financial Instruments Subsection of the ASC requires disclosure of the fair value of financial assets and liabilities, including the financial assets and liabilities previously discussed. The methods for determining estimated fair value for financial assets and liabilities is described in detail in Note 3 to the consolidated financial statements included in our Annual Report on Form 10-K filed with the SEC on March 15, 2013.
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
The following tables present the carrying values and estimated fair values of financial instruments (in thousands).
|
|
|
|
Estimated Fair Value |
| |||||||||||
|
|
Carrying |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
| |||||
March 31, 2013 |
|
Amount |
|
Inputs |
|
Inputs |
|
Inputs |
|
Total |
| |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and short-term investments |
|
$ |
612,529 |
|
$ |
612,529 |
|
$ |
|
|
$ |
|
|
$ |
612,529 |
|
Securities |
|
1,207,274 |
|
21,961 |
|
1,126,512 |
|
58,801 |
|
1,207,274 |
| |||||
Loans held for sale |
|
1,242,322 |
|
|
|
1,242,322 |
|
|
|
1,242,322 |
| |||||
Loans, net |
|
3,231,730 |
|
|
|
|
|
3,267,917 |
|
3,267,917 |
| |||||
Broker-dealer and clearing organization receivables |
|
187,833 |
|
|
|
187,833 |
|
|
|
187,833 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fee award receivable |
|
18,091 |
|
|
|
18,091 |
|
|
|
18,091 |
| |||||
Cash surrender value of life insurance policies |
|
24,171 |
|
|
|
24,171 |
|
|
|
24,171 |
| |||||
Interest rate swaps, interest rate lock commitments and forward purchase commitments |
|
22,600 |
|
|
|
22,600 |
|
|
|
22,600 |
| |||||
Mortgage servicing asset |
|
4,430 |
|
|
|
|
|
4,430 |
|
4,430 |
| |||||
Accrued interest receivable |
|
17,428 |
|
|
|
17,428 |
|
|
|
17,428 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
|
4,758,438 |
|
|
|
4,762,428 |
|
|
|
4,762,428 |
| |||||
Broker-dealer and clearing organization payables |
|
250,280 |
|
|
|
250,280 |
|
|
|
250,280 |
| |||||
Other trading liabilities |
|
52 |
|
|
|
52 |
|
|
|
52 |
| |||||
Short-term borrowings |
|
576,730 |
|
|
|
576,730 |
|
|
|
576,730 |
| |||||
Debt |
|
207,759 |
|
|
|
215,886 |
|
|
|
215,886 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commitments to sell mortgage-backed securities |
|
7,481 |
|
|
|
7,481 |
|
|
|
7,481 |
| |||||
Accrued interest payable |
|
3,385 |
|
|
|
3,385 |
|
|
|
3,385 |
| |||||
|
|
|
|
Estimated Fair Value |
| |||||||||||
|
|
Carrying |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
| |||||
December 31, 2012 |
|
Amount |
|
Inputs |
|
Inputs |
|
Inputs |
|
Total |
| |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and short-term investments |
|
$ |
726,460 |
|
$ |
726,460 |
|
$ |
|
|
$ |
|
|
$ |
726,460 |
|
Securities |
|
1,081,066 |
|
20,428 |
|
1,004,361 |
|
56,277 |
|
1,081,066 |
| |||||
Loans held for sale |
|
1,401,507 |
|
|
|
1,401,507 |
|
|
|
1,401,507 |
| |||||
Loans, net |
|
3,148,987 |
|
|
|
|
|
3,148,987 |
|
3,148,987 |
| |||||
Broker-dealer and clearing organization receivables |
|
145,564 |
|
|
|
145,564 |
|
|
|
145,564 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fee award receivable |
|
18,467 |
|
|
|
18,467 |
|
|
|
18,467 |
| |||||
Cash surrender value of life insurance policies |
|
24,086 |
|
|
|
24,086 |
|
|
|
24,086 |
| |||||
Interest rate swaps, interest rate lock commitments and |
|
|
|
|
|
|
|
|
|
|
| |||||
forward purchase commitments |
|
15,697 |
|
|
|
15,697 |
|
|
|
15,697 |
| |||||
Mortgage servicing asset |
|
2,080 |
|
|
|
|
|
2,080 |
|
2,080 |
| |||||
Accrued interest receivable |
|
16,541 |
|
|
|
16,541 |
|
|
|
16,541 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
|
4,700,461 |
|
|
|
4,698,848 |
|
|
|
4,698,848 |
| |||||
Broker-dealer and clearing organization payables |
|
187,990 |
|
|
|
187,990 |
|
|
|
187,990 |
| |||||
Other trading liabilities |
|
3,164 |
|
|
|
3,164 |
|
|
|
3,164 |
| |||||
Short-term borrowings |
|
728,250 |
|
|
|
728,250 |
|
|
|
728,250 |
| |||||
Debt |
|
208,551 |
|
|
|
217,092 |
|
|
|
217,092 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commitments to sell mortgage-backed securities |
|
1,080 |
|
|
|
1,080 |
|
|
|
1,080 |
| |||||
Accrued interest payable |
|
4,400 |
|
|
|
4,400 |
|
|
|
4,400 |
| |||||
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
4. Securities
The amortized cost and fair value of available for sale securities are summarized as follows (in thousands).
