Table of Contents

 

 

 

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, 2015

 

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
organization)

 

(I.R.S. Employer Identification No.)

 

200 Crescent Court, Suite 1330

 

 

Dallas, TX

 

75201

(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 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 x

 

Accelerated filer o

 

 

 

Non-accelerated filer o
(Do not check if a smaller reporting company)

 

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 registrant’s common stock outstanding at May 6, 2015 was 100,289,492.

 

 

 



Table of Contents

 

HILLTOP HOLDINGS INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2015

 

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

 

 

 

Item 2.

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

54

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

86

 

 

 

Item 4.

Controls and Procedures

88

 

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

88

 

 

 

Item 1A.

Risk Factors

88

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

90

 

 

 

Item 6.

Exhibits

90

 

2



Table of Contents

 

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(Unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

694,108

 

$

782,473

 

Federal funds sold

 

14,425

 

30,602

 

Securities purchased under agreements to resell

 

67,227

 

 

Assets segregated for regulatory purposes

 

278,280

 

76,013

 

Securities:

 

 

 

 

 

Trading, at fair value

 

320,153

 

65,717

 

Available for sale, at fair value (amortized cost of $850,430 and $924,755, respectively)

 

859,212

 

925,535

 

Held to maturity, at amortized cost (fair value of $186,032 and $118,345, respectively)

 

183,792

 

118,209

 

 

 

1,363,157

 

1,109,461

 

 

 

 

 

 

 

Loans held for sale

 

1,215,308

 

1,309,693

 

Non-covered loans, net of unearned income

 

4,834,687

 

3,920,476

 

Allowance for non-covered loan losses

 

(39,365

)

(37,041

)

Non-covered loans, net

 

4,795,322

 

3,883,435

 

 

 

 

 

 

 

Covered loans, net of allowance of $1,388 and $4,611, respectively

 

550,626

 

638,029

 

Broker-dealer and clearing organization receivables

 

2,222,517

 

167,884

 

Premises and equipment, net

 

215,684

 

206,991

 

FDIC indemnification asset

 

107,567

 

130,437

 

Covered other real estate owned

 

137,703

 

136,945

 

Other assets

 

581,210

 

458,862

 

Goodwill

 

251,808

 

251,808

 

Other intangible assets, net

 

67,952

 

59,783

 

Total assets

 

$

12,562,894

 

$

9,242,416

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Deposits:

 

 

 

 

 

Noninterest-bearing

 

$

2,259,790

 

$

2,076,385

 

Interest-bearing

 

4,869,487

 

4,293,507

 

Total deposits

 

7,129,277

 

6,369,892

 

 

 

 

 

 

 

Broker-dealer and clearing organization payables

 

1,951,040

 

179,042

 

Short-term borrowings

 

999,476

 

762,696

 

Securities sold, not yet purchased, at fair value

 

139,481

 

48

 

Notes payable

 

108,682

 

56,684

 

Junior subordinated debentures

 

67,012

 

67,012

 

Other liabilities

 

385,607

 

345,803

 

Total liabilities

 

10,780,575

 

7,781,177

 

Commitments and contingencies (see Notes 11 and 12)

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Hilltop 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

 

114,068

 

114,068

 

Common stock, $0.01 par value, 125,000,000 shares authorized; 100,286,330 and 90,181,888 shares issued and outstanding, respectively

 

1,003

 

902

 

Additional paid-in capital

 

1,592,585

 

1,390,788

 

Accumulated other comprehensive income

 

5,750

 

651

 

Retained earnings (accumulated deficit)

 

67,445

 

(45,957

)

Deferred compensation employee stock trust, net

 

1,189

 

 

Employee stock trust (29,932 shares, at cost)

 

(597

)

 

Total Hilltop stockholders’ equity

 

1,781,443

 

1,460,452

 

Noncontrolling interests

 

876

 

787

 

Total stockholders’ equity

 

1,782,319

 

1,461,239

 

Total liabilities and stockholders’ equity

 

$

12,562,894

 

$

9,242,416

 

 

See accompanying notes.

 

3



Table of Contents

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 (Unaudited)

 

 

 

Three Months Ended March 31, 

 

 

 

2015

 

2014

 

Interest income:

 

 

 

 

 

Loans, including fees

 

$

87,388

 

$

79,744

 

Securities borrowed

 

10,018

 

1,464

 

Securities:

 

 

 

 

 

Taxable

 

7,049

 

7,588

 

Tax-exempt

 

1,741

 

1,242

 

Other

 

1,473

 

1,790

 

Total interest income

 

107,669

 

91,828

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Deposits

 

4,315

 

3,759

 

Securities loaned

 

7,506

 

838

 

Short-term borrowings

 

1,024

 

397

 

Notes payable

 

669

 

648

 

Junior subordinated debentures

 

585

 

584

 

Other

 

178

 

181

 

Total interest expense

 

14,277

 

6,407

 

 

 

 

 

 

 

Net interest income

 

93,392

 

85,421

 

Provision for loan losses

 

2,687

 

3,242

 

Net interest income after provision for loan losses

 

90,705

 

82,179

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

Net realized gains on securities

 

4,403

 

 

Net gains from sale of loans and other mortgage production income

 

120,545

 

79,111

 

Mortgage loan origination fees

 

14,589

 

12,344

 

