2021 ANNUAL REPORT NOTICE OF 2022ANNUAL MEETING &PROXY STATEMENT L E T T E R F R O M O U R P R E S I D E N T & C E O
To Our Stockholders, Customers, and Employees:
Following a record-setting year in 2020, Hilltop carried that momentum into 2021, reporting our second-highest annual profit while
continuing to fortify our liquidity position and returning excess capital to our stockholders through dividends and share repurchases. I’m
proud of these strong results, which again demonstrate the effectiveness of our diverse, synergistic, and durable business model, powered by
talented professionals who serve our customers across the country. Over the past year, we continued to build our brand and earn recognition
as a leader in the industries we serve through our operating companies—PlainsCapital Bank, PrimeLending, and HilltopSecurities. Hilltop
was also recognized as the No. 17 Best Bank in America by Forbes, and the No. 4 Best Emerging Regional Bank by Bank Director. Together
we have built an agile and responsive organization that allows us to adapt to changing market conditions and deliver customized solutions
that meet customers’ needs and serve our broader communities. As a result, I believe we are well-positioned to continue to create long-term
value as we grow each business and create operating leverage.
top 10 national retail
mortgage originator
#4 texas bank
by texas deposits
#2 leading municipal
focused investment
bank with
national presence
4,908 employees
409 offices
over 200,000 customers served
1
F I N A N C I A L P E R F O R M A N C E
plainscapital bank
hilltopsecurities
primelending
revenue1 ($mm)
$2,237
$1,940
$1,556
$1,445
$1,674
2017
2018
2019
2020
2021
net income1 ($mm)
$409
$374
$211
$134
$117
2017
2018
2019
2020
2021
Hilltop’s outstanding financial results for 2021 included annual
net income of $374.5 million, or $4.61 per diluted share, on
revenue of $1.9 billion. Our return on average equity of 15.4%
and return on average assets of 2.2% were more than 1.5 times
that of other publicly traded Texas banks. We also maintained
peer-leading capital ratios with a Common Equity Tier 1 risk-
based ratio above 20%, strengthening our ability to absorb
losses and support growth.
We remained focused on returning value to our stockholders
in 2021 while fortifying Hilltop’s balance sheet and continuing
to invest in the franchise. Over the course of the year, Hilltop
repurchased 3.6 million shares for $124 million, equating to
4% of shares outstanding. Since 2015, we have repurchased 21
million shares. Hilltop’s tangible book value per share increased
by 15% in 2021 to $28.37, and our dividend increased 33% during
that same period.
1. All metrics are based on income from continuing operations.
2
F I N A N C I A L P E R F O R M A N C E
2021 net income
12/31/2021 total assets
2021 roaa
2021 roae
$374 million
$18.7 billion
2.17
%
15.38
%
capital management and tangible book value growth
16.70%
15.96%
$19.65
$20.16
18.46%
$21.85
19.85%
18.97%
19.63%
20.22%
$23.52
$24.77
$25.93
$26.93
$27.77
$28.37
21.28%
21.22%
$0.12
$0.12
$0.12
$0.12
$0.09
$0.09
$0.09
$0.09
$0.08
q4 2019
q1 2020
q2 2020
q3 2020
q4 2020
q1 2021
q2 2021
q3 2021
q4 2021
Tangible Book Value Per Share (Tangible Common Equity / Shares Outstanding)
Common Equity Tier 1 risk based ratio
Dividends per share
3
P L A I N S C A P I T A L B A N K
PlainsCapital Bank is the cornerstone of Hilltop’s franchise,
providing stable bank earnings and liquidity throughout the
organization. Thanks to the Bank’s strong leadership and
dedicated customer-focused employees, PlainsCapital had a
record year in 2021 with pre-tax income of $283 million. These
results were largely driven by an increase in net interest income
of approximately $16 million, as Paycheck Protection Program
fees and lower deposit costs helped to offset muted commercial
loan demand. At the same time, the Bank’s expenses decreased
from the previous year, leading to a 50% efficiency ratio.
PlainsCapital increased deposits by $1.6 billion to $12.8 billion
in 2021, while improving credit quality with only $54 million in
non-performing assets and a net recovery of $500,000.
summary results
($ in millions)
2020
2021
efficiency ratio & net interest margin
net interest income
390.9
406.5
provision for (reversal of)
credit losses
96.3
(58.2)
noninterest income
41.4
45.1
noninterest expense
232.4
226.9
income before taxes
$103.5
$282.9
53.8%
3.31%
50.3%
3.07%
2020
Efficiency Ratio
2021
Net Interest Margin
key highlights
2020
2021
credit losses & acl / bank loans hfi
($ in millions)
roaa
0.63%
1.55%
assets ($bn)
$13.3
$14.9
pre-provision net
revenue ($mm)
$199.8
$224.7
$96.3
2.05%
2020
1.28 %
($58.2)
2021
Provision for (Reversal of ) Credit Losses
ACL/Bank Loans HFI
4
P R I M E L E N D I N G
PrimeLending had another phenomenal year in 2021, picking
up right where it left off in 2020. Although the mortgage market
began to normalize in the second half of the year, PrimeLending
finished strong with $235 million in pre-tax income on lock
volume of $26 billion and third-party gain-on-sale margin of 375
basis points. The company executed on its growth strategy with
the addition of a net new 34 loan officers across the markets they
serve. PrimeLending’s purchase orientation and stable funding
profile puts the business in an athletic position to perform well
in a highly competitive mortgage market.
summary results
($ in millions)
2020
2021
mortgage originations & lock volume
($ in millions)
net interest income (expense)
(10.5)
(20.4)
noninterest income
1,172.5
987.0
noninterest expense
753.9
731.1
income before taxes
$408.0
$235.5
$30,007
$22,970
$25,580
$22,668
2020
2021
Mortgage Originations
Lock Volume
key highlights
2020
2021
third-party gain-on-sale (bps)
% purchase
58%
64%
sales volume ($mm)
$22,514
$23.059
409
375
MSR asset ($mm)
$144
$87
2020
2021
5
H I L L T O P S E C U R I T I E S
In 2021, HilltopSecurities reported $44 million of pre-tax income
on net revenues of $424 million, for a pre-tax margin of 10.3%.
These results materialized despite market headwinds faced by
the firm’s mortgage-centric and fixed income businesses, which
saw revenues decline by 50% and 35%, respectively, from last
year’s outstanding performance. This volatility reinforces the
importance of HilltopSecurities’ diverse revenue streams. The
firm’s public finance and wealth management businesses both
grew from the prior year, partially offsetting the declines in fixed
income and structured finance. HilltopSecurities also added key
infrastructure, producers, and leadership to broaden its core
capabilities and expertise during the year.
summary results
($ in millions)
2020
2021
net revenues by business line
($ in millions)
2020
2021
delta
public finance services
96.2
108.4
12.7%
fixed income services
113.5
73.3
(35.4%)
wealth management
140.9
147.0
4.4%
structured finance
167.5
85.4
(49.0%)
other
13.3
10.3
(22.5%)
Net revenues
$531.3
$424.4
(20.1%)
net interest income
39.9
43.3
noninterest income
491.4
381.1
noninterest expense
415.6
380.8
income before taxes
$115.6
$43.7
key highlights
2020
2021
pre-tax margin
21.8%
10.3%
compensation / net revenue
58.8%
65.1%
fdic insured balance at pcb
$700
$804
other fdic insured balances
$1,893
$1,503
public finance offerings
$57,107
$60,244
tba lock volume
$9,075
$7,008
6
G I V I N G B A C K T O O U R C O M M U N I T I E S
As in the past, Hilltop’s success in 2021 was supported by the
supporting equity and inclusion in public schools continued
core values shared and demonstrated by our employees across
in 2021, as we worked closely with Dallas ISD, Fort Worth
the nation. These values—Integrity, Collaboration, Adaptability,
ISD, and Houston ISD to administer $1 million in donations
Respect, and Excellence—are woven into our corporate culture
in support of underserved students. We also expanded our
and shape the way we develop customer relationships through
Buffalo Scholars program to award eight $5,000 scholarships
every interaction and in every line of business. They also drive
to children of employees pursuing or planning to pursue an
our commitment to community involvement and philanthropy.
undergraduate degree at a four-year public college or university.
In 2021, this included significant investments in education, as
Other community outreach initiatives included donations and
well as hundreds of hours of volunteer service and donations
volunteer hours to support the North Texas Food Bank and the
to fight hunger, provide holiday gifts, and improve the quality
Community Partners of Dallas’ 2021 Toy Drive.
of life in the communities we serve. Hilltop’s commitment to
2020
Total Giving $3.6 million
2021
Total Giving $3.7 million
$63
$279
$67
$20
$998
$34
$79
$2,060
$30
$1,041
$1,147
$509
$37
$712
$165
$65
$ in Thousands
education & youth development
community development & service
cultural arts & humanities
health and human services & food banks
animal, human & civil rights
other contributions & sponsorships
local business community support
climate & conservation
7
E N V I R O N M E N T A L , S O C I A L A N D G O V E R N A N C E
Hilltop made
significant progress
in
advancing our
environmental, social, and governance (ESG) principles during
2021 and achieved our ESG goals for the year as established in
our baseline report published in March of 2021. We formed an
ESG Committee and established a structure to support ongoing
efforts in this area, including an ESG policy that was approved
by Hilltop’s Nominating and Corporate Governance Committee
to be effective in 2022. In addition, Hilltop’s Diversity
Momentum Council built a diversity, equity, and inclusion
(DEI) commitment statement in 2021, to guide our efforts
in representing the communities we serve by encouraging,
nurturing, and celebrating a diverse and inclusive culture
throughout the organization.
2021 esg enhancements
Formed ESG Committee
Established ESG Policy
Achieved Stated 2021
ESG Goals
Published Diversity, Equity, and
Inclusion Commitment Statement
8
Hilltop has built a resilient franchise with
complementary business lines, diverse revenue
streams, and a deep bench of experienced
leaders and talented professionals. Our strong
performance in 2021 is the direct result of careful
planning and the successful implementation of
key strategic initiatives to position our company
to weather market volatility and achieve long-
term growth. I am proud of the progress we have
made, and I am grateful to our employees for their
hard work and dedication. They remain focused
on working together to deliver effective solutions
for our clients. I would also like to thank our
clients for the trust they have placed in us and
for giving Hilltop the opportunity to help them
achieve their financial goals. Finally, I would
like to thank Hilltop’s Board of Directors and
our stockholders for their continued support of
our mission and vision. I believe Hilltop is well
positioned to continue strengthening its role as a
preeminent financial services organization, and I
look forward to the opportunities that lie ahead.
Sincerely,
Jeremy B. Ford
President and CEO
Hilltop Holdings Inc.
T H A N K Y O U
9
S T O C K P E R F O R M A N C E G R A P H
Our common stock is listed on the New York Stock Exchange under the symbol “HTH.” The following graph assumes $100 invested
on December 31, 2016, and compares (a) the yearly percentage change in the cumulative total stockholder return on our common
stock (as measured by dividing (i) the sum of (A) the cumulative amount of dividends, assuming dividend reinvestment, during the
period commencing on the first day of trading, and ending on December 31, 2021, and (B) the difference between our share price at
the end and the beginning of the periods presented by (ii) the share price at the beginning of the periods presented) with (b) the KBW
NASDAQ Regional Banking Index, and (c) our selected peer group of the following institutions: Ameris Bancorp; BancFirst Corporation;
BancorpSouth Bank; Cadence Bancorporation1; Commerce Bancshares, Inc.; First Financial Bancorp; First Financial Bankshares, Inc.;
First Midwest Bancorp, Inc2.; Flagstar Bancorp, Inc.; Hancock Whitney Corporation; Independent Bank Group, Inc.; International
Bancshares Corporation; Prosperity Bancshares, Inc.; Renasant Corporation; Simmons First National Corporation; South State
Corporation; Texas Capital Bancshares, Inc.; TowneBank; Trustmark Corporation; UMB Financial Corporation; Umpqua Holdings
Corporation; and WesBanco, Inc.
30.0
20.0
10.0
0.0
(10.0)
(20.0)
(30.0)
(40.0)
(50.0)
)
%
(
n
r
u
t
e
r
l
a
t
o
t
12/31/2016
12/31/2017
12/31/2018
12/31/2019
12/31/2020
12/31/2021
HTH
HTH Selected Peer Group
KBW NASDAQ Regional Bank Index
date
12/31/2021
12/31/2020
12/31/2019
12/31/2018
12/31/2017
12/31/2016
hth
25.3
(3.2)
(13.9)
(39.4)
(15.0)
0.0
hth selected
peer group
kbw nasdaq regional
bank index
26.1
0.5
7.7
(12.8)
4.0
0.0
13.2
(15.0)
(3.3)
(19.7)
(0.4)
0.0
1. Data prior to the merger of Cadence Bancorporation and BancorpSouth Bank in 2021 is the legacy stock prices of BancorpSouth Bank. 2. Data prior to its acquisition in 2022.
1 0
Hilltop Holdings Inc.
6565 Hillcrest Avenue
Dallas, Texas 75205
Tel: 214.855.2177
Fax: 214.855.2173
www.hilltop-holdings.com
NYSE: HTH
NOTICE OF 2022 ANNUAL MEETING
AND PROXY STATEMENT
April 29, 2022
You are cordially invited to attend our 2022 Annual Meeting of Stockholders (the “Annual Meeting”) at 10:00 a.m.,
Dallas, Texas, local time, on July 21, 2022. The meeting will be held at the offices of Hilltop Holdings at 6565 Hillcrest
Avenue, 5th Floor, Dallas, Texas 75205. Although we currently intend to hold the Annual Meeting in person, we are actively
monitoring the impact that the coronavirus (COVID-19) may have on the meeting. We are committed to maintaining a safe
and healthy environment at the Annual Meeting and, as a result, may determine that it is necessary or appropriate to hold the
meeting solely by means of remote communication. If we take this step, details about how to participate in the Annual
Meeting will be announced in advance via press release, posted on our website at http://ir.hillop-holdings.com and filed with
the Securities and Exchange Commission as additional proxy material.
This booklet includes the formal notice of the meeting and our Proxy Statement. The Proxy Statement tells you about the
matters to be addressed, and the procedures for voting, at the meeting.
YOUR VOTE IS VERY IMPORTANT. Even if you only have a few shares, we want your shares to be represented. If
your shares are held in a brokerage account, your broker does not have discretion to vote on your behalf with respect
to electing directors or certain other non-routine matters. Accordingly, you must provide specific voting
instructions to your broker in order to vote. Please vote promptly in order to ensure that your shares are represented at the
meeting.
The Notice of Internet Availability of Proxy Materials or this Proxy Statement and the accompanying proxy card, as
applicable, Notice of 2022 Annual Meeting of Stockholders and annual report for the year ended December 31, 2021 will be
provided to stockholders of record on or about May 18, 2022.
We look forward to seeing you at the meeting.
Very truly yours,
Jeremy B. Ford
President and Chief Executive Officer
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY
MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON JULY 21, 2022.
Our Proxy Statement and our annual report for the fiscal year ended December 31, 2021 are both available at
www.proxyvote.com.
(This page has been left blank intentionally)
Notice of 2022 Annual Meeting of Stockholders
To Be Held on July 21, 2022
WHEN:
WHERE:
Thursday, July 21, 2022, at 10:00 a.m., Dallas, Texas local time
6565 Hillcrest Avenue, 5th Floor
Dallas, Texas 75205
WHY:
At this meeting, you will be asked to:
1. Elect eighteen directors to serve on our Board of Directors until the 2023 annual meeting of
stockholders or until their successors are duly elected and qualified;
2. Conduct a non-binding advisory vote to approve executive compensation;
3. Approval of amendment to the Hilltop Holdings Inc. Employee Stock Purchase Plan;
4. Ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public
accounting firm for 2022; and
5. Transact any other business that may properly come before the meeting and any adjournments
or postponements of the meeting.
WHO MAY VOTE:
Stockholders of record at the close of business on May 5, 2022.
ANNUAL REPORT:
Our 2021 Annual Report is enclosed.
Pursuant to rules promulgated by the Securities and Exchange Commission, we are providing access to our proxy
materials, including this proxy statement and our annual report for the year ended December 31, 2021, over the Internet. As a
result, we are providing to many of our stockholders a Notice of Internet Availability of Proxy Materials instead of a paper
copy of our proxy materials. The notice contains instructions on how to access those proxy materials over the Internet, as
well as instructions on how to request a paper copy of our proxy materials. All stockholders who are not sent a notice will be
sent a paper copy of our proxy materials by mail. This electronic distribution process reduces the environmental impact and
lowers the costs of printing and distributing our proxy materials.
Your vote is very important. Please read the Proxy Statement and voting instructions on the enclosed proxy card.
Then, whether or not you plan to attend the Annual Meeting in person, and no matter how many shares you own,
please vote by Internet, telephone or by marking, signing, dating and promptly returning the enclosed proxy card in
the enclosed envelope, which requires no additional postage if mailed in the United States. Please see “General
Information – What should I do if I want to attend the Annual Meeting in person?” for information on how to obtain
directions to be able to attend the meeting and vote in person.
By Order of the Board of Directors,
April 29, 2022
Dallas, Texas
Corey G. Prestidge
Executive Vice President, General Counsel & Secretary
Although we currently intend to hold the Annual Meeting in person, we are actively monitoring the impact that the
coronavirus (COVID-19) may have on the meeting. We are committed to maintaining a safe and healthy environment at the
Annual Meeting and, as a result, may determine that it is necessary or appropriate to hold the meeting solely by means of
remote communication. If we take this step, details about how to participate in the Annual Meeting will be announced in
advance via press release, posted on our website at http://ir.hilltop-holdings.com and filed with the SEC as additional proxy
material.
PROXY STATEMENT
TABLE OF CONTENTS
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL ONE — ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominees for Election as Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meeting Attendance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Necessary to Elect Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Nomination Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elements of Total Direct Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Governance Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Program Philosophy and Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elements of our Executive Compensation Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation of Our Non-Executive Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance and Other Post-Termination Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation Programs and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table. . . . . . . . . . . . . . . . . . . . . . . . . .
Potential Payments Upon Termination or Change-in-Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CEO Pay Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Interlocks and Insider Participation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delinquent Section 16(a) Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL TWO — ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Necessary to Approve, on a Non-Binding Advisory Basis, Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL THREE — APPROVAL OF AMENDMENT TO THE HILLTOP HOLDINGS INC. EMPLOYEE STOCK
PURCHASE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL FOUR — RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM . . . . . . . . . . . . . . .
Vote Necessary to Ratify the Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Independent Auditor’s Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
STOCKHOLDER PROPOSALS FOR 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MULTIPLE STOCKHOLDERS SHARING ONE ADDRESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ANNUAL REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
QUESTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ANNEX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ANNEX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ANNEX C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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HILLTOP HOLDINGS INC.
6565 Hillcrest Avenue
Dallas, Texas 75205
PROXY STATEMENT
2022 Annual Meeting of Stockholders
To be Held on July 21, 2022
GENERAL INFORMATION
The Notice of Internet Availability of Proxy Materials, or this Proxy Statement and the accompanying proxy card, as
applicable, Notice of 2022 Annual Meeting of Stockholders and Annual Report for the year ended December 31, 2021 will
be provided to stockholders of record on or about May 18, 2022.
Unless the context otherwise indicates, all references in this Proxy Statement to the “Company,” “we,” “us,” “our” or
“ours” or similar words are to Hilltop Holdings Inc. and its direct and indirect wholly owned subsidiaries, references to
“Hilltop” refer solely to Hilltop Holdings Inc., references to “PlainsCapital” refer to PlainsCapital Corporation (a wholly
owned subsidiary of Hilltop), references to “Securities Holdings” refer to Hilltop Securities Holdings LLC (a wholly owned
subsidiary of Hilltop), references to “Hilltop Securities” refer to Hilltop Securities Inc. (a wholly owned subsidiary of
Securities Holdings), references to the “Bank” refer to PlainsCapital Bank (a wholly owned subsidiary of PlainsCapital),
references to “First Southwest” refer to First Southwest Holdings, LLC (a wholly owned subsidiary of Securities Holdings)
and its subsidiaries as a whole, and references to “PrimeLending” refer to PrimeLending, a PlainsCapital Company (a
wholly owned subsidiary of the Bank) and its subsidiaries as a whole.
Why am I receiving these proxy materials?
The Board of Directors of Hilltop, or the Board of Directors, has made these materials available to you on the Internet or
has delivered printed versions of these materials to you by mail in connection with the Board of Directors’ solicitation of
proxies for use at our 2022 Annual Meeting of Stockholders, or the Annual Meeting, which will take place at 10:00 a.m.
(Dallas, Texas local time) on Thursday, July 21, 2022, at 6565 Hillcrest Avenue, 5th Floor, Dallas, Texas 75205. This Proxy
Statement describes matters on which you, as a stockholder, are entitled to vote. This Proxy Statement also gives you
information on these matters so that you can make an informed decision with respect to your vote.
Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of
printed proxy materials?
In accordance with rules promulgated by the Securities and Exchange Commission, or the SEC, instead of mailing a
printed copy of our proxy materials to all of our stockholders, we have elected to furnish such materials to selected
stockholders by providing access to these documents over the Internet. Accordingly, on or about May 18, 2022, we will
provide a Notice of Internet Availability of Proxy Materials, or the Notice, to selected stockholders of record and beneficial
owners. These stockholders will have the ability to access the proxy materials on a website referred to in the Notice or to
request to receive a printed set of the proxy materials by calling the toll-free number found on the Notice. We encourage you
to take advantage of the availability of the proxy materials on the Internet in order to help reduce the environmental impact of
the printing and distribution of our proxy materials.
How can I get electronic access to the proxy materials?
The Notice provides you with instructions regarding how to:
view our proxy materials for the Annual Meeting on the Internet;
vote your shares after you have viewed our proxy materials;
register to attend the meeting in person;
request a printed copy of the proxy materials; and
instruct us to send our future proxy materials to you electronically by email.
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Copies of the proxy materials are available for viewing at www.proxyvote.com.
You may have received proxy materials by email. Even if you received a printed copy of our proxy materials, you may
choose to receive future proxy materials by email. Choosing to receive your future proxy materials by email will lower our
costs of delivery and will reduce the environmental impact of printing and distributing our proxy materials. If you choose to
receive our future proxy materials by email, you will receive an email next year with instructions containing a link to view
those proxy materials and a link to the proxy voting site. Your election to receive proxy materials by email will remain in
effect until you terminate it or for so long as the email address provided by you is valid.
What am I voting on?
At the Annual Meeting, stockholders will be asked to:
Elect eighteen directors to serve on our Board of Directors until the 2023 annual meeting of stockholders or
until their successors are duly elected and qualified;
Conduct a non-binding advisory vote to approve executive compensation;
Approval of amendment to the Hilltop Holdings Inc. Employee Stock Purchase Plan;
Ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm
for 2022; and
Transact any other business that may properly come before the Annual Meeting and any adjournments or
postponements of the Annual Meeting.
What are the Board of Directors’ recommendations?
The Board of Directors recommends that you vote your shares:
FOR each of our director candidates;
FOR the approval, on a non-binding advisory basis, of the compensation of our named executive officers;
FOR the approval of amendment to the Hilltop Holdings Inc. Employee Stock Purchase Plan; and
FOR the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public
accounting firm for 2022.
Who is entitled to vote?
Holders of record of our common stock at the close of business on May 5, 2022 are entitled to vote at the Annual
Meeting. With respect to each matter presented, a stockholder is entitled to cast one vote for each share of common stock
owned at the close of business on May 5, 2022. Our stockholders are not entitled to cumulative voting rights, and dissenters’
rights are not applicable to the matters being voted upon.
How do I vote?
If you are a stockholder of record, there are four ways to vote:
In Person. You may vote in person at the Annual Meeting. Bring your printed proxy card if you received one
by mail. Otherwise, we will provide stockholders of record with a ballot at the Annual Meeting. We recommend
that you vote by proxy even if you plan to attend the Annual Meeting. You always can change your vote at the
Annual Meeting.
Via the Internet. You may vote by proxy via the Internet by visiting www.proxyvote.com. Have your proxy
card or Notice in hand when you access the website and follow the instructions to obtain your records and to
create an electronic voting instruction form.
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Via Telephone. If you received or requested printed copies of the proxy materials by mail, you may vote by
proxy by calling the toll-free number found on the proxy card.
Via Mail. If you received or requested printed copies of the proxy materials by mail, you may vote by proxy by
marking, signing and dating the proxy card and sending it back in the envelope provided.
If you are the beneficial owner of shares held by a broker or other nominee, you may instruct your broker or nominee to
vote your shares by following the instructions that the broker or nominee provides to you. New York Stock Exchange, or
NYSE, rules prohibit your broker from voting for the election of directors, the approval of executive compensation and the
approval of the amendment to the Hilltop Holdings Inc. Employee Stock Purchase Plan on your behalf without specific
voting instructions from you. Many brokers allow stockholders to provide voting instructions by mail, telephone and the
Internet.
How do proxies work?
Our Board of Directors is asking for your proxy. Giving your proxy to the persons named by us means you authorize
them to vote your shares at the Annual Meeting in the manner you direct. You may vote for all of our director candidates or
withhold your vote as to one or more director candidates, and you may vote for or against, or abstain from voting on,
executive compensation, approval of the amendment to the Hilltop Holdings Inc. Employee Stock Purchase Plan and the
ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for
2022.
If you are a stockholder of record and (a) you indicate when voting on the Internet or by telephone that you wish to vote
as recommended by our Board of Directors or (b) you sign and return the enclosed proxy card but do not specify how your
shares are to be voted, your shares will be voted FOR the election of all of our director candidates, FOR the approval, on a
non-binding advisory basis, of our executive compensation, FOR the approval of the amendment to the Hilltop Holdings Inc.
Employee Stock Purchase Plan, and FOR the ratification of the appointment of PricewaterhouseCoopers LLP as our
independent registered public accounting firm for 2022.
If you are the beneficial owner of shares held by a broker or other nominee, also referred to as held in “street name,” and
you do not provide such broker or nominee with specific voting instructions, under the rules promulgated by the NYSE, the
broker or nominee that holds your shares may generally vote on “routine” matters at its discretion, but cannot vote on “non-
routine” matters. If the broker or nominee that holds your shares does not receive instructions from you on how to vote your
shares on a “non-routine” matter, that broker or nominee will inform the inspector of election that it does not have the
authority to vote on such matters with respect to your shares, which is generally referred to as a “broker non-vote.”
You may receive more than one proxy or voting card depending on how you hold your shares. Shares registered in your
name are covered by one card. If you also hold shares through a broker or other nominee, you also may receive materials
from them asking how you want those shares voted. To be sure that all of your shares are voted, we encourage you to respond
to each request you receive.
Which matters are considered “routine” or “non-routine”?
The ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting
firm for 2022 is considered a “routine” matter. A broker or other nominee may generally vote on routine matters and,
therefore, no broker non-votes are expected to exist with respect to this matter. All other matters set forth in this Proxy
Statement are matters that we believe will be designated “non-routine” matters. A broker or other nominee cannot vote
without instructions on non-routine matters and, therefore, there may be broker non-votes on all matters other than the
ratification of the appointment of PricewaterhouseCoopers LLP.
Can I change my vote or revoke my proxy after I have voted?
You may revoke your proxy and change your vote at any time before the final vote at the Annual Meeting (or before any
earlier deadline specified in the Notice or the proxy card) by (a) voting again via the Internet or by telephone (only your latest
Internet or telephone proxy submitted prior to the Annual Meeting will be counted), (b) signing and returning a new proxy
card with a later date or creating a new electronic voting instruction form with a later date or (c) attending the Annual Meeting
and voting in person. Your attendance at the Annual Meeting, however, will not automatically revoke your proxy unless you
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vote again at the Annual Meeting or specifically request that your prior proxy be revoked by delivering, prior to the Annual
Meeting, a written notice of revocation to the corporate Secretary at the address listed under “Questions” on page 73.
Will my shares be voted if I don’t sign a proxy?
If you hold your shares directly in your own name, they will not be voted unless you provide a proxy or attend the
Annual Meeting and vote in person. Under certain conditions, shares that you own that are held by a broker or nominee may
be voted even if you do not provide voting instructions to the broker or nominee. As discussed above under “General
Information— How do proxies work?”, brokerage firms have the authority under applicable rules to vote on certain “routine”
matters, including the ratification of the appointment of auditors.
What constitutes a quorum?
In order to carry on the business of the Annual Meeting, a quorum must be present. This means that the holders of at
least a majority of the outstanding shares eligible to be cast must be represented at the Annual Meeting, either in person or by
proxy. Any shares that we hold for our own benefit may not be voted and are not counted in the total number of outstanding
shares eligible to be voted. Both abstentions and broker non-votes (described above) are counted as present for purposes of
determining the presence of a quorum. On April 28, 2022, we had 79,439,118 shares of common stock outstanding.
How many votes are needed for approval?
Election of Directors
The eighteen director candidates receiving the highest number of affirmative votes, or a plurality, will be elected as
directors. For purposes of the election of directors, abstentions and broker non-votes will not be counted as votes cast and
will have no effect on the result of the vote, although they will be considered present for purposes of determining a quorum.
Stockholders may not cumulate votes in the election of directors.
Advisory Vote to Approve Executive Compensation
The affirmative vote of a majority of the votes cast on the matter is required to approve, on a non-binding advisory basis,
our executive compensation. The Compensation Committee of the Board of Directors will review the results of this advisory
vote and will take the results into account in making future determinations concerning executive compensation. For purposes
of the advisory vote on executive compensation, abstentions and broker non-votes will not be counted as votes cast and will
have no effect on the result of the vote, although they will be considered present for purposes of determining a quorum.
Approval of the Amendment to the Hilltop Holdings Inc. Employee Stock Purchase Plan
Approval of the amendment to the Hilltop Holdings Inc. Employee Stock Purchase Plan, which increases the number of
shares authorized under such plan, requires the affirmative vote of the holders of at least a majority of the votes cast on the
proposal. For purposes of the approval of the amendment to the Hilltop Holdings Inc. Employee Stock Purchase Plan,
abstentions and broker non-votes will not be counted as votes cast and will have no effect on the result of the vote, although
they will be considered present for purposes of determining a quorum.
Ratification of Independent Registered Public Accounting Firm
The appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2022 will be
ratified if this proposal receives the affirmative vote of a majority of the votes cast on the matter. Brokers have the authority
to vote on this proposal in the absence of contrary instructions from a beneficial owner. If this appointment is not ratified by
our stockholders, the Audit Committee may reconsider its selection of PricewaterhouseCoopers LLP. With respect to this
proposal, abstentions will not be counted as votes cast and will have no effect on the result of the vote, although they will be
considered present for purposes of determining a quorum. Because it is a routine matter, we do not expect any broker non-
votes with respect to this proposal.
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Who conducts the proxy solicitation?
Our Board of Directors is soliciting the proxies, and we will bear all costs of this solicitation, including the preparation,
assembly, printing and mailing of this Proxy Statement and the Notice. Copies of proxy materials will be furnished to banks,
brokerage houses and other agents and nominees holding shares in their names that are beneficially owned by others so that
they may forward the proxy materials to those beneficial owners. In addition, if asked, we will reimburse these persons for
their reasonable expenses in forwarding the proxy materials to the beneficial owners. We have requested banks, brokerage
houses and other custodians, nominees and fiduciaries to forward all proxy materials to the beneficial owners of the shares
that they hold of record. Certain of our officers and employees also may solicit proxies on our behalf by mail, email, phone or
fax or in person.
What should I do if I want to attend the Annual Meeting in person?
You will need an admission ticket to attend the Annual Meeting. Attendance at the Annual Meeting will be limited to
stockholders of record at the close of business on May 5, 2022 (or their authorized representatives) having an admission
ticket or proof of their share ownership, and guests of the Company. If you plan to attend the Annual Meeting, please indicate
that you intend to do so when you are voting by telephone or Internet or follow the instructions on your proxy card, and we
will promptly mail an admission ticket to you.
If your shares are held in the name of a bank, broker or other nominee and you plan to attend the Annual Meeting, you
can obtain an admission ticket in advance by providing proof of your ownership, such as a bank or brokerage account
statement, to the corporate Secretary at the address listed under “Questions” on page 73. If you do not have an admission
ticket, you must show proof of your ownership of the common stock of the Company at the registration table at the door.
PROPOSAL ONE — ELECTION OF DIRECTORS
General
At the recommendation of the Nominating and Corporate Governance Committee, our Board of Directors has nominated
the director candidates named under “— Nominees for Election as Directors” below.
Our Board of Directors oversees our management on your behalf. The Board of Directors reviews our long-term strategic
plans and exercises direct decision-making authority on key issues, such as the approval of business combination
transactions, the authorization of dividends, the selection of the Chief Executive Officer, setting the scope of executives’
authority to manage our day-to-day operations and the evaluation of executives’ performance.
Our Board of Directors is not classified; thus, all of our directors are elected annually. The Nominating and Corporate
Governance Committee has recommended, and our Board of Directors has nominated, for re-election eighteen persons
currently serving as directors whose terms are expiring at the Annual Meeting. Mr. Cummings notified the Board of Directors
that he will not stand for reelection at the Annual Meeting.
We also evaluated the service of Mr. Sherman and determined that he devotes adequate time and effort in his board and
committee responsibilities. Accordingly, we do not believe that he is over-boarded given there was no change in his duties as
a result of Tectonic Financial Inc.’s preferred stock (as opposed to common stock) becoming quoted on the Nasdaq Global
Markets. Mr. Sherman brings considerable and unique expertise to our Board of Directors as outlined below in “Director
Qualifications for Service.”
If elected, each of the persons nominated as a director will serve until the next annual meeting of stockholders and until
his or her successor is duly elected and qualified. Biographical information on each of our nominees is given below.
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Nominees for Election as Directors
Rhodes R. Bobbitt
Age 76
Tracy A. Bolt
Age 58
J. Taylor Crandall
Age 68
Hill A. Feinberg
Age 75
Mr. Bobbitt has served as a director of Hilltop since November 2005. Mr. Bobbitt is retired.
From 1987 until June 2004, he served as a Managing Director and the Regional Office
Manager of the Private Client Service Group of Credit Suisse First Boston/Donaldson,
Lufkin & Jenrette. Mr. Bobbitt was formerly Vice President of Security Sales in the Dallas
office of Goldman, Sachs & Company from 1969 until 1987. He also serves on the Board of
Directors of First Acceptance Corporation.
Mr. Bolt has served as a director of Hilltop since our acquisition of PlainsCapital in
November 2012. He previously served as a director of PlainsCapital from September 2009 to
November 2012. In 1994, Mr. Bolt co-founded Hartman Leito & Bolt, LLP, an accounting
and consulting firm based in Fort Worth, Texas, where he served as a partner and a member
of the firm’s leadership committees until its sale in June 2014. Mr. Bolt holds a Bachelor of
Science and Master of Science from the University of North Texas, and he is a certified
public accountant. He currently serves as a business advisor to numerous management
teams, public and private company boards, not for profit organizations and trusts.
Mr. Crandall has served as a director of Hilltop since April 2015. Mr. Crandall is a founding
Managing Partner of Oak Hill Capital Management, LLC, or OHCM, and currently serves as
its Chairman Emeritus. Mr. Crandall has also served as Chief Operating Officer of
Keystone, Inc., the primary investment vehicle for Robert M. Bass. Prior to joining OHCM,
Mr. Crandall was a Vice President with the First National Bank of Boston. Mr. Crandall
serves on the board of directors of Intermedia.net, Inc., Wave Division Holdings, LLC,
Omada International, Pulsant Limited, Berlin Packaging LLC and Powdr Corporation.
Mr. Crandall is the secretary-treasurer of the Anne T. and Robert M. Bass Foundation, the
trustee of the Lucile Packard Foundation for Children’s Health and currently serves on the
boards of trustees of The Park City Foundation and the U.S. Ski and Snowboard Team
Foundation.
Mr. Feinberg serves as Chairman Emeritus of Hilltop Securities, a transition from
Mr. Feinberg’s previous role as Chairman of Hilltop Securities until June 30, 2019. Until
February 20, 2019, he served as Chief Executive Officer of Hilltop Securities, a position he
had held since 1991 with First Southwest. He has also served as a director of Hilltop since
our acquisition of PlainsCapital in November 2012. He previously served as a director of
PlainsCapital from December 31, 2008 (in conjunction with PlainsCapital’s acquisition of
First Southwest) to November 2012. Prior to joining First Southwest, Mr. Feinberg was a
senior managing director at Bear Stearns & Co. Mr. Feinberg is a past chairman of the
Municipal Securities Rulemaking Board, the self-regulatory organization with responsibility
for authoring the rules that govern the municipal securities activities of registered brokers.
Mr. Feinberg was a member of the board of directors of Energy XXI (Bermuda) Limited, a
public company that filed bankruptcy in 2016. Mr. Feinberg also formerly served as a
member of the board of directors of Compass Bancshares, Inc. and Texas Regional
Bancshares, Inc., as an advisory director of Hall Phoenix Energy, LLC and as the non-
executive chairman of the board of directors of General Cryogenics, Inc.
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Gerald J. Ford
Age 77
Jeremy B. Ford
Age 47
J. Markham Green
Age 78
Mr. Gerald J. Ford has served as Chairman of the Board of Hilltop since August 2007, and
has served as a director of Hilltop since June 2005. Mr. Gerald J. Ford served as interim
Chief Executive Officer of Hilltop from January 1, 2010 until March 11, 2010. Mr. Gerald J.
Ford is a banking and financial institutions entrepreneur who has been involved in numerous
mergers and acquisitions of private and public sector financial institutions, primarily in the
Southwestern United States, for more than 45 years. In that capacity, he acquired and
consolidated 30 commercial banks from 1975 to 1993, forming First United Bank
Group, Inc., a multi-bank holding company for which he functioned as Chairman of the
Board and Chief Executive Officer until its sale in 1994. During this period, he also led
investment consortiums that acquired numerous financial institutions, forming in succession,
First Gibraltar Bank, FSB, First Madison Bank, FSB and First Nationwide Bank. Mr. Gerald
J. Ford also served as Chairman of the Board of Directors and Chief Executive Officer of
Golden State Bancorp Inc. and its subsidiary, California Federal Bank, FSB, from 1998 to
2002. He currently serves as a director of Mechanics Bank. Mr. Gerald J. Ford previously
served as Chairman of Freeport McMoRan Copper and Gold Inc. and Pacific Capital
Bancorp and a director of Scientific Games Corporation, First Acceptance Corporation, SWS
Group, Inc. and McMoRan Exploration Co. Mr. Gerald J. Ford also currently serves on the
Board of Trustees of Southern Methodist University, is the Co-Managing Partner of Ford
Financial Fund II, L.P. and Ford Financial Fund III, L.P., private equity funds. Hilltop’s
President and Chief Executive Officer, Jeremy B. Ford, is the son of Mr. Gerald J. Ford, and
Hilltop’s Executive Vice President, General Counsel and Secretary, Corey G. Prestidge, is
the son-in-law of Mr. Gerald J. Ford.
Mr. Jeremy B. Ford is the Chief Executive Officer of Hilltop and has served as the Chief
Executive Officer or Co-Chief Executive Officer of Hilltop since March 2010. He also has
served as President and a director of Hilltop since 2010. Mr. Jeremy B. Ford has worked in
the financial services industry for over 24 years, primarily focused on operating and
acquiring depository institutions and financial services companies. Mr. Jeremy B. Ford also
is currently Chairman of the Board of First Acceptance Corporation. Prior to becoming
President and Chief Executive Officer of Hilltop, he worked at Ford Financial Fund, L.P., a
private equity fund, Diamond A-Ford Corporation, Liberté Investors Inc., California Federal
Bank, FSB, and Salomon Smith Barney. Jeremy B. Ford is the son of Gerald J. Ford,
Hilltop’s Chairman of the Board, and the brother-in-law of Corey G. Prestidge, Hilltop’s
Executive Vice President, General Counsel and Secretary.
Mr. Green has served as a director of Hilltop since February 2004. Mr. Green is a private
investor. From 2001 to 2003, he served as Vice Chairman of the Financial Institutions and
Governments Group in investment banking at JP Morgan Chase. From 1993 until joining JP
Morgan Chase, Mr. Green was involved in the start-up, and served on the boards, of eight
companies, including Affordable Residential Communities Inc., the predecessor company to
Hilltop. From 1973 to 1992, Mr. Green served in various capacities at Goldman,
Sachs & Co. in investment banking. He was a general partner of Goldman, Sachs & Co. and
co-head of its Financial Services Industry Group. Mr. Green previously served on the board
of directors of MENTOR/The National Mentoring Partnership and as Chairman of the Board
of PowerOne Media LLC. He actively supports many academic and philanthropic
organizations, primarily in Texas.
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William T. Hill, Jr.
Age 79
Charlotte Jones
Age 55
Lee Lewis
Age 70
Andrew J. Littlefair
Age 61
W. Robert Nichols, III
Age 77
Mr. Hill has served as a director of Hilltop since April 2008. He currently has his own law
firm. Prior to 2012, Mr. Hill was of counsel at Fitzpatrick Hagood Smith & Uhl, a criminal
defense firm. Prior to that, Mr. Hill served as the Dallas District Attorney and the Chief
Prosecuting Attorney of the Dallas District Attorney’s office. During his tenure at the
District Attorney’s office, Mr. Hill restructured the office of 250 lawyers and 150 support
personnel, including the computerization of the office in 1999. For more than four decades,
Mr. Hill has been a strong community leader serving on a number of charitable boards and
receiving numerous civic awards, including President of the SMU Mustang Board of
Directors and Chairman of the Doak Walker Running Back Award for its first year. Mr. Hill
currently serves on the board of directors of Oncor Electric Delivery Company LLC, Oncor
Electric Delivery Holdings Company LLC and Baylor Hospital Foundation, and is actively
involved in the Mercy Street Mission. Mercy Street is a Christian-based organization serving
West Dallas children by placing mentors with the children.
Ms. Jones has served as a director of Hilltop since our acquisition of PlainsCapital in
November 2012. She previously served as a director of PlainsCapital from September 2009
to November 2012. She currently serves as Executive Vice President and Chief Brand
Officer for the Dallas Cowboys Football Club, Ltd., a National Football League team. She
has worked in various capacities for the Dallas Cowboys organization since 1989.
Recognized as one of the most powerful women in sports, Ms. Jones is Chairman of the NFL
Foundation, and serves on the NFL Conduct Committee, NFL Health and Safety Committee
and the NFL Legalized Sports Betting Committee. In the philanthropy space, Ms. Jones
served as the first female Chairman of The Salvation Army’s National Advisory Board. She
is involved with a number of charitable organizations, including The Boys and Girls Clubs
of America, The Rise School, the Southwest Medical Foundation, the Dallas Symphony, The
Dallas Center for Performing Arts Foundation, the Shelton School, TACA, and Make-a-
Wish North Texas Foundation. Since March 2020, Ms. Jones has served as Chairman of the
National Medal of Honor Museum Foundation.
Mr. Lewis has served as a director of Hilltop since our acquisition of PlainsCapital in
November 2012. He previously served as a director of PlainsCapital from 1989 to
November 2012. He founded in 1976, and currently serves as the Chief Executive Officer of,
Lee Lewis Construction, Inc., a construction firm based in Lubbock, Texas. Mr. Lewis is a
member of the American General Contractors Association, West Texas Chapter, Chancellors
Council for the Texas Tech University System, and Red Raider Club.
Mr. Littlefair has served as a director of Hilltop since our acquisition of PlainsCapital in
November 2012. He previously served as a director of PlainsCapital from September 2009 to
November 2012. He is a co-founder of Clean Energy Fuels Corp., a provider of compressed a
liquefied natural gas in the United States and Canada that is publicly traded on the NASDAQ
Global Select Market, and has served as that company’s President, Chief Executive Officer an
a director since June 2001. From 1996 to 2001, Mr. Littlefair served as President of Pickens
Fuel Corp., and from 1987 to 1996, he served in various management positions at Mesa, Inc.,
energy company. From 1983 to 1987, Mr. Littlefair served in the Reagan Administration as a
Staff Assistant to the President. He served as the Chairman of NGV America, the leading U.S
advocacy group for natural gas vehicles, from March 1993 to March 2011.
Mr. W. Robert Nichols, III has served as a director of Hilltop since April 2008. Mr. W.
Robert Nichols, III has been a leader in the construction machinery business since 1966. He
was the president of Conley Lott Nichols, a dealer for several manufacturers of construction
machinery, until its sale in 2012. In 2013, he purchased an oilfield services company in
Midland, Texas, for which he served as Chairman and President until January 2020. He has
served on numerous bank and bank holding company boards, including United New Mexico
Bancorp and Ford Bank Group. Mr. W. Robert Nichols, III is active in civic and charitable
activities, serving as an active director at M.D. Anderson Hospital, The Nature Conservancy
of Texas and Mercy Street.
8
Thomas C. Nichols
Age 74
Kenneth D. Russell
Age 73
A. Haag Sherman
Age 56
Jonathan S. Sobel
Age 55
Mr. Thomas C. Nichols has served as a director of Hilltop since August 2020. Mr. Thomas
C. Nichols is the owner and Chief Executive Officer of Carlile Holdings, Inc., a family
investment office. He served as Chairman and Chief Executive Officer of Carlile
Bancshares, Inc. from March 2008 until its April 2017 acquisition by Independent
Bancshares, Inc., for which he served as a director until June 2020. Mr. Nichols has
acquired, merged and sold banking organizations and other financial services companies for
over 30 years. He began his banking career in 1969 as a bank examiner with the FDIC.
Mr. Russell has served as a director of Hilltop since August 2010. Mr. Russell served as the
Chief Executive Officer of First Acceptance Corporation until November 2021. Prior to that,
he served as the President and Chief Executive Officer of Mechanics Bank from June 2015
to October 2016. Mr. Russell has been a Principal of Ford Financial Fund II, L.P., a private
equity fund based in Dallas, Texas, since 2010. Over a long career at KPMG, he rose from a
staff accountant in the U.S. division to become a member of KPMG Germany’s managing
Board of Directors. During 20 years in KPMG LLP’s Dallas office, he led the engagement
efforts with the firm’s regional banking, thrift and other financial service clients. In 1993,
Mr. Russell joined KPMG’s national office in New York and led their financial services
advisory unit, which supported many of the nation’s largest banks. In 2001, he joined the
Managing Board for KPMG in Germany, where he served as the global lead partner in the
firm’s relationship with Deutsche Bank. That position entailed managing and consulting on
banking operations in over 50 countries for the multi-national German bank. Mr. Russell
retired from the KPMG Germany Managing Board in 2008 in order to lead a new Partner
Mentoring Program for KPMG’s offices throughout Europe, working to help young
professionals become category and practice leaders. He also serves on the Board of Directors
of First Acceptance Corporation and Mechanics Bank.
Mr. Sherman has served as a director of Hilltop since our acquisition of PlainsCapital in
November 2012. He previously served as a director of PlainsCapital from September 2009 to
November 2012. Mr. Sherman is the Chief Executive Officer of Tectonic Holdings LLC, a
financial and bank holding company serving small businesses (e.g. dental practices), and has
preferred stock quoted on Nasdaq Global Markets and also owns an energy business. Prior
thereto, Mr. Sherman co-founded and served in various executive positions (including Chief
Executive Officer and Chief Investment Officer) of Salient Partners, LP, a Houston-based
investment firm. In addition, he previously served as an executive officer and partner of The
Redstone Companies where he, among other things, managed a private equity
portfolio. Mr. Sherman currently serves as a director of CBIZ, Inc. (NYSE: CBZ) and
previously served as a director of Miller Energy Resources and ZaZa Energy Corp.
Mr. Sherman has served as an adjunct professor of law at The University of Texas School of
Law. Mr. Sherman previously practiced corporate law at Akin, Gump, Strauss, Hauer &
Feld, LLP and was an auditor at Price Waterhouse, a public accounting firm. Mr. Sherman is
an attorney and certified public accountant.
Mr. Sobel has served as a director of Hilltop since July 2019. In addition, he has served as
Non-Executive Chairman of Hilltop Securities Inc. since July 2019. Mr. Sobel serves as a
Partner of Ford Management II, L.P. and Ford Management III, L.P., respectively, the
general partners of Ford Financial Fund II, L.P. and Ford Financial Fund III, L.P.,
respectively. He also is the Managing Member of DTF Holdings, LLC, which provides
consulting and advisory services to the Ford family. Prior to forming DTF Holdings, LLC,
Mr. Sobel was an employee of Goldman Sachs & Co. from 1987 to 2008, and was a Partner
Managing Director from 1998 to 2008. While at Goldman Sachs, Mr. Sobel was Global
Head of the Mortgage Department, Global Head of Money Markets, head of the firm’s
Global Bank Group, and the Chief Risk Officer for Goldman Sachs Asset Management.
Mr. Sobel also was a member of Goldman Sachs’ Capital, Risk and Finance Committees. He
is a trustee of the Hospital for Special Surgery and the Whitney Museum. Mr. Sobel holds a
B.A. in Economics from Columbia and is a member of the Executive Committee of the
Columbia College Alumni Association.
9
Robert C. Taylor, Jr.
Age 74
Carl B. Webb
Age 72
Mr. Taylor has served as a director of Hilltop since our acquisition of PlainsCapital in
November 2012. He previously served as a director of PlainsCapital from 1997 to
November 2012. He has been engaged in the wholesale distribution business in Lubbock,
Texas since 1971. Mr. Taylor currently serves on the executive team for United
Supermarkets, LLC, a retail grocery business in Texas since 1915, with involvement in
government relations, real estate, innovation and special projects. Mr. Taylor retired in
March 2021 as Chief Executive Officer for United Supermarkets, LLC, a role held since his
appointment in February 2009. He also served on the board of directors of United
Supermarkets, LLC from 2010 until March 2021. Prior to that appointment, Mr. Taylor
served as the Vice President of Manufacturing and Supply Chain for United Supermarkets
since 2007. From 2002 to 2007, Mr. Taylor was the President of R.C. Taylor
Distributing, Inc., a business engaged in the distribution of general merchandise, candy and
tobacco to retail outlets in West Texas and Eastern New Mexico. He is chairman of the
Lubbock Downtown Tax Increment Finance Redevelopment Committee and serves on the
Texas Tech Chancellors Advisory and Foundation Boards.
Mr. Webb has served as a director of Hilltop since June 2005. Mr. Webb is a Co-Managing
Member of Ford Financial Fund II, L.P. and Ford Financial Fund III, L.P., private equity
funds based in Dallas, Texas. From August 2010 until December 2012, Mr. Webb served as
the Chief Executive Officer of Pacific Capital Bancorp and as Chairman of the Board and
Chief Executive Officer of Santa Barbara Bank & Trust, N.A. He was a Senior Principal of
Ford Financial Fund, L.P., a private equity fund that was the parent company of SB
Acquisition Company LLC, the majority stockholder of Pacific Capital Bancorp prior to its
sale to UnionBanCal Corporation. In addition, Mr. Webb has served as a consultant to
Hunter’s Glen/Ford, Ltd., a private investment partnership, since November 2002. He served
as the Co-Chairman of Triad Financial Corporation, a privately held financial services
company, from July 2007 to October 2009, and was the interim President and Chief
Executive Officer from August 2005 to June 2007. Previously, Mr. Webb was the President
and Chief Operating Officer and a Director of Golden State Bancorp Inc. and its subsidiary,
California Federal Bank, FSB, from September 1994 to November 2002. Prior to his
affiliation with California Federal Bank, FSB, Mr. Webb was the President and Chief
Executive Officer of First Madison Bank, FSB (1993 to 1994) and First Gibraltar Bank, FSB
(1988 to 1993), as well as President and a Director of First National Bank at Lubbock (1983
to 1988). Mr. Webb also is the Chairman of Mechanics Bank and a director of Prologis, Inc.
He is a former director of Pacific Capital Bancorp, M&F Worldwide Corp. and Plum Creek
Timber Company.
Director Independence
Our Board of Directors has affirmatively determined that eleven of the eighteen nominees for election as directors at the
Annual Meeting have no material relationship with us (either directly or as a partner, stockholder or officer of an organization
that has a relationship with us) and are independent within the meaning of the director independence requirements of the
listing standards of the NYSE. The independent directors are Rhodes Bobbitt, Tracy A. Bolt, J. Taylor Crandall, J. Markham
Green, William T. Hill, Jr., Charlotte Jones, Andrew J. Littlefair, W. Robert Nichols, III, Thomas C. Nichols, A. Haag
Sherman and Robert C. Taylor, Jr.
In conducting its annual review of director independence, the Board of Directors considered transactions and
relationships between each director or any member of his or her immediate family and the Company.
The Board of Directors also considered the lease transactions and relationships between companies affiliated with
Ms. Jones, a director of the Company, and the Company. The Audit Committee of the Board of Directors reviewed and
approved each of these leases and determined such leases were on an arms-length basis. Accordingly, the Board of Directors
determined that Ms. Jones is, and continues to be, an independent director of the Company given, among other things, the
arrangement and the immaterial nature of the leases to Ms. Jones and the Company.
10
Meeting Attendance
Our Board of Directors met six times during 2021. No director attended fewer than 75% of the aggregate number of
meetings of the Board of Directors and the committees of the Board of Directors on which he or she served, if applicable,
during 2021. Our Board of Directors has not adopted a formal policy with regard to director attendance at the annual
meetings of stockholders. We, however, encourage members of the Board of Directors to attend annual meetings. Nineteen
directors, Ms. Jones and Messrs. Bobbitt, Bolt, Crandall, Cummings, Feinberg, Gerald J. Ford, Jeremy B. Ford, Green, Hill,
Lewis, Littlefair, W. Robert Nichols, III, Thomas C. Nichols, Russell, Sherman, Sobel, Taylor and Webb, attended the 2021
annual meeting of stockholders in person or virtually.
Vote Necessary to Elect Directors
The eighteen director candidates receiving the highest number of affirmative votes, or a plurality, will be elected as
directors. For purposes of the election of directors, abstentions and broker non-votes will not be counted as votes cast and
will have no effect on the result of the vote, although they will be considered present for purposes of determining a quorum.
Under applicable NYSE rules, a broker or other nominee does not have the authority to vote for the director nominees in the
absence of instructions from the beneficial owner of the relevant shares. Stockholders may not cumulate votes in the election
of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ELECTION OF
EACH OF THE NOMINEES IDENTIFIED ABOVE.
Director Compensation
General
Members of our Board of Directors who also are full-time employees do not receive any compensation for their service
on the Board of Directors or any committee of the Board of Directors. During 2021, the Chairman of the Board of Directors
and all other directors received the following compensation for their service on the Board of Directors:
Committee
Board of Directors
Audit Committee
Nominating and Corporate Governance Committee
Compensation Committee
Investment Committee
Risk Committee
Merger and Acquisition Committee
Executive Committee (a)
Annual Fee
for Chairperson ($)
Annual Fee
for Other Members ($)
210,000
70,000
15,000
15,000
30,000
50,000
15,000
—
48,000
8,000
5,000
5,000
5,000
8,000
5,000
5,000
(a)
Jeremy B. Ford, President and Chief Executive Officer of the Company, is chairman of the Executive Committee. Because he is a full-time
employee of the Company, no fee is or was paid to the chairman of the Executive Committee.
Members of our Board of Directors may elect to receive their aggregate Board of Directors and board committee
compensation:
•
•
•
entirely in the form of cash;
entirely in the form of common stock; or
one-half in cash and one-half in common stock.
Any elections, or changes in elections, by directors regarding the form of compensation to be received may only occur
during a “trading window” and only become effective at the “trading window” immediately following such election or
change in election. Cash and shares of common stock are paid and issued, respectively, on a calendar quarterly basis, with no
11
vesting requirements. Customarily, these payments and issuances occur by the fifth day of the month following the applicable
calendar quarter-end. The value of the common stock awarded is based upon the average closing price per share of our
common stock for the last ten consecutive trading days of the applicable calendar quarter. In lieu of fractional shares of
common stock that would otherwise be issuable to a director, we pay cash to the director based upon the value of those
fractional shares at the value of the shares awarded to the director. If a director does not serve for the entire calendar quarter,
that director is compensated based upon the time of service during the applicable calendar quarter.
Under our stock ownership policy, directors are expected to own shares with a value greater than five times their annual
retainer for serving on the Board of Directors of the Company, unless they are subject to certain restrictions on receiving
director fees or on receiving fees in the form of stock.
Each member of our Board of Directors is reimbursed for out-of-pocket expenses associated with his or her service on,
and attendance at, Board of Directors or board committee meetings. Other than as described above, members of our Board of
Directors receive no additional compensation for their service on the Board of Directors or board committees.
Compensation of Our Non-Executive Chairman of the Board
Gerald J. Ford, Chairman of the Board of Directors, provides us with significant value given his experience in the
financial services industry, including mergers and acquisitions, capital and liquidity management and other operating matters,
such as key personnel hires. On a very frequent basis, our Chairman and Chief Executive Officer discuss matters relating to
the Company. Our Chairman also meets with the executive management of the Company to discuss matters related to the
Company in scheduled meetings generally occurring each week. In addition, our Chairman is instrumental in the sourcing,
negotiation and completion of acquisitions and dispositions. Accordingly, our Chairman, in addition to his strategic input,
spends considerable time and efforts in guiding our business and executive management in creating value for shareholders.
In addition to the fees paid to our Chairman of the Board of Directors described above, we also grant the Chairman of the
Board of Directors a restricted stock unit, or RSU, award representing 30,000 shares each year. This RSU award cliff vests on
the third anniversary of the date of grant. The RSU award agreement also provides for pro rata vesting upon termination
without cause, death or disability. Commencing in 2019, all equity award agreements, including the RSU awards granted to
the Chairman of the Board of Directors, contain “double trigger” provisions, which require termination without cause within
the six months preceding or the twelve months following a change in control in order for the equity awards to vest in
connection with a change in control.
The Compensation Committee evaluates the compensation of directors annually, including grants of RSUs to the
Chairman of the Board of Directors. Given the experience and involvement of the Chairman of the Board of Directors, the
Compensation Committee believes that the compensation paid to the Chairman of the Board of Directors is considerably less
than the cost that we would incur to employ or retain someone else of his caliber to provide guidance and advice to us as
frequently as he does.
Political Action Committee Matching Program
The Hilltop Holdings Inc. PAC, or the PAC, is a separate segregated fund that was formed to make political
contributions. To encourage participation in the PAC by eligible participants, for each contribution made to the PAC by an
eligible individual contributor, Hilltop makes a matching contribution to any Section 501(c)(3) organization of the
contributor’s choice, dollar for dollar, up to the maximum amount an eligible individual can contribute to the PAC in a given
calendar year. Under this program, no contributor to the PAC receives any financial, tax or other tangible benefit or premium
from either the recipient charities or us. This program is completely voluntary.
12
2021 Director Compensation
Director Compensation Table for 2021
Name
Rhodes R. Bobbitt
Tracy A. Bolt
J. Taylor Crandall
Charles R. Cummings (b)
Hill A. Feinberg
Gerald J. Ford (c)
Jeremy B. Ford
J. Markham Green
William T. Hill, Jr.
Charlotte Jones
Lee Lewis
Andrew J. Littlefair
W. Robert Nichols, III
Thomas C. Nichols
Kenneth D. Russell
A. Haag Sherman
Jonathan S. Sobel (e)
Robert C. Taylor, Jr.
Carl B. Webb
Fees Earned or
Paid in Cash
($)(a)
88,000
40
68,000
81,667
—
73
—
69,000
31,576
29,079
53,000
26,547
68,000
89,000
56,000
77
26,547
29,079
58
Stock
Awards
($)(a)
All Other
Compensation
($)
—
124,293
—
—
—
214,927
—
—
31,424
28,921
—
26,453
—
—
—
67,923
26,453
28,921
52,942
—
—
—
—
—
983,400 (d)
—
—
—
—
—
—
—
—
—
—
655,600 (f)
—
—
Total
($)
88,000
124,333
68,000
81,667
—
1,198,400
—
69,000
63,000
58,000
53,000
53,000
68,000
89,000
56,000
68,000
708,600
58,000
53,000
(a) Fees earned for services performed in 2021 include annual retainers and chairperson remuneration. Aggregate fees paid to non-
employee directors for annual retainers and committee chairmanships were paid quarterly. Cash was paid in lieu of the issuance
of fractional shares. Service for any partial quarter is calculated and paid on the basis of time served during the applicable
calendar quarter. Non-employee directors are solely responsible for the payment of taxes payable on remuneration paid by the
Company. The number of shares awarded was determined based upon the average closing price per share of our common stock
for the last ten consecutive trading days of the calendar quarter during which the stock was earned, and the dollar value reported
in the table represents the aggregate dollar amount of cash fees forgone.
(b) Mr. Cummings will not stand for reelection at the 2022 Annual Meeting of Stockholders; accordingly, Mr. Cummings will no
longer be on the Board or its committees following the Annual Meeting on July 21, 2022.
(c) Mr. Gerald J. Ford held an aggregate 90,000 unvested RSUs as of December 31, 2021.
(d) Reflects grant date fair value of an equity award calculated in accordance with the provisions of the Stock Compensation Topic
of the Accounting Standards Codification (“ASC”). Such award represents a time-based RSU that will cliff vest upon the earlier
of February 23, 2024 and a change of control.
(e) Mr. Sobel held an aggregate 20,000 unvested RSUs as of December 31, 2021.
(f) Reflects grant date fair value of an equity award calculated in accordance with the provisions of the Stock Compensation Topic
of the ASC. Such award represents a time-based RSU that will cliff vest on July 1, 2023.
As described above, the 2021 stock awards were issued to each non-employee director who elected to receive all or part
of his or her director compensation in the form of our common stock generally within five days following each applicable
calendar quarter-end. All of our personnel, as well as non-employee directors, are subject to trading restrictions with regard to
our common stock, and trading may only occur during a “trading window.” Provided that any such party does not possess
material, non-public information about us, this trading period commences on the next trading day following two calendar
days after the public release of quarterly or annual financial information and continues until the close of business on the 10th
calendar day of the last month of the fiscal quarter.
13
The following numbers of shares of our common stock were issued to our directors as director fees for services
performed during 2021:
Name
Tracy A. Bolt
Gerald J. Ford
William T. Hill, Jr.
Charlotte Jones
Andrew J. Littlefair
A. Haag Sherman
Jonathan S. Sobel
Robert C. Taylor, Jr.
Carl B. Webb
Number of
Shares
3,580
6,183
904
832
761
1,954
761
832
1,523
For further information about the stockholdings of these directors and our management, see “Security Ownership of
Certain Beneficial Owners and Management” commencing on page 23 of this Proxy Statement.
Board Committees
General
The Board of Directors appoints committees to assist it in carrying out its duties. In particular, committees work on key
issues in greater detail than would be practical at a meeting of all the members of the Board of Directors. Each committee
reviews the results of its deliberations with the full Board of Directors.
The standing committees of the Board of Directors currently consist of the Audit Committee, the Compensation
Committee, the Nominating and Corporate Governance Committee, the Risk Committee, the Investment Committee, the
Merger and Acquisition Committee, and the Executive Committee. A more detailed description of these committees is set
forth below. Our Board of Directors may, from time to time, establish certain other committees to facilitate our management.
The Board of Directors has adopted a written charter for each of these committees. Current copies of the charters for each of
the foregoing committees, as well as our Corporate Governance Guidelines, Code of Ethics and Business Conduct, or the
General Code of Ethics and Business Conduct, and Code of Ethics for Chief Executive and Senior Financial Officers, or the
Senior Officer Code of Ethics, may be found on our website at ir.hilltop-holdings.com, under the heading “Investor
Relations — Overview — Governance Documents.” Printed versions also are available to any stockholder who requests
them by writing to our corporate Secretary at the address listed under “Questions” on page 73.
Committee Membership
The following table shows the current membership of, and the 2021 fiscal year meeting information for, each of the
committees of the Board of Directors.
Name
Rhodes Bobbitt *
Tracy A. Bolt *
J. Taylor Crandall *
Charles R. Cummings **
Hill A. Feinberg
Gerald J. Ford
Jeremy B. Ford
J. Markham Green *
William T. Hill, Jr. *
Charlotte Jones *
Lee Lewis
Andrew J. Littlefair *
W. Robert Nichols, III *
Thomas C. Nichols *
Kenneth D. Russell
A. Haag Sherman *
Jonathan S. Sobel
Robert C. Taylor, Jr.*
Carl B. Webb
Meetings in Fiscal 2021
Audit
Committee Committee
Compensation Corporate Governance
Nominating and
Risk
Investment
Committee Committee
Chairman
Chairman †
Chairman
6
7
Committee
Chairman
Chairman ††
4
5
14
Merger and
Acquisition
Committee
Chairman
4
0
Executive
Committee
Chairman
10
Denotes independent director.
*
** Mr. Cummings will not stand for reelection at the 2022 Annual Meeting of Stockholders; accordingly, Mr. Cummings will no longer be on the Board
or its committees following the Annual Meeting on July 21, 2022.
† Mr. Bolt became the Chairman of the Audit Committee on April 22, 2021.
†† Mr. Thomas C. Nichols became the Chairman of the Risk Committee on April 22, 2021.
Audit Committee
We have a standing Audit Committee established within the meaning of Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, as amended, or the Exchange Act. The Audit Committee helps our Board of Directors ensure the integrity of our
financial statements, the qualifications and independence of our independent registered public accounting firm and the
performance of our internal audit function and independent registered public accounting firm. In furtherance of those matters,
the Audit Committee assists in the establishment and maintenance of our internal audit controls, selects, meets with and
assists the independent registered public accounting firm, oversees each annual audit and quarterly review and prepares the
report that federal securities laws require be included in our annual proxy statement, which appears on page 45.
Mr. Cummings was Chairman of the Audit Committee until April 22, 2021, at which time Mr. Bolt succeeded him as
Chairman. Mr. Cummings will remain a member of the Audit Committee with Mr. Green through the Annual Meeting on
July 21, 2022 at which time a replacement for Mr. Cummings will be recommended to the Board of Directors. Our Board of
Directors has reviewed the education, experience and other qualifications of each member of the Audit Committee. Based
upon that review, our Board of Directors has determined that each of Mr. Cummings and Mr. Bolt qualifies as an “audit
committee financial expert,” as defined by the rules of the SEC, and each member of the Audit Committee is independent in
accordance with the listing standards of the NYSE. Currently, none of our Audit Committee members serve on the audit
committees of three or more public companies.
Compensation Committee
The Compensation Committee reviews and approves the compensation and benefits of our executive officers,
administers the Hilltop Holdings Inc. 2012 Annual Incentive Plan, or the Annual Incentive Plan, the Hilltop Holdings Inc.
2012 Equity Incentive Plan and 2020 Equity Incentive Plan, or the Equity Incentive Plans, and produces the annual report on
executive compensation for inclusion in our annual proxy statement, which appears on page 45. Each member is independent
in accordance with the listing standards of the NYSE.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee’s purpose is as follows:
•
Identify, screen and recommend to our Board of Directors individuals qualified to serve as members, and on
committees, of the Board of Directors;
• Advise our Board of Directors with respect to the composition, procedures and committees of the Board of
Directors;
• Advise our Board of Directors with respect to the corporate governance principles applicable to the Company;
• Oversee the evaluation of the Board of Directors and our management; and
• Oversee our Environmental, Social and Governance Committee and its efforts and initiatives, including the
report we produce annually.
Each member of the Nominating and Corporate Governance Committee is independent in accordance with the listing
standards of the NYSE.
Risk Committee
The purpose of the Risk Committee is to provide assistance to the Board of Directors in its oversight of:
• The Company’s risk governance structure;
• The Company’s risk tolerance;
15
• The Company’s risk management and risk assessment guidelines and policies regarding market, credit,
operational, liquidity, funding, strategic, regulatory and such other risks as necessary;
• The Company’s capital and liquidity and funding; and
• The performance of the Company’s enterprise risk function.
The duties assigned to the Risk Committee are meant to ensure that there is an effective system reasonably designed to
evaluate and control risk throughout the Company.
Investment Committee
The Investment Committee is responsible for, among other things, reviewing investment policies, strategies and
programs; reviewing the procedures that we utilize in determining that funds are invested in accordance with policies and
limits approved by the Investment Committee; and reviewing the quality and performance of our investment portfolios and
the alignment of asset duration to liabilities.
Merger and Acquisition Committee
The purpose of the Merger and Acquisition Committee is to review potential mergers, acquisitions or dispositions of
material assets or a material portion of any business proposed by management and to report its findings and conclusions to
the Board of Directors. Each member of the Merger and Acquisition Committee is independent in accordance with the listing
standards of the NYSE.
Executive Committee
The Executive Committee, with certain exceptions, has the power and authority of the Board of Directors to manage the
affairs of the Company between meetings of the Board of Directors.
Corporate Governance
General
We are committed to good corporate governance practices and, as such, we have adopted formal corporate governance
guidelines to maintain our effectiveness. The guidelines govern, among other things, board member qualifications,
responsibilities, education and executive sessions. A copy of the corporate governance guidelines may be found at our
corporate website at ir.hilltop-holdings.com under the heading “Investor Relations — Overview — Governance Documents.”
A copy also may be obtained upon request from our corporate Secretary at the address listed under “Questions” on page 73.
Board Leadership Structure
We have separated the offices of Chief Executive Officer and Chairman of the Board as a means of separating
management of the Company from our Board of Director’s oversight of management. Separating these roles also enables an
orderly leadership transition when necessary. We believe, at this time, that this structure provides desirable oversight of our
management and affairs. We have in the past appointed, and will continue to appoint, lead independent directors as
circumstances require. No lead independent director is appointed at this time.
Risk Oversight
Our Board of Directors and the Risk Committee of the Board of Directors oversee an enterprise-wide approach to risk
management, including cybersecurity risks, intended to support the achievement of organizational objectives, including
strategic objectives, to improve long-term organizational performance and enhance stockholder value. Our Board of Directors
and the Risk Committee are actively involved in establishing and refining our business strategy, including assessing
management’s appetite for risk and determining the appropriate level of overall risk for the Company. The Company
conducts continual assessments through its enterprise risk function.
16
While the Board of Directors has the ultimate oversight responsibility for the risk management process, various
committees of the Board of Directors outside of the Risk Committee also have responsibility for risk management. In
particular, the Audit Committee focuses on financial risk, including internal controls, and, from time to time, discusses and
evaluates matters of risk, risk assessment and risk management with our management team. The Compensation Committee is
responsible for overseeing the management of risk associated with our compensation policies and arrangements. The
Nominating and Corporate Governance Committee ensures that the internal processes by which we are governed are
consistent with prevailing governance practices and applicable laws and regulations. Finally, the Investment Committee
ensures that our funds are invested in accordance with policies and limits approved by it. Our Senior Officer Code of Ethics,
General Code of Ethics and Business Conduct, committee charters and other governance documents are reviewed by the
appropriate committees annually to confirm continued compliance, ensure that the totality of our risk management processes
and procedures are appropriately comprehensive and effective and that those processes and procedures reflect established
practices.
Board Performance
Our Board of Directors conducts an evaluation of performance with a view to improving effectiveness of the Board of
Directors. In addition, the full Board of Directors reviews annually the qualifications and effectiveness of the Audit
Committee and its members.
Director Qualifications for Service
As described below, the Nominating and Corporate Governance Committee considers a variety of factors when
evaluating a potential candidate to fill a vacancy on the Board of Directors or when nomination of an incumbent director for
re-election is under consideration. The Nominating and Corporate Governance Committee and the Board of Directors strive
to balance a diverse mix of experience, perspective, skill and background with the practical requirement that the Board of
Directors will operate collegially, with the common purpose of overseeing our business on behalf of our stockholders. All of
our directors possess relevant experience, and each of them approaches the business of the Board of Directors and his or her
responsibilities with great seriousness of purpose. The following describes, with respect to each director, his or her particular
experience, qualifications, attributes and skills that qualify him or her to serve as a director:
Rhodes R. Bobbitt
Tracy A. Bolt
Mr. Bobbitt has an extensive investment background. This is particularly important given
the investment portfolios at our subsidiaries.
Mr. Bolt has significant experience concerning accounting and risk matters that is essential
to our Audit Committee’s, Risk Committee’s and Board of Directors’ oversight
responsibilities.
J. Taylor Crandall
Mr. Crandall has significant experience in finance and management and board governance,
including his experience serving on the boards of directors of public and private companies.
Charles R. Cummings
Hill A. Feinberg
Gerald J. Ford
Mr. Cummings has an extensive operational and accounting background. His expertise in
these matters brings considerable strength to our Audit Committee and Board of Directors in
these areas. Mr. Cummings notified the Board of Directors that he will not stand for
reelection at the Annual Meeting.
Mr. Feinberg has extensive knowledge and experience concerning the broker-dealer
segment and the industry in which it operates through his extended period of service to
First Southwest and Hilltop Securities.
Mr. Gerald J. Ford has been a financial institutions entrepreneur and private investor
involved in numerous mergers and acquisitions of private and public sector financial
institutions for more than 45 years. His extensive banking industry experience and
educational background provide him with significant knowledge in dealing with financial
and regulatory matters, making him a valuable member of our Board of Directors. In
addition, his previous service experience on the boards of directors and audit and corporate
governance committees of a variety of public companies gives him a deep understanding of
the role of the Board of Directors.
17
Jeremy B. Ford
J. Markham Green
William T. Hill, Jr.
Charlotte Jones
Lee Lewis
Andrew J. Littlefair
W. Robert Nichols III
Thomas C. Nichols
Mr. Jeremy B. Ford has extensive executive officer experience and knowledge of our
operations. Additionally, he has been actively involved in numerous acquisitions, including
those consummated by Hilltop.
Mr. Green has an extensive background in financial services, as well as board service. His
investment banking background also provides our Board of Directors with expertise
surrounding acquisitions and investments.
Mr. Hill’s experience with legal and compliance matters, along with his management of a
large group of highly skilled professionals, have given him considerable knowledge
concerning many matters that come before our Board of Directors. Mr. Hill also serves on
several civic and charitable boards, which has given him invaluable experience in corporate
governance matters.
Ms. Jones has significant managerial and executive officer experience with large
entrepreneurial businesses and brand management.
Through his service on our Board of Directors and former service on PlainsCapital’s Board
of Directors, Mr. Lewis has many years of knowledge of PlainsCapital and the challenges
and opportunities that it is presented. The background of Mr. Lewis as an owner and chief
executive officer of a Texas-based company also provides unique insight to the Board of
Directors.
Mr. Littlefair has significant experience serving as a chief executive officer and as a director
of publicly traded companies and provides the Board of Directors with the perspective of
one of PlainsCapital’s customers.
Mr. W. Robert Nichols III has broad experience in managing and leading enterprises. This
significant experience provides our Board of Directors with additional perspectives on our
operations.
Mr. Thomas C. Nichols has significant experience in managing and leading banking and other
financial services enterprises, including merger and acquisition activities. This significant
experience provides our Board of Directors with additional perspectives on our operations.
Kenneth D. Russell
Mr. Russell’s extensive background in accounting and operating entities provides valuable
insight to our Board of Directors, including merger and acquisition activities.
A. Haag Sherman
Mr. Sherman has significant experience concerning investing, legal and accounting matters
that is essential to our Board of Director’s oversight responsibilities. His 25 years of
experience in financial services (including asset and wealth management, investment and
commercial banking and mortgage origination) and his understanding of our business lines
provides valuable input as a member of our Board of Directors and the Chair of the
Compensation Committee. Mr. Sherman generally has conducted our stockholder outreach
initiatives and his background managing an investment firm and experience on public boards
of directors assists in effective communication in such efforts. As noted above, we
determined that he devotes adequate time and effort in his board and committee
responsibilities. Accordingly, we do not believe that he is over-boarded given there was no
change in his duties as a result of Tectonic Financial Inc.’s preferred stock (as opposed to
common stock) becoming quoted on the Nasdaq Global Markets.
Jonathan S. Sobel
Mr. Sobel has significant experience in the banking, mortgage and broker-dealer industries,
as well as risk management. He also possesses extensive knowledge regarding the Company
and its operations, which makes him a valuable member of the Board of Directors.
18
Robert C. Taylor, Jr.
Through his service on our Board of Directors and former service on PlainsCapital’s Board
of Directors, Mr. Taylor has many years of knowledge of PlainsCapital and the challenges
and opportunities that it is presented. The background of Mr. Taylor as a manager of a
Texas-based company also provides unique insight to the Board of Directors.
Carl B. Webb
Mr. Webb possesses particular knowledge and experience in strategic planning and the
financial industry, as well as expertise in finance, that strengthen the Board of Directors’
collective qualifications, skills and experience.
Executive Board Sessions
The current practice of our Board of Directors is to hold an executive session of its non-management directors at least
once per quarter. The individual who serves as the chair at these executive sessions is the Chairman of the Board of
Directors. Executive sessions of the independent directors of the Board of Directors also are held at least once per fiscal year,
and at each executive session the independent directors select the independent director to preside over such executive session.
Communications with Directors
Our Board of Directors has established a process to receive communications from stockholders and other interested
parties. Stockholders and other interested parties may contact any member or all members of the Board of Directors, the non-
management directors or any group or committee of directors by mail. To communicate with our Board of Directors, any
individual director or any group or committee of directors, correspondence should be addressed to the Board of Directors or
any such individual director or group or committee of directors by either name or title. The correspondence should be sent to
Hilltop Holdings Inc., c/o Corporate Secretary, 6565 Hillcrest Avenue, Dallas, Texas 75205.
All communications received as set forth in the preceding paragraph will be opened by the corporate Secretary or
assistant corporate Secretary for the sole purpose of determining whether the contents represent a message to our directors.
Any contents that are not in the nature of advertising, promotions of a product or service or patently offensive material will
be forwarded promptly to the addressee(s). In the case of communications to the Board of Directors or any group or
committee of directors, the corporate Secretary’s office will make sufficient copies of the contents to send to each director
who is a member of the group or committee to whom the communication is addressed. If the amount of correspondence
received through the foregoing process becomes excessive, our Board of Directors may consider approving a process for
review, organization and screening of the correspondence by the corporate Secretary or other appropriate person.
Code of Business Conduct and Ethics
We have adopted a Code of Ethics for Chief Executive and Senior Financial Officers applicable to our Chief Executive
Officer, Chief Financial Officer, Chief Accounting Officer, Chief Investment Officer, and Chief Information Officer. We also
have adopted a General Code of Ethics and Business Conduct applicable to all officers, directors and employees. Both codes
are available on our website at ir.hilltop-holdings.com under the heading “Overview — Governance Documents.” Copies
also may be obtained upon request by writing our corporate Secretary at the address listed under “Questions” on page 73. We
intend to disclose any amendments to, or waivers from, our Senior Officer Code of Ethics and our General Code of Ethics
and Business Conduct at the same website address provided above.
Hedging and Other Securities Transaction Policy
The Company has adopted a written Insider Trading Policy, or the Trading Policy, which sets forth the Company’s
policies and procedures. Directors and executive officers are required to receive the permission of the General Counsel prior
to entering into any transactions in our securities, including gifts, grants and those involving derivatives. Generally, trading is
permitted only during announced trading periods for directors, executive officers and certain employees. Directors, executive
officers and employees who are subject to trading restrictions, may enter into a trading plan under Rule 10b5-1 under the
Exchange Act. These trading plans may be entered into only during an open trading period and must be approved by the
General Counsel. We require trading plans to include a waiting period and the trading plans may not be amended during their
term. Such director or employee bears full responsibility if he or she violates our policy by permitting shares to be bought or
sold without pre-approval or when trading is restricted.
19
All employees, executive officers and directors also are prohibited from entering into hedging, short sale and derivative
transactions and are subject to restrictions on pledging our securities. Additionally, all employees, executive officers and
directors are prohibited from hedging or pledging unvested RSUs. The Trading Policy is available on our website at
ir.hilltop-holdings.com under the heading “Overview — Governance Documents.”
Policies and Procedures for Approval of Related Party Transactions
Transactions with related persons are governed by our General Code of Ethics and Business Conduct, which applies to
all officers, directors and employees. This code covers a wide range of potential activities, including, among others, conflicts
of interest, self-dealing and related party transactions.
The Company also has adopted a written Related Party Transaction Policy, or the Related Party Policy, which sets forth
the Company’s policies and procedures for reviewing and approving transactions with related persons – namely, our
directors, executive officers, their respective immediate family members and 5% stockholders. The transactions covered by
the Policy include any financial transaction, arrangement or relationship in which the Company is a participant, the related
person has or will have a direct or indirect material interest and the aggregate amount involved will or may be expected to
exceed $120,000 in any fiscal year.
After becoming aware of any transaction which may be subject to the Related Party Policy, the related person is required
to report all relevant facts with respect to the transaction to the Chief Executive Officer or General Counsel of Hilltop. Upon
determination by the Company’s legal department that a transaction requires review under the Related Party Policy, the
material facts of the transaction and the related person’s interest in the transaction are provided to the Audit Committee. The
transaction is then reviewed by the disinterested members of the Audit Committee, who determine whether approval of the
transaction shall be granted. In reviewing a transaction, the Audit Committee considers facts and circumstances that it deems
relevant to its determination, such as: management’s assessment of the commercial reasonableness of the transaction; the
materiality of the related person’s direct or indirect interest in the transaction; whether the transaction may involve an actual,
or the appearance of, a conflict of interest; and, if the transaction involves a director, the impact of the transaction on the
director’s independence.
Certain types of transactions are pre-approved in accordance with the terms of the Related Party Policy. These include
transactions in the ordinary course of business involving financial products and services provided by, or to, the Company,
including loans, provided that such transactions are in compliance with the Sarbanes-Oxley Act of 2002, Federal Reserve
Board Regulation O and other applicable laws and regulations.
Stockholder Rights and Protections
The Company’s Amended and Restated Charter and By-laws provide stockholders with important rights and protections,
including:
• The ability to call a special meeting by stockholders holding at least 15% of the outstanding shares of our common
stock, subject to a one-year ownership requirement and certain other requirements.
• No “poison pill” in effect.
• No super-majority vote requirements in our Amended and Restated Charter or By-laws (other than for an action by
written consent).
The Company’s Amended and Restated Charter and By-laws are available as exhibits to our Annual Report on
Form 10-K for the fiscal year ended December 31, 2021, as filed with SEC.
20
Director Nomination Procedures
The Nominating and Corporate Governance Committee believes that, at a minimum, candidates for membership on the
Board of Directors should have a demonstrated ability to make a meaningful contribution to the Board of Directors’ oversight
of our business and affairs and have a record and reputation for honest and ethical conduct. The Nominating and Corporate
Governance Committee recommends director nominees to the Board of Directors based on, among other things, its
evaluation of a candidate’s experience, knowledge, skills, expertise, integrity, ability to make independent analytical
inquiries, understanding of our business environment and a willingness to devote adequate time and effort to board
responsibilities. In making its recommendations to the Board of Directors, the Nominating and Corporate Governance
Committee also seeks to have the Board of Directors nominate candidates who have diverse backgrounds and areas of
expertise so that each member can offer a unique and valuable perspective.
The Nominating and Corporate Governance Committee expects, in the future, to identify potential nominees by asking
current directors and executive officers to notify the committee if they become aware of persons who meet the criteria
described above. The Nominating and Corporate Governance Committee also, from time to time, may engage firms, at our
expense, that specialize in identifying director candidates. As described below, the Nominating and Corporate Governance
Committee also will consider candidates recommended by stockholders.
Once a person has been identified by the Nominating and Corporate Governance Committee as a potential candidate, the
committee expects to collect and review publicly available information regarding the person to assess whether the person
should be considered further. If the Nominating and Corporate Governance Committee determines that the candidate
warrants further consideration, and if the person expresses a willingness to be considered and to serve on the Board of
Directors, the Nominating and Corporate Governance Committee expects to request information from the candidate, review
the person’s accomplishments and qualifications, including in light of any other candidates that the committee might be
considering, and conduct one or more interviews with the candidate. In certain instances, members of the Nominating and
Corporate Governance Committee may contact one or more references provided by the candidate or may contact other
members of the business community or other persons that may have greater first-hand knowledge of the candidate’s
accomplishments.