|
|
|
|
Gross |
|
Gross |
|
|
| ||||
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
|
| ||||
March 31, 2013 |
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
| ||||
U.S. Treasury securities |
|
$ |
7,159 |
|
$ |
118 |
|
$ |
(3 |
) |
$ |
7,274 |
|
U.S. government agencies: |
|
|
|
|
|
|
|
|
| ||||
Bonds |
|
630,725 |
|
1,527 |
|
(956 |
) |
631,296 |
| ||||
Residential mortgage-backed securities |
|
16,927 |
|
426 |
|
(150 |
) |
17,203 |
| ||||
Collateralized mortgage obligations |
|
165,520 |
|
411 |
|
(243 |
) |
165,688 |
| ||||
Corporate debt securities |
|
72,811 |
|
7,016 |
|
|
|
79,827 |
| ||||
States and political subdivisions |
|
166,057 |
|
416 |
|
(3,090 |
) |
163,383 |
| ||||
Commercial mortgage-backed securities |
|
991 |
|
81 |
|
|
|
1,072 |
| ||||
Equity securities |
|
19,423 |
|
2,537 |
|
|
|
21,960 |
| ||||
Note receivable |
|
41,020 |
|
3,745 |
|
|
|
44,765 |
| ||||
Warrant |
|
12,068 |
|
1,969 |
|
|
|
14,037 |
| ||||
Totals |
|
$ |
1,132,701 |
|
$ |
18,246 |
|
$ |
(4,442 |
) |
$ |
1,146,505 |
|
|
|
|
|
Gross |
|
Gross |
|
|
| ||||
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
|
| ||||
December 31, 2012 |
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
| ||||
U.S. Treasury securities |
|
$ |
7,046 |
|
$ |
141 |
|
$ |
(2 |
) |
$ |
7,185 |
|
U.S. government agencies: |
|
|
|
|
|
|
|
|
| ||||
Bonds |
|
524,888 |
|
1,663 |
|
(314 |
) |
526,237 |
| ||||
Residential mortgage-backed securities |
|
18,473 |
|
490 |
|
(70 |
) |
18,893 |
| ||||
Collateralized mortgage obligations |
|
97,812 |
|
191 |
|
(79 |
) |
97,924 |
| ||||
Corporate debt securities |
|
79,716 |
|
7,461 |
|
|
|
87,177 |
| ||||
States and political subdivisions |
|
177,701 |
|
196 |
|
(2,138 |
) |
175,759 |
| ||||
Commercial mortgage-backed securities |
|
1,001 |
|
72 |
|
|
|
1,073 |
| ||||
Equity securities |
|
19,289 |
|
1,139 |
|
|
|
20,428 |
| ||||
Note receivable |
|
40,508 |
|
3,652 |
|
|
|
44,160 |
| ||||
Warrant |
|
12,068 |
|
49 |
|
|
|
12,117 |
| ||||
Totals |
|
$ |
978,502 |
|
$ |
15,054 |
|
$ |
(2,603 |
) |
$ |
990,953 |
|
Included within the available for sale equity securities are 1,475,387 shares of SWS common stock. Furthermore, the available for sale securities include a senior unsecured loan to SWS in July 2011 in a principal amount of $50.0 million pursuant to a credit agreement, which loan bears interest at a rate of 8.0% per annum, is prepayable by SWS subject to certain conditions after three years, and has a maturity of five years. SWS issued Hilltop a warrant to purchase 8,695,652 shares of SWS common stock, $0.10 par value per share, exercisable at a price of $5.75 per share subject to anti-dilution adjustments. If the warrant was fully exercised, Hilltop would beneficially own 24.6% of SWS.