Net insurance premiums earned

 

39,567

 

40,319

 

Securities commissions and fees

 

43,051

 

6,998

 

Investment banking and advisory fees

 

24,922

 

14,337

 

Bargain purchase gain

 

82,816

 

 

Other

 

24,479

 

16,991

 

Total noninterest income

 

354,372

 

170,100

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

Employees’ compensation and benefits

 

182,573

 

106,429

 

Loss and loss adjustment expenses

 

18,860

 

18,337

 

Policy acquisition and other underwriting expenses

 

11,674

 

11,687

 

Occupancy and equipment, net

 

29,185

 

26,338

 

Other

 

72,184

 

49,838

 

Total noninterest expense

 

314,476

 

212,629

 

 

 

 

 

 

 

Income before income taxes

 

130,601

 

39,650

 

Income tax expense

 

15,420

 

14,354

 

 

 

 

 

 

 

Net income

 

115,181

 

25,296

 

Less: Net income attributable to noncontrolling interest

 

353

 

110

 

 

 

 

 

 

 

Income attributable to Hilltop

 

114,828

 

25,186

 

Dividends on preferred stock

 

1,426

 

1,426

 

Income applicable to Hilltop common stockholders

 

$

113,402

 

$

23,760

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

Basic

 

$

1.13

 

$

0.26

 

Diluted

 

$

1.13

 

$

0.26

 

 

 

 

 

 

 

Weighted average share information:

 

 

 

 

 

Basic

 

99,741

 

89,707

 

Diluted

 

100,627

 

90,585

 

 

See accompanying notes.

 

4



Table of Contents

 

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31, 

 

 

 

2015

 

2014

 

Net income

 

$

115,181

 

$

25,296

 

Other comprehensive income:

 

 

 

 

 

Net unrealized gains on securities available for sale and other, net of tax of $4,454 and $9,583, respectively

 

7,913

 

18,809

 

Reclassification adjustment for gains included in net income, net of tax of $(1,589)

 

(2,814

)

 

Comprehensive income

 

120,280

 

44,105

 

Less: comprehensive income attributable to noncontrolling interest

 

353

 

110

 

 

 

 

 

 

 

Comprehensive income applicable to Hilltop

 

$

119,927

 

$

43,995

 

 

See accompanying notes.

 

5



Table of Contents

 

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

Retained

 

Deferred

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

Earnings

 

Compensation

 

Employee

 

Hilltop

 

 

 

Total

 

 

 

Preferred Stock

 

Common Stock

 

Paid-in

 

Comprehensive

 

(Accumulated

 

Employee Stock

 

Stock Trust

 

Stockholders’

 

Noncontrolling

 

Stockholders’

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Income (Loss)

 

Deficit)

 

Trust, Net

 

Shares

 

Amount

 

Equity

 

Interest

 

Equity

 

Balance, December 31, 2013

 

114

 

$

114,068

 

90,176

 

$

902

 

$

1,388,641

 

$

(34,863

)

$

(157,607

)

$

 

 

$

 

$

1,311,141

 

$

781

 

$

1,311,922

 

Net income

 

 

 

 

 

 

 

25,186

 

 

 

 

25,186

 

110

 

25,296

 

Other comprehensive income

 

 

 

 

 

 

18,809

 

 

 

 

 

18,809

 

 

18,809

 

Stock-based compensation expense

 

 

 

 

 

735

 

 

 

 

 

 

735

 

 

735

 

Common stock issued to board members

 

 

 

2

 

 

52

 

 

 

 

 

 

52

 

 

52

 

Dividends on preferred stock

 

 

 

 

 

(1,426

)

 

 

 

 

 

(1,426

)

 

(1,426

)

Cash distributions to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

(175

)

(175

)

Balance, March 31, 2014

 

114

 

$

114,068

 

90,178

 

$

902

 

$

1,388,002

 

$

(16,054

)

$

(132,421

)

$

 

 

$

 

$

1,354,497

 

$

716

 

$

1,355,213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2014

 

114

 

$

114,068

 

90,182

 

$

902

 

$

1,390,788

 

$

651

 

$

(45,957

)

$

 

 

$

 

$

1,460,452

 

$

787

 

$

1,461,239

 

Net income

 

 

 

 

 

 

 

114,828

 

 

 

 

114,828

 

353

 

115,181

 

Other comprehensive income

 

 

 

 

 

 

5,099

 

 

 

 

 

5,099

 

 

5,099

 

Issuance of common stock

 

 

 

10,102

 

101

 

199,932

 

 

 

 

 

 

200,033

 

 

200,033

 

Stock-based compensation expense

 

 

 

 

 

1,814

 

 

 

 

 

 

1,814

 

 

1,814

 

Common stock issued to board members

 

 

 

2

 

 

51

 

 

 

 

 

 

51

 

 

51

 

Dividends on preferred stock

 

 

 

 

 

 

 

(1,426

)

 

 

 

(1,426

)

 

(1,426

)

Deferred compensation plan

 

 

 

 

 

 

 

 

1,189

 

30

 

(597

)

592

 

 

592

 

Cash distributions to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

(264

)

(264

)

Balance, March 31, 2015

 

114

 

$

114,068

 

100,286

 

$

1,003

 

$

1,592,585

 

$

5,750

 

$

67,445

 

$

1,189

 

30

 

$

(597

)

$

1,781,443

 

$

876

 

$

1,782,319

 

 

See accompanying notes.