In addition to formally nominating individuals for election as directors in accordance with our Third Amended and
Restated Bylaws, as summarized below on page 72 under “Stockholder Proposals for 2023,” stockholders may send written
recommendations of potential director candidates to the Nominating and Corporate Governance Committee for its
consideration. Such recommendations should be submitted to the Nominating and Corporate Governance Committee “c/o
Corporate Secretary” at Hilltop Holdings Inc., 6565 Hillcrest Avenue, Dallas, Texas 75205. Director recommendations
submitted by stockholders should include the following information regarding the stockholder making the recommendation
and the individual(s) recommended for nomination:
•
•
•
•
name, age, business address and residence address;
the class, series and number of any shares of Hilltop stock or other securities of Hilltop or any affiliate of Hilltop
owned, beneficially or of record (including the name of the nominee holder if beneficially owned);
the date(s) that shares of Hilltop stock or other securities of Hilltop or any affiliate of Hilltop were acquired and the
investment intent of such acquisition;
any short interest (including any opportunity to profit or share in any benefit from any decrease in the price of such
stock or other security) in any securities of Hilltop or any affiliate of Hilltop;
• whether and the extent to which such person, directly or indirectly (through brokers, nominees or otherwise), is
subject to or during the prior six months has engaged in, any hedging, derivative or other transaction or series of
transactions or entered into any other agreement, arrangement or understanding (including any short interest, any
borrowing or lending of securities or any proxy or voting agreement), the effect or intent of which is to (a) manage
risk or benefit of changes in the price of Hilltop securities or any security of any entity listed in the peer group in the
stock performance graph included in the materials distributed with this Proxy Statement or (b) increase or decrease
the voting power of such person in Hilltop disproportionately to such person’s economic interest in Hilltop securities
(or, as applicable, any security of any entity listed in the peer group in the stock performance graph included in the
materials distributed with this Proxy Statement);
21
•
•
•
•
•
•
any substantial interest, direct or indirect (including, without limitation, any existing or prospective commercial,
business or contractual relationship with us), by security holdings or otherwise of such person in us or in any of our
affiliates, other than an interest arising from the ownership of securities where such person receives no extra or
special benefit not shared on a pro rata basis by all other holders of the same class or series;
the investment strategy or objective, if any, of the stockholder making the recommendation and a copy of the
prospectus, offering memorandum or similar document, if any, provided to investors, or potential investors, in such
stockholder (if not an individual);
to the extent known by the stockholder making the recommendation, the name and address of any other stockholder
supporting the nominee for election or reelection as a director;
a certificate executed by the proposed nominee that certifies that the proposed nominee is not, and will not, become
a party to any agreement, arrangement or understanding with any person or entity other than us in connection with
service or action as a director that has not been disclosed to us and that the proposed nominee consents to being
named in a proxy statement and will serve as a director if elected;
completed proposed nominee questionnaire (which will be provided upon request by writing or telephoning our
corporate Secretary at the address or phone number listed under “Questions” on page 73); and
all other information that would be required to be disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act and the
rules promulgated thereunder.
The stockholder recommendation of potential director candidates and information described above must be
delivered to the corporate Secretary not earlier than the 120th day and not later than 5:00 p.m., Dallas, Texas local
time, on the 90th day prior to the first anniversary of the date of the proxy statement for the preceding year’s
annual meeting of stockholders; provided, however, that if the date of the annual meeting is advanced more than
30 days prior to, or delayed by more than 60 days after, the first anniversary of the date of the preceding year’s
annual meeting, the stockholder recommendation and information must be delivered not earlier than the 120th day
prior to the date of such annual meeting and not later than 5:00 p.m., Dallas, Texas local time, on the later of the
90th day prior to the date of such annual meeting of stockholders or, if the first public announcement of the date of
such annual meeting is less than 100 days prior to the date of such annual meeting, the 10th day following the date
on which public announcement of the date of such annual meeting is first made. In the event, however, the
number of directors to be elected to the Board of Directors is increased and there is no public announcement of
such action at least 100 days prior to the first anniversary of the date of the proxy statement for the preceding
year’s annual meeting, a stockholder recommendation also will be considered timely, but only with respect to
nominees for any new positions created by the increase, if it is delivered to the corporate Secretary not later than
5:00 p.m., Dallas, Texas local time, on the 10th day following the day on which the public announcement is first
made.
The Nominating and Corporate Governance Committee expects to use a similar process to evaluate candidates for
nomination to the Board of Directors recommended by stockholders as the one it uses to evaluate candidates otherwise
identified by the committee.
No fee was paid to any third party or parties to identify or evaluate, or assist in identifying or evaluating, potential
nominees.
The Nominating and Corporate Governance Committee did not receive the name of any stockholder recommendations
for director nominees with respect to the Annual Meeting.
The Nominating and Corporate Governance Committee did not receive any recommendations for director nominees from
any non-management stockholder or group of stockholders that beneficially owns more than 5% of our common stock.
22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
The following table sets forth information regarding our common stock beneficially owned as of April 28, 2022 by any
person or “group,” as that term is used in Section 13(d)(3) of the Exchange Act, known to us to beneficially own more than
five percent of the outstanding shares of our common stock.
Name and Address of Beneficial Owner
Gerald J. Ford (b)
6565 Hillcrest Avenue, 6th Floor
Dallas, Texas 75205
BlackRock, Inc. (c)
55 East 52nd Street
New York, New York 10055
The Vanguard Group (d)
100 Vanguard Boulevard
Malvern, Pennsylvania 19355
Amount and Nature of Percent of
Class (a)
Beneficial Ownership
15,781,241
19.9 %
9,407,801
11.8 %
6,441,986
8.1 %
(a) Based on 79,439,118 shares of common stock outstanding on April 28, 2022. Shares issuable under instruments to purchase our common stock that are
exercisable within 60 days of April 28, 2022 are treated as if outstanding for computing the percentage ownership of the person holding these
instruments, but are not treated as outstanding for purposes of computing the percentage ownership of any other person.
(b) The shares of common stock beneficially owned by Mr. Gerald J. Ford include 76,546 shares that are owned by Turtle Creek Revocable Trust, a
revocable trust for the benefit of the members of Mr. Gerald J. Ford’s family, and indirectly by Mr. Gerald J. Ford as settlor and trustee of the trust.
Mr. Gerald J. Ford disclaims beneficial ownership of the shares held by the trust except to the extent of his pecuniary interest therein. Also
includes 15,544,674 shares owned by Diamond A Financial, LP. Mr. Gerald J. Ford is the sole member of Diamond HTH Stock Company GP, LLC,
which is the sole general partner of Diamond HTH Stock Company, LP, which is the sole general partner of Diamond A Financial, LP. Mr. Gerald J.
Ford is the sole limited partner of Diamond HTH Stock Company, LP. Each of Mr. Gerald J. Ford, Diamond A Financial, LP, Diamond HTH Stock
Company, LP and Diamond HTH Stock Company GP, LLC may be deemed to have shared voting and dispositive power of these shares. Excludes
90,000 RSUs that will not vest within 60 days of April 28, 2022.
(c) Based on the Schedule 13G (Amendment No. 4) filed with the SEC by BlackRock, Inc. on January 28, 2022. According to the Schedule 13G
(Amendment No. 4), BlackRock, Inc. has sole voting power over 9,274,851 shares of our common stock and sole dispositive power over 9,407,801
shares of our common stock. According to the Schedule 13G (Amendment No. 4), BlackRock, Inc. is a parent holding company or control person, and
various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of our common stock. The
Schedule 13G (Amendment No. 4) reports that Blackrock Fund Advisors, a wholly owned subsidiary of Blackrock, Inc., is the beneficial owner of 5%
or greater of the outstanding shares of the security class reported on the Schedule 13G (Amendment No. 4).
(d) Based on the Schedule 13G (Amendment No. 6) filed with the SEC by The Vanguard Group on February 10, 2022. According to the Schedule 13G
(Amendment No. 6), The Vanguard Group has shared voting power over 55,958 shares of our common stock, sole dispositive power over 6,331,825
shares of our common stock and shared dispositive power over 110,161 shares of our common stock.
23
Security Ownership of Management
The following table sets forth information regarding the number of shares of our common stock beneficially owned as of
April 28, 2022, by:
•
•
•
each of our directors and director nominees;
each of our named executive officers; and
all of our directors and executive officers presently serving, as a group.
Except as otherwise set forth below, the address of each of the persons listed below is c/o Hilltop Holdings Inc., 6565
Hillcrest Avenue, Dallas, Texas 75205. Except as otherwise indicated in the footnotes to this table, the persons named in the
table have specified that they have sole voting and investment power with respect to all shares of stock shown as beneficially
owned by them, subject to any applicable community property law.
Name of Beneficial Owner
Rhodes Bobbitt
Tracy A. Bolt
J. Taylor Crandall
Charles R. Cummings
Hill A. Feinberg
Gerald J. Ford
6565 Hillcrest Avenue, 6th Floor
Dallas, Texas 75205
Jeremy B. Ford
William B. Furr
J. Markham Green
William T. Hill, Jr.
Charlotte Jones
Lee Lewis
Andrew J. Littlefair
W. Robert Nichols, III
Thomas C. Nichols
Kenneth D. Russell
Jerry L. Schaffner
A. Haag Sherman
Jonathan S. Sobel
Robert C. Taylor, Jr.
Stephen Thompson
Carl B. Webb
M. Bradley Winges
All Directors and Executive Officers,
as a group (26 persons)
Common Stock
Amount and Nature of
Beneficial Ownership
126,059 (b)
40,367
—
29,999
681,012 (c)
15,781,241 (d)
Percent of
Class (a)
*
*
*
*
*
19.9%
994,106 (e)
79,467 (f)
114,763
36,910 (g)
14,798
107,951 (h)
17,695
16,000 (i)
16,180 (j)
—
132,386 (k)
25,539
2,680 (l)
40,263
20,546 (m)
122,645
33,095 (n)
1.3%
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
18,595,014 (o)
23.4%
* Represents less than 1% of the outstanding shares of such class.
(a) Based on 79,439,118 shares of common stock outstanding on April 28, 2022. Shares issuable under instruments to purchase our common stock that are
exercisable within 60 days of April 28, 2022 are treated as if outstanding for computing the percentage ownership of the person holding these
instruments, but are not treated as outstanding for purposes of computing the percentage ownership of any other person.
Includes 62,100 shares of common stock held in an IRA account for the benefit of Mr. Bobbitt.
Includes 25,776 shares of common stock held directly by Mr. Feinberg’s wife.
(b)
(c)
(d) The shares of common stock beneficially owned by Mr. Gerald J. Ford include 76,546 shares that are owned by Turtle Creek Revocable Trust, a
revocable trust for the benefit of the members of Mr. Gerald J. Ford’s family, and indirectly by Mr. Gerald J. Ford as settlor of the trust. Mr. Gerald J.
Ford disclaims beneficial ownership of the shares held by the trust except to the extent of his pecuniary interest therein. Also includes 15,544,674
shares owned by Diamond A Financial, LP. Mr. Gerald J. Ford is the sole member of Diamond HTH Stock Company GP, LLC, which is the sole
general partner of Diamond HTH Stock Company, LP, which is the sole general partner of Diamond A Financial, LP. Mr. Gerald J. Ford is the sole
limited partner of Diamond HTH Stock Company, LP. Each of Mr. Gerald J. Ford, Diamond A Financial, LP, Diamond HTH Stock Company, LP and
24
(e)
Diamond HTH Stock Company GP, LLC may be deemed to have shared voting and dispositive power of these shares. Excludes 90,000 restricted stock
units, or RSUs, that will not vest within 60 days of April 28, 2022.
Jeremy B. Ford is a beneficiary of a trust that owns a 49% limited partnership interest in Diamond A Financial, LP (see footnote (d)). Excludes 411,685
shares of common stock deliverable upon the vesting of RSUs that will not vest within 60 days of April 28, 2022 and 15,544,674 shares of common
stock held by Diamond A Financial, LP.
(f) Excludes 92,073 shares of common stock deliverable upon the vesting of RSUs that will not vest within 60 days of April 28, 2022.
(g)
(h)
Includes 14,550 shares of common stock held in a SEP IRA account for the benefit of Mr. Hill.
Includes 55,169 shares of common stock held by Lee Lewis Construction. Mr. Lewis is the sole owner of Lee Lewis Construction and may be deemed
to have voting and/or investment power with respect to the shares owned by Lee Lewis Construction.
Includes 16,000 shares of common stock held in an IRA account for the benefit of Mr. W. Robert Nichols, III.
Includes 2,000 shares of common stock held in an IRA account for the benefit of Mr. Thomas C. Nichols.
Includes 1,459 shares of common stock held in an IRA account for the benefit of Mr. Schaffner’s wife. Excludes 60,905 shares of common stock
deliverable upon the vesting of RSUs that will not vest within 60 days of April 28, 2022.
(i)
(j)
(k)
(l) Excludes 20,000 shares of common stock deliverable upon the vesting of RSUs that will not vest within 60 days of April 28, 2022.
(m) Excludes 81,684 shares of common stock deliverable upon the vesting of RSUs that will not vest within 60 days of April 28, 2022.
(n) Excludes 85,560 shares of common stock deliverable upon the vesting of RSUs that will not vest within 60 days of April 28, 2022.
(o) Represents 26 persons. Excludes 943,121 shares of common stock deliverable upon the vesting of RSUs that will not vest within 60 days of April 28, 2022.
MANAGEMENT
Executive Officers
General
We have identified the following officers as “executive officers,” consistent with the definition of that term as used by
the SEC, as of April 28, 2022:
Name
Keith E. Bornemann
Jeremy B. Ford
William B. Furr
Darren E. Parmenter
Corey G. Prestidge
Jerry L. Schaffner
Stephen Thompson
M. Bradley Winges
Age
49
47
44
59
48
64
60
54
Position
Executive Vice President, Chief Accounting Officer
President and Chief Executive Officer
Executive Vice President, Chief Financial Officer
Executive Vice President, Chief Administrative Officer
Executive Vice President, General Counsel and Secretary
President and Chief Executive Officer of PlainsCapital Bank
President and Chief Executive Officer of PrimeLending
President and Chief Executive Officer of Hilltop Securities
Business Experience of Executive Officers
Officer
Since
2017
2010
2016
2007
2008
2012
2020
2019
Information concerning the business experience of Mr. Jeremy B. Ford is set forth above under “Proposal One —
Election of Directors — Nominees for Election as Directors” beginning on page 5.
Keith E. Bornemann. Mr. Bornemann has served as the Executive Vice President and Chief Accounting Officer of
Hilltop since July 2020. Mr. Bornemann previously served as Executive Vice President and Principal Accounting Officer of
Hilltop from November 2017 to July 2020 and Corporate Controller of Hilltop from February 2017 to July 2020. He also
served as Senior Vice President and Director of Accounting and Reporting of Hilltop from January 2016 to January 2017 and
Vice President of Financial Reporting of Hilltop from January 2013 to January 2016. Prior to joining Hilltop in 2013,
Mr. Bornemann was the Vice President and Corporate Controller at First Acceptance Corporation and spent nine years
working for the accounting firm Ernst & Young LLP.
William B. Furr. Mr. Furr has served as the Chief Financial Officer of Hilltop since September 2016. Prior to joining
Hilltop, Mr. Furr served as Executive Vice President and Community Bank Chief Financial Officer for KeyCorp from
November 2012 to August 2016. Before joining KeyCorp, Mr. Furr served in various financial leadership roles at Regions
Financial Corporation and Bank of America Corporation.
Darren E. Parmenter. Mr. Parmenter has served as Executive Vice President and Chief Administrative Officer of
Hilltop since September 2016. Mr. Parmenter previously served as Executive Vice President and Principal Financial Officer
of Hilltop from February 2014 to September 2016 and as Senior Vice President of Finance of Hilltop from June 2007 to
25
February 2014. From January 2000 to June 2007, Mr. Parmenter was with Hilltop’s predecessor, Affordable Residential
Communities Inc., and served as the Controller of Operations from April 2002 to June 2007. Prior to 2000, Mr. Parmenter
was employed by Albertsons Inc. as an Assistant Controller.
Corey G. Prestidge. Mr. Prestidge has served as an Executive Vice President of Hilltop since February 2014 and
General Counsel and Secretary of Hilltop since January 2008. From November 2005 to January 2008, Mr. Prestidge was the
Assistant General Counsel of Mark Cuban Companies. Prior to that, Mr. Prestidge was an associate in the corporate and
securities practice group at Jenkens & Gilchrist, a Professional Corporation, which is a former national law firm.
Mr. Prestidge is the son-in-law of our Chairman of the Board, Gerald J. Ford, and the brother-in-law of our President and
Chief Executive Officer, Jeremy B. Ford.
Jerry L. Schaffner. Mr. Schaffner has served as the President and Chief Executive Officer of PlainsCapital Bank since
November 2010. He currently serves as a director of PlainsCapital Bank and various other subsidiaries, and previously served
as a director of PlainsCapital from 1993 until March 2009. Mr. Schaffner joined PlainsCapital in 1988 as part of its original
management group.
Stephen Thompson. Mr. Thompson has served as the President and Chief Executive Officer of PrimeLending since
January 2020, a continuation of his previous role as President of PrimeLending since 2017. Mr. Thompson joined
PrimeLending in 2011 and has held the roles of Regional Production Leader, Divisional Production Leader and National
Production Leader. Mr. Thompson has over 30 years of mortgage banking experience.
M. Bradley Winges. Mr. Winges has served as the President and Chief Executive Officer of Hilltop Securities since
February 2019. Prior to joining Hilltop Securities, Mr. Winges most recently served as Senior Executive Managing Director
at Piper Jaffray, where he had worked since February 1991. While at Piper Jaffray, he was a member of the firm’s leadership
team and held the roles of Head of Fixed Income Services and Firm Investments and Trading, President of Piper Jaffray
Investment Management, Firm Risk Management, Head of Hopewood Lane Trading, Co-Head of Piper Jaffray Financial
Products, Head of Municipal Sales and Trading and Institutional Municipal Sales Representative. Mr. Winges also is a
member of the Board of the Bond Dealers of America and a committee member of the Fixed Income Market Structure at the
SEC.
Terms of Office and Relationships
Our executive officers are elected by our Board of Directors annually or, as necessary, to fill vacancies or newly created
offices. Each executive officer holds office until his successor is duly elected and qualified or, if earlier, until his death,
resignation or removal. Any officer or agent elected or appointed by our Board of Directors may be removed by our Board of
Directors whenever, in its judgment, our best interests will be served, but any removal will be without prejudice to the
contractual rights, if any, of the person so removed.
Except as disclosed under “Proposal One — Election of Directors — Nominees for Election as Directors” commencing
on page 5 and under “Management — Executive Officers — Business Experience of Executive Officers” on page 25,
(a) there are no familial relationships among any of our current directors or executive officers and (b) none of our director
nominees hold, or in the last five years have held, directorships in any company with a class of securities registered pursuant
to Section 12 of the Exchange Act or pursuant to Section 15(d) of the Exchange Act or any company registered as an
investment company under the Investment Company Act of 1940.
Except as set forth in this Proxy Statement, there are no arrangements or understandings between any nominee for
election as a director or officer and any other person pursuant to which that director was nominated or that officer was
selected.
26
Compensation Discussion and Analysis
This Compensation Discussion and Analysis, or this CD&A, reviews the compensation program for our named executive
officers, or NEOs, which include our principal executive officer, principal financial officer and our three other most highly-
compensated executive officers who served during the year ended December 31, 2021.
For 2021, our NEOs were:
Named Executive Officer
Jeremy B. Ford
William B. Furr
Jerry L. Schaffner
Stephen Thompson
M. Bradley Winges
Title/Role
President and Chief Executive Officer
Executive Vice President, Chief Financial Officer
President and Chief Executive Officer of PlainsCapital Bank
President and Chief Executive Officer of PrimeLending
President and Chief Executive Officer of Hilltop Securities
Executive Summary
Business Highlights
Hilltop reported its second most profitable year in 2021. From 2019 through 2021, Hilltop generated an aggregate of
$994 million in net income from continuing operations. The implementation of our strategic initiatives over the past few
years, several of which are described below, allowed us to capitalize on available opportunities. These robust financial results
and continued enhancements position Hilltop for further growth.
Key Financial Results
We continued to achieve favorable financial results in 2021. While the financial results in 2021 did not reach the same
level as in 2020, our 2021 financial results exceeded results in years prior to 2020. The make-up of these results were as
follows:
• PlainsCapital Bank had income before taxes of $283 million, primarily driven by a change in provision for credit
losses from a $96 million provision in 2020 to a $58 million reversal in 2021.
• PrimeLending had income before taxes of $236 million in 2021, as compared to $408 million 2020, which
decrease was significantly driven by a decline in gain-on-sale margin.
• Hilltop Securities had income before taxes of $44 million in 2021, as compared to $116 million in 2020, which
decrease was largely caused by lower net revenues in the fixed income services and structured finance businesses.
The charts below illustrate our strong financial and market performance in 2021. Additional details regarding our results
can be found in our Annual Report on Form 10-K for the year ended December 31, 2021.
27
Hilltop ranked fourth out of 50 regional banks included in the KBW Regional Banking Index for the three-year period
ended December 31, 2021.
28
Capital Management
Hilltop has grown capital and deployed it in a prudent manner, repurchasing a total $522 million of its common stock
since the beginning of 2015.
Note: Tangible common equity and tangible book value per share (TBVPS) are non-GAAP financial measures. For a reconciliation of tangible common equity and TBVPS
to the nearest GAAP measure, see “Annex C.”
Strategic Highlights
During 2021, we had several key accomplishments in support of our business strategy:
• Capitalized on a strong housing market by originating $23 billion in mortgage loans for the second consecutive
year, which was our second-best year ever by volume and profitability.
•
Increased total deposits to $12.8 billion, an increase of $1.6 billion, or 14%, versus 2020.
• Maintained credit quality, ending the year with total non-performing assets of $54 million, or 0.75% of total
Bank loans held for investment. We achieved a net recovery of $0.5 million in 2021.
• Despite lower volumes and a less robust market environment from 2020, Hilltop Securities produced $424
million net revenue.
• Repurchased 3.6 million shares for $124 million, equating to 4% of shares outstanding.
•
•
•
Increased Hilltop quarterly dividend payment by 33% to 12 cents.
Increased tangible book value per share by 15% to $28.37.
Fortified the Bank’s liquidity position and access to secured funding sources with over $8.4 billion in available
securities, deposits at the Federal Reserve and secured borrowing capacity.
Leadership
The following is the reporting structure for our operating subsidiaries:
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Employees
During 2021, we recognized our employees for their dedication and work efforts, especially given the impacts of
inflation and the economic environment. In that regard, we provided the following to our employees who are managers and
below:
•
•
Provided $2.9 million of off-cycle merit increases to over 1,000 employees.
Paid bonuses in excess of performance achieved.
Environmental, Social & Governance
In early 2021, Hilltop published its first Environmental, Governance & Social, or ESG, report, which represented the
baseline for future reporting. During 2021, Hilltop accomplished certain enhancements to its ESG commitment by:
•
Forming an ESG Committee that reports to the Nominating & Governance Committee of the Board of
Directors.
• Establishing an ESG Policy applicable to the enterprise.
• Achieving the goals set forth in its 2020 ESG Report.
• Launching a Diversity, Equity and Inclusion Commitment Statement.
Hilltop recently published its 2021 Sustainability and Environmental, Social & Governance Report.
Executive Compensation Highlights
Several years ago, we completed
leadership transitions and streamlined our
executive team. As illustrated in the graphs
to the right, these changes have resulted, and
are expected to continue to result, in a
substantial reduction in executive base salary
expense as compared to 2016 (35% decrease
in 2021). While 2021 incentive payouts
reflected strong performance, aggregate
Section 16 officer compensation in 2021 was
only 9% higher than aggregate Section 16
officer compensation in 2016. For reference,
pre-tax earnings from continuing operations
were $210 million and $504 million in 2016
and 2021, respectively (a 140% increase
from 2016 to 2021). Additionally, these
transitions resulted in the termination of
certain legacy compensation arrangements
and allowed us to align all of our executive
team with our pay-for-performance
compensation program, as evidenced by the
chart and outlined further in this CD&A.
Our 2021 Executive Compensation Program
* Reflects base salary for the year shown plus annual incentives paid at ranges of 54%
to 183% and long-term incentives awarded the following year. See 2021 Goals and
Results below.
The Compensation Committee, or, as used in this CD&A, the Committee, has the responsibility to establish, implement
and monitor adherence with our compensation philosophy. The Committee believes that the total compensation paid to
executive officers should be fair, reasonable, market competitive, performance-based and aligned with stockholder interests.
The Committee administers our executive compensation program in light of taking into consideration our unique business
structure, shareholder return and acquisition activity. As a holding company that conducts its operations through its
subsidiaries, we provide performance-based compensation to the chief executives of each of our business units that is based
on both the results of the business unit and the consolidated Company.
30
Chief Executive Officer
Mix of Target Total
Direct Compensation
Total
Variable
88%
Salary
12%
TRSUs
26%
Annual
Incentive
21%
PRSUs
41%
Elements of Total Direct Compensation
Base Salary
• Intended to compensate the individual fairly for
the responsibility level of the position held.
Annual Incentives
• Variable component of pay intended to motivate
and reward the individual’s contributions to
achieving our short-term/annual objectives;
• Payouts are determined based on financial
results (weighted 70%) and each executive’s
performance with respect to strategic and
individual goals (weighted 30%);
• Financial results are based on our consolidated
net income and, for executives of our
subsidiaries, the net income of their respective
business unit; and
• Discretionary bonuses are awarded only in
exceptional circumstances.
Long-Term Incentives
• Variable component of pay intended to retain,
motivate and reward the individual’s
contributions to achieving our long-term
objectives and creating stockholder value;
• Delivered through a grant value mix of
Performance-Based Restricted Stock Units, or
PRSUs, and Time-Based Restricted Stock
Units, or TRSUs; and
• The vesting of PRSUs varies based on
performance results with respect to cumulative
EPS goals over a three-year period, with a
modifier based on our three-year total
shareholder return, or TSR, relative to other
banks in the KBW Regional Banking Index.
As illustrated in the chart, total variable compensation represents 88% of the Chief Executive Officer’s total direct
compensation.
31
Governance Highlights
The Committee maintains strong governance features for our executive compensation program as outlined below and
further discussed in this CD&A.
What We Do
What We Don’t Do
We tie a significant portion of NEO
compensation to our performance through a
balance of annual and long-term incentives with
multiple performance measures
Executive officers are prohibited from entering
into hedging, short sale and derivative
transactions and are subject to restrictions on
pledging our securities
We maintain robust stock ownership guidelines
We do not provide for any excise tax gross-ups in
for executive officers and directors
any new employment agreements
We require all equity awarded to executive
officers to be held for one year following
vesting
All equity grants have double trigger (as opposed
to single trigger) change of control provisions
We maintain a clawback policy for incentive
We do not pay dividends on unvested equity
compensation
awards
We subject annual incentives to downward
adjustment for improper risk taking or
significant compliance issues
We annually conduct a risk assessment of our
compensation programs
We retain an independent compensation
consultant reporting directly to the Committee
We do not provide excessive perquisites
Role of Stockholder Say-on-Pay Votes and Stockholder Engagement
We provide our stockholders with the opportunity to cast an annual non-binding advisory vote on executive
compensation. At our annual meeting of stockholders held in July 2021, approximately 83% of the votes cast (excluding
abstentions and broker non-votes) on the say-on-pay proposal were voted in favor of the proposal.
In January 2021, we contacted a total of seventeen
of our largest stockholders, other than the Chairman of
the Board of Directors, who represented approximately
20% of our outstanding common stock at that time. In
connection with this stockholder outreach, eight
stockholders who represented approximately 12% of
our outstanding common stock at that time scheduled
and conducted calls with the Chairman of the
Committee. In those calls, the Chairman specifically
addressed the compensation of the Chairman of the
Board of Directors of the Company.
After the resulting discussion of the Chairman’s compensation, these stockholders understood the reasoning for his
compensation and appreciate the value that he provides to the Company. We also committed to provide additional disclosure
regarding the reasons supporting his compensation, which we have included in this CD&A and this Proxy Statement. With
respect to our compensation program and philosophy in general, those stockholders were supportive. Some of these
stockholders suggested other specific metrics for possible use in measuring executive compensation. In accordance with their
suggestion, we have included these metrics in this CD&A. These stockholders also expressed that they view our executive
compensation to be in line with our peers.
The Committee remains committed to understanding the perspectives of our stockholders and being responsive to their
feedback. The Committee will continue to consider the outcome of the Company’s say-on-pay votes and stockholder
feedback when making future compensation decisions for the NEOs and directors, including the Chairman of the Board.
32
Compensation Program Philosophy and Objectives
Our compensation program continues to focus on performance-based pay that reflects our achievements on an annual
basis and our ability to deliver long-term value to our stockholders. The Committee regularly reviews the Company’s
compensation programs to ensure they are consistent with sound business practices, regulatory requirements, emerging
industry trends and stockholder interests.
With this in mind, the following principles help guide our decisions regarding compensation of our NEOs:
• Compensation opportunities should be competitive with market practices. We are committed to providing
competitive total annual compensation opportunities to attract and retain executives with the experience and skills
necessary to lead our Company and motivate them to deliver strong performance to our stockholders.
• A significant portion of compensation should be performance-based. Our executive compensation program
emphasizes pay-for-performance. Both our annual and long-term incentives are earned based on a combination of
corporate, business unit and individual performance. Our annual incentive compensation also can be reduced based
upon improper risk taking and non-compliance with applicable laws and regulations.
• Management’s interests should be aligned with those of our stockholders. Our long-term incentive compensation
is delivered in the form of restricted stock units, or RSUs, to support our goals for alignment, ownership and
retention. Half of the RSUs awarded vest upon achievement of predefined performance goals. The percentage of
these awards that vest is based first on cumulative EPS over a three-year period and then multiplied by a modifier
based on our TSR, relative to members of the KBW Regional Banking Index during the same period. The
calculation for the vesting of performance RSUs is as follows:
• Compensation should be perceived as fair. We strive to create a compensation program that will be perceived as
fair and equitable, both internally and externally.
• Our compensation program should be balanced and mitigate risk taking. We have a balanced approach to total
compensation that includes a mix of fixed and performance-based pay, including cash and equity compensation and
short- and long-term incentive compensation. We believe this approach effectively aligns our pay with performance,
while discouraging inappropriate risk taking.
Elements of our Executive Compensation Program
This section describes the 2021 compensation arrangements for our NEOs.
Base Salary
We provide base salaries for each NEO based on the Committee’s assessment of the scope of each individual’s
responsibilities, performance and experience. We believe a portion of total direct compensation should be provided in a form
that is fixed and liquid. In reviewing base salaries, the Committee evaluated the salaries of other executive officers of the
Company and its peers and any increased level of responsibility, among other items. The following table lists the base
salaries for our NEOs in 2020 and 2021:
Name
Jeremy B. Ford
William B. Furr
Jerry L. Schaffner
Stephen Thompson
M. Bradley Winges
Base Salaries
2020
775,000
500,000
650,000
725,000
500,000
$
$
$
$
$
$
$
$
$
$
(a) Base salary increases became effective on March 27, 2021.
33
% Increase
2021
800,000 (a)
550,000 (a)
660,000 (a)
800,000 (a)
500,000
3.2 %
10.0 %
1.5 %
10.3 %
—
In February 2022, the Committee assessed base salaries of the NEOs and decided to provide the following increases
beginning on February 26, 2022: $25,000 for Mr. Furr (new salary $575,000); and $20,000 for Mr. Schaffner (new salary
$680,000). These increases were determined to be appropriate given performance by these individuals.
Annual Incentive Program
Target Incentive Opportunities
Target incentive awards are defined at the start of the year in consideration of market data provided by the Committee’s
consultant, each NEO’s total compensation package and the Company’s budgetary considerations. The Committee increased
the annual incentive target (as a percent of salary) in 2021 as compared to 2020 for Messrs. Furr, Schaffner, Thompson and
Winges following a review of market practices and in order to place more emphasis on pay-for-performance. The following
table sets forth information concerning Annual Incentive Plan opportunities for 2021:
Name
Jeremy B. Ford
William B. Furr
Jerry L. Schaffner
Stephen Thompson
M. Bradley Winges
Threshold
($)
400,000
250,000
300,000
600,000
850,000
Annual Incentive Opportunity
Target
Amount
($)
800,000
500,000
600,000
1,200,000
1,700,000
% of
Base Salary
100 %
91 %
91 %
150 %
340 %
Maximum
($) (a)
1,480,000
925,000
1,110,000
2,220,000
3,145,000
(a) Awards are capped at 185% of the target amount.
In February 2022, the Committee adjusted the annual incentive target for Mr. Winges to 370% (as a percentage of salary)
based upon 2022 budget expectations for Hilltop Securities Inc.
Plan Structure and Performance Measures
Each NEO had pre-defined performance objectives based upon measurable performance of both the Company and the
individual. At least 70% of each executive’s incentive was based on the net income of the Company and/or their relevant
business unit. The Committee and management believe that by using these metrics we are encouraging profitable top line
growth and value for stockholders without creating excessive risk.
The measures and weights of the performance objectives for 2021 are summarized in the following graph:
In addition to the above criteria, all payouts under the Annual Incentive Plan are subject to forfeiture and clawback in the
event of any improper risk management or non-compliance with applicable laws and regulations.
34
2021 Goals and Results
The Committee, in its sole discretion, determines the final amount of each participant’s annual cash incentive award
based on attainment of the applicable performance goals and assessments of individual and strategic performance.
Each element of the annual cash incentive award is independent of the other. Accordingly, the executive officer may
achieve certain performance goals, while at the same time failing to achieve others. In that case, the executive officer will be
entitled to receive the award for the performance goal achieved, but not an award for a performance goal for which threshold
performance is not achieved. Potential awards range from 50% for threshold performance to a maximum of 185% for stretch
performance (with a 200% maximum for financial performance and a 150% maximum for strategic goals).
Early in 2021, the Committee established earnings goals for Hilltop and each business unit. Our 2021 goals were
intended to be realistic and reasonable but challenging in order to drive performance. Our 2021 net income target was set
below our 2020 actual performance based upon the expected softening in the mortgage and securities markets; however, our
2021 net income target was 29% above the 2020 net income target. At the end of the fiscal year, the Committee determined a
payout based on net income performance. 2021 performance goals and actual net income performance were as follows
(dollars in millions):
2021 Performance Goal (a)
Hilltop Net Income
Threshold ($)
123
PlainsCapital Adjusted Pre-Tax Income (c)
Hilltop Securities Pre-Tax Income
PrimeLending Pre-Tax Income
90
49
92
Target ($)
204
150
81
153
Maximum ($)
256
188
101
191
Actual ($)
Achievement (b)
374
216
44
232
183 %
144 %
54 %
152 %
(a) The Compensation Committee established goals and determines performance results based on adjusted non-GAAP results that exclude the impact of
items including current expected credit losses (“CECL”), leadership changes, business realignment and disposition, and efficiencies that are not
indicative of ongoing operations.
(b) Awards are capped at 200% of the target amount under the plan.
(c) PlainsCapital pre-tax income is adjusted to remove the impacts of CECL, but includes controllable provision (e.g., charge-offs and specific reserves).
The individual and strategic objectives for the NEOs are developed through an iterative process between the Committee
and management. Management develops an initial set of recommendations based upon the business needs. The Committee
reviews the proposed goals and revises/amends them at its discretion, ensuring that goals are aligned with the strategic plan
approved by the Board of Directors.
The following strategic and individual goals, among others, were established for the NEOs in 2021:
Executive
Jeremy B. Ford
Key Objectives
• Execute strategic plan to drive revenue
growth and manage expenses
• Ensure execution of key initiatives
• Ensure execution of the operating
companies’ strategic plans
• Enhance competitive position with next
level revenue initiatives and strategic
projects
• Execute capital management through
Key Outcomes
• Effective leadership of the Company and its
subsidiaries through continued COVID
environment
• Executed strategic plan to drive revenue
growth and expense management
• Delivered quantifiable benefits of capital
management, including return of capital to
stockholders
• Earnings were outsized as compared to
M&A sourcing and stockholder returns
budget
35
William B. Furr
Jerry L. Schaffner
Stephen Thompson
• Effective delivery against operational
and strategic priorities, including
completion of finance simplification
project, implementation of key initiatives
around Market Risk Rule, and execution
of key deliverables related to
counterparty management
• Execute on strategic plan through
supporting corporate profitability,
growth and alignment
• Support the achievement of the
operating budget
• Meet strategic objectives for managed
loan growth, deposit market share,
treasury management verticals, private
banking, and expense outlook
• Effectively manage the business through
the pandemic
• Effectively manage credit portfolio
• Succession planning and execution
• Drive strategic initiatives, including
operational efficiency and service, loan
officer growth, minority origination
volume and culture and engagement
• Continue progress and improvement on
key initiatives and investments
• Continue to guide the development and
effectiveness of executives
• Effective leadership of Finance &
Accounting through continued COVID
environment
• Effectively managed financial risks,
reporting and controls
• Effectively led complex projects, including
finance simplification, Market Risk Rule
and counterparty management
• Delivered quantifiable benefits through
execution of strategic plan
• Exceeded operating budget through his
leadership and support
• Effective leadership through continued
COVID environment
• Executed on strategic objectives: loan
growth, deposit market share improvement,
treasury management and expense
management
• Delivered quantifiable benefits of achieving
objectives
• Effective leadership through continued
COVID environment
• Drove key initiatives of operational
efficiency and service, loan originator
growth and culture
• Guided development of executives
• Effectively managed the business through
substantial volumes
• Delivered quantifiable benefits of achieving
objectives
M. Bradley Winges
• Complete final phase of FIS
• Effective leadership through continued
implementation
• Partner with Hilltop on MRR project
COVID environment
• Drove key initiatives of FIS
implementation
• Strategically grow business lines through
targeted product and market segment
expansion
• Rebrand HTIN to Momentum advisory
and implement strategic plan to drive
overall business
• Define premier wealth strategy
• Transition to new HQ location
• Execute on key people strategies,
implementation, MRR project, rebrand of
Momentum Independent Network
• Transitioned to new HQ location
• Contributed to growth in business lines
through targeted product and market
segment expansion
• Delivered quantifiable benefits of
objectives
including culture, DEI, HTS University
and compensation initiatives
• Partner with HTH through shared service
model
• Partner with PrimeLending and the Bank
to leverage strengths and add value to
clients
The Committee evaluated the individual performance of each executive, including the factors noted in the table above,
and recognized the results each executive achieved that drove the Company’s outstanding performance in 2021. Based upon
these evaluations of each NEO’s individual performance in 2021, the Committee awarded Messrs. Jeremy B. Ford, Furr,
36
Schaffner and Thompson 150% of target for their strategic and individual goals, and Mr. Winges 135% for his strategic and
individual goals. The Committee also assessed risk and compliance performance for each NEO and determined that no
reductions were warranted.
Based on the above financial and individual performance measures and the Committee’s discretion, the 2021 annual cash
incentive payments were awarded as follows relative to the 2021 target value:
Name
Jeremy B. Ford
William B. Furr
Jerry L. Schaffner
Stephen Thompson
M. Bradley Winges
2021 Annual
Incentive Payment ($)
1,385,775
866,109
922,486
1,893,166
1,311,292
% of 2021 Target
Annual Incentive
173 %
173 %
154 %
158 %
77 %
See “Executive Compensation — Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based
Awards Table — Annual Incentive Plan” for more information with respect to our stockholder-approved Annual Incentive
Plan.
Discretionary Cash Bonuses
No additional discretionary cash bonuses were paid for 2021 performance.
Long-Term Incentives
As described above, we believe that a portion of each NEO’s compensation should be tied to the performance of our
stock price, aligning the officer’s interest with that of our stockholders. Additionally, we grant at least 50% of each
executive’s long-term incentives through PRSUs that vest based upon performance.
PRSUs granted in 2021 will be earned and cliff vest subject to certain performance goals being met after the three-year
performance period from January 1, 2021 through December 31, 2023. The PRSUs provide that the percentage of
performance-based shares that will vest at the end of the performance period will be determined based on Hilltop’s
cumulative EPS relative to pre-established performance objectives, multiplied by a modifier that is determined based on
Hilltop’s TSR relative to banks in the KBW Regional Banking Index. The EPS component of the performance calculation
ranges from 50% at threshold (for results at 75% of the EPS goal) to 150% at maximum (for results at 125% of the EPS
goal), and the TSR modifier ranges as follows:
Accordingly, the total number of shares earned from the performance awards can range from 40% to 180% of the target
number of PRSUs granted. No shares will be awarded if EPS results are below threshold. The calculation for the vesting of
PRSUs is as follows:
For example, if EPS is above stretch performance and Relative TSR is below threshold, the payout percentage would be
as follows:
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TRSUs cliff vest on the third anniversary of the date of grant.
All shares of common stock delivered pursuant to the RSUs granted to NEOs are subject to a one-year holding period
requirement after vesting. All equity-based awards, including those made to the NEOs, prior to July 2020 were made
pursuant to the 2012 Equity Incentive Plan. Since July 2020, all equity-based awards have been made pursuant to the 2020
Equity Incentive Plan, which was adopted by stockholders at the 2020 Annual Meeting of Stockholders held in July 2020. All
equity-based awards made to the NEOs are approved by the Committee and not pursuant to delegated authority. Further
discussion of the 2012 Equity Incentive Plan and the 2020 Equity Incentive Plan pursuant to which such RSUs were awarded
is found under “Executive Compensation — Narrative Disclosure to Summary Compensation Table and Grants of Plan-
Based Awards Table” below.
2021 Long-Term Incentive Grants
In 2021, long-term incentive awards were made in consideration of each executive’s role, competitive market practice,
and 2020 performance. Grants were made in the form of RSUs on February 23, 2021, to the following NEOs in the table
below. As discussed in prior year CD&A, grants for 2021 had higher grant values than 2020, while maintaining similar share
usage, recognizing the exceptional financial results in 2020. In particular, special consideration was given to the leadership of
Messrs. Jeremy B. Ford, Furr, Winges and Thompson in driving the record financial performance and successful execution of
multiple key strategic priorities.
Name
Jeremy B. Ford
William B. Furr
Jerry L. Schaffner
Stephen Thompson
M. Bradley Winges
TRSUs
Awarded (#)
50,603
10,107
7,284
9,917
10,678
TRSUs
Awarded Grant
Date Value ($)
1,658,766
331,307
238,770
325,079
350,025
PRSUs
Awarded
(at Target) (#)
80,117
16,133
8,886
20,593
12,202
PRSUs
Awarded Grant
Date Value ($)
2,663,890
536,422
295,460
684,717
405,717
Total RSUs
Awarded
(at Target) (#)
130,720
26,240
16,170
30,510
22,880
Total RSUs
Awarded Grant
Date Value ($)
4,322,657
867,730
534,229
1,009,797
755,741
2022 Long-Term Incentive Grants
On February 8, 2022, the Committee awarded long-term incentives through grants of RSUs as set forth in the table
below. Grant values were again based on each executive’s role and competitive market practice, as well as the continued
strong performance in 2021.
Name
Jeremy B. Ford
William B. Furr
Jerry L. Schaffner
Stephen Thompson
M. Bradley Winges
TRSUs
Awarded (#)
TRSUs
Awarded Grant
Date Value ($)
1,550,016
412,539
312,534
475,025
450,024
PRSUs
Awarded
(at Target) (#)
57,795
17,412
12,967
18,524
13,337
45,940
12,227
9,263
14,079
13,338
PRSUs
Awarded Grant
Date Value ($)
1,901,456
572,855
426,614
609,440
438,787
Total RSUs
Awarded
(at Target) (#)
103,735
29,639
22,230
32,603
26,675
Total RSUs
Awarded Grant
Date Value ($)
3,451,471
985,394
739,148
1,084,465
888,811
In 2022, Mr. Winges received an additional grant of 8,892 TRSUs that will cliff vest on the third anniversary of the date
of grant. The additional TRSUs were granted in connection with Mr. Winges entering into the amendment to his employment
agreement as further discussed below.
Payout of the 2019-2021 PRSUs
The following table provides the calculation of the payout for the PRSUs granted in 2019, which resulted in 180% of the
target number of shares being earned. Similar to the 2021 awards described above, payouts for the PRSUs granted in 2019
cliff vested in three years, or early 2022, based on three-year cumulative EPS performance multiplied by a modifier of the
payout based on our three-year TSR relative to the banks in the KBW Regional Banking Index. Shares vested from the 2019
PRSU grants are restricted from transfer until the first anniversary of the vesting date.
38
Metric
Cumulative EPS
% of Target Payout
$
Threshold
3.56
50%
$
Target
4.75
100%
Maximum
5.94
150%
$
$
Relative TSR percentile ranking
Modifier
Final Payout
25th
80%
50th
100%
75th
120%
Actual
12.10
150%
x
93rd
120%
180%
Perquisites and Other Benefits
We provide various perquisites and other benefits to certain NEOs. Mr. Jeremy B. Ford is provided access to company
aircraft for personal use and such personal use is treated as income to him. Mr. Schaffner is provided with a company-owned
vehicle for his use. Otherwise, our NEOs generally receive only medical benefits, life insurance and long-term disability
coverage, as well as matching contributions to the Company’s 401(k) program, on the same terms and conditions as generally
available to all employees. See “Executive Compensation — All Other Compensation Table” below.
Compensation of Our Non-Executive Chairman of the Board
Gerald J. Ford, Chairman of the Board of Directors, provides us with significant value given his experience in the
financial services industry, including mergers and acquisitions, capital and liquidity management and other operating matters,
such as key personnel hires. On a very frequent basis, our Chairman and Chief Executive Officer discuss matters relating to
the Company. Our Chairman also meets with the executive management of the Company to discuss matters related to the
Company in scheduled meetings generally occurring each week. In addition, our Chairman is instrumental in the sourcing,
negotiation and completion of acquisitions and dispositions. Accordingly, our Chairman, in addition to his strategic input,
spends considerable time and efforts in guiding our business and executive management in creating value for shareholders.
In addition to the fees paid to our Chairman of the Board of Directors, we also grant the Chairman of the Board of
Directors a restricted stock unit, or RSU, award representing 30,000 shares each year. This RSU award cliff vests on the third
anniversary of the date of grant. The RSU award agreement also provides for pro rata vesting upon termination without
cause, death or disability. Commencing in 2019, all equity award agreements, including the RSU awards granted to the
Chairman of the Board of Directors, contain “double trigger” provisions, which require termination without cause within the
six months preceding or the twelve months following a change in control in order for the equity awards to vest in connection
with a change in control.
The Compensation Committee evaluates the compensation of directors annually, including grants of RSUs to the
Chairman of the Board of Directors. Given the experience and involvement of the Chairman of the Board of Directors, the
Compensation Committee believes that the compensation paid to the Chairman of the Board of Directors is considerably less
than the cost that we would incur to employ or retain someone else of his caliber to provide guidance and advice to us as
frequently as he does.
Severance and Other Post-Termination Arrangements
We generally do not maintain any severance or change in control programs other than the change in control provisions in
our 2012 Equity Incentive Plan and 2020 Equity Incentive Plan (with exceptions noted below). We have, however,
historically paid severance, the amount of which is generally determined based on both length of tenure and level of
compensation, when termination occurs other than for cause and pursuant to which certain benefits may be provided to the
NEOs. Absent the negotiation of specific agreements with the NEOs, severance benefits generally will be provided on the
same basis as provided to other employees of the Company.
Furr Employment Agreement
Pursuant to our employment agreement with Mr. Furr, as amended, upon termination of his employment by us other than
for cause, Mr. Furr is entitled to receive his base salary through the effective date of such termination, all earned and unpaid
and/or vested, nonforfeitable amounts owed to him at such time under the employment agreement, RSU award agreements or
under any compensation or benefit plans, and reimbursement for any unreimbursed business expenses incurred prior to the
effective date of such termination (collectively, the “Furr Accrued Amounts”) and a lump-sum cash payment equal to the sum
of (i) his annual base salary rate immediately prior to the effective date of such termination, and (ii) an amount equal to the
39
annual incentive cash bonus paid to him in respect of the calendar year immediately preceding the year of the termination,
provided that Mr. Furr executes and delivers a release to the Company. If his employment is terminated without “cause”
within the twelve months immediately following, or the six months immediately preceding, a “change in control,” he will be
entitled to receive the Furr Accrued Amounts and a lump-sum cash payment equal to two times the sum of (i) his annual base
salary rate immediately prior to the effective date of such termination and (ii) an amount equal to the annual incentive cash
bonus paid to him in respect of the calendar year immediately preceding the year of the termination, provided that Mr. Furr
executes and delivers a release to the Company. The immediately foregoing cash amount represents a “double trigger”
benefit. Finally, if any payment made as a result of a change in control would constitute a “parachute payment” as defined
under Section 280G of the Internal Revenue Code, or the Code, the benefits payable will be reduced to $1 below the
parachute limit.
Mr. Furr’s employment agreement was amended on August 30, 2019, to extend the term of the agreement to August 31,
2022, add a customer non-solicitation provision and extend the employee non-solicitation provision, among other changes to
be consistent with other employment agreements with the Company.
Schaffner Retention Agreement
On November 30, 2012, in connection with the Company’s acquisition of PlainsCapital, the Company entered into a
retention agreement with Mr. Schaffner. If Mr. Schaffner’s employment contract is terminated by the Company for cause, by
Mr. Schaffner or due to his death or disability (as such terms are defined below), he or his estate, as applicable, is entitled to:
•
•
•
•
his annual base salary through the date of termination, to the extent not already paid and not deferred;
any annual bonus earned for a prior award period, to the extent not already paid and not deferred;
any business expenses he incurred that are not yet reimbursed as of the date of termination; and
any other amounts or benefits, including all unpaid and/or vested, nonforfeitable amounts owing or accrued to him,
required to be paid or provided or which he is eligible to receive under any plan, program, policy or practice or
contract or agreement, to the extent not already paid and not deferred, through the date of termination.
In addition, if Mr. Schaffner’s employment is terminated, he or his estate, as applicable, is entitled to a lump-sum cash
payment equal to $2,448,000, which represents the amount Mr. Schaffner would have been entitled to receive under his prior
employment agreement with PlainsCapital if his employment was terminated at the time of our acquisition of PlainsCapital,
plus interest from November 30, 2012.
Thompson Employment Agreement
In connection with the promotion of Mr. Thompson as President and Chief Executive Officer of PrimeLending, on
October 25, 2019, the Company and Mr. Thompson entered into an employment agreement that became effective as of
January 1, 2020 and will remain in effect until December 31, 2022. If the employment agreement is terminated by the
Company for “cause” (as such term is defined in the employment agreement), Mr. Thompson will be entitled to receive his
base salary through the effective date of such termination, all earned and unpaid and/or vested, nonforfeitable amounts owed
to him at such time under the employment agreement, RSU award agreements or under any compensation or benefit plans,
and reimbursement for any unreimbursed business expenses incurred prior to the effective date of such termination
(collectively, the “Thompson Accrued Amounts”), provided that Mr. Thompson executes and delivers a release to the
Company. With respect to a termination resulting from Mr. Thompson’s death or disability, Mr. Thompson (or his estate)
will be entitled to receive (i) the Thompson Accrued Amounts, (ii) any portion of the sign-on grant of RSUs with a market
value of $125,000 or of any other long-term incentive plan that vests pursuant to the terms of the applicable award
agreement, (iii) an amount equal to the cost of COBRA for Mr. Thompson and his immediate family for a period of twelve
months following such termination of employment and (iv) a pro rata portion of his target Incentive Bonus for such period,
provided that Mr. Thompson executes and delivers a release to the Company.
If Mr. Thompson’s employment is terminated by the Company without “cause” (other than pursuant to a “Change in
Control” (as such term is defined in the employment agreement)), Mr. Thompson will be entitled to receive the Thompson
Accrued Amounts and, subject to his execution and delivery to the Company of a release, (i) a lump-sum cash payment equal
to the sum of (A) his annual base salary rate immediately prior to the effective date of such termination and (B) an amount
equal to the Incentive Bonus paid to him in respect of the calendar year immediately preceding the year of the termination,
40
(ii) an amount equal to the cost of COBRA for his immediate family and himself for a period of twelve months following
such termination of employment, and (iii) any portion of the sign-on grant or any other long-term incentive plan award
granted to Mr. Thompson that vests pursuant to the terms of the applicable award agreement.
If Mr. Thompson’s employment is terminated without “cause” within the twelve months immediately following, or the
six months immediately preceding, a “Change in Control,” Mr. Thompson will be entitled to receive the Thompson Accrued
Amounts and (i) a lump-sum cash payment equal to two times the sum of (A) his annual base salary rate immediately prior to
the effective date of such termination and (B) an amount equal to the Incentive Bonus paid to him in respect of the calendar
year immediately preceding the year of the termination and (ii) an amount equal to the cost of COBRA for his immediate
family and himself for a period of twelve months following such termination of employment, provided that Mr. Thompson
executes and delivers a release to the Company. Any unvested RSU awards, including the sign-on grant, also will vest if
Mr. Thompson is terminated without “cause” within the twelve months immediately following, or the six months
immediately preceding, a “Change in Control”. The foregoing benefits described in this paragraph represent “double trigger”
benefits. Notwithstanding the above, any amounts payable to Mr. Thompson upon a “Change in Control” shall not constitute
a “parachute payment” and will be reduced accordingly.
Winges Employment Agreement
The Company entered into an employment agreement with Mr. Winges effective upon his commencement of his
employment with us on February 20, 2019. The employment agreement remained in effect until February 20, 2022. In
March 2022, the employment agreement was amended to extend its term until February 20, 2025. Pursuant to the amended
employment agreement, provided that Mr. Winges executes and delivers a release to the Company, if he is terminated
without “cause” he will receive a lump-sum cash payment equal to one times the sum of (A) his annual base salary rate
immediately prior to the effective date of such termination and (B) an amount equal to the annual incentive cash bonus paid
to him in respect of the calendar year immediately preceding the year of the termination, and (C) any other long-term
incentive program award granted to Mr. Winges that vests pursuant to the terms of the applicable award agreement. In
connection with Mr. Winges entering into the amendment to his employment agreement, he received an additional grant of
8,892 TRSUs that will cliff vest on the third anniversary of the date of grant.
If Mr. Winges’s employment is terminated without “cause” within the twelve months immediately following, or the six
months immediately preceding, a “Change in Control,” (i) the full vesting of any long-term incentive plan awards granted to
him, and (ii) a lump-sum cash payment equal to two times the sum of (A) his annual base salary rate immediately prior to the
effective date of such termination and (B) an amount equal to the annual incentive cash bonus paid to him in respect of the
calendar year immediately preceding the year of the termination, provided that Mr. Winges executes and delivers a release to
the Company. The foregoing benefits described in this paragraph represent “double trigger” benefits. Notwithstanding, any
amounts payable to Mr. Winges upon a “Change in Control” shall not constitute a “parachute payment” and will be reduced
accordingly.
Incentive Plans
2012 Equity Incentive Plan
The 2012 Equity Incentive Plan, under which we have granted awards to the NEOs, contains specific termination and
change in control provisions. We originally determined to include a change in control provision in the plan (i) to be
competitive with what we believe to be the standards for the treatment of equity upon a change in control for similar
companies and (ii) to ensure employees who remain after a change in control would be treated the same with regard to equity
as the general stockholders who could sell or otherwise transfer their equity upon a change in control. Under the terms of the
2012 Equity Incentive Plan, if a change in control (as defined below in the discussion of the plan under “Executive
Compensation — Potential Payments Upon Termination or Change-in-Control”) were to occur, all awards then outstanding
would become vested and/or exercisable and any applicable performance goals with respect thereto would be deemed to be
fully achieved. For equity grants after January 1, 2019, all equity award agreements contain “double trigger” provisions,
which require termination without cause within the six months preceding or the twelve months following a change in control
for the equity awards to vest in connection with a change in control. Further discussion of the change in control payments that
may be made pursuant to the 2012 Equity Incentive Plan may be found in the “Executive Compensation — Potential
Payments Upon Termination or Change-in-Control” section below.
41
2020 Equity Incentive Plan
The 2020 Equity Incentive Plan was approved by the Board of Directors on April 30, 2020, and approved by our
stockholders on July 23, 2020. Upon a change in control of Hilltop, awards will not vest unless the participant incurs a
termination of service by us without cause or by the participant for good reason within six months prior to or twelve months
following the change in control. A change in control generally includes (i) the acquisition by a third-party of 33% or more of
the outstanding voting stock or equity securities of Hilltop, (ii) a merger, reorganization, consolidation, or similar transaction
with a third-party after which the stockholders of Hilltop do not retain over 50% of the outstanding voting stock or equity
securities following the transaction, (iii) a majority of the members of our Board of Directors are members who were not
appointed by the then existing Board of Directors, or (iv) the complete liquidation or dissolution of Hilltop. In connection
with a change in control, outstanding awards may be converted into new awards; exchanged or substituted for new awards; or
canceled for no consideration, provided participants were given notice and an opportunity to purchase or exercise such
awards, or cancelled and cashed out based on the positive difference between the per share amount to be received in
connection with the transaction and the purchase/exercise price per share of the award, if any. Further discussion of the
change in control payments that may be made pursuant to the 2020 Equity Incentive Plan may be found in the “Executive
Compensation — Potential Payments Upon Termination or Change-in-Control” section below.
Annual Incentive Plan
The Annual Incentive Plan, pursuant to which annual incentive bonuses are awarded, does not contain specific change in
control provisions. Accordingly, the Committee, in its discretion, may determine what constitutes a change in control and
what effects such an event may have on any awards made pursuant to such plan.
Executive Compensation Process
Role of the Compensation Committee
The Committee is responsible for reviewing and approving all aspects of the compensation programs for our NEOs and
making all decisions regarding specific compensation to be paid or awarded to them. The Committee is responsible for,
among its other duties, the following:
• Review and approval of corporate incentive goals and objectives relevant to compensation;
• Evaluation of individual performance results in light of these goals and objectives;
• Evaluation of the competitiveness of the total compensation package;
• Approval of any changes to the total compensation package, including, but not limited to, base salary, annual and
long-term incentive award opportunities and payouts and retention programs; and
• Approval of any employment contract or other written agreement with any executive of the Company or its
subsidiaries.
The Committee is responsible for determining all aspects of compensation of the Chief Executive Officer, as well as
assessing his individual performance.
In setting the compensation of our NEOs, the Committee, in its discretion, considers (i) the transferability of managerial
skills, (ii) the relevance of each NEO’s experience to other potential employees, and (iii) the readiness of the NEO to assume
a different or more significant role, either within our organization or with another organization. When the Committee makes
pay-related decisions, the Committee considers our acquisition and growth strategy, our desire to attract, retain and motivate
talent, and the importance of compensation in supporting the achievement of our strategic objectives.
Information about the Committee and its composition, responsibilities and operations can be found under the “Board
Committees” section above.
42
Role of the Chief Executive Officer in Compensation Decisions
The Chief Executive Officer provides input and recommendations to the Committee regarding compensation decisions
for his direct reports, including the other NEOs. These recommendations are made within the framework of the compensation
programs approved by the Committee and based on market data provided by the Committee’s independent consultant. The
input includes base salary changes, annual incentive and long-term incentive opportunities and payouts, specific individual
performance objectives, and individual performance assessments. The Chief Executive Officer makes recommendations
based on his assessment of the individual officer’s performance, performance of the officer’s respective business or function
and employee retention considerations. The Committee reviews and considers the Chief Executive Officer’s
recommendations when determining any compensation changes affecting our executive officers.
Role of Compensation Consultant
Pursuant to its charter, the Committee is authorized to retain and terminate any consultant, as well as to approve the
consultant’s fees and other terms of the engagement. The Committee also has the authority to obtain advice and assistance
from internal or external legal, accounting or other advisors. In 2021, the Committee continued its engagement of Meridian
Compensation Partners, LLC, or Meridian, as its independent compensation consultant. Meridian is engaged directly by the
Committee.
Pursuant to its engagement, Meridian provides research, data analyses, survey information and design expertise in
developing compensation programs for executives and incentive programs for eligible employees. In addition, Meridian
keeps the Committee apprised of regulatory developments and market trends related to executive compensation practices.
Meridian does not determine or recommend the exact amount or form of executive compensation for any of the NEOs. A
representative of Meridian generally attends meetings of the Committee, is available to participate in executive sessions of
the Committee and communicates directly with the Committee and the chairman of the Committee.
Pursuant to the Committee’s charter, if the Committee elects to use a compensation consultant, the Committee must
assess the consultant’s independence, taking into account the following factors:
• The provision of other services to the Company by the consultant;
• The amount of fees the consultant received from the Company;
• The policies and procedures the consultant has in place to prevent conflicts of interest;
• Any business or personal relationships between the consulting firm and the members of the Committee;
• Any ownership of Company stock by the individuals at the firm performing consulting services for the Committee;
and
• Any business or personal relationship of the firm with an executive officer of the Company.
Meridian has provided the Committee with appropriate assurances and confirmation of its independent status pursuant to
these and other factors. The Compensation Committee evaluated whether the work provided by Meridian raised any conflict
of interest, and determined that Meridian has been independent throughout its service for the Committee and no conflict of
interest was raised by the work of Meridian described in this Proxy Statement.
Peer Group and Benchmarking Approach
The Committee regularly assesses the components of the executive compensation program with advice from its
independent compensation consultant. In October 2020, Meridian provided an analysis of base salary, annual incentive and
long-term incentive practices of comparable companies in the financial industry. Meridian considered individual
compensation elements as well as the total compensation package. This analysis was considered by the Committee when it
established 2021 pay opportunities for executives.
In performing this analysis, Meridian developed market data using publicly disclosed compensation information from a
peer group of comparable financial institutions, as well as compensation surveys. Survey data reflected financial institutions
43
of similar size to Hilltop and our operating subsidiaries. The Committee did not review the specific companies included in the
survey data.
The compensation peer group includes institutions of generally similar asset size and, to the extent possible,
organizations with significant other operating segments and non-interest income. In evaluating the peer group, the Committee
considers that our combination of businesses adds complexity relative to other banks with similar asset sizes.
The following banks were included in the peer group for Meridian’s market study in October 2020:
Ameris Bancorp
BancFirst Corporation
BancorpSouth Bank
Cadence Bancorporation
Commerce Bancshares, Inc.
First Financial Bancorp.
First Financial Bankshares, Inc.
First Midwest Bancorp, Inc.
Flagstar Bancorp, Inc.
Hancock Whitney Corporation
Independent Bank Group, Inc.
International Bancshares Corporation UMB Financial Corporation
Prosperity Bancshares, Inc.
Renasant Corporation
Simmons First National Corporation
South State Corporation
TowneBank
Trustmark Corporation
Umpqua Holdings Corporation
WesBanco, Inc.
With Meridian’s assistance, the Committee reviewed the peer group in July 2021 and determined to maintain the same
peer group from 2020. While there was announced merger and acquisition activity within such group, it was determined that
relevant compensation data remained available.
Risk Considerations in Our Compensation Program
We do not believe that our compensation policies and practices for 2021 gave rise to risks that were reasonably likely to
have a material adverse effect on our Company. In reaching this conclusion for 2021, we considered the following factors:
• Base salary is fixed and the only compensation components that are variable are the annual incentives and PRSUs
awarded to NEOs, which were awarded based upon attainment of pre-determined levels of earnings.
• Annual Incentive Plan payments to the NEOs were determined or approved following the completion of the audit of
the Company’s consolidated financial statements by the Company’s independent registered public accounting firm.
Thus, the Committee had ample knowledge of the financial condition and results of the Company, as well as reports
of other committees of the Board of Directors, upon which to base its decisions.
• We have a balanced program that includes multiple performance goals, rewards short-term and multi-year
performance, pays in cash and equity and provides a meaningful portion of pay in stock, which is tied to our long-
term performance.
• Annual Incentive Plan, 2012 Equity Incentive Plan and 2020 Equity Incentive Plan awards are subject to clawback
and adjustments for improper risk taking and significant compliance issues.
• Each year the Committee reviews all compensation programs to ensure existing programs are not reasonably likely
to have a material adverse effect on the Company.
Executive Compensation Programs and Policies
Stock Ownership Guidelines
In February 2014, the Committee recommended, and the Board of Directors adopted, a stock ownership policy
applicable to our executive officers and directors. Within five years of the later of appointment or the date the policy was
adopted, executive officers are required to achieve and maintain ownership of a defined market value of Company common
stock equal to a minimum number of equity or equity-based securities as follows:
• Six times annual base salary for the Chief Executive Officer; and
• Three times annual base salary for the other executive officers.
44
Under this policy, directors are expected to own shares with a value greater than five times their annual retainer for
serving on the Board of Directors of the Company, unless they are subject to certain restrictions on receiving director fees, or
fees in the form of stock. Our director compensation program permits directors to elect to receive their director compensation
in cash, Company common stock or a combination of cash and Company common stock.
In calculating equity ownership for purposes of the stock ownership guidelines, we include all shares beneficially owned
by an individual, such as shares owned by an individual in the Company’s benefit plans (e.g., 401(k) and Employee Stock
Purchase Plan), shares of restricted stock and shares with respect to which an individual has voting or investment power.
Unexercised stock options and unearned performance shares are excluded when determining ownership for these purposes.
Executive officers are expected to hold 50% of any net shares received through compensatory equity-based grants until
the ownership guidelines are achieved. Once such officer achieves the ownership requirement, he or she is no longer restricted
by this holding requirement, provided his or her total stock ownership level does not fall below the ownership guidelines.
In addition, all awards of RSUs granted since February 2014 to NEOs are, subject to certain exceptions, required to be
held for one year after vesting.
As of April 28, 2022, all NEOs are on track to meet the ownership guidelines.
Clawback Policy
Our compensation program also includes a clawback from any annual cash or long-term incentive award for improper
risk taking and significant compliance issues. Annual Incentive Plan, 2012 Equity Incentive Plan and 2020 Equity Incentive
Plan awards are subject to any clawback, recoupment or forfeiture provisions (i) required by law or regulation and applicable
to Hilltop or its subsidiaries or (ii) set forth in any policies adopted or maintained by Hilltop or any of its subsidiaries.
Trading Controls and Hedging, Short Sale and Pledging Policies
Executive officers, including the NEOs, are required to receive the permission of the General Counsel prior to entering
into any transactions in our securities, including gifts, grants and those involving derivatives. Generally, trading is permitted
only during announced trading periods. Employees who are subject to trading restrictions, including the NEOs, may enter
into a trading plan under Rule 10b5-1 under the Exchange Act. These trading plans may be entered into only during an open
trading period and must be approved by the General Counsel. We require trading plans to include a waiting period and the
trading plans may not be amended during their term. The NEO bears full responsibility if he or she violates our policy by
permitting shares to be bought or sold without pre-approval or when trading is restricted.
Executive officers are prohibited from entering into hedging, short sale and derivative transactions and are subject to
restrictions on pledging our securities. All employees are prohibited from hedging or pledging unvested RSUs.
Tax Considerations
The Committee continues to reserve flexibility to provide compensation arrangements that it believes are consistent with
its compensation philosophy even if the arrangements will result in non-deductible compensation.
Compensation Committee Report
The Compensation Committee of the Board of Directors of Hilltop Holdings Inc. has reviewed and discussed with
management the Compensation Discussion and Analysis contained in this Proxy Statement. Based on its review, the
Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be
included in the Proxy Statement.
The foregoing report has been submitted by the following members of the Compensation Committee:
A. Haag Sherman (Chairman)
Rhodes Bobbitt
William T. Hill, Jr.
Andrew Littlefair
45
Executive Compensation
The following tables set forth information concerning the compensation earned for services performed during 2021, 2020
and 2019 by the NEOs, who were either serving in such capacities on December 31, 2021, during 2021, or are reportable
pursuant to applicable SEC regulations.
Summary Compensation Table
Fiscal Years 2021, 2020 and 2019
Name and principal position
Jeremy B. Ford
President and
Chief Executive Officer
William B. Furr
Executive Vice President and
Chief Financial Officer
Jerry L. Schaffner
President and Chief Executive
Officer of the Bank
Salary
($)
Year
2021 793,269
2020 768,269
2019 750,000
2021 536,538
2020 495,962
2019 475,577
2021 657,308
2020 643,269
2019 611,539
Bonus
(a) ($)
Stock
Awards
(b) ($)
— 4,322,657
— 2,911,894 (f)
— 1,718,833
—
500,000
—
—
140,000
—
867,730
485,319
757,212
534,229
412,524
392,866
Stephen Thompson
President and Chief Executive
Officer of PrimeLending (g)
2021 779,808
2020 722,115
2019 650,000
— 1,009,797
2,225,000
—
416,204 (h)
96,850
M. Bradley Winges
President and Chief Executive
Officer of Hilltop Securities (i)
2021 500,000
2020 500,000
2019 419,231
—
630,000
755,741
582,388
2,500,000 (j) 1,801,906 (k)
Non-Equity
Option
Incentive Plan
Awards Compensation
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(c) ($)
1,385,775
1,433,750
1,125,000
866,109
832,500
652,500
922,486
789,750
670,000
1,893,166
1,341,250
325,000
1,311,292
2,061,339
500,000
Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
(d) ($)
All Other
Compensation
(e) ($)
—
—
—
—
—
—
3,806
14,367
44,021
—
—
—
—
—
—
176,996
112,314
91,172
12,940
10,530
10,580
58,315
58,556
56,537
42,057
47,068
49,977
11,807
11,544
577,219
Total ($)
6,678,697
5,226,227
3,685,005
2,283,317
2,324,311
1,895,869
2,176,144
2,058,466
1,774,963
3,724,827
4,751,637
1,121,827
2,578,840
3,785,271
5,798,356
(a) Represents discretionary bonuses paid for services during 2021, 2020 and 2019, as applicable.
(b) Reflects the grant date fair value calculated in accordance with the provisions of the Stock Compensation Topic of the ASC, in accordance with the
assumptions described in Note 22 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31,
2021. The value of performance-based stock awards is based on the probable outcome of the applicable performance conditions. The following table
presents the value of performance-based awards included in the table above based on the achievement of both probable and maximum outcomes:
Name
Jeremy B. Ford
William B. Furr
Jerry L. Schaffner
Stephen Thompson
M. Bradley Winges
Year
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
Performance-Based Stock Awards
(Probable Achievement) ($)
(Maximum Achievement) ($)
2,663,890
1,411,878
843,832
536,422
235,317
212,167
295,460
200,010
192,871
684,717
141,186
—
405,717
282,371
—
3,995,835
2,117,817
1,265,747
804,633
352,975
318,251
443,189
300,014
289,307
1,027,076
211,779
—
608,575
423,557
—
(c) For 2021, represents cash awards earned under the Annual Incentive Plan for services during 2021, but paid in February 2022. For 2020, represents
cash awards earned under the Annual Incentive Plan for services during 2020, but paid in March 2021. For 2019, represents cash awards earned under
the Annual Incentive Plan for services during 2019, but paid in March 2020.
(d) Represents interest earned on non-qualified deferred compensation contributions to Mr. Schaffner during 2021, 2020 and 2019, as applicable. For
(e)
additional information, see “— Non-Qualified Deferred Compensation.”
Includes amounts paid during 2021, 2020 and 2019, as applicable, for group life insurance premiums, auto allowance, club expenses, use of company
car and aircraft, moving expenses and cellular phone reimbursement, which is described in more detail in the table below.
Includes 41,667 time-based RSUs granted to Mr. Jeremy B. Ford in connection with the sale of National Lloyds Corporation.
(f)
(g) Mr. Thompson began serving as President and Chief Executive Officer of PrimeLending effective January 1, 2020.
(h)
Includes 5,014 time-based RSUs granted to Mr. Thompson in connection with his promotion to CEO of PrimeLending.
46
(i) Mr. Winges began serving as President and Chief Executive Officer of Hilltop Securities effective February 20, 2019.
(j)
(k)
Includes sign-on bonus of $1.5 million and guaranteed annual cash incentive award for 2019 under his employment contract of $1.0 million.
Includes sign-on grants of equity of 10,363 time-based RSUs and 83,000 time-based RSUs to offset compensation forfeited by Mr. Winges for
terminating his employment with his former employer.
All Other Compensation
Name
Jeremy B. Ford
William B. Furr
Jerry L. Schaffner
Stephen Thompson
M. Bradley Winges
Perquisites
and Personal
Benefits
(a) ($)
166,076
101,394
80,502
2,410
—
300
42,336
42,642
40,941
27,159
33,964
37,123
263
—
343,694
Year
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
2021
2020
2019
Gross-Ups or
Company
Other Amounts
Contributions
Reimbursed
for the Payment
of Taxes
($)
to Defined
Contribution
Plans
($)
Insurance
Policies
(b) ($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
222,990
9,750
9,750
9,500
9,750
9,750
9,500
9,750
9,750
9,500
9,750
9,750
9,500
9,750
9,750
9,500
1,170
1,170
1,170
780
780
780
6,229
6,164
6,096
5,148
3,354
3,354
1,794
1,794
1,035
Total All Other
Compensation
($)
176,996
112,314
91,172
12,940
10,530
10,580
58,315
58,556
56,537
42,057
47,068
49,977
11,807
11,544
577,219
(a) Year 2021: For Mr. Jeremy B. Ford, reflects personal use of company airplane of $165,813 and other income of $263. For Mr. Furr, reflects personal
use of company airplane of $1,707 and other income of $703. For Mr. Schaffner, reflects a car allowance of $24,000, club expenses of $12,016,
personal use of company automobile of $4,857, cellular phone reimbursement of $1,200, and other income of $263. For Mr. Thompson, reflects a car
allowance of $12,000, club expenses of $13,696, cellular phone reimbursement of $1,200, and other income of $263. For Mr. Winges, reflects other
income of $263. Personal use of company aircraft is calculated on a per mile basis utilizing SIFL rates published by the IRS.
(b) Reflects group term life insurance premiums paid for Messrs. Jeremy B. Ford, Furr, Thompson and Winges, as applicable. Year 2021: For
Mr. Schaffner, represents bank-owned life insurance of $1,081 and group term life insurance of $5,148. Group term life insurance is made available to
all employees.
47
Grants of Plan-Based Awards
Grants of Plan-Based Awards Table
Fiscal Year 2021
All Other
Estimated Future Payouts Under Non-Equity Estimated Future Payouts Under Equity
Threshold
($)
Incentive Plan Awards (a)
Target
($)
Maximum Threshold Target
($)
(#)
(#)
Incentive Plan Awards (b)
Stock Awards:
Number of
Shares of
Maximum Stock or Units Option Awards
(c) (#)
(#)
Grant Date
Fair Value of
Share and
Name
Jeremy B. Ford
William B. Furr
Jerry L. Schaffner
Stephen Thompson
M. Bradley Winges
Grant Date
2/23/2021
2/23/2021
2/23/2021
2/23/2021
2/23/2021
2/23/2021
2/23/2021
2/23/2021
2/23/2021
2/23/2021
2/23/2021
2/23/2021
2/23/2021
2/23/2021
2/23/2021
400,000
800,000
1,480,000
40,059
80,117
120,176
250,000
500,000
925,000
8,067
16,133
24,200
300,000
600,000
1,110,000
4,443
8,886
13,329
600,000
1,200,000
2,220,000
10,297
20,593
30,890
850,000
1,700,000
3,145,000
6,101
12,202
18,303
50,603
10,107
7,284
9,917
10,678
(d) ($)
1,658,766
2,663,890
331,307
536,422
238,770
295,460
325,079
684,717
350,025
405,717
(a) Represent the value of potential payments under the Annual Incentive Plan to the NEOs based on 2021 performance. Management incentive award
amounts shown above represent potential awards that may have been earned based on performance during 2021. The actual amounts earned pursuant to
Annual Incentive Plan awards for 2021 are reported in the “Summary Compensation Table” above. For more information regarding the Annual
Incentive Plan, see below and also refer to “Compensation Discussion and Analysis” in this Proxy Statement.
(b) Represents performance-based RSUs that vest based upon the achievement of certain performance goals during the three-year period beginning
January 1, 2021 and ending December 31, 2023. These RSUs were issued pursuant to the 2020 Equity Incentive Plan and a form of award agreement
and are subject to forfeiture, accelerated vesting and other restrictions as more fully set forth in the 2020 Equity Incentive Plan and the form of award
agreement. Performance-based RSU award amounts shown above do not reflect the impact of the TSR modifier. For additional information, see
“Compensation Discussion and Analysis — Compensation Program Philoshophy and Objections” and “Compensation Discussion and Analysis —
Elements of our Executive Compensation Program — Long-Term Incentive Awards.”
(c) Represents time-based RSUs that cliff vest upon the third anniversary of the date of grant. These RSUs were issued pursuant to the 2020 Equity
Incentive Plan and a form of award agreement and are subject to forfeiture, accelerated vesting and other restrictions as more fully set forth in the 2020
Equity Incentive Plan and the form of award agreement. For additional information, see “Compensation Discussion and Analysis — Elements of our
Executive Compensation Program — Long-Term Incentives.”
(d) Reflects the grant date fair value calculated in accordance with the provisions of the Stock Compensation Topic of the ASC. The value of the
performance-based stock awards is based on the probable outcome of the applicable performance conditions. For more information regarding
outstanding awards held by the NEO, refer to section “Outstanding Equity Awards at Fiscal Year-End” below.
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Employment Contracts and Incentive Plans
Set forth below is a summary of our employment agreements with Messrs. Furr, Schaffner, Thompson and Winges. We
do not have an employment agreement with Mr. Jeremy B. Ford. Also set forth below is a description of our incentive plans,
pursuant to which the awards included in the “Outstanding Equity Awards at Fiscal Year-End Table” below were made to
our NEOs. The Compensation Committee believes that the arrangements described below serve our interests and the interests
of our stockholders because they help secure the continued employment and dedication of our NEOs prior to or following a
change in control, without concern for their own continued employment.
48
Employment Contracts
Mr. Furr
In connection with the appointment of Mr. Furr as Chief Financial Officer of the Company, the Company and Mr. Furr
entered into an employment agreement effective as of September 1, 2016. The employment agreement remained in effect
until the third anniversary of the effective date. In August 2019, the employment agreement was amended to extend its term
until August 31, 2022. Pursuant to this amended agreement, Mr. Furr is entitled to a minimum annual base salary of $485,000
and is eligible to participate in (1) an annual incentive bonus program adopted by the Compensation Committee of the Board
of Directors of the Company, or whomever is delegated such authority by the Board of Directors, and (2) any long-term
incentive award programs adopted by the Compensation Committee, or whomever is delegated such authority by the Board
of Directors. Mr. Furr also is entitled to reimbursement of employment-related expenses and to participate in the employee
benefit programs generally available to employees of the Company. The agreement also includes, among other things,
customary non-competition, non-solicitation and confidentiality provisions. Mr. Furr’s non-competition and non-solicitation
obligations continue for 24 months following the earlier of (i) his termination and (ii) the termination of his employment
agreement. In consideration for the addition of the 24-month customer non-solicitation provision and the increased time
period of the employee non-solicitation provision from twelve to 24 months, as well as other additional provisions, the
employment agreement provided that Mr. Furr was entitled to receive a grant of RSUs having an aggregate fair market value
of $325,000 on the date of grant. For a description of compensation and benefits to which Mr. Furr is entitled in the event of
his termination or a change in control, see “Potential Payments Upon Termination or Change-in-Control” below.
Mr. Schaffner
On November 30, 2012, in connection with the Company’s acquisition of PlainsCapital, the Company entered into a
retention agreement with Mr. Schaffner. The retention agreement provides for an initial term of two years, with automatic
one-year renewals at the end of the first year of the agreement and each anniversary thereof unless notice has been given
otherwise. Pursuant to the agreement, Mr. Schaffner’s minimum annual base salary is $525,000. He is also entitled to an
annual bonus that varies based upon the performance of PlainsCapital. If PlainsCapital’s annual net income is greater than
$15,000,000, Mr. Schaffner is entitled to a bonus equal to the average of his annual bonus in the prior three calendar years.
Additionally, in accordance with the agreement, Mr. Schaffner is entitled to participate in all of the Company’s employee
benefit plans and programs. Further, the agreement provides that the Company will provide Mr. Schaffner with the use of
corporate aircraft and an automobile allowance, each at the same level that such benefits were available to Mr. Schaffner
immediately prior to our acquisition of PlainsCapital. He continues to have bank-owned life insurance and access to the
country club that was available to him through PlainsCapital’s membership prior to our acquisition of PlainsCapital. For a
description of compensation and benefits to which Mr. Schaffner is entitled in the event of his termination or a change in
control, see “Potential Payments Upon Termination or Change-in-Control” below.
Mr. Thompson
In connection with the promotion of Mr. Thompson as President and Chief Executive Officer of PrimeLending, on
October 25, 2019, the Company and Mr. Thompson entered into an employment agreement that became effective as of
January 1, 2020, which will remain in effect until December 31, 2022. Pursuant to the employment agreement,
Mr. Thompson is entitled to a minimum annual base salary of $725,000 and is eligible to participate in (1) an annual
incentive bonus program adopted by the Compensation Committee of the Board of Directors of the Company, or whomever
is delegated such authority by the Board, and (2) any long-term incentive award programs adopted by the Compensation
Committee, or whomever is delegated such authority by the Board. Mr. Thompson also is entitled to reimbursement of
employment-related expenses and to participate in the employee benefit programs generally available to employees of the
Company. The agreement also includes, among other things, customary non-competition, non-solicitation and confidentiality
provisions. Mr. Thompson’s non-competition obligations continue for 12 months following his termination, and
Mr. Thompson’s non-solicitation obligations continue for 12 months following the earlier of (i) his termination and (ii) the
termination of his employment agreement. Additionally, pursuant to his employment agreement, Mr. Thompson received a
sign-on grant of RSUs having an aggregate fair market value of $125,000 on the date of grant. With respect to calendar year
2020, the employment agreement provided that the value of his long-term incentive award granted in 2020 was at least
$300,000. For a description of compensation and benefits to which Mr. Thompson is entitled in the event of his termination
or a change in control, see “Potential Payments Upon Termination or Change-in-Control” below.
49
Mr. Winges
The Company entered into an employment agreement with Mr. Winges effective upon commencement of his
employment with us on February 20, 2019. The employment agreement remained in effect until February 20, 2022. In
March 2022, the employment agreement was amended to extend its term until February 20, 2025. Pursuant to this amended
agreement, Mr. Winges is entitled to an annual base salary of $500,000 and is eligible to participate in (1) an annual incentive
bonus program adopted by the Compensation Committee of the Board of Directors of the Company, or whomever is
delegated such authority by the Board, and (2) any long-term incentive award programs adopted by the Compensation
Committee, or whomever is delegated such authority by the Board. The agreement also includes, among other things,
customary non-interference and non-disparagement provisions. Mr. Winges’ non-interference obligations continue for
18 months following the earlier of (i) his termination and (ii) termination of his employment agreement. In consideration for
the addition of the non-interference and non-disparagement provisions, as well as other additional provisions, the amended
employment agreement provided that Mr. Winges was entitled to receive a grant of 8,892 RSUs.
Mr. Winges received a sign-on cash bonus of $1,500,000 on the effective date of his employment. This sign-on bonus
was paid to offset bonus compensation forfeited at his prior employer. As discussed in more detail below, this sign-on bonus
also would have offset any amounts payable if Mr. Winges had been terminated in the first year of his employment.
Mr. Winges’s employment agreement also provided for the reimbursement of up to $400,000 of out-of-pocket costs related to
Mr. Winges’s relocation to Dallas, Texas and a gross-up of any such expenses not deductible by him. We believed this
amount to be reasonable given our requirement that he move to the Dallas, Texas metroplex on an expedited basis. With
respect to calendar year 2019, the employment agreement provided that Mr. Winges was entitled to a minimum annual cash
incentive bonus of $1,000,000 and the value of his long-term incentive award to be granted in 2020 was at least $500,000.
Mr. Winges’s employment agreement also provided for a grant of 83,000 TRSUs to offset compensation forfeited from
Mr. Winges’s prior employer. The employment agreement provided that if Mr. Winges had been terminated without “cause”
or due to death or disability within one year of the effective date, he would have received a payment of $2,000,000 less any
salary and incentives received during his employment, and this payment would be in lieu of any shares vesting from the grant
of TRSUs. Following the first anniversary of his employment, if he is terminated without cause he will receive a lump-sum
cash payment equal to one times the sum of (A) his annual base salary rate immediately prior to the effective date of such
termination and (B) an amount equal to the annual incentive cash bonus paid to him in respect of the calendar year
immediately preceding the year of the termination. Any unvested portion of the 83,000 TRSUs also will vest in full if such
termination, or a termination as a result of death or disability, occurs on or after the first anniversary of the effective date of
his employment. For a description of compensation and benefits to which Mr. Winges is entitled in the event of his
termination or a change in control, see “Potential Payments Upon Termination or Change-in-Control” below.