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Information regarding available for sale securities that were in an unrealized loss position is shown in the following table (dollars in thousands).
|
|
March 31, 2013 |
|
December 31, 2012 |
| |||||||||||||
|
|
Number of |
|
|
|
Unrealized |
|
Number of |
|
|
|
Unrealized |
| |||||
|
|
Securities |
|
Fair Value |
|
Losses |
|
Securities |
|
Fair Value |
|
Losses |
| |||||
U.S. treasury securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Unrealized loss for less than twelve months |
|
3 |
|
$ |
4,482 |
|
$ |
3 |
|
$ |
2 |
|
$ |
2,427 |
|
$ |
2 |
|
Unrealized loss for twelve months or longer |
|
1 |
|
399 |
|
|
|
|
|
|
|
|
| |||||
|
|
4 |
|
4,881 |
|
3 |
|
2 |
|
2,427 |
|
2 |
| |||||
U.S. government agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Unrealized loss for less than twelve months |
|
21 |
|
340,047 |
|
956 |
|
14 |
|
236,305 |
|
314 |
| |||||
Unrealized loss for twelve months or longer |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
21 |
|
340,047 |
|
956 |
|
14 |
|
236,305 |
|
314 |
| |||||
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Unrealized loss for less than twelve months |
|
3 |
|
9,900 |
|
150 |
|
7 |
|
12,279 |
|
70 |
| |||||
Unrealized loss for twelve months or longer |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
3 |
|
9,900 |
|
150 |
|
7 |
|
12,279 |
|
70 |
| |||||
Collateralized mortgage obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Unrealized loss for less than twelve months |
|
9 |
|
83,102 |
|
243 |
|
8 |
|
38,887 |
|
79 |
| |||||
Unrealized loss for twelve months or longer |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
9 |
|
83,102 |
|
243 |
|
8 |
|
38,887 |
|
79 |
| |||||
States and political subdivisions: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Unrealized loss for less than twelve months |
|
199 |
|
131,527 |
|
3,090 |
|
225 |
|
156,664 |
|
2,138 |
| |||||
Unrealized loss for twelve months or longer |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
199 |
|
131,527 |
|
3,090 |
|
225 |
|
156,664 |
|
2,138 |
| |||||
Total available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Unrealized loss for less than twelve months |
|
235 |
|
569,058 |
|
4,442 |
|
256 |
|
446,562 |
|
2,603 |
| |||||
Unrealized loss for twelve months or longer |
|
1 |
|
399 |
|
|
|
|
|
|
|
|
| |||||
|
|
236 |
|
$ |
569,457 |
|
$ |
4,442 |
|
256 |
|
$ |
446,562 |
|
$ |
2,603 |
| |
During the three months ended March 31, 2013 and 2012, the Company did not record any other-than-temporary impairments. While all of the investments are monitored for potential other-than-temporary impairment, our analysis and experience indicate that these investments generally do not present a great risk of other-than-temporary-impairment, as fair value should recover over time. Factors considered in the Companys analysis include the reasons for the unrealized loss position, the severity and duration of the unrealized loss position, credit worthiness, and forecasted performance of the investee. While some of the securities held in the investment portfolio have decreased in value since the date of acquisition, the severity of loss and the duration of the loss position are not believed to be significant enough to warrant other-than-temporary impairment of the securities. The Company does not intend, nor is it likely that the Company will be required, to sell these securities before the recovery of the cost basis. Therefore, management does not believe any other-than-temporary impairments exist at March 31, 2013.
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
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 available for sale equity securities, at March 31, 2013, are shown by contractual maturity below (in thousands).
|
|
Amortized |
|
|
| ||
|
|
Cost |
|
Fair Value |
| ||
Due in one year or less |
|
$ |
25,874 |
|
$ |
26,150 |
|
Due after one year through five years |
|
82,885 |
|
87,836 |
| ||
Due after five years through ten years |
|
45,284 |
|
48,011 |
| ||
Due after ten years |
|
722,709 |
|
719,783 |
| ||
|
|
876,752 |
|
881,780 |
| ||
|
|
|
|
|
| ||
Residential mortgage-backed securities |
|
16,927 |
|
17,203 |
| ||
Collateralized mortgage obligations |
|
165,520 |
|
165,688 |
| ||
Commercial mortgage-backed securities |
|
991 |
|
1,072 |
| ||
|
|
$ |
1,060,190 |
|
$ |
1,065,743 |
|
FSC realized a net loss from its trading securities portfolio of $1.0 million during the three months ended March 31, 2013, which is recorded as a component of other noninterest income within the consolidated statement of operations.
Securities with a carrying amount of $783.0 million and $635.2 million (with a fair value of $786.7 million and $633.4 million) at March 31, 2013 and December 31, 2012, respectively, were pledged 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.