 

6



Table of Contents

 

HILLTOP HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

2014

 

Operating Activities

 

 

 

 

 

Net income

 

$

115,181

 

$

25,296

 

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

 

 

 

 

 

Provision for loan losses

 

2,687

 

3,242

 

Depreciation, amortization and accretion, net

 

(14,486

)

(20,615

)

Net realized gains on securities

 

(4,403

)

 

Bargain purchase gain

 

(82,816

)

 

Deferred income taxes

 

(2,545

)

4,878

 

Other, net

 

(3,813

)

1,435

 

Net change in securities purchased under agreements to resell

 

(22,486

)

 

Net change in assets segregated for regulatory purposes

 

(20,657

)

 

Net change in trading securities

 

11,632

 

5,496

 

Net change in broker-dealer and clearing organization receivables

 

(1,062,969

)

(88,613

)

Net change in FDIC Indemnification Asset

 

23,376

 

912

 

Net change in other assets

 

(34,554

)

(458

)

Net change in broker-dealer and clearing organization payables

 

1,039,786

 

62,842

 

Net change in other liabilities

 

(52,528

)

(34,759

)

Net gains from sales of loans

 

(120,545

)

(79,111

)

Loans originated for sale

 

(2,904,331

)

(1,954,133

)

Proceeds from loans sold

 

3,094,705

 

2,227,917

 

Net cash provided by (used in) operating activities

 

(38,766

)

154,329

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Proceeds from maturities and principal reductions of securities held to maturity

 

6,329

 

351

 

Proceeds from sales, maturities and principal reductions of securities available for sale

 

449,892

 

31,845

 

Purchases of securities held to maturity

 

 

(31,334

)

Purchases of securities available for sale

 

(2,623

)

(46,024

)

Net change in loans

 

267,275

 

(256

)

Purchases of premises and equipment and other assets

 

(5,565

)

(8,710

)

Proceeds from sales of premises and equipment and other real estate owned

 

31,818

 

14,713

 

Net cash received for Federal Home Loan Bank and Federal Reserve Bank stock

 

4,044

 

 

Net cash from acquisition

 

41,097

 

 

Net cash provided by (used in) investing activities

 

792,267

 

(39,415

)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Net change in deposits

 

(905,890

)

(90,374

)

Net change in short-term borrowings

 

72,540

 

149,319

 

Proceeds from notes payable

 

1,000

 

 

Payments on notes payable

 

(23,904

)

(862

)

Dividends paid on preferred stock

 

(1,426

)

(1,342

)

Net cash distributed to noncontrolling interest

 

(264

)

(175

)

Other, net

 

(99

)

(93

)

Net cash provided by (used in) financing activities

 

(858,043

)

56,473

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(104,542

)

171,387

 

Cash and cash equivalents, beginning of period

 

813,075

 

746,023

 

Cash and cash equivalents, end of period

 

$

708,533

 

$

917,410

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

Cash paid for interest

 

$

14,325

 

$

6,934

 

Cash paid for income taxes, net of refunds

 

$

45,981

 

$

(1,845

)

Supplemental Schedule of Non-Cash Activities

 

 

 

 

 

Conversion of loans to other real estate owned

 

$

26,211

 

$

25,588

 

Common stock issued in acquisition

 

$

200,626

 

$

 

 

See accompanying notes.

 

7



Table of Contents

 

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, as amended by the Gramm-Leach-Bliley Act of 1999. 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, mortgage origination and insurance subsidiaries.

 

The Company provides its products and services through three primary operating subsidiaries, PlainsCapital Corporation (“PlainsCapital”), Hilltop Securities Holdings LLC (“Hilltop Securities”) and National Lloyds Corporation (“NLC”). PlainsCapital is a financial holding company, headquartered in Dallas, Texas, that provides, through its subsidiaries, traditional banking services, wealth and investment management and treasury management primarily in Texas and residential mortgage lending throughout the United States. Hilltop Securities is a holding company, headquartered in Dallas, Texas, 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, equity trading, clearing, securities lending, structured finance and retail brokerage services throughout the United States. NLC is a property and casualty insurance holding company, headquartered in Waco, Texas, that provides, through its subsidiaries, fire and homeowners insurance to low value dwellings and manufactured homes primarily in Texas and other areas of the southern United States.

 

On January 1, 2015, Hilltop completed its acquisition of SWS Group, Inc. (“SWS”) in a stock and cash transaction, whereby SWS merged with and into Hilltop Securities, a wholly owned subsidiary of Hilltop initially formed for the purpose of facilitating this transaction (the “SWS Merger”). SWS’s broker-dealer subsidiaries, Southwest Securities (“Southwest Securities”) and SWS Financial Services, Inc. (“SWS Financial”), became subsidiaries of Hilltop Securities. Immediately following the SWS Merger, SWS’s banking subsidiary, Southwest Securities, FSB (“SWS FSB”), was merged into the Bank, an indirect wholly owned subsidiary of Hilltop. As a result of the SWS Merger, each outstanding share of SWS common stock was converted into the right to receive 0.2496 shares of Hilltop common stock and $1.94 in cash, equating to $6.92 per share based on Hilltop’s closing price on December 31, 2014 and resulting in an aggregate purchase price of $349.1 million, consisting of 10.1 million shares of common stock, $78.2 million in cash and $70.3 million associated with Hilltop’s existing investment in SWS common stock. Additionally, due to appraisal rights proceedings filed in connection with the SWS Merger, the merger consideration is subject to change, and is therefore, preliminary as of the date of this report. Based on preliminary purchase date valuations, the fair value of the assets acquired was $3.3 billion, including $707.5 million in securities, $863.8 million in non-covered loans and $1.2 billion in broker-dealer and clearing organization receivables. The fair value of liabilities assumed was $2.9 billion, consisting primarily of deposits of $1.3 billion and $1.1 billion in broker-dealer and clearing organization payables.