Equity Incentive Plans
On September 20, 2012, our stockholders approved the 2012 Equity Incentive Plan, which provides for the grant of
equity-based awards, including restricted shares of our common stock, RSUs, stock options, grants of shares, stock
appreciation rights, or SARs, and other equity-based incentives, to our directors, officers and other employees and those of
our subsidiaries selected by our Compensation Committee. At inception, 4,000,000 shares were authorized for issuance
pursuant to the 2012 Equity Incentive Plan. On June 15, 2017, our stockholders reapproved the performance goals contained
in the 2012 Equity Incentive Plan. All shares granted and outstanding pursuant to the 2012 Equity Incentive Plan, whether
vested or unvested, are entitled to receive dividends and to vote, unless forfeited. All other awards, including RSUs, are not
entitled to dividends nor to vote. No participant in our 2012 Equity Incentive Plan may be granted performance-based equity
awards in any fiscal year representing more than 500,000 shares of our common stock or stock options or SARs representing
in excess of 750,000 shares of our common stock. The maximum number of shares underlying incentive stock options
granted under the 2012 Equity Incentive Plan may not exceed 2,000,000.
On July 23, 2020 our stockholders approved the 2020 Equity Incentive Plan, and as a result, our ability to grant new
awards pursuant to the 2012 Equity Incentive Plan was terminated. However, all awards that were previously granted and
outstanding under the 2012 Equity Incentive Plan remained in full force and effect according to their respective terms.
The 2020 Equity Incentive Plan provides for the grant of incentive stock options, nonqualified stock options, or SARs,
restricted stock, RSUs, performance awards, dividend equivalent rights and other equity-based awards, which may be granted
singly or in combination, and may be paid in cash or shares of our common stock, to our directors, officers and other
50
employees and those of our subsidiaries selected by our Compensation Committee. At inception, 3,650,000 shares were
authorized for issuance pursuant to the 2020 Equity Incentive Plan. All shares granted and outstanding pursuant to the 2020
Equity Incentive Plan, whether vested or unvested, are entitled to receive dividends and to vote, unless forfeited. Generally,
holders of restricted stock will be entitled to vote and receive dividends on their restricted shares, but our Compensation
Committee may determine, in its discretion, whether dividends paid while the shares are subject to restrictions may be
reinvested in additional shares of restricted stock. All other awards, including RSUs, are not entitled to dividends nor to vote;
however, an award of RSUs may provide for rights with respect to dividends or dividend equivalents.
Stock options granted under the 2012 Equity Incentive Plan and the 2020 Equity Incentive Plan may be either “incentive
stock options” within the meaning of Section 422 of the Code, or nonqualified stock options. All of the shares available for
issuance as an award under the 2020 Equity Incentive Plan may be delivered pursuant to incentive stock options. Other than
during the first calendar year in which a non-employee director has been elected to serve on the Board of Directors, no such
director may be granted awards under the 2020 Equity Incentive Plan in any calendar year that, when taken together with all
cash retainers and other fees paid to the director for services to Hilltop for the same calendar year, exceed $450,000 in the
aggregate (with the value of any equity awards determined as of the date of grant; provided, however, the Chairman may be
granted an award or awards each calendar year in an aggregate amount not to exceed 50,000 shares, which shall be in addition
to the $450,000 annual limit on awards to non-employee directors described above. Five percent of the shares of our common
stock that may be issued pursuant to awards under the 2020 Equity Incentive Plan may be granted with (or amended by the
Compensation Committee to include) more favorable vesting conditions than those set forth in the 2020 Equity Incentive Plan.
The 2012 Equity Incentive Plan was, and the 2020 Equity Incentive Plan is, administered by our Compensation
Committee, which has the discretion to, among other things, determine the persons to whom awards will be granted, the
number of shares of our common stock to be subject to awards and performance goals and other terms and conditions of the
awards. Such performance goals may be applied to our Company as a whole, any of our subsidiaries or affiliates, and/or any
of our divisions or strategic business units, and may be used to evaluate performance relative to a market index or a group of
other companies. Further, the Compensation Committee has the authority to adjust the performance goals in recognition of
unusual or non-recurring events. The 2012 Equity Incentive Plan and the 2020 Equity Incentive Plan each provide that in no
event will the Compensation Committee be authorized to re-price stock options, or to lower the base or exercise price of any
SARs granted under such plan, without obtaining the approval of our stockholders.
Except as otherwise permitted by our Compensation Committee, awards granted under the 2012 Equity Incentive Plan
and the 2020 Equity Incentive Plan will be transferable only by will or through the laws of descent and distribution, and each
stock option will be exercisable during the participant’s lifetime only by the participant or, upon the participant’s death, by
his or her estate. Director compensation paid in the form of our common stock, whether at our or the director’s election, is
issued through the 2012 Equity Incentive Plan and the 2020 Equity Incentive Plan.
Annual Incentive Plan
On September 20, 2012, our stockholders originally approved the Annual Incentive Plan. Our stockholders then
reapproved the performance goals contained in the Annual Incentive Plan on June 15, 2017. The Annual Incentive Plan
provides for a cash bonus to key employees who are selected by the Compensation Committee for participation in the plan.
The Annual Incentive Plan is intended to permit the payment of “performance-based compensation” and is designed to
reward executives whose performance during the fiscal year enabled us to achieve favorable business results and to assist us
in attracting and retaining executives. A participant may receive a cash bonus under the Annual Incentive Plan based on the
attainment, during each performance period, of performance objectives in support of our business strategy that are established
by our Compensation Committee. These performance objectives may be based on one or more of the performance criteria
outlined in the Annual Incentive Plan.
The performance objectives may be applied with respect to Hilltop or any one or more of our subsidiaries, divisions,
business units or business segments and may be applied to performance relative to a market index or a group of other
companies. The Compensation Committee may adjust the performance goals applicable to any awards to reflect any unusual
or non-recurring events.
Participation in the Annual Incentive Plan does not guarantee the payment of an award. All awards payable pursuant to
the Annual Incentive Plan are discretionary and subject to approval by our Compensation Committee. After the performance
period ends, the Compensation Committee determines the payment amount of individual awards based on the achievement of
the performance objectives. No participant in the Annual Incentive Plan may receive an award that exceeds $10,000,000 per
51
year. Except as otherwise provided in a participant’s employment or other individual agreement, the payment of a cash bonus
to a participant for a performance period is conditioned upon the participant’s active employment on the date that the final
awards are paid. We may amend or terminate the Annual Incentive Plan at any time.
Outstanding Equity Awards at Fiscal Year End
The following table presents information pertaining to all outstanding equity awards held by the NEOs as of
December 31, 2021.
Name
Jeremy B. Ford
William B. Furr
Jerry L. Schaffner
Stephen Thompson
M. Bradley Winges
Stock Awards
Number of
Shares or Units
of Stock That
Have Not Vested
(#)
Market Value of
Shares or Units
of Stock That
Have Not Vested
(a) ($)
Equity Incentive
Plan Awards:
Number of Unearned
Shares, Units or
Other Rights That
Have Not Vested
(a) (#)
Equity Incentive
Plan Awards:
Market or Payout of
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested
(a) ($)
45,173 (b)
67,782 (d)
41,667 (f)
50,603 (g)
11,358 (b)
13,600 (i)
11,297 (d)
10,107 (g)
10,325 (b)
3,300 (j)
9,603 (d)
7,284 (g)
5,000 (b)
5,014 (k)
6,779 (d)
9,917 (g)
83,000 (l)
10,363 (l)
13,557 (d)
10,678 (g)
1,587,379
2,381,859
1,464,178
1,778,189
399,120
477,904
396,977
355,160
362,821
115,962
337,449
255,960
175,700
176,192
238,214
348,483
2,916,620
364,156
476,393
375,225
81,311 (c)
122,005 (e)
—
144,210 (h)
20,444 (c)
—
20,334 (e)
29,039 (h)
18,585 (c)
—
17,283 (e)
15,994 (h)
—
—
12,200 (e)
37,067 (h)
—
—
24,400 (e)
21,963 (h)
2,857,269
4,287,256
—
5,067,539
718,402
—
714,537
1,020,430
653,077
—
607,325
562,029
—
—
428,708
1,302,534
—
—
857,416
771,780
(a) Value based upon the closing price of $35.14 for our common stock on December 31, 2021. With respect to performance-based RSUs, the number of
shares underlying each award was calculated based on the achievement of maximum level performance due to certain modifiers utilized in the
performance calculation.
(b) Represents time-based RSUs that cliff vested on February 27, 2022.
(c) Represents shares underlying performance-based RSUs that vested on February 27, 2022 upon the achievement of certain performance goals during the
three-year period beginning January 1, 2019 and ending December 31, 2021. The amount disclosed in the table is based on applicable maximum
performance during the noted period. Actual shares issued under performance awards were 180.0% of unvested shares reported in the table above at
December 31, 2021, as approved by the Compensation Committee on February 8, 2022.
(d) Represents time-based RSUs that cliff vest upon the earlier of February 20, 2023 and a termination of employment without cause within the twelve
months following or six months preceding a change of control.
(e) Represents performance-based RSUs that vest upon the achievement of maximum level performance during the three-year period beginning January 1,
2020 and ending December 31, 2022.
(f) Represents time-based RSUs that cliff vest upon the earlier of August 10, 2023 and a termination of employment without cause within the twelve
months following or six months preceding a change of control.
(g) Represents time-based RSUs that cliff vest upon the earlier of February 23, 2024 and a termination of employment without cause within the twelve
months following or six months preceding a change of control.
(h) Represents performance-based RSUs that vest upon the achievement of maximum level performance during the three-year period beginning January 1,
2021 and ending December 31, 2023.
(i) Represents time-based RSUs that cliff vest upon the earlier of September 5, 2022 and a termination of employment without cause within the twelve
months following or six months preceding a change of control.
(j) Represents time-based RSUs that cliff vest upon the earlier of November 21, 2022 and a termination of employment without cause within the twelve
months following or six months preceding a change of control.
(k) Represents time-based RSUs that cliff vest upon the earlier of January 1, 2023 and a termination of employment without cause within the twelve
months following or six months preceding a change of control.
(l) Represents time-based RSUs that cliff vested on February 20, 2022.
52
Option Exercises and Stock Vested in 2021
The following table presents information pertaining to any outstanding RSU awards held by the NEOs that vested during
2021. There were no option awards outstanding during 2021.
Name
Jeremy B. Ford
William B. Furr
Jerry L. Schaffner
Stephen Thompson
M. Bradley Winges
Stock Awards
Number of
Shares Acquired
on Vesting (#)
Value
Realized on
Vesting ($)
88,945
21,707
18,606
4,000
—
3,110,407 (a)
759,094 (a)
650,652 (a)
137,360 (b)
—
(a) Value based upon the closing price of $34.97 for our common stock on March 5, 2021 multiplied by the respective number of vested RSUs.
(b) Value based upon the closing prices of $34.34 for our common stock on April 26, 2021 multiplied by the number of vested RSUs.
Non-Qualified Deferred Compensation
The following table shows the non-qualified deferred compensation activity for our NEOs during the fiscal year ended
December 31, 2021.
Name
Jeremy B. Ford
William B. Furr
Jerry L. Schaffner
Stephen Thompson
M. Bradley Winges
Executive
Aggregate
Registrant
Contributions Contributions Earnings in
Last Fiscal
Year (a) ($)
in Last Fiscal
Year ($)
in Last Fiscal
Year ($)
Aggregate
Withdrawals/
Distributions
($)
—
—
—
—
—
—
—
—
—
—
—
—
3,806
—
—
—
—
—
—
—
Aggregate
Balance at Last
Fiscal Year End
End (b) ($)
—
—
2,598,879
—
—
(a) Represents interest earned on 2012 deferred compensation contributions of $2,448,000 for Mr. Schaffner. All amounts reported as aggregate earnings
in the last fiscal year are reported as compensation in the last completed fiscal year in the Summary Compensation Table.
(b) All amounts were reported as compensation in the Summary Compensation Table for the last completed fiscal year or prior fiscal years.
Potential Payments Upon Termination or Change-in-Control
The 2012 Equity Incentive Plan and 2020 Equity Incentive Plan, under which we have granted awards to the NEOs,
contain specific termination and change in control provisions. We determined to include a change in control provision in the
plans to be competitive with what we believe to be the standards for the treatment of equity upon a change in control for
similar companies and so that employees who remain after a change in control would be treated the same with regard to
equity as the general stockholders who could sell or otherwise transfer their equity upon a change in control. Under the terms
of the 2012 Equity Incentive Plan, if a change in control (as defined below in the discussion of the 2012 Equity Incentive
Plan) were to occur, all awards then outstanding would become vested and/or exercisable and any applicable performance
goals with respect thereto would be deemed to be fully achieved. However, for equity grants pursuant to the 2012 Equity
Incentive Plan after January 1, 2019 and equity grants pursuant to the 2020 Equity Incentive Plan, all equity award
agreements contain “double trigger” provisions, which require termination of employment within the six months preceding or
the twelve months following a change in control in order for the equity awards to vest in connection with a change in control.
53
Employment Contracts
Mr. Furr
If Mr. Furr’s employment agreement is terminated (1) by Mr. Furr, (2) by the Company for “cause” (as such term is
defined in the employment agreement), or (3) in the event of Mr. Furr’s death or disability, Mr. Furr (or his estate, as
applicable) will be entitled to receive his base salary through the effective date of such termination, all earned and unpaid
and/or vested, nonforfeitable amounts owed to him at such time under the employment agreement or under any compensation
or benefit plans, and reimbursement for any unreimbursed business expenses incurred prior to the effective date of such
termination. With respect to a termination resulting from Mr. Furr’s death or disability, the unvested portion of the equity
grants granted to him upon commencement of his employment also will vest, subject to certain conditions.
If Mr. Furr’s employment is terminated by the Company without “cause” (other than pursuant to a “change in control”
(as such term is defined in the employment agreement)), Mr. Furr will be entitled to receive the amounts in the foregoing
paragraph and, subject to his execution and delivery to the Company of a release, a lump-sum cash payment equal to the sum
of (A) his annual base salary rate immediately prior to the effective date of such termination and (B) an amount equal to the
incentive bonus paid to him in respect of the calendar year immediately preceding the year of the termination.
If Mr. Furr’s employment is terminated without “cause” within the twelve months immediately following, or the six
months immediately preceding, a “change in control,” Mr. Furr will be entitled to receive the same amount upon a
termination for “cause” and a lump-sum cash payment equal to two times the sum of (A) his annual base salary rate
immediately prior to the effective date of such termination and (B) an amount equal to the incentive bonus paid to him in
respect of the calendar year immediately preceding the year of the termination, provided that Mr. Furr executes and delivers a
release to the Company. Any unvested portion of the equity grants also will vest. Notwithstanding, any amounts payable to
Mr. Furr upon a change in control shall not constitute a “parachute payment” and shall be reduced accordingly.
Mr. Schaffner
With respect to Mr. Schaffner, if his employment contract is terminated by us for cause, by Mr. Schaffner or due to his
death or disability (as such terms are defined below), he or his estate, as applicable, is entitled to:
(i) his annual base salary through the date of termination, to the extent not already paid and not deferred;
(ii) any annual bonus earned for a prior award period, to the extent not already paid and not deferred;
(iii) any business expenses he incurred that are not yet reimbursed as of the date of termination; and
(iv) any other amounts or benefits, including all unpaid and/or vested, nonforfeitable amounts owing or accrued to him,
required to be paid or provided or which he is eligible to receive under any plan, program, policy or practice or
contract or agreement, to the extent not already paid and not deferred, through the date of termination.
In addition, Mr. Schaffner or his estate, as applicable, is entitled to a lump-sum cash payment equal to $2,448,000, which
represents the amount Mr. Schaffner would have been entitled to receive under his prior employment agreement with
PlainsCapital if his employment was terminated, plus interest from November 30, 2012. Such amounts described in the
preceding paragraph are referred to as the “Accrued Amounts.”
If Mr. Schaffner’s employment is terminated by us other than for cause (as such term is defined below) or his death or
disability, he is entitled to the Accrued Amounts, including the lump-sum cash payment equal to $2,448,000 and interest
thereon from November 30, 2012, as well as payments generally equal to the sum of the average of Mr. Schaffner’s prior
annual bonuses over the preceding three years plus his annual base salary. Mr. Schaffner will retain the right to be grossed-up
for any excise tax relating to “excess parachute payments” (as defined in Section 280G of the Internal Revenue Code), which
is set forth in his prior employment agreement, provided that the gross-up will only relate to any excise taxes arising in
connection with our acquisition of PlainsCapital. These severance amounts are payable subject to Mr. Schaffner’s execution
of a release of claims.
54
Mr. Thompson
If Mr. Thompson’s employment agreement is terminated (1) by Mr. Thompson, (2) by the Company for “cause” (as such
term is defined in the employment agreement), or (3) in the event of Mr. Thompson’s death or disability, Mr. Thompson (or
his estate, as applicable) will be entitled to receive his base salary through the effective date of such termination, all earned
and unpaid and/or vested, nonforfeitable amounts owed to him at such time under the employment agreement or under any
compensation or benefit plans, and reimbursement for any unreimbursed business expenses incurred prior to the effective
date of such termination.
If Mr. Thompson’s employment is terminated by the Company without “cause” (other than pursuant to a “change in
control” (as such term is defined in the employment agreement)), Mr. Thompson will be entitled to receive the amounts in the
foregoing paragraph and, subject to his execution and delivery to the Company of a release, a lump-sum cash payment equal
to the sum of (A) his annual base salary rate immediately prior to the effective date of such termination and (B) an amount
equal to the incentive bonus paid to him in respect of the calendar year immediately preceding the year of the termination.
If Mr. Thompson’s employment is terminated without “cause” within the twelve months immediately following, or the
six months immediately preceding, a “change in control,” Mr. Thompson will be entitled to receive the same amount upon a
termination for “cause” and a lump-sum cash payment equal to two times the sum of (A) his annual base salary rate
immediately prior to the effective date of such termination and (B) an amount equal to the incentive bonus paid to him in
respect of the calendar year immediately preceding the year of the termination, provided that Mr. Thompson executes and
delivers a release to the Company. Any unvested portion of the equity grants, including the sign-on grant, also will vest.
Notwithstanding, any amounts payable to Mr. Thompson upon a change in control shall not constitute a “parachute payment”
and shall be reduced accordingly.
Mr. Winges
If Mr. Winges’s amended employment agreement is terminated (1) by Mr. Winges, (2) by the Company for “cause” (as
such term is defined in the employment agreement), or (3) in the event of Mr. Winges’s death or disability, Mr. Winges (or
his estate, as applicable) will be entitled to receive his base salary through the effective date of such termination, all earned
and unpaid and/or vested, nonforfeitable amounts owed to him at such time under the amended employment agreement, or
under any compensation or benefit plans, and reimbursement for any unreimbursed business expenses incurred prior to the
effective date of such termination.
If Mr. Winges’s amended employment is terminated by the Company without “cause” (other than pursuant to a “change
in control” (as such term is defined in his employment agreement)), Mr. Winges will be entitled to receive the amounts set
forth in the foregoing paragraph and, subject to his execution and delivery to the Company of a release, a lump-sum cash
payment equal to the sum of (A) his annual base salary rate immediately prior to the effective date of such termination and
(B) an amount equal to the incentive bonus paid to him in respect of the calendar year immediately preceding the year of the
termination.
If Mr. Winges’s employment is terminated without “cause” within the twelve months immediately following, or the six
months immediately preceding, a “change in control,” Mr. Winges will be entitled to receive the amounts set forth in the first
paragraph of this section and a lump-sum cash payment equal to two times the sum of (A) his annual base salary rate
immediately prior to the effective date of such termination and (B) an amount equal to the incentive bonus paid to him in
respect of the calendar year immediately preceding the year of the termination, provided that Mr. Winges executes and
delivers a release to the Company. Any unvested RSU awards, also will vest if Mr. Winges is terminated without “cause”
within the twelve months immediately following, or the six months immediately preceding, a “change in
control.” Notwithstanding, any amounts payable to Mr. Winges upon a “change in control” shall not constitute a “parachute
payment” and will be reduced accordingly.
55
Definitions of “Cause” and “Disability” Under Employment Contracts
For the purposes of the employment agreements of Messrs. Furr, Thompson and Winges, “cause” means:
•
•
•
•
•
•
•
•
•
an act of fraud, embezzlement or theft;
the Company is required to remove or replace executive by formal order or formal or informal instruction, including
a requested consent order or agreement, from the Federal Reserve or any other regulatory authority having
jurisdiction;
intentional wrongful damage to property of the Company;
intentional wrongful disclosure of trade secrets or confidential information of the Company;
intentional violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease and
desist order;
intentional breach of fiduciary duty involving personal profit;
intentional action or inaction that causes material economic harm to the Company;
a material violation of the Company’s written policies, standards or guidelines applicable to executive; or
the failure or refusal of executive to follow the reasonable lawful directives of the Board or, in case of Messrs. Furr
and Thompson, their respective supervisors.
For the purposes of the employment agreement with Messrs. Furr, Thompson and Winges, “disability” is defined in
accordance with our disability policy in effect at the time of the disability.
For the purposes of Mr. Schaffner’s retention agreement, “cause” means:
•
•
•
•
•
•
an intentional act of fraud, embezzlement or theft;
intentional wrongful damage to property of the Company;
intentional wrongful disclosure of trade secrets or confidential information of the Company;
intentional violation of any law, rule or regulation (other than traffic violations or similar offenses) or a final cease
and desist order;
intentional breach of fiduciary duty involving personal profit; or
intentional action or inaction that causes material economic harm to the Company.
For the purposes of Mr. Schaffner’s retention agreement, “disability” means he shall have been absent from full-time
performance of his duties for 180 consecutive days as a result of incapacity due to physical or mental illness that is
determined to be total and permanent by a physician.
Set forth below are the amounts that Messrs. Jeremy B. Ford, Furr, Schaffner, Thompson and Winges would have
received if the specified events had occurred on December 31, 2021.
Jeremy B. Ford
Accrued amounts
Cash payment
Cash severance
Restricted stock units (a)
Welfare benefits
Total
Termination for
Cause
Termination due
to Death or
Disability
Termination
Without Cause
Change of
Control
$
$
— $
—
—
7,876,913
—
—
— $
—
—
—
—
13,996,121
—
—
—
— $ 7,876,913 $ 7,876,913 $ 13,996,121
— $
—
—
7,876,913
—
(a) RSUs vest ratably upon the death or disability of the participant or termination of the participant without cause. The foregoing assumes the death or
disability or termination of the participant without cause on December 31, 2021. If a change of control under the 2012 Equity Incentive Plan or the
2020 Equity Incentive Plan occurs and assuming participant is terminated without cause on the date of the change in control, all unvested RSUs vest
upon such event, which for purposes of the foregoing assumes December 31, 2021. In each case, it is assumed the target award is achieved or utilized
to calculate vesting of performance awards. The form of award governing a portion of the RSUs includes a non-solicitation provision that is triggered
upon the participant’s termination. For additional information, see “—Incentive Plans.”
56
William B. Furr
Accrued amounts
Cash payment
Cash severance (a)
Restricted stock units (b)
Welfare benefits
Total
Termination for
Cause
Termination due
to Death or
Disability
Termination
Without Cause
Change of
Control
$
$
— $
—
—
1,866,922
—
— $
— $
—
—
1,382,500
—
1,866,922
—
—
—
— $ 1,866,922 $ 3,249,422
—
—
2,765,000
2,992,171
—
$ 5,757,171
(a) Cash severance calculation if Mr. Furr is terminated without cause is based upon the sum of: (i) Mr. Furr’s annual base salary rate and (ii) an amount
equal to annual incentive cash bonus paid to Mr. Furr in respect of the calendar year immediately preceding the year of the date of termination. If his
employment is terminated without cause upon a change of control, the cash severance calculation is based upon two times the sum of: (i) Mr. Furr’s
annual base salary rate and (ii) an amount equal to annual incentive cash bonus paid to Mr. Furr in respect of the calendar year immediately preceding
the year of the date of termination.
(b) RSUs vest ratably upon the death or disability of the participant or termination of the participant without cause. The foregoing assumes the death or
disability or termination of the participant without cause on December 31, 2021. If a change of control under the 2012 Equity Incentive Plan or the
2020 Equity Incentive Plan occurs and assuming participant is terminated without cause on the date of the change in control, all unvested RSUs vest
upon such event, which for purposes of the foregoing assumes December 31, 2021. In each case, it is assumed the target award is achieved or utilized
to calculate vesting of performance awards. The form of award governing a portion of the RSUs includes a non-solicitation provision that is triggered
upon the participant’s termination. For additional information, see “—Incentive Plans.”
Jerry L. Schaffner
Accrued amounts (a)
Cash payment (b)
Cash severance (c)
Restricted stock units (d)
Welfare benefits
Total
$
Termination for
Cause
660,000
2,598,879
—
—
—
$ 3,258,879
$
Termination due
to Death or
Disability
660,000 $
Termination
Without Cause
660,000
2,598,879
2,598,879
1,323,250
—
1,336,111
1,336,111
—
—
$ 4,594,990 $ 5,918,240
Change of
Control
$
—
—
—
2,084,681
—
$ 2,084,681
(a) Accrued Amounts calculation based upon the sum of: (i) Mr. Schaffner’s annual base salary through December 31, 2021, to the extent not already paid
and not deferred; (ii) any annual bonus earned, to the extent not already paid and not deferred; (iii) any business expenses incurred that have not yet
been reimbursed as of the date of termination; and (iv) any other amounts or benefits, including all unpaid and/or vested, nonforfeitable amounts owing
or accrued to Mr. Schaffner.
(b) Cash Payments refers to a lump-sum cash payment that represents the amount, including interest thereon, Mr. Schaffner would have been entitled to
receive under his prior employment agreement with PlainsCapital if his employment had been terminated.
(c) Cash Severance calculation based upon the sum of the average of Mr. Schaffner’s prior annual bonuses for each of the preceding three years plus his
annual base salary.
(d) RSUs vest ratably upon the death or disability of the participant or termination of the participant without cause. The foregoing assumes the death or
disability or termination of the participant without cause on December 31, 2021. If a change of control under the 2012 Equity Incentive Plan or the
2020 Equity Incentive Plan occurs and assuming participant is terminated without cause on the date of the change in control, all unvested RSUs vest
upon such event, which for purposes of the foregoing assumes December 31, 2021. In each case, it is assumed the target award is achieved or utilized
to calculate vesting of performance awards. The form of award governing a portion of the RSUs includes a non-solicitation provision that is triggered
upon the participant’s termination. For additional information, see “—Incentive Plans.”
Stephen Thompson
Accrued amounts
Cash payment
Cash severance (a)
Restricted stock units (b)
Welfare benefits
Total
Termination for
Cause
Termination due
to Death or
Disability
Termination
Without Cause
Change of
Control
$
$
— $
—
—
—
—
— $
— $
— $
—
—
2,141,250
—
872,341
872,341
19,019
19,019
891,360 $ 3,032,610
—
—
4,282,500
1,900,406
19,019
$ 6,201,925
(a) Cash severance calculation if Mr. Thompson is terminated without cause is based upon the sum of: (i) Mr. Thompson’s annual base salary rate and
(ii) an amount equal to annual incentive cash bonus paid to Mr. Thompson in respect of the calendar year immediately preceding the year of the date of
termination. If his employment is terminated without cause upon a change of control, the cash severance calculation is based upon two times the sum
of: (i) Mr. Thompson’s annual base salary rate and (ii) an amount equal to annual incentive cash bonus paid to Mr. Thompson in respect of the calendar
year immediately preceding the year of the date of termination.
(b) RSUs vest ratably upon the death or disability of the participant or termination of the participant without cause. The foregoing assumes the death or
disability or termination of the participant without cause on December 31, 2021. If a change of control under the 2012 Equity Incentive Plan or the
57
2020 Equity Incentive Plan occurs and assuming participant is terminated without cause on the date of the change in control, all unvested RSUs vest
upon such event, which for purposes of the foregoing assumes December 31, 2021. In each case, it is assumed the target award is achieved or utilized
to calculate vesting of performance awards. The form of award governing a portion of the RSUs includes a non-solicitation provision that is triggered
upon the participant’s termination. For additional information, see “—Incentive Plans.”
M. Bradley Winges
Accrued amounts
Cash payment
Cash severance (a)
Restricted stock units (b)
Welfare benefits
Total
Termination for
Cause
Termination due
to Death or
Disability
Termination
Without Cause
Change of
Control
$
$
— $
—
—
3,904,081
—
—
— $
—
—
5,122,678
—
5,037,530
—
—
—
— $ 3,904,081 $ 6,465,420 $ 10,160,208
— $
—
2,561,339
3,904,081
—
(a) Cash severance calculation if Mr. Winges is terminated without cause is based upon the sum of: (i) Mr. Winges’ annual base salary rate and (ii) an
amount equal to annual incentive cash bonus paid to Mr. Winges in respect of the calendar year immediately preceding the year of the date of
termination. If his employment is terminated without cause upon a change of control, the cash severance calculation is based upon two times the sum
of: (i) Mr. Winges’s annual base salary rate and (ii) an amount equal to annual incentive cash bonus paid to Mr. Winges in respect of the calendar year
immediately preceding the year of the date of termination.
(b) 83,000 time-based RSUs vest upon the death or disability of the participant or termination of the participant without cause. Remaining RSUs granted to
Mr. Winges vest pro rata upon his death or disability or termination without cause. The foregoing assumes the death or disability or termination of the
participant without cause on December 31, 2021. If a change of control under the 2012 Equity Incentive Plan or the 2020 Equity Incentive Plan occurs
and assuming participant is terminated without cause on the date of the change of control, all unvested RSUs vest upon such event, which for purposes
of the foregoing assumes December 31, 2021. In each case, it is assumed the target award is achieved or utilized to calculate vesting of performance
awards. The form of award governing a portion of the RSUs includes a non-solicitation provision that is triggered upon the participant’s termination.
For additional information, see “—Incentive Plans.”
Incentive Plans
Each of the incentive plans has a complex definition of “change in control.” Generally speaking under the 2012 Equity
Incentive Plan and the 2020 Equity Incentive Plan, a change in control occurs if: (i) with certain exceptions, any person
becomes the owner of 33% or more of the outstanding shares of our common stock or the combined voting power of our
outstanding stock and other voting securities; (ii) a majority of the directors serving on our Board of Directors are replaced
other than by new directors approved by at least two-thirds of the members of our Board of Directors; (iii) we are not the
surviving company after a merger or consolidation or sale of all or substantially all of our assets; or (iv) with certain
exceptions, our stockholders approve a plan of complete liquidation or dissolution.
Awards granted through 2018 under our 2012 Equity Incentive Plan were “single trigger” awards, meaning that
accelerated vesting occurs upon a change in control even if the award holder remains with us after the change in control,
regardless of whether awards are assumed or substituted by the surviving company. In 2019, the Compensation Committee of
the Board of Directors adopted new forms of award agreements that provide for a “double trigger”, which requires
termination within the six months preceding or twelve months following a change in control in order for the equity awards to
vest in connection with a change in control. We believe the “double trigger” is in line with current practices of public
companies. We believe a “double trigger” change in control provision is appropriate because it allows management to pursue
all alternatives for us without undue concern for their own financial security.
For awards granted in 2019 and going forward (whether pursuant to the 2012 Equity Incentive Plan or the 2020 Equity
Incentive Plan), awards only vest upon a change in control if the grantee is terminated within the six months preceding or the
twelve months following a change in control. Accordingly, grantees will not receive any additional benefit if their
employment continues following a change in control.
CEO Pay Ratio
Item 402(u) of Regulation S-K, implementing a requirement of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, requires that we disclose a ratio that compares the annual total compensation of our median employee to that
of our CEO.
58
In order to determine the median employee, we prepared a list of all employees as of December 31, 2021, along with
their gross income as reported on IRS form W-2 for 2021. We included all employees, whether employed on a full-time, part-
time, or seasonal basis. Gross income as reported on IRS form W-2 for 2021 was annualized for those employees that were
permanent employees but were not employed for the full year. No assumptions, adjustments or estimates were made with
respect to total compensation. We believe that W-2 income is a consistently applied compensation measure because we do
not widely distribute annual equity awards to employees.
The annual compensation for 2021 for Jeremy B. Ford, who served as our President and Chief Executive Officer, was
$5,468,151. The annual compensation for the median employee for 2021 was $79,325. The resulting ratio of Mr. Jeremy B.
Ford’s pay to that of our median employee for 2021 was 69:1.
We believe executive pay must be internally consistent and equitable to motivate our employees to create stockholder
value. We are committed to internal pay equity, and the Compensation Committee monitors the relationship between the pay
our executive officers receive and the pay our non-managerial employees receive.
Compensation Committee Interlocks and Insider Participation
During fiscal year 2021, directors Rhodes R. Bobbitt, William T. Hill, Jr., Andrew J. Littlefair and A. Haag Sherman
served on the Compensation Committee. During fiscal year 2021:
•
•
•
•
none of the members of our Compensation Committee is, or has ever been, one of our officers or employees;
none of the members of our Compensation Committee had any relationships with the Company requiring
disclosure under “Certain Relationships and Related Party Transactions”;
none of our executive officers served as a member of the compensation committee of another entity, one of
whose executive officers served on our Compensation Committee;
none of our executive officers served as a director of another entity, one of whose executive officers served on
our Compensation Committee; and
• Mr. Jeremy B. Ford served as Chairman of the Board and a member of the Compensation Committee at First
Acceptance Corporation. Mr. Russell serves as a director of Hilltop and until November 2021, served as Chief
Executive Officer of First Acceptance Corporation. Neither Messrs. Jeremy B. Ford or Russell serve on the
Compensation Committee at Hilltop, which approves compensation of Hilltop’s executive officers. First
Acceptance Corporation is not a reporting company under the Exchange Act.
During 2021, Mr. Jeremy B. Ford, Hilltop’s President and Chief Executive Officer, served as a director of Hilltop.
Hilltop’s Compensation Committee is comprised of independent directors, reviews and sets the compensation of Mr. Jeremy
B. Ford and does not believe that this interlock pose any risks that are likely to have a material adverse effect on us.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires officers, directors and persons who beneficially own more than ten percent of
our stock to file initial reports of ownership and reports of changes in ownership with the SEC.
Based solely on a review of the reports filed with the SEC and representations from our officers and directors, we believe
that all Section 16(a) filing requirements for the year ended December 31, 2021, applicable to our officers, directors and
greater than ten percent beneficial owners were timely satisfied, except that Mr. Thompson, President and Chief Executive
Officer of PrimeLending, failed to file Forms 4 related to the grant of a time-based equity award, shares acquired pursuant to
both the reinvestment of dividends and the Employee Stock Purchase Plan during 2021 and 2022; Mr. Lewis filed three late
Forms 4 related to open-market sales transactions; and Mr. Cummings filed one late Form 4 related to an open-market sale
transaction.
Based on written representations from our officers and directors, we believe that no Forms 5 for directors, officers and
greater than ten percent beneficial owners were required to be filed with the SEC for the period ended December 31, 2021.
59
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
General
Transactions with related persons are governed by our General Code of Ethics and Business Conduct, which applies to
all officers, directors and employees. This code covers a wide range of potential activities, including, among others, conflicts
of interest, self-dealing and related party transactions. Related party transactions that would be required to be disclosed
pursuant to federal securities laws must be reported to the Chief Executive Officer or General Counsel and are subject to
approval by the Audit Committee of the Board of Directors. Waiver of the policies set forth in this code will only be
permitted when circumstances warrant. Such waivers for directors and executive officers, or that provide a benefit to a
director or executive officer, may be made only by the Board of Directors and must be promptly disclosed as required by
applicable law or regulation. Absent a review and approval process in conformity with the applicable guidelines relating to
the particular transaction under consideration, such arrangements are not permitted.
The Company also has adopted the written Related Party Policy, which sets forth the Company’s policies and procedures
for reviewing and approving transactions with related persons – namely, our directors, executive officers, their respective
immediate family members and 5% stockholders. The transactions covered by the Related Party Policy include any financial
transaction, arrangement or relationship in which the Company is a participant, the related person has or will have a direct or
indirect material interest and the aggregate amount involved will or may be expected to exceed $120,000 in any fiscal year.
After becoming aware of any transaction which may be subject to the Related Party Policy, the related person is required
to report all relevant facts with respect to the transaction to the Chief Executive Officer or General Counsel of Hilltop. Upon
determination by the Company’s legal department that a transaction requires review under the Related Party Policy, the
material facts of the transaction and the related person’s interest in the transaction are provided to the Audit Committee. The
transaction is then reviewed by the disinterested members of the Audit Committee, who determine whether approval of the
transaction shall be granted. In reviewing a transaction, the Audit Committee considers facts and circumstances that it deems
relevant to its determination, such as: management’s assessment of the commercial reasonableness of the transaction; the
materiality of the related person’s direct or indirect interest in the transaction; whether the transaction may involve an actual,
or the appearance of, a conflict of interest; and, if the transaction involves a director, the impact of the transaction on the
director’s independence.
Certain types of transactions are pre-approved in accordance with the terms of the Related Party Policy. These include
transactions in the ordinary course of business involving financial products and services provided by, or to, the Company,
including loans, provided such transactions are in compliance with the Sarbanes-Oxley Act of 2002, Federal Reserve Board
Regulation O and other applicable laws and regulations.
Hilltop Plaza Investment
On July 31, 2018, HTH Diamond Hillcrest Land LLC, or Hillcrest Land LLC, purchased approximately 1.7 acres of land
in the City of University Park, Texas for $38.5 million. Hillcrest Land LLC is owned equally between Hilltop Investments I,
LLC, a wholly owned entity of Hilltop, and Diamond Ground, LLC, an affiliate of Mr. Gerald J. Ford. Each of Hilltop
Investments I, LLC and Diamond Ground, LLC contributed $19.3 million to Hillcrest Land LLC to complete the purchase.
Trusts for which Jeremy B. Ford and the wife of Corey G. Prestidge are a beneficiary own 10.2% and 10.1%, respectively, of
Diamond Ground, LLC.
In connection with the purchase of the land, Hillcrest Land LLC entered into a 99-year ground lease of the land with
three tenants-in-common: SPC Park Plaza Partners LLC, or Park Plaza LLC, an unaffiliated entity which received an
undivided 50% leasehold interest; HTH Hillcrest Project LLC, or HTH Project LLC, a wholly owned subsidiary of Hilltop,
which received an undivided 25% leasehold interest; and Diamond Hillcrest, LLC, or Diamond Hillcrest, an entity owned by
Mr. Gerald J. Ford, which received an undivided 25% leasehold interest, or collectively, the Co-Owners. The ground lease is
triple net. The base rent from the Co-Owners under the ground lease commences 18 months after the ground lease was signed
at $1.8 million per year and increases 1.0% per year each January 1 thereafter.
Concurrent with the ground lease, the Co-Owners entered into an agreement to purchase the improvements constructed
on the land, which is a mixed-use project containing a six-story building, or Hilltop Plaza. HTH Project LLC and Diamond
Hillcrest each own an undivided 25% interest in Hilltop Plaza. Park Plaza LLC owns the remaining undivided 50% interest in
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Hilltop Plaza. Park Plaza LLC has agreed to serve as the Co-Owner property manager under the Co-Owners Agreement;
however, certain actions require unanimous approval of all Co-Owners. Hilltop Plaza was funded through a $41.0 million
construction loan from an unaffiliated third party bank, as well as cash contributions of $5.3 million from each of HTH
Project LLC and Diamond Hillcrest. The construction loan was refinanced by an unaffiliated third party bank at
December 31, 2021 in amount equal to $48.0 million.
Hilltop and the Bank entered into leases for a significant portion of the total rentable corporate office space in Hilltop
Plaza to serve as the headquarters for both companies. Affiliates of Mr. Gerald J. Ford also entered into leases for office
space in the building. The two separate 129-month office and retail leases of Hilltop and the Bank, respectively, have
combined total base rent of approximately $35 million with the first nine months of rent abated. Hilltop Plaza has served as
headquarters for both Hilltop and the Bank since February 2020.
These transactions were reviewed by the Audit Committee and approved by the disinterested members of the Board of
Directors of Hilltop.
Gerald J. Ford, Chairman of the Board of Directors of Hilltop, is the sole member of Diamond HTH Stock Company GP,
LLC. Diamond HTH Stock Company GP LLC is the sole general partner of Diamond HTH Stock Company, LP and
Mr. Gerald J. Ford is the sole limited partner of Diamond HTH Stock Company, LP. The sole general partner of Diamond A
Financial, L.P. is Diamond HTH Stock Company, LP and Turtle Creek Revocable Trust is a 1% limited partner of Diamond
A Financial, L.P. Diamond A Financial, L.P. owns 19.9% of the outstanding Hilltop common stock as of April 28, 2022.
Jeremy B. Ford, a director and the President and Chief Executive Officer of Hilltop, is the beneficiary of a trust that owns a
49% limited partnership interest in Diamond A Financial, L.P. The spouse of Corey G. Prestidge, Hilltop’s Executive Vice
President, General Counsel and Secretary, is the beneficiary of a trust that also owns a 49% limited partnership interest in
Diamond A Financial, L.P.
Jeremy B. Ford is the son of Gerald J. Ford. Mr. Prestidge is the son-in-law of Gerald J. Ford. Accordingly,
Messrs. Jeremy B. Ford and Prestidge are brothers-in-law.
Cowboys Stadium Suite
In 2007, the Bank contracted with Cowboys Stadium, L.P., a company affiliated with the employer of Ms. Jones and that
is beneficially owned by Ms. Jones and certain of her immediate family members, for the 20-year lease of a suite at Cowboys
Stadium beginning in 2009. Pursuant to the lease agreement, Hilltop has agreed to pay Cowboys Stadium, L.P. annual
payments of $500,000, subject to possible annual escalations, not to exceed 3% per year, beginning with the tenth year of the
lease. In 2019, that lease of suite was assigned to Hilltop by the Bank. Hilltop paid approximately $546,000 under this lease
in 2021.
Leases at The Star
In 2016, the Bank contracted with Frisco HQ Operations, L.P. and Bluestar Frisco Retail L.P., each of which is affiliated
with the employer of Ms. Jones and beneficially owned by Ms. Jones and certain of her immediate family members, for the
10-year lease of office space and a Bank branch. Following an initial rent abatement period, the leases provide for annual
base rent of an aggregate of approximately $383,000, which increases on a yearly basis thereafter to a maximum annual base
rent of an aggregate of approximately $433,000.
Lee Lewis Construction
During 2019, the Bank contracted with a company owned by Mr. Lewis, Lee Lewis Construction, to renovate a branch in
Lubbock, Texas. The Bank awarded this contract to Lee Lewis Construction following a bid process. This project was
completed in November 2019, and the Bank paid Lee Lewis Construction $925,617 for the renovation of this branch.
On August 10, 2020, Hilltop Securities contracted with Lee Lewis Construction to construct tenant improvements at its
new headquarters in Dallas, Texas. Hilltop Securities awarded this contract to Lee Lewis Construction following a bid
process. This project was completed in June 2021, and Hilltop Securities paid Lee Lewis Construction $14.5 million for the
tenant improvements.
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DTF Holdings, LLC
Mr. Sobel, a director of Hilltop, is the managing member of DTF Holdings, LLC. DTF Holdings, LLC has provided
investment management services to the Company and its subsidiaries since June 2009 pursuant to an Investment
Management Services Agreement. In accordance with the Investment Management Services Agreement, DTF Holdings, LLC
is paid an annual fee of $425,000 and reimbursed for its out-of-pocket expenses related to such services. The Investment
Management Services Agreement was terminated on June 30, 2020 in connection with sale of National Lloyds Corporation.
Mr. Sobel became Chairman of Hilltop Securities in July 2019. Beginning in July 2020, Hilltop Securities pays Mr. Sobel
annual fees of $425,000 for his services as Chairman of Hilltop Securities. DTF Holdings, LLC also provides investment
management services to other entities related to Gerald J. Ford.
Employment of Certain Family Members
We currently employ, or during 2021 employed, a single family member of our officers and/or directors in the following
capacity: Corey G. Prestidge, the brother-in-law of Jeremy B. Ford, our President and Chief Executive Officer, and the son-
in-law of Gerald J. Ford, the Chairman of our Board, serves as Hilltop’s Executive Vice President, General Counsel and
Secretary. Pursuant to our employment arrangement with this individual, during 2021, Corey G. Prestidge received total
compensation for his services as employee of $2,001,626.
Indebtedness
The Bank has had, and may be expected to have in the future, lending relationships in the ordinary course of business
with our directors and executive officers, members of their immediate families and affiliated companies in which they are
employed or in which they are principal equity holders. In our management’s opinion, our prior or current lending
relationships with these persons were made in the ordinary course of business and on substantially the same terms, including
interest rates, collateral and repayment terms, as those prevailing at the time for comparable transactions with persons not
related to us and do not involve more than normal collection risk or present other unfavorable features.
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PROPOSAL TWO — ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
Pursuant to Section 14A(a)(1) of the Exchange Act, we are asking stockholders to cast an advisory vote on the
compensation of our named executive officers disclosed in “Management – Compensation Discussion and Analysis” and
“Management – Executive Compensation” sections of this Proxy Statement. At our 2017 annual meeting of stockholders, our
stockholders voted in favor of a proposal to hold an advisory vote on executive compensation each year. While this vote is a
non-binding advisory vote, we value the opinions of stockholders and will consider the outcome of the vote when making
future compensation decisions. An advisory vote to determine the frequency of future advisory votes on executive
compensation will be conducted at our annual meeting held in 2023.
We believe that our executive compensation programs effectively align the interests of our named executive officers with
those of our stockholders by tying compensation to performance.
This annual vote on this matter is not intended to address any specific item of compensation, but rather the overall
compensation of our named executive officers and the policies and practices described in this Proxy Statement. The vote is
advisory and, therefore, not binding on the Company, the Board of Directors or the Compensation Committee of the Board of
Directors.
We are asking our stockholders to indicate their support for this Proposal Two and the compensation paid to our named
executive officers as disclosed commencing on page 27 of this Proxy Statement by voting FOR, on a non-binding advisory
basis, the following resolution:
“NOW, THEREFORE, BE IT RESOLVED, that the stockholders approve, on an advisory basis, the compensation
paid to the named executive officers of the Company, as disclosed pursuant to Item 402 of Regulation S-K,
including the Compensation Discussion and Analysis, the compensation tables and the narrative discussion related
thereto.”
Vote Necessary to Approve, on a Non-Binding Advisory Basis, Executive Compensation
The affirmative vote of a majority of the votes cast on the matter is required to approve, on a non-binding advisory basis,
our executive compensation. The Compensation Committee of the Board of Directors will review the results of this matter
and will take the results into account in making future determinations concerning executive compensation. For purposes of
the non-binding advisory vote on executive compensation, abstentions and broker non-votes will not be counted as votes cast
and will have no effect on the result of the vote, although they will be considered present for purposes of determining a
quorum.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE
APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.
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PROPOSAL THREE — APPROVAL OF AMENDMENT TO THE HILLTOP HOLDINGS INC. EMPLOYEE
STOCK PURCHASE PLAN
On April 21, 2022, our Board of Directors adopted an amendment, or the Amendment, to increase the number of shares
of our common stock reserved for issuance under the Hilltop Holdings Inc. Employee Stock Purchase Plan, or the ESPP,
subject to the approval of our stockholders. The ESPP was originally effective as of January 1, 2021 and, as adopted, we
originally reserved 600,000 shares of our common stock for issuance as awards under the ESPP. As of April 21, 2022, there
were 313,585 shares remaining available for future issuance as awards under the ESPP. The Amendment would further
increase the number of shares of common stock available for issuance pursuant to awards under the ESPP by an additional
800,000 shares, or the Increased Share Amount, to a total of 1,400,000 shares of our common stock.
A copy of the Amendment and the ESPP are included as Annex A and Annex B, respectively, to this Proxy Statement.
Described below is a summary of certain key provisions of the ESPP, which is qualified in its entirety by reference to the full
text of the ESPP, as amended.
Purpose of the ESPP
The ESPP is intended to provide eligible employees of Hilltop and certain designated Related Corporations (as defined
in the ESPP) with an opportunity to purchase shares of our common stock at a discount and possibly with favorable tax
consequences, and thereby provide an additional incentive for such employees to contribute to the prosperity of the
Company. Our Board of Directors believes that the ESPP promotes the interests of the Company and its stockholders by
attracting, retaining, and motivating talented employees and aligning the interests of participating employees with those of
our stockholders. The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal
Revenue Code and will be treated as such for U.S. federal tax purposes. The ESPP is not subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended.
Summary of the Proposed Amendment
Our Board adopted the Amendment on April 21, 2022, or the Amendment Date, subject to stockholder approval, to
increase the number of shares of our common stock available for issuance pursuant to awards under the ESPP by an
additional 800,000 shares, to a total of 1,400,000 shares of our common stock.
Summary of the ESPP
Described below is a summary of the material features of the ESPP. This summary does not purport to be a complete
description of all of the provisions of the ESPP. It is qualified in its entirety by reference to the full text of the ESPP, a copy
of which is attached as Annex B to this proxy statement and is incorporated herein by reference. Capitalized terms used but
not otherwise defined herein have the respective meanings ascribed to such terms in the ESPP.
Purpose. The purpose of the ESPP is to provide a means by which eligible employees of Hilltop and certain designated
Related Corporations may be given an opportunity to purchase shares of our common stock and to assist the Company in
retaining the services of its employees and securing and retaining the services of new employees, thereby providing
incentives for such persons to exert maximum efforts for the success of the Company and its Related Corporations. The rights
to purchase shares of our common stock granted under the ESPP are intended to qualify as options issued under an
“employee stock purchase plan,” as that term is defined in Section 423(b) of the Internal Revenue Code, or Options.
Shares Subject to the ESPP. Subject to the terms of the ESPP, an aggregate of 600,000 shares of our common stock was
originally reserved for issuance under the ESPP, and if the Amendment is approved by our stockholders, an aggregate
amount of 1,400,000 shares of our common stock will be reserved for issuance under the ESPP. If Options granted under the
ESPP expire, lapse, or otherwise terminate without being exercised, the shares of common stock not purchased under such
Options will again become available for issuance under the ESPP. The stock purchasable under the ESPP may consist, in
whole or in part, of authorized and unissued common stock, treasury stock, or common stock purchased on the open market.
As of April 28, 2022, the closing price of a share of our common stock on the NYSE was $26.45. As of the date hereof,
286,415 shares of our common stock have been purchased in the open market under the ESPP. No shares have been issued by
us out of the authorized amount, all such shares have been purchased in the open market.
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Administration. The ESPP will be administered by the Board of Directors or such committee or committees of the Board
of Directors as is designated by the Board of Directors to administer the ESPP, or the Committee. The Board of Directors
will have the power to (i) determine how and when Options to purchase shares of common stock will be granted and the
provisions of each Offering of such Options (which need not be identical); (ii) designate from time to time which Related
Corporations of Hilltop will be eligible to participate in the ESPP; (iii) construe and interpret the ESPP and Options, and
establish, amend, and revoke rules and regulations for its administration (the Board of Directors, in the exercise of this
power, may correct any defect, omission, or inconsistency in the ESPP, in a manner and to the extent it deems necessary or
expedient to make the ESPP fully effective); (iv) settle all controversies regarding the ESPP and Options granted under it;
(v) suspend or terminate the ESPP at any time as provided for under the ESPP; and (vi) exercise such powers and perform
such acts as it deems necessary or expedient to promote the best interests of the Company and its Related Corporations and to
carry out the intent that the ESPP be treated as an “employee stock purchase plan” under Section 423 of the Internal Revenue
Code.
The Board of Directors may delegate some or all of the administration of the ESPP to a Committee or Committees. If
administration is delegated to a Committee, the Committee will have, in connection with the administration of the ESPP, the
powers theretofore possessed by the Board of Directors that have been delegated to the Committee, including the power to
delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise, subject, however, to
such resolutions, not inconsistent with the provisions of the ESPP, as may be adopted from time to time by the Board of
Directors. The Board of Directors may retain the authority to concurrently administer the ESPP with the Committee and
may, at any time, revest in the Board of Directors some or all of the powers previously delegated. Whether or not the Board
of Directors has delegated administration of the ESPP to a Committee, the Board of Directors will have the final power to
determine all questions of policy and expediency that may arise in the administration of the ESPP. All determinations,
interpretations, and constructions made by the Board of Directors in good faith in its discretion will be final, binding, and
conclusive on all persons.
Offerings. The Board of Directors may from time to time grant or provide for the grant of Options to purchase shares of
common stock under the ESPP to eligible employees in an Offering (consisting of one or more Purchase Periods) on an
Offering Date or Offering Dates selected by the Board of Directors. Each Offering shall be in such form and will contain
such terms and conditions as the Board of Directors deems appropriate, which shall comply with the requirement of Section
423(b)(5) of the Internal Revenue Code that all employees granted Options have the same rights and privileges. The terms
and conditions of an Offering will be incorporated by reference into the ESPP and treated as part of the ESPP. The provisions
of separate Offerings need not be identical, but each Offering shall include (through incorporation of the provisions of the
ESPP by reference in the document comprising the Offering or otherwise) the period during which the Offering will be
effective, which period shall not exceed 27 months beginning with the Offering Date, and the substance of the provisions of
the ESPP pertaining to (i) eligibility; (ii) the grant of Options; (iii) the purchase price; (iv) participation, withdrawal, and
termination; and (v) the exercise of Options.
If a participant has more than one Option outstanding under the ESPP, unless he or she otherwise indicates in agreements
or notices delivered by such participant: (i) each agreement or notice delivered by that participant will be deemed to apply to
all of his or her Options under the ESPP; and (ii) an Option with a lower exercise price (or an earlier-granted Option, if
different Options have identical exercise prices) will be exercised to the fullest possible extent before an Option with a higher
exercise price (or a later-granted Option if different Options have identical exercise prices) will be exercised.
Eligibility. Options may be granted only to employees of Hilltop or, as the Board of Directors may designate, to
employees of a Related Corporation. Except as provided below, an employee is not eligible to be granted Options under the
ESPP unless, on the Offering Date, such employee has been in the employ of Hilltop or the Related Corporation, as the case
may be, for such continuous period preceding such Offering Date as the Board of Directors may require (but in no event
greater than two years). In addition, the Board of Directors may provide that no employee is eligible to be granted Options
under the ESPP unless, on the Offering Date, such employee’s customary employment with Hilltop or the Related
Corporation is for more than 20 hours per week and/or for more than five months per calendar year, or such other criteria as
the Board of Directors may determine consistent with Section 423 of the Internal Revenue Code.
No employee is eligible to participate in the ESPP if, immediately after the grant of the Option, (i) the employee would
own, directly or indirectly, stock possessing 5% or more of the total combined voting power or value of all classes of stock of
Hilltop or of any Related Corporation (including any stock which such employee may purchase under all outstanding rights
and options); or (ii) such Option would permit such employee’s rights to purchase stock under all “employee stock purchase
plans” (described in Section 423 of the Internal Revenue Code) of Hilltop and any Related Corporation to accrue at a rate that
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exceeds $25,000 of the Fair Market Value (or such other maximum as may be prescribed from time to time by the Internal
Revenue Code) of such stock (determined at the Offering Date of the Option) for each calendar year in which such Option is
outstanding at any time, in accordance with the provisions of Section 423(b)(8) of the Internal Revenue Code. Officers of
Hilltop and any designated Related Corporation, if they are otherwise eligible employees, will be eligible to participate in
Offerings under the ESPP. Notwithstanding the foregoing, the Board of Directors, in its sole discretion, may exclude from
participation in the ESPP or any Offering any employees who are “highly compensated employees” (within the meaning of
Section 423(b)(4)(D) of the Internal Revenue Code).
As of April 21, 2022, there were approximately 1,600 employees participating in the ESPP.
Participation in the ESPP. A participant may elect to authorize payroll deductions pursuant to an Offering under the
ESPP by completing and delivering to the Company, within the time specified in the Offering, an enrollment form (in such
form as the Company may provide). Each such enrollment form will authorize an amount of Contributions expressed as a
percentage of the submitting participant’s Compensation (as defined in each Offering) during the Offering (not to exceed the
maximum percentage specified by the Board of Directors). Each participant’s Contributions will be credited to a
bookkeeping account for such participant under the ESPP and be deposited with the general funds of the Company except
where applicable law requires that contributions be deposited with an independent third party. To the extent provided in the
Offering, a participant may begin such contributions after the beginning of the Offering. To the extent provided in the
Offering, a participant may thereafter reduce (including to zero) or increase his or her contributions. To the extent specifically
provided in the Offering, in addition to making contributions by payroll deductions, a participant may make contributions
through the payment by cash or check prior to each Purchase Date of the Offering.
Grant of Options. On each Offering Date of an Offering made under the ESPP, each eligible employee will be granted
an Option to purchase up to that number of shares of common stock purchasable with a percentage of such employee’s
Compensation (not exceeding the percentage set forth in the Offering) during the period that begins on the Offering Date (or
such later date as the Board of Directors determines for a particular Offering) and ends on the date stated in the Offering.
The Board of Directors will establish one or more Purchase Dates during an Offering on which Options granted pursuant to
that Offering will be exercised and purchases of shares of common stock will be carried out in accordance with such
Offering.
In connection with each Offering made under the ESPP, the Board of Directors may specify a maximum number of
shares of common stock that may be purchased by any participant on any Purchase Date during such Offering, and a
maximum aggregate number of shares of common stock that may be purchased by all participants pursuant to such Offering.
In addition, in connection with each Offering that contains more than one Purchase Dates, the Board of Directors may specify
a maximum aggregate number of shares of common stock that may be purchased by all participants on any or each Purchase
Date under the Offering. If the aggregate purchase of shares of common stock issuable upon exercise of Options granted
under the Offering would exceed any such maximum aggregate number, then, in the absence of any Board of Directors action
otherwise, a pro rata allocation of the shares of common stock available will be made in as nearly a uniform manner as
practicable and equitable.
Purchase Price. The purchase price of shares of common stock acquired pursuant to Options may not be less than the
lesser of: (i) an amount equal to 85% of the Fair Market Value of the shares of common stock on the Offering Date; or (ii) an
amount equal to 85% of the Fair Market Value of the shares of common stock on the applicable Purchase Date, as set forth in
the Offering.
Exercise of Options. On each Purchase Date during an Offering, each participant’s accumulated Contributions will be
applied to the purchase of shares of common stock, up to the maximum number of shares of common stock permitted
pursuant to the terms of the ESPP and the applicable Offering, at the purchase price specified in the Offering. No fractional
shares will be issued upon the exercise of Options unless specifically provided for in the Offering. If any amount of
accumulated Contributions remains in a participant’s account after the purchase of shares of common stock and such
remaining amount is less than the amount required to purchase one share of common stock on the final Purchase Date of an
Offering, then such remaining amount will be held in such participant’s account for the purchase of shares of common stock
under the next Offering under the ESPP, unless such participant withdraws from such next Offering, as provided in the ESPP,
or is not eligible to participate in such Offering, as provided in the ESPP, in which case such amount will be distributed to
such participant after the final Purchase Date, without interest (unless required by applicable law).
No Options may be exercised unless the shares of common stock to be issued upon such exercise under the ESPP are
covered by an effective registration statement pursuant to the Securities Act and the ESPP is in material compliance with all
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applicable federal, state and foreign laws, and any other securities laws and other laws applicable to the ESPP. If, on a
Purchase Date the shares of common stock are not so registered or the ESPP is not in such compliance, no Options may be
exercised on such Purchase Date, and the Purchase Date will be delayed until the shares of common stock are subject to such
an effective registration statement and the ESPP is in such compliance, except that the Purchase Date may not be delayed
more than 12 months and the Purchase Date may in no event be more than 27 months from the Offering Date.
Shares of common stock obtained by exercise of Options must be held by the participant for 90 days prior to
participant’s sale of such common stock. The terms and conditions of Options granted to, and the purchase of shares of
common stock by, persons subject to Section 16 of the Exchange Act must comply with the applicable provisions of Rule
16b-3. The ESPP and all Options granted thereunder are deemed to contain, and the shares of common stock issued upon
exercise of Options will be subject to, such additional conditions and restrictions, if any, as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with respect to ESPP transactions.
Withdrawal. During an Offering, a Participant may cease making Contributions and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company may provide. Such withdrawal may be
elected at any time prior to the end of the Offering, except as provided otherwise in the Offering. Upon such withdrawal from
the Offering by a participant, the Company will distribute to such participant all of his or her accumulated Contributions
(reduced to the extent, if any, such Contributions have been used to acquire shares of common stock for the participant) under
the Offering, and such participant’s Option in that Offering will terminate. A participant’s withdrawal from an Offering will
not affect such participant’s eligibility to participate in any other Offerings under the ESPP, but such participant will be
required to deliver a new enrollment form in order to participate in subsequent Offerings.
Termination of Employment. A participant’s Option granted pursuant to an Offering under the ESPP will terminate
immediately upon such participant ceasing to be an employee or other lack of eligibility. The Company will distribute to such
terminated or otherwise ineligible employee all of his or her accumulated Contributions (reduced to the extent, if any, such
Contributions have been used to acquire shares of common stock) under the Offering. An employee will be deemed to have
terminated employment for purposes of the ESPP when the employee begins a leave of absence, unless the employee is on an
approved leave of absence or is entitled to disability benefits, in which case participation will be suspended until a return to
active employment.
Restrictions on Transfer. Options are not transferable by a participant except by will, the laws of descent and
distribution, or by a beneficiary designation as provided in the ESPP. During a participant’s lifetime, Options may be
exercised only by such participant. Any attempt to assign, transfer, pledge, or otherwise dispose of such rights or amounts
will be null and void and without effect.
Interest. Unless otherwise specified in an Offering, the Company will have no obligation to pay interest on
Contributions.
Adjustments. In the event of a Capitalization Adjustment, the Board of Directors will appropriately and proportionately
adjust: (i) the class(es) and maximum number of securities subject to the ESPP; (ii) the class(es) and maximum number of
securities by which the share reserve is to increase automatically each year; (iii) the class(es) and number of securities subject
to, and the purchase price applicable to, outstanding Offerings and Options; and (iv) the class(es) and number of securities
imposed by purchase limits under each ongoing Offering. The Board of Directors’ determination will be final, binding, and
conclusive.
Effect of Certain Corporate Events. In the event of a Corporate Transaction (whether by merger, consolidation, asset or
stock sale), then: (i) any surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent
company) may assume or continue Options outstanding under the ESPP or may substitute similar rights (including a right to
acquire the same consideration paid to the stockholders in the Corporate Transaction) for those outstanding under the ESPP;
or (ii) if any surviving or acquiring corporation (or its parent company) does not assume or continue such Options or does not
substitute similar rights for Options outstanding under the ESPP, then the participants’ accumulated Contributions will be
used to purchase shares of common stock within ten business days prior to the Corporate Transaction under any ongoing
Offerings, and the participants’ Options under the ongoing Offerings will terminate immediately after such purchase.
Amendment, Termination, or Suspension of the ESPP. The Board of Directors may amend the ESPP at any time as the
Board of Directors deems necessary or advisable. However, except for Capitalization Adjustments, stockholder approval
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will be required for any amendment of the ESPP for which stockholder approval is required by applicable law or listing
requirements, including any amendment that (i) materially increases the number of shares of common stock available for
issuance under the ESPP; (ii) materially expands the class of individuals eligible to become participants and receive Options
under the ESPP; (iii) materially increases the benefits accruing to participants under the ESPP or materially reduces the price
at which shares of common stock may be purchased under the ESPP; (iv) materially extends the term of the ESPP; or
(v) expands the types of awards available for issuance under the ESPP, but in each of (i) through (v) above, only to the extent
stockholder approval is required by applicable law or listing requirements. The Board of Directors may suspend or terminate
the ESPP at any time. No Options may be granted under the ESPP while the ESPP is suspended or after it is terminated. Any
benefits, privileges, entitlements, and obligations under any outstanding Options granted before an amendment, suspension,
or termination of the ESPP may not be impaired by any such amendment, suspension, or termination except (i) with the
consent of the participant to whom such Options were granted; (ii) as necessary to comply with any laws, listing
requirements, or governmental regulations (including, without limitation, the provisions of Section 423 of the Internal
Revenue Code); or (iii) as necessary to obtain or maintain favorable tax, listing, or regulatory treatment.
Effective Date. The ESPP originally became effective on January 1, 2021, and the Amendment became effective as of
the Amendment Date; provided, however, that no Options may be exercised as they relate to the Increased Share Amount
unless and until the Amendment has been approved by the stockholders of the Company, which approval shall be within 12
months before or after the Amendment Date.
U.S. Federal Income Tax Effects
Tax Effects for Participants. The information set forth in the paragraph below is a summary only and does not purport
to be complete. In addition, the information is based upon current U.S. federal income tax rules and therefore is subject to
change if those rules change. Moreover, because the tax consequences to any participant may depend on his or her particular
situation, each participant should consult his or her own tax adviser as to the federal, state, local and other tax consequences of
the acquisition or disposition of common stock under the ESPP. This summary is general in nature and does not purport to be
legal or tax advice.
Options granted under the ESPP are intended to qualify for favorable federal income tax treatment associated with
options granted under an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. A participant will
be taxed on amounts withheld by payroll deductions for the purchase of shares of common stock as if such amounts were
actually received. Except as described in the preceding sentence, no income relating to Options granted or shares purchased
under the ESPP will be taxable to a participant until disposition of the acquired shares, and the method of taxation will depend
upon the holding period of the acquired shares. If the stock is disposed of at least two years after the Offering Date and at least
one year after the stock is transferred to the participant, then the lesser of (i) the excess of the Fair Market Value of the stock
at the time of such disposition over the purchase price of such stock, or (ii) the excess of the Fair Market Value of the stock as
of the grant date of such Option (typically the Offering Date) over the purchase price (applied and determined as of the grant
date of such Option), will be treated as ordinary income. If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the Fair Market Value of the stock on the Purchase Date over the purchase
price will be treated as ordinary income at the time of such disposition. Even if the stock is later disposed of for less than its
Fair Market Value on the Purchase Date, the same amount of ordinary income will be attributed to the participant, and a capital
loss will be recognized equal to the difference between the sales price and the Fair Market Value of the stock on such Purchase
Date. The participant’s basis in the stock will be equal to the amount paid for such stock, plus any ordinary income included
for such stock. Any capital gain or loss will be short-term or long-term, depending on how long the stock has been held.
Tax Effects for the Company. There are no federal income tax consequences to the Company by reason of the grant
or exercise of Options under the ESPP. However, the Company will be entitled to a deduction to the extent amounts are taxed
as ordinary income to a participant (subject to the requirement of reasonableness and the satisfaction of tax reporting
obligations). Any ordinary income that is required to be recognized will not be subject to income or payroll tax withholding.
New Plan Benefits
Participation in the ESPP is voluntary and depends on each eligible employee’s election to participate and the Fair
Market Value of our common stock on various dates in the future. Accordingly, the benefits or amounts that will be received
with respect to future purchases under the ESPP, as amended, are not determinable. Eligible employees who participate in the
ESPP may not purchase shares of our common stock in any calendar year in excess of $25,000.
68
Required Vote
The approval of the Amendment requires the affirmative vote of the holders of at least a majority of the shares of our
common stock cast on the proposal. For purposes of the approval of the ESPP, abstentions and broker non-votes will not be
counted as votes cast and will have no effect on the result of the vote, although they will be considered present for purposes of
determining a quorum.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE
APPROVAL OF THE AMENDMENT TO THE ESPP.
69
PROPOSAL FOUR — RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP served as our independent registered public accounting firm during 2021 and has been
selected to serve in that capacity for 2022, unless the Audit Committee of the Board of Directors subsequently determines
that a change is desirable. While stockholder ratification is not required for the selection of PricewaterhouseCoopers LLP as
our independent registered public accounting firm, the selection is being submitted for ratification at the Annual Meeting,
solely with a view toward soliciting our stockholders’ opinion. This opinion will be taken into consideration by the Audit
Committee in its future deliberations.
A representative of PricewaterhouseCoopers LLP is expected to be at our Annual Meeting to respond to appropriate
questions and, if PricewaterhouseCoopers LLP desires, to make a statement.
Vote Necessary to Ratify the Appointment
The appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2022 will be
ratified if this proposal receives the affirmative vote of a majority of the votes cast on the matter. With respect to this
proposal, abstentions will not be counted as votes cast and will have no effect on the result of the vote, although they will be
considered present for purposes of determining a quorum. Under applicable rules, a broker will have the authority to vote on
this proposal in the absence of instructions from the beneficial owner of the relevant shares.
Report of the Audit Committee
The Audit Committee of the Board of Directors of Hilltop Holdings Inc. currently consists of three directors and operates
under a written charter adopted by the Board of Directors. Hilltop considers all members of the Audit Committee to be
independent as defined by the applicable NYSE listing standards and SEC regulations. Management is responsible for
Hilltop’s internal controls and the financial reporting process. PricewaterhouseCoopers LLP, Hilltop’s independent registered
public accounting firm, is responsible for performing an independent audit of Hilltop’s consolidated financial statements in
accordance with generally accepted auditing standards. The Audit Committee’s responsibility is to monitor and oversee the
financial reporting process.
In this context, the Audit Committee reviewed and discussed with management and PricewaterhouseCoopers LLP the
audited financial statements for the year ended December 31, 2021, management’s assessment of the effectiveness of the
Company’s internal control over financial reporting and PricewaterhouseCoopers LLP’s evaluation of the Company’s
internal control over financial reporting. The Audit Committee has discussed with PricewaterhouseCoopers LLP the matters
that are required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the
SEC.
The Audit Committee received from PricewaterhouseCoopers LLP the written disclosures and the letter required by the
applicable requirements of the Public Company Accounting Oversight Board, and has discussed with
PricewaterhouseCoopers LLP the issue of its independence from the Company. The Audit Committee also concluded that
PricewaterhouseCoopers LLP’s provision of audit and non-audit services to the Company and its affiliates is compatible with
PricewaterhouseCoopers LLP’s independence.
Based upon the Audit Committee’s review of the audited consolidated financial statements and its discussion with
management and PricewaterhouseCoopers LLP noted above, the Audit Committee recommended to the Board of Directors
that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2021.
This report has been furnished by the members of the Audit Committee.
Tracy A. Bolt (Chairman)
Charles R. Cummings
J. Markham Green
70
Independent Auditor’s Fees
For the fiscal years ended December 31, 2021 and 2020, the total fees paid to our independent registered public
accounting firm, PricewaterhouseCoopers LLP, were as follows:
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
Audit Fees
Fiscal Year Ended
2021
4,682,000
279,500
—
2,700
4,964,200
$
$
2020
6,097,000
1,270,750
—
2,700
7,370,450
$
$
Represents fees billed for the audits of our consolidated financial statements and effectiveness of internal control over
financial reporting as of and for the years ended December 31, 2021 and 2020, reviews of our interim financial statements
included in the Company’s Quarterly Reports on Form 10-Q, audits and related services required for certain of our
subsidiaries, and consultations related to miscellaneous SEC and financial reporting matters.
Audit-Related Fees
In 2021 and 2020 these fees primarily related to procedures associated with recently issued accounting standards and
attestation reports required under various services agreements and statutory and regulatory requirements.
Tax Fees
No tax fees were incurred during 2021 or 2020.
All Other Fees
In 2021 and 2020, these fees related to an annual renewal of software licenses for accounting research software.
Audit Committee Pre-Approval Policy
In accordance with applicable laws and regulations, the Audit Committee reviews and pre-approves any non-audit
services to be performed by PricewaterhouseCoopers LLP to ensure that the work does not compromise its independence in
performing its audit services. The Audit Committee also reviews and pre-approves all audit services. In some cases, pre-
approval is provided by the full committee for up to a year, and relates to a particular category or group of services and is
subject to a specific budget. In other cases, the Chairman of the Audit Committee has the delegated authority from the
committee to pre-approve additional services, and such pre-approvals are then communicated to the full Audit Committee.
The Audit Committee pre-approved all fees noted above for 2021 and 2020.
The pre-approval policy contains a de minimis provision that operates to provide retroactive approval for permissible
non-audit services under certain circumstances. No services were provided by PricewaterhouseCoopers LLP during either
2021 or 2020 that fell under this provision.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR 2022.
71
STOCKHOLDER PROPOSALS FOR 2023
Stockholder proposals intended to be presented at our 2023 Annual Meeting of Stockholders pursuant to Rule 14a-8 under
the Exchange Act must be received by us at our principal executive offices no later than 5:00 p.m., Dallas, Texas local time,
on January 18, 2023 and must otherwise comply with the requirements of Rule 14a-8 in order to be considered for inclusion in
the 2023 Proxy Statement and proxy. However, pursuant to such rule, if the 2023 Annual Meeting is not held within 30 days
of July 21, 2023, then a stockholder proposal submitted for inclusion in our Proxy Statement for the 2023 Annual Meeting
must be received by us a reasonable time before we begin to print and mail our Proxy Statement for the 2023 Annual Meeting.
In order for director nominations and proposals of stockholders made outside the processes of Rule 14a-8 under the
Exchange Act to be considered “timely” for purposes of Rule 14a-4(c) under the Exchange Act and pursuant to our current
bylaws, the nomination or proposal must be received by us at our principal executive offices not before December 30, 2022
and not later than 5:00 p.m. Dallas, Texas local time, on January 30, 2023; provided, however, that in the event that the date
of the 2023 annual meeting is advanced by more than 30 days or delayed by more than 60 days from July 21, 2023, notice by
the stockholder in order to be timely must be received no earlier than the 120th day prior to the date of the 2023 annual
meeting and not later than 5:00 p.m. Dallas, Texas local time, on the later of the 90th day prior to the date of the 2023 annual
meeting or, if the first public announcement of the 2023 Annual Meeting is less than 100 days prior to the date of the 2023
Annual Meeting, the 10th day following the day on which public announcement of the date of the 2023 annual meeting is first
made. Stockholders are advised to review our charter and bylaws, which contain additional requirements with respect to
advance notice of stockholder proposals and director nominations, copies of which are available without charge upon request
to our corporate Secretary at the address listed under “Questions” below.
To comply with the universal proxy rules (once effective), stockholders who intend to solicit proxies in support of
director nominees other than Hilltop’s nominees must provide notice that sets forth the information required by Rule 14a-19
under the Exchange Act no later than May 22, 2023.
OTHER MATTERS
Our Board of Directors knows of no other matters that have been submitted for consideration at this Annual Meeting. If any
other matters properly come before our stockholders at this Annual Meeting, the persons named on the enclosed proxy card
intend to vote the shares they represent in their discretion.
MULTIPLE STOCKHOLDERS SHARING ONE ADDRESS
In accordance with Rule 14a-3(e)(1) under the Exchange Act, one set of proxy materials will be delivered to two or more
stockholders who share an address, unless the Company has received contrary instructions from one or more of the stockholders.
The Company will deliver promptly upon written or oral request a separate copy of the proxy materials to a stockholder at a
shared address to which a single copy of the proxy materials was delivered. Requests for additional copies of the proxy materials,
and requests that in the future separate proxy materials be sent to stockholders who share an address, should be directed by
writing to Investor Relations, Hilltop Holdings Inc., 6565 Hillcrest Avenue, Dallas, Texas 75205, or by calling (214) 855-2177. In
addition, stockholders who share a single address but receive multiple copies of the proxy materials may request that in the future
they receive a single copy by contacting the Company at the address and phone number set forth in the prior sentence.
ANNUAL REPORT
A COPY OF OUR ANNUAL REPORT IS INCLUDED WITH THIS PROXY STATEMENT BUT SHALL NOT BE
DEEMED TO BE SOLICITATION MATERIAL. A COPY OF THIS PROXY STATEMENT AND OUR ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021 ALSO IS AVAILABLE WITHOUT
CHARGE FROM OUR COMPANY WEBSITE AT WWW.HILLTOP-HOLDINGS.COM OR UPON WRITTEN REQUEST
TO: INVESTOR RELATIONS, HILLTOP HOLDINGS INC., 6565 HILLCREST AVENUE, DALLAS, TEXAS 75205.
72
If you have questions or need more information about the Annual Meeting, you may write to the corporate Secretary at
the following address of our principal executive office:
QUESTIONS
Corporate Secretary
Hilltop Holdings Inc.
6565 Hillcrest Avenue
Dallas, Texas 75205
You may also call us at (214) 855-2177. We also invite you to visit our website at www.hilltop-holdings.com
73
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FIRST AMENDMENT TO
HILLTOP HOLDINGS INC.
EMPLOYEE STOCK PURCHASE PLAN
Annex A
This FIRST AMENDMENT TO HILLTOP HOLDINGS INC. EMPLOYEE STOCK PURCHSE PLAN (this
“Amendment”), effective as of April 21, 2022 (the “Effective Date”), is made and entered into by Hilltop Holdings Inc., a
Maryland corporation (the “Company”). Terms used in this Amendment with initial capital letters that are not otherwise
defined herein shall have the meanings ascribed to such terms in the Hilltop Holdings Inc. Employee Stock Purchase Plan (the
“Plan”).
RECITALS
WHEREAS, Section 12(a) of the Plan provides that the Board may amend the Plan at any time in any respect the
Board deems necessary or advisable; provided, however, that stockholder approval shall be required for any amendment of the
Plan for which stockholder approval is required by applicable law or listing requirements, including any amendment that,
among other things, materially increases the number of shares of Common Stock available for issuance under the Plan;
WHEREAS, the Company desires to amend the Plan to increase the aggregate number of shares of Common Stock
that may be issued under the Plan, as set forth in Section 3(a) of the Plan, subject to the provisions of Section 11(a) relating to
Capitalization Adjustments, by an additional 800,000 shares of Common Stock (the “Increased Share Amount”); and
WHEREAS, this Amendment materially increases the number of shares of Common Stock available for issuance
under the Plan, and consequently, the Company intends to submit this Amendment to the Company’s stockholders for their
approval in accordance with Section 12(a) of the Plan.
NOW, THEREFORE, in accordance with Section 12(a) of the Plan, the Plan is hereby amended, effective as of the
Effective Date, as follows:
1.
Section 3(a) of the Plan is hereby amended by deleting said section in its entirety and substituting in lieu
thereof the following new Section 3(a):
(a) Subject to the provisions of Section 11(a) relating to Capitalization Adjustments, the shares of
Common Stock that may be sold pursuant to Purchase Rights shall not exceed in the aggregate One Million
Four Hundred Thousand (1,400,000) shares of Common Stock.
2.
This Amendment shall be effective as of the Effective Date; provided, however, that no Purchase Rights may
be exercised by Participants as to the Increased Share Amount until the Company’s stockholders have timely approved this
Amendment. In the event stockholder approval of this Amendment is not obtained within twelve (12) months of the Effective
Date, the additional shares reserved for issuance under the Plan pursuant to this Amendment shall not be available for grant as
shares of Common Stock.
3.
Except as expressly amended by this Amendment, the Plan shall continue in full force and effect in
accordance with the provisions thereof.
IN WITNESS WHEREOF, the Company has caused this Amendment to be duly executed as of the Effective Date.
HILLTOP HOLDINGS INC.
By:
Name:
Title
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HILLTOP HOLDINGS INC.
EMPLOYEE STOCK PURCHASE PLAN
Annex B
The Hilltop Holdings Inc. Employee Stock Purchase Plan (the “Plan”) was adopted by the Board of Directors of
Hilltop Holdings Inc., a Maryland corporation (the “Company”), effective as of April 30, 2020 (the “Effective Date”), subject
to approval by the Company’s stockholders.
1.
General.
(a)
The purpose of the Plan is to provide a means by which Eligible Employees of the Company and certain
designated Related Corporations may be given an opportunity to purchase shares of Common Stock. The Plan is intended to
permit the Company to grant a series of Purchase Rights to Eligible Employees under an Employee Stock Purchase Plan.
(b)
The Company, by means of the Plan, seeks to retain the services of such Employees, to secure and retain the
services of new Employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company
and its Related Corporations.
2.
Administration.
(a)
The Board shall administer the Plan unless and until the Board delegates administration of the Plan to a
Committee or Committees, as provided in Section 2(c).
(b)
The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i)
To determine how and when Purchase Rights to purchase shares of Common Stock shall be granted
and the provisions of each Offering of such Purchase Rights (which need not be identical).
(ii)
participate in the Plan.
To designate from time to time which Related Corporations of the Company shall be eligible to
(iii)
To construe and interpret the Plan and Purchase Rights, and to establish, amend and revoke rules
and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully
effective.
(iv)
To settle all controversies regarding the Plan and Purchase Rights granted under it.
(v)
To suspend or terminate the Plan at any time as provided in Section 12.
(vi)
To amend the Plan at any time as provided in Section 12.
(vii) Generally, to exercise such powers and to perform such acts as it deems necessary or expedient to
promote the best interests of the Company and its Related Corporations and to carry out the intent that the Plan be
treated as an Employee Stock Purchase Plan.
(c)
The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If
administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the
Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The Board may retain the authority to concurrently
administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously
delegated. Whether or not the Board has delegated administration of the Plan to a Committee, the Board shall have the final
power to determine all questions of policy and expediency that may arise in the administration of the Plan.
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(d)
All determinations, interpretations and constructions made by the Board or, if delegated to a Committee, such
Committee, in good faith in its discretion shall be final, binding, and conclusive on all persons.
3.
Shares of Common Stock Subject to the Plan.
(a)
Subject to the provisions of Section 11(a) relating to Capitalization Adjustments, the shares of Common
Stock that may be sold pursuant to Purchase Rights shall not exceed in the aggregate Six Hundred Thousand (600,000) shares
of Common Stock.
(b)
If any Purchase Right granted under the Plan shall for any reason terminate without having been exercised,
the shares of Common Stock not purchased under such Purchase Right shall again become available for issuance under the
Plan.
(c)
The stock purchasable under the Plan may consist, in whole or in part, of authorized and unissued Common
Stock, treasury stock or Common Stock purchased on the open market.
4.
Grant of Purchase Rights; Offering.
(a)
The Board may from time to time grant or provide for the grant of Purchase Rights to purchase shares of
Common Stock under the Plan to Eligible Employees in an Offering (consisting of one or more Purchase Periods) on an
Offering Date or Offering Dates selected by the Board. Each Offering shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate, which shall comply with the requirement of Section 423(b)(5) of the Code that
all Employees granted Purchase Rights shall have the same rights and privileges. The terms and conditions of an Offering shall
be incorporated by reference into the Plan and treated as part of the Plan. The provisions of separate Offerings need not be
identical, but each Offering shall include (through incorporation of the provisions of this Plan by reference in the document
comprising the Offering or otherwise) the period during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of the provisions contained in Sections 5 through
8, inclusive.
(b)
If a Participant has more than one Purchase Right outstanding under the Plan, unless he or she otherwise
indicates in agreements or notices delivered hereunder: (i) each agreement or notice delivered by that Participant shall be
deemed to apply to all of his or her Purchase Rights under the Plan, and (ii) a Purchase Right with a lower exercise price (or
an earlier-granted Purchase Right, if different Purchase Rights have identical exercise prices) shall be exercised to the fullest
possible extent before a Purchase Right with a higher exercise price (or a later-granted Purchase Right if different Purchase
Rights have identical exercise prices) shall be exercised.
5.
Eligibility.
(a)
Purchase Rights may be granted only to Employees of the Company or, as the Board may designate as
provided in Section 2(b), to Employees of a Related Corporation. Except as provided in Section 5(b), an Employee shall not
be eligible to be granted Purchase Rights under the Plan unless, on the Offering Date, such Employee has been in the employ
of the Company or the Related Corporation, as the case may be, for such continuous period preceding such Offering Date as
the Board may require, but in no event shall the required period of continuous employment be greater than two (2) years. In
addition, the Board may provide that no Employee shall be eligible to be granted Purchase Rights under the Plan unless, on the
Offering Date, such Employee's customary employment with the Company or the Related Corporation is for more than twenty
(20) hours per week and/or for more than five (5) months per calendar year, or such other criteria as the Board may determine
consistent with Section 423 of the Code.
(b)
The Board may provide that each person who, during the course of an Offering, first becomes an Eligible
Employee shall, on a date or dates specified in the Offering that coincides with the day on which such person becomes an
Eligible Employee or that occurs thereafter, receive a Purchase Right under that Offering, which Purchase Right shall thereafter
be deemed to be a part of that Offering. Such Purchase Right shall have the same characteristics as any Purchase Rights
originally granted under that Offering, as described herein, except that:
(i)
the date on which such Purchase Right is granted shall be the “Offering Date” of such Purchase
Right for all purposes, including determination of the exercise price of such Purchase Right;
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(ii)
the period of the Offering with respect to such Purchase Right shall begin on its Offering Date and
end coincident with the end of such Offering; and
(iii)
the Board may provide that if such person first becomes an Eligible Employee within a specified
period of time before the end of the Offering, he or she shall not receive any Purchase Right under that Offering.