At both March 31, 2013 and December 31, 2012, NLASCO had investments on deposit in custody for various state insurance departments with carrying values of $9.3 million.
5. Loans and Allowance for Loan Losses
Loans summarized by category are as follows (in thousands).
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
Commercial and industrial |
|
$ |
1,705,208 |
|
$ |
1,660,293 |
|
Real estate |
|
1,237,352 |
|
1,184,914 |
| ||
Construction and land development |
|
279,374 |
|
280,483 |
| ||
Consumer |
|
26,433 |
|
26,706 |
| ||
|
|
3,248,367 |
|
3,152,396 |
| ||
Allowance for loan losses |
|
(16,637 |
) |
(3,409 |
) | ||
Total loans, net of allowance |
|
$ |
3,231,730 |
|
$ |
3,148,987 |
|
PlainsCapital has lending policies in place with the goal of establishing an asset portfolio that will provide a return on stockholders equity sufficient to maintain capital to assets ratios that meet or exceed established regulatory guidelines. Loans are underwritten with careful consideration of the borrowers financial condition, the specific purpose of the loan, the primary sources of repayment and any collateral pledged to secure the loan.
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Underwriting procedures address financial components based on the size or complexity of the credit. The financial components include but are not limited to current and projected global cash flows, shock analysis and/or stress testing, and trends in appropriate balance sheet and statement of operations ratios. Collateral analysis includes a complete description of the collateral, as well as determining values, monitoring requirements, loan to value ratios, concentration risk, appraisal requirements and other information relevant to the collateral being pledged. Guarantor analysis includes liquidity and global cash flow analysis based on the significance the guarantors are expected to serve as secondary repayment sources. PlainsCapitals underwriting standards are governed by adherence to its loan policy. The loan policy provides for specific guidelines by portfolio segment, including commercial and industrial, real estate, construction and land development, and consumer loans. Within each individual portfolio segment, permissible and impermissible loan types are explicitly outlined. Within the loan types, minimum requirements for the underwriting factors listed above are provided.
PlainsCapital maintains a loan review department that reviews credit risk in response to both external and internal factors that potentially impact the performance of either individual loans or the overall loan portfolio. The loan review process reviews the creditworthiness of borrowers and determines compliance with the loan policy. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel. Results of these reviews are presented to management and the Banks Board of Directors.
In connection with the Merger, Hilltop acquired loans both with and without evidence of credit quality deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan losses. The following table presents the outstanding contractual balance and the carrying value of the PCI loans at March 31, 2013 and December 31, 2012 (in thousands).
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
Carrying amount |
|
$ |
157,024 |
|
$ |
166,780 |
|
Outstanding balance |
|
210,416 |
|
222,674 |
| ||
Changes in the accretable yield for the PCI loans were as follows (in thousands).
|
|
Three Months Ended |
| |
|
|
March 31, 2013 |
| |
Balance, beginning of period |
|
$ |
17,553 |
|
Increases in expected cash flows |
|
11,996 |
| |
Disposals of loans |
|
(26 |
) | |
Accretion |
|
(3,277 |
) | |
Balance, end of period |
|
$ |
26,246 |
|
Impaired loans exhibit a clear indication that the borrowers cash flow may not be sufficient to meet principal and interest payments, which is generally when a loan is 90 days past due unless the asset is both well secured and in the process of collection. Impaired loans include non-accrual loans, troubled debt restructurings (TDRs), PCI loans and partially charged-off loans.
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Impaired loans are summarized by class in the following tables (in thousands). There were no impaired loans at December 31, 2012, other than PCI loans, and therefore no related allowance.
|
|
Unpaid |
|
|
|
|
|
Total |
|
|
| |||||
|
|
Contractual |
|
Nonaccretable |
|
Accretable |
|
Recorded |
|
Related |
| |||||
March 31, 2013 |
|
Principal Balance |
|
Difference |
|
Yield |
|
Investment |
|
Allowance |
| |||||
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
| |||||
Secured |
|
$ |
91,154 |
|
$ |
23,380 |
|
$ |
7,264 |
|
$ |
68,666 |
|
$ |
228 |
|
Unsecured |
|
11,664 |
|
6,355 |
|
5,649 |
|
2,794 |
|
|
| |||||
Real estate: |
|
|
|
|
|
|
|
|
|
|
| |||||
Secured by commercial properties |
|
61,850 |
|
13,259 |
|
8,031 |
|
51,223 |
|
156 |
| |||||
Secured by residential properties |
|
10,180 |
|
1,853 |
|
892 |
|
8,098 |
|
18 |
| |||||
Construction and land development: |
|
|
|
|
|
|
|
|
|
|
| |||||
Residential cons |