 

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, 2014 (“2014 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 loan losses, the fair values of

 

8



Table of Contents

 

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

financial instruments, the amounts receivable under the loss-share agreements with the Federal Deposit Insurance Corporation (the “FDIC”) (“FDIC Indemnification Asset”), reserves for losses and loss adjustment expenses, the mortgage loan indemnification liability, and the potential impairment of 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. As discussed in Note 2 to the consolidated financial statements, the SWS Merger purchase date valuations associated with loans, intangibles and taxes are considered preliminary because management’s review and approval of certain key assumptions is not complete.

 

Certain reclassifications have been made to the prior period consolidated financial statements to conform with the current period presentation.

 

Hilltop owns 100% of the outstanding stock of PlainsCapital. PlainsCapital owns 100% of the outstanding stock of 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”), PCB-ARC, Inc. and RGV-ARC, Inc. and has a 100% membership interest in PlainsCapital Securities, LLC.

 

PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC, the controlling and sole managing member of PrimeLending Ventures, LLC (“Ventures”).

 

Hilltop has a 100% membership interest in Hilltop Securities, which operates through its wholly-owned subsidiaries, First Southwest Holdings, LLC (“First Southwest”), Southwest Securities and SWS Financial (collectively, the “Hilltop Broker-Dealers”). The principal subsidiaries of First Southwest are First Southwest Company, LLC (“FSC”), a broker-dealer registered with the Securities and Exchange Commission (the “SEC”) and the Financial Industry Regulatory Authority (“FINRA”) and a member of the New York Stock Exchange (“NYSE”), and First Southwest Asset Management, LLC, a registered investment advisor under the Investment Advisors Act of 1940. Southwest Securities is a broker-dealer registered with the SEC and FINRA and a member of the NYSE, and SWS Financial is an introducing broker-dealer that is also registered with the SEC and FINRA.

 

Hilltop also owns 100% of NLC, which operates through its wholly owned subsidiaries, National Lloyds Insurance Company (“NLIC”) and American Summit Insurance Company (“ASIC”).

 

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 securities 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. Acquisition

 

SWS Merger

 

On January 1, 2015, Hilltop completed its acquisition of SWS in a stock and cash transaction as discussed in Note 1 to the consolidated financial statements. The operations of SWS are included in the Company’s operating results beginning January 1, 2015. Such operating results include a preliminary bargain purchase gain of $82.8 million and are not indicative of future operating results. SWS’s results of operations prior to the acquisition date are not included in the Company’s consolidated operating results.

 

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Table of Contents

 

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

The SWS Merger was accounted for using the acquisition method of accounting, and accordingly, purchased assets, including identifiable intangible assets, and assumed liabilities were recorded at their respective acquisition date fair values. The components of the consideration paid are shown in the following table (in thousands).

 

Fair value of preliminary consideration paid:

 

 

 

Common stock issued

 

$

200,626

 

Cash

 

78,217

 

Fair value of Hilltop’s existing investment in SWS

 

70,282

 

Total preliminary consideration paid

 

$

349,125

 

 

The resulting preliminary fair values of the identifiable assets acquired, and liabilities assumed, of SWS at January 1, 2015 are summarized in the following table (in thousands).

 

Cash and due from banks

 

$

119,314

 

Securities purchased under agreements to resell

 

44,741

 

Assets segregated for regulatory purposes

 

181,610

 

Securities

 

707,476

 

Non-covered loans, net

 

863,819

 

Broker-dealer and clearing organization receivables

 

1,221,793

 

Other assets

 

159,753

 

Total identifiable assets acquired

 

3,298,506

 

 

 

 

 

Deposits

 

(1,287,509

)

Broker-dealer and clearing organization payables

 

(1,109,978

)

Short-term borrowings

 

(164,240

)

Securities sold, not yet purchased, at fair value

 

(140,409

)

Notes payable

 

(76,643

)

Other liabilities

 

(87,786

)

Total liabilities assumed

 

(2,866,565

)

Preliminary bargain purchase gain

 

(82,816

)

 

 

349,125

 

Less Hilltop’s existing investment in SWS

 

(70,282

)

Net identifiable assets acquired

 

$

278,843

 

 

The preliminary bargain purchase gain represents the excess of the preliminary estimated fair value of the underlying net tangible assets and intangible assets over the preliminary merger consideration. The SWS Merger was a tax-free reorganization under Section 368(a) of the Internal Revenue Code, therefore no income taxes were recorded in connection with the preliminary bargain purchase gain. The Company used significant estimates and assumptions to value certain identifiable assets acquired and liabilities assumed. Because of management’s review and approval of certain key assumptions not being complete, the purchase date valuations related to loans, intangibles and taxes are considered preliminary and could differ significantly when finalized.  The preliminary bargain purchase gain was primarily driven by the Company’s ability to realize acquired deferred tax assets through its consolidated core earnings and the decline in the price of the Company’s common stock between the date the fixed conversion ratio was agreed upon and the closing date.