(c)
No Employee shall be eligible for the grant of any Purchase Rights under the Plan if, immediately after any
such Purchase Rights are granted, such Employee owns stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or of any Related Corporation. For purposes of this Section 5(c),
the rules of Section 424(d) of the Code shall apply in determining the stock ownership of any Employee, and stock which such
Employee may purchase under all outstanding Purchase Rights and options shall be treated as stock owned by such Employee.
(d)
As specified by Section 423(b)(8) of the Code, an Eligible Employee may be granted Purchase Rights under
the Plan only if such Purchase Rights, together with any other rights granted under all Employee Stock Purchase Plans of the
Company and any Related Corporations, do not permit such Eligible Employee's rights to purchase stock of the Company or
any Related Corporation to accrue at a rate which exceeds twenty five thousand dollars ($25,000) of Fair Market Value of such
stock (determined at the time such rights are granted, and which, with respect to the Plan, shall be determined as of their
respective Offering Dates) for each calendar year in which such rights are outstanding at any time.
(e)
Officers of the Company and any designated Related Corporation, if they are otherwise Eligible Employees,
shall be eligible to participate in Offerings under the Plan. Notwithstanding the foregoing, the Board may provide in an Offering
that Employees who are highly compensated Employees within the meaning of Section 423(b)(4)(D) of the Code shall not be
eligible to participate.
6.
Purchase Rights; Purchase Price.
(a)
On each Offering Date, each Eligible Employee, pursuant to an Offering made under the Plan, shall be
granted a Purchase Right to purchase up to that number of shares of Common Stock purchasable with a percentage of such
Employee's Compensation (as defined by the Board in each Offering) not exceeding fifteen percent (15%) during the period
that begins on the Offering Date (or such later date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the Offering.
(b)
The Board shall establish one (1) or more Purchase Dates during an Offering as of which Purchase Rights
granted pursuant to that Offering shall be exercised and purchases of shares of Common Stock shall be carried out in accordance
with such Offering.
(c)
In connection with each Offering made under the Plan, the Board may specify a maximum number of shares
of Common Stock that may be purchased by any Participant on any Purchase Date during such Offering. In connection with
each Offering made under the Plan, the Board may specify a maximum aggregate number of shares of Common Stock that may
be purchased by all Participants pursuant to such Offering. In addition, in connection with each Offering that contains more
than one Purchase Date, the Board may specify a maximum aggregate number of shares of Common Stock that may be
purchased by all Participants on any or each Purchase Date under the Offering. If the aggregate purchase of shares of Common
Stock issuable upon exercise of Purchase Rights granted under the Offering would exceed any such maximum aggregate
number, then, in the absence of any Board action otherwise, a pro rata allocation of the shares of Common Stock available shall
be made in as nearly a uniform manner as shall be practicable and equitable.
(d)
The purchase price of shares of Common Stock acquired pursuant to Purchase Rights shall be not less than
the lesser of: (i) an amount equal to eighty-five percent (85%) of the Fair Market Value of the shares of Common Stock on the
Offering Date; or (ii) an amount equal to eighty-five percent (85%) of the Fair Market Value of the shares of Common Stock
on the applicable Purchase Date.
7.
Participation; Withdrawal; Termination.
(a)
A Participant may elect to authorize payroll deductions pursuant to an Offering under the Plan by completing
and delivering to the Company, within the time specified in the Offering, an enrollment form (in such form as the Company
may provide). Each such enrollment form shall authorize an amount of Contributions expressed as a percentage of the
submitting Participant's Compensation (as defined in each Offering) during the Offering (not to exceed the maximum
percentage specified by the Board). Each Participant's Contributions shall be credited to a bookkeeping account for such
B-3
Participant under the Plan and shall be deposited with the general funds of the Company except where applicable law requires
that Contributions be deposited with an independent third party. To the extent provided in the Offering, a Participant may begin
such Contributions after the beginning of the Offering. To the extent provided in the Offering, a Participant may thereafter
reduce (including to zero) or increase his or her Contributions. To the extent specifically provided in the Offering, in addition
to making Contributions by payroll deductions, a Participant may make Contributions through the payment by cash or check
prior to each Purchase Date of the Offering.
(b)
During an Offering, a Participant may cease making Contributions and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company may provide. Such withdrawal may be elected
at any time prior to the end of the Offering, except as provided otherwise in the Offering. Upon such withdrawal from the
Offering by a Participant, the Company shall distribute to such Participant all of his or her accumulated Contributions (reduced
to the extent, if any, such Contributions have been used to acquire shares of Common Stock for the Participant) under the
Offering, and such Participant's Purchase Right in that Offering shall thereupon terminate. A Participant's withdrawal from an
Offering shall have no effect upon such Participant's eligibility to participate in any other Offerings under the Plan, but such
Participant shall be required to deliver a new enrollment form in order to participate in subsequent Offerings.
(c)
Purchase Rights granted pursuant to any Offering under the Plan shall terminate immediately upon a
Participant ceasing to be an Employee or other lack of eligibility. The Company shall distribute to such terminated or otherwise
ineligible Employee all of his or her accumulated Contributions (reduced to the extent, if any, such Contributions have been
used to acquire shares of Common Stock for the terminated or otherwise ineligible Employee) under the Offering. An Employee
will be deemed to have terminated employment for purposes of the Plan when the employee begins a leave of absence, unless
the Employee is on an approved leave of absence or is entitled to disability benefits, in which case participation shall be
suspended until a return to active employment.
(d)
Purchase Rights shall not be transferable by a Participant except by will, the laws of descent and distribution,
or by a beneficiary designation as provided in Section 10. During a Participant's lifetime, Purchase Rights shall be exercisable
only by such Participant.
(e)
Unless otherwise specified in an Offering, the Company shall have no obligation to pay interest on
Contributions.
8.
Exercise of Purchase Rights.
(a)
On each Purchase Date during an Offering, each Participant's accumulated Contributions shall be applied to
the purchase of shares of Common Stock up to the maximum number of shares of Common Stock permitted pursuant to the
terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares shall be
issued upon the exercise of Purchase Rights unless specifically provided for in the Offering.
(b)
If any amount of accumulated Contributions remains in a Participant's account after the purchase of shares
of Common Stock and such remaining amount is less than the amount required to purchase one share of Common Stock on the
final Purchase Date of an Offering, then such remaining amount shall be held in such Participant's account for the purchase of
shares of Common Stock under the next Offering under the Plan, unless such Participant withdraws from such next Offering,
as provided in Section 7(b), or is not eligible to participate in such Offering, as provided in Section 5, in which case such
amount shall be distributed to such Participant after the final Purchase Date, without interest (unless required by applicable
law). If the amount of Contributions remaining in a Participant's account after the purchase of shares of Common Stock is at
least equal to the amount required to purchase one (1) whole share of Common Stock on the final Purchase Date of the Offering,
then such remaining amount shall be distributed in full to such Participant at the end of the Offering without interest.
(c)
No Purchase Rights may be exercised to any extent unless the shares of Common Stock to be issued upon
such exercise under the Plan are covered by an effective registration statement pursuant to the Securities Act and the Plan is in
material compliance with all applicable federal, state and foreign laws, and any other securities laws and other laws applicable
to the Plan. If on a Purchase Date during any Offering hereunder the shares of Common Stock are not so registered or the Plan
is not in such compliance, no Purchase Rights or any Offering shall be exercised on such Purchase Date, and the Purchase Date
shall be delayed until the shares of Common Stock are subject to such an effective registration statement and the Plan is in such
compliance, except that the Purchase Date shall not be delayed more than twelve (12) months and the Purchase Date shall in
no event be more than twenty-seven (27) months from the Offering Date. If, on the Purchase Date under any Offering hereunder,
as delayed to the maximum extent permissible, the shares of Common Stock are not registered and the Plan is not in such
compliance, no Purchase Rights or any Offering shall be exercised and all Contributions accumulated during the Offering
B-4
(reduced to the extent, if any, such Contributions have been used to acquire shares of Common Stock) shall be distributed to
the Participants without interest (unless required by applicable law).
(d)
Shares of Common Stock obtained by exercise of Purchase Rights must be held by the Participant for at least
ninety (90) days prior to Participant’s sale of such Common Stock. The terms and conditions of Purchase Rights granted
hereunder to, and the purchase of shares of Common Stock by, persons subject to Section 16 of the Exchange Act shall comply
with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and such Purchase Rights shall contain,
and the shares of Common Stock issued upon exercise thereof shall be subject to, such additional conditions and restrictions,
if any, as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
9.
Covenants of the Company.
The Company shall seek to obtain from each federal, state, foreign or other regulatory commission or agency having
jurisdiction over the Plan such authority as may be required to issue and sell shares of Common Stock upon exercise of the
Purchase Rights. If, after commercially reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of Common
Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise
of such Purchase Rights unless and until such authority is obtained.
10.
Designation of Beneficiary.
(a)
A Participant may file a written designation of a beneficiary who is to receive any shares of Common Stock
and/or cash, if any, from the Participant's account under the Plan in the event of such Participant's death subsequent to the end
of an Offering but prior to delivery to the Participant of such shares of Common Stock or cash. In addition, a Participant may
file a written designation of a beneficiary who is to receive any cash from the Participant's account under the Plan in the event
of such Participant's death during an Offering. Any such designation shall be on a form provided by or otherwise acceptable to
the Company.
(b)
The Participant may change such designation of beneficiary at any time by written notice to the Company.
In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at
the time of such Participant's death, the Company shall deliver such shares of Common Stock and/or cash to the executor or
administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its sole discretion, may deliver such shares of Common Stock and/or cash to the spouse or to
any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
11.
Adjustments upon Changes in Common Stock; Corporate Transactions.
(a)
In the event of a Capitalization Adjustment, the Board shall appropriately and proportionately adjust: (i) the
class(es) and maximum number of securities subject to the Plan pursuant to Section 3(a), (ii) the class(es) and maximum
number of securities by which the share reserve is to increase automatically each year pursuant to Section 3(a), (iii) the
class(es) and number of securities subject to, and the purchase price applicable to, outstanding Offerings and Purchase Rights,
and (iv) the class(es) and number of securities imposed by purchase limits under each ongoing Offering. The Board shall make
such adjustments in compliance with applicable law, and its determination shall be final, binding, and conclusive.
(b)
In the event of a Corporate Transaction, then: (i) any surviving corporation or acquiring corporation (or the
surviving or acquiring corporation's parent company) may assume or continue Purchase Rights outstanding under the Plan or
may substitute similar rights (including a right to acquire the same consideration paid to the stockholders in the Corporate
Transaction) for those outstanding under the Plan, or (ii) if any surviving or acquiring corporation (or its parent company) does
not assume or continue such Purchase Rights or does not substitute similar rights for Purchase Rights outstanding under the
Plan, then the Participants’ accumulated Contributions shall be used to purchase shares of Common Stock within ten
(10) business days prior to the Corporate Transaction under any ongoing Offerings, and the Participants’ Purchase Rights under
the ongoing Offerings shall terminate immediately after such purchase.
B-5
12.
Amendment, Termination or Suspension of the Plan.
(a)
The Board may amend the Plan at any time in any respect the Board deems necessary or advisable. However,
except as provided in Section 11(a) relating to Capitalization Adjustments, stockholder approval shall be required for any
amendment of the Plan for which stockholder approval is required by applicable law or listing requirements, including any
amendment that either (i) materially increases the number of shares of Common Stock available for issuance under the Plan,
(ii) materially expands the class of individuals eligible to become Participants and receive Purchase Rights under the Plan,
(iii) materially increases the benefits accruing to Participants under the Plan or materially reduces the price at which shares of
Common Stock may be purchased under the Plan, (iv) materially extends the term of the Plan, or (v) expands the types of
awards available for issuance under the Plan, but in each of (i) through (v) above only to the extent stockholder approval is
required by applicable law or listing requirements.
(b)
The Board may suspend or terminate the Plan at any time. No Purchase Rights may be granted under the Plan
while the Plan is suspended or after it is terminated.
(c)
Any benefits, privileges, entitlements and obligations under any outstanding Purchase Rights granted before
an amendment, suspension or termination of the Plan shall not be impaired by any such amendment, suspension or termination
except (i) with the consent of the person to whom such Purchase Rights were granted, (ii) as necessary to comply with any
laws, listing requirements or governmental regulations (including, without limitation, the provisions of Section 423 of the
Code), or (iii) as necessary to obtain or maintain favorable tax, listing or regulatory treatment.
13.
Effective Date of Plan.
The Plan shall become effective on January 1, 2021, but no Purchase Rights shall be exercised unless and until the
Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after
the date the Plan is adopted by the Board.
14. Miscellaneous Provisions.
(a)
Proceeds from the sale of shares of Common Stock pursuant to Purchase Rights shall constitute general funds
of the Company.
(b)
A Participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to,
shares of Common Stock subject to Purchase Rights unless and until the Participant's shares of Common Stock acquired upon
exercise of Purchase Rights are recorded in the books of the Company (or its transfer agent).
(c)
The Plan and Offering do not constitute an employment contract. Nothing in the Plan or in the Offering shall
in any way (i) alter the at will nature of a Participant's employment, or (ii) be deemed to create in any way whatsoever any
obligation on the part of any Participant to continue in the employ of the Company or a Related Corporation, or on the part of
the Company or a Related Corporation to continue the employment of a Participant.
(d)
conflicts of laws rules.
The provisions of the Plan shall be governed by the laws of the State of Maryland without resort to that state's
15.
Definitions.
As used in the Plan, the following definitions shall apply to the capitalized terms indicated below:
(a)
“Board” means the Board of Directors of the Company.
(b)
“Capitalization Adjustment” means any change that is made in, or other events that occur with respect to, the
Common Stock subject to the Plan or subject to any Purchase Right after the Effective Date without the receipt of consideration
by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate
structure, or other similar transaction). Notwithstanding the foregoing, the conversion of any convertible securities of the
Company shall not be treated as a Capitalization Adjustment.
B-6
(c)
“Code” means the Internal Revenue Code of 1986, as amended, including any applicable regulations and
other guidance thereunder.
(d)
“Committee” means a committee of one (1) or more members of the Board to whom authority has been
delegated by the Board in accordance with Section 2(c).
(e)
“Common Stock” means the common stock of the Company.
(f)
“Company” means Hilltop Holdings Inc, a Maryland corporation.
(g)
“Contributions” means the payroll deductions, and other additional payments specifically provided for in the
Offering, that a Participant contributes to fund the exercise of a Purchase Right. A Participant may make additional payments
into his or her account, if specifically provided for in the Offering, and then only if the Participant has not already had the
maximum permitted amount withheld during the Offering through payroll deductions.
(h)
“Corporate Transaction” means the occurrence, in a single transaction or in a series of related transactions,
of any one or more of the following events:
(i)
the consummation of a sale or other disposition of all or substantially all, as determined by the Board
in its sole discretion, of the consolidated assets of the Company and its Subsidiaries;
(ii)
the consummation of a sale or other disposition of at least fifty percent (50%) of the outstanding
securities of the Company;
(iii)
the consummation of a merger, consolidation or similar transaction following which the Company
is not the surviving corporation; or
(iv)
the consummation of a merger, consolidation or similar transaction following which the Company
is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger,
consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar
transaction into other property, whether in the form of securities, cash or otherwise.
(i)
“Director” means a member of the Board.
(j)
“Eligible Employee” means an Employee who meets the requirements set forth in the Offering for eligibility
to participate in the Offering, provided that such Employee also meets the requirements for eligibility to participate set forth in
the Plan.
(k)
“Employee” means any person, including Officers and Directors, who is employed for purposes of Section
423(b)(4) of the Code by the Company or a Related Corporation. However, service solely as a Director, or payment of a fee
for such services, shall not cause a Director to be considered an “Employee” for purposes of the Plan.
(l)
“Employee Stock Purchase Plan” means a plan that grants Purchase Rights intended to be options issued
under an “employee stock purchase plan,” as that term is defined in Section 423(b) of the Code.
(m)
promulgated thereunder.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations
(n)
“Fair Market Value” means, as of any date, the value of the Common Stock determined as follows:
(i)
If the Common Stock is listed on any established stock exchange or traded on any established
market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock as quoted
on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on
the date of determination, as reported in such source as the Board deems reliable.
(ii)
Unless otherwise provided by the Board, if there is no closing sales price for the Common Stock on
the date of determination, then the Fair Market Value shall be the closing selling price (or closing bid if no sales were
reported) on the last preceding date for which such quotation exists.
B-7
(iii)
In the absence of such markets for the Common Stock, the Fair Market Value shall be determined
by the Board in good faith.
(o)
Eligible Employees.
“Offering” means the grant of Purchase Rights to purchase shares of Common Stock under the Plan to
(p)
“Offering Date” means a date selected by the Board for an Offering to commence.
(q)
“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder.
(r)
“Participant” means an Eligible Employee who holds an outstanding Purchase Right granted pursuant to the
Plan.
(s)
“Plan” means this Hilltop Holdings Inc. Employee Stock Purchase Plan.
(t)
“Purchase Date” means one or more dates during an Offering established by the Board on which Purchase
Rights shall be exercised and as of which purchases of shares of Common Stock shall be carried out in accordance with such
Offering.
(u)
“Purchase Period” means a period of time specified within an Offering beginning on the Offering Date or on
the next day following a Purchase Date within an Offering and ending on a Purchase Date. An Offering may consist of one or
more Purchase Periods.
(v)
“Purchase Right” means an option to purchase shares of Common Stock granted pursuant to the Plan.
(w)
“Related Corporation” means any “parent corporation” or “subsidiary corporation” of the Company whether
now or subsequently established, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.
(x)
thereunder.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated
(y)
“Trading Day” means any day on which the exchange(s) or market(s) on which shares of Common Stock are
listed is open for trading.
B-8
Annex C
Reconciliation of Tangible Common
Equity and Tangible Book Value
Per Share
($ '000, except per share amounts)
Total Stockholders' Equity
Less:
Goodwill
Other intangible assets, net
Goodwill and intangibles from
discontinued operations
12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020
$ 2,323,939
$ 2,103,039 $ 2,136,711
$ 2,262,360 $ 2,411,372
3/31/2021
$ 2,419,185
6/30/2021 9/30/2021 12/31/2021
$ 2,522,668
$ 2,476,371
$ 2,470,281
267,447
26,666
267,447
25,019
267,447
23,374
267,447
21,814
267,447
20,364
267,447
19,035
267,447
17,705
267,447
16,455
267,447
15,284
27,477
27,446
—
—
—
—
—
—
—
Tangible Common Equity
Shares outstanding as of period end
$ 1,781,449 $ 1,816,799
90,108
90,641
$ 1,971,539 $ 2,122,111
90,238
90,222
$ 2,036,128
82,185
$ 2,132,703
82,261
$ 2,185,129
81,153
$ 2,192,469
78,959
$ 2,239,937
78,965
Book Value Per Share
(Common Stockholder's Equity
Shares Outstanding)
Tangible Book Value Per Share
(Tangible Common Equity /
Shares Outstanding)
$ 23.20
$ 23.71
$ 25.08
$ 26.72
$ 28.28
$ 29.41
$ 30.44
$ 31.36
$ 31.95
$ 19.65
$ 20.16
$ 21.85
$ 23.52
$ 24.77
$ 25.93
$ 26.93
$ 27.77
$ 28.37
C-1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2021
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-31987
Hilltop Holdings Inc.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
6565 Hillcrest Avenue
Dallas, TX
(Address of principal executive offices)
84-1477939
(I.R.S. Employer
Identification No.)
75205
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
(214) 855-2177
(Registrant’s telephone number, including area code)
Title of each class
Common Stock, par value $0.01 per share
Trading symbol
HTH
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
☐ Yes No
Aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common stock was last sold on
the New York Stock Exchange on June 30, 2021, was approximately $2.22 billion. For the purposes of this computation, all officers, directors and 10% stockholders are
considered affiliates. The number of shares of the registrant’s common stock outstanding at February 14, 2022 was 78,966,136.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant’s definitive Proxy Statement pertaining to the 2022 Annual Meeting of Stockholders, filed or to be filed not later than 120 days after the end of the fiscal
year pursuant to Regulation 14A, is incorporated herein by reference into Part III.
TABLE OF CONTENTS
MARKET AND INDUSTRY DATA AND FORECASTS
FORWARD-LOOKING STATEMENTS
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
[Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . .
Item 9.
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . .
Item 14.
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15. Exhibits, Financial Statement Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16. Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
25
48
48
48
48
49
50
50
99
103
103
103
104
104
105
105
105
105
105
106
106
MARKET AND INDUSTRY DATA AND FORECASTS
Market and industry data and other statistical information and forecasts used throughout this Annual Report on Form 10-K
(this “Annual Report”) are based on independent industry publications, government publications and reports by market
research firms or other published independent sources. We have not sought or obtained the approval or endorsement of the use
of this third party information. Some data also is based on our good faith estimates, which are derived from our review of
internal surveys, as well as independent sources. Forecasts are particularly likely to be inaccurate, especially over long periods
of time.
2
Unless the context otherwise indicates, all references in this Annual Report to the “Company,” “we,” “us,” “our” or “ours”
or similar words are to Hilltop Holdings Inc. and its direct and indirect wholly owned subsidiaries, references to “Hilltop”
refer solely to Hilltop Holdings Inc., references to “PCC” refer to PlainsCapital Corporation (a wholly owned subsidiary of
Hilltop), references to “Securities Holdings” refer to Hilltop Securities Holdings LLC (a wholly owned subsidiary of Hilltop),
references to “Hilltop Securities” refer to Hilltop Securities Inc. (a wholly owned subsidiary of Securities Holdings),
references to “Momentum Independent Network” refer to Momentum Independent Network Inc. (a wholly owned subsidiary of
Securities Holdings), Hilltop Securities and Momentum Independent Network are collectively referred to as the “Hilltop
Broker-Dealers,” references to the “Bank” refer to PlainsCapital Bank (a wholly owned subsidiary of PCC), references to
“FNB” refer to First National Bank, references to “SWS” refer to the former SWS Group, Inc., references to “PrimeLending”
refer to PrimeLending, a PlainsCapital Company (a wholly owned subsidiary of the Bank) and its subsidiaries as a whole,
references to “NLC” refer to National Lloyds Corporation (formerly a wholly owned subsidiary of Hilltop) and its wholly
owned subsidiaries.
FORWARD-LOOKING STATEMENTS
This Annual Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933,
as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended
by the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, included in
this Annual Report that address results or developments that we expect or anticipate will or may occur in the future, and
statements that are preceded by, followed by or include, words such as “anticipates,” “believes,” “could,” “estimates,”
“expects,” “forecasts,” “goal,” “intends,” “may,” “might,” “plan,” “probable,” “projects,” “seeks,” “should,” “target,” “view”
or “would” or the negative of these words and phrases or similar words or phrases, including such things as our business
strategy, our financial condition, our revenue, our liquidity and sources of funding, market trends, operations and business,
taxes, the impact of natural disasters or public health emergencies, such as the current global outbreak of a novel strain of
coronavirus (“COVID-19”) or disruptions in global or national supply chains, information technology expenses, capital levels,
mortgage servicing rights (“MSR”) assets, use of proceeds from offerings, stock repurchases, dividend payments, expectations
concerning mortgage loan origination volume, servicer advances and interest rate compression, expected levels of refinancing
as a percentage of total loan origination volume, projected losses on mortgage loans originated, total expenses, the effects of
government regulation applicable to our operations, the appropriateness of, and changes in, our allowance for credit losses and
provision for (reversal of) credit losses, including as a result of the “current expected credit losses” (CECL) model, expected
future benchmarks rates, anticipated investment yields, our expectations regarding accretion of discount on loans in future
periods, the collectability of loans, cybersecurity incidents and the outcome of litigation are forward-looking statements.
These forward-looking statements are based on our beliefs, assumptions and expectations of our future performance taking
into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and
uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If an event
occurs, our business, business plan, financial condition, liquidity and results of operations may vary materially from those
expressed in our forward-looking statements. Certain factors that could cause actual results to differ include, among others:
•
•
•
•
•
•
•
•
the COVID-19 pandemic and the response of governmental authorities to the pandemic, which have had, and may
continue to have, an adverse impact on the global economy and our business operations and performance;
the credit risks of lending activities, including our ability to estimate credit losses and the allowance for credit losses,
as well as the effects of changes in the level of, and trends in, loan delinquencies and write-offs;
effectiveness of our data security controls in the face of cyber attacks;
changes in general economic, market and business conditions in areas or markets where we compete, including
changes in the price of crude oil;
changes in the interest rate environment and transitions away from the London Interbank Offered Rate (“LIBOR”);
risks associated with our concentration in real estate related loans;
the effects of our indebtedness on our ability to manage our business successfully, including the restrictions imposed
by the indenture governing our indebtedness;
changes in state and federal laws, regulations or policies affecting one or more of our business segments, including
changes in regulatory fees, deposit insurance premiums, capital requirements and the Dodd-Frank Wall Street Reform
and Consumer Protection Act (the “Dodd-Frank Act”);
3
•
•
•
•
•
•
cost and availability of capital;
changes in key management;
competition in our banking, broker-dealer, and mortgage origination segments from other banks and financial
institutions as well as investment banking and financial advisory firms, mortgage bankers, asset-based non-bank
lenders and government agencies;
legal and regulatory proceedings;
risks associated with merger and acquisition integration; and
our ability to use excess capital in an effective manner.
For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to
differ materially from those anticipated in these forward-looking statements, see Item 1A, “Risk Factors,” and Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” herein. We caution that the
foregoing list of factors is not exhaustive, and new factors may emerge, or changes to the foregoing factors may occur, that
could impact our business. All subsequent written and oral forward-looking statements concerning our business attributable to
us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements above. We do not
undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in
this Annual Report except to the extent required by federal securities laws.
4
Item 1. Business.
General
PART I
Hilltop Holdings Inc. is a diversified, Texas-based financial holding company registered under the Bank Holding Company Act
of 1956, as amended (the “Bank Holding Company Act”). Our primary line of business is to provide business and consumer
banking services from offices located throughout Texas through the Bank. We also provide an array of financial products and
services through our broker-dealer and mortgage origination segments. We endeavor to build and maintain a strong financial
services company through organic growth as well as acquisitions, which we may make using available capital, excess liquidity
and, if necessary or appropriate, additional equity or debt financing sources. The following includes additional details regarding
the financial products and services provided by each of our two primary business units.
PCC. PCC is a financial holding company that provides, through its subsidiaries, traditional banking and wealth,
investment and treasury management services primarily in Texas and residential mortgage loans throughout the United States.
Securities Holdings. Securities Holdings is a holding company that provides, through its subsidiaries, investment banking
and other related financial services, including municipal advisory, sales, trading and underwriting of taxable and tax-exempt
fixed income securities, clearing, securities lending, structured finance and retail brokerage services throughout the United
States.
At December 31, 2021, on a consolidated basis, we had total assets of $18.7 billion, total deposits of $12.8 billion, total loans,
including loans held for sale, of $9.7 billion and stockholders’ equity of $2.5 billion.
Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “HTH.”
Our principal office is located at 6565 Hillcrest Avenue, Dallas, Texas 75205, and our telephone number at that location is
(214) 855-2177. Our internet address is www.hilltop-holdings.com. Our Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act are available on our website, free of charge, at http://ir.hilltop-holdings.com/ under the tab
“Investor Relations - Filings” as soon as reasonably practicable after we electronically file such reports with, or furnish them
to, the Securities and Exchange Commission (the “SEC”). The references to our website in this Annual Report are inactive
textual references only. The information on our website is not incorporated by reference into this Annual Report. The SEC
maintains a public website, www.sec.gov, which includes information about and the filings of issuers that file electronically
with the SEC.
Business Segments
Under accounting principles generally accepted in the United States (“GAAP”), our business units are comprised of three
reportable business segments organized primarily by the core products offered to the segments’ respective customers: banking,
broker-dealer, and mortgage origination. These segments reflect the manner in which operations are managed and the criteria
used by our chief operating decision maker, our President and Chief Executive Officer, to evaluate segment performance,
develop strategy and allocate resources.
The following graphic reflects our current business segments.
5
On June 30, 2020, we completed the sale of all of the outstanding capital stock of NLC, which comprised the operations of the
former insurance segment. As a result, insurance segment results and its assets and liabilities have been presented as
discontinued operations in our consolidated financial statements, and we no longer have an insurance segment.
Corporate includes certain activities not allocated to specific business segments. These activities include holding company
financing and investing activities, merchant banking investment opportunities, and management and administrative services to
support the overall operations of the Company. Hilltop’s merchant banking investment activities include the identification of
attractive opportunities for capital deployment in companies engaged in non-financial activities through its merchant bank
subsidiary, Hilltop Opportunity Partners LLC.
For more financial information about each of our business segments, see Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” herein. See also Note 29 in the notes to our consolidated financial statements
included under Item 8, “Financial Statements and Supplementary Data.”
Banking
The banking segment includes the operations of the Bank, which, at December 31, 2021, had $14.9 billion in assets and total
deposits of $13.0 billion. The primary sources of our deposits are residents and businesses located in Texas. At December 31,
2021, the Bank employed approximately 1,100 people.
The table below sets forth a distribution of the banking segment’s loans, classified by portfolio segment. The banking
segment’s loan portfolio included $3.3 billion in warehouse lines of credit extended to PrimeLending, of which $1.7 billion
was drawn at December 31, 2021. Effective January 1, 2022, these warehouse lines of credit were decreased to $2.8 billion to
address expected declines in loan origination volumes. Amounts advanced against the warehouse lines of credit are included in
the table below, but are eliminated from net loans on our consolidated balance sheets.
Commercial real estate:
Non-owner occupied
Owner occupied
Commercial and industrial (1)
Mortgage warehouse lending
Construction and land development
1-4 family residential
Consumer
PrimeLending warehouse lines of credit
Total loans held for investment
Total Loans
Held for Investment
% of Total
Loans Held
for Investment
$
$
1,729,699
1,313,030
1,463,447
411,973
892,783
1,303,430
32,349
7,146,711
1,713,534
8,860,245
19.5 %
14.8 %
16.5 %
4.7 %
10.1 %
14.7 %
0.4 %
80.7 %
19.3 %
100.0 %
(1)
Included loans totaling $77.7 million at December 31, 2021 funded through the Paycheck Protection Program.
Our lending policies seek to establish an asset portfolio that will provide a return on stockholders’ equity sufficient to maintain
capital to assets ratios that meet or exceed established regulations. In support of that goal, we have designed our underwriting
standards to determine:
•
•
•
•
that our borrowers possess sound ethics and competently manage their affairs;
that we know the source of the funds the borrower will use to repay the loan;
that the purpose of the loan makes economic sense; and
that we identify relevant risks of the loan and determine that the risks are acceptable.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the
Paycheck Protection Program and Health Care Enhancement Act (the “PPP/HCE Act”) were passed in March 2020, which
were intended to provide emergency relief to several groups and individuals impacted by the COVID-19 pandemic. Starting in
March 2020, the Bank implemented several actions to better support our impacted banking clients and allow for loan
modifications such as principal and/or interest payment deferrals, participation in the Paycheck Protection Program (“PPP”) as
a Small Business Administration (“SBA”) preferred lender and personal banking assistance including waived fees, increased
daily spending limits and suspension of residential foreclosure activities. The COVID-19 payment deferment programs allow
6
for a deferral of principal and/or interest payments with such deferred principal payments due and payable on the maturity date
of the existing loan. During 2020, the Bank approved approximately $1.0 billion in COVID-19 related loan modifications as
of December 31, 2020.
During 2021, the Bank continued to support its impacted banking clients through the approval of COVID-19 related loan
modifications, which resulted in an additional $16 million of new COVID-19 related loan modifications during 2021. The
portfolio of active deferrals that have not reached the end of their deferral period was approximately $4 million as of
December 31, 2021. While the majority of the portfolio of COVID-19 related loan modifications no longer require deferral,
such loans and certain loan portfolio industry sectors and subsectors continue to have an increased level of risk, and therefore
management continues to monitor these loans.
We implement our underwriting standards according to the facts and circumstances of each particular loan request, as
discussed below.
Business Banking. Our business banking customers primarily consist of agribusiness, energy, healthcare, institutions of higher
education, real estate (including construction and land development) and wholesale/retail trade companies. We provide these
customers with extensive banking services, such as online banking, business check cards and other add-on services as
determined on a customer-by-customer basis. Our treasury management services, which are designed to reduce the time,
burden and expense of collecting, transferring, disbursing and reporting cash, are also available to our business customers. We
offer our business banking customers term loans, lines of credit, equipment loans and leases, letters of credit, agricultural
loans, commercial real estate loans and other loan products, including PPP loans in 2020 and 2021.
Commercial and industrial loans are primarily made within Texas and are underwritten on the basis of the borrower’s ability to
service the debt from cash flow from an operating business. In general, commercial and industrial loans involve more credit
risk than residential and commercial real estate loans and, therefore, usually yield a higher return. The increased risk in
commercial and industrial loans results primarily from the type of collateral securing these loans, which typically includes
accounts receivable, equipment and inventory. Additionally, increased risk arises from the expectation that commercial and
industrial loans generally will be serviced principally from operating cash flow of the business, and such cash flows are
dependent upon successful business operations. Historical trends have shown these types of loans to have higher delinquencies
than mortgage loans. As a result of the additional risk and complexity associated with commercial and industrial loans, such
loans require more thorough underwriting and servicing than loans to individuals. To manage these risks, our policy is to
attempt to secure commercial and industrial loans with both the assets of the borrowing business and other additional collateral
and guarantees that may be available. In addition, depending on the size of the credit, we actively monitor the financial
condition of the borrower by analyzing the borrower’s financial statements and assessing certain financial measures, including
cash flow, collateral value and other appropriate credit factors. We also have processes in place to analyze and evaluate on a
regular basis our exposure to industries, products, market changes and economic trends.
The Bank offers term financing on commercial real estate that includes retail, office, multi-family, industrial and warehouse
properties. Commercial mortgage lending can involve high principal loan amounts, and the repayment of these loans is
dependent, in large part, on a borrower’s ongoing business operations or on income generated from the properties that are
leased to third parties. Accordingly, we apply the measures described above for commercial and industrial loans to our
commercial real estate lending, with increased emphasis on analysis of collateral values. As a general practice, the Bank
requires its commercial mortgage loans to (i) be secured with first lien positions on the underlying property, (ii) maintain
adequate equity margins, (iii) be serviced by businesses operated by an established management team and (iv) be guaranteed
by the principals of the borrower. The Bank seeks lending opportunities where cash flow from the collateral provides adequate
debt service coverage and/or the guarantor’s net worth is comprised of assets other than the project being financed.
The Bank’s mortgage warehouse lending activities consist of asset-based lending in which the Bank provides short-term,
revolving lines of credit to independent mortgage bankers (“IMBs”). IMBs are generally small businesses, with mortgage loan
origination and servicing as their sole or primary business. IMBs use the funds from their lines of credit to provide home loans
to prospective and existing homeowners. When the IMBs subsequently sell the loans to institutional investors in the secondary
market—typically within 30 days of closing the transaction—the proceeds from the sale are used to pay down and therefore
replenish their lines of credit.
The Bank also offers construction financing for (i) commercial, retail, office, industrial, warehouse and multi-family
developments, (ii) residential developments and (iii) single family residential properties. Construction loans involve additional
risks because loan funds are advanced upon the security of a project under construction, and the project is of uncertain value
7
prior to its completion. If the Bank is forced to foreclose on a project prior to completion, it may not be able to recover the
entire unpaid portion of the loan. Additionally, the Bank may be required to fund additional amounts to complete a project and
may have to hold the property for an indeterminate period of time. Because of uncertainties inherent in estimating construction
costs, the market value of the completed project and the effects of governmental regulation on real property, it can be difficult
to accurately evaluate the total funds required to complete a project and the related loan-to-value ratio. As a result of these
uncertainties, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on
the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. The Bank generally
requires that the subject property of a construction loan for commercial real estate be pre-leased because cash flows from the
completed project provide the most reliable source of repayment for the loan. Loans to finance these projects are generally
secured by first liens on the underlying real property. The Bank conducts periodic completion inspections, either directly or
through an agent, prior to approval of periodic draws on these loans.
In addition to the real estate lending activities described above, a portion of the Bank’s real estate portfolio consists of one-to-
four family residential mortgage loans typically collateralized by owner occupied properties. These residential mortgage loans
are generally secured by a first lien on the underlying property and have maturities up to 30 years. These loans are shown in
the loans held for investment table above as “1-4 family residential.”
Personal Banking. The Bank offers a broad range of personal banking products and services for individuals. Similar to its
business banking operations, the Bank also provides its personal banking customers with a variety of add-on features such as
check cards, safe deposit boxes, online banking, bill pay, overdraft privilege services and access to automated teller machine
(ATM) facilities throughout the United States. The Bank offers a variety of deposit accounts to its personal banking customers
including savings, checking, interest-bearing checking, money market and certificates of deposit.
The Bank loans to individuals for personal, family and household purposes, including lines of credit, home improvement
loans, home equity loans, and loans for purchasing and carrying securities.
Private Banking and Investment Management. The Bank’s private banking team personally assists high net worth individuals
and their families with their banking needs, including depository, credit, asset management, and trust and estate services. The
Bank offers trust and asset management services in order to assist these customers in managing, and ultimately transferring,
their wealth.
The Bank’s services provide personal trust, investment management and employee benefit plan administration services,
including estate planning, management and administration, investment portfolio management, employee benefit accounts and
individual retirement accounts.
Broker-Dealer
The “Hilltop Broker-Dealers” include the operations of Hilltop Securities, a broker-dealer subsidiary registered with the SEC
and the Financial Industry Regulatory Authority (“FINRA”) and a member of the NYSE, Momentum Independent Network,
an introducing broker-dealer subsidiary that is also registered with the SEC and FINRA, and Hilltop Securities Asset
Management, LLC. Hilltop Securities and Momentum Independent Network are both registered with the Commodity Futures
Trading Commission (“CFTC”) as non-guaranteed introducing brokers and as members of the National Futures Association
(“NFA”). Additionally, Hilltop Securities Asset Management, LLC, Hilltop Securities and Momentum Independent Network
are investment advisers registered under the Investment Advisers Act of 1940. At December 31, 2021, Hilltop Securities had
total assets of $3.6 million and net capital of $201.7 million, which was $190.1 million in excess of its minimum net capital
requirement of $11.6 million. At December 31, 2021, the Hilltop Broker-Dealers employed approximately 750 people and
maintained 44 locations in 16 states.
Our broker-dealer segment has four primary lines of business: (i) public finance services, (ii) structured finance, (iii) fixed
income services, and (iv) wealth management, which includes retail, clearing services and securities lending. These lines of
business and the respective services provided reflect the current manner in which the broker-dealer segment’s operations are
managed.
Public Finance Services. The public finance services line of business assists public entities nationwide, including cities,
counties, school districts, utility districts, tax increment zones, special districts, state agencies and other governmental entities,
in originating, syndicating and distributing securities of municipalities and political subdivisions. In addition, the public
finance services line of business provides specialized advisory and investment banking services for airports, convention
8
centers, healthcare institutions, institutions of higher education, housing, industrial development agencies, toll road authorities,
and public power and utility providers.
Additionally, through its arbitrage rebate, treasury management and government investment pools management departments,
the public finance services line of business provides state and local governments with advice and guidance with respect to
arbitrage rebate compliance, portfolio management and local government investment pool administration.
Structured Finance. The structured finance line of business provides advisory services and centralized product expertise for
derivatives and commodities. In addition, this business line participates in programs in which it issues forward purchase
commitments of mortgage-backed securities to certain non-profit housing clients and sells U.S. Agency to-be-announced
(“TBA”) mortgage-backed securities.
Fixed Income Services. The fixed income services line of business specializes in sales, trading and underwriting of U.S.
government and government agency bonds, corporate bonds, municipal bonds, mortgage-backed, asset-backed and
commercial mortgage-backed securities and structured products to support sales and other client activities. In addition, the
fixed income services line of business provides asset and liability management advisory services to community banks.
Wealth Management. The wealth management line of business is comprised of our retail, clearing services and securities
lending groups.
Retail. The retail group acts as a securities broker for retail investors in the purchase and sale of securities, options, and
futures contracts that are traded on various exchanges or in the over-the-counter market through our employee-registered
representatives or independent contractor arrangements. We extend margin credit on a secured basis to our retail customers in
order to facilitate securities transactions. Through Southwest Insurance Agency, Inc. and Southwest Financial Insurance
Agency, Inc., we hold insurance licenses to facilitate the sale of insurance and annuity products by Hilltop Securities and
Momentum Independent Network advisors to retail clients. We retain no underwriting risk related to these insurance and
annuity products. In addition, through our investment management team, the retail group provides a number of advisory
programs that offer advisors a wide array of products and services for their advisory businesses. In most cases, we charge
commissions to our clients in accordance with an established commission schedule, subject to certain discounts based upon the
client’s level of business, the trade size and other relevant factors. The Momentum Independent Network advisors may also
contract directly with third party carriers to sell specified insurance products to their customers. The commissions received
from these third party carriers are paid directly to the advisor. At December 31, 2021, we employed 98 registered
representatives in 21 retail brokerage offices and had contracts with 177 independent retail representatives for the
administration of their securities business.
Clearing Services. The clearing services group offers fully disclosed clearing services to FINRA- and SEC-registered member
firms for trade execution and clearance as well as back office services such as record keeping, trade reporting, accounting,
general back-office support, securities and margin lending, reorganization assistance and custody of securities. At
December 31, 2021, we provided services to 122 financial organizations, including correspondent firms, correspondent
broker-dealers, registered investment advisers, discount and full-service brokerage firms, and institutional firms.
Securities Lending. The securities lending group performs activities that include borrowing and lending securities for other
broker-dealers, lending institutions, and internal clearing and retail operations. These activities involve borrowing securities to
cover short sales and to complete transactions in which clients have failed to deliver securities by the required settlement date,
and lending securities to other broker-dealers for similar purposes.
Mortgage Origination
Our mortgage origination segment operates through a wholly owned subsidiary of the Bank, PrimeLending, which is a
residential mortgage banker licensed to originate and close loans in all 50 states and the District of Columbia. PrimeLending
primarily originates its mortgage loans through a retail channel, with limited lending through its affiliated business
arrangements (“ABAs”). During 2021, funded loan volume through ABAs was approximately 5% of the mortgage origination
segment’s total loan volume. At December 31, 2021, our mortgage origination segment operated from over 285 locations in 44
states, originating 18.6%, 11.9% and 4.6%, respectively, of its mortgage loans (by dollar volume) from its Texas, California
and Arizona locations. The mortgage lending business is subject to variables that can impact loan origination volume,
including seasonal and interest rate fluctuations. Historically, the mortgage origination segment has experienced increased
loan origination volume from purchases of homes during the spring and summer months, when more people tend to move and
9
buy or sell homes. An increase in mortgage interest rates tends to result in decreased loan origination volume from
refinancings, while a decrease in mortgage interest rates tends to result in increased loan origination volume from refinancings.
Changes in mortgage interest rates have historically had a lesser impact on home purchases volume than on refinancing
volume.
PrimeLending handles loan processing, underwriting and closings in-house. Mortgage loans originated by PrimeLending are
funded through warehouse lines of credit maintained with the Bank. PrimeLending sells substantially all mortgage loans it
originates to various investors in the secondary market, historically with the majority servicing released. PrimeLending’s
determination of whether to retain or release servicing on mortgage loans it sells is impacted by, among other things, changes in
mortgage interest rates, and refinancing and market activity. In addition, during 2021, 2020, and 2019, the mortgage origination
segment originated approximately $778 million, $193 million, and $149 million, respectively, in loans on behalf of the banking
segment. Loan volumes to be originated on behalf of and retained by the banking segment are evaluated each quarter, but we do
not expect these sales to exceed 5% of total origination volume during this time. PrimeLending may, from time to time, manage
its related mortgage servicing rights (“MSR”) assets through different strategies, including varying the percentage of mortgage
loans sold servicing released and opportunistically selling MSR assets. As mortgage loans are sold in the secondary market,
PrimeLending pays down its warehouse lines of credit with the Bank. Loans sold are subject to certain standard indemnification
provisions with investors, including the repurchase of loans sold and the repayment of sales proceeds to investors under certain
conditions.
Our mortgage lending underwriting strategy, driven in large measure by secondary market investor standards, seeks primarily
to originate conforming loans. Our underwriting practices include:
•
•
•
•
granting loans on a sound and collectible basis;
obtaining a balance between maximum yield and minimum risk;
ensuring that primary and secondary sources of repayment are adequate in relation to the amount of the loan; and
ensuring that each loan is properly documented and, if appropriate, adequately insured.
PrimeLending also acts as a primary servicer for loans originated prior to sale, loans sold to the banking segment and loans
sold with servicing retained.
PrimeLending had a staff of approximately 2,700 people, including approximately 1,300 mortgage loan officers, as of
December 31, 2021 that produced $22.7 billion in closed mortgage loan volume during 2021, 63.7% of which related to home
purchases volume. PrimeLending offers a variety of loan products catering to the specific needs of borrowers seeking purchase
or refinancing options, including 30-year and 15-year fixed rate conventional mortgages, adjustable rate mortgages, jumbo
loans, and Federal Housing Administration (“FHA”), Veterans Affairs (“VA”), and United States Department of Agriculture
(“USDA”) loans. Mortgage loans originated by PrimeLending are secured by a first lien on the underlying property.
PrimeLending does not currently originate subprime loans (which it defines to be conventional and government loans that
(i) are ineligible for sale to the Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation
(“FHLMC”) or Government National Mortgage Association (“GNMA”), or (ii) do not comply with approved investor-specific
underwriting guidelines).
Geographic Dispersion of our Businesses
The Bank provides traditional banking and wealth, investment and treasury management services. The Bank has a presence in
the large metropolitan markets in Texas and conducts substantially all of its banking operations in Texas.
Our broker-dealer services are provided through Hilltop Securities and Momentum Independent Network, which conduct
business nationwide, with 59% of the broker-dealer segment’s net revenues during 2021 generated through locations in Texas,
California and Oklahoma.
PrimeLending provides residential mortgage origination products and services from over 285 locations in 44 states. During
2021, an aggregate of 60% of PrimeLending’s origination volume was concentrated in ten states, with 35% concentrated in
Texas, California and Arizona, collectively. Other than these ten states, none of the states in which PrimeLending operated
during 2021 represented more than 3% of PrimeLending’s origination volume.
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Employees and Human Capital Resources
At December 31, 2021 we employed approximately 4,900 full-time employees and less than 50 part-time employees. Our
employees are not represented by any collective bargaining group. Management believes that we have good relations with our
employees.
We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by
promotion and transfer from within the organization. Continual learning and career development are advanced through annual
performance and development conversations with employees, internally developed training programs, customized corporate
training engagements and seminars, conferences, and other training events employees are encouraged to attend in connection
with their job duties.
Our human capital objectives include attracting, training, motivating, rewarding and retaining our employees. The safety,
health and wellness of our employees is a top priority. The COVID-19 pandemic presented a unique challenge with regard to
maintaining employee safety while continuing successful operations. Through teamwork and the adaptability of our
management and staff, we were able to transition during the peak of the pandemic, over a short period of time, to a rotational
work schedule allowing employees to effectively work from remote locations and ensure a safely-distanced working
environment for employees performing customer-facing activities, at branches and operations centers. All employees are
asked not to come to work when they experience signs or symptoms of a possible COVID-19 illness and have been provided
paid time off to cover compensation during such absences. On an ongoing basis, we further promote the health and wellness of
our employees by strongly encouraging work-life balance, offering flexible work schedules, and keeping the employee portion
of health care premiums to a minimum.
Employee retention helps us operate efficiently and achieve one of our business objectives, which is being a high-level service
provider. We believe our commitment to our core values (integrity, collaboration, adaptability, respect and excellence) as well
as actively prioritizing concern for our employees’ well-being, supporting our employees’ career goals, offering competitive
wages and providing valuable fringe benefits aids in the retention of our top-performing employees. At December 31, 2021,
approximately 27% of our current staff had been with us for ten years or more.
We are committed to offering transparency into our business activities and providing our stakeholders with key data
supporting our sustainability. For more information, see our current Environmental, Social and Governance, or ESG, and
Sustainability Report, available on our website at https://hilltop-holdings.com/ under the tab “Who We Are – ESG &
Sustainability.” The references to our website in this Annual Report are inactive textual references only. The information on
our website is not incorporated by reference into this Annual Report.
Competition
We face significant competition in the business segments in which we operate and the geographic markets we serve. Many of
our competitors have substantially greater financial resources, lending limits and branch networks than we do, and offer a
broader range of products and services.
Our banking segment primarily competes with national, regional and community banks within the various markets where the
Bank operates. The Bank also faces competition from many other types of financial institutions, including savings and loan
associations, credit unions, finance companies, pension trusts, mutual funds, insurance companies, brokerage and investment
banking firms, asset-based non-bank lenders, government agencies and certain other non-financial institutions. The ability to
attract and retain skilled lending professionals is critical to our banking business. Competition for deposits and in providing
lending products and services to consumers and businesses in our market area is intense and pricing is important. Competition
for deposits and lending services is also increasing from internet-based competitors and fintech companies. Other factors
encountered in competing for deposits are convenient office locations, interest rates and fee structures of products offered.
Direct competition for deposits also comes from other commercial bank and thrift institutions, money market mutual funds
and corporate and government securities that may offer more attractive rates than insured depository institutions are willing to
pay. Competition for loans is based on factors such as interest rates, loan origination fees and the range of services offered by
the provider. We seek to distinguish ourselves from our competitors through our commitment to personalized customer service
and responsiveness to customer needs while providing a range of competitive loan and deposit products and other services.
Within our broker-dealer segment, we face significant competition based on a number of factors, including price, perceived
expertise, quality of advice, reputation, range of services and products, technology, innovation and local presence.
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Competition for recruiting and retaining securities traders, investment bankers, and other financial advisors is intense. Our
broker-dealer business competes directly with numerous other financial advisory and investment banking firms, broker-dealers
and banks, including large national and major regional firms and smaller niche companies, some of whom are not broker-
dealers and, therefore, are not subject to the broker-dealer regulatory framework. Further, our broker-dealer segment competes
with discount brokerage firms, including fintech startups, that do not offer equivalent services but offer discounted prices and
certain free services. We seek to distinguish ourselves from our competitors through our commitment to personalized customer
service and responsiveness to customer needs while providing a range of investment banking, advisory and other related
financial brokerage services.
Our competitors in the mortgage origination business include large financial institutions as well as independent mortgage
banking companies, commercial banks, savings banks, savings and loan associations and fintech companies. Our mortgage
origination segment competes on a number of factors including customer service, quality and range of products and services
offered, price, reputation, interest rates, closing process and duration, and loan origination fees. The ability to attract and retain
skilled mortgage origination professionals is critical to our mortgage origination business. We seek to distinguish ourselves
from our competitors through our commitment to personalized customer service and responsiveness to customer needs while
providing a range of competitive mortgage loan products and services.
Overall, competition among providers of financial products and services continues to increase as technological advances have
lowered the barriers to entry for financial technology companies, with consumers having the opportunity to select from a
growing variety of traditional and nontraditional alternatives, including online checking, savings and brokerage accounts,
online lending, online insurance underwriters, crowdfunding, digital wallets, and money transfer services. The ability of non-
banking financial institutions to provide services previously limited to commercial banks has intensified competition. Because
non-banking financial institutions are not subject to many of the same regulatory restrictions as banks and bank holding
companies, they can often operate with greater flexibility and lower cost structures.
Government Supervision and Regulation
General
We are subject to extensive regulation under federal and state laws. The regulatory framework is intended primarily for the
protection of customers and clients, and not for the protection of our stockholders or creditors. In many cases, the applicable
regulatory authorities have broad enforcement power over bank holding companies, banks and their subsidiaries, including the
power to impose substantial fines and other penalties for violations of laws and regulations. The following discussion
describes the material elements of the regulatory framework that applies to us and our subsidiaries. References in this Annual
Report to applicable statutes and regulations are brief summaries thereof, do not purport to be complete, and are qualified in
their entirety by reference to such statutes and regulations.
The Dodd-Frank Act, which significantly altered the regulation of financial institutions and the financial services industry,
established the Consumer Financial Protection Bureau (“CFPB”) and requires the CFPB and other federal agencies to
implement many provisions of the Dodd-Frank Act. Several aspects of the Dodd-Frank Act have affected our business,
including, without limitation, capital requirements, mortgage regulation, restrictions on proprietary trading in securities,
restrictions on investments in hedge funds and private equity funds (the “Volcker Rule”), executive compensation restrictions,
potential federal oversight of the insurance industry and disclosure and reporting requirements.
Recent Regulatory Developments. New regulations and statutes are regularly proposed and/or adopted that contain wide-
ranging proposals for altering the structures, regulations and competitive relationships of financial institutions operating and
doing business in the United States. Changes in leadership at various federal banking agencies, including the Federal Reserve,
can also change the policy direction of these agencies. Certain of these recent proposals and changes are described below.
The CARES Act, which became law on March 27, 2020, provided over $2 trillion to combat COVID-19 and stimulate the
economy.
The CARES Act provided approximately $350 billion to fund loans to eligible small businesses through the SBA’s 7(a) loan
guaranty program. These loans were 100% federally guaranteed (principal and interest) through December 31, 2020. PPP
loans have: (a) an interest rate of 1.0%; (b) a two-year loan term to maturity; and (c) principal and interest payments deferred
for six months from the date of disbursement. The entire principal amount of the borrower’s PPP loan, including any accrued
interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels
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of the business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan
proceeds used for other qualifying expenses. Among other protections, institutions were permitted not to characterize loan
modifications related to the COVID-19 pandemic as a troubled debt restructuring and were permitted to suspend the
corresponding impairment determinations for accounting purposes.
The Paycheck Protection Program Flexibility Act (the “PPFA”) enacted on June 5, 2020 increased the amount of time that
borrowers have to use PPP loan proceeds and apply for loan forgiveness and made other changes to make the PPP more
favorable to borrowers.
The Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (“Appropriations PPP Amendments”) is a
pandemic relief portion of the much larger Consolidated Appropriations Act of 2021, which was signed by the President on
December 27, 2020. The Appropriations PPP Amendments, among other things, reauthorize and modify the PPP by
appropriating more than $284 billion to the PPP so businesses can apply for forgivable loans for the first time; permit
businesses that had previously received a PPP loan to apply for a second PPP loan subject to generally more restrictive
eligibility criteria and reducing the maximum amount of proceeds available among other relief measures. See “Risk Factors —
As a participating lender in the PPP, the Company and the Bank are subject to additional risks of litigation from the Bank’s
clients, or other parties regarding our originating, processing, or servicing of loans under the PPP, and risks that the SBA may
not fund some or all PPP loan guaranties or approve loan forgiveness.”
The Anti-Money Laundering Act of 2020 (the “AML Act”) was enacted as part of the National Defense Authorization Act for
Fiscal Year 2021 when the U.S. House of Representatives and the U.S. Senate voted by more than a two-thirds majority to
override a Presidential veto effective on January 1, 2021. The AML Act is the most significant revision to the anti-money
laundering laws since the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism of 2001, as amended (the “USA PATRIOT Act”). The AML Act clarifies and streamlines the Currency
and Foreign Transactions Reporting Act of 1970, as amended, (the “Bank Secrecy Act”) and anti-money laundering (“AML”)
obligations in the following ways: requires U.S. entities and entities doing business in the United States to report into a
national registry maintained by the Financial Crimes Enforcement Network (“FinCEN”) certain beneficial ownership
information, subject to exceptions; modernizes the statutory definition of “financial institution” to include (i) entities that
provide services involving “value that substitutes for currency,” which includes stored value and virtual currencies and (ii) any
person engaged in the trade of antiquities, including an advisor, consultant or any other person who deals in the sale of
antiquities; enhances penalties for Bank Secrecy Act and AML violations, including claw back of bonuses; increases AML
whistleblower awards and expands whistleblower protections; requires the Secretary of the Treasury to establish and update
every four years National AML Priorities, which are incorporated into the Bank Secrecy Act compliance programs at financial
institutions subject to the Bank Secrecy Act; permits collaborative arrangements between financial institutions to participate in
common activity or pool resources related to AML or Bank Secrecy Act compliance; provides for an annual review of Bank
Secrecy Act regulations by the Secretary of the Treasury that is reported to Congress; and requires the Secretary of the
Treasury to review the dollar thresholds and reporting requirements relating to currency transaction reports and suspicious
activity; among other amendments to the Bank Secrecy Act. Implementing regulations concerning certain provisions the AML
Act have been proposed by FinCEN, but are not finalized.
On May 24, 2018, President Trump signed into law the Economic Growth, Regulatory Relief and Consumer Protection Act
(“EGRRCPA”), which included amendments to the Dodd-Frank Act and other statutes that provide the federal banking
agencies with the ability to tailor various provisions of the banking laws and eased the regulatory burden imposed by the
Dodd-Frank Act with respect to company-run stress testing, resolutions plans, the Volcker Rule, high volatility commercial
real estate exposures, and real estate appraisals.
In July 2017, the Financial Conduct Authority (“FCA”) announced that it intends to cease compelling banks to submit rates for
the calculation of the London Interbank Offered Rate (“LIBOR”) after 2021. The Alternative Reference Rates Committee
(“ARRC”) proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the
alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR. Additionally, the
accounting standards setter, Financial Accounting Standards Board (“FASB”) recently issued optional guidance that would
help ease the potential effects of reference rate reform on financial reporting. The guidance would offer optional expedients
and exceptions for applying GAAP to contracts, hedging relationships, or other transactions affected by reference rate reform.
Additionally, the FASB issued specific accounting guidance which permits the use of the Overnight Index Swap rate based on
the SOFR to be designated as a benchmark interest rate for hedge accounting purposes. ARRC has proposed a paced market
transition plan to SOFR from LIBOR, and organizations are currently working on industry-wide and company-specific
transition plans as it relates to derivatives and cash markets exposed to LIBOR. The Federal banking agencies issued a joint
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statement that imposed a deadline of December 31, 2021 for supervised institutions to cease entering into new contracts that
use U.S. Dollar LIBOR as a reference rate.
We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our
business may be affected by any new regulation or statute.
Corporate
Hilltop is a legal entity separate and distinct from PCC and its other subsidiaries. On November 30, 2012, concurrent with the
consummation of the acquisition of PlainsCapital Corporation (the “PlainsCapital Merger”), Hilltop became a financial
holding company registered under the Bank Holding Company Act, as amended by the Gramm-Leach-Bliley Act (“Gramm-
Leach-Bliley Act”). Accordingly, it is subject to supervision, regulation and examination by the Federal Reserve Board. The
Dodd-Frank Act, Gramm-Leach-Bliley Act, the Bank Holding Company Act and other federal laws subject financial and bank
holding companies to particular restrictions on the types of activities in which they may engage and to a range of supervisory
requirements and activities, including regulatory enforcement actions for violations of laws and regulations.
Changes of Control. Federal and state laws impose additional notice, approval and ongoing regulatory requirements on any
investor that seeks to acquire direct or indirect “control” of a regulated holding company, such as Hilltop. These laws include
the Bank Holding Company Act and the Change in Bank Control Act. Among other things, these laws require regulatory
filings by an investor that seeks to acquire direct or indirect “control” of a regulated holding company. The determination
whether an investor “controls” a regulated holding company is based on all of the facts and circumstances surrounding the
investment. As a general matter, an investor is deemed to control a depository institution or other company if the investor
owns or controls 25% or more of any class of voting stock, and in certain other circumstances, an investor may be presumed to
control a depository institution or other company if the investor owns or controls less than 25% or more of any class of voting
stock. Furthermore, these laws may discourage potential acquisition proposals and may delay, deter or prevent change of
control transactions, including those that some or all of our stockholders might consider to be desirable.
Regulatory Restrictions on Dividends; Source of Strength. It is the policy of the Federal Reserve Board that bank holding
companies should pay cash dividends on common stock only out of income available over the past year and only if
prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy
provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding
company’s ability to serve as a source of strength to its banking subsidiaries. The Dodd-Frank Act requires the regulatory
agencies to issue regulations requiring that all bank and savings and loan holding companies serve as a source of financial and
managerial strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of
financial stress; however, no such proposed regulations have yet been published.
Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each of its
banking subsidiaries and commit resources to their support. Such support may be required at times when, absent this Federal
Reserve Board policy, a holding company may not be inclined to provide it. As discussed herein, a bank holding company, in
certain circumstances and subject to certain limitations, could be required to guarantee the capital plan of an undercapitalized
banking subsidiary.
Scope of Permissible Activities. Under the Bank Holding Company Act, Hilltop and PCC generally may not acquire a direct or
indirect interest in, or control of more than 5% of, the voting shares of any company that is not a bank or bank holding
company. Additionally, the Bank Holding Company Act may prohibit Hilltop from engaging in activities other than those of
banking, managing or controlling banks or furnishing services to, or performing services for, its subsidiaries, except that it
may engage in, directly or indirectly, certain activities that the Federal Reserve Board has determined to be closely related to
banking or managing and controlling banks as to be a proper incident thereto. In approving acquisitions or the addition of
activities, the Federal Reserve Board considers, among other things, whether the acquisition or the additional activities can
reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh such possible adverse effects as undue concentration of resources, decreased or unfair competition,
conflicts of interest or unsound banking practices.
Notwithstanding the foregoing, the Gramm-Leach-Bliley Act, effective March 11, 2000, eliminated the barriers to affiliations
among banks, securities firms, insurance companies and other financial service providers and permits bank holding companies
to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other
activities that are financial in nature. The Gramm-Leach-Bliley Act defines “financial in nature” to include: securities
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underwriting; dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and
agency; merchant banking activities; and activities that the Federal Reserve Board has determined to be closely related to
banking. Prior to enactment of the Dodd-Frank Act, regulatory approval was not required for a financial holding company to
acquire a company, other than a bank or savings association, engaged in activities that were financial in nature or incidental to
activities that were financial in nature, as determined by the Federal Reserve Board.
Under the Gramm-Leach-Bliley Act, a bank holding company may become a financial holding company by filing a
declaration with the Federal Reserve Board if each of its subsidiary banks is “well capitalized” under the Federal Deposit
Insurance Corporation Improvement Act prompt corrective action provisions, is “well managed,” and has at least a
“satisfactory” rating under the Community Reinvestment Act of 1977 (the “CRA”). The Dodd-Frank Act underscores the
criteria for becoming a financial holding company by amending the Bank Holding Company Act to require that bank holding
companies be “well capitalized” and “well managed” in order to become financial holding companies. Hilltop became a
financial holding company on December 1, 2012.
Safe and Sound Banking Practices. Bank holding companies are not permitted to engage in unsafe and unsound banking
practices. The Federal Reserve Board’s Regulation Y, for example, generally requires a holding company to give the Federal
Reserve Board prior notice of any redemption or repurchase of its equity securities, if the consideration to be paid, together
with the consideration paid for any repurchases or redemptions in the preceding year, is equal to 10% or more of the
company’s consolidated net worth. In addition, bank holding companies are required to consult with the Federal Reserve
Board prior to making any redemption or repurchase, even within the foregoing parameters. The Federal Reserve Board may
oppose the transaction if it believes that the transaction would constitute an unsafe or unsound practice or would violate any
law or regulation. Depending upon the circumstances, the Federal Reserve Board could take the position that paying a
dividend would constitute an unsafe or unsound banking practice.
The Federal Reserve Board has broad authority to prohibit activities of bank holding companies and their nonbanking
subsidiaries that represent unsafe and unsound banking practices or that constitute violations of laws or regulations, and can
assess civil money penalties for certain activities conducted on a knowing or reckless basis, if those activities caused a
substantial loss to a depository institution. The penalties can be as high as $2.07 million for each day the activity continues. In
addition, the Dodd-Frank Act authorizes the Federal Reserve Board to require reports from and examine bank holding
companies and their subsidiaries, and to regulate functionally regulated subsidiaries of bank holding companies.
Anti-tying Restrictions. Subject to various exceptions, bank holding companies and their affiliates are generally prohibited
from tying the provision of certain services, such as extensions of credit, to certain other services offered by a bank holding
company or its affiliates.
Capital Adequacy Requirements and BASEL III. Hilltop and PlainsCapital, which includes the Bank and PrimeLending, are
subject to capital adequacy requirements under the comprehensive capital framework for U.S. banking organizations known as
“Basel III”. Basel III, which reformed the existing frameworks under which U.S. banking organizations historically operated,
became effective January 1, 2015 and was fully phased in as of January 1, 2019. Basel III was developed by the Basel
Committee on Banking Supervision and adopted by the Federal Reserve, the FDIC, and the Office of the Comptroller of the
Currency (the “OCC”).
The federal banking agencies’ risk-based capital and leverage ratios are minimum supervisory ratios generally applicable to
banking organizations that meet certain specified criteria, assuming that they have the highest regulatory rating. Banking
organizations not meeting these criteria are expected to operate with capital positions well above the minimum ratios. The
federal bank regulatory agencies may set capital requirements for a particular banking organization that are higher than the
minimum ratios when circumstances warrant. Federal Reserve Board guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above
the minimum supervisory levels, without significant reliance on intangible assets.
Final rules published by the Federal Reserve, the FDIC, and the OCC implemented the Basel III regulatory capital reforms and
changes required by the Dodd-Frank Act. Among other things, Basel III increased minimum capital requirements, introduced a
new minimum leverage ratio and implemented a capital conservation buffer. The regulatory agencies carefully considered the
potential impacts on all banking organizations, including community and regional banking organizations such as Hilltop and
PlainsCapital, and sought to minimize the potential burden of these changes where consistent with applicable law and the
agencies’ goals of establishing a robust and comprehensive capital framework. Under the guidelines in effect beginning
January 1, 2015, a risk weight factor of 0% to 1250% is assigned to each category of assets based generally on the perceived
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credit risk of the asset class. The risk weights are then multiplied by the corresponding asset balances to determine a “risk-
weighted” asset base.
Under Basel III, total capital consists of two tiers of capital, Tier 1 and Tier 2. Tier 1 capital consists of common equity Tier 1
capital and additional Tier 1 capital. Below is a list of certain significant components that comprise the tiers of capital for
Hilltop and PlainsCapital under Basel III.
Common equity Tier 1 capital:
•
•
•
includes common stockholders’ equity (such as qualifying common stock and any related surplus, undivided profits,
disclosed capital reserves that represent a segregation of undivided profits and foreign currency translation
adjustments, excluding changes in other comprehensive income (loss) and treasury stock);
includes certain minority interests in the equity capital accounts of consolidated subsidiaries; and
excludes goodwill and various intangible assets.
Additional Tier 1 capital:
•
•
•
•
includes certain qualifying minority interests not included in common equity Tier 1 capital;
includes certain preferred stock and related surplus;
includes certain subordinated debt; and
excludes 50% of the insurance underwriting deduction.
Tier 2 capital:
•
•
•
includes allowance for credit losses, up to a maximum of 1.25% of risk-weighted assets;
includes minority interests not included in Tier 1 capital; and
excludes 50% of the insurance underwriting deduction.
The following table summarizes the Basel III requirements fully phased-in as of the period beginning January 1, 2019.
Item
Minimum common equity Tier 1 capital ratio
Common equity Tier 1 capital conservation buffer
Minimum common equity Tier 1 capital ratio plus capital conservation buffer
Minimum Tier 1 capital ratio
Minimum Tier 1 capital ratio plus capital conservation buffer
Minimum total capital ratio
Minimum total capital ratio plus capital conservation buffer
Requirement
4.5 %
2.5 %
7.0 %
6.0 %
8.5 %
8.0 %
10.5 %
In order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary
bonus payments to executive officers, Basel III also implemented a capital conservation buffer, which requires a banking
organization to hold a buffer above its minimum risk-based capital requirements. This buffer helps to ensure that banking
organizations conserve capital when it is most needed, allowing them to better weather periods of economic stress. The buffer
is measured relative to risk-weighted assets.
The rules also prohibit a banking organization from making distributions or discretionary bonus payments during any quarter
if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the
beginning of the quarter. A banking organization with a buffer greater than 2.5% would not be subject to limits on capital
distributions or discretionary bonus payments; however, a banking organization with a buffer of less than 2.5% would be
subject to increasingly stringent limitations as the buffer approaches zero. The eligible retained income of a banking
organization is defined as its net income for the four calendar quarters preceding the current calendar quarter, based on the
organization’s quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net
income. When the rules were fully phased-in in 2019, the minimum capital requirements plus the capital conservation buffer
should have exceeded the prompt corrective action well-capitalized thresholds.
Hilltop and PlainsCapital began transitioning to the Basel III final rules on January 1, 2015. The capital conservation buffer
and certain deductions from common equity Tier 1 capital were fully phased in as of January 1, 2019. During 2021, our
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eligible retained income was positive and our capital conservation buffer was greater than 2.5%, and therefore, we were not
subject to limits on capital distributions or discretionary bonus payments. We anticipate similar results during 2022.
At December 31, 2021, Hilltop had a total capital to risk-weighted assets ratio of 23.75%, Tier 1 capital to risk-weighted assets
ratio of 21.22% and a common equity Tier 1 capital to risk-weighted assets ratio of 21.22%. Hilltop’s actual capital amounts
and ratios in accordance with Basel III exceeded the regulatory capital requirements including conservation buffer in effect at
the end of the period.
At December 31, 2021, PlainsCapital had a total capital to risk-weighted assets ratio of 16.77%, Tier 1 capital to risk-weighted
assets ratio of 16.00% and a common equity Tier 1 capital to risk-weighted assets ratio of 16.00%. Accordingly,
PlainsCapital’s actual capital amounts and ratios in accordance with Basel III resulted in it being considered “well-capitalized”
and exceeded the regulatory capital requirements including conservation buffer in effect at the end of the period.
Phase-in of Current Expected Credit Losses Accounting Standard. In June 2016, the Financial Accounting Standards Board
issued an update to the accounting standards for credit losses that included the Current Expected Credit Losses (“CECL”)
methodology, which replaces the existing incurred loss methodology for certain financial assets. CECL became effective
January 1, 2020. In December 2018, the federal bank regulatory agencies approved a final rule modifying their regulatory
capital rules and providing an option to phase-in, over a period of three years, the day-one regulatory capital effects resulting
from the implementation of CECL. The final rule also revises the agencies’ other rules to reflect the update to the accounting
standards. We originally elected to not exercise the option for phase-in. In March 2020, in connection with the economic
uncertainties associated with the effects of COVID-19, the agencies’ issued an additional transition option that permitted
banking institutions to mitigate the estimated cumulative regulatory capital effects from CECL over a five-year transitionary
period. We elected to exercise this option for phase-in.
Volcker Rule. Provisions of the Volcker Rule and the final rules implementing the Volcker Rule restrict certain activities
provided by the Company, including proprietary trading and sponsoring or investing in “covered funds,” which include many
venture capital, private equity and hedge funds. For purposes of the Volcker Rule, purchases or sales of financial instruments
such as securities, derivatives, contracts of sale of commodities for future delivery or options on the foregoing for the purpose
of short-term gain are deemed to be proprietary trading (with financial instruments held for less than 60 days presumed to be
for proprietary trading unless an alternative purpose can be demonstrated), unless certain exemptions apply. Exempted
activities include, among others, the following: (i) underwriting; (ii) market making; (iii) risk mitigating hedging; (iv) trading
in certain government securities; (v) employee compensation plans and (vi) transactions entered into on behalf of and for the
account of clients as agent, broker, custodian, or in a trustee or fiduciary capacity. On July 22, 2019, the federal banking
agencies, among other agencies, published a final rule implementing provisions of EGRRCPA that exclude community banks
with $10.0 billion or less in total consolidated assets and total trading assets and liabilities of 5% or less of total consolidated
assets from the restrictions of the Volcker Rule. At this time, the Bank does not qualify for this regulatory exclusion.
On November 14, 2019, the federal banking agencies, among other agencies, published a separate final rule to provide greater
clarity and certainty about the activities prohibited by the Volcker Rule and to improve supervision and implementation of the
Volcker Rule based on the agencies’ experience implementing these provisions since 2013. Compliance with the final rule
began January 1, 2021, however, banking entities were allowed to voluntarily comply with the final rule in whole or in part
prior to the compliance date, subject to the agencies’ completion of necessary technological changes.
In July 2020, the federal banking agencies published a final rule to streamline and improve the covered funds provisions of the
Volcker Rule by making the following changes: permitting the activities of qualifying foreign excluded funds; revising the
exclusions from the definition of “covered fund” for foreign public funds, loan securitizations, public welfare investments and
small business investment companies; creating new exclusions from the definition of “covered fund” for credit funds,
qualifying venture capital funds, family wealth management vehicles, and customer facilitation vehicles; permitting certain
transactions that could otherwise be prohibited under affiliate transaction restrictions unique to the Volcker Rule; modifying
the definition of “ownership interest”; and providing that certain investments made in parallel with a covered fund, as well as
certain restricted profit interests held by an employee or director, need not be included in a banking entity’s calculation of its
ownership interest in the covered fund.
While management continues to assess compliance with the Volcker Rule, we have reviewed our processes and procedures in
regard to proprietary trading and covered funds activities and we believe we are currently complying with the provisions of the
Volcker Rule. However, it remains uncertain how the scope of applicable restrictions and exceptions will be interpreted and
administered by the relevant regulators. Absent further regulatory guidance, we are required to make certain assumptions as to
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the degree to which our activities, processes and procedures in these areas comply with the requirements of the Volcker Rule.
If these assumptions are not accurate or if our implementation of compliance processes and procedures is not consistent with
regulatory expectations, we may be required to make certain changes to our business activities, processes or procedures, which
could further increase our compliance and regulatory risks and costs.
Acquisitions by Bank Holding Companies. The Bank Holding Company Act requires every bank holding company to obtain
the prior approval of the Federal Reserve Board before it may acquire all or substantially all of the assets of any bank, or
ownership or control of any voting shares of any bank, if after such acquisition it would own or control, directly or indirectly,
more than 5% of the voting shares of such bank. In approving bank acquisitions by bank holding companies, the Federal
Reserve Board is required to consider, among other things, the financial and managerial resources and future prospects of the
bank holding company and the banks concerned, the convenience and needs of the communities to be served, and various
competitive factors. In addition, the Dodd-Frank Act requires the Federal Reserve Board to consider “the risk to the stability of
the U.S. banking or financial system” when evaluating acquisitions of banks and nonbanks under the Bank Holding Company
Act. With respect to interstate acquisitions, the Dodd-Frank Act amends the Bank Holding Company Act by raising the
standard by which interstate bank acquisitions are permitted from a standard that the acquiring bank holding company be
“adequately capitalized” and “adequately managed” to the higher standard of being “well capitalized” and “well managed”.
Control Acquisitions. The Change in Bank Control Act prohibits a person or group of persons from acquiring “control” of a
bank holding company unless the Federal Reserve Board has been notified and has not objected to the transaction. As a general
matter, an investor is deemed to control a depository institution or other company if the investor owns or controls 25% or more
of any class of voting stock, and in certain other circumstances, an investor may be presumed to control a depository institution
or other company if the investor owns or controls less than 25% or more of any class of voting stock.
Banking
The Bank is subject to various requirements and restrictions under the laws of the United States, and to regulation, supervision
and regular examination by the Texas Department of Banking. The Bank, as a state member bank, is also subject to regulation
and examination by the Federal Reserve Board. The Bank became subject to the regulations issued by the CFPB on July 21,
2011, although the Federal Reserve Board continued to examine the Bank for compliance with federal consumer protection
laws. Along with continued Federal Reserve consumer supervisory and enforcement, the Bank became subject to CFPB
supervisory and enforcement authority, starting in the second quarter of 2020.
The Bank is also an insured depository institution and, therefore, subject to regulation by the FDIC, although the Federal
Reserve Board is the Bank’s primary federal regulator. The Federal Reserve Board, the Texas Department of Banking, the
CFPB and the FDIC have the power to enforce compliance with applicable banking statutes and regulations. Such
requirements and restrictions include requirements to maintain reserves against deposits, restrictions on the nature and amount
of loans that may be made and the interest that may be charged thereon and restrictions relating to investments and other
activities of the Bank.
Restrictions on Transactions with Affiliates. Transactions between the Bank and its nonbanking affiliates, including Hilltop
and PCC, are subject to Section 23A of the Federal Reserve Act. In general, Section 23A imposes limits on the amount of such
transactions, and also requires certain levels of collateral for loans to affiliated parties. It also limits the amount of advances to
third parties that are collateralized by the securities or obligations of Hilltop or its subsidiaries. Among other changes, the
Dodd-Frank Act expands the definition of “covered transactions” and clarifies the amount of time that the collateral
requirements must be satisfied for covered transactions, and amends the definition of “affiliate” in Section 23A to include “any
investment fund with respect to which a member bank or an affiliate thereof is an investment adviser.”
Affiliate transactions are also subject to Section 23B of the Federal Reserve Act, which generally requires that certain
transactions between the Bank and its affiliates be on terms substantially the same, or at least as favorable to the Bank, as
those prevailing at the time for comparable transactions with or involving other nonaffiliated persons. The Federal Reserve has
also issued Regulation W, which codifies prior regulations under Sections 23A and 23B of the Federal Reserve Act and
interpretive guidance with respect to affiliate transactions.
Loans to Insiders. The restrictions on loans to directors, executive officers, principal stockholders and their related interests
(collectively referred to herein as “insiders”) contained in the Federal Reserve Act and Regulation O apply to all insured
institutions and their subsidiaries and holding companies. These restrictions include conditions that must be met before insider
loans can be made, limits on loans to an individual insider and an aggregate limitation on all loans to insiders and their related
18
interests. These loans cannot exceed the institution’s total unimpaired capital and surplus, and the Federal Reserve Board may
determine that a lesser amount is appropriate. Insiders are subject to enforcement actions for knowingly accepting loans in
violation of applicable restrictions. The Dodd-Frank Act amends the statutes placing limitations on loans to insiders by
including credit exposures to the person arising from a derivatives transaction, repurchase agreement, reverse repurchase
agreement, securities lending transaction, or securities borrowing transaction between the member bank and the person within
the definition of an extension of credit.
Restrictions on Distribution of Subsidiary Bank Dividends and Assets. Dividends paid by the Bank have provided a substantial
part of PCC’s operating funds and for the foreseeable future it is anticipated that dividends paid by the Bank to PCC will
continue to be PCC’s and Hilltop’s principal source of operating funds. Capital adequacy requirements serve to limit the
amount of dividends that may be paid by the Bank. Pursuant to the Texas Finance Code, a Texas banking association may not
pay a dividend that would reduce its outstanding capital and surplus unless it obtains the prior approval of the Texas Banking
Commissioner. Additionally, the FDIC and the Federal Reserve Board have the authority to prohibit Texas state banks from
paying a dividend when they determine the dividend would be an unsafe or unsound banking practice. As a member of the
Federal Reserve System, the Bank must also comply with the dividend restrictions with which a national bank would be
required to comply. Those provisions are generally similar to those imposed by the state of Texas. Among other things, the
federal restrictions require that if losses have at any time been sustained by a bank equal to or exceeding its undivided profits
then on hand, no dividend may be paid.
In the event of a liquidation or other resolution of an insured depository institution, the claims of depositors and other general
or subordinated creditors are entitled to a priority of payment over the claims of holders of any obligation of the institution to
its stockholders, including any depository institution holding company (such as PCC and Hilltop) or any stockholder or
creditor thereof.
Branching. The establishment of a bank branch must be approved by the Texas Department of Banking and the Federal
Reserve Board, which consider a number of factors, including financial history, capital adequacy, earnings prospects,
character of management, needs of the community and consistency with corporate powers. The regulators will also consider
the applicant’s CRA record. Under the Dodd-Frank Act, de novo interstate branching by banks is permitted if, under the laws
of the state where the branch is to be located, a state bank chartered in that state would be permitted to establish a branch.
Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) establishes a
system of prompt corrective action to resolve the problems of undercapitalized financial institutions. Under this system, the
federal banking regulators have established five capital categories (“well capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized” and “critically undercapitalized”) in which all institutions are placed.
Federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other
discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends
upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the banking regulator
must appoint a receiver or conservator for an institution that is critically undercapitalized. The federal banking agencies have
specified by regulation the relevant capital level for each category.
An institution that is categorized as “undercapitalized”, “significantly undercapitalized” or “critically undercapitalized” is
required to submit an acceptable capital restoration plan to its appropriate federal banking agency. A bank holding company
must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to various limitations. The
controlling holding company’s obligation to fund a capital restoration plan is limited to the lesser of 5% of an undercapitalized
subsidiary’s assets at the time it became undercapitalized or the amount required to meet regulatory capital requirements. An
undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions,
establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with
FDIC approval. The regulations also establish procedures for downgrading an institution to a lower capital category based on
supervisory factors other than capital. PlainsCapital was classified as “well capitalized” at December 31, 2021.
Pursuant to FDICIA, an “undercapitalized” bank is prohibited from increasing its assets, engaging in a new line of business,
acquiring any interest in any company or insured depository institution, or opening or acquiring a new branch office, except
under certain circumstances, including the acceptance by the federal banking regulators of a capital restoration plan for the
Bank.
FDIC Insurance Assessments. The FDIC has adopted a risk-based assessment system for insured depository institutions that
takes into account the risks attributable to different categories and concentrations of assets and liabilities. The system assigns
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an institution to one of three capital categories: (1) “well capitalized;” (2) “adequately capitalized;” or (3) “undercapitalized.”
These three categories are substantially similar to the prompt corrective action categories described above, with the
“undercapitalized” category including institutions that are undercapitalized, significantly undercapitalized and critically
undercapitalized for prompt corrective action purposes. The FDIC also assigns an institution to one of three supervisory
subgroups based on a supervisory evaluation that the institution’s primary federal regulator provides to the FDIC and
information that the FDIC determines to be relevant to the institution’s financial condition and the risk posed to the deposit
insurance funds. The FDIC may terminate its insurance of deposits if it finds that the institution has engaged in unsafe and
unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation,
rule, order or condition imposed by the FDIC.
The FDIC is required to maintain a designated reserve ratio of the deposit insurance fund (“DIF”) to insured deposits in the
United States. The Dodd-Frank Act required the FDIC to assess insured depository institutions to achieve a DIF ratio of at least
1.35% by September 30, 2020. On November 28, 2018, the FDIC announced that the DIF reserve ratio exceeded the statutorily
required minimum reserve ratio. The FDIC will notify the bank of the assessment rate that we will be charged for the
assessment period. Accruals for DIF assessments were $3.6 million during 2021.
The Dodd-Frank Act permanently increased the standard maximum deposit insurance amount to $250,000. The FDIC
insurance coverage limit applies per depositor, per insured depository institution for each account ownership category.
Community Reinvestment Act. The CRA requires, in connection with examinations of financial institutions, that federal
banking regulators (in the Bank’s case, the Federal Reserve Board) evaluate the record of each financial institution in meeting
the credit needs of its local community, including low and moderate-income neighborhoods. These facts are also considered in
evaluating mergers, acquisitions and applications to open a branch or facility. Failure to adequately meet these criteria could
impose additional requirements and limitations on the Bank. Additionally, the Bank must publicly disclose the terms of
various CRA-related agreements. On July 20, 2021, the Federal banking agencies published an interagency statement that the
agencies are committed to working together to jointly strengthen and modernize the regulations that implement the CRA.
The Bank received a “satisfactory” CRA rating in connection with its most recent CRA performance evaluation. A CRA rating
of less than “satisfactory” adversely affects a bank’s ability to establish new branches and impairs a bank’s ability to
commence new activities that are “financial in nature” or acquire companies engaged in these activities. See “Risk Factors —
We are subject to extensive supervision and regulation that could restrict our activities and impose financial requirements or
limitations on the conduct of our business and limit our ability to generate income.”
Privacy. Under the Gramm-Leach-Bliley Act, financial institutions are required to disclose their policies for collecting and
protecting confidential information. Customers generally may prevent financial institutions from sharing nonpublic personal
financial information with nonaffiliated third parties except under narrow circumstances, such as the processing of transactions
requested by the consumer or when the financial institution is jointly sponsoring a product or service with a nonaffiliated third
party. Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third
party for use in telemarketing, direct mail marketing or other marketing to consumers. The Bank and all of its subsidiaries
have established policies and procedures to comply with the privacy provisions of the Gramm-Leach-Bliley Act.
Federal Laws Applicable to Credit Transactions. The loan operations of the Bank are also subject to federal laws and
implementing regulations applicable to credit transactions, such as the Truth-In-Lending Act, the Home Mortgage Disclosure
Act of 1975, the Equal Credit Opportunity Act, the Fair Credit Reporting Act of 1978, the Fair Debt Collection Practices Act,
the Service Members Civil Relief Act, the Dodd-Frank Act and rules and regulations of the various federal agencies charged
with the responsibility of implementing these federal laws. Interest and other charges collected or contracted for by the Bank
are subject to state usury laws and federal laws concerning interest rates.
Federal Laws Applicable to Deposit Operations. The deposit operations of the Bank are subject to the Right to Financial
Privacy Act, the Truth in Savings Act and the Electronic Funds Transfer Act and Regulation E issued by the CFPB to
implement that act. The Dodd-Frank Act amends the Electronic Funds Transfer Act to, among other things, give the Federal
Reserve Board the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment
card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and
proportional to the actual cost of a transaction to the issuer.
Capital Requirements. The Federal Reserve Board and the Texas Department of Banking monitor the capital adequacy of
PlainsCapital by using a combination of risk-based guidelines and leverage ratios. The agencies consider PlainsCapital’s
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capital levels when taking action on various types of applications and when conducting supervisory activities related to the
safety and soundness of individual banks and the banking system.
On January 1, 2019, PlainsCapital fully transitioned to the final rules that substantially amended the regulatory risk-based
capital rules to implement the Basel III regulatory capital reforms. For additional discussion of Basel III, see the section
entitled “Government Supervision and Regulation — Corporate — Capital Adequacy Requirements and Basel III” earlier in
this Item 1.
On December 13, 2019, the Federal Reserve, the FDIC and the OCC published a final rule modifying the treatment of high
volatility commercial real estate (“HVCRE”) exposures as required by EGRRCPA. The final rule clarifies certain defined
terms in the HVCRE exposure definition in a manner generally consistent with the call report instructions as well as the
treatment of credit facilities that finance one- to four-family residential properties and the development of land. The final rule
became effective on April 1, 2020.
The FDIC Improvement Act. FDICIA made a number of reforms addressing the safety and soundness of the deposit insurance
system, supervision of domestic and foreign depository institutions, and improvement of accounting standards. This statute
also limited deposit insurance coverage, implemented changes in consumer protection laws and provided for least-cost
resolution and prompt regulatory action with regard to troubled institutions.
FDICIA requires every bank with total assets in excess of $500 million to have an annual independent audit made of the
Bank’s financial statements by a certified public accountant to verify that the financial statements of the Bank are presented in
accordance with GAAP and comply with such other disclosure requirements as prescribed by the FDIC.
Brokered Deposits. Under FDICIA, banks may be restricted in their ability to accept brokered deposits, depending on their
capital classification. “Well capitalized” banks are permitted to accept brokered deposits, but banks that are not “well
capitalized” are not permitted to accept such deposits. The FDIC may, on a case-by-case basis, permit banks that are
“adequately capitalized” to accept brokered deposits if the FDIC determines that acceptance of such deposits would not
constitute an unsafe or unsound banking practice with respect to such bank. Pursuant to a provision in EGRRCPA, the FDIC
published a final rule on February 4, 2019 excepting a capped amount of reciprocal deposits from being considered as
brokered deposits for certain insured depository institutions. On December 15, 2020, the FDIC also approved a final rule
intended to modernize the FDIC’s framework for regulating brokered deposits and ensure the classification of a deposit
appropriately reflects changes in the banking landscape. The final rule is also intended to modify the interest rate restrictions
applicable to certain depository institutions and clarify the application of the brokered deposit requirements to non-maturity
deposits. The final rule became effective on April 1, 2021, but full compliance was not required during a transitionary period
ending January 1, 2022. Effective January 1, 2022, we will continue to treat deposits swept to the Bank from the broker-dealer
segment as non-brokered. At that time, the cost of these sweep deposits will be based on a current market rate of interest rather
than a per account fee. At December 31, 2021, PlainsCapital was “well capitalized” and therefore not subject to any
limitations with respect to its brokered deposits.
Check Clearing for the 21st Century Act. The Check Clearing for the 21st Century Act gives “substitute checks,” such as a
digital image of a check and copies made from that image, the same legal standing as the original paper check.
Federal Home Loan Bank System. The Federal Home Loan Bank (“FHLB”) system, of which the Bank is a member, consists
of regional FHLBs governed and regulated by the Federal Housing Finance Board. The FHLBs serve as reserve or credit
facilities for member institutions within their assigned regions. The reserves are funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB system. The FHLBs make loans (i.e., advances) to members in accordance
with policies and procedures established by the FHLB and the boards of directors of each regional FHLB.
As a system member, according to currently existing policies and procedures, the Bank is entitled to borrow from the FHLB of
its respective region and is required to own a certain amount of capital stock in the FHLB. The Bank is in compliance with the
stock ownership rules with respect to such advances, commitments and letters of credit and home mortgage loans and similar
obligations. All loans, advances and other extensions of credit made by the FHLB to the Bank are secured by a portion of the
respective mortgage loan portfolio, certain other investments and the capital stock of the FHLB held by the Bank.
Fixing America’s Surface Transportation Act (FAST Act). The FAST Act, signed by President Obama on December 4, 2015,
provides for funding highways and infrastructure in the United States. Part of the funding for this law comes from a reduction
of the dividends paid by the Federal Reserve to its stockholders with total consolidated assets of more than $10 billion,
effective January 1, 2016. On that date, the annual dividend on paid-in capital stock for stockholders with total consolidated
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assets of more than $10 billion shall be the lesser of: (i) the rate equal to the high yield of the 10-year Treasury note auctioned
at the last auction held prior to the payment of such dividend and (ii) 6 percent. The Federal Reserve Board published a final
rule implementing these requirements on November 23, 2016. On December 8, 2021, the Federal Reserve published its annual
adjustment to the consolidated asset threshold, increasing it to $11.229 billion in assets through December 31, 2022. As of
December 31, 2021, the Bank’s total assets were $14.9 billion.
Anti-terrorism and Money Laundering Legislation. The Bank is subject to the USA PATRIOT Act, the Bank Secrecy Act and
rules and regulations of FinCEN and the Office of Foreign Assets Control. These statutes and related rules and regulations
impose requirements and limitations on specific financial transactions and account relationships intended to guard against
money laundering and terrorism financing. The Bank has established a customer identification program pursuant to
Section 326 of the USA PATRIOT Act and the Bank Secrecy Act, including obtaining beneficial ownership information on
new legal entity customers and otherwise has implemented policies and procedures intended to comply with the foregoing
rules until such time as FinCEN publishes regulations implementing the Corporate Transparency Act, which is part of the
AML Act. As discussed above under “Recent Regulatory Developments,” the AML Act imposes the reporting requirements of
beneficial ownership of certain business entities on those entities and not on covered financial institutions, among other
amendments to the Bank Secrecy Act.
Incentive Compensation Guidance. On June 21, 2010, the Federal Reserve Board, the Office of the Comptroller of the
Currency, the Office of Thrift Supervision and the FDIC jointly issued comprehensive final guidance on incentive
compensation policies (the “Incentive Compensation Guidance”) intended to ensure that the incentive compensation policies
of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-
taking. The Incentive Compensation Guidance sets expectations for banking organizations concerning their incentive
compensation arrangements and related risk-management, control and governance processes. The Incentive Compensation
Guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either
individually or as part of a group, is based upon three primary principles: (i) balanced risk-taking incentives, (ii) compatibility
with effective controls and risk management, and (iii) strong corporate governance. Any deficiencies in compensation
practices that are identified may be incorporated into the organization’s supervisory ratings, which can affect its ability to
make acquisitions or perform other actions. In addition, under the Incentive Compensation Guidance, a banking organization’s
federal regulator may initiate enforcement action if the organization’s incentive compensation arrangements pose a risk to the
safety and soundness of the organization.
Broker-Dealer
The Hilltop Broker-Dealers are broker-dealers registered with the SEC, FINRA, all 50 U.S. states and the District of
Columbia. Hilltop Securities is also registered in Puerto Rico and the U.S. Virgin Islands. Much of the regulation of broker-
dealers, however, has been delegated to self-regulatory organizations, principally FINRA, the Municipal Securities
Rulemaking Board and national securities exchanges. These self-regulatory organizations adopt rules (which are subject to
approval by the SEC) for governing its members and the industry. Broker-dealers are also subject to federal securities laws
and SEC rules, as well as the laws and rules of the states in which a broker-dealer conducts business. The Hilltop Broker-
Dealers are members of, and are primarily subject to regulation, supervision and regular examination by FINRA.
The regulations to which broker-dealers are subject cover all aspects of the securities business, including, but not limited to,
sales and trade practices, net capital requirements, record keeping and reporting procedures, relationships and conflicts with
customers, the handling of cash and margin accounts, experience and training requirements for certain employees, the conduct
of investment banking and research activities and the conduct of registered persons, directors, officers and employees. Broker-
dealers are also subject to the privacy and anti-money laundering laws and regulations discussed herein. Additional legislation,
changes in rules promulgated by the SEC, securities exchanges, self-regulatory organizations or states or changes in the
interpretation or enforcement of existing laws and rules often directly affect the method of operation and profitability of
broker-dealers. The SEC, securities exchanges, self-regulatory organizations and states may conduct administrative and
enforcement proceedings that can result in censure, fine, profit disgorgement, monetary penalties, suspension, revocation of
registration or expulsion of broker-dealers, their registered persons, officers or employees. The principal purpose of regulation
and discipline of broker-dealers is the protection of customers and the securities markets rather than protection of creditors and
stockholders of broker-dealers.
Limitation on Businesses. The businesses that the Hilltop Broker-Dealers may conduct are limited by its agreements with, and
its oversight by, FINRA, other regulatory authorities and federal and state law. Participation in new business lines, including
trading of new products or participation on new exchanges or in new countries often requires governmental and/or exchange
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approvals, which may take significant time and resources. In addition, the Hilltop Broker-Dealers are operating subsidiaries of
Hilltop, which means their activities are further limited by those that are permissible for financial holding companies and
subsidiaries of financial holding companies, and as a result, the Hilltop Broker-Dealers and Hilltop may be prevented from
entering new businesses that may be profitable in a timely manner, if at all.
Net Capital Requirements. The SEC, FINRA and various other regulatory authorities have stringent rules and regulations with
respect to the maintenance of specific levels of net capital by regulated entities. Rule 15c3-1 of the Exchange Act (the “Net
Capital Rule”) requires that a broker-dealer maintain minimum net capital. Generally, a broker-dealer’s net capital is net worth
plus qualified subordinated debt less deductions for non-allowable (or non-liquid) assets and other adjustments and operational
charges. At December 31, 2021, the Hilltop Broker-Dealers were in compliance with applicable net capital requirements.
The SEC, CFTC, FINRA and other regulatory organizations impose rules that require notification when net capital falls below
certain predefined thresholds. These rules also dictate the ratio of debt-to-equity in the regulatory capital composition of a
broker-dealer, and constrain the ability of a broker-dealer to expand its business under certain circumstances. If a broker-dealer
fails to maintain the required net capital, it may be subject to censure, fine, monetary penalties and other regulatory sanctions,
including suspension, revocation of registration or expulsion by the SEC or applicable regulatory authorities, and suspension,
revocation or expulsion by these regulators could ultimately lead to the broker-dealer’s liquidation. Additionally, the Net
Capital Rule and certain FINRA rules impose requirements that may have the effect of prohibiting a broker-dealer from
distributing or withdrawing capital and requiring prior notice to, and approval from, the SEC and FINRA for certain capital
withdrawals.
Compliance with the net capital requirements may limit our operations, requiring the intensive use of capital. Such rules
require that a certain percentage of our assets be maintained in relatively liquid form and therefore act to restrict our ability to
withdraw capital from our broker-dealer entities, which in turn may limit our ability to pay dividends, repay debt or redeem or
purchase shares of our outstanding common stock. Any change in such rules or the imposition of new rules affecting the
scope, coverage, calculation or amount of capital requirements, or a significant operating loss or any unusually large charge
against capital, could adversely affect our ability to pay dividends, repay debt, meet our debt covenant requirements or to
expand or maintain our operations. In addition, such rules may require us to make substantial capital contributions into one or
more of the Hilltop Broker-Dealers in order for such subsidiaries to comply with such rules, either in the form of cash or
subordinated loans made in accordance with the requirements of all applicable net capital rules.
Customer Protection Rule. The Hilltop Broker-Dealers that hold customers’ funds and securities are subject to the SEC’s
customer protection rule (Rule 15c3-3 under the Exchange Act), which generally provides that such broker-dealers maintain
physical possession or control of all fully-paid securities and excess margin securities carried for the account of customers and
maintain certain reserves of cash or qualified securities.
Securities Investor Protection Corporation (“SIPC”). The Hilltop Broker-Dealers are subject to the Securities Investor
Protection Act and belong to SIPC, whose primary function is to provide financial protection for the customers of failing
brokerage firms. SIPC provides protection for customers up to $500,000, of which a maximum of $250,000 may be in cash.
Anti-Money Laundering. The Hilltop Broker-Dealers must also comply with the USA PATRIOT Act and other rules and
regulations discussed herein, including FINRA requirements, designed to fight international money laundering and to block
terrorist access to the U.S. financial system. We are required to have systems and procedures to ensure compliance with such
laws and regulations.
CFTC Oversight. Hilltop Securities and Momentum Independent Network are registered as introducing brokers with the
CFTC and NFA. The CFTC also has net capital regulations (CFTC Rule 1.17) that must be satisfied. Our futures business is
also regulated by the NFA, a registered futures association. Violation of the rules of the CFTC, the NFA or the commodity
exchanges could result in remedial actions including fines, registration restrictions or terminations, trading prohibitions or
revocations of commodity exchange memberships.
Investment Advisory Activity. Hilltop Securities Asset Management, LLC, Hilltop Securities and Momentum Independent
Network are registered with, and subject to oversight and inspection by, the SEC as investment advisers under the Investment
Advisers Act of 1940, as amended. The investment advisory business of our subsidiaries is subject to significant federal
regulation, including with respect to wrap fee programs, the management of client accounts, the safeguarding of client assets,
client fees and disclosures, transactions among affiliates and recordkeeping and reporting procedures. Legislation and changes
in regulations promulgated by the SEC or changes in the interpretation or enforcement of existing laws and regulations often
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directly affect the method of operation and profitability of investment advisers. The SEC may conduct administrative and
enforcement proceedings that can result in censure, fine, suspension, revocation of registration or expulsion of the investment
advisory business of our subsidiaries, our officers or employees.
Volcker Rule. Provisions of the Volcker Rule and the final rules implementing the Volcker Rule also restrict certain activities
provided by the Hilltop Broker-Dealers, including proprietary trading and sponsoring or investing in “covered funds.”
Regulation Best Interest (“Regulation BI”) and Form CRS Relationship Summary (“Form CRS”). Beginning June 2020, the
“best interest” standard requires a broker-dealer to make recommendations of securities transactions, or investment strategies
involving securities, to a retail customer without putting its financial interests ahead of the interests of a retail customer.
Form CRS requires SEC-registered investment advisers (“RIAs”) and broker-dealers to deliver to retail investors a succinct,
plain English summary about the relationship and services provided by the firm and the required standard of conduct
associated with the relationship and services. Regulation BI heightens the standard of care for broker-dealers when making
investment recommendations and imposes disclosure and policy and procedural obligations that could impact the
compensation our wealth management line of business and its representatives receive for selling certain types of products,
particularly those that offer different compensation across different share classes (such as mutual funds and variable annuities).
In addition, Regulation BI prohibits a broker-dealer and its associated persons from using the term “adviser” or “advisor” if
the broker-dealer is not an RIA or the associated person is not a supervised person of an RIA.
Changing Regulatory Environment. The regulatory environment in which the Hilltop Broker-Dealers operate is subject to
frequent change. Our business, financial condition and operating results may be adversely affected as a result of new or
revised legislation or regulations imposed by the U.S. Congress, the SEC, FINRA or other U.S. and state governmental and
regulatory authorities. The business, financial condition and operating results of the Hilltop Broker-Dealers also may be
adversely affected by changes in the interpretation and enforcement of existing laws and rules by these governmental and
regulatory authorities. In the current era of heightened regulation of financial institutions, the Hilltop Broker-Dealers can
expect to incur increasing compliance costs, along with the industry as a whole.
Mortgage Origination
PrimeLending and the Bank are subject to the rules and regulations of the CFPB, FHA, VA, FNMA, FHLMC and GNMA
with respect to originating, processing, selling and servicing mortgage loans and the issuance and sale of mortgage-backed
securities. Those rules and regulations, among other things, prohibit discrimination and establish underwriting guidelines
which include provisions for inspections and appraisals, require credit reports on prospective borrowers and fix maximum loan
amounts, and, with respect to VA loans, fix maximum interest rates. Mortgage origination activities are subject to, among
others, the Equal Credit Opportunity Act, Fair Housing Act, Federal Truth-in-Lending Act, Secure and Fair Enforcement of
Mortgage Licensing Act, Home Mortgage Disclosure Act, Fair Credit Reporting Act and the Real Estate Settlement
Procedures Act and the regulations promulgated thereunder which, among other things, prohibit discrimination and require the
disclosure of certain basic information to borrowers concerning credit terms and settlement costs. PrimeLending and the Bank
are also subject to regulation by the Texas Department of Banking with respect to, among other things, the establishment of
maximum origination fees on certain types of mortgage loan products. PrimeLending and the Bank are also subject to the
provisions of the Dodd-Frank Act. Among other things, the Dodd-Frank Act established the CFPB and provides mortgage
reform provisions regarding a customer’s ability to repay, restrictions on variable-rate lending, loan officers’ compensation,
risk retention, and new disclosure requirements. The Dodd-Frank Act also clarifies that applicable state laws, rules and
regulations related to the origination, processing, selling and servicing of mortgage loans continue to apply to PrimeLending.
The final rules concerning mortgage origination and servicing address the following topics:
Ability to Repay. This final rule requires that for residential mortgages, creditors must make a reasonable and good faith
determination based on verified and documented information that the consumer has a reasonable ability to repay the loan
according to its terms. The final rule also establishes a presumption of compliance with the ability to repay determination for a
certain category of mortgages called “qualified mortgages” meeting a series of detailed requirements. The final rule also
provides a rebuttable presumption for higher-priced mortgage loans. On December 29, 2020, the CFPB published a final rule
creating a new category of “qualified mortgage,” called a seasoned qualified mortgage, for first lien, fixed rate covered loans
that meet certain performance requirements, are held in portfolio by the originating creditor or first purchaser for a 36-month
period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements.
As the result of the COVID-19 pandemic, the CFPB approved a final rule on April 27, 2021 that delays the mandatory
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compliance date for the General Qualified Mortgage final rule from July 1, 2021 to October 1, 2022 to ensure flexibility for
consumers affected by the COVID-19 pandemic.
High-Cost Mortgage. This final rule strengthens consumer protections for high-cost mortgages (generally bans balloon
payments and prepayment penalties, subject to exceptions and bans or limits certain fees and practices) and requires
consumers to receive information about homeownership counseling prior to taking out a high-cost mortgage.
Appraisals for High-Risk Mortgages. The final rule permits a creditor to extend a higher-priced (subprime) mortgage loan
(“HPML”) only if the following conditions are met (subject to exceptions): (i) the creditor obtains a written appraisal; (ii) the
appraisal is performed by a certified or licensed appraiser; and (iii) the appraiser conducts a physical property visit of the
interior of the property. The rule also requires that during the application process, the applicant receives a notice regarding the
appraisal process and their right to receive a free copy of the appraisal.
Copies of Appraisals. This final rule requires a creditor to provide a free copy of appraisal or valuation reports prepared in
connection with any closed-end loan secured by a first lien on a dwelling. The final rule requires notice to applicants of the
right to receive copies of any appraisal or valuation reports and creditors must send copies of the reports whether or not the
loan transaction is consummated. Creditors must provide the copies of the appraisal or evaluation reports for free, however,
the creditors may charge reasonable fees for the cost of the appraisal or valuation unless applicable law provides otherwise.
Escrow Requirements. This final rule requires a minimum duration of five years for an escrow account on certain higher-
priced mortgage loans, subject to certain exemptions for loans made by certain creditors that operate predominantly in rural or
underserved areas, as long as certain other criteria are met.
Servicing. Two final rules, the Truth in Lending Act and the Real Estate Settlement Procedures Act, protect consumers from
detrimental actions by mortgage servicers and to provide consumers with better tools and information when dealing with
mortgage servicers. The final rules include a number of exemptions and other adjustments for small servicers, defined as
servicers that service 5,000 or fewer mortgage loans and service only mortgage loans that they or an affiliate originated or
own.
Mortgage Loan Originator Compensation. This final rule revises and clarifies existing regulations and commentary on loan
originator compensation. The rule also prohibits, among other things: (i) certain arbitration agreements; (ii) financing certain
credit insurance in connection with a mortgage loan; (iii) compensation based on a term of a transaction or a proxy for a term
of a transaction; and (iv) dual compensation from a consumer and another person in connection with the transaction. The final
rule also imposes a duty on individual loan officers, mortgage brokers and creditors to be “qualified” and, when applicable,
registered or licensed to the extent required under applicable State and Federal law.
Risk Retention. This final rule requires that at least one sponsor of each securitization retains at least 5% of the credit risk of
the assets collateralizing asset-backed securities. Sponsors are prohibited from hedging or transferring this credit risk, and the
rule applies in both public and private transactions. Securitizations backed by “qualified residential mortgages” or “servicing
assets” are exempt from the rule, and the definition of “qualified residential mortgages” is subject to review of the joint
regulators every five years.
Any additional regulatory requirements affecting our mortgage origination operations will result in increased compliance costs
and may impact revenue.
Item 1A. Risk Factors.
The following discussion sets forth what management currently believes could be the material regulatory, market and
economic, liquidity, legal and business and operational risks and uncertainties that could impact our business, results of
operations and financial condition. Other risks and uncertainties, including those not currently known to us, could also
negatively impact our business, results of operations and financial condition. Thus, the following should not be considered a
complete discussion of all of the risks and uncertainties we may face, and the order of their respective significance may
change. Below is a summary of our risk factors with a more detailed discussion following.
• The outbreak of COVID-19 has adversely affected, and may continue to adversely affect, our business, financial
condition, liquidity and results of operations.
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• Our allowances for credit losses for loans and debt securities may prove inadequate or we may be negatively affected by
credit risk exposures. Also, future additions to our allowance for credit losses will reduce our future earnings.
• Our business is subject to interest rate risk, and fluctuations in interest rates may adversely affect our earnings, capital
levels and overall results.
• Our operational systems and networks have been, and will continue to be, subject to an increasing risk of continually
evolving cybersecurity or other technological risks, which could result in a loss of customer business, financial liability,
regulatory penalties, damage to our reputation or the disclosure of confidential information.
• The financial services industry is characterized by rapid technological change, and if we fail to keep pace, our business
may suffer.
• We are heavily reliant on technology, and a failure to effectively implement new technological solutions or
enhancements to existing systems or platforms could adversely affect our business operations and the financial results of
our operations.
• Our geographic concentration may magnify the adverse effects and consequences of any regional or local economic
downturn.
• An adverse change in real estate market values may result in losses in our banking segment and otherwise adversely
affect our profitability.
• Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may
adversely affect interest income or expense.
• Our mortgage origination is subject to fluctuations based upon seasonal and other factors and, as a result, our results of
operations for any given quarter may not be indicative of the results that may be achieved for the full fiscal year.
• Our risk management processes may not fully identify and mitigate exposure to the various risks that we face, including
interest rate, credit, liquidity and market risk.
• Our hedging strategies may not be successful in mitigating our exposure to interest rate risk.
• Our bank lending, margin lending, stock lending, securities trading and execution and mortgage purchase businesses are
all subject to credit risk.
• As a participating lender in the PPP, the Company and the Bank are subject to additional risks of litigation from the
Bank’s clients, or other parties regarding our originating, processing, or servicing of loans under the PPP, and risks that
the SBA may not fund some or all PPP loan guaranties.
• We depend on our computer and communications systems and an interruption in service would negatively affect our
business.
• Societal responses to climate change could adversely affect our business and performance, including indirectly through
impacts on our customers.
• We are heavily dependent on dividends from our subsidiaries.
• Our indebtedness may affect our ability to operate our business, and may have a material adverse effect on our financial
condition and results of operations. We may incur additional indebtedness, including secured indebtedness.
• We may not be able to generate sufficient cash to service all of our indebtedness, including the Senior Notes, and may be
forced to take other actions to satisfy our obligations under our indebtedness that may not be successful.
• A reduction in our credit rating could adversely affect us or the holders of our securities.
• The indenture governing the Senior Notes contains, and any instruments governing future indebtedness would likely
contain, restrictions that limit our flexibility in operating our business.
• We are subject to extensive supervision and regulation that could restrict our activities and impose financial requirements
or limitations on the conduct of our business and limit our ability to generate income.
• We may be subject to more stringent capital requirements in the future.
• Our broker-dealer business is subject to various risks associated with the securities industry.
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• Market fluctuations could adversely impact our broker-dealer business.
• Our investment advisory business may be affected if our investment products perform poorly.
• Our existing correspondents may choose to perform their own clearing services or move their clearing business to one of
our competitors or exit the business.
• Several of our broker-dealer segment’s product lines rely on favorable tax treatment and changes in federal tax law could
impact the attractiveness of these products to our customers.
• Our mortgage origination segment is subject to investment risk on loans that it originates.
• The CFPB has issued “ability-to-repay” and “qualified mortgage” rules that may have a negative impact on our loan
origination process and foreclosure proceedings, which could adversely affect our business, operating results, and
financial condition.
• Changes in interest rates may change the value of our mortgage servicing rights portfolio, which may increase the
volatility of our earnings.
•
If we fail to develop, implement and maintain an effective system of internal control over financial reporting, the
accuracy and timing of our financial reporting in future periods may be adversely affected.
• We ultimately may write-off goodwill and other intangible assets resulting from business combinations.
• The accuracy of our financial statements and related disclosures could be affected if we are exposed to actual conditions
different from the judgments, assumptions or estimates used in our critical accounting policies.
• We are dependent on our management team, and the loss of our senior executive officers or other key employees could
impair our relationship with customers and adversely affect our business and financial results.
• We are subject to losses due to fraudulent and negligent acts.
• Negative publicity regarding us, or financial institutions in general, could damage our reputation and adversely impact
our business and results of operations.
• We are subject to legal claims and litigation, including potential securities law liabilities, any of which could have a
material adverse effect on our business.
Risks Related to our Business
The outbreak of COVID-19 has adversely affected, and may continue to adversely affect, our business, financial condition,
liquidity and results of operations.
The worldwide COVID-19 pandemic and related governmental control measures severely disrupted financial markets and
overall economic conditions throughout 2020 and 2021 and adversely affected our business. While the impact of the pandemic
and the uncertainties remain, significant progress associated with COVID-19 vaccination levels in the United States has
resulted in easing of restrictive measures in the United States. If COVID-19, or another highly infectious or contagious
disease, continues to spread or the response to contain it is unsuccessful, we could experience material adverse effects on our
business, financial condition, liquidity, and results of operations. The extent of such effects depends on future developments
that are highly uncertain and cannot be predicted, including the geographic spread of the virus, the overall severity of the
disease, the rise of new variants, the duration of the outbreak, the measures that have to be taken, or future measures, by
various governmental authorities in response to the outbreak (such as quarantines, shelter-in-place orders and travel
restrictions) and the possible further impacts on the global economy.
We are generally exposed to the credit risk that third parties that owe us money, securities or other assets will fail to meet their
obligations to us due to numerous causes, and this risk may be exacerbated by the macroeconomic effects of COVID-19. We
lend to businesses and individuals, including through offering commercial and industrial loans, commercial and residential
mortgage loans and other loans generally collateralized by assets. We also incur credit risk through our investments. Our credit
risk and credit losses may increase to the extent our loans or investments are to borrowers or issuers who as a group may be
uniquely or disproportionately affected by declining economic or market conditions as a result of COVID-19, such as those
operating in the travel, lodging, retail, entertainment and energy industries. The allowance for credit losses has been subject to
significant year-over-year and quarterly changes primarily attributable to the effects of the deteriorating economic outlook
associated with the impact of the market disruption caused by the COVID-19 pandemic beginning in March 2020, and then the
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reduction in reserves during 2021 associated with improvements in macroeconomic forecast assumptions and credit quality
metrics on COVID-19 impacted industry sector exposures.
The changes in economic conditions caused by the impact of the COVID-19 pandemic and related policy measures on the
economy can be expected to have a significant effect on our businesses and results of operations, including:
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further increases in the allowance for credit losses and possible recognition of credit losses, especially if businesses
close or are substantially limited in their operating capacity, unemployment rates increase, consumer and business
confidence declines, consumer trends change and clients and customers draw on their lines of credit or seek
additional loans to help finance their businesses;
possible constraints on liquidity and capital, whether due to increases in risk-weighted assets related to supporting
client activities or to regulatory actions; and
the possibility that significant portions of our workforce are unable to work effectively, including because of illness,
quarantines, sheltering-in-place arrangements, government actions or other restrictions related to the pandemic.
We also could experience a material reduction in trading volume and lower securities prices in times of market volatility,
which would result in lower brokerage revenues, including losses on firm inventory. The fair values of certain of our
investments could also be negatively impacted, resulting in unrealized or realized losses on such investments.
Moreover, certain actions taken by U.S. or other governmental authorities, including the Federal Reserve, that are intended to
ameliorate the macroeconomic effects of COVID-19 may cause additional harm to our business. Decreases in short-term
interest rates, such as those announced by the Federal Reserve late in our 2019 fiscal year and during the first fiscal quarter of
2020, have had, and we expect that they will continue to have, a negative impact on our results of operations, as we have
certain assets and liabilities that are sensitive to changes in interest rates.
The extent to which the COVID-19 pandemic negatively affects our businesses, results of operations and financial condition,
as well as our regulatory capital and liquidity ratios, will depend on future developments that are highly uncertain and cannot
be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third
parties in response to the pandemic. To the extent the COVID-19 pandemic adversely affects our business, results of
operations and financial condition, it may also have the effect of heightening many of the other risks described herein.
Our allowances for credit losses for loans and debt securities may prove inadequate or we may be negatively affected by
credit risk exposures. Also, future additions to our allowance for credit losses will reduce our future earnings.
As a lender, we are exposed to the risk that we could sustain losses because our borrowers may not repay their loans in
accordance with the terms of their loans. We maintain allowances for credit losses for loans and debt securities to provide for
defaults and nonperformance, which represent an estimate of expected losses over the remaining contractual lives of the loan
and debt security portfolios. This estimate is the result of our continuing evaluation of specific credit risks and loss experience,
current loan and debt security portfolio quality, present economic, political and regulatory conditions, industry concentrations,
reasonable and supportable forecasts for future conditions and other factors that may indicate losses. The determination of the
appropriate levels of the allowances for loan and debt security credit losses inherently involves a high degree of subjectivity
and judgment and requires us to make estimates of current credit risks and future trends, all of which may undergo material
changes. Generally, our nonperforming loans and other real estate owned (“OREO”) reflect operating difficulties of individual
borrowers and weaknesses in the economies of the markets we serve.
Under the acquisition method of accounting requirements, we were required to estimate the fair value of the loan portfolios
acquired in each of the PlainsCapital Merger, the Federal Deposit Insurance Corporation (“FDIC”) -assisted transaction (the
“FNB Transaction”) whereby the Bank acquired certain assets and assumed certain liabilities of FNB, the acquisition of SWS
Group, Inc. in a stock and cash transaction (the “SWS Merger”) and the acquisition of The Bank of River Oaks (“BORO”) in
an all-cash transaction (“BORO Acquisition”, and collectively with the PlainsCapital Merger, FNB Transaction and the SWS
Merger, the “Bank Transactions”) as of the applicable acquisition date and write down the recorded value of each such
acquired portfolio to the applicable estimate. For most loans, this process was accomplished by computing the net present
value of estimated cash flows to be received from borrowers of such loans. The allowance for credit losses that had been
maintained by PCC, FNB, SWS or BORO, as applicable, prior to their respective transactions, was eliminated in this
accounting process.
The estimates of fair value as of the consummation of each of the Bank Transactions were based on economic conditions at
such time and on Bank management’s projections concerning both future economic conditions and the ability of the borrowers
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to continue to repay their loans. If management’s assumptions and projections prove to be incorrect, however, the estimate of
fair value may be higher than the actual fair value and we may suffer losses in excess of those estimated. Further, the
allowance for credit losses established for new loans may prove to be inadequate to cover actual losses, especially if economic
conditions worsen.
While Bank management endeavors to estimate the allowance to cover anticipated losses over the lives of our loan and debt
security portfolios, no underwriting and credit monitoring policies and procedures that we could adopt to address credit risk
could provide complete assurance that we will not incur unexpected losses. These losses could have a material adverse effect
on our business, financial condition, results of operations and cash flows. In addition, federal regulators periodically evaluate
the adequacy of our allowance for credit losses and may require us to increase our provision for credit losses or recognize
further loan charge-offs based on judgments different from those of Bank management. Any such increase in our provision for
(reversal of) credit losses or additional loan charge-offs could have a material adverse effect on our results of operations and
financial condition.
Our business is subject to interest rate risk, and fluctuations in interest rates may adversely affect our earnings, capital
levels and overall results.
The majority of our assets are monetary in nature and, as a result, we are subject to significant risk from changes in interest
rates. Between December 2016 and December 2018, the Federal Open Market Committee of the Federal Reserve Board raised
its target range for short-term interest rates by 200 basis points, and between August 2019 and March 2020, it decreased interest
rates by 200 basis points. Changes in interest rates may impact our net interest income in our banking segment as well as the
valuation of our assets and liabilities in each of our segments. Earnings in our banking segment are significantly dependent on
our net interest income, which is the difference between interest income on interest-earning assets, such as loans and securities,
and interest expense on interest-bearing liabilities, such as deposits and borrowings. We expect to periodically experience
“gaps” in the interest rate sensitivities of our banking segment’s assets and liabilities, meaning that either our interest-bearing
liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either
event, if market interest rates should move contrary to our position, this “gap” may work against us, and our results of
operations and financial condition may be adversely affected. Asymmetrical changes in interest rates, such as if short-term rates
increase or decrease at a faster rate than long-term rates, can affect the slope of the yield curve. A flatter or inverted yield curve,
which occurred at various times throughout 2019, as measured by the difference between 10-year U.S. Treasury bond yields
and 3-month yields, could adversely impact the net interest income of our banking segment as the spread between interest-
earning assets and interest-bearing liabilities becomes compressed. As a result, a flattening or an inversion of the yield curve is
likely to have a negative impact on our net interest income and our net interest margin over time.
As of December 31, 2021, approximately 56% of our loans were advanced to our customers on a variable or adjustable-
rate basis and approximately 2% of our loans were advanced to our customers on a fixed-rate basis where we utilized
derivative instruments to swap our economic exposure to a variable-rate basis. Fixed rate exposure was approximately 32% of
the outstanding loans at December 31, 2021. As a result, an increase in interest rates could result in increased loan defaults,
foreclosures and charge-offs and could necessitate further increases to the allowance for credit losses, any of which could have
a material adverse effect on our business, financial condition or results of operations. Alternatively, a decrease in interest rates
could negatively impact our margins and profitability. Further, a significant portion of our adjustable rate loans have interest
rate floors below which the loan's contractual interest rate may not adjust. As of December 31, 2021, less than 32% of our total
loans’ rates are floored, with an average interest rate floor 94 basis points above market rates. There were approximately 5%
of our total loans with rate floors that have not been reached, with an average interest rate 76 basis points below market rates.
The inability of our loans to adjust downward can contribute to increased income in periods of declining interest rates,
although this result is subject to the risks that borrowers may refinance these loans during periods of declining interest rates.
Also, when loans are at their floors, there is a further risk that our interest income may not increase as rapidly as our cost of
funds during periods of increasing interest rates which could have a material adverse effect on our results of operations.
If we need to offer higher interest rates on checking accounts to maintain current clients or attract new clients, our interest
expense will increase, perhaps materially. Furthermore, if we fail to offer interest in a sufficient amount to keep these demand
deposits, our core deposits may be reduced, which would require us to obtain funding in other ways or risk slowing our future
asset growth.
An increase in the absolute level of interest rates may also, among other things, adversely affect the demand for loans and our
ability to originate loans. In particular, if mortgage interest rates increase, the demand for residential mortgage loans and the
refinancing of residential mortgage loans will likely decrease, which will have an adverse effect on our income generated from
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mortgage origination activities. Conversely, a decrease in the absolute level of interest rates, among other things, may lead to
prepayments in our loan and mortgage-backed securities portfolios as well as increased competition for deposits. Accordingly,
changes in the general level of market interest rates may adversely affect our net yield on interest-earning assets, loan
origination volume and our overall results.
Our broker-dealer segment holds securities, principally fixed-income bonds, to support sales, underwriting and other customer
activities. If interest rates increase, the value of debt securities held in the broker-dealer segment’s inventory would decrease.
Rapid or significant changes in interest rates could adversely affect the segment’s bond sales, trading and underwriting
activities. Further, the profitability of our margin and stock lending businesses depends to a great extent on the difference
between interest income earned on loans and investments of customer cash balances and the interest expense paid on customer
cash balances and borrowings.
In addition, we hold securities that may be sold in response to changes in market interest rates, changes in securities’
prepayment risk, increases in loan demand, general liquidity needs and other similar factors. Such securities are classified as
available for sale and are carried at estimated fair value, which may fluctuate with changes in market interest rates. The effects
of an increase in market interest rates may result in a decrease in the value of our available for sale investment portfolio.
Market interest rates are affected by many factors outside of our control, including inflation, recession, unemployment, money
supply, international disorder and instability in domestic and foreign financial markets. We may not be able to accurately
predict the likelihood, nature and magnitude of such changes or how and to what extent such changes may affect our business.
We also may not be able to adequately prepare for, or compensate for, the consequences of such changes. Any failure to
predict and prepare for changes in interest rates, or adjust for the consequences of these changes, may adversely affect our
earnings and capital levels and overall results of operations and financial condition.
Our business and results of operations may be adversely affected by unpredictable economic, market and business
conditions.
Our business and results of operations are affected by general economic, market and business conditions. The credit quality of
our loan portfolio necessarily reflects, among other things, the general economic conditions in the areas in which we conduct
our business. Our continued financial success depends to a degree on factors beyond our control, including:
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national and local economic conditions, such as the level and volatility of short-term and long-term interest rates,
inflation, home prices, unemployment and under-employment levels, energy prices, bankruptcies, household income
and consumer spending;
the availability and cost of capital and credit;
incidence of customer fraud; and
federal, state and local laws affecting these matters.
The deterioration of any of these conditions, as we have experienced with past economic downturns, could adversely affect
our consumer and commercial businesses and securities portfolios, our level of loan charge-offs and provision for credit
losses, the carrying value of our deferred tax assets, the investment portfolio of our insurance segment, our capital levels and
liquidity, our securities underwriting business and our results of operations.
Several factors could pose risks to the financial services industry, including trade wars, restrictions and tariffs; slowing growth
in emerging economies; geopolitical matters, including international political unrest, disturbances and conflicts; acts of war
and terrorism; pandemics; changes in interest rates; regulatory uncertainty; continued infrastructure deterioration; low oil
prices; disruptions in global or national supply chains; and natural disasters. In addition, the current environment of heightened
scrutiny of financial institutions has resulted in increased public awareness of and sensitivity to banking fees and practices.
Each of these factors may adversely affect our fees and costs.
Over the last several years, there have been several instances where there has been uncertainty regarding the ability of
Congress and the President collectively to reach agreement on federal budgetary and spending matters. A period of failure to
reach agreement on these matters, particularly if accompanied by an actual or threatened government shutdown, may have an
adverse impact on the U.S. economy. Additionally, a prolonged government shutdown may inhibit our ability to evaluate
borrower creditworthiness and originate and sell certain government-backed loans.
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Our operational systems and networks have been, and will continue to be, subject to an increasing risk of continually
evolving cybersecurity or other technological risks, which could result in a loss of customer business, financial liability,
regulatory penalties, damage to our reputation or the disclosure of confidential information.
We rely heavily on communications and information systems to conduct our business and maintain the security of confidential
information and complex transactions, which subjects us to an increasing risk of cyber incidents from these activities due to a
combination of new technologies and the increasing use of the Internet to conduct financial transactions, as well as a potential
failure, interruption or breach in the security of these systems, including those that could result from attacks or planned
changes, upgrades and maintenance of these systems. Such cyber incidents could result in failures or disruptions in our
customer relationship management, securities trading, general ledger, deposits, computer systems, electronic underwriting
servicing or loan origination systems; or unauthorized disclosure of confidential and non-public information maintained within
our systems. We also utilize relationships with third parties to aid in a significant portion of our information systems,
communications, data management and transaction processing. These third parties with which we do business may also be
sources of cybersecurity or other technological risks, including operational errors, system interruptions or breaches,
unauthorized disclosure of confidential information and misuse of intellectual property. If our third-party service providers
encounter any of these issues, we could be exposed to disruption of service, reputation damages, and litigation risk, any of
which could have a material adverse effect on our business.
The recent occurrence of cybersecurity incidents across a range of industries has resulted in increased legislative and
regulatory scrutiny over cybersecurity and calls for additional data privacy laws and regulations at both the state and federal
levels. For example, in 2018, the State of California adopted the California Consumer Privacy Act of 2018, which imposes
requirements on companies operating in California and provides consumers with a private right of action if covered companies
suffer a data breach related to their failure to implement reasonable security measures. These laws and regulations could result
in increased operating expenses or increase our exposure to the risk of litigation.
Although we devote significant resources to maintain and regularly upgrade our systems and networks to safeguard critical
business applications, there is no guarantee that these measures or any other measures can provide absolute security. Our
computer systems, software and networks may be adversely affected by cyber incidents such as unauthorized access; loss or
destruction of data (including confidential client information); account takeovers; unavailability of service; computer viruses
or other malicious code; cyber attacks; and other events. In addition, our protective measures may not promptly detect
intrusions, and we may experience losses or incur costs or other damage related to intrusions that go undetected or go
undetected for significant periods of time, at levels that adversely affect our financial results or reputation. Further, because the
methods used to cause cyber attacks change frequently, or in some cases cannot be recognized until launched, we may be
unable to implement preventative measures or proactively address these methods until they are discovered. Cyber threats may
derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological
failure. For example, during the second quarter of 2018, we became the victim of a “spear phishing” attack on one of our
employees in which we suffered a $4.0 million wire fraud loss and sensitive customer information was stolen. As a result of
this attack, we incurred costs to provide identity protections services, including credit monitoring, to customers who may have
been impacted and other legal and professional services, and may also incur expenses in the future including legal and
professional expenses and claims for damages. Additional challenges are posed by external extremist parties, including foreign
state actors, in some circumstances, as a means to promote political ends. If one or more of these events occurs, it could result
in the disclosure of confidential client or customer information, damage to our reputation with our clients, customers and the
market, customer dissatisfaction, additional costs such as repairing systems or adding new personnel or protection
technologies, regulatory penalties, fines, remediation costs, exposure to litigation and other financial losses to both us and our
clients and customers. Such events could also cause interruptions or malfunctions in our operations. We maintain cyber risk
insurance, but this insurance may not be sufficient to cover all of our losses from any future breaches of our systems.
We continue to evaluate our cybersecurity program and will consider incorporating new practices as necessary to meet the
expectations of regulatory agencies in light of such cybersecurity guidance and regulatory actions and settlements for
cybersecurity-related failures and violations by other industry participants. Such procedures include management-level
engagement and corporate governance, risk management and assessment, technical controls, incident response planning,
vulnerability testing, vendor management, intrusion detection monitoring, patch management and staff training. Even if we
implement these procedures, however, we cannot assure you that we will be fully protected from a cybersecurity incident, the
occurrence of which could adversely affect our reputation and financial condition.
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The financial services industry is characterized by rapid technological change, and if we fail to keep pace, our business
may suffer.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new
technology-driven products and services. Many of our competitors have substantially greater resources to invest in
technological improvements. We may not be able to effectively or timely implement new technology-driven products and
services or be successful in marketing these products and services to our customers and clients. Failure to successfully keep
pace with technological change affecting the financial services industry and avoid interruptions, errors and delays could have a
material adverse impact on our business, financial condition, results of operations or cash flows.
We are heavily reliant on technology, and a failure to effectively implement new technological solutions or enhancements
to existing systems or platforms could adversely affect our business operations and the financial results of our operations.
Like most financial services companies, we significantly depend on technology to deliver our products and services and to
otherwise conduct business. To remain technologically competitive and operationally efficient, we have either begun the
significant investment in or have plans to invest in new technological solutions, substantial core system upgrades and other
technology enhancements within each of our operating segments and corporate. Many of these solutions and enhancements
have a significant duration, include phased implementation schedules, are tied to critical systems, and require substantial
internal and external resources for design and implementation. Such external resources may be relied upon to provide
expertise and support to help implement, maintain and/or service certain of our core technology solutions.
Although we take steps to mitigate the risks and uncertainties associated with these solutions and initiatives, we may encounter
significant adverse developments in the completion and implementation of these initiatives. These may include significant
time delays, cost overruns, loss of key personnel, technological problems, processing failures, distraction of management and
other adverse developments. Further, our ability to maintain an adequate control environment may be impacted.
The ultimate effect of any adverse development could damage our reputation, result in a loss of customer business, subject us
to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could materially
affect us, including our control environment, operating efficiency, and results of operations.
Our geographic concentration may magnify the adverse effects and consequences of any regional or local economic
downturn.
We conduct our banking operations primarily in Texas. At December 31, 2021, substantially all of the real estate loans in our
loan portfolio were secured by properties located in our four largest markets within Texas, with 39%, 24%, 15% and 5%
secured by properties located in the Dallas/Fort Worth, Austin/San Antonio, Houston/Coastal Bend and Rio Grande
Valley/South Texas markets, respectively. Substantially all of these loans are made to borrowers who live and conduct
business in Texas. Accordingly, economic conditions in Texas have a significant impact on the ability of the Bank’s customers
to repay loans, the value of the collateral securing loans, our ability to sell the collateral upon any foreclosure, and the stability
of the Bank’s deposit funding sources. Further, low crude oil prices may have a more profound effect on the economy of
energy-dominant states such as Texas. The Bank has loans extended to businesses that depend on the energy industry
including those within the exploration and production, oilfield services, pipeline construction, distribution and transportation
sectors. If crude oil prices remain depressed for an extended period or decrease further, the Bank could experience weaker
energy loan demand and increased losses within its energy and Texas-related loan portfolios. Moreover, natural disasters, such
as Hurricane Harvey in 2017, may also have an adverse impact on local economic conditions.
In addition, mortgage origination fee income is dependent to a significant degree on economic conditions in Texas and
California. During 2021, 18.6% and 11.9% of our mortgage loans originated (by dollar volume) were collateralized by
properties located in Texas and California, respectively. Also, in our broker-dealer segment, 61% of public finance services
net revenues were from entities located in Texas, and 88% of retail brokerage service revenues were generated through
locations in Texas, California and Oklahoma. Any regional or local economic downturn that affects Texas or, to a lesser
extent, California or Oklahoma, whether caused by recession, inflation, unemployment, changing oil prices, natural disasters,
supply chain disruptions or other factors, may affect us and our profitability more significantly and more adversely than our
competitors that are less geographically concentrated, and could have a material adverse effect on our results of operations and
financial condition.
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An adverse change in real estate market values may result in losses in our banking segment and otherwise adversely affect
our profitability.
At December 31, 2021, 49% of the loan portfolio of our banking segment was comprised of loans with commercial or
residential real estate as the primary component of collateral. The real estate collateral in each case provides a source of
repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. A
decline in commercial or residential real estate values generally, and in Texas specifically, could impair the value of the
collateral underlying a significant portion of the Bank’s loan portfolio and our ability to sell the collateral upon any
foreclosure. In the event of a default with respect to any of these loans, the amounts we receive upon sale of the collateral may
be insufficient to recover the outstanding principal and interest on the loan. As a result, our results of operations and financial
condition may be materially adversely affected by a decrease in real estate market values.
Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may
adversely affect interest income or expense.
Certain loans we originate bear interest at a floating rate based on LIBOR. We also pay interest on certain borrowings and are
counterparty to derivative agreements that are based on LIBOR and have existing contracts with payment calculations that use
LIBOR as the reference rate. These changes will create various risks surrounding the financial, operational, compliance and
legal aspects associated with changing certain elements of existing contracts.
As previously discussed, in July 2017, the FCA announced that it intends to cease compelling banks to submit rates for the
calculation of LIBOR after 2021. Most recently in March 2021, the FCA and the Intercontinental Exchange (“ICE”)
Benchmark Administration concurrently confirmed their original intention to stop requesting banks to submit the rates
required to calculate LIBOR after the 2021 calendar year and additionally announced firm target dates for the phase out of
various LIBOR tenors. Pursuant to the announcement, one week and two-month LIBOR ceased to be published on
December 31, 2021, and all remaining USD LIBOR tenors will cease to be published or lose representativeness immediately
after June 30, 2023. However, at this time, no consensus exists as to what rate or rates may become acceptable alternatives to
LIBOR and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based securities and variable
rate loans, or other securities or financial arrangements, given LIBOR’s role in determining market interest rates globally. The
ARRC has formally recommended SOFR as its preferred alternative replacement rate for LIBOR. ARRC has proposed a
paced market transition plan to SOFR from LIBOR, and organizations are currently working on industry-wide and company-
specific transition plans as it relates to derivatives and cash markets exposed to LIBOR.
We have completed our targeted assessment of exposures across the organization associated with the migration away from
LIBOR and have transitioned to the impact assessment and implementation stages. In light of the above described recent
changes to the LIBOR phase out dates being pushed out to 2023, we have begun taking necessary actions, including
negotiating certain of our agreements based on alternative benchmark rates that have been established. Since the third quarter
of 2020, PrimeLending has been originating conventional adjustable-rate mortgage, or ARM, loan products utilizing a SOFR
rate with terms consistent with government-sponsored enterprise, or GSE, guidelines. In addition, the Bank’s management
team continues to work with its commercial relationships that have LIBOR-based contracts maturing after 2021 to amend
terms and establish an alternative benchmark rate. We also continue to evaluate the impacts of the LIBOR phase-out and
transition requirements as it pertains to contracts, models and systems.
It is unclear whether, or in what form, LIBOR will continue to exist after 2021. Any transition to an alternative benchmark
will require careful consideration and implementation so as not to disrupt the stability of financial markets. If LIBOR ceases to
exist, we may need to take a variety of actions, including negotiating certain of our agreements based on an alternative
benchmark that may be established, if any. There is no guarantee that a transition from LIBOR to an alternative benchmark
will not result in financial market disruptions, significant changes in benchmark rates or adverse changes in the value of
certain of our loans, and our income and expense. To date, an immaterial amount of expenses have been incurred as a result of
our efforts; however, in the future we may incur additional expenses as we finalize the transition of our systems and processes
away from LIBOR, which could have a material adverse effect on our financial condition or results of operations.
Our mortgage origination business is subject to fluctuations based upon seasonal and other factors and, as a result, our
results of operations for any given quarter may not be indicative of the results that may be achieved for the full fiscal year.
Our mortgage origination business is subject to several variables that can impact loan origination volume, including seasonal
and interest rate fluctuations. We typically experience increased loan origination volume from purchases of homes during the
second and third calendar quarters, when more people tend to move and buy or sell homes. In addition, an increase in the
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general level of interest rates may, among other things, adversely affect the demand for mortgage loans and our ability to
originate mortgage loans. In particular, if mortgage interest rates increase, the demand for residential mortgage loans and the
refinancing of residential mortgage loans will likely decrease, which will have an adverse effect on our mortgage origination
activities. Conversely, a decrease in the general level of interest rates, among other things, may lead to increased competition
for mortgage loan origination business.
As a result of these variables, our results of operations for any single quarter are not necessarily indicative of the results that
may be achieved for a full fiscal year.
Our risk management processes may not fully identify and mitigate exposure to the various risks that we face, including
interest rate, credit, liquidity and market risk.
We continue to refine our risk management techniques, strategies and assessment methods on an ongoing basis. However, our
risk management techniques and strategies (as well as those available to the market generally) may not be fully effective in
mitigating our risk exposure in all economic market environments or against all types of risk. For example, we might fail to
identify or anticipate particular risks, or the systems that we use, and that are used within our business segments generally,
may not be capable of identifying certain risks. Certain of our strategies for managing risk are based upon observed historical
market behavior. We apply statistical and other tools to these observations to quantify our risk exposure. Any failures in our
risk management techniques and strategies to accurately identify and quantify our risk exposure could limit our ability to
manage risks. In addition, any risk management failures could cause our losses to be significantly greater than the historical
measures indicate. Further, our quantified modeling does not take all risks into account. As a result, we also take a qualitative
approach in reducing our risk, although our qualitative approach to managing those risks could also prove insufficient,
exposing us to material unanticipated losses.
Our hedging strategies may not be successful in mitigating our exposure to interest rate risk.
We use derivative financial instruments, primarily consisting of interest rate swaps, to limit our exposure to interest rate risk
within the banking and mortgage origination segments. No hedging strategy can completely protect us, and the derivative
financial instruments we elect may not have the effect of reducing our interest rate risk. Poorly designed strategies, improperly
executed and documented transactions, inaccurate assumptions or the failure of a counterparty to fulfill its obligations could
actually increase our risks and losses. In addition, hedging strategies involve transaction and other costs. Our hedging
strategies and the derivatives that we use may not adequately offset the risks of interest rate volatility and could result in or
magnify losses, which could have an adverse effect on our financial condition and results of operations.
Our bank lending, margin lending, stock lending, securities trading and execution and mortgage purchase businesses are
all subject to credit risk.
We are exposed to credit risk in all areas of our business. The Bank is exposed to the risk that its loan customers may not
repay their loans in accordance with their terms, the collateral securing the loans may be insufficient, or its credit loss reserve
may be inadequate to fully compensate the Bank for the outstanding balance of the loan plus the costs to dispose of the
collateral. Further, our mortgage warehousing activities subject us to credit risk during the period between funding by the
Bank and when the mortgage company sells the loan to a secondary investor.
Our broker-dealer business is subject to credit risk if securities prices decline rapidly because the value of our collateral could
fall below the amount of the indebtedness it secures. In rapidly appreciating markets, credit risk increases due to short
positions. Our securities lending business as well as our securities trading and execution businesses subject us to credit risk if a
counterparty fails to perform or if collateral securing its obligations is insufficient. In securities transactions, we are subject to
credit risk during the period between the execution of a trade and the settlement by the customer.
Significant failures by our customers, including correspondents, or clients to honor their obligations, or increases in their rates
of default, together with insufficient collateral and reserves, could have a material adverse effect on our business, financial
condition, results of operations or cash flows.
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As a participating lender in the PPP, the Company and the Bank are subject to additional risks of litigation from the
Bank’s clients, or other parties regarding our originating, processing, or servicing of loans under the PPP, and risks that
the SBA may not fund some or all PPP loan guaranties.
Under the CARES Act loan program administered through the SBA, referred to as the PPP, small businesses and other entities
and individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enrolled in the
program, subject to numerous limitations and eligibility criteria. The Bank participated as a lender in the PPP. The PPP opened
on April 3, 2020; however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP,
there was some ambiguity in the laws, rules and guidance regarding the operation of the PPP which exposed the Company to
risks relating to noncompliance with the PPP. For instance, several larger banks have been subject to litigation regarding the
process and procedures that such banks used in processing applications for the PPP. The Company and the Bank may be
exposed to the risk of litigation, from both clients and non-clients that solicited the Bank for PPP loans, regarding our process
and procedures used to process applications for the PPP. Any financial liability, litigation costs or reputational damage caused
by PPP-related litigation could have a material adverse impact on our business, financial condition and results of operations.
In addition, the Bank may be exposed to credit risk on PPP loans if a determination is made by the SBA that there was a
deficiency in the manner in which loans were originated, funded, or serviced by the Bank, such as an issue with the eligibility
of a borrower to receive a PPP loan or the calculation of the maximum PPP loans to which a borrower was entitled, which may
or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. If a deficiency is
identified, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid
under the guaranty, seek recovery of any loss related to the deficiency from the Company.
In addition, the Company’s participation in the PPP as a lender may adversely affect the Company’s revenue and results of
operations depending on the timing and amount of forgiveness, if any, to which borrowers are entitled.
We depend on our computer and communications systems and an interruption in service would negatively affect our
business.
Our businesses rely on electronic data processing and communications systems. The effective use of technology allows us to
better serve customers and clients, increases efficiency and reduces costs. Our continued success will depend, in part, upon our
ability to successfully maintain, secure and upgrade the capability of our systems, our ability to address the needs of our
clients by using technology to provide products and services that satisfy their demands and our ability to retain skilled
information technology employees. Significant malfunctions or failures of our computer systems, computer security, software
or any other systems in the trading process (e.g., record retention and data processing functions performed by third parties, and
third party software, such as Internet browsers) could cause delays in customer trading activity. Such delays could cause
substantial losses for customers and could subject us to claims from customers for losses, including litigation claiming fraud or
negligence. In addition, if our computer and communications systems fail to operate properly, regulations would restrict our
ability to conduct business. Any such failure could prevent us from collecting funds relating to customer and client
transactions, which would materially impact our cash flows. Any computer or communications system failure or decrease in
computer system performance that causes interruptions in our operations could have a material adverse effect on our business,
financial condition, results of operations or cash flows.
Societal responses to climate change could adversely affect our business and performance, including indirectly through
impacts on our customers.
Concerns over the long-term impacts of climate change have led, and will continue to lead, to governmental efforts in the
United States to mitigate those impacts. Consumers and businesses also may change their behavior as a result of these
concerns. We and our customers will need to respond to new laws and regulations, as well as consumer and business
preferences resulting from climate change concerns. We and our customers may face cost increases, asset value reductions and
operating process changes. The impact on our customers will likely vary depending on their specific attributes, including
reliance on or role in carbon intensive activities. Within Texas, where our banking operations are primarily located and in
which we have a significant presence for our broker-dealer and mortgage origination segments, a shift in the current state of
the energy industry reflecting a transition from carbon intensive activities to low-carbon or “green” technologies and processes
could have a more profound impact on our customers, consumer behavior and the economy. Among the impacts to us could be
a drop in demand for our products and services, particularly in certain sectors. In addition, we could face reductions in
creditworthiness on the part of some customers or in the value of assets securing loans. Our efforts to take these risks into
account in making lending and other decisions may not be effective in protecting us from the negative impact of new laws and
regulations or changes in consumer or business behavior.
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We are heavily dependent on dividends from our subsidiaries.
We are a financial holding company engaged in the business of managing, controlling and operating our subsidiaries. Hilltop
conducts limited material business other than activities incidental to holding stock in the Bank and Securities Holdings. As a
result, we rely substantially on the profitability of, and dividends from, these subsidiaries to pay our operating expenses and to
pay interest on our debt obligations. The Bank and Securities Holdings are subject to significant regulatory restrictions
limiting their ability to declare and pay dividends to us. Accordingly, if the Bank and Securities Holdings are unable to make
cash distributions to us, then we may be unable to satisfy our operating expense obligations or make interest payments on our
debt obligations.
Our broker-dealer business is subject to various risks associated with the securities industry.
Our broker-dealer business is subject to uncertainties that are common in the securities industry. These uncertainties include:
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intense competition in the securities industry;
the volatility of domestic and international financial, bond and stock markets;
extensive governmental regulation;
litigation; and
substantial fluctuations in the volume and price level of securities.
As a result of such uncertainties, the revenues and operating results of our broker-dealer segment may vary significantly from
quarter to quarter and from year to year. Unfavorable financial or economic conditions could reduce the number and size of
transactions in which we provide financial advisory, underwriting and other services. Disruptions in fixed income and equity
markets could lead to a decline in the volume of transactions executed for customers and, therefore, to declines in revenues
from commissions and clearing services. In addition, the Hilltop Broker-Dealers are operating subsidiaries of Hilltop, which
means that their activities are limited to those that are permissible for subsidiaries of a bank holding company.
Market fluctuations could adversely impact our broker-dealer business.
Our broker-dealer segment is subject to risks as a result of fluctuations in the securities markets. Our securities trading,
market-making and underwriting activities involve the purchase and sale of securities as a principal, which subjects our capital
to significant risks. Market conditions could limit our ability to sell securities purchased or to purchase securities sold in such
transactions. If interest rates increase, the value of debt securities we hold in our inventory would decrease. Rapid or
significant market fluctuations could adversely affect our business, financial condition, results of operations and cash flow.
In addition, during periods of market disruption, it may be difficult to value certain assets if comparable sales become less
frequent or market data becomes less observable. Certain classes of assets or loan collateral that were in active markets with
significant observable data may become illiquid due to the current financial environment. In such cases, asset valuations may
require more estimation and subjective judgment.
Our investment advisory business may be affected if our investment products perform poorly.
Poor investment returns and declines in client assets in our investment advisory business, due to either general market
conditions or underperformance (relative to our competitors or to benchmarks) by investment products, may affect our ability
to retain existing assets, prevent clients from transferring their assets out of products or their accounts, or inhibit our ability to
attract new clients or additional assets from existing clients. Any such poor performance could adversely affect our investment
advisory business and the advisory fees that we earn on client assets.
Our existing correspondents may choose to perform their own clearing services or move their clearing business to one of
our competitors or exit the business.
As the operations of our correspondents grow, our correspondents may consider the option of performing clearing functions
themselves, in a process referred to as “self-clearing.” The option to convert to self-clearing operations may become more
attractive as the transaction volume of a broker-dealer grows. The cost of implementing the necessary infrastructure may
eventually be offset by the elimination of per transaction processing fees that would otherwise be paid to a clearing firm.
Additionally, performing their own clearing services allows self-clearing broker-dealers to retain their customers’ margin
36
balances, free credit balances and securities for use in margin lending activities. Furthermore, our correspondents may decide
to use the clearing services of one of our competitors or exit the business. Any significant loss of correspondents due to self-
clearing, moving their clearing business to a competitor or exiting the business could have a material adverse effect on our
business, financial condition, results of operations or cash flows.
Several of our broker-dealer segment’s product lines rely on favorable tax treatment and changes in federal tax law could
impact the attractiveness of these products to our customers.
We offer a variety of services and products, such as individual retirement accounts and municipal bonds, which rely on
favorable federal income tax treatment to be attractive to our customers. Should favorable tax treatment of these products be
eliminated or reduced, sales of these products could be materially impacted, which could have a material adverse effect on our
business, financial condition, results of operations or cash flows.
Our mortgage origination segment is subject to investment risk on loans that it originates.
We intend to sell, and not hold for investment, substantially all residential mortgage loans that we originate through
PrimeLending. At times, however, we may originate a loan or execute an interest rate lock commitment (“IRLC”) with a
customer pursuant to which we agree to originate a mortgage loan on a future date at an agreed-upon interest rate without
having identified a purchaser for such loan. An identified purchaser may also decline to purchase a loan for a variety of
reasons. In these instances, we will bear interest rate risk on an IRLC until, and unless, we are able to find a buyer for the loan
underlying such IRLC and the risk of investment on a loan until, and unless, we are able to find a buyer for such loan. In
addition, in the event of a breach of any representation or warranty concerning a loan, an agency, investor or other third party
could, among other things, require us to repurchase the full amount of the loan or seek indemnification for losses from us,
even if the loan is not in default. Further, if a customer defaults on a mortgage payment shortly after the loan is originated, the
purchaser of the loan may have a put right, whereby the purchaser can require us to repurchase the loan at the full amount that
it paid. During periods of market downturn, we may choose to hold mortgage loans when the identified purchasers have
declined to purchase such loans because we may not obtain an acceptable substitute bid price for such loan. The failure of
mortgage loans that we hold on our books to perform adequately could have a material adverse effect on our financial
condition, liquidity and results of operations. Moreover, if a property securing a mortgage loan on which we own the servicing
rights is damaged, including from flooding, we may be responsible for repairs for uninsured damage.
Changes in interest rates may change the value of our mortgage servicing rights portfolio, which may increase the volatility
of our earnings.
As a result of our mortgage servicing business, which we may expand in the future, we have a portfolio of MSR assets. An
MSR is the right to service a mortgage loan – collect principal, interest and escrow amounts – for a fee. We measure and carry
all of our residential MSR assets using the fair value measurement method. Fair value is determined as the present value of
estimated future net servicing income, calculated based on a number of variables, including assumptions about the likelihood
of prepayment by borrowers.
One of the principal risks associated with MSR assets is that in a declining interest rate environment, they will likely lose a
substantial portion of their value as a result of higher than anticipated prepayments. Moreover, if prepayments are greater than
expected, the cash we receive over the life of the mortgage loans would be reduced. The mortgage origination segment uses
derivative financial instruments, including U.S. Treasury bond futures and options, as a means to mitigate market risk
associated with MSR assets. However, no hedging strategy can protect us completely, and hedging strategies may fail because
they are improperly designed, improperly executed and documented or based on inaccurate assumptions and, as a result, could
actually increase our risks and losses. The increasing size of our MSR portfolio may increase our interest rate risk and
correspondingly, the volatility of our earnings, especially if we cannot adequately hedge the interest rate risk relating to our
MSR assets.
The CARES Act was enacted as a part of an on-going legislative response to the COVID-19 virus and has provided borrowers
the ability to request forbearance of residential mortgage loan payments, placing a significant strain on mortgage servicers as
they may be required to fund missed or deferred payments related to loans in forbearance. A significant increase in nationwide
forbearance requests that began in March 2020 resulted in the reduction of third-party mortgage servicers willing to purchase
mortgage servicing rights. As a result of this market dynamic, beginning in the second quarter 2020, the Company increased
the amount of retained servicing on mortgage loan sales. Beginning in the fourth quarter of 2020 and continuing into 2021,
PrimeLending has reduced the amount of retained servicing. However, amounts retained during the fourth quarter of 2021
continued to exceed amounts retained prior to the second quarter of 2020. The increased size of our MSR portfolio could result
37
in us carrying significant asset balances. This could result in a reduction in our liquidity and cause a reduction in our capital
ratios. The combination of these impacts along with other impacts, could cause us to not have sufficient liquidity or capital.
At December 31, 2021, the mortgage origination segment’s MSR asset had a fair value of $87.3 million. All income related to
retained servicing, including changes in the value of the MSR asset, is included in noninterest income. Depending on the
interest rate environment, it is possible that the fair value of our MSR asset may be reduced in the future. If such changes in
fair value significantly reduce the carrying value of our MSR asset, our financial condition and results of operations would be
negatively affected.
If we fail to develop, implement and maintain an effective system of internal control over financial reporting, the accuracy
and timing of our financial reporting in future periods may be adversely affected.
The Sarbanes-Oxley Act and related rules and regulations require that management report annually on the effectiveness of our
internal control over financial reporting and assess the effectiveness of our disclosure controls and procedures on a quarterly
basis. Effective internal controls are necessary for us to provide timely and reliable financial reports and effectively prevent
fraud. We have identified control deficiencies that constituted a material weakness in our internal controls and procedures in
the past and may experience a material weakness in future years. If we fail to maintain adequate internal controls, our financial
statements may not accurately reflect our financial condition. Any material misstatements could require a restatement of our
consolidated financial statements, cause us to fail to meet our reporting obligations or cause investors to lose confidence in our
reported financial information, leading to a decline in the market value of our securities.
We ultimately may write-off goodwill and other intangible assets resulting from business combinations.
As a result of purchase accounting in connection with acquisitions, our consolidated balance sheet at December 31, 2021,
included goodwill of $267.4 million and other intangible assets, net of accumulated amortization, of $15.3 million. On an
ongoing basis, we evaluate whether facts and circumstances indicate any impairment of value of intangible assets. As
circumstances change, we may not realize the value of these intangible assets. If we determine that a material impairment has
occurred, we will be required to write-off the impaired portion of intangible assets, which could have a material adverse effect
on our results of operations in the period in which the write-off occurs.
The ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that
are not within our control. If we are unable to successfully manage our business through the challenges and uncertainty created
by the COVID-19 pandemic, our business and operating results could be materially adversely affected. If the COVID-19
pandemic results in a prolonged adverse impact on our operating results, our goodwill and other intangible assets may be at
risk of future impairment.
We have goodwill and intangibles balances recorded in connection with acquisitions in our banking, broker-dealer and
mortgage origination segments, which we periodically review for impairment. These assets are sensitive to any significant
changes in related results of operations of the underlying businesses. Given the potential impacts as a result of economic
uncertainties associated with the pandemic, actual results may differ materially from our current estimates as the scope of such
impacts evolves or if the duration of business disruptions is longer than currently anticipated. Although certain valuation
assumptions and judgments will change to account for pandemic-related circumstances, we do not anticipate significant
changes in methodology used to determine the fair value of our goodwill, intangible assets and other long-lived assets. We
continue to monitor developments regarding the COVID-19 pandemic and measures implemented in response to the
pandemic, market capitalization, overall economic conditions and any other triggering events or circumstances that may
indicate an impairment in the future.
Based on the results of our annual quantitative analysis as of October 1, 2021, the fair values of each of our reporting units
indicated no impairment of goodwill. Any downward revisions to current year actual and future forecasted operating
performance, in conjunction with any changes to long-term growth rates or discount rates, may cause the fair value of the
respective reporting unit to decline. If the estimated fair value is less than the carrying value, we would be required to
recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however,
the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit.
38
The accuracy of our financial statements and related disclosures could be affected if we are exposed to actual conditions
different from the judgments, assumptions or estimates used in our critical accounting policies.
The preparation of financial statements and related disclosure in conformity with GAAP requires us to make judgments,
assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.
Our critical accounting policies, which are included in this Annual Report, describe those significant accounting policies and
methods used in the preparation of our consolidated financial statements that we consider “critical” because they require
judgments, assumptions and estimates that materially impact our consolidated financial statements and related disclosures. As
a result, if future events differ significantly from the judgments, assumptions and estimates in our critical accounting policies,
such events or assumptions could have a material impact on our audited consolidated financial statements and related
disclosures.
We are dependent on our management team, and the loss of our senior executive officers or other key employees could
impair our relationship with customers and adversely affect our business and financial results.
Our success is dependent, to a large degree, upon the continued service and skills of our existing management team and other
key employees with long-term customer relationships. Our business and growth strategies are built primarily upon our ability
to retain employees with experience and business relationships within their respective segments. The loss of one or more of
these key personnel could have an adverse impact on our business because of their skills, knowledge of the market, years of
industry experience and the difficulty of finding qualified replacement personnel. In addition, we currently do not have non-
competition agreements with certain members of management and other key employees. If any of these personnel were to
leave and compete with us, our business, financial condition, results of operations and growth could suffer.
A decline in the market for municipal advisory services could adversely affect our business and results of operations.
Our broker-dealer segment has historically earned a material portion of its revenues from advisory fees paid to it by its clients,
in large part upon the successful completion of the client’s transaction. New issuances in the municipal market by cities,
counties, school districts, state and other governmental agencies, airports, healthcare institutions, institutions of higher
education and other clients that the public finance services line of business serves can be subject to significant fluctuations
based on factors such as changes in interest rates, property tax bases, budget pressures on certain issuers caused by uncertain
economic times and other factors. A decline in the market for municipal advisory services due to the factors listed above could
have an adverse effect on our business and results of operations.
We are subject to losses due to fraudulent and negligent acts.
Our banking and mortgage origination businesses expose us to fraud risk from our loan and deposit customers and the parties
they do business with, as well as from our employees, contractors and vendors. We rely heavily upon information supplied by
third parties, including the information contained in credit applications, property appraisals, title information, equipment
pricing and valuation, and employment and income documentation, in deciding which loans to originate and the terms of those
loans. If any of the information upon which we rely is misrepresented, either fraudulently or negligently, and the
misrepresentation is not detected prior to funding, the value of the collateral may be significantly lower than expected, the
source of repayment may not exist or may be significantly impaired, or we may fund a loan that we would not have funded or
on terms we would not have extended. While we have underwriting and operational controls in place to help detect and
prevent such fraud, no such controls are effective to detect or prevent all fraud. Whether a misrepresentation is made by the
applicant, another third party or one of our own employees, we may bear the risk of loss associated with the misrepresentation.
We have experienced losses resulting from fraud in the past, including loan, wire transfer, document and check fraud, and
identity theft. We maintain fraud insurance, but this insurance may not be sufficient to cover all of our losses from any
fraudulent acts.
Our broker-dealer activities also expose us to fraud risks. When acting as an underwriter, our broker-dealer segment may be
liable jointly and severally under federal, state and foreign securities laws for false and misleading statements concerning the
securities, or the issuer of the securities, that it underwrites. We are sometimes brought into lawsuits in connection with our
correspondent clearing business based on actions of our correspondents. In addition, we may act as a fiduciary in other
capacities that could expose us to liability under such laws or under common law fiduciary principles.
39
Negative publicity regarding us, or financial institutions in general, could damage our reputation and adversely impact our
business and results of operations.
Our ability to attract and retain customers and conduct our business could be adversely affected to the extent our reputation is
damaged. Reputational risk, or the risk to our business, earnings and capital from negative public opinion regarding our
company, or financial institutions in general, is inherent in our business. Adverse perceptions concerning our reputation could
lead to difficulties in generating and maintaining accounts as well as in financing them. In particular, such negative
perceptions could lead to decreases in the level of deposits that consumer and commercial customers and potential customers
choose to maintain with us. Negative public opinion could result from actual or alleged conduct in any number of activities or
circumstances, including lending or foreclosure practices; sales practices; corporate governance and potential conflicts of
interest; ethical failures or fraud, including alleged deceptive or unfair lending or pricing practices; regulatory compliance;
protection of customer information; cyber attacks, whether actual, threatened, or perceived; negative news about us or the
financial institutions industry generally; general company performance; or actions taken by government regulators and
community organizations in response to such activities or circumstances. Furthermore, our failure to address, or the perception
that we have failed to address, these issues appropriately could impact our ability to keep and attract customers and/or
employees and could expose us to litigation and/or regulatory action, which could have an adverse effect on our business and
results of operations.
In addition, stockholders, customers and other stakeholders have begun to consider how corporations are addressing
environmental, social and governance (“ESG”) issues. Governments, investors, customers and the general public are
increasingly focused on ESG practices and disclosures, and views about ESG are diverse and rapidly changing and have
become a consideration in investment decisions. These shifts in investing priorities may result in adverse effects on the trading
price of the Company’s common stock if investors determine that the Company has not made sufficient progress on ESG
matters. We could also face potential negative ESG-related publicity in traditional media or social media if stockholders or
other stakeholders determine that we have not adequately considered or addressed ESG matters. If the Company, or our
relationships with certain customers, vendors or suppliers, became the subject of negative publicity, our ability to attract and
retain customers and employees, and our financial condition and results of operations, could be adversely impacted.
We are subject to legal claims and litigation, including potential securities law liabilities, any of which could have a
material adverse effect on our business.
We face significant legal risks in each of the business segments in which we operate, and the volume of legal claims and
amount of damages and penalties claimed in litigation and regulatory proceedings against financial service companies remains
high. These risks often are difficult to assess or quantify, and their existence and magnitude often remain unknown for
substantial periods of time. Substantial legal liability or significant regulatory action against us or any of our subsidiaries could
have a material adverse effect on our results of operations or cause significant reputational harm to us, which could seriously
harm our business and prospects. Further, regulatory inquiries and subpoenas, other requests for information, or testimony in
connection with litigation may require incurrence of significant expenses, including fees for legal representation and fees
associated with document production. These costs may be incurred even if we are not a target of the inquiry or a party to the
litigation. Any financial liability or reputational damage could have a material adverse effect on our business, which, in turn,
could have a material adverse effect on our financial condition and results of operations.
Further, in the normal course of business, our broker-dealer segment has been subject to claims by customers and clients
alleging unauthorized trading, churning, mismanagement, suitability of investments, breach of fiduciary duty or other alleged
misconduct by our employees or brokers. We are sometimes brought into lawsuits based on allegations concerning our
correspondents. As underwriters, we are subject to substantial potential liability for material misstatements and omissions in
prospectuses and other communications with respect to underwritten offerings of securities. Prolonged litigation producing
significant legal expenses or a substantial settlement or adverse judgment could have a material adverse effect on our business,
financial condition, results of operations or cash flows.
Because we may use a substantial portion of our remaining excess capital to make acquisitions or effect a business
combination, we may become subject to risks inherent in pursuing and completing any such acquisitions or business
combination.
We may make acquisitions or effect business combinations with a substantial portion of our remaining excess capital. We may
not, however, be able to identify suitable targets, consummate acquisitions or effect a combination on commercially acceptable
terms or, if consummated, successfully integrate personnel and operations.
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The success of any acquisition or business combination will depend upon, among other things, the ability of management and
our employees to integrate personnel, operations, products and technologies effectively, to attract, retain and motivate key
personnel and to retain customers and clients of targets. It is possible that the integration process could result in the loss of key
employees, the disruption of ongoing business or inconsistencies in standards, controls, procedures and policies that adversely
affect our ability to maintain relationships with clients, customers, depositors and employees. In addition, the integration of
certain operations will require the dedication of significant management resources, which may temporarily distract
management’s attention from our day-to-day business. Any inability to realize the full extent, or any, of the anticipated cost
savings and financial benefits of any acquisitions we make, as well as any delays encountered in the integration process, could
have an adverse effect on our business and results of operations, which could adversely affect our financial condition and
cause a decrease in our earnings per share or decrease or delay the expected accretive effect of the acquisitions and contribute
to a decrease in the price of our common stock. In addition, any acquisition or business combination we undertake may
consume available cash resources, result in potentially dilutive issuances of equity securities and divert management’s
attention from other business concerns. Even if we conduct extensive due diligence on a target business that we acquire or
with which we merge, our diligence may not surface all material issues that may adversely affect a particular target business,
and we may be forced to later write-down or write-off assets, restructure our operations or incur impairment or other charges
that could result in our reporting losses. Consequently, we also may need to make further investments to support the acquired
or combined company and may have difficulty identifying and acquiring the appropriate resources.
We may enter, through acquisitions or a business combination, into new lines of business or initiate new service offerings
subject to the restrictions imposed upon us as a regulated financial holding company. Accordingly, there is no basis for you to
evaluate the possible merits or risks of the particular target business with which we may combine or that we may ultimately
acquire.
Subject to the restrictions imposed upon us as a regulated financial holding company, we may also use excess capital to make
investments in companies engaged in non-financial activities. These investments could decline in value and are likely to be
substantially less liquid than exchange-listed securities, if we are able to sell them at all. If we are required to sell these
investments quickly, we may receive significantly less value than if we could otherwise have sold them. Losses on these
investments could have an adverse impact on our profitability, results of operations and financial condition.
We may be subject to environmental liabilities in connection with the foreclosure on real estate assets securing the loan
portfolio of our banking segment.
Hazardous or toxic substances or other environmental hazards may be located on the real estate that secures our loans. If we
acquire such properties as a result of foreclosure, or otherwise, we could become subject to various environmental liabilities.
For example, we could be held liable for the cost of cleaning up or otherwise addressing contamination at or from these
properties. We could also be held liable to a governmental entity or third party for property damage, personal injury or other
claims relating to any environmental contamination at or from these properties. In addition, we could be held liable for costs
relating to environmental contamination at or from our current or former properties. We may not detect all environmental
hazards associated with these properties. If we ever became subject to significant environmental liabilities, our business,
financial condition, liquidity and results of operations could be harmed.
Risks Related to Our Indebtedness
Our indebtedness may affect our ability to operate our business, and may have a material adverse effect on our financial
condition and results of operations. We may incur additional indebtedness, including secured indebtedness.
At December 31, 2021, on a consolidated basis, we had total deposits of $12.8 billion and other indebtedness of $1.2 billion,
including $150.0 million in aggregate principal amount of 5% senior notes due 2025 (the “Senior Notes”), $50.0 million
aggregate principal amount of 5.75% fixed-to-floating rate subordinated notes due 2030 (the “2030 Subordinated Notes”) and
$150.0 million aggregate principal amount of 6.125% fixed-to-floating rate subordinated notes due 2035 (the “2035
Subordinated Notes”). Our significant amount of indebtedness could have important consequences, such as:
•
•
limiting our ability to obtain additional financing to fund our working capital needs, acquisitions, capital expenditures
or other debt service requirements or for other purposes;
limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial
portion of these funds to service debt;
41
•
•
•
•
•
•
limiting our ability to compete with other companies who are not as highly leveraged, as we may be less capable of
responding to adverse economic and industry conditions;
restricting us from making strategic acquisitions, developing properties or pursuing business opportunities;
restricting the way in which we conduct our business because of financial and operating covenants in the agreements
governing our and certain of our subsidiaries’ existing and future indebtedness, including, in the case of certain
indebtedness of subsidiaries, certain covenants that restrict the ability of such subsidiaries to pay dividends or make
other distributions to us;
exposing us to potential events of default (if not cured or waived) under financial and operating covenants contained
in our or our subsidiaries’ debt instruments that could have a material adverse effect on our business, financial
condition and operating results;
increasing our vulnerability to a downturn in general economic conditions or a decrease in pricing of our products;
and
limiting our ability to react to changing market conditions in our industry and in our customers’ industries.
In addition to our debt service obligations, our operations require substantial investments on a continuing basis. Our ability to
make scheduled debt payments, to refinance our obligations with respect to our indebtedness and to fund capital and non-
capital expenditures necessary to maintain the condition of our operating assets and properties, as well as to provide capacity
for the growth of our business, depends on our financial and operating performance, which, in turn, is subject to prevailing
economic conditions and financial, business, competitive, legal and other factors.
Subject to the restrictions in the indentures governing the Senior Notes, 2030 Subordinated Notes and 2035 Subordinated
Notes (collectively, the “Senior and Subordinated Notes”), we may incur significant additional indebtedness, including
secured indebtedness. If new debt is added to our current debt levels, the risks described above could increase.
We may not be able to generate sufficient cash to service all of our indebtedness, including the Senior and Subordinated
Notes, and may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful.
Our ability to satisfy our debt obligations will depend upon, among other things:
•
•
our future financial and operating performance, which will be affected by prevailing economic conditions and
financial, business, regulatory and other factors, many of which are beyond our control; and
our future ability to refinance the Senior and Subordinated Notes, which depends on, among other things, our
compliance with the covenants in the indentures governing the Senior and Subordinated Notes.
We cannot assure you that our business will generate sufficient cash flow from operations, or that we will be able to obtain
financing in an amount sufficient to fund our liquidity needs.
If our cash flows and capital resources are insufficient to service our indebtedness, including the Senior and Subordinated
Notes, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance
our indebtedness, including the Senior and Subordinated Notes. These alternative measures may not be successful and may not
permit us to meet our scheduled debt service obligations, including our obligations under the Senior and Subordinated Notes.
Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition
at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous
covenants, which could further restrict our business operations. In addition, the terms of existing or future debt agreements
may restrict us from adopting some of these alternatives. In the absence of such operating results and resources, we could face
substantial liquidity problems and might be required to dispose of material assets or operations, sell equity and/or negotiate
with our lenders and other creditors to restructure the applicable debt in order to meet our debt service and other obligations.
We may not be able to consummate those dispositions for fair market value or at all. The indentures governing the Senior and
Subordinated Notes may restrict, or market or business conditions may limit, our ability to avail ourselves of some or all of
these options. Furthermore, any proceeds that we could realize from any such dispositions may not be adequate to meet our
debt service obligations then due.
A reduction in our credit rating could adversely affect us or the holders of our securities.
The credit rating agencies rating our indebtedness regularly evaluate the Company, and credit ratings are based on a number of
factors, including our financial strength and ability to generate earnings, as well as factors not entirely within our control,
42
including conditions affecting the financial services industry and the economy and changes in rating methodologies. There can
be no assurance that we will maintain our current credit rating. A downgrade of our credit rating could adversely affect our
access to liquidity and capital, and could significantly increase our cost of funds, trigger additional collateral or funding
requirements and decrease the number of investors and counterparties willing to lend to us or purchase our securities. This
could affect our growth, profitability and financial condition, including liquidity.
The indentures governing the Senior and Subordinated Notes contain, and any instruments governing future indebtedness
would likely contain, restrictions that limit our flexibility in operating our business.
The indentures governing the Senior and Subordinated Notes contain, and any instruments governing future indebtedness
would likely contain, a number of covenants that impose significant operating and financial restrictions on us, including
restrictions on our ability to, among other things:
•
•
dispose of, or issue voting stock of, certain subsidiaries; or
incur or permit to exist any mortgage, pledge, encumbrance or lien or charge on the capital stock of certain
subsidiaries.