 

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Table of Contents

 

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Included within the fair value of other assets in the table above are identifiable intangible assets recorded in connection with the SWS Merger. The preliminary allocation to intangible assets is as follows (in thousands).

 

 

 

Estimated Useful

 

Gross Intangible

 

 

 

Life (Years)

 

Assets

 

Customer relationships

 

14

 

$

10,700

 

Core deposits

 

4

 

160

 

 

 

 

 

$

10,860

 

 

During the three months ended March 31, 2015, transaction and integration related expenses of $10.0 million associated with the SWS Merger are included in noninterest expense within the consolidated statement of operations. Such expenses were for professional services and other incremental employee costs associated with the integration of SWS’s operations. SWS Merger-related transaction expenses during the three months ended March 31, 2014 were nominal.

 

In connection with the SWS 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. Acquired loans were segregated between those considered to be purchased credit impaired (“PCI”) loans and those without credit impairment at acquisition. The following table presents details on acquired loans at the acquisition date (in thousands).

 

 

 

Loans, excluding

 

PCI

 

Total

 

 

 

PCI Loans

 

Loans

 

Loans

 

Commercial and industrial (1)

 

$

447,959

 

$

9,850

 

$

457,809

 

Real estate

 

324,477

 

62,218

 

386,695

 

Construction and land development

 

14,708

 

1,391

 

16,099

 

Consumer

 

3,216

 

 

3,216

 

Total

 

$

790,360

 

$

73,459

 

$

863,819

 

 


(1)  Acquired loans include margin loans to customers and correspondents of $269.4 million associated with acquired broker-dealer operations, none of which are PCI loans.

 

The following table presents information about the PCI loans at acquisition (in thousands).

 

Contractually required principal and interest payments

 

$

120,078

 

Nonaccretable difference

 

32,040

 

Cash flows expected to be collected

 

88,038

 

Accretable difference

 

14,579

 

Fair value of loans acquired with a deterioration of credit quality

 

$

73,459

 

 

The following table presents information about the acquired loans without credit impairment at acquisition (in thousands).

 

Contractually required principal and interest payments

 

$

901,672

 

Contractual cash flows not expected to be collected

 

39,721

 

Fair value at acquisition

 

790,360

 

 

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Table of Contents

 

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Pro Forma Results of Operations

 

The results of operations acquired in the SWS Merger have been included in the Company’s consolidated financial results since January 1, 2015. The following table discloses the impact of SWS on the Company’s results of operations. The table presents pro forma results had the SWS Merger taken place on January 1, 2014 and includes the estimated impact of purchase accounting adjustments (in thousands). 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. 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, 2014. The pro forma results do not include any potential operating cost savings as a result of the SWS Merger. Further, certain costs associated with any restructuring or integration activities are also not reflected in the pro forma results. Pro forma results exclude nonrecurring items resulting directly from the SWS Merger and that do not have a continuing impact on results of operations. The pro forma results are not indicative of what would have occurred had the SWS Merger taken place on the indicated date.

 

 

 

Three

 

 

 

Months Ended

 

 

 

March 31, 2014

 

Net interest income

 

$

99,842

 

Other revenues

 

225,315

 

Net income

 

24,658

 

 

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 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 entity’s 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.

 

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Table of Contents

 

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 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 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. At March 31, 2015, the aggregate fair value of PrimeLending’s mortgage loans held for sale accounted for under the Fair Value Option was $1.19 billion, and the unpaid principal balance of those loans was $1.14 billion. At December 31, 2014, the aggregate fair value of PrimeLending’s mortgage loans held for sale accounted for under the Fair Value Option was $1.27 billion, and the unpaid principal balance of those loans was $1.22 billion. The interest component of fair value is reported as interest income on loans in the accompanying consolidated statements of operations.

 

On October 2, 2014, Hilltop exercised its warrant to purchase 8,695,652 shares of SWS common stock at an exercise price of $5.75 per share (the “SWS Warrant”) and paid the aggregate exercise price by the automatic elimination of the $50.0 million aggregate principal amount note due to Hilltop under its credit agreement with SWS. Following the exercise of the SWS Warrant, Hilltop owned approximately 21% of the outstanding shares of SWS common stock as of October 2, 2014. Contemporaneous with the exercise of the SWS Warrant, Hilltop changed the accounting method for its investment in SWS common stock and elected to account for its investment in accordance with the provisions of the Fair Value Option as permitted by GAAP. Hilltop had previously accounted for its investment in SWS common stock as an available for sale security. Under the Fair Value Option, Hilltop’s investment in SWS common stock is recorded at fair value effective October 2, 2014, with changes in fair value being recorded in other noninterest income within the consolidated statement of operations rather than as a component of other comprehensive income. At December 31, 2014, the fair value of Hilltop’s investment in SWS common stock was $70.3 million and is included in other assets within the consolidated balance sheet.

 

The Company holds a number of financial instruments that are measured at fair value on a recurring basis, either by the application of the 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 and data from independent pricing services.