Any of these restrictions could limit our ability to plan for or react to market conditions and could otherwise restrict corporate
activities. Any failure to comply with these covenants could result in a default under the indentures governing the Senior and
Subordinated Notes. Upon a default, holders of the Senior and Subordinated Notes have the ability ultimately to force us into
bankruptcy or liquidation, subject to the indentures governing the Senior and Subordinated Notes. In addition, a default under
the indentures governing the Senior and Subordinated Notes could trigger a cross default under the agreements governing our
existing and future indebtedness. Our operating results may not be sufficient to service our indebtedness or to fund our other
expenditures and we may not be able to obtain financing to meet these requirements.
Risks Related to our Industry
The soundness of other financial institutions could adversely affect our business.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of
other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty and other
relationships. We have exposure to many different counterparties and we routinely execute transactions with counterparties in
the financial services industry, including brokers and dealers, commercial banks, credit unions, investment banks, mutual and
hedge funds, and other institutional clients. As a result, defaults by, or even negative speculation about, one or more financial
services institutions, or the financial services industry in general, have led to market-wide liquidity problems in the past and
could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of
default of our counterparty or client. In addition, our credit risk may be exacerbated when we hold collateral that cannot be
realized or is liquidated at prices not sufficient to recover the full amount of the receivable due to us. Any such losses could be
material and could materially and adversely affect our business, financial condition, results of operations or cash flows.
We face strong competition from other financial institutions and financial service companies, which may adversely affect
our operations and financial condition.
Our banking segment primarily competes with national, regional and community banks within various markets where the
Bank operates. The Bank also faces competition from many other types of financial institutions, including savings and loan
associations, savings banks, finance companies and credit unions. A number of these banks and other financial institutions
have substantially greater resources and lending limits, larger branch systems and a wider array of banking services than we
do. We also compete with other providers of financial services, such as money market mutual funds, brokerage and investment
banking firms, consumer finance companies, pension trusts, governmental organizations and increasingly fintech companies,
each of which may offer more favorable financing than we are able to provide. In addition, some of our non-bank competitors
are not subject to the same extensive regulations that govern us. The banking business in Texas has remained competitive over
the past several years, and we expect the level of competition we face to further increase. Competition for deposits and in
providing lending products and services to consumers and businesses in our market area is intense and pricing is important.
Other factors encountered in competing for savings deposits are convenient office locations, interest rates and fee structures of
products offered. Direct competition for savings deposits also comes from other commercial bank and thrift institutions,
money market mutual funds and corporate and government securities that may offer more attractive rates than insured
depository institutions are willing to pay. Competition for loans is based on factors such as interest rates, loan origination fees
and the range of services offered by the provider. We seek to distinguish ourselves from our competitors through our
43
commitment to personalized customer service and responsiveness to customer needs while providing a range of competitive
loan and deposit products and other services. Our profitability depends on our ability to compete effectively in these markets.
This competition may reduce or limit our margins on banking services, reduce our market share and adversely affect our
results of operations and financial condition.
The financial advisory and investment banking industries also are intensely competitive industries and will likely remain
competitive. Our broker-dealer business competes directly with numerous other financial advisory and investment banking
firms, broker-dealers and banks, including large national and major regional firms and smaller niche companies, some of
whom are not broker-dealers and, therefore, not subject to the broker-dealer regulatory framework. In addition to competition
from firms currently in the industry, there has been increasing competition from others offering financial services, including
automated trading and other services based on technological innovations. Our broker-dealer business competes on the basis of
a number of factors, including the quality of advice and service, technology, product selection, innovation, reputation, client
relationships and price. Increased pressure created by any current or future competitors, or by competitors of our broker-dealer
business collectively, could materially and adversely affect our business and results of operations. Increased competition may
result in reduced revenue and loss of market share. Further, as a strategic response to changes in the competitive environment,
our broker-dealer business may from time to time make certain pricing, service or marketing decisions that also could
materially and adversely affect our business and results of operations.
Our mortgage origination business faces vigorous competition from banks and other financial institutions, including large
financial institutions as well as independent mortgage banking companies, commercial banks, savings banks and savings and
loan associations. Our mortgage origination segment competes on a number of factors including customer service, quality and
range of products and services offered, price, reputation, interest rates, closing process and duration, and loan origination fees.
The ability to attract and retain skilled mortgage origination professionals is critical to our mortgage origination business. We
seek to distinguish ourselves from our competitors through our commitment to personalized customer service and
responsiveness to customer needs while providing a range of competitive mortgage loan products and services.
Overall, competition among providers of financial products and services continues to increase as technological advances have
lowered the barriers to entry for financial technology companies, with consumers having the opportunity to select from a
growing variety of traditional and nontraditional alternatives, including online checking, savings and brokerage accounts,
online lending, online insurance underwriters, crowdfunding, digital wallets, and money transfer services. The ability of non-
banking financial institutions to provide services previously limited to commercial banks has intensified competition. Because
non-banking financial institutions are not subject to many of the same regulatory restrictions as banks and bank holding
companies, they can often operate with greater flexibility and lower cost structures. This competition could result in the loss of
customer deposits and brokerage accounts and lower mortgage originations which could have a material adverse effect on our
financial condition and results of operations.
Acquisitions may be delayed, impeded, or prohibited due to regulatory issues.
Acquisitions by financial institutions are subject to approval by a variety of federal and state regulatory agencies. The process
for obtaining these required regulatory approvals has become substantially more difficult in recent years. Regulatory approvals
could be delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues we have, or may have,
with regulatory agencies, including, without limitation, issues related to Bank Secrecy Act compliance, Community
Reinvestment Act issues, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive, or abusive acts or
practices regulations and other similar laws and regulations. We may fail to pursue, evaluate or complete strategic and
competitively significant acquisition opportunities as a result of our inability, or perceived or anticipated inability, to obtain
regulatory approvals in a timely manner, under reasonable conditions or at all. Difficulties associated with potential
acquisitions that may result from these factors could have a material adverse effect on our business, financial condition and
results of operations.
Legal and Regulatory Risks
We are subject to extensive supervision and regulation that could restrict our activities and impose financial requirements
or limitations on the conduct of our business and limit our ability to generate income.
We are subject to extensive federal and state regulation and supervision, including that of the Federal Reserve Board, the
Texas Department of Banking, the FDIC, the CFPB, the SEC and FINRA. Banking regulations are primarily intended to
protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not stockholders or other debt
holders Likewise, regulations promulgated by the SEC and FINRA are primarily intended to protect the securities markets and
44
customers of broker-dealer businesses rather than stockholders or other debt holders. Further, because the Bank’s total assets
were over $10.0 billion (as measured on four consecutive quarterly call reports of the Bank) as of June 30, 2020, along with
the continued Federal Reserve consumer supervisory and enforcement, the Bank became subject to the CFPB’s supervisory
and enforcement authority with respect to federal consumer financial laws, beginning in the second quarter of 2020.
These regulations affect our lending practices, capital structure, capital requirements, investment practices, brokerage and
investment advisory activities, dividends and growth, among other things. Failure to comply with laws, regulations or policies
could result in money damages, civil money penalties or reputational damage, as well as sanctions and supervisory actions by
regulatory agencies that could subject us to significant restrictions on or suspensions of our business and our ability to expand
through acquisitions or branching. Further, our clearing contracts generally include automatic termination provisions that are
triggered in the event we are suspended from any of the national exchanges of which we are a member for failure to comply
with the rules or regulations thereof. While we have implemented policies and procedures designed to prevent any such
violations of rules and regulations, such violations may occur from time to time, which could have a material adverse effect on
our financial condition and results of operations.
The U.S. Congress, state legislatures, and federal and state regulatory agencies frequently revise banking and securities laws,
regulations and policies. For example, several aspects of the Dodd-Frank Act have affected our business, including, without
limitation, increased capital requirements, increased mortgage regulation, restrictions on proprietary trading in securities,
restrictions on investments in hedge funds and private equity funds, executive compensation restrictions, potential federal
oversight of the insurance industry and disclosure and reporting requirements. Although the EGRRCPA is intended to ease the
regulatory burden imposed by the Dodd-Frank Act with respect to company-run stress testing, resolution plans, the Volcker
Rule, high volatility commercial real estate exposures, and real estate appraisals, at this time, it remains difficult to predict the
full extent to which the Dodd-Frank Act the EGRRCPA, the CARES Act, the AML Act or the resulting rules and regulations
will affect our business. Compliance with new laws and regulations has resulted and likely will continue to result in additional
costs, which could be significant and may adversely impact our results of operations, financial condition, and liquidity.
The Bank received a “satisfactory” CRA rating in connection with its most recent CRA performance evaluation. A CRA rating
of less than “satisfactory” adversely affects a bank’s ability to establish new branches and impairs a bank’s ability to
commence new activities that are “financial in nature” or acquire companies engaged in these activities. Other regulatory
exam ratings or findings also may adversely impact our ability to branch, commence new activities or make acquisitions.
We cannot predict whether or in what form any other proposed regulations or statutes will be adopted or the extent to which
our business may be affected by any new regulation or statute. These changes become less predictable, yet more likely to
occur, following the transition of power from one presidential administration to another, especially as in 2021, when it
involves a change in political party. Any such changes could subject our business to additional costs, limit the types of
financial services and products we may offer and increase the ability of non-banks to offer competing financial services and
products, among other things.
We may be subject to more stringent capital requirements in the future.
We are subject to regulatory requirements specifying minimum amounts and types of capital that we must maintain. From time
to time, the regulators change these regulatory capital adequacy guidelines. If we fail to meet these minimum capital
guidelines and other regulatory requirements, we or our subsidiaries may be restricted in the types of activities we may
conduct and we may be prohibited from taking certain capital actions, such as paying dividends and repurchasing or
redeeming capital securities.
Failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions
by regulators that, if undertaken, could have an adverse material effect on our financial condition and results of operations.
The application of more stringent capital requirements for Hilltop and PlainsCapital could, among other things, adversely
affect our results of operations and growth, require the raising of additional capital, restrict our ability to pay dividends or
repurchase shares and result in regulatory actions if we were to be unable to comply with such requirements.
Periodically, the SEC adopts amendments to Rules 15c3-1 and 15c3-3 under the Exchange Act related to our broker-dealer
segment. The implementation of any new requirements from these amendments may increase our cost of regulatory
compliance.
45
The CFPB has issued “ability-to-repay” and “qualified mortgage” rules that may have a negative impact on our loan
origination process and foreclosure proceedings, which could adversely affect our business, operating results, and
financial condition.
The CFPB’s “qualified mortgage” rule requires mortgage lenders to consider consumers’ ability to repay home loans before
extending them credit. The rule describes certain minimum requirements for lenders making ability-to-repay determinations,
but does not dictate that they follow particular underwriting models. Lenders are presumed to have complied with the ability-
to-repay rule if they issue “qualified mortgages,” which are generally defined as mortgage loans prohibiting or limiting certain
risky features. Loans that do not meet the ability-to-repay standard can be challenged in court by borrowers who default and
the absence of ability-to-repay status can be used against a lender in foreclosure proceedings. Any loans that we make outside
of the “qualified mortgage” criteria, including the newly created “seasoned qualified mortgage” criteria could expose us to an
increased risk of liability and reduce or delay our ability to foreclose on the underlying property. Any increases in compliance
and foreclosure costs caused by the rule could negatively affect our business, operating results and financial condition.
Risks Related to Our Common Stock
We may issue shares of preferred stock or additional shares of common stock to complete an acquisition or effect a
combination or under an employee incentive plan after consummation of an acquisition or business combination, which
would dilute the interests of our stockholders and likely present other risks.
The issuance of shares of preferred stock or additional shares of common stock:
• may significantly dilute the equity interest of our stockholders;
• may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded
our common stock;
•
could cause a change in control if a substantial number of shares of common stock are issued, which may affect,
among other things, our ability to use our net operating loss carry forwards; and
• may adversely affect prevailing market prices for our common stock.
Our board of directors, in its sole discretion, may designate and issue one or more series of preferred stock from the authorized
and unissued shares of preferred stock. Subject to limitations imposed by law or our articles of incorporation, our board of
directors is empowered to determine the designation and number of shares constituting each series of preferred stock, as well
as any designations, qualifications, privileges, limitations, restrictions or special or relative rights of additional series. The
rights of preferred stockholders may supersede the rights of common stockholders. Preferred stock could be issued with voting
and conversion rights that could adversely affect the voting power of the shares of our common stock. The issuance of
preferred stock could also result in a series of securities outstanding that would have preferences over the common stock with
respect to dividends and in liquidation.
Our common stock price may experience substantial volatility, which may affect your ability to sell our common stock at an
advantageous price.
Price volatility of our common stock may affect your ability to sell our common stock at an advantageous price. Market price
fluctuations in our common stock may arise due to acquisitions, dispositions or other material public announcements,
including those regarding dividends or changes in management, along with a variety of additional factors, including, without
limitation, other risks identified in “Forward-looking Statements” and these “Risk Factors.” In addition, the stock markets in
general, including the NYSE, have experienced extreme price and trading fluctuations. These fluctuations have resulted in
volatility in the market prices of securities that often have been unrelated or disproportionate to changes in operating
performance. These broad market fluctuations may adversely affect the market price of our common stock.
Existing circumstances may result in several of our directors having interests that may conflict with our interests.
A director who has a conflict of interest with respect to an issue presented to our board will have no inherent legal obligation
to abstain from voting upon that issue. We do not have provisions in our bylaws or charter that require an interested director to
abstain from voting upon an issue, and we do not expect to add provisions in our charter and bylaws to this effect. Although
each director has a duty to act in good faith and in a manner he or she reasonably believes to be in our best interests, there is a
risk that, should interested directors vote upon an issue in which they or one of their affiliates has an interest, their vote may
46
reflect a bias that could be contrary to our best interests. In addition, even if an interested director abstains from voting, the
director’s participation in the meeting and discussion of an issue in which he or she has, or companies with which he or she is
associated have, an interest could influence the votes of other directors regarding the issue.
Our rights and the rights of our stockholders to take action against our directors and officers are limited.
We are organized under Maryland law, which provides that a director or officer has no liability in that capacity if he or she
performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care
that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter eliminates
our directors’ and officers’ liability to us and our stockholders for money damages, except for liability resulting from actual
receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty established by a final
judgment and that is material to the cause of action. Our bylaws require us to indemnify our directors and officers for liability
resulting from actions taken by them in those capacities to the maximum extent permitted by Maryland law. As a result, our
stockholders and we may have more limited rights against our directors and officers than might otherwise exist under common
law. In addition, we may be obligated to fund the defense costs incurred by our directors and officers.
Our charter and bylaws contain provisions that could discourage acquisition bids or merger proposals, which may
adversely affect the market price of our common stock.
Authority to Issue Additional Shares. Under our charter, our board of directors may issue up to an aggregate of ten million
shares of preferred stock without stockholder action. The preferred stock may be issued, in one or more series, with the
preferences and other terms designated by our board of directors that may delay or prevent a change in control of us, even if
the change is in the best interests of stockholders. At December 31, 2021, no shares of preferred stock were outstanding.
Banking Laws. Any change in control of our company is subject to prior regulatory approval under the Bank Holding
Company Act or the Change in Bank Control Act, which may delay, discourage or prevent an attempted acquisition or change
in control of us.
FINRA. Any change in control (as defined under FINRA rules) of any of the Hilltop Broker-Dealers, including through
acquisition, is subject to prior regulatory approval by FINRA which may delay, discourage or prevent an attempted acquisition
or other change in control of such broker-dealers.
Restrictions on Calling Special Meeting, Cumulative Voting and Director Removal. Our bylaws include a provision
prohibiting holders that do not or have not owned, continuously for at least one year as of the record date of such proposed
meeting, capital stock representing at least 15% of the shares entitled to be voted at such proposed meeting, from calling a
special meeting of stockholders. Our charter does not provide for the cumulative voting in the election of directors. In
addition, our charter provides that our directors may only be removed for cause and then only by an affirmative vote of at least
two-thirds of the votes entitled to be cast in the election of directors. Any amendment to our charter relating to the removal of
directors requires the affirmative vote of two-thirds of all of the votes entitled to be cast on the matter. These provisions of our
bylaws and charter may delay, discourage or prevent an attempted acquisition or change in control of us.
There can be no assurance that we will continue to declare cash dividends or repurchase stock.
In October 2016, we announced that our board of directors authorized a dividend program under which we intend to pay
quarterly dividends on our common stock, subject to quarterly declarations by our board of directors. During 2021, we
declared and paid cash dividends of $0.48 per common share.
In January 2021, the Hilltop board of directors authorized a new stock repurchase program through January 2022, pursuant to
which the Company was authorized to repurchase, in the aggregate, up to $75.0 million of its outstanding common stock. In
July 2021, the Hilltop board of directors authorized an increase to the aggregate amount of common stock the Company may
repurchase under this program by $75.0 million to $150.0 million. Then, in October 2021, the Hilltop board of directors
authorized an increase to the aggregate amount of common stock the Company may repurchase under this program by $50.0
million to $200.0 million, which is inclusive of repurchases to offset dilution related to grants of stock-based compensation.
During 2021, the Company paid $123.6 million to repurchase an aggregate of 3,632,482 shares of common stock at an average
price of $34.01 per share associated with the stock repurchase program. These shares were returned to the pool of authorized
but unissued shares of common stock.
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In January 2022, our board of directors authorized a new stock repurchase program through January 2023, pursuant to which
the Company is authorized to repurchase, in the aggregate, up to $100.0 million of our outstanding common stock.
Any future declarations, amount and timing of any dividends and/or the amount and timing of such stock repurchases are
subject to capital availability and the discretion of our board of directors, which must evaluate, among other things, whether
cash dividends and/or stock repurchases are in the best interest of our stockholders and are in compliance with all applicable
laws and any agreements containing provisions that limit our ability to declare and pay cash dividends and/or repurchase
stock. Our ability to pay dividends and/or repurchase stock will depend upon, among other factors, our cash balances and
potential future capital requirements for strategic transactions, including acquisitions, the ability of our subsidiaries to pay
dividends to Hilltop, capital adequacy requirements and other regulatory restrictions on us and our subsidiaries, policies of the
Federal Reserve Board, equity and debt service requirements senior to our common stock, earnings, financial condition, the
general economic and regulatory climate and other factors beyond our control that our board of directors may deem relevant.
In addition, the amount we spend and the number of shares we are able to repurchase under our stock repurchase program may
further be affected by a number of other factors, including the stock price and blackout periods in which we are restricted from
repurchasing shares. Our dividend payments and/or stock repurchases may change from time to time, and we cannot provide
assurance that we will continue to declare dividends and/or repurchase stock in any particular amounts or at all. A reduction in
or elimination of our dividend payments, our dividend program and/or stock repurchases could have a negative effect on our
stock price.
An investment in our common stock is not an insured deposit.
An investment in our common stock is not a bank deposit and is not insured or guaranteed by the FDIC, SIPC or any other
government agency. Accordingly, you should be capable of affording the loss of any investment in our common stock.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
During 2018, we made an investment in land and a mixed-use real estate development in the City of University Park, Texas,
which has served as headquarters for both Hilltop and the Bank since February 2020. In addition to our principal office, our
various business segments conduct business at various locations. We have options to renew leases at most locations that we do
not own.
Banking. At December 31, 2021, our banking segment conducted business at 62 locations throughout Texas, including four
support facilities. The Bank leases 36 banking locations, including its principal offices, and owns the remaining 26 banking
locations.
Broker-Dealer. At December 31, 2021, our broker-dealer segment conducted business from 44 locations in 16 states. Each of
these locations is leased by Hilltop Securities.
Mortgage Origination. At December 31, 2021, our mortgage origination segment conducted business from over 285 locations
in 44 states. Each of these locations is leased by PrimeLending.
Item 3. Legal Proceedings.
For a description of material pending legal proceedings, see the discussion set forth under the heading “Legal Matters” in Note
20 to our Consolidated Financial Statements, which is incorporated by reference herein.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Securities, Stockholder and Dividend Information
Our common stock is listed on the New York Stock Exchange under the symbol “HTH”. At February 14, 2022, there were
78,966,136 shares of our common stock outstanding with 331 stockholders of record.
In October 2016, we announced that our board of directors authorized a dividend program under which we pay quarterly
dividends on our common stock, subject to quarterly declarations by our board of directors. During 2021, we declared and paid
cash dividends of $0.48 per common share. On January 27, 2022, we announced that our board of directors increased our
quarterly dividend to $0.15 per common share. Although we expect to continue to pay dividends, we may elect not to pay
dividends. Any declarations of dividends, and the amount and timing thereof, will be at the discretion of our board of directors,
which must evaluate, among other things, whether cash dividends are in the best interest of our stockholders and are in
compliance with all applicable laws and any agreements containing provisions that limit our ability to declare and pay cash
dividends. Our ability to pay dividends will depend upon, among other factors, our cash balances and potential future capital
requirements for strategic transactions, including acquisitions, equity and debt service requirements senior to our common
stock, earnings, financial condition, the general economic and regulatory climate and other factors beyond our control that our
board of directors may deem relevant. Our dividend payments may change from time to time, and we cannot provide assurance
that we will continue to declare dividends in any particular amounts or at all. A reduction in or elimination of our dividend
payments and/or our dividend program could have a negative effect on our stock price. See Item 1A, “Risk Factors — Risks
Related to our Common Stock — There can be no assurance that we will continue to declare cash dividends or repurchase
stock.”
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information at December 31, 2021 with respect to compensation plans under which shares of our
common stock may be issued. Additional information concerning our stock-based compensation plans is presented in Note 22,
Stock-Based Compensation, in the notes to our consolidated financial statements.
Equity Compensation Plan Information
Number of securities
Plan Category
Equity compensation plans approved by security holders*
Total
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in first column)
2,900,286
2,900,286
—
—
— $
— $
* Represents shares available for future issuance under the Hilltop Holdings Inc. 2020 Equity Incentive Plan (the “2020 Plan”). Shares may become
available for awards under the 2020 Plan upon the future forfeiture, expiration, cancellation or settlement in cash of awards outstanding under the Hilltop
Holdings Inc. 2012 Equity Incentive Plan.
Issuer Repurchases of Equity Securities
The following table details our repurchases of shares of common stock during the three months ended December 31, 2021.
Period
October 1 - October 31, 2021
November 1 - November 30, 2021
December 1 - December 31, 2021
Total
Total Number of
Shares
Purchased
—
—
—
—
49
$
Average Price
Paid per Share
$
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans or
Programs (1)
— $
—
—
—
76,458,347
76,458,347
76,458,347
—
—
—
—
(1) On January 22, 2021, we announced that our board of directors authorized a stock repurchase program under which we were originally authorized to
repurchase, in the aggregate, up to $75.0 million of our outstanding common stock through January 2022. In July 2021, our board of directors authorized
an increase to the aggregate amount of common stock we may repurchase under this program by $75.0 million to $150.0 million. Then, in October 2021,
our board of directors authorized an increase to the aggregate amount of common stock we may repurchase under this program by $50.0 million to
$200.0 million, which is inclusive of repurchases to offset dilution related to grants of stock-based compensation. In January 2022, our board of directors
authorized a new stock repurchase program through January 2023, pursuant to which we are authorized to repurchase, in the aggregate, up to $100.0
million of our outstanding common stock, inclusive of repurchases to offset dilution related to grants of stock-based compensation. With the adoption of
the new stock repurchase plan in January 2022, the stock repurchase plan authorized in January 2021 expired.
Item 6. [Reserved].
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion is intended to help the reader understand our results of operations and financial condition and is
provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements and the
accompanying notes thereto commencing on page F-1. In addition to historical financial information, the following discussion
and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our results and the timing
of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors,
including those discussed under “Item 1A. Risk Factors” and elsewhere in this Annual Report. See “Forward-Looking
Statements.”
Unless the context otherwise indicates, all references in this Management’s Discussion and Analysis of Financial Condition
and Results of Operations, or MD&A, to the “Company,” “we,” “us,” “our” or “ours” or similar words are to Hilltop
Holdings Inc. and its direct and indirect wholly owned subsidiaries, references to “Hilltop” refer solely to Hilltop Holdings
Inc., references to “PCC” refer to PlainsCapital Corporation (a wholly owned subsidiary of Hilltop), references to
“Securities Holdings” refer to Hilltop Securities Holdings LLC (a wholly owned subsidiary of Hilltop), references to “Hilltop
Securities” refer to Hilltop Securities Inc. (a wholly owned subsidiary of Securities Holdings), references to “Momentum
Independent Network” refer to Momentum Independent Network Inc. (a wholly owned subsidiary of Securities Holdings),
Hilltop Securities and Momentum Independent Network are collectively referred to as the “Hilltop Broker-Dealers,”
references to the “Bank” refer to PlainsCapital Bank (a wholly owned subsidiary of PCC), references to “FNB” refer to First
National Bank, references to “SWS” refer to the former SWS Group, Inc., references to “PrimeLending” refer to
PrimeLending, a PlainsCapital Company (a wholly owned subsidiary of the Bank) and its subsidiaries as a whole, references
to “NLC” refer to National Lloyds Corporation (formerly a wholly owned subsidiary of Hilltop) and its wholly owned
subsidiaries.
50
OVERVIEW
We are a financial holding company registered under the Bank Holding Company Act of 1956. Our primary line of business is
to provide business and consumer banking services from offices located throughout Texas through the Bank. We also provide
an array of financial products and services through our broker-dealer and mortgage origination segments. The following
includes additional details regarding the financial products and services provided by each of our primary business units.
PCC. PCC is a financial holding company that provides, through its subsidiaries, traditional banking and wealth,
investment and treasury management services primarily in Texas and residential mortgage loans throughout the United States.
Securities Holdings. Securities Holdings is a holding company that provides, through its subsidiaries, investment banking
and other related financial services, including municipal advisory, sales, trading and underwriting of taxable and tax-exempt
fixed income securities, clearing, securities lending, structured finance and retail brokerage services throughout the United
States.
The following historical consolidated data for the periods indicated has been derived from our historical consolidated financial
statements included elsewhere in this Annual Report (dollars in thousands, except per share data and weighted average shares
outstanding).
Statement of Operations Data:
Net interest income
Provision for (reversal of) credit losses
Total noninterest income
Total noninterest expense
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations before income taxes
Income from discontinued operations, net of income taxes
Net income
Less: Net income attributable to noncontrolling interest
Income attributable to Hilltop
Per Share Data:
Diluted earnings per common share from continuing operations
Diluted weighted average shares outstanding
Book value per common share
Tangible book value per common share (1)
Cash dividends declared per common share
Dividend payout ratio (2)
Balance Sheet Data:
Total assets of continuing operations
Cash and due from banks
Securities
Loans held for sale
Loans held for investment, net of unearned income
Allowance for credit losses
Total deposits
Notes payable
Total stockholders' equity
Capital Ratios (3):
Common equity to assets ratio
Tangible common equity to tangible assets (1)
$
$
$
$
$
$
$
$
2021
2020
2019
$
$
$
$
$
$
$
$
422,982
(58,213)
1,410,275
1,387,398
504,072
117,976
386,096
—
386,096
11,601
374,495
4.61
81,173
31.95
28.37
0.48
10.34 %
18,689,080
2,823,138
3,046,500
1,878,190
7,879,904
(91,352)
12,818,077
387,904
2,549,203
424,166
96,491
1,690,480
1,453,803
564,352
133,071
431,281
38,396
469,677
21,841
447,836
$
$
4.58
89,304
28.28
24.77
0.36
7.18 %
$
$
$
$
$
438,979
7,206
1,062,817
1,211,889
282,701
63,714
218,987
13,990
232,977
7,686
225,291
2.29
92,394
23.20
19.65
0.32
13.12 %
$
16,944,264
1,062,560
2,468,544
2,788,386
7,693,141
(149,044)
11,242,319
381,987
2,350,647
14,924,019
433,626
1,987,561
2,106,361
7,381,400
(61,136)
9,032,214
256,269
2,128,796
13.50 %
12.17 %
13.72 %
12.22 %
13.86 %
12.00 %
(1) For a reconciliation to the nearest GAAP measure, see “—Reconciliation and Management’s Explanation of Non-GAAP Financial Measures.”
(2) Dividend payout ratio is defined as cash dividends declared per common share divided by basic earnings per common share.
(3) Ratios and financial data presented on a consolidated basis and includes discontinued operations for 2020 and 2019 periods and those assets and
liabilities classified as discontinued as of December 31, 2019.
51
Income from continuing operations before income taxes during 2021 included the following contributions from our reportable
business segments.
• The banking segment contributed $282.9 million of income before income taxes during 2021;
• The broker-dealer segment contributed $43.7 million of income before income taxes during 2021; and
• The mortgage origination segment contributed $235.5 million of income before income taxes during 2021.
During 2021, we paid an aggregate of $123.6 million to repurchase shares of our common stock, and declared and paid total
common dividends of $39.0 million.
On January 27, 2022, our board of directors declared a quarterly cash dividend of $0.15 per common share, payable on
February 28, 2022 to all common stockholders of record as of the close of business on February 15, 2022.
Reconciliation and Management’s Explanation of Non-GAAP Financial Measures
We present certain measures in our selected financial data that are not measures of financial performance recognized by
GAAP. “Tangible book value per common share” is defined as our total stockholders’ equity reduced by goodwill and other
intangible assets, divided by total common shares outstanding. “Tangible common equity to tangible assets” is defined as our
total stockholders’ equity reduced by goodwill and other intangible assets, divided by total assets reduced by goodwill and
other intangible assets. These measures are important to investors interested in changes from period to period in tangible
common equity per share exclusive of changes in intangible assets. For companies such as ours that have engaged in business
combinations, purchase accounting can result in the recording of significant amounts of goodwill and other intangible assets
related to those transactions.
You should not view this disclosure as a substitute for results determined in accordance with GAAP, and our disclosure is not
necessarily comparable to that of other companies that use non-GAAP measures.
The following table reconciles these non-GAAP financial measures to the most comparable GAAP financial measures, “book
value per common share” and “equity to total assets” (dollars in thousands, except per share data).
Book value per common share
Effect of goodwill and intangible assets per share
Tangible book value per common share
Hilltop stockholders’ equity
Less: goodwill and intangible assets, net
Tangible common equity
Total assets
Less: goodwill and intangible assets, net
Tangible assets
Equity to assets
Tangible common equity to tangible assets
2021
December 31,
2020
2019
$
$
$
$
$
$
31.95
(3.58)
28.37
2,522,668
282,731
2,239,937
18,689,080
282,731
18,406,349
$
$
$
$
$
$
28.28
(3.51)
24.77
2,323,939
287,811
2,036,128
16,944,264
287,811
16,656,453
$
$
$
$
$
$
23.20
(3.55)
19.65
2,103,039
321,590
1,781,449
15,172,448
321,590
14,850,858
13.50 %
12.17 %
13.72 %
12.22 %
13.86 %
12.00 %
52
Recent Developments
COVID-19
The COVID-19 pandemic and related governmental control measures severely disrupted financial markets and overall
economic conditions throughout 2020. While the impact of the pandemic and the uncertainties have remained into 2022,
significant progress associated with COVID-19 vaccination levels in the United States has resulted in easing of restrictive
measures in the United States even as additional variants have emerged. Further, the U.S. federal government enacted policies
to provide fiscal stimulus to the economy and relief to those affected by the pandemic, with the stimulus intended to bolster
household finances as well as those of small businesses, states and municipalities. Throughout the pandemic, we have taken a
number of precautionary steps to safeguard our business and our employees from COVID-19, including, but not limited to,
banking by appointment, implementing employee travel restrictions and telecommuting arrangements, while maintaining
business continuity so that we can continue to deliver service to and meet the demands of our clients. In 2021, we returned a
majority of our employees to their respective office locations beginning in the second quarter of 2021 based initially on a
rotational team schedule to better ensure that appropriate social distancing measures were followed, and with limited
exceptions due to the emergence of new variants of the virus, have generally returned to pre-pandemic work arrangements
with available hybrid options for designated roles. We are continuing to monitor and assess the impact of the COVID-19
pandemic on a regular basis.
In light of the extreme volatility and disruptions in the capital and credit markets beginning in March 2020 resulting from the
COVID-19 crisis and its negative impact on the economy, we took a number of precautionary actions beginning in
March 2020 to enhance our financial flexibility, protect capital, minimize losses and ensure target liquidity levels. As a result
of the short-term rate adjustments by the Federal Open Markets Committee (“FOMC”) and the stressed economic outlook
during March 2020, mortgage rates fell to historically low levels. Given our exposure to the mortgage market, this precipitous
decline in rates resulted in significant growth in mortgage originations at both PrimeLending and Hilltop Securities through its
partnerships with certain housing finance authorities. To improve our already strong liquidity position, we raised brokered and
other wholesale funding to support the enhanced mortgage activity. To meet increased liquidity demands, we raised brokered
deposits during 2020 that have a remaining balance of approximately $228 million at December 31, 2021, down from
approximately $731 million at December 31, 2020. Further, beginning in March 2020, additional deposits were swept from
Hilltop Securities into the Bank. Since June 30, 2020, given the continued strong cash and liquidity levels at the Bank, the
total funds swept from Hilltop Securities into the Bank was reduced, and was approximately $800 million as of December 31,
2021.
Asset Valuation
At each reporting date between annual impairment tests, we consider potential indicators of impairment. Given the current
economic uncertainties surrounding COVID-19, we considered whether the events and circumstances resulted in it being more
likely than not that the fair value of any reporting unit and other intangible assets were less than their respective carrying
value. Impairment indicators considered comprised the condition of the economy and financial services industry; government
intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting unit;
performance of our stock and other relevant events.
Given the potential impacts as a result of economic uncertainties associated with the pandemic, actual results may differ
materially from our current estimates as the scope of such impacts evolves or if the duration of business disruptions is longer
than currently anticipated. The Company further considered the amount by which fair value exceeded book value in the most
recent quantitative analysis and sensitivities performed. At the conclusion of the annual assessment, the Company determined
that as of October 1, 2021 it was more likely than not that the fair value of goodwill and other intangible assets exceeded their
respective carrying values. We continue to monitor developments regarding the COVID-19 pandemic and measures
implemented in response to the pandemic, market capitalization, overall economic conditions and any other triggering events
or circumstances that may indicate an impairment in the future.
To the extent a sustained decline in our stock price or the occurrence of what management would deem to be a triggering event
that could, under certain circumstances, cause us to perform impairment tests on our goodwill and other intangible assets, and
result in an impairment charge being recorded for that period. In the event that we conclude that all or a portion of our
goodwill and other intangible assets are impaired, a non-cash charge for the respective amount of such impairment would be
recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.
53
Loan Portfolio
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the
Paycheck Protection Program and Health Care Enhancement Act (the “PPP/HCE Act”) were passed in March 2020, which
were intended to provide emergency relief to several groups and individuals impacted by the COVID-19 pandemic. Among
the numerous provisions contained in the CARES Act was the creation of a $349 billion Paycheck Protection Program
(“PPP”), which was later expanded by an additional $310 billion, that provides federal government loan forgiveness for Small
Business Administration (“SBA”) Section 7(a) loans for small businesses, which may include our customers, to pay up to
eight weeks of employee compensation and other basic expenses such as electric and telephone bills. PPP loans have: (a) an
interest rate of 1.0%; (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months
from the date of disbursement. Further, the CARES Act and subsequent legislation allowed the Bank to suspend the troubled
debt restructuring (“TDR”) requirements for certain loan modifications to be categorized as a TDR through January 1, 2022.
Starting in March 2020, the Bank implemented several actions to better support our impacted banking clients and allow for
loan modifications such as principal and/or interest payment deferrals, participation in the PPP as an SBA preferred lender and
personal banking assistance including waived fees, increased daily spending limits and suspension of residential foreclosure
activities. The COVID-19 payment deferment programs allow for a deferral of principal and/or interest payments with such
deferred principal payments due and payable on the maturity date of the existing loan. The Bank’s actions during 2020
included approval of approximately $1.0 billion in COVID-19 related loan modifications as of December 31, 2020.
During 2021, the Bank has continued to support its impacted banking clients through the approval of COVID-19 related loan
modifications, which resulted in an additional $16 million of new COVID-19 related loan modifications during 2021. The
portfolio of active deferrals that have not reached the end of their deferral period was approximately $4 million as of
December 31, 2021. While the majority of the portfolio of COVID-19 related loan modifications no longer require deferral,
such loans represent elevated risk, and therefore management continues to monitor these loans.
While all industries could experience adverse impacts due to the COVID-19 pandemic, certain of our loan portfolio industry
sectors and subsectors, including real estate collateralized by office buildings, have an increased level of risk. The following
table provides information on those loans held for investment balances, by portfolio industry sector, including collectively
evaluated allowance for credit losses, that include active COVID-19 payment deferrals (dollars in thousands).
December 31, 2021
Hotel
Restaurants
Transportation & Warehousing
1-4 Family Residential
Retail
Real Estate & Rental & Leasing
Healthcare and Social Assistance
All Other
Active
90 Day
Principal
Deferrals
Active
90 Day
Interest and
Principal
Deferrals
Total
Active Modifications
($)
(#)
Classified
and
Criticized
Loans
Allowance
for
Credit
Losses
$
$
— $
—
—
—
—
—
—
—
— $
— $
—
—
3,573
—
—
—
—
3,573
$
—
—
—
3,573
—
—
—
—
3,573
— $
—
—
30
—
—
—
—
30
$
— $
—
—
3,080
—
—
—
—
3,080
$
—
—
—
54
—
—
—
—
54
Allowance for
Credit Losses
as a % of
Total
Active
Modifications
Allowance for
Credit Losses
as a % of
Classified
and Criticized
Loans
— %
— %
— %
1.5 %
— %
— %
— %
— %
1.5 %
— %
— %
— %
1.8 %
— %
— %
— %
— %
1.8 %
In addition, the Bank’s loan portfolio includes collateralized loans extended to businesses that depend on the energy industry,
including those within the exploration and production, field services, pipeline construction and transportation sectors. Crude oil
prices have increased since historical lows observed in 2020, but uncertainty remains as economies continue to recover from the
COVID-19 pandemic, vaccination programs evolve, and future supply and demand for oil are influenced by a return to business
travel, new energy policies and government regulation, and the pace of transition towards renewable energy resources. At
December 31, 2021, the Bank’s energy loan exposure was approximately $75 million of loans held for investment with unfunded
commitment balances of approximately $39 million. The allowance for credit losses on the Bank’s energy portfolio was $0.3
million, or 0.4% of loans held for investment at December 31, 2021.
As noted above, the Bank’s actions during the second quarter of 2020 and again during the first and second quarters of 2021
included supporting our impacted banking clients through the PPP effort. These efforts included approval and funding of over
4,100 PPP loans, with approximately $78 million outstanding at December 31, 2021. The PPP loans made by the Bank are
guaranteed by the SBA and, if used by the borrower for authorized purposes, may be fully forgiven. On October 2, 2020, the
SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders for PPP borrowers.
Through February 11, 2022, the SBA had approved approximately 3,700 initial and second round PPP forgiveness
54
applications from the Bank totaling approximately $840 million, with PPP loans of approximately $4 million currently
pending SBA review and approval.
Refer to the discussion in the “Financial Condition – Allowance for Credit Losses on Loans” section that follows for more
details regarding the significant assumptions and estimates involved in estimating credit losses given the economic
uncertainties associated with COVID-19.
Outlook
The COVID-19 pandemic has adversely impacted financial markets and overall economic conditions, and is expected to
continue to have implications on our business and operations. The extent of the impact of the pandemic on our operational and
financial performance for 2022 is currently uncertain and will depend on certain developments outside of our control,
including, among others, the ongoing distribution and effectiveness of vaccines, the emergence of new variants of the virus,
government stimulus, the ultimate impact of the pandemic on our customers and clients, and additional, or extended, federal,
state and local government orders and regulations that might be imposed in response to the pandemic.
Additionally, our balance sheet, operating results and certain metrics during 2021 reflected strong credit quality, significant
reversals of credit losses, heightened capital and liquidity levels, and low mortgage interest rates. The extent of the impact on
2022 of expected headwinds including tight housing inventories on mortgage volumes, a return to normalized credit loss
exposures, declining deposit balances, the timing and magnitude of interest rate changes, and inflationary pressures associated
with compensation, occupancy and software costs within our business segments is currently uncertain.
See “Item 1A. Risk Factors” for additional discussion of the potential adverse impact of COVID-19 on our business, results of
operations and financial condition.
Factors Affecting Results of Operations
As a financial institution providing products and services through our banking, broker-dealer and mortgage origination
segments, we are directly affected by general economic and market conditions, many of which are beyond our control and
unpredictable. A key factor impacting our results of operations includes changes in the level of interest rates in addition to
twists in the shape of the yield curve with the magnitude and direction of the impact varying across the different lines of
business. Other factors impacting our results of operations include, but are not limited to, fluctuations in volume and price
levels of securities, inflation, political events, investor confidence, investor participation levels, legal, regulatory, and
compliance requirements and competition. All of these factors have the potential to impact our financial position, operating
results and liquidity. In addition, the recent economic and political environment has led to legislative and regulatory initiatives,
both enacted and proposed, that could substantially change the regulation of the financial services industry and may
significantly impact us.
Factors Affecting Comparability of Results of Operations
NLC Sale
On June 30, 2020, we completed the sale of all of the outstanding capital stock of NLC, which comprised the operations of our
former insurance segment, for cash proceeds of $154.1 million. During 2020, Hilltop recognized an aggregate gain associated
with this transaction of $36.8 million, net of $5.1 million in transaction costs and was subject to post-closing adjustments. The
resulting book gain from this sale transaction was not recognized for tax purposes due to the excess tax basis over book basis
being greater than the recorded book gain. Any tax loss related to this transaction is deemed disallowed pursuant to the rules
under the Internal Revenue Code. We also entered into an agreement at closing to refrain for a specified period from certain
activities that compete with the business of NLC. As a result, NLC’s results and its assets and liabilities have been presented as
discontinued operations in the consolidated financial statements, and we no longer have an insurance segment. Unless otherwise
noted, for purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operations,
“consolidated” refers to our consolidated financial position and consolidated results of operations, including discontinued
operations and assets and liabilities of the discontinued operations.
55
Subordinated Notes due 2030 and 2035
On May 7, 2020, we completed a public offering of $50 million aggregate principal amount of 5.75% fixed-to-floating rate
subordinated notes due May 15, 2030 (the “2030 Subordinated Notes”) and $150 million aggregate principal amount of
6.125% fixed-to-floating rate subordinated notes due May 15, 2035 (the “2035 Subordinated Notes”). We collectively refer to
the 2030 Subordinated Notes and the 2035 Subordinated Notes as the “Subordinated Notes”. The price for the Subordinated
Notes was 100% of the principal amount of the Subordinated Notes. The net proceeds from the offering, after deducting
underwriting discounts and fees and expenses of $3.4 million, were $196.6 million. We intend to use the net proceeds of the
offerings for general corporate purposes.
The 2030 Subordinated Notes and the 2035 Subordinated Notes will mature on May 15, 2030 and May 15, 2035, respectively.
We may redeem the Subordinated Notes, in whole or in part, from time to time, subject to obtaining Federal Reserve approval,
beginning with the interest payment date of May 15, 2025 for the 2030 Subordinated Notes and beginning with the interest
payment date of May 15, 2030 for the 2035 Subordinated Notes, at a redemption price equal to 100% of the principal amount
of the Subordinated Notes being redeemed plus accrued and unpaid interest to but excluding the date of redemption.
The 2030 Subordinated Notes bear interest at a rate of 5.75% per year, payable semi-annually in arrears commencing on
November 15, 2020. The interest rate for the 2030 Subordinated Notes will reset quarterly beginning May 15, 2025 to an interest
rate, per year, equal to the then-current benchmark rate, which is expected to be three-month term Secured Overnight Financing
Rate (“SOFR”) rate, plus 5.68%, payable quarterly in arrears. The 2035 Subordinated Notes bear interest at a rate of 6.125% per
year, payable semi-annually in arrears commencing on November 15, 2020. The interest rate for the 2035 Subordinated Notes
will reset quarterly beginning May 15, 2030 to an interest rate, per year, equal to the then-current benchmark rate, which is
expected to be three-month term SOFR rate, plus 5.80%, payable quarterly in arrears.
LIBOR
In July 2017, the Financial Conduct Authority (“FCA”) announced that it intends to cease compelling banks to submit rates for
the calculation of LIBOR after 2021. Most recently in March 2021, the FCA and the Intercontinental Exchange (“ICE”)
Benchmark Administration concurrently confirmed their original intention to stop requesting banks to submit the rates
required to calculate LIBOR after the 2021 calendar year and additionally announced firm target dates for the phase out of
various LIBOR tenors. Pursuant to the announcement, one week and two-month LIBOR ceased to be published on
December 31, 2021, and all remaining USD LIBOR tenors will cease to be published or lose representativeness immediately
after June 30, 2023.
Working groups comprised of various regulators and other industry groups have been formed in the United States and other
countries in order to provide guidance on this topic. In particular, the Alternative Reference Rates Committee (“ARRC”) has
proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to
LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR. The ARRC has also published
recommended fallback language for LIBOR-linked financial instruments, among numerous other areas of guidance.
The Financial Accounting Standards Board (“FASB”) issued guidance in March 2020 intended to provide temporary optional
expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial
reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative
reference rates. Additionally, the FASB issued specific accounting guidance that permits the use of the Overnight Index Swap
rate based on the SOFR to be designated as a benchmark interest rate for hedge accounting purposes.
Certain loans we originated bear interest at a floating rate based on LIBOR. We also pay interest on certain borrowings and are
counterparty to derivative agreements that are based on LIBOR and have existing contracts with payment calculations that use
LIBOR as the reference rate. The cessation of publication of LIBOR will create various risks surrounding the financial,
operational, compliance and legal aspects associated with changing certain elements of existing contracts.
ARRC has proposed a paced market transition plan to SOFR from LIBOR, and organizations are currently working on
industry-wide and company-specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. The
ARRC has formally recommended SOFR as its preferred alternative rate for LIBOR. However, at this time, no consensus
exists as to what rate or rates may become acceptable alternatives to LIBOR and it is impossible to predict the effect of any
such alternatives on the value of LIBOR-based securities and variable rate loans, or other securities or financial arrangements,
given LIBOR’s role in determining market interest rates globally.
56
We have completed our targeted assessment of exposures across the organization associated with the migration away from
LIBOR and have transitioned to the impact assessment and implementation stages. In light of the above described recent
changes to the LIBOR phase out dates being pushed out to 2023, we have begun taking necessary actions, including
negotiating certain of our agreements based on alternative benchmark rates that have been established. Since the third quarter
of 2020, PrimeLending has been originating conventional adjustable-rate mortgage, or ARM, loan products utilizing a SOFR
rate with terms consistent with government-sponsored enterprise, or GSE, guidelines. In addition, the Bank’s management
team continues to work with its commercial relationships that have LIBOR-based contracts maturing after 2021 to amend
terms and establish an alternative benchmark rate. We also continue to evaluate the impacts of the LIBOR phase-out and
transition requirements as it pertains to contracts, models and systems. To date, an immaterial amount of expenses have been
incurred as a result of our efforts; however, in the future we may incur additional expenses as we finalize the transition of our
systems and processes away from LIBOR.
Brokered Deposits
In December 2020, the Federal Deposit Insurance Corporation (“FDIC”) finalized revisions to its rules and prior guidance
regarding brokered deposits (the “Revisions”). The Revisions are intended to modernize the FDIC's framework for regulating
brokered deposits and ensure that the classification of a deposit as brokered appropriately reflects changes in the banking
landscape. In addition, the Revisions are intended to modify the interest rate restrictions applicable to certain depository
institutions and clarify the application of the brokered deposit requirements to non-maturity deposits. The Revisions became
effective on April 1, 2021, but full compliance is not required during a transitionary period ending January 1, 2022. We have
evaluated the Revisions and published FDIC guidance and, after consulting with the FDIC, expect that, effective January 1,
2022, we will continue to treat deposits swept to the banking segment from the broker-dealer segment as non-brokered. At that
time, the cost of these sweep deposits will be based on a current market rate of interest rather than a per account fee.
Company Background
From January 2007 until November 2012, our 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 NLC’s
wholly owned insurance subsidiaries. As previously discussed, on June 30, 2020, we completed the sale of all of the
outstanding capital stock of NLC.
On November 30, 2012, we acquired PlainsCapital Corporation pursuant to a plan of merger whereby PlainsCapital
Corporation merged with and into our wholly owned subsidiary (the “PlainsCapital Merger”), which continued as the
surviving entity under the name “PlainsCapital Corporation”. Concurrent with the consummation of the PlainsCapital Merger,
Hilltop became a financial holding company registered under the Bank Holding Company Act of 1956.
On September 13, 2013 (the “Bank Closing Date”), the Bank assumed substantially all of the liabilities, including all of the
deposits, and acquired substantially all of the assets of Edinburg, Texas-based FNB from the FDIC, as receiver, and reopened
former branches of FNB acquired from the FDIC under the “PlainsCapital Bank” name (the “FNB Transaction”).
On January 1, 2015, we acquired SWS in a stock and cash transaction (the “SWS Merger”), whereby SWS’s broker-dealer
subsidiaries became subsidiaries of Securities Holdings and SWS’s banking subsidiary, Southwest Securities, FSB, was
merged into the Bank. On October 5, 2015, Southwest Securities, Inc. was renamed “Hilltop Securities Inc.”
On August 1, 2018, we acquired privately-held, Houston-based BORO in an all-cash transaction (“BORO Acquisition”). In
connection with the BORO Acquisition, we merged BORO into the Bank, and all customer accounts were converted to the
PlainsCapital Bank platform.
Segment Information
As previously discussed, on June 30, 2020, we completed the sale of all of the outstanding capital stock of NLC, which
comprised the operations of the former insurance segment. As a result, insurance segment results and its assets and liabilities
have been presented as discontinued operations in the consolidated financial statements, and we no longer have an insurance
segment. Additional details are presented in Note 3, Discontinued Operations, in the notes to our consolidated financial
statements.
57
Following the above-noted sale of NLC, we have two primary business units within continuing operations, PCC (banking and
mortgage origination) and Securities Holdings (broker-dealer). Under accounting principles generally accepted in the United
States (“GAAP”), our continuing operations business units are comprised of three reportable business segments organized
primarily by the core products offered to the segments’ respective customers: banking, broker-dealer and mortgage
origination. Consistent with our historical segment operating results, we anticipate that future revenues will be driven
primarily from the banking segment, with the remainder being generated by our broker-dealer and mortgage origination
segments. Operating results for the mortgage origination segment have historically been more volatile than operating results
for the banking and broker-dealer segments.
The banking segment includes the operations of the Bank. The banking segment primarily provides business and consumer
banking services from offices located throughout Texas and generates revenue from its portfolio of earning assets. The Bank’s
results of operations are primarily dependent on net interest income. The Bank also derives revenue from other sources,
including service charges on customer deposit accounts and trust fees.
The broker-dealer segment includes the operations of Securities Holdings, which operates through its wholly owned
subsidiaries Hilltop Securities, Momentum Independent Network and Hilltop Securities Asset Management, LLC. The broker-
dealer segment generates a majority of its revenues from fees and commissions earned from investment advisory and securities
brokerage services. Hilltop Securities is a broker-dealer registered with the SEC and the Financial Industry Regulatory
Authority (“FINRA”) and a member of the New York Stock Exchange (“NYSE”). Momentum Independent Network is an
introducing broker-dealer that is also registered with the SEC and FINRA. Hilltop Securities, Momentum Independent
Network and Hilltop Securities Asset Management, LLC are registered investment advisers under the Investment Advisers Act
of 1940.
The mortgage origination segment includes the operations of PrimeLending, which offers a variety of loan products and
generates revenue predominantly from fees charged on the origination and servicing of loans and from selling these loans in
the secondary market.
Corporate includes certain activities not allocated to specific business segments. These activities include holding company
financing and investing activities, merchant banking investment opportunities, and management and administrative services to
support the overall operations of the Company.
The eliminations of intercompany transactions are included in “All Other and Eliminations.” Additional information
concerning our reportable segments is presented in Note 29, Segment and Related Information, in the notes to our consolidated
financial statements.
58
The following table presents certain information about the continuing operating results of our reportable segments (in
thousands). This table serves as a basis for the discussion and analysis in the segment operating results sections that follow.
Year Ended December 31,
2021
2020
2019
Variance 2021 vs 2020
Amount
Percent
Variance 2020 vs 2019
Amount
Percent
406,524
43,296
(20,400)
(17,239)
10,801
422,982
(58,175)
(38)
—
—
—
(58,213)
45,113
381,125
986,990
9,133
(12,086)
1,410,275
226,915
380,798
731,056
50,507
(1,878)
1,387,398
282,897
43,661
235,534
(58,613)
593
504,072
$
$
$
$
$
$
$
$
$
$
390,871
39,912
(10,489)
(14,192)
18,064
424,166
96,326
165
—
—
—
96,491
41,376
491,355
1,172,450
3,945
(18,646)
1,690,480
232,447
415,463
753,917
53,040
(1,064)
1,453,803
103,474
115,639
408,044
(63,287)
482
564,352
$
$
$
$
$
$
$
$
$
$
379,258
51,308
(6,273)
(5,541)
20,227
438,979
7,280
(74)
—
—
—
7,206
41,753
404,411
634,992
2,104
(20,443)
1,062,817
231,524
366,031
563,998
50,968
(632)
1,211,889
182,207
89,762
64,721
(54,405)
416
282,701
$
$
$
$
$
$
$
$
$
$
15,653
3,384
(9,911)
(3,047)
(7,263)
(1,184)
(154,501)
(203)
—
—
—
(154,704)
3,737
(110,230)
(185,460)
5,188
6,560
(280,205)
(5,532)
(34,665)
(22,861)
(2,533)
(814)
(66,405)
179,423
(71,978)
(172,510)
4,674
111
(60,280)
4
8
(94)
(21)
(40)
(0)
NM
NM
—
—
—
NM
9
(22)
(16)
132
35
(17)
(2)
(8)
(3)
(5)
(77)
(5)
173
(62)
(42)
7
23
(11)
$
$
$
$
$
$
$
$
$
$
11,613
(11,396)
(4,216)
(8,651)
(2,163)
(14,813)
89,046
239
-
-
-
89,285
(377)
86,944
537,458
1,841
1,797
627,663
923
49,432
189,919
2,072
(432)
241,914
(78,733)
25,877
343,323
(8,882)
66
281,651
3
(22)
(67)
(156)
(11)
(3)
NM
NM
-
-
-
NM
(1)
21
85
88
9
59
0
14
34
4
(68)
20
(43)
29
530
(16)
16
100
Net interest income (expense):
Banking
Broker-Dealer
Mortgage Origination
Corporate
All Other and Eliminations
Hilltop Continuing Operations
$
$
Provision for (reversal of) credit losses:
Banking
Broker-Dealer
Mortgage Origination
Corporate
All Other and Eliminations
Hilltop Continuing Operations
Noninterest income:
Banking
Broker-Dealer
Mortgage Origination
Corporate
All Other and Eliminations
Hilltop Continuing Operations
Noninterest expense:
Banking
Broker-Dealer
Mortgage Origination
Corporate
All Other and Eliminations
Hilltop Continuing Operations
Income (loss) from continuing
operations before taxes:
Banking
Broker-Dealer
Mortgage Origination
Corporate
All Other and Eliminations
Hilltop Continuing Operations
NM
Not meaningful
$
$
$
$
$
$
$
$
Key Performance Indicators
We utilize several key indicators of financial condition and operating performance to evaluate the various aspects of our
business. In addition to traditional financial metrics, such as revenue and growth trends, we monitor several other financial
measures and non-financial operating metrics to help us evaluate growth trends, measure the adequacy of our capital based on
regulatory reporting requirements, measure the effectiveness of our operations and assess operational efficiencies. These
indicators change from time to time as the opportunities and challenges in our businesses change.
Specifically, performance ratios and asset quality ratios are typically used for measuring the performance of banking and
financial institutions. We consider return on average stockholders’ equity, return on average assets and net interest margin to be
important supplemental measures of operating performance that are commonly used by securities analysts, investors and other
parties interested in the banking and financial industry. The net recoveries (charge-offs) to average loans outstanding ratio is also
considered a key measure for our banking segment as it indicates the performance of our loan portfolio.
In addition, we consider regulatory capital ratios to be key measures that are used by us, as well as banking regulators,
investors and analysts, to assess our regulatory capital position and to compare our regulatory capital to that of other financial
services companies. We monitor our capital strength in terms of both leverage ratio and risk-based capital ratios based on
capital requirements administered by the federal banking agencies. The risk-based capital ratios are minimum supervisory
ratios generally applicable to banking organizations, but banking organizations are widely expected to operate with capital
positions well above the minimum ratios. Failure to meet minimum capital requirements can initiate certain mandatory actions
by regulators that, if undertaken, could have a material effect on our financial condition or results of operations.
59
How We Generate Revenue
We generate revenue from net interest income and from noninterest income. Net interest income represents the difference
between the income earned on our assets, including our loans and investment securities, and our cost of funds, including the
interest paid on the deposits and borrowings that are used to support our assets. Net interest income is a significant contributor
to our operating results. Fluctuations in interest rates, as well as the amounts and types of interest-earning assets and interest-
bearing liabilities we hold, affect net interest income. We generated $423.0 million in net interest income during 2021,
compared with net interest income of $424.2 million and $439.0 million during 2020 and 2019, respectively. Changes in net
interest income during 2021, compared with 2020, primarily due to an increase within our banking segment, significantly
offset by a decrease within our mortgage origination segment.
The other component of our revenue is noninterest income, which is primarily comprised of the following:
(i)
(ii)
Income from broker-dealer operations. Through Securities Holdings, we provide investment banking and
other related financial services that generated $296.3 million, $274.0 million and $241.5 million in securities
commissions and fees and investment and securities advisory fees and commissions, and $75.2 million,
$203.1 million and $150.0 million in gains from derivative and trading portfolio activities (included within
other noninterest income) during 2021, 2020 and 2019, respectively.
Income from mortgage operations. Through PrimeLending, we generate noninterest income by originating
and selling mortgage loans. During 2021, 2020 and 2019, we generated $986.0 million, $1.2 billion and
$634.9 million, respectively, in net gains from sale of loans, other mortgage production income (including
income associated with retained mortgage servicing rights), and mortgage loan origination fees.
In the aggregate, we generated $1.4 billion, $1.7 billion and $1.1 billion in noninterest income during 2021, 2020 and 2019,
respectively. The decrease in noninterest income from continuing operations during 2021, compared with 2020, was
predominantly attributable to a decrease of $186.9 million in net gains from sale of loans, other mortgage production income
and mortgage loan origination fees within our mortgage origination segment and a decrease of $127.9 million in gains from
derivative and trading portfolio activities within our broker-dealer segment.
We also incur noninterest expenses in the operation of our businesses. Our businesses engage in labor intensive activities and,
consequently, employees’ compensation and benefits represent the majority of our noninterest expenses.
Consolidated Operating Results
Income from continuing operations applicable to common stockholders during 2021 was $374.5 million, or $4.61 per diluted
share, compared with $409.4 million, or $4.58 per diluted share, during 2020, and $211.3 million, or $2.29 per diluted share,
during 2019. Hilltop’s financial results from continuing operations during 2021 reflect a significant decrease in year-over-year
mortgage origination segment net gains from sales of loans and other mortgage production income as well as declines in net
revenues within the broker-dealer segment’s structured finance business and fixed income services lines, while the banking
segment reflected positive changes in macroeconomic and loan expected loss rates during 2021 as opposed to a significant
build in the allowance for credit losses given the market disruption and economic uncertainties caused by COVID-19 during
2020.
Including income from discontinued operations, net of income taxes, income applicable to common stockholders was $447.8
million, or $5.01 per diluted share, during 2020, and $225.3 million, or $2.44 per diluted share, during 2019.
Certain items included in net income during 2021, 2020 and 2019 resulted from purchase accounting associated with the
PlainsCapital Merger, the FNB Transaction, the SWS Merger and the BORO Acquisition (collectively, the “Bank
Transactions”). Income before income taxes during 2021, 2020 and 2019 included net accretion on earning assets and
liabilities of $19.2 million, $18.9 million and $28.5 million, respectively, and amortization of identifiable intangibles of $5.2
million, $6.3 million and $7.6 million, respectively, related to the Bank Transactions.
60
The information shown in the table below includes certain key performance indicators on a consolidated basis.
Return on average stockholders' equity (1)
Return on average assets (2)
Net interest margin (3) (4)
Leverage ratio (5) (end of year)
Common equity Tier 1 risk-based capital ratio (6)
(end of year)
2021
Year Ended December 31,
2020
2019
15.38 %
2.17 %
2.57 %
12.58 %
20.03 %
2.88 %
2.85 %
12.64 %
11.18 %
1.66 %
3.48 %
12.71 %
21.22 %
18.97 %
16.70 %
(1) Return on average stockholders’ equity is defined as consolidated income attributable to Hilltop divided by average total Hilltop stockholders’ equity.
(2) Return on average assets is defined as consolidated net income divided by average assets.
(3) Net interest margin is defined as net interest income divided by average interest-earning assets. We consider net interest margin as a key indicator of
profitability as it represents interest earned on our interest-earning assets compared to interest incurred.
(4) The securities financing operations within our broker-dealer segment had the effect of lowering both net interest margin and taxable equivalent net
interest margin by 16 basis points, 25 basis points and 40 basis points during 2021, 2020 and 2019, respectively.
(5) The leverage ratio is a regulatory capital ratio and is defined as Tier 1 risk-based capital divided by average consolidated assets.
(6) The common equity Tier 1 risk-based capital ratio is a regulatory capital ratio and is defined as common equity Tier 1 risk-based capital divided by risk
weighted assets. Common equity includes common equity Tier 1 capital (common stockholders’ equity and certain minority interests in the equity
capital accounts of consolidated subsidiaries, but excluding goodwill and various intangible assets) and additional Tier 1 capital (certain qualifying
minority interests not included in common equity Tier 1 capital, certain preferred stock and related surplus, and certain subordinated debt).
We present net interest margin and net interest income below on a taxable-equivalent basis. Net interest margin (taxable
equivalent), a non-GAAP measure, is defined as taxable equivalent net interest income divided by average interest earning
assets. Taxable equivalent adjustments are based on the applicable corporate federal income tax rate of 21% for all periods
presented. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As
such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful
comparisons of net interest margins for all earning assets, we use net interest income on a taxable-equivalent basis in
calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to
interest income earned on taxable investments.
During 2021, 2020 and 2019, purchase accounting contributed 12, 14 and 25 basis points, respectively, to our consolidated
taxable equivalent net interest margin of 2.58%, 2.85% and 3.48%, respectively. The purchase accounting activity is primarily
related to the accretion of discount of loans which totaled $18.8 million, $18.8 million and $28.7 million during 2021, 2020
and 2019, respectively, associated with the Bank Transactions.
61
The table below provides additional details regarding our consolidated net interest income (dollars in thousands).
2021
Average
Outstanding
Balance
Interest Annualized Average
Earned
Yield or
or Paid
Outstanding
Balance
Rate
Year Ended December 31,
2020
Interest
Earned
or Paid
Yield or
Rate
Annualized Average
2019
Interest
Earned
or Paid
Annualized
Yield or
Rate
Outstanding
Balance
Assets
Interest-earning assets
Loans held for sale
Loans held for investment,
gross (1)
Investment securities - taxable
Investment securities - non-
taxable (2)
Federal funds sold and
securities purchased under
agreements to resell
Interest-bearing deposits in
other financial institutions
Securities borrowed
Other
Interest-earning assets, gross (2)
Allowance for credit losses
Interest-earning assets, net
Noninterest-earning assets
Total assets
Liabilities and Stockholders'
Equity
Interest-bearing liabilities
Interest-bearing deposits
Securities loaned
Notes payable and other
borrowings
Total interest-bearing liabilities
Noninterest-bearing liabilities
Noninterest-bearing deposits
Other liabilities
Total liabilities
Stockholders’ equity
Noncontrolling interest
$
2,293,543 $ 64,767
2.82 % $
2,306,203
$ 74,467
3.23 % $ 1,501,154 $ 64,830
4.32 %
7,645,292
2,493,848
339,548
47,582
4.44 %
1.91 %
7,618,723
1,897,859
358,844
49,936
4.71 %
2.63 %
7,088,208
1,803,622
395,641
61,983
5.58 %
3.44 %
313,703
11,448
3.65 %
231,824
7,918
3.42 %
233,713
6,803
2.91 %
152,273
372
0.24 %
90,961
138
0.15 %
63,598
1,236
1.94 %
2,942
61,667
3,332
531,658
2,078,666
1,445,464
50,929
16,473,718
(129,689)
16,344,029
1,451,928
$ 17,795,957
0.14 %
4.21 %
6.54 %
3.23 %
1,257,902
1,435,572
59,412
14,898,456
(122,148)
14,776,308
1,537,269
$ 16,313,577
3,165
51,360
3,687
549,515
0.25 %
3.58 %
6.21 %
3.69 %
371,312
1,550,322
75,298
12,687,227
(57,690)
12,629,537
1,397,420
$ 14,026,957
8,469
69,582
6,869
615,413
2.28 %
4.49 %
9.12 %
4.85 %
$
7,722,584 $ 23,624
50,974
1,374,142
0.31 % $
3.71 %
7,397,121
1,336,873
$ 47,040
42,817
0.64 % $ 5,916,491 $ 71,509
60,086
1,423,847
3.20 %
1,216,381
10,313,107
32,393
106,991
2.66 %
1.04 %
1,222,044
9,956,038
33,249
123,106
2.72 %
1.24 %
1,398,559
8,738,897
41,928
173,523
1.21 %
4.22 %
3.00 %
1.99 %
4,157,962
863,976
15,335,045
2,435,185
25,727
Total liabilities and stockholders'
equity
$ 17,795,957
3,304,475
791,002
14,051,515
2,235,690
26,372
$ 16,313,577
2,635,924
614,164
11,988,985
2,014,535
23,437
$ 14,026,957
Net interest income (2)
Net interest spread (2)
Net interest margin (2)
$ 424,667
$ 426,409
$ 441,890
2.19 %
2.58 %
2.45 %
2.85 %
2.86 %
3.48 %
(1) Average balance includes non-accrual loans.
(2) Presented on a taxable equivalent basis with taxable equivalent adjustments based on the applicable corporate federal income tax rate of 21% for the
periods presented. The adjustment to interest income was $1.7 million, $1.2 million and $0.6 million during 2021, 2020 and 2019, respectively.
The banking segment’s net interest margin exceeds our consolidated net interest margin shown above. Our consolidated net
interest margin includes certain items that are not reflected in the calculation of our net interest margin within our banking
segment and reduce our consolidated net interest margin, such as the borrowing costs of Hilltop and the yields and costs
associated with certain items within interest-earning assets and interest-bearing liabilities in the broker-dealer segment,
including items related to securities financing operations that particularly decrease net interest margin. In addition, yields and
costs on certain interest-earning assets, such as warehouse lines of credit extended to subsidiaries (operating segments) by the
banking segment, are eliminated from the consolidated financial statements. Our consolidated net interest margins during 2020
and, to a lesser extent, 2021 were also negatively impacted by certain actions taken by management during 2020 to strengthen
our available liquidity position. Such actions, including increasing overall cash balances by raising brokered money market
and brokered time deposits and raising capital through the issuance of subordinated debt, were taken out of an abundance of
caution in light of extreme volatility and disruptions in the capital and credit markets beginning in March 2020 resulting from
the COVID-19 crisis and its negative impact on the economy.
On a consolidated basis, net interest income from continuing operations decreased during 2021, compared with 2020,
primarily due to the effects of decreased net yields on loans held for investment and mortgage loans held for sale, year-over-
year increase in interest incurred related to the Subordinated Notes at corporate beginning in May 2020, and the decrease in
market interest rates on deposits within the banking segment. Net interest income from continuing operations decreased during
62
2020, compared with 2019, primarily due to decreases in interest earned on loans held for investment, interest incurred
beginning in May 2020 related to the Subordinated Notes at corporate and decreases in net interest income from our stock
lending business, customer margin loans and other customer activities within the broker-dealer segment. Refer to the
discussion in the “Banking Segment” section that follows for more details on the changes in net interest income, including the
component changes in the volume of average interest-earning assets and interest-bearing liabilities and changes in the rates
earned or paid on those items.
The provision for (reversal of) credit losses is determined by management as the amount necessary to maintain the allowance
for credit losses at the amount of expected credit losses inherent within the loans held for investment portfolio. The amount of
expense and the corresponding level of allowance for credit losses for loans are based on our evaluation of the collectability of
the loan portfolio based on historical loss experience, reasonable and supportable forecasts, and other significant qualitative
and quantitative factors. Substantially all of our consolidated provision for (reversal of) credit losses is related to the banking
segment. During 2021, the reversal of credit losses was primarily impacted by the banking segment’s reduction in reserves
associated with collectively evaluated loans within the portfolio attributable to improvements in both macroeconomic forecast
assumptions and credit quality metrics on COVID-19 impacted industry sector exposures. During 2020, the provision for
credit losses was significantly impacted by the banking segment’s build in reserves associated with the increase in the
expected lifetime credit losses under the Current Expected Credit Losses (“CECL”) methodology attributable to the market
disruption and related economic uncertainties caused by COVID-19. Refer to the discussion in the “Financial Condition –
Allowance for Credit Losses on Loans” section that follows for more details regarding the significant assumptions and
estimates involved in estimating credit losses.
Noninterest income from continuing operations decreased during 2021, compared with 2020, primarily due to changes in net
fair value and related derivative activity and a decrease in average loan sales margin, partially offset by a slight increase in
total mortgage loan sales volume within our mortgage origination segment, as well as decreases in structured finance and fixed
income services net revenues within our broker-dealer segment. The increase in noninterest income from continuing
operations during 2020, compared with 2019, was primarily due to increases in total mortgage loan sales volume and changes
in net fair value and related derivative activity within our mortgage origination segment, as well as increases in fixed income
services, public finance services and structured finance net revenues within our broker-dealer segment.
Noninterest expense from continuing operations decreased during 2021, compared with 2020, primarily due to decreases in
both variable and non-variable compensation within our mortgage origination segment associated with the decreased mortgage
loan originations, and a decline in variable compensation within our broker-dealer segment. We expect inflationary headwinds
related to certain noninterest expenses, including compensation, occupancy, and software costs, to result in higher fixed costs
during 2022. The increase in noninterest expense from continuing operations during 2020, compared with 2019, was primarily
due to increases in variable compensation and segment operating costs associated with the increased mortgage loan
originations within our mortgage origination segment and increases in variable compensation within our broker-dealer
segment.
Effective income tax rates from continuing operations were 23.4%, 23.6% and 22.5% for 2021, 2020 and 2019, respectively,
and approximated applicable statutory rates for such periods.
Segment Results from Continuing Operations
Banking Segment
The following table presents certain information about the operating results of our banking segment (in thousands).
Net interest income
Provision for (reversal of) credit losses
Noninterest income
Noninterest expense
Income before income taxes
$
$
$
Year Ended December 31,
2020
390,871
96,326
41,376
232,447
103,474
2021
406,524
(58,175)
45,113
226,915
282,897
$
$
$
63
Variance
2021 vs 2020
2019
379,258 $
7,280
41,753
231,524
182,207 $
15,653 $
(154,501)
3,737
(5,532)
179,423 $
2020 vs 2019
11,613
89,046
(377)
923
(78,733)
The increase in income before income taxes during 2021, compared with 2020, was primarily due to the impact of reversals of
credit losses throughout 2021, which reflected improvement in both realized economic results and the macroeconomic outlook,
as opposed to significant increases in the provision for credit losses during the first half 2020 associated with the adoption of the
CECL model and the significant market disruption caused by COVID-19. Changes to net interest income related to the
component changes in the volume of average interest-earning assets and interest-bearing liabilities and changes in the rates
earned or paid on those items are discussed in more detail below.
The information shown in the table below includes certain key indicators of the performance and asset quality of our banking
segment.
Efficiency ratio (1)
Return on average assets (2)
Net interest margin (3)
Net recoveries (charge-offs) to average loans outstanding (4)
2021
Year Ended December 31,
2020
2019
50.25 %
1.55 %
3.07 %
0.01 %
53.78 %
0.63 %
3.31 %
(0.30)%
54.99 %
1.36 %
4.00 %
(0.08)%
(1) Efficiency ratio is defined as noninterest expenses divided by the sum of total noninterest income and net interest income for the period. We consider the
efficiency ratio to be a measure of the banking segment’s profitability.
(2) Return on average assets is defined as net income divided by average assets.
(3) Net interest margin is defined as net interest income divided by average interest-earning assets. We consider net interest margin as a key indicator of
profitability, as it represents interest earned on interest-earning assets compared to interest incurred.
(4) Net recoveries (charge-offs) to average loans outstanding is defined as the greater of recoveries or charge-offs during the reported period minus charge-
offs or recoveries divided by average loans outstanding. We use the ratio to measure the credit performance of our loan portfolio.
The banking segment presents net interest margin and net interest income in the following discussion and table below, on a
taxable equivalent basis. Net interest margin (taxable equivalent), a non-GAAP measure, is defined as taxable equivalent net
interest income divided by average interest-earning assets. Taxable equivalent adjustments are based on the applicable
corporate federal income tax rates of 21% for all periods presented. The interest income earned on certain earning assets is
completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns
than taxable investments. To provide more meaningful comparisons of net interest margins for all earning assets, we use net
interest income on a taxable equivalent basis in calculating net interest margin by increasing the interest income earned on tax-
exempt assets to make it fully equivalent to interest income earned on taxable investments.
During 2021, 2020 and 2019, purchase accounting contributed 16, 18 and 33 basis points, respectively, to the banking
segment’s taxable equivalent net interest margin of 3.08%, 3.31% and 4.01%, respectively. These purchase accounting items
are primarily related to accretion of discount of loans associated with the Bank Transactions as discussed in the Consolidated
Operating Results section.
64
5.60 %
4.50 %
2.53 %
3.40 %
0.17 %
2.23 %
4.57 %
4.96 %
1.41 %
2.12 %
1.47 %
3.49 %
4.01 %
The table below provides additional details regarding our banking segment’s net interest income (dollars in thousands).
Average
Outstanding
Balance
2021
Interest
Earned
or Paid
Yield or
Rate
Annualized Average
Annualized Average
Year Ended December 31,
2020
Interest
Earned
or Paid
Yield or
Rate
Outstanding
Balance
2019
Interest
Earned
or Paid
Annualized
Yield or
Rate
Outstanding
Balance
Assets
Interest-earning assets
Loans held for investment, gross (1) $
Subsidiary warehouse lines of
credit
Investment securities - taxable
Investment securities - non-
taxable (2)
Federal funds sold and securities
purchased under agreements to
resell
Interest-bearing deposits in other
7,069,485 $ 323,136
4.57 % $
7,152,783
$ 341,383
4.77 % $
6,564,748 $ 367,903
2,124,700
2,026,189
80,761
29,215
3.75 %
1.44 %
2,073,087
1,377,578
79,488
27,651
3.83 %
2.01 %
1,374,051
1,181,198
61,812
29,879
114,118
3,905
3.42 %
111,471
3,789
3.40 %
96,186
3,267
30,395
89
0.30 %
460
1
0.18 %
447
1
financial institutions
Other
Interest-earning assets, gross (2)
Allowance for credit losses
Interest-earning assets, net
Noninterest-earning assets
Total assets
1,837,196
36,813
13,238,896
(129,303)
13,109,593
966,296
$ 14,075,889
2,459
460
440,025
1,888
377
454,577
1,038,647
0.13 %
1.25 %
42,977
3.32 % 11,797,003
(121,770)
11,675,233
967,690
$ 12,642,923
4,525
2,534
469,921
0.18 %
0.88 %
3.85 %
202,478
55,403
9,474,511
(57,546)
9,416,965
938,663
$ 10,355,628
Liabilities and Stockholders’ Equity
$
7,578,963 $
30,988
0.41 % $
7,306,143
$
60,297
0.83 % $
5,654,663 $
79,805
142,705
7,721,668
1,586
32,574
1.11 %
0.42 %
205,448
7,511,591
2,642
62,939
1.29 %
0.84 %
481,924
6,136,587
10,233
90,038
Interest-bearing liabilities
Interest-bearing deposits
Notes payable and other
borrowings
Total interest-bearing liabilities
Noninterest-bearing liabilities
Noninterest-bearing deposits
Other liabilities
Total liabilities
Stockholders’ equity
4,512,227
155,979
12,389,874
1,686,015
Total liabilities and stockholders’
equity
$ 14,075,889
3,412,212
128,795
11,052,598
1,590,325
$ 12,642,923
2,622,229
93,861
8,852,677
1,502,951
$ 10,355,628
Net interest income (2)
Net interest spread (2)
Net interest margin (2)
$ 407,451
$ 391,638
$ 379,883
2.90 %
3.08 %
3.01 %
3.31 %
(1) Average balance includes non-accrual loans.
(2) Presented on a taxable equivalent basis with taxable equivalent adjustments based on the applicable corporate federal income tax rates of 21% for all
periods presented. The adjustment to interest income was $0.8 million, $0.8 million and $0.6 million during 2021, 2020 and 2019, respectively.
The banking segment’s net interest margin exceeds our consolidated net interest margin. Our consolidated net interest margin
includes certain items that are not reflected in the calculation of our net interest margin within our banking segment and reduce
our consolidated net interest margin, such as the borrowing costs of Hilltop and the yields and costs associated with certain
items within interest-earning assets and interest-bearing liabilities in the broker-dealer segment, including items related to
securities financing operations that particularly decrease net interest margin. In addition, the banking segment’s interest-
earning assets include warehouse lines of credit extended to other subsidiaries, which are eliminated from the consolidated
financial statements. The banking segment’s net interest margins during 2021 and 2020 were negatively impacted by certain
actions taken by management during 2020 to strengthen the Bank’s available liquidity position. Such actions, including
increasing overall cash balances by raising brokered money market and brokered time deposits were taken out of an
abundance of caution in light of the extreme volatility and disruptions in the capital and credit markets beginning in
March 2020 resulting from the COVID-19 crisis and its negative impact on the economy.
65
The following table summarizes the changes in the banking segment’s net interest income for the periods indicated below,
including the component changes in the volume of average interest-earning assets and interest-bearing liabilities and changes
in the rates earned or paid on those items (in thousands).
2021 vs. 2020
Change Due To (1)
2020 vs. 2019
Change Due To (1)
Year Ended December 31,
Volume
Yield/Rate Change
Volume
Yield/Rate
Change
Interest income
Loans held for investment, gross
Subsidiary warehouse lines of credit
Investment securities - taxable
Investment securities - non-taxable (2)
Federal funds sold and securities purchased
under agreements to resell
Interest-bearing deposits in other financial
institutions
Other
Total interest income (2)
$ (3,973) $ (14,274) $ (18,247) $ 32,930 $ (59,450) $ (26,520)
17,676
(2,228)
522
(13,770)
(7,196)
3
(706)
(11,455)
26
31,446
4,968
519
1,979
13,019
90
1,273
1,564
116
55
33
88
—
—
—
1,451
(54)
12,567
(880)
137
(27,119)
571
83
(14,552)
18,685
(568)
87,980
(21,322)
(1,589)
(103,324)
(2,637)
(2,157)
(15,344)
Interest expense
Deposits
Notes payable and other borrowings
Total interest expense
$ 2,252
(807)
1,445
$ (31,561) $ (29,309) $ 23,308 $ (42,816) $ (19,508)
(7,591)
(5,871)
(27,099)
17,437
(1,720)
(44,536)
(249)
(31,810)
(1,056)
(30,365)
Net interest income (2)
$ 11,122
$
4,691
$ 15,813
$ 70,543 $ (58,788) $ 11,755
(1) Changes attributable to both volume and yield/rate are included in yield/rate column.
(2) Taxable equivalent.
Changes in the yields earned on interest-earning assets decreased taxable equivalent net interest income during 2021,
compared with 2020, primarily as a result of lower reinvestment yield on the securities portfolio and a reduction in yields on
loans held for investment and the slight decrease in accretion of discount on loans. Accretion of discount on loans is expected
to decrease in future periods as loans acquired in the Bank Transactions are repaid, refinanced or renewed. Changes in the
volume of interest-earning assets increased taxable equivalent net interest income during 2021, compared with 2020, primarily
due to increases in investment securities portfolio balances. Changes in rates paid on interest-bearing liabilities increased
taxable equivalent net interest income during 2021, compared with 2020, as deposit costs declined more than interest income
declined. Our portfolio includes loans that periodically reprice or mature prior to the end of an amortized term. Approximately
68% of our variable-rate loans remained at applicable rate floors at December 31, 2021, which may delay and/or limit changes
in net interest income during a period of changing rates. If interest rates were to rise, yields on the portion of our loan portfolio
that remain at applicable rate floors would rise more slowly than increases in market interest rates. If interest rates were to fall
further, the impact on our net interest income for certain variable-rate loans would be limited by these rate floors. In addition,
declining interest rates may reduce our cost of funds on deposits. The extent of this impact will ultimately be driven by the
timing, magnitude and frequency of interest rate and yield curve movements, as well as changes in market conditions and
timing of management strategies. Any changes in interest rates across the term structure will continue to impact net interest
income and net interest margin. The impact of rate movements will change with the shape of the yield curve, including any
changes in steepness or flatness and inversions at any points on the yield curve.
Changes in the yields earned on interest-earning assets decreased taxable equivalent net interest income during 2020,
compared with 2019, primarily as a result of lower loan yields due to decreased market rates, the addition of 1% note rate PPP
loans, and the decrease in accretion of discount on loans of $9.9 million. Changes in the volume of interest-earning assets,
primarily due to the significant increase in mortgage warehouse lending volume and new PPP loan originations, increased
taxable equivalent net interest income during 2020, compared with 2019. Changes in rates paid on interest-bearing liabilities
increased taxable equivalent net interest income during 2020, compared with 2019, due to decreases in market interest rates.
Starting in March 2020, the Bank implemented several actions to better support our impacted banking clients and allow for
loan modifications such as principal and/or interest payment deferrals, participation in the PPP as an SBA preferred lender and
personal banking assistance including waived fees, increased daily spending limits and suspension of residential foreclosure
activities. The Bank’s actions during 2020 and 2021 included approval of approximately $1.0 billion in COVID-19 related
66
loan modifications. While the majority of the portfolio of COVID-19 related loan modifications no longer require deferral,
such loans represent elevated risk, and therefore management continues to monitor these loans.
The adverse economic conditions caused by the COVID-19 pandemic negatively impacted the banking segment’s business
and results of operations, including significantly reduced demand for loan products and services from customers, recognition
of credit losses and increases in allowance for credit losses. We will continue to monitor developments regarding the
COVID-19 pandemic and measures implemented in response to the pandemic, market capitalization, overall economic
conditions, effectiveness of vaccinations, the emergence of new variants, government stimulus, payment deferral programs
and any other triggering events or circumstances that may indicate an impairment of goodwill or core deposit intangible assets
in the future. See further discussion in the “Recent Developments” section above.
During 2021, 2020 and 2019, the banking segment retained approximately $778 million, $193 million and $149 million,
respectively, in mortgage loans originated by the mortgage origination segment. These loans are purchased by the banking
segment at par. For origination services provided, the banking segment reimburses the mortgage origination segment for direct
origination costs associated with these mortgage loans, in addition to payment of a correspondent fee. The correspondent fees
are eliminated in consolidation. In March 2020, the Bank made a decision to sell the previously purchased mortgage loans to
the mortgage origination segment, instead of holding them for investment. In October 2020, the Bank resumed purchasing and
retaining mortgage loans originated by the mortgage origination segment. We expect loans originated by the mortgage
origination segment on behalf of and retained by the banking segment to increase based on approved authority for up to 5% of
the mortgage origination segment’s total origination volume during 2022. The determination of mortgage loan retention levels
by the banking segment will be impacted by, among other things, an ongoing review of the prevailing mortgage rates, balance
sheet positioning at Hilltop and the banking segment’s outlook for commercial loan growth.
The banking segment’s provision for (reversal of) credit losses has been subject to significant year-over-year and quarterly
changes primarily attributable to the effects of the deteriorating economic outlook associated with the impact of the market
disruption caused by the COVID-19 pandemic beginning in March 2020, and then the reduction in reserves associated with
improvements in macroeconomic forecast assumptions beginning in the second half of 2020 and throughout 2021.
Specifically, during 2021, the banking segment had net reversals of credit losses on expected losses of collectively evaluated
loans of $58.3 million, primarily due to improvements in both macroeconomic forecast assumptions and credit quality metrics
on COVID-19 impacted industry sector exposures. The net impact to the allowance of changes associated with individually
evaluated loans during 2021 included a provision of credit losses of $0.1 million. The change in the allowance during 2021
was also impacted by net recoveries of $0.5 million. During 2020, the significant build in the allowance included provision for
credit losses on individually evaluated loans of $20.1 million, while the provision for credit losses on expected losses of
collectively evaluated loans accounted for $76.1 million of the total provision primarily due to the increase in the expected
lifetime credit losses under CECL attributable to the deteriorating economic outlook associated with the impact of the market
disruption caused by the COVID-19 pandemic. The change in the allowance during 2020 was also impacted by net charge-offs
of $21.1 million, primarily associated with loans specifically reserved for during the first quarter of 2020. The changes in the
allowance for credit losses during the noted periods also reflected other factors including, but not limited to, loan growth, loan
mix, and changes in risk grades. Refer to the discussion in the “Financial Condition – Allowance for Credit Losses on Loans”
section that follows for more details regarding the significant assumptions and estimates involved in estimating credit losses.
The banking segment’s noninterest income increased during 2021, compared to 2020, primarily due to increased service
charges on depositor accounts and trust fees.
The banking segment’s noninterest expenses decreased during 2021, compared to 2020, primarily due to the decrease in the
reserve for unfunded commitments attributable to year-over-year improvements in loan expected loss rates
as well as reductions in legal and other real estate owned (“OREO”) expenses, partially offset by increases in FDIC
assessment and software related expenses. The noninterest expenses were relatively flat during 2020, compared to 2019, and
included an increase in the reserve for unfunded commitments attributable to macroeconomic uncertainties associated with the
impact of market disruption caused by COVID-19 conditions, significantly offset by a reduction in legal, business
development and other operating expenses.
67
Broker-Dealer Segment
The following table provides additional details regarding our broker-dealer segment operating results (in thousands).
2021
Year Ended December 31,
2020
2019
2021 vs 2020
2020 vs 2019
Variance
$
Net interest income:
Wealth management:
Securities lending
Clearing services
Structured finance (5)
Fixed income services
Other (5)
Total net interest income
Noninterest income:
Securities commissions and fees by business line (1):
Fixed income services
Wealth management:
Retail
Clearing services
Structured finance (5)
Other (5)
Investment and securities advisory fees and commissions by
business line:
Public finance services (5)
Fixed income services
Wealth management:
Retail
Clearing services
Structured finance (5)
Other
Other:
Structured finance (5)
Fixed income services
Other (5)
Total noninterest income
Net revenue (2)
Noninterest expense:
Variable compensation (3)
Non-variable compensation and benefits (5)
Segment operating costs (4)(5)
Total noninterest expense
$
10,693
7,314
2,857
19,249
3,183
43,296
47,844
73,149
22,478
3,275
4,016
150,762
108,372
8,442
31,453
1,945
1,850
381
152,443
77,424
(2,197)
2,693
77,920
381,125
424,421
161,264
114,912
104,584
380,760
8,544
6,916
5,430
12,173
6,849
39,912
49,573
69,718
30,018
1,824
4,761
155,894
96,186
6,395
24,023
1,649
2,732
342
131,327
157,465
45,365
1,304
204,134
491,355
531,267
205,464
106,932
103,232
415,628
$
9,496 $
11,530
8,337
6,180
15,765
51,308
36,997
71,934
33,787
1,793
4,664
149,175
76,679
2,936
20,820
1,264
1,903
185
103,787
114,192
35,859
1,398
151,449
404,411
455,719
163,840
104,909
97,208
365,957
$
2,149
398
(2,573)
7,076
(3,666)
3,384
(1,729)
3,431
(7,540)
1,451
(745)
(5,132)
12,186
2,047
7,430
296
(882)
39
21,116
(80,041)
(47,562)
1,389
(126,214)
(110,230)
(106,846)
(44,200)
7,980
1,352
(34,868)
(952)
(4,614)
(2,907)
5,993
(8,916)
(11,396)
12,576
(2,216)
(3,769)
31
97
6,719
19,507
3,459
3,203
385
829
157
27,540
43,273
9,506
(94)
52,685
86,944
75,548
41,624
2,023
6,024
49,671
Income before income taxes
$
43,661
$
115,639
$
89,762 $
(71,978) $
25,877
(1)
Securities commissions and fees includes income of $6.9 million, $13.2 million, and $11.4 million during 2021, 2020, and 2019, respectively, that is eliminated in
consolidation.
(2) Net revenue is defined as the sum of total net interest income and total noninterest income. We consider net revenue to be a key performance measure in the
evaluation of the broker-dealer segment’s financial position and operating performance as we believe it is a primary revenue performance measure used by investors and
analysts. Net revenue provides for some level of comparability of trends across the financial services industry as it reflects both noninterest income, including
investment and securities advisory fees and commissions, as well as net interest income. Internally, we assess the broker-dealer segment’s performance on a revenue
basis for comparability with our banking segment.
(3) Variable compensation represents performance-based commissions and incentives.
(4)
(5) Noted balances during all prior periods include certain reclassifications to conform to current period presentation.
Segment operating costs include provision for credit losses associated with the broker-dealer segment within other noninterest expenses.
During 2021, the broker-dealer segment’s structured finance and fixed income business lines both experienced a decline in net
revenues. Structured finance net revenues declined compared to 2020 due to lower production volumes and less favorable
market conditions given the expectation of higher interest rates in the near term. Fixed income services business line net
revenues also decreased, compared to 2020, primarily due to a decrease in net gains from trading activities. Both the fixed
income services and structured finance business lines experienced a reduction in activity and overall demand from the buyside,
given the expectation of higher interest rates in the near term. The increase in net revenues in the broker-dealer segment’s
public finance services and wealth management business lines partially offset these declines. The improvement in the public
finance business line net revenue can primarily be attributed to improved underwriting revenues. Wealth management business
line net revenues were higher during 2021, compared to 2020, from improved production and advisory fee income, despite
lower money market and FDIC sweep revenues due to the low interest rate environment. Additional information related to the
impact of COVID-19 is included within the “Recent Developments” section above.
68
The decrease in the broker-dealer segment’s income before income taxes during 2021, compared with 2020, was primarily as a
result of the following:
•
•
•
decrease in the broker-dealer segment’s structured finance net revenues as a result of lower volumes and a less robust
market environment resulting in decreases in the business line’s other noninterest income compared with 2020.
Specifically, the decrease was due to lower mortgage originations, with loan lock volumes totaling $7.0 billion in
2021, a 23% decline when compared with 2020. The structured finance business line also saw weaker demand from
the buyside for call-protected collateral in the fourth quarter of 2021 given the expectation of rising interest rates.
decrease in the broker-dealer segment’s fixed income services net revenues primarily from declines in noninterest
income compared with 2020. During 2021, the broker-dealer segment experienced net revenue declines in each
trading division as a result of less robust customer demand and a less favorable trading environment. Additionally,
the decline also included a $1.6 million decrease in net revenues due to the wind-down of the equity capital market
division. Specifically, the broad decline was experienced across all product areas as customer demand has been less
robust when compared to 2020 given the expectation of higher interest rates resulting in weaker customer volumes.
decrease in compensation expense, of which $44.2 million was primarily due to the decrease in variable compensation
associated with revenue declines in our structured finance and fixed income services business lines.
The broker-dealer segment is subject to interest rate risk as a consequence of maintaining inventory positions, trading in
interest rate sensitive financial instruments and maintaining a matched stock loan book. Changes in interest rates are likely to
have a meaningful impact on our overall financial performance. Our broker-dealer segment has historically earned a
significant portion of its revenues from advisory fees upon the successful completion of client transactions, which could be
adversely impacted by interest rate volatility. Rapid or significant changes in interest rates could adversely affect the broker-
dealer segment’s bond trading, sales, underwriting activities and other interest spread-sensitive activities described below. The
broker-dealer segment also receives administrative fees for providing money market and FDIC investment alternatives to
clients, which tend to be sensitive to short term interest rates. In addition, the profitability of the broker-dealer segment
depends, to an extent, on the spread between revenues earned on customer loans and excess customer cash balances, and the
interest expense paid on customer cash balances, as well as the interest revenue earned on trading securities, net of financing
costs.
In the broker-dealer segment, interest is earned from securities lending activities, interest charged on customer margin loan
balances and interest earned on investment securities used to support sales, underwriting and other customer activities. The
increase in net interest income during 2021, compared with 2020, was primarily due to increases in net interest income from
our fixed income business line and securities lending division of our wealth management business line partially offset by
intercompany interest expense. With the 30 basis point decrease in the weighted average Federal Funds interest rate from 2020
to 2021, the amount of interest earned on customer investment activities decreased as well. The decrease in net interest income
during 2020, compared with 2019, was primarily due to decreases in net interest income from our stock lending business,
customer margin loans and other customer activities, partially offset by an increase in net interest earnings from the broker-
dealers’ taxable securities.
Noninterest income decreased during 2021 compared to 2020 primarily due to decreases in other noninterest income and
securities commissions and fees, partially offset by the increases in investment banking and advisory fees. Noninterest income
increased during 2020 compared to 2019 primarily due to increases in securities commissions and fees, investment and
securities advisory fees and commissions, and other noninterest income.
Securities commissions and fees decreased during 2021 compared to 2020 primarily due to a decrease in commissions earned
in our wealth management line of business given a $10.6 million decline in our money market and FDIC sweep revenues as a
result of the lower interest rate environment and decreases in commissions earned from our wind-down of the equity capital
markets division. These decreases were partially offset by increases in commissions earned on mutual fund, insurance product
and commodities contract sales transactions. Securities commissions and fees increased during 2020 compared to 2019
primarily due to the increases in commissions earned in our fixed income service line of business offset by the decreases in
commissions earned through the wind-down of our equity capital markets business line, which resulted in a decrease of $5.5
million. Additionally, the overall increase in securities commissions and fees was offset by the decreases in commissions and
fees earned by our wealth management business line from declines in our money market and FDIC sweep revenues.
Investment and securities advisory fees and commissions increased during 2021 compared to 2020, primarily due to increases
in fees earned from our public finance municipal transactions and from improved wealth management advisory services fees.
69
Investment and securities advisory fees and commissions increased during 2020, compared with 2019, primarily due to
increases in municipal advisory and underwriting transactions.
Other noninterest income decreased during 2021, compared to 2020, primarily due to decreases in trading gains earned from
our structured finance business line’s derivative activities resulting from decreased volumes and interest rate volatility. The
year-over-year decrease in other noninterest income was heightened by decreases within our fixed income services business
line within our taxable and municipal securities trading portfolios. Other noninterest income increased during 2020, compared
to 2019, primarily due to an increase in trading gains earned from our structured finance business line’s derivative activities
due to strong year-over-year volumes and robust customer demand despite heightened market volatility in the first quarter of
2020. Additionally, other noninterest income within our fixed income services business line increased during 2020, compared
to 2019, with increases in both our taxable and municipal securities trading portfolio activities, partially offset by a decrease in
our securitized mortgage backed securities portfolio.
Noninterest expenses decreased during 2021 compared to 2020, primarily due to decreases in variable compensation, partially
offset by increased non-variable compensation and benefits and expenses associated with the deployment of the new back-
office and accounting systems. Noninterest expenses increased during 2020, compared to 2019, primarily due to increases in
variable compensation and the deployment of a new back-office system in June 2020, partially offset by $2.9 million in pre-
tax costs associated with leadership changes and efficiency initiative-related charges in 2019.
Selected information concerning the broker-dealer segment, including key performance indicators, follows (dollars in
thousands).
Total compensation as a % of net revenue (1)
Pre-tax margin (2)
FDIC insured program balances at the Bank (end of year)
Other FDIC insured program balances (end of year)
Customer funds on deposit, including short credits (end of year)
Public finance services:
Number of issues
Aggregate amount of offerings
Structured finance:
Lock production/TBA volume
Fixed income services:
Total volumes
Net inventory (end of year)
Wealth management (Retail and Clearing services groups):
Retail employee representatives (end of year)
Independent registered representatives (end of year)
Correspondents (end of year)
Correspondent receivables (end of year)
Customer margin balances (end of year)
Wealth management (Securities lending group):
Interest-earning assets - stock borrowed (end of year)
Interest-bearing liabilities - stock loaned (end of year)
Year Ended December 31,
2021
2020
2019
65.1 %
10.3 %
803,941
1,503,277
499,476
1,149
60,243,826
7,007,564
244,643,358
551,289
98
177
122
306,064
426,584
1,518,372
1,432,196
$
$
$
$
$
$
$
$
$
$
$
58.8 %
21.8 %
700,006
1,892,974
480,200
1,252
57,107,263
$
$
$
$
59.0 %
19.7 %
1,304,333
666,418
329,743
1,179
54,395,943
9,075,232
$
5,876,466
169,559,201
613,413
$
$
83,571,542
643,371
117
189
129
180,173
256,682
1,338,855
1,245,066
$
$
$
$
122
195
145
264,201
310,784
1,634,782
1,555,964
$
$
$
$
$
$
$
$
$
$
$
(1) Total compensation includes the sum of non-variable compensation and benefits and variable compensation. We consider total compensation as a percentage of net revenue to
(2)
be a key performance measure and indicator of segment profitability.
Pre-tax margin is defined as income before income taxes divided by net revenue. We consider pre-tax margin to be a key performance measure given its use as a profitability
metric representing the percentage of net revenue earned that results in a profit.
70
Mortgage Origination Segment
The following table presents certain information regarding the operating results of our mortgage origination segment (in
thousands).
Net interest income (expense)
Noninterest income
Noninterest expense
Income before income taxes
$
$
(20,400)
986,990
731,056
235,534
$
$
(10,489)
1,172,450
753,917
408,044
$
$
(6,273) $
634,992
563,998
64,721 $
Year Ended December 31,
2020
2021
2019
2021 vs 2020
Variance
(9,911) $
(185,460)
(22,861)
(172,510) $
2020 vs 2019
(4,216)
537,458
189,919
343,323
The mortgage lending business is subject to variables that can impact loan origination volume, including seasonal transaction
volumes and interest rate fluctuations. Historically, the mortgage origination segment has experienced increased loan
origination volume from purchases of homes during the spring and summer months, when more people tend to move and buy
or sell homes. An increase in mortgage interest rates tends to result in decreased loan origination volume from refinancings,
while a decrease in mortgage interest rates tends to result in increased loan origination volume from refinancings. Changes in
mortgage interest rates have historically had a lesser impact on home purchases volume than on refinancing volume. See
details regarding loan origination volume in the table below.
Recent trends, as well as typical historical patterns in loan origination volume from purchases of homes or from refinancings
as a result of movements in mortgage interest rates, may not be indicative of future loan origination volumes given continued
economic uncertainties stemming from the COVID-19 pandemic. The mortgage origination segment’s business is dependent
upon the willingness and ability of its employees and customers to conduct mortgage transactions. Current home inventory
levels, affordability challenges, and supply chain problems related to new home construction have impacted customers’
abilities to purchase homes. Home inventory shortages and affordability challenges present prior to 2020 were amplified by
the economic impact of COVID-19, while supply chain problems can be more directly tied to COVID-19. The continuing
impact of the COVID-19 pandemic on customers could have a material adverse effect on the operations of the mortgage
origination segment. In addition, a further increase in mortgage interest rates and/or continuing home inventory shortages and
supply chain issues related to new home construction could adversely affect loan origination volume and/or alter the
percentage mix of refinancing and purchase volumes relative to total loan origination volume in 2022.
Income before income taxes decreased in 2021, compared with 2020. This decrease was primarily the result of a decrease in
interest rate lock commitments (“IRLCs”) related to a decrease in mortgage loan applications, in addition to a decrease in the
average value of individual IRLCs.
The CARES Act has provided borrowers the ability to request forbearance of residential mortgage loan payments, placing a
significant strain on mortgage servicers as they may be required to fund missed or deferred payments related to loans in
forbearance. A significant increase in nationwide forbearance requests that began in March 2020 resulted in the reduction of
third-party mortgage servicers willing to purchase mortgage servicing rights. As a result of this market dynamic, beginning in
the second quarter 2020, we increased the amount of retained servicing on mortgage loan sales. Beginning in the fourth quarter
of 2020 and continuing into 2021, PrimeLending has reduced the amount of retained servicing. However, amounts retained
during the fourth quarter of 2021 continued to exceed amounts retained prior to the second quarter of 2020. PrimeLending
utilizes a third-party to manage its servicing portfolio, and we therefore do not expect significant fluctuations in infrastructure
costs to manage changes in PrimeLending’s servicing portfolio. However, PrimeLending may be at risk of third-party
servicers increasing their pricing to address increased regulatory requirements surrounding servicers. PrimeLending’s liquidity
has not been, and we do not expect that it will be, significantly impacted by forbearance requests resulting from the CARES
Act. Government National Mortgage Association (“GNMA”), Federal National Mortgage Association (“FNMA”) and Federal
Home Loan Mortgage Corporation (“FHLMC”) may impose restrictions on loans the agencies will accept, including loans
under a forbearance agreement, which could result in PrimeLending seeking non-agency investors or choosing to retain these
loans.
In response to the COVID-19 pandemic, the U.S. 10-Year Treasury Rate and mortgage interest rates declined during 2020,
which was followed in 2021 by an increase in mortgage interest rates that remained lower on average during 2021, compared
to 2020. As average mortgage interest rates increased during 2021, compared to a decrease in rates during 2020, refinancing
volume as a percentage of total origination volume decreased to 36.3% during 2021, as compared to 41.6% in 2020. If current
71
mortgage interest rates remain relatively unchanged during 2022, we anticipate a lower percentage of refinancing volume
relative to total loan origination volume during 2022, as compared to 2021. However, a higher refinance percentage could be
driven by a slowing of purchase volume due to the negative impact on new and existing home sales resulting from existing
home inventory shortages, affordability challenges, and supply chain problems related to new home construction. Refinancing
volume as a percentage of total origination volume increased from 24.8% during 2019 to 41.6% during 2020, primarily as a
result of average mortgage interest rates decreasing between periods.
The mortgage origination segment primarily originates its mortgage loans through a retail channel, with limited lending through
its affiliated business arrangements (“ABAs”). For 2021, funded volume through ABAs was approximately 5% of the mortgage
origination segment’s total loan volume. PrimeLending held an interest in three ABAs throughout 2021. In December 2021,
interest in a fourth ABA was added. PrimeLending owns a greater than 50% interest in all four ABAs. We expect total
production within the ABA channel to increase slightly to approximately 7% loan volume of the mortgage origination segment
during 2022.
The following table provides further details regarding our mortgage loan originations and sales for the periods indicated below
(dollars in thousands).
Mortgage Loan Originations - units
Mortgage Loan Originations - volume:
Conventional
Government
Jumbo
Other
Home purchases
Refinancings
Texas
California
Arizona
Florida
South Carolina
Ohio
Missouri
North Carolina
New York
Washington
All other states
2021
Amount
% of
Total
77,263
Year Ended December 31,
2020
% of
Total
Amount
84,209
2019
% of
Total
Amount
61,045
Variance
2021 vs 2020
(6,946)
2020 vs 2019
23,164
$ 15,787,942
3,387,270
2,511,442
981,629
$ 22,668,283
69.65 % $ 16,519,498
4,473,763
14.94 %
1,219,492
11.08 %
757,441
4.33 %
100.00 % $ 22,970,194
71.92 % $
19.48 %
5.31 %
3.29 %
100.00 % $
9,503,044
3,860,802
1,309,317
906,274
15,579,437
61.00 % $
24.78 %
8.40 %
5.82 %
100.00 % $
(731,556) $
(1,086,493)
1,291,950
224,188
(301,911) $
7,016,454
612,961
(89,825)
(148,833)
7,390,757
$ 14,429,190
8,239,093
$ 22,668,283
63.65 % $ 13,413,545
9,556,649
36.35 %
100.00 % $ 22,970,194
58.40 % $
41.60 %
100.00 % $
11,718,772
3,860,665
15,579,437
75.22 % $
24.78 %
100.00 % $
1,015,645
(1,317,556)
$
(301,911) $
$
4,224,691
2,692,198
1,045,218
1,013,206
950,028
868,378
742,220
740,169
705,601
703,239
8,983,335
$ 22,668,283
18.64 % $
11.88 %
4.61 %
4.47 %
4.19 %
3.83 %
3.27 %
3.27 %
3.11 %
3.10 %
39.63 %
4,280,831
2,497,066
1,045,298
1,403,196
929,710
869,393
777,389
719,936
641,387
736,135
9,069,853
100.00 % $ 22,970,194
18.64 % $
10.87 %
4.55 %
6.11 %
4.05 %
3.78 %
3.38 %
3.13 %
2.79 %
3.20 %
39.50 %
100.00 % $
2,999,633
1,561,926
681,486
1,113,827
604,546
642,130
510,025
485,682
456,681
631,549
5,891,952
15,579,437
19.25 % $
10.03 %
4.37 %
7.15 %
3.88 %
4.12 %
3.27 %
3.12 %
2.93 %
4.05 %
37.83 %
100.00 % $
(56,140) $
195,132
(80)
(389,990)
20,318
(1,015)
(35,169)
20,233
64,214
(32,896)
(86,518)
(301,911) $
1,694,773
5,695,984
7,390,757
1,281,198
935,140
363,812
289,369
325,164
227,263
267,364
234,254
184,706
104,586
3,177,901
7,390,757
Mortgage Loan Sales - volume:
Third parties
Banking segment
$ 22,280,872
778,288
$ 23,059,160
96.62 % $ 22,321,599
192,571
100.00 % $ 22,514,170
3.38 %
99.14 % $
0.86 %
100.00 % $
14,442,929
148,798
14,591,727
98.98 % $
1.02 %
100.00 % $
(40,727) $
585,717
544,990
$
7,878,670
43,773
7,922,443
We consider the mortgage origination segment’s total loan origination volume to be a key performance measure. Loan
origination volume is central to the segment’s ability to generate income by originating and selling mortgage loans, resulting
in net gains from the sale of loans, other mortgage production income and other mortgage loan origination fees. Total loan
origination volume is a measure utilized by management, our investors, and analysts in assessing market share and growth of
the mortgage origination segment.
The mortgage origination segment’s total loan origination volume during 2021 decreased 1.3%, compared with 2020, while
income before income taxes during 2021 decreased 42.3%, compared with 2020. The decrease in income before income taxes
during 2021 was primarily the result of a decrease of IRLCs related to a decrease in mortgage loan applications, and a
decrease in the average value of individual IRLCs.
The mortgage origination segment’s total loan origination volume during 2020 increased 47.4% compared with 2019, while
income before income taxes during 2020 increased 530.5%, compared with 2019. The increase in income before income taxes
during 2020 was primarily due to an increase of IRLCs related to an increase in mortgage loan applications, and an increase in
72
the average value of individual IRLCs. These changes were partially offset by increases in variable compensation that varies
with the volume of mortgage loan originations, in non-variable compensation, and segment operating costs.
The information shown in the table below includes certain key performance indicators for the mortgage origination segment.
Net gains from mortgage loan sales (basis points):
Loans sold to third parties
Impact of loans retained by banking segment
As reported
Variable compensation as a percentage of total compensation
Mortgage servicing rights asset ($000's) (end of year) (1)
$
2021
Year Ended December 31,
2020
2019
375
(13)
362
65.8 %
$
86,990
409
(3)
406
69.0 %
$
143,742
327
(3)
324
60.4 %
55,504
(1) Reported on a consolidated basis and therefore does not include mortgage servicing rights assets related to loans serviced for the banking segment, which are eliminated in
consolidation.
Net interest expense was comprised of interest income earned on loans held for sale offset by interest incurred on warehouse
lines of credit primarily held with the Bank, and related intercompany financing costs. The changes in net interest expense
during 2021, compared with 2020, and during 2020, compared with 2019, included the effects of decreased net yields on
mortgage loans held for sale between the two periods.
Noninterest income was comprised of the items set forth in the table below (in thousands).
Net gains from sale of loans
Mortgage loan origination fees and other related income
Other mortgage production income:
$
Change in net fair value and related derivative activity:
IRLCs and loans held for sale
Mortgage servicing rights asset
Servicing fees
Total noninterest income
$
Year Ended December 31,
Variance
2021
2020
2019
2021 vs 2020
2020 vs 2019
834,580
160,011
$
913,474
172,096
(67,714)
2,446
57,667
986,990
$
81,560
(30,119)
35,439
1,172,450
$
$
473,380
130,208
21,253
(15,166)
25,317
634,992
$
$
(78,894) $
(12,085)
440,094
41,888
(149,274)
32,565
22,228
(185,460) $
60,307
(14,953)
10,122
537,458
The decrease in net gains from sale of loans during 2021, compared with 2020, was primarily the result of a decrease in average
loan sales margin, partially offset by a slight increase in loan sales volume. Since PrimeLending sells substantially all mortgage
loans it originates to various investors in the secondary market, the slight increase in loan sales volume during 2021 is consistent
with the relatively flat loan origination volume during the period. The decrease in average loan sales margin was primarily
attributable to competitive pricing pressure resulting from home inventory shortages and a reduction in national refinancing
volume. While average loan sales margins increased between the second and fourth quarters of 2020, margins steadily declined
during 2021, approaching margins recognized at the beginning of the COVID-19 pandemic. The slight decrease in mortgage
loan origination fees during 2021, compared with 2020, was primarily the result of the decrease in average mortgage loan
origination fees, in addition to the slight decrease in loan origination volume during 2021, compared to 2020. During 2020,
compared with 2019, the increase in net gains from sale of loans was primarily a result of an increase in total loan sales volume,
in addition to an increase in average loan sales margin.
We consider the mortgage origination segment’s net gains from sale of loans margin, in basis points, to be a key performance
measure. Net gains from sale of loans margin is defined as net gains from sale of loans divided by loan sales volume. The net
gains from sale of loans is central to the segment’s generation of income, and may include loans sold to third parties and loans
sold to and retained by the banking segment. For origination services provided, the mortgage origination segment was
reimbursed direct origination costs associated with loans retained by the banking segment, in addition to payment of a
correspondent fee. The reimbursed origination costs and correspondent fee are included in the mortgage origination segment
operating results, and the correspondent fees are eliminated in consolidation. Loan volumes to be originated on behalf of and
retained by the banking segment are evaluated each quarter. While we anticipate a leveling off in the quarterly rate of loans sold
to and retained by the banking segment during 2022 compared to the fourth quarter of 2021, we do not expect these sales to
exceed 5% of its total origination volume during this time. In March 2020, the mortgage origination segment executed a letter of
intent with the banking segment to purchase mortgage loans previously sold to the banking segment with an unpaid principal
balance of approximately $210 million. Such original sales of approximately $121 million and $91 million are reflected in the
previous mortgage loan details table within the mortgage loan sales volume to the banking segment in 2020 and 2019,
73
respectively. When these loans were sold at par by the mortgage origination segment, the banking segment’s intent was to hold
these loans for investment. The mortgage origination segment completed the repurchase of these loans from the banking segment
and in turn sold the loans to investors in the secondary market during the second quarter of 2020.
Noninterest income included changes in the net fair value of the mortgage origination segment’s IRLCs and loans held for sale
and the related activity associated with forward commitments used by the mortgage origination segment to mitigate interest
rate risk associated with its IRLCs and loans held for sale. The decrease in fair value of IRLCs and loans held for sale during
2021, compared to 2020, was the result of decreases in the total volume of individual IRLCs and loans held for sale and the
average value of individual IRLCs and loans held for sale. The increase in noninterest income during 2020, compared to 2019,
was the result of an increase in the total volume of individual IRLCs and loans held for sale, as well as an increase in the
average value of individual IRLCs and loans held for sale.
The mortgage origination segment sells substantially all mortgage loans it originates to various investors in the secondary
market, historically with the majority servicing released. In addition, the mortgage origination segment originates loans on
behalf of the Bank. The mortgage origination segment’s determination of whether to retain or release servicing on mortgage
loans it sells is impacted by, among other things, changes in mortgage interest rates, and refinancing and market activity.
During 2021, 2020 and 2019, the mortgage origination segment retained servicing on approximately 29%, 67% and 6% of loans
sold, respectively. During both the second and third quarters of 2020, PrimeLending retained servicing on 89% of total
mortgage loans sold. The increased rate of retained servicing during this time was due to the reduction in third-party servicing
outlets during the second quarter of 2020, resulting from the impact of the CARES Act. The CARES Act permits borrowers of
federally-backed mortgage loans to forbear payments, which could negatively impact servicers’ liquidity and their ability to
purchase servicing. As forbearance requests leveled off during the latter part of 2020, the third-party market for mortgage
servicing rights improved, increasing demand, which allowed PrimeLending to reduce retained servicing to 57% of total
mortgage loans sold during the fourth quarter of 2020, and ultimately to 11% of total mortgage loans sold during the fourth
quarter of 2021. If the third-party market for mortgage servicing rights continue to improve in 2022, we expect that
PrimeLending will continue to reduce retained servicing on mortgage loans sold during that time to levels experienced in 2019.
The mortgage origination segment may, from time to time, manage its MSR asset through different strategies, including varying
the percentage of mortgage loans sold servicing released and opportunistically selling MSR assets. The mortgage origination
segment has also retained servicing on certain loans sold to and retained by the banking segment. Gains and losses associated
with such sales to the banking segment and the related MSR asset are eliminated in consolidation. The mortgage origination
segment uses derivative financial instruments, including U.S. Treasury bond futures and options, as a means to mitigate interest
rate risk associated with its MSR asset. Changes in the net fair value of the MSR asset and the related derivatives associated
with normal customer payments, changes in discount rates, prepayment speed assumptions and customer payoffs resulted in net
gains (losses) as noted in the table above. Included in the net gains and losses for 2021, are MSR asset fair value adjustment
gains totaling $22.8 million, which reflect the difference between the MSR asset carrying values and the sale prices reflected in
the letters of intent to sell the applicable MSR assets. During 2021, the mortgage origination segment sold MSR assets of
$142.6 million, which represented $12.4 billion of its serviced loan volume at the time of sale. During 2020, the mortgage
origination segment sold MSR assets of $36.8 million, which represented $3.8 billion of its serviced loan volume at the time of
sale, while there were no sales of MSR assets during 2019. As of December 31, 2021, the mortgage origination segment had
executed a letter of intent for a pending sale of MSR assets with a serviced loan volume totaling $156.5 million. The sale of
these MSR assets is expected to be completed during the first quarter of 2022 at a total price of approximately $2.0 million. The
value assigned these MSR assets as of December 31, 2021, reflects the price included in this letter of intent.
Noninterest expenses were comprised of the items set forth in the table below (in thousands).
Variable compensation
Non-variable compensation and benefits
Segment operating costs
Lender paid closing costs
Servicing expense
Total noninterest expense
Year Ended December 31,
2020
2021
$
$
373,929
194,292
113,020
20,458
29,357
731,056
$
$
405,116
181,597
125,104
21,696
20,404
753,917
$
$
252,956
166,179
112,128
19,698
13,037
563,998
$
$
Variance
(31,187) $
12,695
(12,084)
(1,238)
8,953
(22,861) $
2020 vs 2019
152,160
15,418
12,976
1,998
7,367
189,919
2019
2021 vs 2020
Total employees’ compensation and benefits accounted for the majority of the noninterest expenses incurred during all periods
presented. Specifically, variable compensation comprised the majority of total employees’ compensation and benefits expenses
during 2021, 2020 and 2019. The changes in the percentage concentration of variable compensation and benefits for all periods
were primarily due to changes in the average incentive rate paid and the impact of incentive plans driven by non-mortgage
production criteria. Variable compensation, which is primarily driven by loan origination volume, tends to fluctuate to a greater
74
degree than loan origination volume because mortgage loan originator and fulfillment staff incentive compensation plans are
structured to pay at increasing rates as higher monthly volume tiers are achieved. However, certain other incentive
compensation plans driven by non-mortgage production criteria may alter this trend.
While total loan origination volumes decreased 1.3% during 2021, compared with 2020, the aggregate non-variable
compensation and benefits of the mortgage origination segment increased by 7.0%. This increase during 2021, compared with
2020, was primarily due to an increase in salaries mainly resulting from increased underwriting and loan fulfillment staff to
support the increase in loan origination volume starting in the second quarter of 2020. These additional staff continued to be
needed to support loan origination volumes during the remainder of 2020 and throughout 2021. Segment operating costs
decreased in 2021, compared to 2020, primarily due to decreases in loan related costs, software amortization expense and
software license and maintenance costs. The mortgage origination segment’s operating costs increased 11.6% during 2020,
compared with 2019, while total loan origination volumes increased 47.4%. The increase during 2020, compared with 2019,
was primarily due to an increase in overtime expense incurred due to increased loan volume and an increase in salaries
resulting from increased underwriting and loan fulfillment staff, to support the increase in loan origination volume beginning
in the second quarter of 2020.
In exchange for a higher interest rate, customers may opt to have PrimeLending pay certain costs associated with the
origination of their mortgage loan (“lender paid closing costs”). Fluctuations in lender paid closing costs are not always
aligned with fluctuations in loan origination volume. Other loan pricing conditions, including the mortgage loan interest rate,
loan origination fees paid by the customer, and a customer’s willingness to pay closing costs, may influence fluctuations in
lender paid closing costs.
Between January 1, 2012 and December 31, 2021, the mortgage origination segment sold mortgage loans totaling $151.9
billion. These loans were sold under sales contracts that generally include provisions that hold the mortgage origination
segment responsible for errors or omissions relating to its representations and warranties that loans sold meet certain
requirements, including representations as to underwriting standards and the validity of certain borrower representations in
connection with the loan. In addition, the sales contracts typically require the refund of purchased servicing rights plus certain
investor servicing costs if a loan experiences an early payment default. While the mortgage origination segment sold loans
prior to 2012, it does not anticipate experiencing significant losses in the future on loans originated prior to 2012 because of
investor claims under these provisions of its sales contracts.
When a claim for indemnification of a loan sold is made by an agency, investor, or other party, the mortgage origination
segment evaluates the claim and determines if the claim can be satisfied through additional documentation or other
deliverables. If the claim is valid and cannot be satisfied in that manner, the mortgage origination segment negotiates with the
claimant to reach a settlement of the claim. Settlements typically result in either the repurchase of a loan or reimbursement to
the claimant for losses incurred on the loan.
Following is a summary of the mortgage origination segment’s claims resolution activity relating to loans sold between
January 1, 2012 and December 31, 2021 (dollars in thousands).
Claims resolved with no payment
Claims resolved because of a loan repurchase or
payment to an investor for losses incurred (1)
Original Loan Balance
Loss Recognized
% of
Amount
Loans Sold
Amount
% of
Loans Sold
215,848
0.14 % $
—
- %
235,968
451,816
0.16 %
0.30 % $
9,452
9,452
0.01 %
0.01 %
$
$
(1) Losses incurred include refunded purchased servicing rights.
For each loan the mortgage origination segment concludes its obligation to a claimant is both probable and reasonably
estimable, the mortgage origination segment has established a specific claims indemnification liability reserve. An additional
indemnification liability reserve has been established for probable agency, investor or other party losses that may have been
incurred, but not yet reported to the mortgage origination segment based upon a reasonable estimate of such losses. In addition
to other factors, the mortgage origination segment has considered that GNMA, FNMA and FHLMC have imposed certain
restrictions on loans the agencies will accept under a forbearance agreement resulting from the COVID-19 pandemic, which
could increase the magnitude of indemnification losses on these loans.
75
At December 31, 2021 and 2020, the mortgage origination segment’s total indemnification liability reserve totaled $27.4
million and $21.5 million, respectively. The related provision for indemnification losses was $10.0 million, $11.2 million, and
$3.1 million during 2021, 2020 and 2019, respectively.
Corporate
The following table presents certain financial information regarding the operating results of corporate (in thousands).
Net interest income (expense)
Noninterest income
Noninterest expense
Income (loss) from continuing operations before income taxes
2021
Year Ended December 31,
2020
2019
2021 vs 2020
2020 vs 2019
Variance
$
$
(17,239) $
9,133
50,507
(58,613) $
(14,192)
3,945
53,040
(63,287)
$
$
(5,541)
2,104
50,968
(54,405)
$
$
(3,047)
5,188
(2,533)
4,674
$
$
(8,651)
1,841
2,072
(8,882)
Corporate includes certain activities not allocated to specific business segments. These activities include holding company
financing and investing activities, merchant banking investment opportunities and management and administrative services to
support the overall operations of the Company. Hilltop’s merchant banking investment activities include the identification of
attractive opportunities for capital deployment in companies engaged in non-financial activities through its merchant bank
subsidiary, Hilltop Opportunity Partners LLC.
As a holding company, Hilltop’s primary investment objectives are to support capital deployment for organic growth and to
preserve capital to be deployed through acquisitions, dividend payments and potential stock repurchases. Investment and
interest income earned during 2021 was primarily comprised of dividend income from merchant banking investment activities,
in addition to interest income earned on intercompany notes.
Interest expense from continuing operations during 2021, 2020 and 2019 included recurring annual interest expense of $7.7
million incurred on our $150.0 million aggregate principal amount of 5% senior notes due 2025 (“Senior Notes”). During
2021 and 2020, we incurred interest expense of $12.3 million and $7.9 million on our $200 million aggregate principal amount
of Subordinated Notes, which were issued in May 2020. Additionally, we incurred interest expense of $1.6 million, $2.8
million and $3.9 million during 2021, 2020 and 2019, respectively, on junior subordinated debentures of $67.0 million issued
by PCC (the “Debentures”). As discussed in more detail within the section titled “Liquidity and Capital Resources — Junior
Subordinated Debentures” below, during the third quarter of 2021, PCC fully redeemed all outstanding Debentures.
Noninterest income from continuing operations during each period included activity related to our investment in a real estate
development in Dallas’ University Park, Hilltop Plaza, which also serves as headquarters for both Hilltop and the Bank, and
net noninterest income associated with activity within our merchant bank subsidiary. During 2021, noninterest income
included an aggregate of $6.5 million in pre-tax gains associated with observable transactions related to two merchant bank
equity investments.
Noninterest expenses from continuing operations were primarily comprised of employees’ compensation and benefits,
occupancy expenses and professional fees, including corporate governance, legal and transaction costs. During 2021,
compared with 2020, the decrease in noninterest expenses was primarily due to decreases in expenses associated with
employees’ incentive compensation and professional fees. During 2020, compared with 2019, the increase in noninterest
expenses was primarily due to increased employees’ compensation and benefits costs associated with the consolidation of
certain common back office functions into corporate and improved operating results, and professional fees, partially offset by
a decrease of $6.8 million of aggregate pre-tax costs associated with the leadership changes and efficiency initiative-related
charges.
76
Results from Discontinued Operations
Insurance Segment
As previously discussed, on June 30, 2020, we completed the sale of NLC. Accordingly, insurance segment results for 2020
and 2019 have been presented as discontinued operations in the consolidated financial statements. Additional details are
presented in Note 3, Discontinued Operations, in the notes to our consolidated financial statements. All activity associated
with the insurance segment was recognized in 2020, therefore, there was no income from discontinued operations before taxes
during 2021, while income from discontinued operations before income taxes was $2.1 million and $17.6 million during 2020
and 2019, respectively.
Corporate
As a result of the previously noted sale of NLC on June 30, 2020 for cash proceeds of $154.1 million, during 2020, Hilltop
recognized an aggregate pre-tax gain on sale within discontinued operations of corporate of $36.8 million, net of customary
transaction costs of $5.1 million. The resulting book gain from this sale transaction was not recognized for tax purposes
pursuant to the rules under the Internal Revenue Code.
Financial Condition
The following discussion contains a more detailed analysis of our financial condition at December 31, 2021 as compared to
December 31, 2020 and December 31, 2019.
Securities Portfolio
At December 31, 2021, investment securities consisted of securities of the U.S. Treasury, U.S. government and its agencies,
obligations of municipalities and other political subdivisions, primarily in the State of Texas, as well as mortgage-backed,
corporate debt, and equity securities. We may categorize investments as trading, available for sale, held to maturity and equity
securities.
Trading securities are bought and held principally for the purpose of selling them in the near term and are carried at fair value,
marked to market through operations and held at the Bank and the Hilltop Broker-Dealers. Securities classified as available for
sale may, from time to time, be bought and sold in response to changes in market interest rates, changes in securities’
prepayment risk, increases in loan demand, general liquidity needs and to take advantage of market conditions that create more
economically attractive returns. Such securities are carried at estimated fair value, with unrealized gains and losses recorded in
accumulated other comprehensive income (loss). Equity investments are carried at fair value, with all changes in fair value
recognized in net income. Securities are classified as held to maturity based on the intent and ability of our management, at the
time of purchase, to hold such securities to maturity. These securities are carried at amortized cost.
77
The table below summarizes our securities portfolio from continuing operations (in thousands).
Trading securities, at fair value
U.S. Treasury securities
U.S. government agencies:
Bonds
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
Corporate debt securities
States and political subdivisions
Unit investment trusts
Private-label securitized product
Other
Securities available for sale, at fair value
U.S. Treasury securities
U.S. government agencies:
Bonds
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
States and political subdivisions
Securities held to maturity, at amortized cost
U.S. government agencies:
Bonds
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
States and political subdivisions
Equity securities, at fair value
Total securities portfolio
2021
December 31,
2020
2019
$
3,728
$
40,491
$
—
3,410
152,093
126,389
—
60,671
285,376
—
11,377
4,954
647,998
14,862
44,133
898,446
210,699
916,866
45,562
2,130,568
—
9,892
145,742
43,990
68,060
267,684
250
40
336,081
876
69,172
62,481
171,573
—
8,571
4,970
694,255
—
82,806
641,611
124,538
565,908
47,342
1,462,205
—
13,547
152,820
74,932
70,645
311,944
140
24,680
331,601
2,145
191,154
36,973
93,117
3,468
2,992
3,446
689,576
—
85,575
437,029
12,031
335,616
41,242
911,493
24,020
17,776
161,624
113,894
69,012
386,326
166
$
3,046,500
$
2,468,544
$
1,987,561
We had net unrealized losses of $18.1 million at December 31, 2021, compared with net unrealized gains of $26.3 million and
$11.7 million at December 31, 2020 and 2019, respectively, related to the available for sale investment portfolio and net
unrealized gains of $8.6 million, $14.7 million and $2.6 million at December 31, 2021, 2020 and 2019, respectively,
associated with the securities held to maturity portfolio. Equity securities included net unrealized gains of $0.2 million, $0.1
million and $0.1 million at December 31, 2021, 2020 and 2019, respectively. The noted significant change in net unrealized
gains (losses) within our available for sale investment portfolio from December 31, 2020 to December 31, 2021 was related to
increases in market interest rates since purchase and the resulting decline in associated estimated fair values of such portfolio
investments. In future periods, changes in prevailing market interest rates, coupled with changes in the aggregate size of the
investment portfolio, will be significant drivers to changes in the unrealized losses or gains in these portfolios.
Banking Segment
The banking segment’s securities portfolio plays a role in the management of our interest rate sensitivity and generates
additional interest income. In addition, the securities portfolio is used to meet collateral requirements for public and trust
deposits, securities sold under agreements to repurchase and other purposes. The available for sale and equity securities
portfolios serve as a source of liquidity. Historically, the Bank’s policy has been to invest primarily in securities of the U.S.
government and its agencies, obligations of municipalities in the State of Texas and other high grade fixed income securities to
minimize credit risk. At December 31, 2021, the banking segment’s securities portfolio of $2.4 billion was comprised of
trading securities of $0.1 million, available for sale securities of $2.1 billion, held to maturity securities of $267.7 million and
equity securities of $0.2 million, in addition to $14.4 million of other investments included in other assets within the
consolidated balance sheets.
78
Broker-Dealer Segment
The broker-dealer segment holds securities to support sales, underwriting and other customer activities. The interest rate risk
inherent in holding these securities is managed by setting and monitoring limits on the size and duration of positions and on
the length of time the securities can be held. The Hilltop Broker-Dealers are required to carry their securities at fair value and
record changes in the fair value of the portfolio in operations. Accordingly, the securities portfolio of the Hilltop Broker-
Dealers included trading securities of $647.9 million at December 31, 2021. In addition, the Hilltop Broker-Dealers enter into
transactions that represent commitments to purchase and deliver securities at prevailing future market prices to facilitate
customer transactions and satisfy such commitments. Accordingly, the Hilltop Broker-Dealers’ ultimate obligation may
exceed the amount recognized in the financial statements. These securities, which are carried at fair value and reported as
securities sold, not yet purchased in the consolidated balance sheets, had a value of $96.6 million at December 31, 2021.
Corporate
At December 31, 2021, the corporate portfolio included other investments, including those associated with merchant banking,
of $29.0 million in other assets within the consolidated balance sheets.
Allowance for Credit Losses for Available for Sale Securities and Held to Maturity Securities
We have evaluated available for sale debt securities that are in an unrealized loss position and have determined that any
declines in value are unrelated to credit loss and related to changes in market interest rates since purchase. None of the
available for sale debt securities held were past due at December 31, 2021. In addition, as of December 31, 2021, we had
evaluated our held to maturity debt securities, considering the current credit ratings and recognized losses, and determined the
potential credit loss to be minimal. With respect to these securities, we considered the risk of credit loss to be negligible, and
therefore, no allowance was recognized on the debt securities portfolio at December 31, 2021.
The following table sets forth the estimated maturities of our debt securities, excluding trading securities, at December 31,
2021. Contractual maturities may be different (dollars in thousands, yields are tax-equivalent).
U.S. Treasury securities:
Amortized cost
Fair value
Weighted average yield (1)
U.S. government agencies:
Bonds:
Amortized cost
Fair value
Weighted average yield (1)
Residential mortgage-backed securities:
Amortized cost
Fair value
Weighted average yield (1)
Commercial mortgage-backed securities:
Amortized cost
Fair value
Weighted average yield (1)
Collateralized mortgage obligations:
Amortized cost
Fair value
Weighted average yield (1)
States and political subdivisions:
Amortized cost
Fair value
Weighted average yield (1)
Total securities portfolio:
Amortized cost
Fair value
Weighted average yield (1)
One Year
Or Less
One Year to Five Years to Greater Than
Five Years
Ten Years
Ten Years
Total
$
$
$
$
$
$
$
$
9,964
9,962
0.36 %
—
—
—
3
3
2.44 %
$
$
$
$
$
$
4,973
4,900
0.87 %
22,811
23,264
2.14 %
3,835
3,989
3.31 %
—
—
—
—
—
—
870
877
4.17 %
$
96,821
$ 100,109
2.84 %
2,502
2,538
1.86 %
8,432
8,742
3.32 %
$
$
$
$
10,837
10,842
$ 139,374
$ 143,542
$
$
$
$
$
$
$
$
$
$
$
$
—
—
—
—
—
—
4,536
4,623
0.80 %
97,037
99,674
1.99 %
173,172
171,136
1.78 %
120,004
119,854
0.97 %
24,346
25,392
3.59 %
$
$
$
$
$
$
$
$
$
$
16,101
16,246
1.14 %
809,101
805,072
1.51 %
95,209
90,507
1.37 %
848,267
838,940
1.24 %
78,335
81,036
3.40 %
$
$
$
$
$
$
$
$
$
$
$
$
14,937
14,862
0.53 %
43,448
44,133
1.63 %
909,976
908,738
1.57 %
365,202
361,752
1.95 %
970,773
961,332
1.21 %
111,983
116,047
3.44 %
419,095
420,679
$ 1,847,013
$ 1,831,801
$ 2,416,319
$ 2,406,864
0.67 %
2.68 %
1.69 %
1.46 %
1.56 %
(1) Weighted average yield is defined as interest earned by average interest-earning assets.
79
Loan Portfolio
Consolidated loans held for investment are detailed in the tables below, classified by portfolio segment (in thousands).
Loan Held for Investment
Commercial real estate
Commercial and industrial
Construction and land development
1-4 family residential
Consumer
Broker-dealer
Loans held for investment, gross
Allowance for credit losses
Loans held for investment, net of allowance
Banking Segment
2021
3,042,729
1,875,420
892,783
1,303,430
32,349
733,193
7,879,904
(91,352)
7,788,552
$
$
December 31,
2020
3,133,903
2,627,774
828,852
629,938
35,667
437,007
7,693,141
(149,044)
7,544,097
$
$
$
$
2019
3,000,523
2,025,720
940,564
791,020
47,046
576,527
7,381,400
(61,136)
7,320,264
The loan portfolio constitutes the primary earning asset of the banking segment and typically offers the best alternative for
obtaining the maximum interest spread above the banking segment’s cost of funds. The overall economic strength of the
banking segment generally parallels the quality and yield of its loan portfolio.
The banking segment’s total loans held for investment, net of the allowance for credit losses, were $8.8 billion, $9.6 billion and
$8.6 billion at December 31, 2021, 2020 and 2019, respectively. The banking segment’s loan portfolio included warehouse
lines of credit extended to PrimeLending of $3.3 billion, of which $1.7 billion, $2.5 billion and $1.8 billion was drawn at
December 31, 2021, 2020 and 2019, respectively. Effective January 1, 2022, these warehouse lines of credit were decreased to
$2.8 billion to address expected declines in loan origination volumes. Amounts advanced against the warehouse lines of credit
are eliminated from net loans held for investment on our consolidated balance sheets. The banking segment does not generally
participate in syndicated loan transactions and has no foreign loans in its portfolio.
The banking segment’s loan portfolio included approximately $78 million related to both initial and second round PPP loans at
December 31, 2021. While these loans have terms of up to 60 months, borrowers can apply for forgiveness of these loans with
the SBA. Through February 11, 2022, the SBA had approved approximately 3,700 initial and second round PPP forgiveness
applications from the Bank totaling approximately $840 million, with PPP loans of approximately $4 million currently pending
SBA review and approval. We anticipate a significant amount of these remaining PPP loans pending approval being forgiven
over the next two quarters. The forgiveness/payoff of the PPP loans would generate an increase in interest income as we would
recognize the remaining unamortized origination fee at the time of payoff.
At December 31, 2021, the banking segment had loan concentrations (loans to borrowers engaged in similar activities) that
exceeded 10% of total loans in its real estate portfolio. The areas of concentration within our real estate portfolio were non-
construction commercial real estate loans, non-construction residential real estate loans, and construction and land
development loans, which represented 42.6%, 18.2% and 12.5%, respectively, of the banking segment’s total loans held for
investment at December 31, 2021. The banking segment’s loan concentrations were within regulatory guidelines at
December 31, 2021.
80
The following table provides information regarding the maturities of the banking segment’s gross loans held for investment, net
of unearned income (in thousands).
Commercial real estate
Commercial and industrial
Construction and land development
1-4 family residential
Consumer
Total
Due Within
One Year
419,330
$
2,936,441
372,915
118,683
20,738
$ 3,868,107
Due From One Due from Five Due After
December 31, 2021
To Five Years
$ 1,511,778
495,633
384,809
215,418
11,367
$ 2,619,005
Total
To Fifteen Years Fifteen Years
$
964,373 $ 147,248 $ 3,042,729
3,588,954
156,880
129,594
892,783
1,303,430
242,050
32,349
223
$ 1,493,120 $ 880,013 $ 8,860,245
—
5,465
727,279
21
Fixed rate loans
Floating rate loans
Total
$ 3,623,736
244,371
$ 3,868,107
$ 2,357,533
261,472
$ 2,619,005
$ 1,423,894 $ 880,013 $ 8,285,176
575,069
$ 1,493,120 $ 880,013 $ 8,860,245
69,226
—
In the table above, commercial and industrial includes amounts advanced against the warehouse lines of credit extended to
PrimeLending. Floating rate loans that have reached their applicable rate floor or ceiling are classified as fixed rate loans
rather than floating rate loans. As of December 31, 2021, floating rate loans totaling $1.3 billion had reached their applicable
rate floor. The majority of floating rate loans carry an interest rate tied to The Wall Street Journal Prime Rate, as published in
The Wall Street Journal.
Broker-Dealer Segment
The loan portfolio of the broker-dealer segment consists primarily of margin loans to customers and correspondents that are
due within one year. The interest rate on margin accounts is computed on the settled margin balance at a fixed rate established
by management. These loans are collateralized by the securities purchased or by other securities owned by the clients and,
because of collateral coverage ratios, are believed to present minimal collectability exposure. Additionally, these loans are
subject to a number of regulatory requirements as well as the Hilltop Broker-Dealers’ internal policies. The broker-dealer
segment’s total loans held for investment, net of the allowance for credit losses, were $733.0 million, $436.8 million and
$576.5 million at December 31, 2021, 2020 and 2019, respectively. The increase from December 31, 2020 to December 31,
2021, was primarily attributable to an increase of $169.9 million, or 66.2%, in customer margin accounts and an increase of
$125.9 million, or 69.9%, in receivables from correspondents. The decrease from December 31, 2019 to December 31, 2020
was primarily attributable to a decrease of $54.1 million or 17.4%, in customer margin accounts and a decrease of $84.0
million, or 31.8%, in receivables from correspondents.
Mortgage Origination Segment
The loan portfolio of the mortgage origination segment consists of loans held for sale, primarily single-family residential
mortgages funded through PrimeLending, and IRLCs with customers pursuant to which we agree to originate a mortgage loan
on a future date at an agreed-upon interest rate. The components of the mortgage origination segment’s loans held for sale and
IRLCs are as follows (in thousands).
Loans held for sale:
Unpaid principal balance
Fair value adjustment
IRLCs:
Unpaid principal balance
Fair value adjustment
2021
1,728,255
54,336
1,782,591
1,283,152
25,489
1,308,641
$
$
$
$
December 31,
2020
$
$
$
$
2,411,626
109,778
2,521,404
2,470,013
76,048
2,546,061
2019
1,878,231
57,482
1,935,713
914,526
18,222
932,748
$
$
$
$
The mortgage origination segment uses forward commitments to mitigate interest rate risk associated with its loans held for
sale and IRLCs. The notional amounts of these forward commitments at December 31, 2021, 2020 and 2019 were $2.4 billion,
81
$4.0 billion and $2.2 billion, respectively, while the related estimated fair values were $0.4 million, ($28.0) million and ($3.8)
million, respectively.
Allowance for Credit Losses on Loans
For additional information regarding the allowance for credit losses, refer to the section captioned “Critical Accounting
Estimates” included in this Form 10-K.
Loans Held for Investment
The Bank 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 regulations. Loans are
underwritten with careful consideration of the borrower’s financial condition, the specific purpose of the loan, the primary
sources of repayment and any collateral pledged to secure the loan.
Underwriting procedures address financial components based on the size and complexity of the credit. The financial
components include, but are not limited to, current and projected cash flows, shock analysis and/or stress testing, and trends in
appropriate balance sheet and statement of operations ratios. The Bank’s loan policy provides specific underwriting guidelines
by portfolio segment, including commercial and industrial, real estate, construction and land development, and consumer
loans. The guidelines for each individual portfolio segment set forth permissible and impermissible loan types. With respect to
each loan type, the guidelines within the Bank’s loan policy provide minimum requirements for the underwriting factors listed
above. The Bank’s underwriting procedures also include an analysis of any collateral and guarantor. Collateral analysis
includes a complete description of the collateral, as well as determined 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 cash flow evaluation based on the significance with which the guarantors are expected to serve as
secondary repayment sources.
The Bank 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 Bank’s board of directors and the Risk Committee of the board of directors of the Company.
The allowance for credit losses for loans held for investment represents management’s best estimate of all expected credit
losses over the expected contractual life of our existing portfolio. Determining the appropriateness of the allowance is complex
and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the
then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit
losses in those future periods. Such future changes in the allowance for credit losses are expected to be volatile given
dependence upon, among other things, the portfolio composition and quality, as well as the impact of significant drivers,
including prepayment assumptions and macroeconomic conditions and forecasts.
The COVID-19 pandemic disrupted financial markets and overall economic conditions that have affected borrowers across our
lending portfolios. Significant judgment is required to estimate the severity and duration of the current economic uncertainties,
as well as its potential impact on borrower defaults and loss severity. In particular, macroeconomic conditions and forecasts
are rapidly changing and remain highly uncertain as COVID-19 cases and vaccine effectiveness, as well as government
stimulus and policy measures, evolve nationally and in key geographies. It is difficult to predict exactly how borrower
behavior will be impacted by these economic conditions as the effectiveness of vaccinations, government stimulus and policy
measures, customer relief and enhanced unemployment benefits have helped mitigate in the short term, but the extent and
duration of government stimulus remains uncertain.
One of the most significant judgments involved in estimating our allowance for credit losses relates to the macroeconomic
forecasts used to estimate credit losses over the reasonable and supportable forecast period. To determine the allowance for
credit losses as of December 31, 2021, we utilized a single macroeconomic consensus scenario published by a Moody’s
Analytics in December 2021.
During our previous quarterly macroeconomic assessment as of September 30, 2021, we utilized the single macroeconomic
alternative baseline, or S7, scenario published by Moody’s Analytics. The change to the consensus scenario as of
82
December 31, 2021 was based on our evaluation of the Moody’s baseline economic forecast compared to other industry
surveys over the reasonable and supportable period and our assessment of the reasonableness of impacts associated with the
key monetary and government stimulus policy assumptions. The consensus economic scenario considered several industry
surveys in the near-term forecasts and assumes reversion to the long-term trends embedded in the baseline economic scenario
before reverting to historical data.
The following table summarizes the U.S. Real Gross Domestic Product (“GDP”) growth rates and unemployment rate
assumptions used in our economic forecast to determine our best estimate of expected credit losses.
GDP growth rates:
December 31,
2021
September 30,
2021
As of
June 30,
2021
March 31,
2021
December 31,
2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Unemployment rates:
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
5.0%
7.5%
4.6%
2.8%
1.3%
1.5%
2.4%
5.2%
4.5%
3.9%
3.5%
3.4%
3.3%
3.3%
10.8%
6.6%
6.9%
5.4%
2.8%
2.3%
1.8%
5.8%
5.2%
4.5%
4.0%
3.7%
3.6%
3.5%
6.7%
3.6%
3.5%
2.3%
2.7%
3.0%
2.4%
4.3%
4.3%
4.0%
3.8%
3.6%
3.7%
3.7%
5.0%
6.5%
6.7%
4.8%
3.2%
2.5%
2.1%
6.3%
6.2%
5.8%
5.4%
5.1%
4.9%
4.7%
4.0%
1.6%
4.5%
4.7%
5.8%
4.8%
4.4%
6.7%
6.9%
7.1%
7.0%
6.8%
6.5%
6.2%
As of December 31, 2021, our economic forecast improved from September 30, 2021 based on updated economic data,
including November unemployment rates improving faster than the prior quarter’s forecast despite tight labor market
conditions and accelerated rates of the Federal Reserve’s taper of monthly asset purchases. We now assume the Federal
Reserve continues to support a target range of the federal funds rate near 0% through monetary policy support and assume
interest rates begin to rise as early as the second quarter of 2022. Real GDP growth rates were revised lower due to persistently
higher inflation data and observed supply-chain impacts on business and consumer spending due to the delta variant. Given the
timing of the Moody’s economic forecast release in early December 2021, the forecast utilized also assumed that COVID-19
cases peaked in January 2021, but did not assume a third wave of COVID-19 cases due to the omicron variant into the winter
months. The forecast also did not consider uncertainty related to additional fiscal support from the Build Back Better proposal,
so our model results were qualitatively adjusted to consider these recent developments as of December 31, 2021.
Since December 31, 2020, our economic forecast improved year-over-year due to a third round of $1.9 trillion in government
stimulus enacted in March 2021 through the American Rescue Plan Act. As a result of additional stimulus checks, enhanced
unemployment benefits, extended lending from the PPP program, and expanded tax credits, consumer and business spending
accelerated the U.S. real GDP growth rate in the second quarter of 2021 to 6.3% and in the third quarter of 2021 to 6.7%.
Also, in March 2021, President Biden implemented new programs to extend COVID-19 testing and vaccine eligibility for
most adults in the United States by May 2021. Most states also ended their participation in federal pandemic unemployment
benefit programs in early summer 2021. The U.S. unemployment rate decreased from 6.7% in December 2020 to 5.9% in June
2021 and decreased further to 4.2% by November 2021. In August 2021, a second wave of COVID-19 cases progressed within
the United States and Texas due to the delta variant, which slowed U.S. economic growth and real GDP growth rates to 2.3%
in the third quarter of 2021. Then, in November 2021, Congress passed a fourth round of $0.6 trillion in government stimulus
83
through the Infrastructure Investment and Jobs Act, and during December 2021, a third wave of COVID-19 cases progressed
in the United States and Texas due to the new omicron variant.
During 2020, our baseline economic forecast changed significantly year-over-year in response to weak economic conditions
caused by the COVID-19 pandemic as developments occurred rapidly in February and March 2020 associated with fiscal and
monetary stimulus measures and the expected beneficial impacts of the CARES Act and certain regulatory interagency
guidance. As of December 31, 2019, we assumed the U.S. economy was in the late stages of the economic cycle with
unemployment rates near historical lows of 3.6% increasing to 3.8% in the fourth quarter of 2020 and reverting to historical
data in the fourth quarter of 2022. Downside risks to the economy were concerns over international trade war between the U.S.
and its trading partners and potential fallout from a Brexit in 2020. Interest rate expectations assumed one rate cut in 2020 with
the Federal Reserve target range of the federal funds rate at 1.25% to 1.50% before reverting to historical data in 2023. In
response to the COVID-19 pandemic, the Federal Reserve twice cut federal funds rate targets in March 2020 to 0% to 0.25%
with interest rate expectations as of December 31, 2020 unchanged until late 2023. Several U.S. fiscal and monetary policy
changes during early 2020 were enacted to counter a severe, but short U.S. recession during the first half of 2020 and support a
strong economic recovery during the second half of 2020 with U.S. budget deficits increasing to more than $3 trillion during
the year. U.S. unemployment rates reached 14.8% in April 2020 before declining to 6.7% as of December 31, 2020, which was
3.1% higher than the unemployment rate as of December 31, 2019. Annualized real GDP growth rates declined 31.4% in the
second quarter of 2020 and increased 33.4% in the third quarter of 2020. The U.S. presidential election later in 2020 resulted
in several changes, as Presidential Candidate Joe Biden won the electoral vote to replace President Donald Trump in 2021 and
majority control of the U.S. Congress moved from Republican to Democratic parties. As economic growth slowed during the
fourth quarter of 2020, additional government stimulus of approximately $900 billion was approved.
As previously discussed, we adopted the new CECL standard and recorded transition adjustment entries that resulted in an
allowance for credit losses for loans held for investment of $73.7 million as of January 1, 2020, an increase of $12.6 million.
This increase reflected credit losses of $18.9 million from the expansion of the loss horizon to life of loan and also takes into
account forecasts of expected future macroeconomic conditions, partially offset by the elimination of the non-credit
component within the historical allowance related to previously categorized PCI loans of $6.3 million. This increase, net of
tax, was largely reflected within the banking segment and included a decrease of $5.7 million to opening retained earnings at
January 1, 2020.
During 2021, the decreases in the allowance for credit losses reflected improvement in both realized economic results and the
macroeconomic outlook and were significantly comprised of net reversals of credit losses on expected losses of collectively
evaluated loans of $58.3 million. Such reversals were primarily due to improvements in both macroeconomic forecast
assumptions and credit quality metrics on COVID-19 impacted industry sector exposures. The net impact to the allowance of
changes associated with individually evaluated loans during 2021 included a provision for credit losses of $0.1 million. The
change in the allowance for credit losses during 2021 was primarily attributable to the Bank and also reflected other factors
including, but not limited to, loan growth, loan mix, and changes in loan balances and qualitative factors. The change in the
allowance during 2021 was also impacted by net recoveries of $0.5 million.
As discussed under the section titled “Loan Portfolio” earlier in this Item 7, the Bank’s actions, beginning in the second and
third quarters of 2020, included supporting our impacted banking clients experiencing an increased level of risk due to the
COVID-19 pandemic through loan modifications. This deteriorating economic outlook resulted in a significant build in the
allowance and included provision for credit losses through the second quarter of 2020. Beginning in the fourth quarter of 2020,
improvement in both economic results and the macroeconomic outlook, coupled with government stimulus and positive risk
rating grade migration within the Bank, have resulted in aggregate reversals of a significant portion of previously recorded
credit losses. As a result, the allowance for credit losses as a percentage of our total loan portfolio, excluding margin loans in
the broker-dealer segment and banking segment mortgage warehouse lending and PPP lending programs, was 1.37% as of
December 31, 2021, down from a high of 2.63% as of September 30, 2020.
84
The respective distribution of the allowance for credit losses as a percentage of our total loan portfolio and total active loan
modifications, excluding margin loans in the broker-dealer segment and banking segment mortgage warehouse lending and
PPP lending programs, are presented in the following table (dollars in thousands).
December 31, 2021
Commercial real estate
Commercial and industrial (1)
Construction and land development
1-4 family residential
Consumer
$
Broker-dealer
Mortgage warehouse lending
Paycheck Protection Program
$
Total
Loans Held
For Investment
Total
Allowance
for Credit
Losses
Allowance For
Credit Losses
as a % of
Total Loans
Held For
Investment
Active
Loan
Modifications
Allowance
For Credit
Losses on
Active
Loan
Allowance For
Credit Losses
as a % of
Active
Loan
3,042,729 $
1,385,701
892,783
1,303,430
32,349
6,656,992
733,193
411,973
77,746
7,879,904 $
59,354
21,768
4,674
4,589
578
90,963
175
214
—
91,352
1.95 % $
1.57 %
0.52 %
0.35 %
1.79 %
1.37 %
0.02 %
0.05 %
— %
1.16 % $
Modifications Modifications
—
—
—
54
—
54
— %
— %
— %
1.51 %
— %
1.51 %
— $
—
—
3,573
—
3,573
—
—
—
3,573 $
—
—
—
54
— %
— %
— %
1.51 %
(1) Commercial and industrial portfolio amounts reflect balances excluding banking segment mortgage warehouse lending and PPP loans.
Allowance Model Sensitivity
Our allowance model was designed to capture the historical relationship between economic and portfolio changes. As such,
evaluating shifts in individual portfolio attributes or macroeconomic variables in isolation may not be indicative of past or
future performance. It is difficult to estimate how potential changes in any one factor or input might affect the overall
allowance for credit losses because we consider a wide variety of factors and inputs in the allowance for credit losses estimate.
Changes in the factors and inputs considered may not occur at the same rate and may not be consistent across all geographies
or product types, and changes in factors and input may be directionally inconsistent, such that improvement in one factor may
offset deterioration in others.
However, to consider the sensitivity of credit loss estimates to alternative macroeconomic forecasts, we compared the
Company’s allowance for credit loss estimates as of December 31, 2021, excluding margin loans in the broker-dealer segment,
the banking segment mortgage warehouse and PPP lending programs, with modeled results using both upside (“S1”) and
downside (“S3”) economic scenario forecasts published by Moody’s Analytics.
Compared to our economic forecast, the upside scenario assumes consumer and business confidence increases as new cases,
hospitalizations and deaths from COVID-19 recede faster than expected, while availability and acceptance of vaccines and
consumer spending accelerate more than expected. Real GDP is expected to grow 9.3% in the first quarter of 2022, 6.6% in
the second quarter of 2022, 4.2% in the third quarter of 2022, and 4.4% in the fourth quarter of 2022. Average unemployment
rates decline to 3.7% by the first quarter of 2022 and 3.0% by the end of 2022. Monetary and fiscal policy assumptions include
the Federal Reserve maintaining a near 0% target for the federal funds rate until the third quarter of 2022 and additional
government infrastructure and social program spending approved in the fourth quarter of 2021 of $2.3 trillion with supply-
chain issues resolving more quickly than anticipated.
Compared to our economic forecast, the downside scenario assumes consumer and business confidence declines as new cases,
hospitalizations and deaths from COVID-19 diminish more slowly than expected, resulting in fewer people than expected
getting vaccinated and increased worries about resistant strains. As a result, consumer confidence and spending erode causing
the economy to fall back into recession. Real GDP is expected to decrease 4.0% in the first quarter of 2022, 3.2% in the second
quarter of 2022, 1.9% in the third quarter of 2022, and increase 0.3% in the fourth quarter of 2022. Average unemployment
rates increase to 6.4% by the first quarter of 2022 and 9.0% by the first quarter of 2023. Average unemployment is expected to
remain elevated but improve to 7.1% by the fourth quarter of 2023 and reverts to historical average rates over time. Monetary
and fiscal policy assumptions include the Federal Reserve maintaining a near 0% target for the federal funds rate through early
2026, while disagreements in Congress prevent any additional stimulus from being enacted beyond the American Rescue Plan
Act passed in March 2021 and the Infrastructure Investment and Jobs Act passed in November 2021. Supply chain issues are
worse than expected and continue much longer than anticipated, weakening manufacturing.
The impact of applying all of the assumptions of the upside economic scenario during the reasonable and supportable forecast
period would have resulted in a decrease in the allowance for credit losses of approximately $7 million or a weighted average
85
expected loss rate of 1.1% as a percentage of our total loan portfolio, excluding margin loans in the broker-dealer segment and
the banking segment mortgage warehouse lending and PPP lending programs.
The impact of applying all of the assumptions of the downside economic scenario during the reasonable and supportable
forecast period would have resulted in an increase in the allowance for credit losses of approximately $45 million or a
weighted average expected loss rate of 1.9% as a percentage of our total loan portfolio, excluding margin loans in the broker-
dealer segment and the banking segment mortgage warehouse lending and PPP lending programs.
This analysis relates only to the modeled credit loss estimates and is not intended to estimate changes in the overall allowance
for credit losses as they do not reflect any potential changes in the adjustment to the quantitative calculation, which would also
be influenced by the judgment management applies to the modeled lifetime loss estimates to reflect the uncertainty and
imprecision of these modeled lifetime loss estimates based on then-current circumstances and conditions. It also did not
consider impacts from recent Bank deferral and customer accommodation efforts or government fiscal and monetary stimulus
measures.
Our allowance for credit losses reflects our best estimate of current expected credit losses, which is highly dependent on the
path of the virus. We continue to monitor the impact of the COVID-19 pandemic and related policy measures on the economy
and if pace and vigor of the expected recovery is worse than expected, further meaningful provisions could be required. Future
allowance for credit losses may vary considerably for these reasons.
Allowance Activity
The following table presents the activity in our allowance for credit losses within our loan portfolio for the periods presented
(in thousands). Substantially all of the activity shown below occurred within the banking segment.
Loans Held for Investment
Balance, beginning of year
Transition adjustment for adoption of CECL accounting standard
Provision for (reversal of) credit losses
Recoveries of loans previously charged off:
Commercial real estate
Commercial and industrial
Construction and land development
1-4 family residential
Consumer
Broker-dealer
Total recoveries
Loans charged off:
Commercial real estate
Commercial and industrial
Construction and land development
1-4 family residential
Consumer
Broker-dealer
Total charge-offs
Net recoveries (charge-offs)
Balance, end of year
Average total loans for the year
Total loans held for investment, end of year
Ratios:
Net recoveries (charge-offs) to average total loans held for investment (1)
Non-accrual loans to total loans held for investment
Allowance for credit losses on loans held for investment to:
Total loans held for investment
Non-accrual loans held for investment
$
$
$
$
2021
149,044
—
(58,213)
Year Ended December 31,
2020
$
$
61,136
12,562
96,491
266
2,656
—
546
281
—
3,749
310
2,249
—
312
357
—
3,228
521
91,352
613
1,834
2
54
392
—
2,895
4,517
18,158
2
748
615
—
24,040
(21,145)
149,044
$
7,645,292
7,879,904
$ 7,618,723
$ 7,693,141
$
$
$
2019
59,486
—
7,206
6
2,829
—
61
37
—
2,933
1,160
5,924
—
907
498
—
8,489
(5,556)
61,136
7,088,208
7,381,400
0.01 %
0.64 %
(0.28)%
1.01 %
(0.08)%
0.49 %
1.16 %
181.88 %
1.94 %
191.13 %
0.83 %
169.28 %
(1) Net recoveries (charge-offs) to average total loans held for investment ratio presented on a consolidated basis for all periods given relative immateriality
of resulting measure by loan portfolio segment.
86
Total non-accrual loans decreased by $27.8 million from December 31, 2020 to December 31, 2021, compared to an increase
of $41.9 million from December 31, 2019 to December 31, 2020. These changes in non-accrual loans were impacted by loans
secured by residential real estate within our mortgage origination segment, which were classified as loans held for sale, of $2.9
million, $10.9 million and $4.8 million at December 31, 2021, 2020 and 2019, respectively.
In addition to changes in non-accrual loans classified as loans held for sale, the decrease in non-accrual loans during 2021 was
primarily due to principal paydowns associated with several commercial and industrial and commercial real estate owner
occupied loan relationships, while the increase in non-accrual loans during 2020 was primarily due to the reclassification of a
number of loans reclassified to non-accrual as a part of the CECL transition and the addition of several relationships within the
commercial and industrial, commercial real estate owner occupied and 1-4 family residential loan portfolios to non-accrual
status.
As previously discussed in detail within this section, the allowance for credit losses fluctuated significantly during 2020 and
2021, which impacted the resulting ratios noted in the table above. During 2020, the significant build in the allowance was
primarily due to the adoption of the new CECL standard and recorded transition adjustment entries as well as the deteriorating
economic outlook due to the COVID-19 pandemic, while during 2021 the significant decline in the allowance for credit losses
reflected improvement in both realized economic results and the macroeconomic outlook due to improvements in both
macroeconomic forecast assumptions and credit quality metrics on COVID-19 impacted industry sector exposures.
The distribution of the allowance for credit losses among loan types and the percentage of the loans for that type to gross
loans, excluding unearned income, within our loan portfolio is presented in the table below (dollars in thousands).
Allocation of the Allowance for Credit Losses
Commercial real estate
Commercial and industrial
Construction and land development
1-4 family residential
Consumer
Broker-dealer
Total
2021
% of
Gross
Loans
Reserve
$
$
59,354
21,982
4,674
4,589
578
175
91,352
38.61 % $
23.80 %
11.33 %
16.54 %
0.41 %
9.31 %
100.00 % $
December 31,
2020
2019
% of
Gross
Loans
40.74 % $
34.16 %
10.77 %
8.19 %
0.46 %
5.68 %
100.00 % $
% of
Gross
Loans
40.65 %
27.44 %
12.74 %
10.72 %
0.64 %
7.81 %
100.00 %
Reserve
31,595
17,964
4,878
6,386
265
48
61,136
Reserve
109,629
27,703
6,677
3,946
876
213
149,044
The following table summarizes historical levels of the allowance for credit losses on loans held for investment, distributed by
portfolio segment (in thousands).
December 31, September 30,
2021
2021
June 30,
2021
March 31,
Commercial real estate
Commercial and industrial
Construction and land development
1-4 family residential
Consumer
Broker-dealer
Unfunded Loan Commitments
$
$
59,354
21,982
4,674
4,589
578
175
91,352
$
$
68,535
30,545
5,100
4,538
504
290
109,512
$
$
77,633
27,866
5,185
3,659
592
334
115,269
$
$
2021
104,126 $
28,513
7,249
3,388
944
279
144,499 $
December 31,
2020
109,629
27,703
6,677
3,946
876
213
149,044
In order to estimate the allowance for credit losses on unfunded loan commitments, the Bank uses a process similar to that
used in estimating the allowance for credit losses on the funded portion. The allowance is based on the estimated exposure at
default, multiplied by the lifetime probability of default grade and loss given default grade for that particular loan segment.
The Bank estimates expected losses by calculating a commitment usage factor based on industry usage factors. The
commitment usage factor is applied over the relevant contractual period. Loss factors from the underlying loans to which
commitments are related are applied to the results of the usage calculation to estimate any liability for credit losses related for
each loan type. The expected losses on unfunded commitments align with statistically calculated parameters used to calculate
the allowance for credit losses on the funded portion. Letters of credit are not currently reserved because they are issued
primarily as credit enhancements and the likelihood of funding is low.
87
Changes in the allowance for credit losses for loans with off-balance sheet credit exposures are shown below (in thousands).
Balance, beginning of year
Transition adjustment CECL accounting standard
Other noninterest expense
Balance, end of year
2021
Year Ended December 31,
2020
2019
$
$
8,388
—
(2,508)
5,880
$
$
2,075 $
3,837
2,476
8,388 $
2,366
—
(291)
2,075
As previously discussed, we adopted the new CECL standard and recorded a transition adjustment entry that resulted in an
allowance for credit losses of $5.9 million as of January 1, 2020. During 2021, the decrease in the reserve for unfunded
commitments was primarily due to improvements in loan expected loss rates.
Potential Problem Loans
Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management
has concerns about the ability of an obligor to continue to comply with repayment terms because of the obligor’s potential
operating or financial difficulties. Management monitors these loans and reviews their performance on a regular basis.
Potential problem loans contain potential weaknesses that could improve, persist or further deteriorate. If such potential
weaknesses persist without improving, the loan is subject to downgrade, typically to substandard, in three to six months.
Potential problem loans are assigned a grade of special mention within our risk grading matrix. Potential problem loans do not
include purchased credit deteriorated (“PCD”) loans because PCD loans exhibited evidence of more than insignificant credit
deterioration at acquisition that made it probable that all contractually required principal payments would not be collected.
Additionally, potential problem loans do not include loans that have been modified in connection with our COVID-19
payment deferment programs which allow for a deferral of principal and/or interest payments. Within our loan portfolio, we
had two credit relationships totaling $3.1 million of potential problem loans at December 31, 2021, compared with seven
credit relationships totaling $11.3 million of potential problem loans at December 31, 2020 and five credit relationships
totaling $16.8 million of potential problem loans at December 31, 2019.
Non-Performing Assets
In response to the COVID-19 pandemic, the CARES Act was passed in March 2020, which among other things, allowed the
Bank to suspend the TDR requirements for certain loan modifications to be categorized as a TDR. Subsequent legislation
extended such provisions through January 1, 2022. Starting in March 2020, the Bank implemented several actions to better
support our impacted banking clients and allow for loan modifications such as principal and/or interest payment deferrals,
participation in the PPP as an SBA preferred lender and personal banking assistance including waived fees, increased daily
spending limits and suspension of residential foreclosure activities. The COVID-19 payment deferment programs allow for a
deferral of principal and/or interest payments with such deferred principal payments due and payable on the maturity date of
the existing loan.
Specifically, as discussed under the section titled “Loan Portfolio” earlier in this Item 2, the Bank’s actions during 2020
included approval of $1.0 billion of COVID-19 related loan modifications. During 2021, the Bank continued to support its
impacted banking clients through the approval of COVID-19 related loan modifications with a portfolio of active deferrals that
have not reached the end of their deferral period of approximately $4 million as of December 31, 2021. While the majority of
the portfolio of COVID-19 related loan modifications no longer require deferral, such loans represent elevated risk, and
therefore management continues to monitor these loans.
88
The following table presents components of our non-performing assets (dollars in thousands).
Loans accounted for on a non-accrual basis:
Commercial real estate
Commercial and industrial
Construction and land development
1-4 family residential
Consumer
Broker-dealer
Troubled debt restructurings included in accruing loans held for
investment
Non-performing loans
Non-performing loans as a percentage of total loans
Other real estate owned
Other repossessed assets
Non-performing assets
2021
December 31,
2020
2019
2021 vs 2020
2020 vs 2019
Variance
$
$
$
$
$
$
6,601
22,478
2
21,123
23
—
50,227
922
51,149
$
$
$
11,133
34,049
507
32,263
28
—
77,980
1,954
79,934
0.52 %
0.76 %
2,833
$
21,289
— $
101
53,982
$
101,324
$
$
$
$
$
$
7,308
15,262
1,316
12,204
26
—
36,116
2,173
38,289
$
$
$
(4,532)
(11,571)
(505)
(11,140)
(5)
—
(27,753)
(1,032)
(28,785)
0.40 %
(0.24)%
18,202
$
(18,456)
—
$
(101)
56,491
$
(47,342)
$
$
$
$
$
$
3,825
18,787
(809)
20,059
2
—
41,864
(219)
41,645
0.36 %
3,087
101
44,833
Non-performing assets as a percentage of total assets
0.29 %
0.60 %
0.37 %
(0.31)%
0.23 %
Loans past due 90 days or more and still accruing
$
60,775
$
243,630
$
102,707
$
(182,855)
$
140,923
At December 31, 2021, non-accrual loans included 45 commercial and industrial relationships with loans secured by accounts
receivable, life insurance, oil and gas, livestock and equipment. Non-accrual loans at December 31, 2021 also included $2.9
million of loans secured by residential real estate which were classified as loans held for sale. At December 31, 2020, non-
accrual loans included 60 commercial and industrial relationships with loans secured by accounts receivable, life insurance, oil
and gas, livestock and equipment. Non-accrual loans at December 31, 2020 also included $10.9 million of loans secured by
residential real estate which were classified as loans held for sale. At December 31, 2019, non-accrual loans included 23
commercial and industrial relationships with loans secured by accounts receivable, life insurance, livestock, oil and gas, and
equipment. Non-accrual loans at December 31, 2019 also included $4.8 million of loans secured by residential real estate which
were classified as loans held for sale.
At December 31, 2021, TDRs were comprised of $0.9 million of loans that are considered to be performing and accruing, and
$5.9 million of loans considered to be non-performing reported in non-accrual loans. At December 31, 2020, TDRs were
comprised of $2.0 million of loans that are considered to be performing and accruing, and $16.0 million of loans considered to
be non-performing reported in non-accrual loans. At December 31, 2019, TDRs were comprised of $2.2 million of loans that
were considered to be performing and accruing, and $11.9 million of loans considered to be non-performing reported in non-
accrual loans. In March 2020, the CARES Act was passed, which, among other things, allowed the Bank to suspend the
requirements for certain loan modifications to be categorized as a TDR. Therefore, the Bank has not reported COVID-19
related modifications as TDRs through January 1, 2022 when the provisions expired.
OREO decreased from December 31, 2020 to December 31, 2021, primarily due to disposals and valuation adjustments
totaling $22.0 million, partially offset by additions totaling $3.6 million. OREO increased from December 31, 2019 to
December 31, 2020, primarily due to additions totaling $13.9 million, partially offset by disposals of $10.8 million.
Loans past due 90 days or more and still accruing at December 31, 2021, 2020 and 2019 were primarily comprised of loans
held for sale and guaranteed by U.S. government agencies, including GNMA related loans subject to repurchase within our
mortgage origination segment. The significant decrease in loans past due 90 days or more and still accruing at December 31,
2021, compared to December 31, 2020, was due to the sale of mortgage loans previously included within this non-performing
assets category. As of December 31, 2021, $20.2 million of loans subject to repurchase were under a forbearance agreement
resulting from the COVID-19 pandemic. During May 2020, GNMA announced it will temporarily exclude any new GNMA
lender delinquencies, occurring on or after April 2020, when calculating the delinquency ratios for the purposes of enforcing
compliance with its delinquency rate thresholds. This exclusion is extended automatically to GNMA lenders that were
compliant with GNMA’s delinquency rate thresholds as reflected by their April 2020 investor accounting report. The
mortgage origination segment qualified for this exclusion as of December 31, 2021. As of December 31, 2021, $20.2 million
of loans subject to repurchase under a forbearance agreement had delinquencies on or after April 2020.
89
Deposits
The banking segment’s major source of funds and liquidity is its deposit base. Deposits provide funding for its investments in
loans and securities. Interest paid for deposits must be managed carefully to control the level of interest expense and overall net
interest margin. The composition of the deposit base (time deposits versus interest-bearing demand deposits and savings), as
discussed in more detail within the section titled “Liquidity and Capital Resources — Banking Segment” below, is constantly
changing due to the banking segment’s needs and market conditions.
The table below presents the average balance of, and rate paid on, consolidated deposits (dollars in thousands).
2021
Year Ended December 31,
2020
2019
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Average
Balance
Noninterest-bearing demand deposits $ 4,157,962
6,077,660
Interest-bearing demand deposits
Savings deposits
295,075
1,349,849
Time deposits
$ 11,880,546
0.00 % $ 3,304,475
5,284,582
0.19 %
231,996
0.06 %
1,880,543
0.86 %
0.20 % $ 10,701,596
0.00 % $ 2,635,924
0.31 % 4,283,642
0.07 %
186,235
1.11 % 1,446,614
0.35 % $ 8,552,415
Average
Rate Paid
0.00 %
0.98 %
0.19 %
2.02 %
0.84 %
The following table presents the scheduled maturities of uninsured deposits greater than $250,000 as of December 31, 2021 (in
thousands).