 

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, 2015

 

Inputs

 

Inputs

 

Inputs

 

Fair Value

 

Trading securities

 

$

40

 

$

314,181

 

$

5,932

 

$

320,153

 

Available for sale securities

 

14,070

 

845,142

 

 

859,212

 

Loans held for sale

 

 

1,168,757

 

19,495

 

1,188,252

 

Derivative assets

 

 

49,649

 

 

49,649

 

MSR asset

 

 

 

31,648

 

31,648

 

Trading liabilities

 

 

139,481

 

 

139,481

 

Derivative liabilities

 

 

22,048

 

 

22,048

 

 

13



Table of Contents

 

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

December 31, 2014

 

Inputs

 

Inputs

 

Inputs

 

Fair Value

 

Trading securities

 

$

39

 

$

65,678

 

$

 

$

65,717

 

Available for sale securities

 

13,762

 

911,773

 

 

925,535

 

Loans held for sale

 

 

1,263,135

 

9,017

 

1,272,152

 

Derivative assets

 

 

23,805

 

 

23,805

 

MSR asset

 

 

 

36,155

 

36,155

 

Investment in SWS common stock

 

70,282

 

 

 

70,282

 

Trading liabilities

 

 

48

 

 

48

 

Derivative liabilities

 

 

12,849

 

 

12,849

 

 

The following tables include a rollforward 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

 

Purchases/

 

Sales/

 

Included in

 

Comprehensive

 

Balance at

 

 

 

Period

 

Additions

 

Reductions

 

Net Income

 

Income (Loss)

 

End of Period

 

Three months ended March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities

 

$

 

$

7,301

 

$

 

$

(1,369

)

$

 

$

5,932

 

Loans held for sale

 

9,017

 

11,136

 

(271

)

(387

)

 

19,495

 

Mortgage servicing rights asset

 

36,155

 

2,690

 

 

(7,197

)

 

31,648

 

Total

 

$

45,172

 

$

21,127

 

$

(271

)

$

(8,953

)

$

 

$

57,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities

 

$

60,053

 

$

 

$

 

$

593

 

$

3,452

 

$

64,098

 

Loans held for sale

 

27,729

 

4,900

 

(5,594

)

(209

)

 

26,826

 

Mortgage servicing rights asset

 

20,149

 

7,432

 

 

2,358

 

 

29,939

 

Derivative liabilities

 

(5,600

)

 

 

(350

)

 

(5,950

)

Total

 

$

102,331

 

$

12,332

 

$

(5,594

)

$

2,392

 

$

3,452

 

$

114,913

 

 

All net realized and unrealized gains (losses) in the table above are reflected in the accompanying consolidated financial statements. The available for sale securities noted in the table above reflect Hilltop’s note receivable from SWS and the SWS Warrant. On October 2, 2014, as previously discussed, Hilltop exercised the SWS Warrant in full and paid the aggregate exercise price by the automatic elimination of the $50.0 million aggregate principal amount note due to Hilltop under the credit agreement.

 

For Level 3 financial instruments measured at fair value on a recurring basis at March 31, 2015, the significant unobservable inputs used in the fair value measurements were as follows.

 

 

 

 

 

 

 

Range (Weighted-

Financial instrument

 

Valuation Technique

 

Unobservable Input

 

Average)

Trading securities

 

Discounted cash flow

 

Discount rate

 

8 - 17% (10%)

 

 

 

 

 

 

 

Loans held for sale

 

Discounted cash flow / Market comparable

 

Projected price

 

90 - 94% (93%)

 

 

 

 

 

 

 

Mortgage servicing rights asset

 

Discounted cash flow

 

Constant prepayment rate

 

14.95%

 

 

 

 

Discount rate

 

10.98%

 

The fair value of certain loans held for sale that are either non-standard (i.e. loans that cannot be sold through normal sale channels) or non-performing is measured using unobservable inputs. The fair value of such loans is generally based upon estimates of expected cash flows using unobservable inputs including listing prices of comparable assets, uncorroborated expert opinions, and/or management’s knowledge of underlying collateral.

 

14



Table of Contents

 

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

Trading securities include corporate debt securities that are valued using a discounted cash flow model with observable market data; however, due to the distressed nature of these bonds, the Company has determined that these securities should be valued as a Level 3 financial instrument.

 

The MSR asset, which is included in other assets within the Company’s consolidated balance sheets, is valued by projecting net servicing cash flows, which are then discounted to estimate the fair value. The fair value of the MSR asset is impacted by a variety of factors. Prepayment rates and discount rates, the most significant unobservable inputs, are discussed further in Note 7 to the consolidated financial statements.

 

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).

 

 

 

Three Months Ended March 31, 2015

 

Three Months Ended March 31, 2014

 

 

 

 

 

Other

 

Total

 

 

 

Other

 

Total

 

 

 

Net

 

Noninterest

 

Changes in

 

Net

 

Noninterest

 

Changes in

 

 

 

Losses

 

Income

 

Fair Value

 

Gains

 

Income

 

Fair Value

 

Loans held for sale

 

$

(6,695

)

$

 

$

(6,695

)

$

4,518

 

$

 

$

4,518

 

Mortgage servicing rights asset

 

(7,197

)

 

(7,197

)

2,358

 

 

2,358

 

 

The Company also determines the fair value of certain assets and liabilities on a non-recurring basis. In particular, the fair value of all of the assets acquired and liabilities assumed in the SWS Merger was determined at the acquisition date. In addition, 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 — The Company reports impaired loans based on the underlying fair value of the collateral through specific allowances within the allowance for loan losses. PCI loans with a fair value of $172.9 million, $822.8 million and $73.5 million were acquired by the Company upon completion of the merger with PlainsCapital (the “PlainsCapital Merger”), the FDIC-assisted transaction (the “FNB Transaction”) whereby the Bank acquired certain assets and assumed certain liabilities of First National Bank (“FNB”) and the SWS Merger, respectively (collectively, the “Bank Transactions”). Substantially all PCI loans acquired in the FNB Transaction are covered by FDIC loss-share agreements. The fair value of PCI loans was determined using Level 3 inputs, including estimates of expected cash flows that incorporated significant unobservable inputs regarding default rates, loss severity rates assuming default, prepayment speeds on acquired loans accounted for in pools (“Pooled Loans”), and estimated collateral values.

 

At March 31, 2015, estimates for these significant unobservable inputs were as follows.

 

 

 

PCI Loans

 

 

 

PlainsCapital

 

FNB

 

SWS

 

 

 

Merger

 

Transaction

 

Merger

 

Weighted average default rate

 

47

%

60

%

52

%

Weighted average loss severity rate

 

50

%

39

%

37

%

Weighted average prepayment speed

 

0

%

4

%

0

%

 

The resulting weighted average expected loss on PCI loans associated with the PlainsCapital Merger, FNB Transaction and SWS Merger was 24%, 23% and 19%, respectively.

 

15



Table of Contents

 

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

The Company obtains updated appraisals of the fair value of collateral securing impaired collateral dependent loans at least annually, in accordance with regulatory guidelines. The Company also reviews the fair value of such collateral on a quarterly basis. If the quarterly review indicates that the fair value of the collateral may have deteriorated, the Company will order an updated appraisal of the fair value of the collateral. Since the Company obtains updated appraisals when evidence of a decline in the fair value of collateral exists, it typically does not adjust appraised values.

 

Other Real Estate Owned — The Company reports other real estate owned (“OREO”) at fair value less estimated cost to sell. Any excess of recorded investment over fair value, less cost to sell, is charged against either the allowance for loan losses or the related PCI pool discount when property is initially transferred to OREO. Subsequent to the initial transfer to OREO, downward valuation adjustments are charged against earnings. The Company determines fair value primarily using independent appraisals of OREO properties. The resulting fair value measurements are classified as Level 2 or Level 3 inputs, depending upon the extent to which unobservable inputs determine the fair value measurement. The Company considers a number of factors in determining the extent to which specific fair value measurements utilize unobservable inputs, including, but not limited to, the inherent subjectivity in appraisals, the length of time elapsed since the receipt of independent market price or appraised value, and current market conditions. At March 31, 2015, the most significant unobservable input used in the determination of fair value of OREO was a discount to independent appraisals for estimated holding periods of OREO properties. Such discount was 1% per month for estimated holding periods of 6 to 24 months. Level 3 inputs were used to determine the initial fair value at acquisition of a large group of smaller balance properties that were acquired in the FNB Transaction. In the FNB Transaction, the Bank acquired OREO of $135.2 million, all of which is covered by FDIC loss-share agreements. At March 31, 2015 and December 31, 2014, the estimated fair value of covered OREO was $137.7 million and $136.9 million, respectively, and the underlying fair value measurements utilize Level 2 and Level 3 inputs. The fair value of non-covered OREO at March 31, 2015 and December 31, 2014 was $6.3 million and $0.8 million, respectively, and is included in other assets within the consolidated balance sheets.  Level 3 inputs were used to determine the initial fair value at acquisition of properties totaling $5.6 million that were acquired in the SWS Merger.  During the reported periods, all fair value measurements for non-covered OREO subsequent to initial recognition utilized Level 2 inputs.

 

The following table presents information regarding certain assets and liabilities measured at fair value on a non-recurring basis for which a change in fair value has been recorded during reporting periods subsequent to initial recognition (in thousands).

 

 

 

 

 

 

 

 

 

 

 

Total Gains (Losses) for the

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Three Months Ended March 31,

 

March 31, 2015

 

Inputs

 

Inputs

 

Inputs

 

Fair Value

 

2015

 

2014

 

Non-covered impaired loans

 

$

 

$

 

$

23,605

 

$

23,605

 

$

349

 

$

(215

)

Covered impaired loans

 

 

 

68,195

 

68,195

 

3,218

 

(1,691

)

Non-covered other real estate owned

 

 

382

 

 

382

 

(28

)

(102

)

Covered other real estate owned

 

 

3,443

 

 

3,443

 

(950

)

(431

)

 

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 the Company’s 2014 Form 10-K.

 

16



Table of Contents

 

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 not measured at fair value on either a recurring or non-recurring basis (in thousands).

 

 

 

 

 

Estimated Fair Value

 

 

 

Carrying

 

Level 1

 

Level 2

 

Level 3

 

 

 

March 31, 2015

 

Amount

 

Inputs

 

Inputs

 

Inputs

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

708,533

 

$

708,533

 

$

 

$

 

$

708,533

 

Held to maturity securities

 

183,792

 

 

186,032

 

 

186,032

 

Loans held for sale

 

27,056

 

 

27,056

 

 

27,056

 

Non-covered loans, net

 

4,795,322

 

 

608,554

 

4,605,859

 

5,214,413

 

Covered loans, net

 

550,626

 

 

 

704,848

 

704,848

 

Broker-dealer and clearing organization receivables

 

2,222,517

 

 

2,222,517

 

 

2,222,517

 

FDIC indemnification asset

 

107,567

 

 

 

107,567

 

107,567

 

Other assets

 

61,362

 

 

45,784

 

15,578

 

61,362

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

7,129,277

 

 

7,138,613

 

 

7,138,613

 

Broker-dealer and clearing organization payables

 

1,951,040

 

 

1,951,040

 

 

1,951,040

 

Short-term borrowings

 

999,476

 

 

999,476

 

 

999,476

 

Debt

 

175,694

 

 

169,024

 

 

169,024

 

Other liabilities

 

2,095

 

 

2,095

 

 

2,095

 

 

 

 

 

 

Estimated Fair Value

 

 

 

Carrying

 

Level 1

 

Level 2

 

Level 3

 

 

 

December 31, 2014

 

Amount

 

Inputs

 

Inputs

 

Inputs

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

813,075

 

$

813,075

 

$

 

$

 

$

813,075

 

Held to maturity securities

 

118,209

 

 

118,345

 

 

118,345

 

Loans held for sale

 

37,541

 

 

37,541

 

 

37,541

 

Non-covered loans, net

 

3,883,435

 

 

378,425

 

3,528,769

 

3,907,194

 

Covered loans, net

 

638,029

 

 

 

767,751

 

767,751

 

Broker-dealer and clearing organization receivables

 

167,884

 

 

167,884

 

 

167,884

 

FDIC indemnification asset

 

130,437

 

 

 

130,437

 

130,437

 

Other assets

 

59,432

 

 

43,937

 

15,495

 

59,432

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

6,369,892

 

 

6,365,555

 

 

6,365,555

 

Broker-dealer and clearing organization payables

 

179,042

 

 

179,042

 

 

179,042

 

Short-term borrowings

 

762,696

 

 

762,696

 

 

762,696

 

Debt

 

123,696

 

 

117,028

 

 

117,028

 

Other liabilities

 

2,144

 

 

2,144

 

 

2,144

 

 

17



Table of Contents

 

Hilltop Holdings Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(Unaudited)

 

4. Securities

 

The amortized cost and fair value of available for sale and held to maturity securities are summarized as follows (in thousands).

 

 

 

Available for Sale

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

March 31, 2015

 

Cost

 

Gains

 

Losses

 

Fair Value

 

U.S. Treasury securities

 

$

19,386

 

$

400

 

$

(6

)

$

19,780

 

U.S. government agencies:

 

 

 

 

 

 

 

 

 

Bonds

 

463,619

 

2,164

 

(1,804

)

463,979

 

Residential mortgage-backed securities

 

54,374

 

1,612

 

(6

)

55,980

 

Collateralized mortgage obligations

 

79,050

 

160

 

(1,515

)

77,695

 

Corporate debt securities

 

89,076

 

5,748

 

(24

)

94,800

 

States and political subdivisions

 

130,764

 

2,200

 

(699

)

132,265

 

Commercial mortgage-backed securities

 

593

 

50

 

 

643

 

Equity securities

 

13,568

 

505

 

(3

)

14,070

 

Totals

 

$

850,430

 

$

12,839

 

$

(4,057

)

$

859,212

 

 

 

 

Available for Sale

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

December 31, 2014

 

Cost

 

Gains

 

Losses

 

Fair Value

 

U.S. Treasury securities

 

$

19,382

 

$

264

 

$

(33

)

$

19,613

 

U.S. government agencies:

 

 

 

 

 

 

 

 

 

Bonds

 

522,008

 

1,749

 

(7,516

)

516,241

 

Residential mortgage-backed securities

 

51,363

 

1,672

 

(137

)

52,898

 

Collateralized mortgage obligations

 

89,291

 

133

 

(2,300

)

87,124

 

Corporate debt securities

 

93,406

 

5,125

 

(59

)

98,472

 

States and political subdivisions

 

135,419

 

2,083

 

(717

)

136,785

 

Commercial mortgage-backed securities

 

593

 

47

 

 

640

 

Equity securities

 

13,293

 

469

 

 

13,762

 

Totals

 

$

924,755

 

$

11,542

 

$

(10,762

)

$

925,535

 

 

 

 

Held to Maturity

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

March 31, 2015

 

Cost

 

Gains

 

Losses

 

Fair Value

 

U.S. Treasury securities

 

$

25,006

 

$

 

$

 

$

25,006

 

U.S. government agencies:

 

 

 

 

 

 

 

 

 

Bonds

 

22,348

 

192

 

 

22,540

 

Residential mortgage-backed securities

 

28,907

 

793

 

 

29,700

 

Collateralized mortgage obligations

 

98,767

 

1,188

 

 

99,955

 

States and political subdivisions

 

8,764

 

67

 

 

8,831

 

Totals

 

$

183,792

 

$

2,240

 

$

 

$

186,032

 

 

 

 

Held to Maturity

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

December 31, 2014

 

Cost

 

</