Months to maturity:
3 months or less
3 months to 6 months
6 months to 12 months
Over 12 months
Borrowings
$
$
112,517
79,124
173,787
77,891
443,319
Our consolidated borrowings associated with continuing operations are shown in the table below (dollars in thousands).
Short-term borrowings
Notes payable
Junior subordinated debentures
2021
December 31,
2020
2019
$
Balance
859,444
387,904
—
$ 1,247,348
Average
Rate Paid
Balance
Average
Rate Paid
Balance
1.22 % $
695,798
5.79 %
381,987
67,012
3.45 %
1.32 % $ 1,144,797
1.46 % $ 1,424,010
4.54 %
256,269
67,012
4.13 %
2.51 % $ 1,747,291
Average
Rate Paid
2.41 %
4.70 %
5.75 %
2.90 %
Short-term borrowings consisted of federal funds purchased, securities sold under agreements to repurchase, borrowings at the
Federal Home Loan Bank (“FHLB”), short-term bank loans and commercial paper. The increase in short-term borrowings at
December 31, 2021, compared with December 31, 2020, primarily included increases in short-term bank loans and
commercial paper used by the Hilltop Broker-Dealers to finance their activities, partially offset by a decrease in securities sold
under agreements to repurchase by the Hilltop Broker-Dealers given increased utilization of internal funds. The decrease in
short-term borrowings at December 31, 2020 compared with December 31, 2019 included a decrease in borrowings in our
banking and broker-dealer segments primarily associated with the increased utilization of available internal funds, a decrease
in FHLB borrowings and a decrease in securities sold under agreements to repurchase by the Hilltop Broker-Dealers, partially
offset by an increase in commercial paper used by the Hilltop Broker-Dealers to finance their activities.
Notes payable at December 31, 2021 of $387.9 million was comprised of $149.1 million related to Senior Notes, net of loan
origination fees, Subordinated Notes, net of origination fees, of $197.1 million and mortgage origination segment borrowings
of $41.7 million. Notes payable at December 31, 2020 of $382.0 million was comprised of $148.9 million related to Senior
Notes, net of loan origination fees, Subordinated Notes, net of origination fees, of $196.8 million and mortgage origination
90
segment borrowings of $36.2 million. Notes payable at December 31, 2019 of $283.8 million was comprised of $148.8 million
related to Senior Notes, net of loan origination fees, FHLB borrowings with an original maturity greater than one year within
our banking segment of $28.8 million, and mortgage origination segment borrowings of $78.7 million. As discussed in more
detail within the section titled “Liquidity and Capital Resources — Junior Subordinated Debentures” below, during the third
quarter of 2021, PCC fully redeemed all outstanding Debentures.
Liquidity and Capital Resources
Hilltop is a financial holding company whose assets primarily consist of the stock of its subsidiaries and invested assets.
Hilltop’s primary investment objectives, as a holding company, are to support capital deployment for organic growth and to
preserve capital to be deployed through acquisitions, dividend payments and stock repurchases. At December 31, 2021,
Hilltop had $367.9 million in cash and cash equivalents, a decrease of $6.9 million from $374.8 million at December 31, 2020.
This decrease in cash and cash equivalents was primarily due to cash outflows of $39.0 million in cash dividends declared,
$123.6 million of stock repurchases, and other general corporate expenses, significantly offset by the receipt of $264.2 million
of dividends from subsidiaries. Subject to regulatory restrictions, Hilltop has received, and may also continue to receive,
dividends from its subsidiaries. If necessary or appropriate, we may also finance acquisitions with the proceeds from equity or
debt issuances. We believe that Hilltop’s liquidity is sufficient for the foreseeable future, with current short-term liquidity
needs including operating expenses, interest on debt obligations, dividend payments to stockholders and potential stock
repurchases.
COVID-19
As previously discussed, in light of the extreme volatility and disruptions in the capital and credit markets beginning in
March 2020 resulting from the COVID-19 crisis and its negative impact on the economy, we took a number of precautionary
actions beginning in March 2020 to enhance our financial flexibility, protect capital, minimize losses and ensure target
liquidity levels.
To strengthen the Bank’s available liquidity position during 2020, we raised brokered deposits, as well as swept additional
deposits from Hilltop Securities into the Bank. At December 31, 2021, given the continued strong cash and liquidity levels at
the Bank, brokered deposits declined to approximately $228 million and the total funds swept from Hilltop Securities into the
Bank was approximately $800 million. In addition, we continue to evaluate market conditions to determine the
appropriateness of capital market inventory limits at Hilltop Securities.
To meet demand for customer loan advances and satisfy our obligations to repay any debt maturing over the next 12 months,
we believe we currently have sufficient liquidity from the available on- and off-balance sheet liquidity sources and our ability
to issue debt in the capital markets. We continue to review actions that we may take to further enhance our financial flexibility
in the event that market conditions deteriorate further or for an extended period.
Dividend Program and Declaration
In October 2016, we announced that our board of directors authorized a dividend program under which we intend to pay
quarterly dividends on our common stock, subject to quarterly declarations by our board of directors. During 2021, we
declared and paid cash dividends of $0.48 per common share, or $39.0 million.
On January 27, 2022, our board of directors declared a quarterly cash dividend of $0.15 per common share, payable on
February 28, 2022 to all common stockholders of record as of the close of business on February 15, 2022.
Future dividends on our common stock are subject to the determination by the board of directors based on an evaluation of our
earnings and financial condition, liquidity and capital resources, the general economic and regulatory climate, our ability to
service any equity or debt obligations senior to our common stock and other factors.
Stock Repurchases
In January 2021, our board of directors authorized a new stock repurchase program through January 2022, pursuant to which
we were originally authorized to repurchase, in the aggregate, up to $75.0 million of our outstanding common stock. In
July 2021, our board of directors authorized an increase to the aggregate amount of common stock we may repurchase under
this program by $75.0 million to $150.0 million. Then, in October 2021, our board of directors authorized an increase to the
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aggregate amount of common stock we may repurchase under this program by $50.0 million to $200.0 million, which was
inclusive of repurchases to offset dilution related to grants of stock-based compensation.
During 2021, we paid $123.6 million to repurchase an aggregate of 3,632,482 shares of common stock at an average price of
$34.01 per share. The purchases were funded from available cash balances.
In January 2022, our board of directors authorized a new stock repurchase program through January 2023, pursuant to which
we are authorized to repurchase, in the aggregate, up to $100.0 million of our outstanding common stock, inclusive of
repurchases to offset dilution related to grants of stock-based compensation. Under the stock repurchase program authorized,
we may repurchase shares in the open market or through privately negotiated transactions as permitted under Rule 10b-18
promulgated under the Exchange Act. The extent to which we repurchase our shares and the timing of such repurchases
depends upon market conditions and other corporate considerations, as determined by Hilltop’s management team.
Repurchased shares will be returned to our pool of authorized but unissued shares of common stock.
Senior Notes due 2025
On April 9, 2015, we completed an offering of $150.0 million aggregate principal amount of our 5% senior notes due 2025
(“Senior Unregistered Notes”) in a private offering that was exempt from the registration requirements of the Securities Act.
The Senior Unregistered Notes were offered within the United States only to qualified institutional buyers pursuant to Rule
144A under the Securities Act, and to persons outside of the United States under Regulation S under the Securities Act. The
Senior Unregistered Notes were issued pursuant to an indenture, dated as of April 9, 2015 (the “indenture”), by and between
Hilltop and U.S. Bank National Association, as trustee. The net proceeds from the offering, after deducting estimated fees and
expenses and the initial purchasers’ discounts, were approximately $148 million. We used the net proceeds of the offering to
redeem all of our outstanding Series B Preferred Stock at an aggregate liquidation value of $114.1 million, plus accrued but
unpaid dividends of $0.4 million, and Hilltop utilized the remainder for general corporate purposes.
In connection with the issuance of the Senior Unregistered Notes, on April 9, 2015, we entered into a registration rights
agreement with the initial purchasers of the Senior Unregistered Notes. Under the terms of the registration rights agreement,
we agreed to offer to exchange the Senior Unregistered Notes for notes registered under the Securities Act (the “Senior
Registered Notes”). The terms of the Senior Registered Notes are substantially identical to the Senior Unregistered Notes for
which they were exchanged (including principal amount, interest rate, maturity and redemption rights), except that the Senior
Registered Notes generally are not subject to transfer restrictions. On May 22, 2015, and subject to the terms and conditions
set forth in the Senior Registered Notes prospectus, we commenced an offer to exchange the outstanding Senior Unregistered
Notes for Senior Registered Notes. Substantially all of the Senior Unregistered Notes were tendered for exchange, and on
June 22, 2015, we fulfilled all of the requirements of the registration rights agreement for the Senior Unregistered Notes by
issuing Senior Registered Notes in exchange for the tendered Senior Unregistered Notes. We refer to the Senior Registered
Notes and the Senior Unregistered Notes that remain outstanding collectively as the “Senior Notes.”
The Senior Notes bear interest at a rate of 5% per year, payable semi-annually in arrears in cash on April 15 and October 15 of
each year, commencing on October 15, 2015. The Senior Notes will mature on April 15, 2025, unless we redeem the Senior
Notes, in whole at any time or in part from time to time, on or after January 15, 2025 (three months prior to the maturity date
of the Senior Notes) at our election at a redemption price equal to 100% of the principal amount of the Senior Notes to be
redeemed plus accrued and unpaid interest to, but excluding, the redemption date. At December 31, 2021, $150.0 million of
our Senior Notes was outstanding.
The indenture contains covenants that limit our ability to, among other things and subject to certain significant exceptions:
(i) dispose of or issue voting stock of certain of our bank subsidiaries or subsidiaries that own voting stock of our bank
subsidiaries, (ii) incur or permit to exist any mortgage, pledge, encumbrance or lien or charge on the capital stock of certain of
our bank subsidiaries or subsidiaries that own capital stock of our bank subsidiaries and (iii) sell all or substantially all of our
assets or merge or consolidate with or into other companies. The indenture also provides for certain events of default, which, if
any of them occurs, would permit or require the principal amount, premium, if any, and accrued and unpaid interest on the
then outstanding Senior Notes to be declared immediately due and payable.
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Subordinated Notes due 2030 and 2035
On May 7, 2020, we completed a public offering of $50 million aggregate principal amount of 2030 Subordinated Notes and
$150 million aggregate principal amount of 2035 Subordinated Notes. The price to the public for the Subordinated Notes was
100% of the principal amount of the Subordinated Notes. The net proceeds from the offering, after deducting underwriting
discounts and fees and expenses of $3.4 million, were $196.6 million.
The 2030 Subordinated Notes and the 2035 Subordinated Notes will mature on May 15, 2030 and May 15, 2035, respectively.
We may redeem the Subordinated Notes, in whole or in part, from time to time, subject to obtaining Federal Reserve approval,
beginning with the interest payment date of May 15, 2025 for the 2030 Subordinated Notes and beginning with the interest
payment date of May 15, 2030 for the 2035 Subordinated Notes at a redemption price equal to 100% of the principal amount
of the Subordinated Notes being redeemed plus accrued and unpaid interest to but excluding the date of redemption.
The 2030 Subordinated Notes bear interest at a rate of 5.75% per year, payable semi-annually in arrears commencing on
November 15, 2020. The interest rate for the 2030 Subordinated Notes will reset quarterly beginning May 15, 2025 to an
interest rate, per year, equal to the then-current benchmark rate, which is expected to be three-month term SOFR rate, plus
5.68%, payable quarterly in arrears. The 2035 Subordinated Notes bear interest at a rate of 6.125% per year, payable semi-
annually in arrears commencing on November 15, 2020. The interest rate for the 2035 Subordinated Notes will reset quarterly
beginning May 15, 2030 to an interest rate, per year, equal to the then-current benchmark rate, which is expected to be three-
month term SOFR rate plus 5.80%, payable quarterly in arrears. At December 31, 2021, $200.0 million of our Subordinated
Notes was outstanding.
Junior Subordinated Debentures
Following receipt of regulatory approval, in June 2021, PCC submitted to the trustee of one of the statutory trusts a notice to
redeem in full outstanding Debentures in the principal amount of $18.0 million on July 31, 2021 (which resulted in the full
redemption to the holders of the associated preferred securities and common securities).
Subsequently, during July and August 2021, PCC submitted to the trustees of each of the three remaining statutory trusts a
notice to redeem in full outstanding Debentures in the aggregate principal amount of $49.0 million during September 2021
(which resulted in the full redemption to the holders of the associated preferred securities and common securities).
The Debentures, which were held by four statutory trusts created for the sole purpose of issuing and selling preferred securities
and common securities used to acquire the Debentures, had an original stated term of 30 years with original maturities ranging
from July 2031 to February 2038. The Debentures were callable at PCC’s discretion with a minimum of a 45- to 60- day
notice. At December 31, 2021, PCC had no remaining borrowings associated with the Debentures. The redemptions noted
above were funded from available cash balances held at PCC.
Regulatory Capital
We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements may prompt certain actions by regulators that, if undertaken, could have a direct material
adverse effect on our financial condition and results of operations. Under capital adequacy and regulatory requirements, we
must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
In order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary
bonus payments to executive officers, Basel III requires banking organizations to maintain a capital conservation buffer above
minimum risk-based capital requirements measured relative to risk-weighted assets.
The following table shows PlainsCapital’s and Hilltop’s actual capital amounts and ratios in accordance with Basel III
compared to the regulatory minimum capital requirements including conservation buffer ratio in effect at December 31, 2021
(dollars in thousands). Based on actual capital amounts and ratios shown in the following table, PlainsCapital’s ratios place it
in the “well capitalized” (as defined) capital category under regulatory requirements. Actual capital amounts and ratios as of
December 31, 2021 reflect PlainsCapital’s and Hilltop’s decision to elect the transition option as issued by the federal banking
regulatory agencies in March 2020 that permits banking institutions to mitigate the estimated cumulative regulatory capital
effects from CECL over a five-year transitionary period.
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Tier 1 capital (to average assets):
PlainsCapital
Hilltop
Common equity Tier 1 capital (to risk-weighted assets):
PlainsCapital
Hilltop
Tier 1 capital (to risk-weighted assets):
PlainsCapital
Hilltop
Total capital (to risk-weighted assets):
PlainsCapital
Hilltop
Minimum
Capital
Requirements
Including
Conservation
Buffer
Ratio
To Be Well
Capitalized
Ratio
4.0 %
4.0 %
7.0 %
7.0 %
8.5 %
8.5 %
10.5 %
10.5 %
5.0 %
N/A
6.5 %
N/A
8.0 %
N/A
10.0 %
N/A
December 31, 2021
Amount
Ratio
$
1,469,695
2,262,356
1,469,695
2,262,356
1,469,695
2,262,356
1,540,100
2,532,008
10.20 %
12.58 %
16.00 %
21.22 %
16.00 %
21.22 %
16.77 %
23.75 %
We discuss regulatory capital requirements in more detail in Note 23 to our consolidated financial statements, as well as under
the caption “Government Supervision and Regulation — Corporate — Capital Adequacy Requirements and BASEL III” set
forth in Part I, Item I. of this Annual Report.
Banking Segment
Within our banking segment, our primary uses of cash are for customer withdrawals and extensions of credit as well as our
borrowing costs and other operating expenses. Our corporate treasury group is responsible for continuously monitoring our
liquidity position to ensure that our assets and liabilities are managed in a manner that will meet our short-term and long-term
cash requirements. Our goal is to manage our liquidity position in a manner such that we can meet our customers’ short-term
and long-term deposit withdrawals and anticipated and unanticipated increases in loan demand without penalizing earnings.
Funds invested in short-term marketable instruments, the continuous maturing of other interest-earning assets, cash flows from
self-liquidating investments such as mortgage-backed securities and collateralized mortgage obligations, the possible sale of
available for sale securities, and the ability to securitize certain types of loans provide sources of liquidity from an asset
perspective. The liability base provides sources of liquidity through deposits and the maturity structure of short-term borrowed
funds. For short-term liquidity needs, we utilize federal fund lines of credit with correspondent banks, securities sold under
agreements to repurchase, borrowings from the Federal Reserve and borrowings under lines of credit with other financial
institutions. For intermediate liquidity needs, we utilize advances from the FHLB. To supply liquidity over the longer term, we
have access to brokered time deposits, term loans at the FHLB and borrowings under lines of credit with other financial
institutions.
As previously discussed, to meet increased liquidity demands and ensure availability of adequate cash to meet both expected
and unexpected funding needs without adversely affecting our daily operations and to improve the Bank’s already strong
liquidity position, we raised brokered deposits during 2020 that have a remaining balance of approximately $228 million at
December 31, 2021, down from approximately $731 million at December 31, 2020. Further, beginning in March 2020,
additional deposits were swept from Hilltop Securities into the Bank. Since June 30, 2020, given the continued strong cash and
liquidity levels at the Bank, the total funds swept from Hilltop Securities into the Bank was reduced and was approximately
$800 million as of December 31, 2021. As a result, the Bank was able to further fortify its borrowing capacity through access
to secured funding sources as summarized in the following table (in millions).
FHLB capacity
Investment portfolio (available)
Fed deposits (excess daily requirements)
December 31,
2021
2020
4,221
1,478
2,686
8,385
$
$
4,410
982
875
6,267
$
$
As noted in the table above, the Bank’s available liquidity position and borrowing capacity at December 31, 2021 and 2020
continued to be at a heightened level given the uncertain outlook for 2022 due to the COVID-19 pandemic. While the extent to
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which COVID-19 will impact the Bank remains uncertain, the Bank is targeting available liquidity of between approximately
$5 billion and $6 billion during 2022. Available liquidity does not include borrowing capacity available through the discount
window at the Federal Reserve.
Within our banking segment, deposit flows are affected by the level of market interest rates, the interest rates and products
offered by competitors, the volatility of equity markets and other factors. While the Bank experienced an increase in non-
brokered customer deposits during 2020, an economic recovery and improved commercial real estate investment outlook may
result in an outflow of deposits at an accelerated pace as customers utilize such available funds for expanded operations and
investment opportunities. The Bank regularly evaluates its deposit products and pricing structures relative to the market to
maintain competitiveness over time.
The Bank’s 15 largest depositors, excluding Hilltop and Hilltop Securities, collectively accounted for 8.48% of the Bank’s
total deposits, and the Bank’s five largest depositors, excluding Hilltop and Hilltop Securities, collectively accounted for
4.16% of the Bank’s total deposits at December 31, 2021. The loss of one or more of our largest Bank customers, or a
significant decline in our deposit balances due to ordinary course fluctuations related to these customers’ businesses, could
adversely affect our liquidity and might require us to raise deposit rates to attract new deposits, purchase federal funds or
borrow funds on a short-term basis to replace such deposits.
Broker-Dealer Segment
The Hilltop Broker-Dealers rely on their equity capital, short-term bank borrowings, interest-bearing and noninterest-bearing
client credit balances, correspondent deposits, securities lending arrangements, repurchase agreement financing, commercial
paper issuances and other payables to finance their assets and operations, subject to their respective compliance with broker-
dealer net capital and customer protection rules. At December 31, 2021, Hilltop Securities had credit arrangements with four
unaffiliated banks, with maximum aggregate commitments of up to $600.0 million. These credit arrangements are used to
finance securities owned, securities held for correspondent accounts, receivables in customer margin accounts and
underwriting activities. These credit arrangements are provided on an “as offered” basis and are not committed lines of credit.
In addition, Hilltop Securities has committed revolving credit facilities with three unaffiliated banks, with aggregate
availability of up to $250.0 million. At December 31, 2021, Hilltop Securities had borrowed $142.0 million under its credit
arrangements and had no borrowings under its credit facilities.
Hilltop Securities uses the net proceeds (after deducting related issuance expenses) from the sale of two commercial paper
programs for general corporate purposes, including working capital and the funding of a portion of its securities inventories.
The commercial paper notes (“CP Notes”) may be issued with maturities of 14 days to 270 days from the date of issuance. The
CP Notes are issued under two separate programs, Series 2019-1 CP Notes and Series 2019-2 CP Notes, in maximum
aggregate amounts of $300 million and $200 million, respectively. The CP Notes are not redeemable prior to maturity or
subject to voluntary prepayment and do not bear interest, but are sold at a discount to par. The discount to maturity will be
based on an interest factor and the CP Notes are secured by a pledge of collateral owned by Hilltop Securities. As of
December 31, 2021, the weighted average maturity of the CP Notes was 141 days at a rate of 0.99%, with a weighted average
remaining life of 66 days. At December 31, 2021, the aggregate amount outstanding under these secured arrangements was
$354.0 million, which was collateralized by securities held for firm accounts valued at $384.7 million.
Mortgage Origination Segment
PrimeLending funds the mortgage loans it originates through a warehouse line of credit maintained with the Bank which had
an aggregate commitment of $3.2 billion, of which $1.7 billion was drawn at December 31, 2021. Effective January 1, 2022,
this warehouse line of credit was decreased to $2.7 billion to address expected declines in loan origination volumes.
PrimeLending sells substantially all mortgage loans it originates to various investors in the secondary market, historically with
the majority with servicing released. As these mortgage loans are sold in the secondary market, PrimeLending pays down its
warehouse line of credit with the Bank. In addition, PrimeLending has an available line of credit with an unaffiliated bank of
up to $1.0 million, of which no borrowings were drawn at December 31, 2021.
PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC (“Ventures Management”)
which holds an ownership interest in and is the managing member of certain ABAs. At December 31, 2021, these ABAs had
combined available lines of credit totaling $145.0 million, $55.0 million of which was with a single unaffiliated bank, and the
remaining $90.0 million of which was with the Bank. At December 31, 2021, Ventures Management had outstanding
borrowings of $60.4 million, $18.7 million of which was with the Bank.
95
Other Material Contractual Obligations, Off-Balance Sheet Arrangements, Commitments and Guarantees
The following table presents information regarding other material contractual obligations at December 31, 2021 not previously
discussed (in thousands). Payments related to leases are based on actual payments specified in the underlying contracts, and
the table below includes all leases that had commenced as of December 31, 2021.
Finance lease obligations
Operating lease obligations
Total
1 year
or Less
1,241
26,608
27,849
$
$
Payments Due by Period
3 Years or
More than 1
Year but Less
than 3 Years
2,443
$
52,711
55,154
$
More but Less
than 5 Years
1,699
$
29,197
30,896
$
5 Years
or More
$
598 $
38,511
$
39,109 $
Total
5,981
147,027
153,008
Additionally, in the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not
included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These
transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of
credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets.
Banking Segment
We enter into contractual loan commitments to extend credit, normally with fixed expiration dates or termination clauses, at
specified rates and for specific purposes. Substantially all of our commitments to extend credit are contingent upon customers
maintaining specific credit standards until the time of loan funding. We minimize our exposure to loss under these
commitments by subjecting them to credit approval and monitoring procedures. We assess the credit risk associated with
certain commitments to extend credit and have recorded a liability related to such credit risk in our consolidated financial
statements.
Standby letters of credit are written conditional commitments issued by us to guarantee the performance of a customer to a
third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, we
would be required to fund the commitment. The maximum potential amount of future payments we could be required to make
is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek
recovery from the customer. Our policies generally require that standby letter of credit arrangements contain security and debt
covenants similar to those contained in loan agreements.
In the aggregate, the Bank had outstanding unused commitments to extend credit of $2.2 billion at December 31, 2021 and
outstanding financial and performance standby letters of credit of $96.3 million at December 31, 2021.
Broker-Dealer Segment
The Hilltop Broker-Dealers execute, settle and finance various securities transactions that may expose the Hilltop Broker-
Dealers to off-balance sheet risk in the event that a customer or counterparty does not fulfill its contractual obligations.
Examples of such transactions include the sale of securities not yet purchased by customers or for the account of the Hilltop
Broker-Dealers, use of derivatives to support certain non-profit housing organization clients, clearing agreements between the
Hilltop Broker-Dealers and various clearinghouses and broker-dealers, secured financing arrangements that involve pledged
securities, and when-issued underwriting and purchase commitments.
Impact of Inflation and Changing Prices
Our consolidated financial statements included herein have been prepared in accordance with GAAP, which presently require
us to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of
money due to inflation or recession are generally not considered. The primary effect of inflation on our operations is reflected
in increased operating costs. In management’s opinion, changes in interest rates affect the financial condition of a financial
institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in
the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates
are highly sensitive to many factors that are beyond our control, including changes in the expected rate of inflation, the
influence of general and local economic conditions and the monetary and fiscal policies of the U.S. government, its agencies
and various other governmental regulatory authorities.
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Critical Accounting Estimates
We have identified certain accounting estimates which involve a significant level of estimation uncertainty and have had or are
reasonably likely to have a material impact on our financial condition or results of operations. Our accounting policies are
more fully described in Note 1 to the consolidated financial statements. Actual amounts and values as of the balance sheet
dates may be materially different than the amounts and values reported due to the inherent uncertainty in the estimation
process. Also, future amounts and values could differ materially from those estimates due to changes in values and
circumstances after the balance sheet date. The critical accounting estimates, as summarized below, which we believe to be the
most critical in preparing our consolidated financial statements relate to allowance for credit losses, mortgage servicing rights
asset, goodwill and identifiable intangible assets, mortgage loan indemnification liability and acquisition accounting.
Allowance for Credit Losses
The allowance for credit losses for loans represents management’s estimate of all expected credit losses over the expected
contractual life of our existing loan portfolio. Determining the appropriateness of the allowance is complex and requires
judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then existing
loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in
those future periods.
We employ a disciplined process and methodology to establish our allowance for credit losses that has two basic components:
first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the
measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected
credit losses for pools of loans that share similar risk characteristics.
The credit loss estimation process for both on and off-balance sheet exposures involves procedures to appropriately consider
the unique characteristics of our loan portfolio segments, which are further disaggregated into loan classes, the level at which
credit risk is monitored. When computing allowance levels, credit loss assumptions are estimated using models that analyze
loans according to credit risk ratings, loss history, delinquency status and other credit trends and risk characteristics, including
current conditions and reasonable and supportable forecasts about the future. Significant variables that impact the modeled
losses across our loan portfolios are the U.S. Real Gross Domestic Product, or GDP, growth rates and unemployment rate
assumptions. Future factors and forecasts may result in significant changes in the allowance and provision for (reversal
of) credit losses in those future periods.
Credit quality is assessed and monitored by evaluating various attributes, such as credit risk ratings, historic loss experience,
past due status and other credit trends and risk characteristics, including current conditions and reasonable and supportable
forecasts about the future. The results of these continuous credit quality evaluations help form our underwriting criteria for
new loans and also factor into the process for estimation of the allowance for credit losses. The allowance level is influenced
by loan volumes, loan asset quality, delinquency status, historic loss experience and other conditions influencing loss
expectations, such as reasonable and supportable forecasts of economic conditions. The allowance for credit losses will
primarily reflect estimated losses for pools of loans that share similar risk characteristics, but will also consider individual
loans that do not share risk characteristics with other loans.
In estimating the component of the allowance for credit losses for loans that share similar risk characteristics with other loans,
such loans are segregated into loan classes. Loans are designated into loan classes based on loans pooled by product types and
similar risk characteristics or areas of risk concentration. In determining the allowance for credit losses, we derive an
estimated credit loss assumption from a model that categorizes loan pools based on loan type and internal risk rating or
delinquency bucket.
When a loan moves to a substandard non-accrual risk rating grade, it is removed from the collective evaluation allowance
methodology and is subject to individual evaluation. A problem asset report is prepared for each loan in excess of a
predetermined threshold and the net realizable value of the loan is determined. This value is compared to the appropriate loan
basis (depending on whether the loan is a PCD loan or a non-PCD loan) to determine the required allowance for credit loss
reserve amount.
Estimating the timing and amounts of future loss cash flows is subject to significant management judgment as these loss cash
flows rely upon estimates such as default rates, loss severities, collateral valuations, the amounts and timing of principal
payments (including any expected prepayments) or other factors that are reflective of current or future expected conditions.
97
These estimates, in turn, depend on the duration of current overall economic conditions, industry, borrower, or portfolio
specific conditions, the expected outcome of bankruptcy or insolvency proceedings, as well as, in certain circumstances, other
economic factors, including the level of current and future real estate prices. All of these estimates and assumptions require
significant management judgment and certain assumptions that are highly subjective. Model imprecision also exists in the
allowance for credit losses estimation process due to the inherent time lag of available industry information and differences
between expected and actual outcomes.
The provision for (reversal of) credit losses recorded through earnings, and reduced by the charge-off of loan amounts, net of
recoveries, is the amount necessary to maintain the allowance for credit losses at the amount of expected credit losses inherent
within the loans held for investment portfolio. The amount of expense and the corresponding level of allowance for credit
losses for loans are based on our evaluation of the collectability of the loan portfolio based on historical loss experience,
reasonable and supportable forecasts, and other significant qualitative and quantitative factors. Refer to “Financial Condition –
Allowance for Credit Losses on Loans” and Notes 1 and 7 to the consolidated financial statements for further discussion of the
methodology used in establishing the allowance and changes during the relevant period in the provision for (reversal of) credit
losses.
Mortgage Servicing Rights Asset
The Company measures its residential mortgage servicing rights asset using the fair value method. Under the fair value
method, the retained MSR assets are carried in the balance sheet at fair value and the changes in fair value are reported in
earnings within other noninterest income in the period in which the change occurs. Retained MSR assets are measured at fair
value as of the date of sale of the related mortgage loan. Subsequent fair value measurements are determined using a
discounted cash flow model. In order to determine the fair value of the MSR asset, the present value of expected future cash
flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds, delinquency and
foreclosure rates, and ancillary fee income.
The model assumptions and the MSR asset fair value estimates are compared to observable trades of similar portfolios as well
as to MSR asset broker valuations and industry surveys, as available. The expected life of the loan can vary from management’s
estimates due to prepayments by borrowers, especially when rates fall. Prepayments in excess of management’s estimates
would adversely impact the recorded value of the MSR asset. The value of the MSR asset is also dependent upon the discount
rate used in the model, which is based on current market rates and is reviewed by management on an ongoing basis. An increase
in the discount rate would result in a decrease in the value of the MSR asset. Refer to Notes 1, 4 and 11 to the consolidated
financial statements for further discussion of the methodology used in establishing the MSR asset and changes during the
relevant period thereof.
Goodwill and Identifiable Intangible Assets
Goodwill and other identifiable intangible assets are initially recorded at their estimated fair values at the date of acquisition.
Goodwill and other intangible assets having an indefinite useful life are not amortized for financial statement purposes. In the
event that facts and circumstances indicate that the goodwill or other identifiable intangible assets may be impaired, an interim
impairment test would be required. Intangible assets with finite lives are amortized over their useful lives. We perform
required annual impairment tests of our goodwill and other intangible assets as of October 1st for our reporting units.
The goodwill impairment test requires us to make judgments and assumptions. The test consists of estimating the fair value of
each reporting unit based on valuation techniques, including a discounted cash flow model using revenue and profit forecasts
and recent industry transaction and trading multiples of our peers, and comparing those estimated fair values with the carrying
values of the assets and liabilities of each reporting unit, which includes the allocated goodwill. If the estimated fair value is
less than the carrying value, we will recognize an impairment charge for the amount by which the carrying amount exceeds the
reporting unit’s fair value; however, any loss recognized will not exceed the total amount of goodwill allocated to that
reporting unit.
This evaluation includes multiple assumptions, including estimated discounted cash flows and other estimates that may change
over time. If future discounted cash flows become less than those projected by us, future impairment charges may become
necessary that could have a materially adverse impact on our results of operations and financial condition in the period in
which the write-off occurs.
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Mortgage Loan Indemnification Liability
The mortgage origination segment may be responsible for errors or omissions relating to its representations and warranties that
the mortgage loans sold meet certain requirements, including representations as to underwriting standards and the validity of
certain borrower representations in connection with a mortgage loan. If determined to be at fault, the mortgage origination
segment either repurchases the mortgage loans from the investors or reimburses the investors’ losses (a “make-whole”
payment). The mortgage origination segment has established an indemnification liability for such probable losses based upon,
among other things, the level of current unresolved repurchase requests, the volume of estimated probable future repurchase
requests, our ability to cure the defects identified in the repurchase requests, and the severity of an estimated loss upon
repurchase. Although we consider this reserve to be appropriate, there can be no assurance that the reserve will prove to be
appropriate over time to cover ultimate losses due to conditions outside of our control such as unanticipated adverse changes
in the economy and historical loss patterns, discrete events adversely affecting specific borrowers or industries, or actions
taken by institutions or investors. The impact of such matters will be considered in the reserving process when known. Refer to
“Segment Results from Continuing Operations—Mortgage Origination Segment” and Notes 1 and 20 to the consolidated
financial statements for further discussion of the methodology used in establishing the mortgage loan indemnification liability
and changes during the relevant period thereof.
Acquisition Accounting
We account for business combinations using the acquisition method, which requires an allocation of the purchase price of an
acquired entity to the assets acquired and liabilities assumed, including identifiable intangibles, based on their estimated fair
values at the date of acquisition. Management applies various valuation methodologies to these acquired assets and assumed
liabilities which often involve a significant degree of judgment, as liquid markets often do not exist for certain loans, deposits,
identifiable intangible assets and other assets and liabilities acquired or assumed. Our valuation methodologies employ
significant estimates and assumptions to value such items, including, among others, projected cash flows, prepayment and
default assumptions, discount rates, and realizable collateral values. Purchase date valuations, which are permitted to be
revised for up to one year after the acquisition date, determine the amount of goodwill or bargain purchase gain recognized in
connection with a business combination. Changes to provisional amounts identified during this measurement period are
recognized in the reporting period in which the adjustment amounts are determined. Certain assumptions and estimates must
be updated regularly in connection with the ongoing accounting for purchased loans. Valuation assumptions and estimates
may also have to be revisited in connection with our periodic impairment assessments of goodwill, intangible assets and
certain other long-lived assets. The use of different assumptions could produce significantly different valuation results, which
could have material positive or negative effects on the Company’s results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The primary objective of the following information is to provide forward-looking quantitative and qualitative information
about our potential exposure to market risks. Market risk represents the risk of loss that may result from changes in value of a
financial instrument as a result of changes in interest rates, market prices and the credit perception of an issuer. The disclosure
is not meant to be a precise indicator of expected future losses, but rather an indicator of reasonably possible losses, and
therefore our actual results may differ from any of the following projections. This forward-looking information provides an
indicator of how we view and manage our ongoing market risk exposures.
Banking Segment
The banking segment is engaged primarily in the business of investing funds obtained from deposits and borrowings in
interest-earning loans and investments, and our primary component of market risk is sensitivity to changes in interest rates.
Consequently, our earnings depend to a significant extent on our net interest income, which is the difference between interest
income on loans and investments and our interest expense on deposits and borrowings. To the extent that our interest-bearing
liabilities do not reprice or mature at the same time as our interest-bearing assets, we are subject to interest rate risk and
corresponding fluctuations in net interest income.
There are several common sources of interest rate risk that must be effectively managed if there is to be minimal impact on our
earnings and capital. Repricing risk arises largely from timing differences in the pricing of assets and liabilities. Reinvestment
risk refers to the reinvestment of cash flows from interest payments and maturing assets at lower or higher rates. Basis risk
exists when different yield curves or pricing indices do not change at precisely the same time or in the same magnitude such
99
that assets and liabilities with the same maturity are not all affected equally. Yield curve risk refers to unequal movements in
interest rates across a full range of maturities.
We have employed asset/liability management policies that attempt to manage our interest-earning assets and interest-bearing
liabilities, thereby attempting to control the volatility of net interest income, without having to incur unacceptable levels of
risk. We employ procedures which include interest rate shock analysis, repricing gap analysis and balance sheet
decomposition techniques to help mitigate interest rate risk in the ordinary course of business. In addition, the asset/liability
management policies permit the use of various derivative instruments to manage interest rate risk or hedge specified assets and
liabilities.
An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest
rate change in line with general market interest rates. The management of interest rate risk is performed by analyzing the
maturity and repricing relationships between interest-earning assets and interest-bearing liabilities at specific points in time
(“GAP”) and by analyzing the effects of interest rate changes on net interest income over specific periods of time by
projecting the performance of the mix of assets and liabilities in varied interest rate environments. Interest rate sensitivity
reflects the potential effect on net interest income resulting from a movement in interest rates. A company is considered to be
asset sensitive, or have a positive GAP, when the amount of its interest-earning assets maturing or repricing within a given
period exceeds the amount of its interest-bearing liabilities also maturing or repricing within that time period. Conversely, a
company is considered to be liability sensitive, or have a negative GAP, when the amount of its interest-bearing liabilities
maturing or repricing within a given period exceeds the amount of its interest-earning assets also maturing or repricing within
that time period. During a period of rising interest rates, a negative GAP would tend to affect net interest income adversely,
while a positive GAP would tend to result in an increase in net interest income. During a period of falling interest rates, a
negative GAP would tend to result in an increase in net interest income, while a positive GAP would tend to affect net interest
income adversely. However, it is our intent to remain relatively balanced so that changes in rates do not have a significant
impact on earnings.
As illustrated in the table below, the banking segment is asset sensitive overall. Loans that adjust daily or monthly to the Wall
Street Journal Prime rate comprise a large percentage of interest sensitive assets and are the primary cause of the banking
segment’s asset sensitivity. To help neutralize interest rate sensitivity, the banking segment has kept the terms of most of its
borrowings under one year as shown in the following table (dollars in thousands).
Interest sensitive assets:
Loans
Securities
Federal funds sold and securities purchased under agreements to
resell
Other interest sensitive assets
Total interest sensitive assets
Interest sensitive liabilities:
Interest bearing checking
Savings
Time deposits
Notes payable and other borrowings
Total interest sensitive liabilities
Interest sensitivity gap
Cumulative interest sensitivity gap
3 Months or > 3 Months to > 1 Year to
Less
1 Year
3 Years
> 3 Years to
5 Years
> 5 Years
Total
December 31, 2021
$ 4,980,876
243,727
$
1,227,057
267,178
$
1,615,177
582,846
$
694,173
421,115
$
343,485
853,820
$
8,860,768
2,368,686
161,985
2,701,192
8,087,780
—
—
1,494,235
—
—
2,198,023
—
—
1,115,288
—
29,522
1,226,827
161,985
2,730,714
14,122,153
$ 6,757,580
345,795
270,769
172,616
7,546,760
$
541,020
$
541,020
$
$
$
— $
—
576,714
176
576,890
— $
—
101,201
553
101,754
—
—
29,545
701
30,246
917,345
1,458,365
$
$
2,096,269
3,554,634
$
$
1,085,042
4,639,676
$
$
$
$
—
—
—
2,685
2,685
6,757,580
345,795
978,229
176,731
8,258,335
1,224,142
$
5,863,818
5,863,818
Percentage of cumulative gap to total interest sensitive assets
3.83 %
10.33 %
25.17 %
32.85 %
41.52 %
The positive GAP in the interest rate analysis indicates that banking segment net interest income would generally rise if rates
increase. Because of inherent limitations in interest rate GAP analysis, the banking segment uses multiple interest rate risk
measurement techniques. Simulation analysis is used to subject the current repricing conditions to rising and falling interest
rates in increments and decrements of 50 to 100 basis points to determine the effect on net interest income changes for the next
twelve months. The banking segment also measures the effects of changes in interest rates on economic value of equity by
discounting projected cash flows of deposits and loans. Economic value changes in the investment portfolio are estimated by
discounting future cash flows and using duration analysis. Investment security prepayments are estimated using current market
information. We believe the simulation analysis presents a more accurate picture than the GAP analysis. Simulation analysis
recognizes that deposit products may not react to changes in interest rates as quickly or with the same magnitude as earning
100
assets contractually tied to a market rate index. The sensitivity to changes in market rates varies across deposit products. Also,
unlike GAP analysis, simulation analysis takes into account the effect of embedded options in the securities and loan portfolios
as well as any off-balance-sheet derivatives.
The table below shows the estimated impact of a range of changes in interest rates on net interest income and on economic
value of equity for the banking segment at December 31, 2021 (dollars in thousands).
Change in
Interest Rates
(basis points)
+300
+200
+100
-50
$
$
$
$
Changes in
Net Interest Income
Changes in
Economic Value of Equity
Amount
Percent
Amount
Percent
116,716
75,853
36,493
(6,751)
32.90 % $
21.38 % $
10.29 % $
(1.90)% $
525,978
377,548
211,812
(191,502)
29.27 %
21.01 %
11.79 %
(10.66)%
The projected changes in net interest income and economic value of equity to changes in interest rates at December 31, 2021
were in compliance with established internal policy guidelines. These projected changes are based on numerous assumptions
of growth and changes in the mix of assets or liabilities. The projected changes in net interest income are being impacted by
the heightened level of cash balances, which represent a significant portion of the Bank’s asset sensitivity given simulation
analysis assumptions/limitations. As a result, the timing and magnitude of future changes in interest rates and any runoff of
deposits, and related decline in cash, may impact projected changes in net interest income as noted in the table above.
Our portfolio includes loans that periodically reprice or mature prior to the end of an amortized term. Some of our variable-
rate loans remain at applicable rate floors, which may delay and/or limit changes in interest income during a period of
changing rates. If interest rates were to fall, the impact on our interest income would be limited by these rate floors. In
addition, declining interest rates may negatively affect our cost of funds on deposits. The extent of this impact will ultimately
be driven by the timing, magnitude and frequency of interest rate and yield curve movements, as well as changes in market
conditions and timing of management strategies. If interest rates were to rise, yields on the portion of our portfolio that remain
at applicable rate floors would rise more slowly than increases in market interest rates. Any changes in interest rates across the
term structure will continue to impact net interest income and net interest margin. The impact of rate movements will change
with the shape of the yield curve, including any changes in steepness or flatness and inversions at any points on the yield
curve.
Broker-Dealer Segment
Our broker-dealer segment is exposed to market risk primarily due to its role as a financial intermediary in customer
transactions, which may include purchases and sales of securities, use of derivatives and securities lending activities, and in
our trading activities, which are used to support sales, underwriting and other customer activities. We are subject to the risk of
loss that may result from the potential change in value of a financial instrument as a result of fluctuations in interest rates,
market prices, investor expectations and changes in credit ratings of the issuer.
Our broker-dealer segment is exposed to interest rate risk as a result of maintaining inventories of interest rate sensitive
financial instruments and other interest-earning assets including customer and correspondent margin loans and receivables and
securities borrowing activities. Our funding sources, which include customer and correspondent cash balances, bank
borrowings, repurchase agreements and securities lending activities, also expose the broker-dealer to interest rate risk.
Movement in short-term interest rates could reduce the positive spread between the broker-dealer segment’s interest income
and interest expense.
With respect to securities held, our interest rate risk is managed by setting and monitoring limits on the size and duration of
positions and on the length of time securities can be held. Much of the interest rates on customer and correspondent margin
loans and receivables are indexed and can vary daily. Our funding sources are generally short term with interest rates that can
vary daily.
101
The following table categorizes the broker-dealer segment’s net trading securities which are subject to interest rate and market
price risk (dollars in thousands).
1 Year
or Less
> 1 Year
to 5 Years
December 31, 2021
> 5 Years
to 10 Years
> 10 Years
Total
Trading securities, at fair value
Municipal obligations
U.S. government and government agency obligations
Corporate obligations
Total debt securities
Corporate equity securities
Other
$
$
Weighted average yield
Municipal obligations
U.S. government and government agency obligations
Corporate obligations
204
10
(3,726)
(3,512)
—
4,954
1,442
$
$
0.00 %
1.34 %
0.19 %
3,357
(2,214)
3,713
4,856
—
—
4,856
$
$
3.53 %
1.12 %
1.53 %
$
32,782
(2,318)
9,179
39,643
—
—
39,643
$
2.57 %
0.37 %
3.03 %
249,033
244,046
12,269
505,348
—
—
505,348
$
$
285,376
239,524
21,435
546,335
—
4,954
551,289
3.14 %
4.18 %
2.65 %
3.83 %
3.86 %
2.08 %
Derivatives are used to support certain customer programs and hedge our related exposure to interest rate risks.
Our broker-dealer segment is engaged in various brokerage and trading activities that expose us to credit risk arising from
potential non-performance from counterparties, customers or issuers of securities. This risk is managed by setting and
monitoring position limits for each counterparty, conducting periodic credit reviews of counterparties, reviewing
concentrations of securities and conducting business through central clearing organizations.
Collateral underlying margin loans to customers and correspondents and with respect to securities lending activities is marked
to market daily and additional collateral is required as necessary.
Mortgage Origination Segment
Within our mortgage origination segment, our principal market exposure is to interest rate risk due to the impact on our
mortgage-related assets and commitments, including mortgage loans held for sale, IRLCs and MSR. Changes in interest rates
could also materially and adversely affect our volume of mortgage loan originations.
IRLCs represent an agreement to extend credit to a mortgage loan applicant, whereby the interest rate on the loan is set prior to
funding. Our mortgage loans held for sale, which we hold in inventory while awaiting sale into the secondary market, and our
IRLCs are subject to the effects of changes in mortgage interest rates from the date of the commitment through the sale of the
loan into the secondary market. As a result, we are exposed to interest rate risk and related price risk during the period from
the date of the lock commitment until (i) the lock commitment cancellation or expiration date or (ii) the date of sale into the
secondary mortgage market. Loan commitments generally range from 20 to 60 days, and our average holding period of the
mortgage loan from funding to sale is approximately 30 days. An integral component of our interest rate risk management
strategy is our execution of forward commitments to sell MBSs to minimize the impact on earnings resulting from significant
fluctuations in the fair value of mortgage loans held for sale and IRLCs caused by changes in interest rates.
We have expanded, and may continue to expand, our residential mortgage servicing operations within our mortgage
origination segment. As a result of our mortgage servicing business, we have a portfolio of retained MSR. One of the principal
risks associated with MSR is that in a declining interest rate environment, they will likely lose a substantial portion of their
value as a result of higher than anticipated prepayments. Moreover, if prepayments are greater than expected, the cash we
receive over the life of the mortgage loans would be reduced. The mortgage origination segment uses derivative financial
instruments, including U.S. Treasury bond futures and options, Eurodollar futures and forward MBS commitments, as a means
to mitigate market risk associated with MSR assets. No hedging strategy can protect us completely, and hedging strategies
may fail because they are improperly designed, improperly executed and documented or based on inaccurate assumptions and,
as a result, could actually increase our risks and losses. The increasing size of our MSR portfolio may increase our interest rate
risk and, correspondingly, the volatility of our earnings, especially if we cannot adequately hedge the interest rate risk relating
to our MSR.
The goal of our interest rate risk management strategy within our mortgage origination segment is not to eliminate interest rate
risk, but to manage it within appropriate limits. To mitigate the risk of loss, we have established policies and procedures,
which include guidelines on the amount of exposure to interest rate changes we are willing to accept.
102
Consolidated
At December 31, 2021, total debt obligations on our consolidated balance sheet, excluding short-term borrowings and
unamortized debt issuance costs and premiums, were $392 million, and included $350 million in debt obligations subject to
fixed interest rates, with the remainder of indebtedness subject to variable interest rates. If interest rates were to increase by
one eighth of one percent (0.125%), the increase in interest expense on the variable rate debt would not have a significant
impact on our future consolidated earnings or cash flows.
As noted above within the discussion for each business segment, on a consolidated basis, our primary component of market risk
is sensitivity to changes in interest rates. Consequently, and in large part due to the significance of our banking segment, our
consolidated earnings depend to a significant extent on our net interest income. Refer to the discussion in the “Banking
Segment” section above that provides more details regarding sources of interest rate risk and asset/liability management
policies and procedures employed to manage our interest-earning assets and interest-bearing liabilities, thereby attempting to
control the volatility of net interest income, without having to incur unacceptable levels of risk.
The table below shows the estimated impact of a range of changes in interest rates on net interest income on a consolidated
basis at December 31, 2021 (dollars in thousands).
Change in
Interest Rates
(basis points)
+300
+200
+100
-50
Changes in
Net Interest Income
Amount
Percent
$
$
$
$
128,097
83,367
40,286
(13,422)
33.43 %
21.76 %
10.51 %
(3.50)%
The projected changes in net interest income to changes in interest rates at December 31, 2021 were in compliance with
established internal policy guidelines. These projected changes are based on numerous assumptions of growth and changes in
the mix of assets or liabilities. The projected changes in net interest income are being impacted by the heightened level of cash
balances, which represent a significant portion of our asset sensitivity given simulation analysis assumptions/limitations. As a
result, the timing and magnitude of future changes in interest rates including runoff of deposits, and related decline in cash,
may impact projected changes in net interest income as noted in the table above.
Item 8. Financial Statements and Supplementary Data.
Our financial statements required by this item are submitted as a separate section of this Annual Report. See “Financial
Statements,” commencing on page F-1 hereof.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Our management, with the supervision and participation of our Principal Executive Officer and Principal Financial Officer,
has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021, the end of the period covered by this
Annual Report.
Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the end of
such period, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a
timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are
effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act
is accumulated and communicated to the Company’s management, including our Principal Executive Officer and Principal
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
103
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal
control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as a process designed by,
or under the supervision of, our Principal Executive Officer and Principal Financial Officer and effected by our board of
directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorization of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making
this assessment, management used the criteria set forth in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on our assessment, management
concluded that, as of December 31, 2021, our internal control over financial reporting is effective.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the effectiveness of our internal
control over financial reporting as of December 31, 2021, and issued an unqualified opinion thereon as stated in their report,
which appears on page F-2.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during our fourth fiscal quarter covered by this annual
report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
104
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information called for by this Item is contained in our definitive Proxy Statement for our 2022 Annual Meeting of
Stockholders, and is incorporated herein by reference.
Item 11. Executive Compensation.
The information called for by this Item is contained in our definitive Proxy Statement for our 2022 Annual Meeting of
Stockholders, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information called for by this Item is contained in our definitive Proxy Statement for our 2022 Annual Meeting of
Stockholders, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information called for by this Item is contained in our definitive Proxy Statement for our 2022 Annual Meeting of
Stockholders, and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information called for by this Item is contained in our definitive Proxy Statement for our 2022 Annual Meeting of
Stockholders, and is incorporated herein by reference.
105
Item 15. Exhibits, Financial Statement Schedules.
(a)
The following documents are filed herewith as part of this Form 10-K.
PART IV
1. Financial Statements.
Hilltop Holdings Inc.
Report of Independent Registered Public Accounting Firm (PCAOB ID 238). . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-9
2. Financial Statement Schedules.
All financial statement schedules have been omitted because they are not required, not applicable or the information
has been included in our consolidated financial statements.
3.
Exhibits. See the Exhibit Index preceding the signature page hereto.
Item 16. Form 10-K Summary.
None.
106
Exhibit
Number
3.1
3.2
3.2.1
4.1
4.2
4.3
4.4
4.5.1
4.6.1
4.6.2
4.6.3
4.6.4
4.6.5
Description of Exhibit
Articles of Amendment and Restatement of Affordable Residential Communities Inc., dated February 16, 2004, as
amended or supplemented by: Articles Supplementary, dated February 16, 2004; Corporate Charter Certificate of
Notice, dated June 6, 2005; Articles of Amendment, dated January 23, 2007; Articles of Amendment, dated
July 31, 2007; Corporate Charter Certificate of Notice, dated September 23, 2008; Articles Supplementary, dated
December 15, 2010; Articles Supplementary, dated as of November 29, 2012 relating to Subtitle 8 election;
Articles Supplementary, dated November 29, 2012 relating to Non-Cumulative Perpetual Preferred Stock,
Series B, of Hilltop Holdings Inc.; and Articles of Amendment and Restatement, dated March 31, 2014 (filed as
Exhibit 3.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (File No. 001-31987) and
incorporated herein by reference).
Third Amended and Restated Bylaws of Hilltop Holdings Inc. (filed as Exhibit 3.2 to the Registrant’s Current
Report on Form 8-K filed on January 31, 2018 (File No. 001-31987) and incorporated herein by reference).
First Amendment to Third Amended and Restated Bylaws of Hilltop Holdings Inc., adopted and effective
April 25, 2019 (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed May 1, 2019 (File
No. 001-31987) and incorporated herein by reference).
Form of Certificate of Common Stock of Hilltop Holdings Inc. (filed as Exhibit 4.1 to the Registrant’s Annual
Report on Form 10-K for the year ended December 31, 2007 (File No. 001-31987) and incorporated herein by
reference).
Corporate Charter Certificate of Notice, dated June 6, 2005 (filed as Exhibit 3.2 to the Registrant’s Registration
Statement on Form S-3 (File No. 333-125854) and incorporated herein by reference).
Indenture, dated as of April 9, 2015, by and between Hilltop Holdings, Inc. and U.S. Bank National Association,
as Trustee, including form of notes (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on
April 9, 2015 (File No. 001-31987) and incorporated herein by reference).
Indenture, dated as of November 22, 2019, by and between Hilltop Securities Inc. and The Bank of New York
Mellon, as indenture trustee (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on
November 27, 2019 (File No. 001-31987) and incorporated herein by reference).
Indenture, dated as of December 6, 2019, by and between Hilltop Securities Inc. and The Bank of New York
Mellon, as indenture trustee (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on
December 11, 2019 (File No. 001-31987) and incorporated herein by reference).
Indenture, dated as of May 11, 2020, between Hilltop Holdings Inc., as Issuer, and U.S. Bank National
Association, as Trustee (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed May 13, 2020
(File No. 001-31987) and incorporated herein by reference).
First Supplemental Indenture, dated as of May 11, 2020, between Hilltop Holdings Inc., as Issuer, and U.S. Bank
National Association, as Trustee (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed
May 13, 2020 (File No. 001-31987) and incorporated herein by reference).
Second Supplemental Indenture, dated as of May 11, 2020, between Hilltop Holdings Inc., as Issuer, and U.S.
Bank National Association, as Trustee (filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed
May 13, 2020 (File No. 001-31987) and incorporated herein by reference).
Form of 5.75% Fixed-to-Floating Rate Subordinated Notes due 2030 (filed as Exhibit 4.4 to the Registrant’s
Current Report on Form 8-K filed May 13, 2020 (File No. 001-31987) and incorporated herein by reference).
Form of 6.125% Fixed-to-Floating Rate Subordinated Notes due 2035 (filed as Exhibit 4.5 to the Registrant’s
Current Report on Form 8-K filed May 13, 2020 (File No. 001-31987) and incorporated herein by reference).
107
4.7
10.1.1†
10.1.2†
10.1.3†
10.1.4†
10.1.5†
10.1.6†
10.1.7†
Description of the Registrant’s Securities (filed as Exhibit 4.10 to the Registrant’s Annual Report on Form 10-K
for the year ended December 31, 2020 filed on February 17, 2021 (File No. 001-31987) and incorporated herein
by reference).
Hilltop Holdings Inc. 2012 Equity Incentive Plan, effective September 20, 2012 (filed as Exhibit 10.18 to the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 filed on March 15, 2013 (File
No. 001-31987) and incorporated herein by reference).
Form of Restricted Stock Unit Award Agreement (Performance-Based Vesting) for awards beginning in 2019
(filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on April 25, 2019 (File
No. 001-31987) and incorporated herein by reference).
Form of Restricted Stock Unit Award Agreement (Time-Based Vesting for Section 16 Officers) for awards
beginning in 2019 (filed as Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed on April 25,
2019 (File No. 001-31987) and incorporated herein by reference).
Form of Restricted Stock Unit Award Agreement (Time-Based Vesting for Non-Section 16 Officers) for awards
beginning in 2019 (filed as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed on April 25,
2019 (File No. 001-31987) and incorporated herein by reference).
Form of Restricted Stock Unit Award Agreement (Performance-Based Vesting) for awards beginning in 2020
(filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 5, 2020 (File
No. 001-31987) and incorporated herein by reference).
Form of Restricted Stock Unit Award Agreement (Time-Based Vesting for Section 16 Officers) for awards
beginning in 2020 (filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on May 5, 2020
(File No. 001-31987) and incorporated herein by reference).
Form of Restricted Stock Unit Award Agreement (Time-Based Vesting for Non-Section 16 Officers) for awards
beginning in 2020 (filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on May 5, 2020
(File No. 001-31987) and incorporated herein by reference).
10.2.1†
Hilltop Holdings Inc. 2020 Equity Incentive Plan (filed as Exhibit 99.1 to the Registrant’s Registration Statement
on Form S-8 filed July 24, 2020 (File No. 333-240090) and incorporated herein by reference).
10.2.2†
10.2.3†
10.2.4†
10.2.5†
10.2.6†
Form of Restricted Stock Unit Award Agreement (Performance-Based) for awards beginning in 2020 (filed as
Exhibit 99.3 to the Registrant’s Registration Statement on Form S-8 filed July 24, 2020 (File No. 333-240090) and
incorporated herein by reference).
Form of Restricted Stock Unit Award Agreement (Time-Based Vesting for Section 16 Officers) for awards
beginning in 2020 (filed as Exhibit 99.4 to the Registrant’s Registration Statement on Form S-8 filed July 24,
2020 (File No. 333-240090) and incorporated herein by reference).
Form of Restricted Stock Unit Award Agreement (Time-Based Vesting for Non-Section 16 Officers) for awards
beginning in 2020 (filed as Exhibit 99.5 to the Registrant’s Registration Statement on Form S-8 filed July 24,
2020 (File No. 333-240090) and incorporated herein by reference).
Form of Restricted Stock Unit Award Agreement (Performance-Based) for awards beginning in 2021 (filed as
Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on April 23, 2021 (File No. 001-31987) and
incorporated herein by reference).
Form of Restricted Stock Unit Award Agreement (Time-Based Vesting for Section 16 Officers) for awards
beginning in 2021 (filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on April 23,
2021 (File No. 001-31987) and incorporated herein by reference).
108
10.2.7†
Form of Restricted Stock Unit Award Agreement (Time-Based Vesting for Non-Section 16 Officers) for awards
beginning in 2020 (filed as Exhibit 99.5 to the Registrant’s Quarterly Report on Form 10-Q filed on April 23,
2021 (File No. 001-31987) and incorporated herein by reference).
10.3†
10.4†
Hilltop Holdings Inc. Employee Stock Purchase Plan (filed as Exhibit 99.2 to the Registrant’s Registration
Statement on Form S-8 filed July 24, 2020 (File No. 333-240090) and incorporated herein by reference).
Hilltop Holdings Inc. Annual Incentive Plan, effective September 20, 2012 (filed as Exhibit 10.19 to the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012 filed on March 15, 2013 (File
No. 001-31987) and incorporated herein by reference).
10.5†
Compensation arrangement of Jeremy B. Ford (filed as Exhibit 10.1 to the Registrant’s Quarterly Report on
Form 10-Q filed on April 23, 2021 (File No. 001-31987) and incorporated herein by reference).
10.6.1†
10.6.2†
10.7†
10.8†
10.9†
10.10†
Employment Agreement, dated as of September 1, 2016, by and between William Furr and Hilltop Holdings Inc.
(filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A (Amendment No. 1) filed on September 7,
2016 (File No. 001-31987) and incorporated herein by reference).
First Amendment to Employment Agreement by and between Hilltop Holdings Inc. and William B. Furr, dated as
of August 30, 2019 (filed as Exhibit 10.7.2 to the Registrant’s Current Report on Form 8-K filed September 6,
2019 (File No. 001-31987) and incorporated herein by reference).
Employment Agreement, dated as of November 20, 2018, by and between Hilltop Holdings Inc. and Martin B.
Winges (filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on December 12, 2018 (File
No. 001-31987) and incorporated herein by reference).
Employment Agreement by and between Hilltop Holdings Inc. and Steve Thompson, dated as of October 25,
2019, but effective January 1, 2020 (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed
October 30, 2019 (File No. 001-31987) and incorporated herein by reference).
Limited Liability Company Agreement of HTH Diamond Hillcrest Land LLC, dated as of July 31, 2018 (filed as
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 6, 2018 (File No. 001-31987) and
incorporated herein by reference).
Ground Lease Agreement by and among HTH Diamond Hillcrest Land LLC, as Ground Lessor, and SPC Park
Plaza Partners LLC, HTH Hillcrest Project LLC and Diamond Hillcrest LLC, as Ground Lessees, dated as of
July 31, 2018 (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on August 6, 2018 (File
No. 001-31987) and incorporated herein by reference).
10.11†
Hilltop Plaza Co-Owners Agreement, by and among Diamond Hillcrest, LLC, HTH Hillcrest Project LLC and
SPC Park Plaza Partners, LLC, dated as of July 31, 2018 (filed as Exhibit 10.3 to the Registrant’s Current Report
on Form 8-K filed on August 6, 2018 (File No. 001-31987) and incorporated herein by reference).
10.11.1*
First Amendment to Hilltop Plaza Co-Owners Agreement, by and among Diamond Hillcrest, LLC, HTH Hillcrest
Project LLC and SPC Park Plaza Partners, LLC, dated as of December 31, 2021.
10.12†
Office Lease between SPC Park Plaza Partners, LLC, Diamond Hillcrest, LLC, and HTH Hillcrest Project LLC, as
Co-Owners, and Hilltop Holdings Inc., as Tenant, dated July 31, 2018 (filed as Exhibit 10.4 to the Registrant’s
Current Report on Form 8-K filed on August 6, 2018 (File No. 001-31987) and incorporated herein by reference).
10.12.1*
First Amendment to Office Lease between SPC Park Plaza Partners, LLC, Diamond Hillcrest, LLC, and HTH
Hillcrest Project LLC, as Co-Owners, and Hilltop Holdings Inc., as Tenant, dated as of November 30, 2021, but
effective as of June 29, 2019.
10.13†
Retail Lease between SPC Park Plaza Partners, LLC, Diamond Hillcrest, LLC, and HTH Hillcrest Project LLC, as
Co-Owners, and PlainsCapital Bank, as Tenant, dated July 31, 2018 (filed as Exhibit 10.5 to the Registrant’s
Current Report on Form 8-K filed on August 6, 2018 (File No. 001-31987) and incorporated herein by reference).
109
10.13.1*
First Amendment to Retail Lease between SPC Park Plaza Partners, LLC, Diamond Hillcrest, LLC, and HTH
Hillcrest Project LLC, as Co-Owners, and PlainsCapital Bank, as Tenant, dated as of December 16, 2021, but
effective as of August 1, 2019.
21.1*
List of subsidiaries of the Registrant.
23.1*
Consent of PricewaterhouseCoopers LLP.
31.1*
31.2*
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
32.1**
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.
101.SCH* Inline XBRL Taxonomy Extension Schema.
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*
**
†
Filed herewith.
Furnished herewith.
Exhibit is a management contract or compensatory plan or arrangement.
110
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 15, 2022
HILLTOP HOLDINGS INC.
By: /s/ William B. Furr
William B. Furr
Chief Financial Officer
(Principal Financial Officer and duly authorized officer)
111
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature
Capacity in which Signed
Date
/s/ Jeremy B. Ford
Jeremy B. Ford
/s/ William B. Furr
William B. Furr
/s/ Keith E. Bornemann
Keith E. Bornemann
/s/ Charlotte Jones
Charlotte Jones
/s/ Rhodes Bobbitt
Rhodes Bobbitt
/s/ Tracy A. Bolt
Tracy A. Bolt
/s/ J. Taylor Crandall
J. Taylor Crandall
/s/ Charles R. Cummings
Charles R. Cummings
/s/ Hill A. Feinberg
Hill A. Feinberg
/s/ Gerald J. Ford
Gerald J. Ford
/s/ J. Markham Green
J. Markham Green
/s/ William T. Hill, Jr.
William T. Hill, Jr.
/s/ Lee Lewis
Lee Lewis
/s/ Andrew J. Littlefair
Andrew J. Littlefair
/s/ W. Robert Nichols, III
W. Robert Nichols, III
/s/ Thomas C. Nichols
Thomas C. Nichols
/s/ Kenneth D. Russell
Kenneth D. Russell
A. Haag Sherman
/s/ Jonathan S. Sobel
Jonathan S. Sobel
/s/ Robert Taylor, Jr.
Robert Taylor, Jr.
/s/ Carl B. Webb
Carl B. Webb
President, Chief Executive Officer and Director
February 15, 2022
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
February 15, 2022
Executive Vice President, Chief Accounting Officer
February 15, 2022
(Principal Accounting Officer)
Director
Director
February 15, 2022
February 15, 2022
Director and Chairman of Audit Committee
February 15, 2022
Director
February 15, 2022
Director and Audit Committee Member
February 15, 2022
Director
February 15, 2022
Chairman of the Board
February 15, 2022
Director and Audit Committee Member
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
112
Hilltop Holdings Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-4
F-5
F-6
F-7
F-8
F-9
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Hilltop Holdings Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Hilltop Holdings Inc. and its subsidiaries (the “Company”) as of December 31, 2021
and 2020, and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three
years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also
have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses in 2020.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's
internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether
effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management's assessment
and our audit of Hilltop Holdings Inc.'s internal control over financial reporting also included controls over the preparation of financial statements in
accordance with the instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C) to comply with the reporting
requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA). A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were
communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated
F-2
financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Credit Losses for Loans Held for Investment – Collectively Evaluated
As described in Notes 1 and 7 to the consolidated financial statements, the Company’s allowance for credit losses for loans held for investment was $91
million as of December 31, 2021. Management’s allowance for credit losses for collectively evaluated loans is an estimate of expected losses over the
lifetime of a loan within the Company’s existing loans held for investment portfolio and is based on historical experience, current conditions and
reasonable and supportable forecasts. The credit loss estimation process considers the characteristics of the Company’s loan portfolio segments, which are
further disaggregated into loan classes, the level at which credit risk is monitored. The allowance for credit losses for collectively evaluated loans is
calculated using statistical credit factors, including probabilities of default (“PD”) and loss given default (“LGD”), to the amortized cost of pools of loan
exposures with similar risk characteristics over its contractual life, adjusted for prepayments, to arrive at an estimate of expected credit losses. As
described by management, one of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the
macroeconomic forecasts used to estimate credit losses over the reasonable and supportable forecast period. Management utilizes a single macroeconomic
consensus scenario published by a third party that reflects the U.S. economic outlook. This consensus scenario utilizes multiple economic variables in
forecasting the economic outlook. Significant variables that impact the modeled losses across the Company’s loan portfolios are the U.S. Real Gross
Domestic Product (GDP) growth rates and unemployment rate assumptions. Management also considers adjustments for certain conditions in the
Company’s allowance for credit losses estimate qualitatively where they have not been measured directly in management’s collective assessments.
The principal considerations for our determination that performing procedures relating to the allowance for credit losses for collectively evaluated loans
held for investment is a critical audit matter are (i) the significant judgment by management in estimating the allowance for credit losses, which in turn led
to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence relating to management’s
determination of the impact of GDP growth rate and unemployment rate forecasts within the macroeconomic consensus scenario, as well as qualitative
adjustments to the allowance for credit losses; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing the effectiveness of controls relating to the allowance for credit losses for collectively evaluated
loans held for investment, which included controls over evaluation and selection of the variables used in the macroeconomic consensus scenario as well as
qualitative adjustments. These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in
testing management’s process for estimating the allowance for credit losses, which included (i) evaluating the appropriateness of the methodology and
models, (ii) testing the completeness and accuracy of certain data used in the estimate, (iii) evaluating the reasonableness of management’s determination
of the impact of GDP growth rate and unemployment rate forecasts within the macroeconomic consensus scenario and (iv) evaluating the reasonableness
of qualitative adjustments to the allowance for credit losses.
Valuation of Mortgage Servicing Rights
As described in Notes 1 and 11 to the consolidated financial statements, the Company measures its residential mortgage servicing rights asset at fair value,
which totaled $87 million as of December 31, 2021. Management estimates the fair value of residential mortgage servicing rights by valuing the projected
net servicing cash flows, which are then discounted to estimate fair value using a discounted cash flow model. The significant unobservable inputs related
to the valuation of residential mortgage servicing rights are the discount rate and the constant prepayment rate assumptions. As disclosed by management,
the model assumptions and the mortgage servicing rights fair value estimates are compared to observable trades of similar portfolios as well as to broker
valuations and industry surveys, as available.
The principal considerations for our determination that performing procedures relating to the valuation of mortgage servicing rights is a critical audit
matter are (i) the significant judgment by management in estimating the fair value of residential mortgage servicing rights, which in turn led to a high
degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s estimate of the fair
value of mortgage servicing rights and the constant prepayment rate and discount rate assumptions used in the estimate, and (ii) the audit effort involved
the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing the effectiveness of controls relating to the valuation of mortgage servicing rights, which included
controls over the constant prepayment rate and discount rate assumptions. These procedures also included, among others, the involvement of professionals
with specialized skill and knowledge to assist in testing management’s process for estimating the valuation of mortgage servicing rights, which included
(i) evaluating the appropriateness of the methodology, (ii) testing the completeness and accuracy of certain data used in the estimate, (iii) evaluating the
reasonableness of the constant prepayment rate and discount rate assumptions used in the estimate and (iv) evaluating the reasonableness of the fair value
of mortgage servicing rights, which included comparison to observable trades of similar portfolios and industry surveys.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
February 15, 2022
We have served as the Company’s auditor since 1998.
F-3
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 31,
2021
2020
$
$
$
$
$
$
$
2,823,138
385
221,740
118,262
647,998
2,130,568
267,684
250
3,046,500
1,878,190
7,879,904
(91,352)
7,788,552
1,672,946
204,438
112,328
86,990
452,880
267,447
15,284
18,689,080
4,577,183
8,240,894
12,818,077
1,477,300
859,444
96,586
387,904
130,960
—
369,606
16,139,877
790
1,274,446
(10,219)
1,257,014
752
(115)
2,522,668
26,535
2,549,203
18,689,080
$
1,062,560
386
290,357
80,319
694,255
1,462,205
311,944
140
2,468,544
2,788,386
7,693,141
(149,044)
7,544,097
1,404,727
211,595
105,757
143,742
555,983
267,447
20,364
16,944,264
3,612,384
7,629,935
11,242,319
1,368,373
695,798
79,789
381,987
125,450
67,012
632,889
14,593,617
822
1,317,929
17,763
986,792
771
(138)
2,323,939
26,708
2,350,647
16,944,264
Assets
Cash and due from banks
Federal funds sold
Assets segregated for regulatory purposes
Securities purchased under agreements to resell
Securities:
Trading, at fair value
Available for sale, at fair value, net (amortized cost of $2,148,635 and $1,435,919, respectively)
Held to maturity, at amortized cost, net (fair value of $276,296 and $326,671, respectively)
Equity, at fair value
Loans held for sale
Loans held for investment, net of unearned income
Allowance for credit losses
Loans held for investment, net
Broker-dealer and clearing organization receivables
Premises and equipment, net
Operating lease right-of-use assets
Mortgage servicing rights
Other assets
Goodwill
Other intangible assets, net
Total assets
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Broker-dealer and clearing organization payables
Short-term borrowings
Securities sold, not yet purchased, at fair value
Notes payable
Operating lease liabilities
Junior subordinated debentures
Other liabilities
Total liabilities
Commitments and contingencies (see Notes 20 and 21)
Stockholders' equity:
Hilltop stockholders' equity:
Common stock, $0.01 par value, 125,000,000 shares authorized; 78,964,978 and 82,184,893 shares issued
and outstanding at December 31, 2021 and December 31, 2020, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Deferred compensation employee stock trust, net
Employee stock trust (5,749 and 6,930 shares, at cost, at December 31, 2021 and December 31, 2020,
respectively)
Total Hilltop stockholders' equity
Noncontrolling interests
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes.
F-4
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
2021
Year Ended December 31,
2020
2019
Interest income:
Loans, including fees
Securities borrowed
Securities:
Taxable
Tax-exempt
Other
Total interest income
Interest expense:
Deposits
Securities loaned
Short-term borrowings
Notes payable
Junior subordinated debentures
Other
Total interest expense
Net interest income
Provision for (reversal of) credit losses
Net interest income after provision for (reversal of) credit losses
Noninterest income:
Net gains from sale of loans and other mortgage production income
Mortgage loan origination fees
Securities commissions and fees
Investment and securities advisory fees and commissions
Other
Total noninterest income
Noninterest expense:
Employees' compensation and benefits
Occupancy and equipment, net
Professional services
Other
Total noninterest expense
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income
Less: Net income attributable to noncontrolling interest
Income attributable to Hilltop
Earnings per common share:
Basic:
Earnings from continuing operations
Earnings from discontinued operations
Diluted:
Earnings from continuing operations
Earnings from discontinued operations
Weighted average share information:
Basic
Diluted
460,471
69,582
58,493
6,159
15,991
610,696
71,509
60,086
26,778
8,948
3,851
545
171,717
438,979
7,206
431,773
504,935
130,003
137,742
103,787
186,350
1,062,817
844,602
113,336
60,565
193,386
1,211,889
282,701
63,714
218,987
13,990
232,977
7,686
225,291
2.29
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2.29
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92,345
92,394
$
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61,667
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51,360
$
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9,766
6,595
529,973
23,624
50,974
9,065
21,386
1,558
384
106,991
422,982
(58,213)
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825,960
160,011
143,827
152,443
128,034
1,410,275
1,007,235
100,602
54,270
225,291
1,387,398
504,072
117,976
386,096
—
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11,601
374,495
4.64
—
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81,173
$
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48,273
6,698
6,853
546,495
47,040
42,816
11,611
15,897
2,772
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424,166
96,491
327,675
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89,280
89,304
$
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See accompanying notes.
F-5
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive income:
2021
$ 386,096
Year Ended December 31,
2020
$ 469,677
$
2019
232,977
Change in fair value of cash flow hedges, net of tax of $849, $(820), and
$111, respectively
6,205
(2,950)
417
Net unrealized gains (losses) on securities available for sale, net of tax of
$(10,146), $2,756, and $6,276, respectively
(34,115)
9,111
21,599
Reclassification adjustment for gains (losses) included in net income, net
of tax of $(21), $55, and $(573), respectively
Comprehensive income
Less: comprehensive income attributable to noncontrolling interest
(72)
358,114
11,601
183
476,021
21,841
(1,970)
253,023
7,686
Comprehensive income applicable to Hilltop
$ 346,513
$ 454,180
$
245,337
See accompanying notes.
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HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Year Ended December 31,
2020
2021
2019
$
386,096 $
469,677
$
232,977
Provision for (reversal of) credit losses
Depreciation, amortization and accretion, net
Deferred income taxes
Other, net
Net change in securities purchased under agreements to resell
Net change in trading securities
Net change in broker-dealer and clearing organization receivables
Net change in other assets
Net change in broker-dealer and clearing organization payables
Net change in other liabilities
Net change in securities sold, not yet purchased
Proceeds from sale of mortgage servicing rights asset
Change in valuation of mortgage servicing rights asset
Net gains from sales of loans
Loans originated for sale
Proceeds from loans sold
Net cash provided by (used in) operating activities for continuing operations
Net cash used in operating activities for discontinued operations
Net cash provided by (used in) operating activities
Investing Activities
Proceeds from maturities and principal reductions of securities held to maturity
Proceeds from sales, maturities and principal reductions of securities available for sale
Purchases of securities held to maturity
Purchases of securities available for sale
Net change in loans held for investment
Purchases of premises and equipment and other assets
Proceeds from sales of premises and equipment and other real estate owned
Net cash received from (paid to) Federal Home Loan Bank and Federal Reserve Bank stock
Other, net
Net cash used in investing activities for continuing operations
Net cash provided by investing activities for discontinued operations
Net cash received from disposal of discontinued operations
Net cash used in investing activities
Financing Activities
Net change in deposits
Net change in short-term borrowings
Proceeds from notes payable
Payments on notes payable and junior subordinated debentures
Payments to repurchase common stock
Dividends paid on common stock
Net cash distributed to noncontrolling interest
Other, net
Net cash provided by financing activities
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents and restricted cash, end of year
Reconciliation of Cash, Cash Equivalents and Restricted Cash to Consolidated Balance Sheets
Cash and due from banks
Cash and due from banks, included within assets of discontinued operations
Federal funds sold
Assets segregated for regulatory purposes
Total cash, cash equivalents and restricted cash
Supplemental Disclosures of Cash Flow Information
Cash paid for interest
Cash paid for income taxes, net of refunds
Supplemental Schedule of Non-Cash Activities
Conversion of loans to other real estate owned
Additions to mortgage services rights
(58,213)
24,628
(7,077)
18,580
(37,943)
46,257
(564,404)
3,185
129,495
(212,408)
16,797
142,558
(7,373)
(825,960)
(26,933,574)
28,644,978
765,622
—
765,622
43,695
621,984
—
(1,343,763)
125,315
(24,751)
24,353
(107)
—
(553,274)
—
—
(553,274)
1,555,190
163,735
976,119
(1,037,652)
(123,631)
(38,978)
(11,774)
(3,397)
1,479,612
96,491
21,930
16,583
11,849
(21,288)
(4,679)
515,073
(78,997)
(152,158)
249,313
35,972
35,142
37,926
(1,001,059)
(26,766,999)
26,848,663
313,439
(33,003)
280,436
81,140
433,828
(7,553)
(975,289)
(457,540)
(37,746)
21,512
22,808
—
(918,840)
1,941
89,233
(827,666)
2,125,118
(729,110)
1,451,249
(1,325,711)
(208,664)
(32,524)
(20,890)
(1,724)
1,257,744
1,691,960
1,353,303
3,045,263 $
710,514
642,789
1,353,303
2,823,138 $
—
385
221,740
3,045,263 $
110,108 $
136,183 $
3,561 $
78,433 $
1,062,560
—
386
290,357
1,353,303
124,934
123,553
13,865
162,914
$
$
$
$
$
$
$
$
$
$
$
$
$
$
7,206
(1,483)
(4,063)
15,445
2,580
55,890
(338,158)
61,688
206,170
78,245
(37,850)
—
24,353
(504,935)
(16,644,259)
16,413,647
(432,547)
(476)
(433,023)
73,924
296,812
(109,622)
(415,763)
(423,890)
(42,287)
14,309
(17,092)
904
(622,705)
18,413
—
(604,292)
600,481
358,203
1,055,772
(1,000,960)
(73,385)
(29,627)
(6,352)
(2,494)
901,638
(135,677)
778,466
642,789
433,626
51,333
394
157,436
642,789
168,535
56,901
4,669
13,755
See accompanying notes.
F-8
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting and Reporting Policies
Nature of Operations
Hilltop Holdings Inc. (“Hilltop” and, collectively with its subsidiaries, the “Company”) is a financial holding company
registered under the Bank Holding Company Act of 1956. The Company’s primary line of business is to provide business
and consumer banking services from offices located throughout Texas through PlainsCapital Bank (the “Bank”). In
addition, the Company provides an array of financial products and services through its broker-dealer and mortgage
origination subsidiaries.
On June 30, 2020, Hilltop completed the sale of all of the outstanding capital stock of National Lloyds Corporation
(“NLC”), which comprised the operations of the former insurance segment, for cash proceeds of $154.1 million and was
subject to post-closing adjustments. Accordingly, NLC’s results and its assets and liabilities have been presented as
discontinued operations in the consolidated financial statements. For further details, see Note 3 to the consolidated
financial statements.
The Company, headquartered in Dallas, Texas, provides its products and services through two primary business units
within continuing operations, PlainsCapital Corporation (“PCC”) and Hilltop Securities Holdings LLC (“Securities
Holdings”). PCC is a financial holding company, that provides, through its subsidiaries, traditional banking, wealth and
investment management and treasury management services primarily in Texas and residential mortgage lending
throughout the United States. Securities Holdings is a holding company that provides, through its subsidiaries, investment
banking and other related financial services, including municipal advisory, sales, trading and underwriting of taxable and
tax-exempt fixed income securities, clearing, securities lending, structured finance and retail brokerage services
throughout the United States. Unless otherwise noted, the Company’s notes to the consolidated financial statements
present information limited to continuing operations.
As a result of the spread of the novel coronavirus (“COVID-19”) pandemic, economic uncertainties have contributed to
significant volatility in the global economy, as well as banking and other financial activity in the areas in which the
Company operates. The effects of COVID-19 have had, and may continue to have, an adverse effect on the financial
markets and overall economic conditions on an unprecedented scale. The Company’s business is dependent upon the
willingness and ability of its employees and customers to conduct banking and other financial transactions. The rapid
development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19.
COVID-19 presents material uncertainty which could have a material adverse effect on the Company’s business,
financial condition, results of operations and cash flows.
Basis of Presentation
The audited 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”). Other than changes related to the implementation of the current expected credit losses (“CECL”) standard
as of January 1, 2020, the Company has applied its critical accounting policies and estimation methods consistently in all
periods presented in these consolidated financial statements. Actual amounts and values as of the balance sheet dates
may be materially different than the amounts and values reported due to the inherent uncertainty in the estimation
process. Also, future amounts and values could differ materially from those estimates due to changes in values and
circumstances after the balance sheet date.
Hilltop owns 100% of the outstanding stock of PCC. PCC owns 100% of the outstanding stock of the Bank and 100% of
the membership interest in Hilltop Opportunity Partners LLC, a merchant bank utilized to facilitate investments in
companies engaged in non-financial activities. The Bank owns 100% of the outstanding stock of PrimeLending, a
PlainsCapital Company (“PrimeLending”).
PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC (“Ventures
Management”), which holds an ownership interest in and is the managing member of certain affiliated business
arrangements (“ABAs”).
F-9
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
PCC also owned 100% of the outstanding common securities of PCC Statutory Trusts I, II, III and IV (the “Trusts”),
which were not included in the consolidated financial statements under the requirements of the Variable Interest Entities
(“VIE”) Subsections of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”), because the primary beneficiaries of the Trusts are not within the consolidated group. As discussed in more
detail within Note 16 to the consolidated financial statements, PCC fully redeemed all outstanding securities held by the
Trusts during the third quarter of 2021.
Hilltop has a 100% membership interest in Securities Holdings, which operates through its wholly-owned subsidiaries,
Hilltop Securities Inc. (“Hilltop Securities”), Momentum Independent Network Inc., formerly Hilltop Securities
Independent Network Inc., (“Momentum Independent Network” and collectively with Hilltop Securities, the “Hilltop
Broker-Dealers”) and Hilltop Securities Asset Management, LLC. Hilltop Securities is a broker-dealer registered with the
Securities and Exchange Commission (“SEC”) and Financial Industry Regulatory Authority (“FINRA”) and a member of
the New York Stock Exchange (“NYSE”), Momentum Independent Network is an introducing broker-dealer that is also
registered with the SEC and FINRA. Hilltop Securities, Momentum Independent Network and Hilltop Securities Asset
Management, LLC are registered investment advisers under the Investment Advisers Act of 1940.
In addition, Hilltop owns 100% of the membership interest in each of HTH Hillcrest Project LLC (“HTH Project LLC”)
and Hilltop Investments I, LLC. Hilltop Investments I, LLC owns 50% of the membership interest in HTH Diamond
Hillcrest Land LLC (“Hillcrest Land LLC”) which is consolidated under the aforementioned VIE Subsections of the ASC.
These entities are related to the Hilltop Plaza investment discussed in detail in Note 19 to the consolidated financial
statements and are collectively referred to as the “Hilltop Plaza Entities.”
The consolidated financial statements include the accounts of the above-named entities. Intercompany transactions and
balances have been eliminated. Noncontrolling interests have been recorded for minority ownership in entities that are not
wholly owned and are presented in compliance with the provisions of Noncontrolling Interest in Subsidiary Subsections
of the ASC.
Certain reclassifications have been made to the prior period consolidated financial statements to conform with the current
period presentation, including reclassifications due to the adoption of new accounting pronouncements and
reclassifications due to the presentation of NLC’s results and its assets and liabilities as discontinued operations. In
preparing these consolidated financial statements, subsequent events were evaluated through the time the financial
statements were issued. Financial statements are considered issued when they are widely distributed to all stockholders
and other financial statement users, or filed with the SEC.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Estimates regarding the allowance for credit losses, the fair values of
financial instruments, the mortgage loan indemnification liability, and the potential impairment of 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.
Acquisition Accounting
Acquisitions are accounted for under the acquisition method of accounting. Purchased assets, including identifiable
intangible assets, and assumed liabilities are recorded at their respective acquisition date fair values. If the fair value of net
assets purchased exceeds the consideration given, a bargain purchase gain is recognized. If the consideration given
exceeds the fair value of the net assets received, goodwill is recognized.
Securities Purchased Under Agreements to Resell
Securities purchased under agreements to resell (reverse repurchase agreements or reverse repos) are treated as
collateralized financings and are carried at the amounts at which the securities will subsequently be resold as specified in
the agreements. The Company is in possession of collateral with a fair value equal to or in excess of the contract amounts.
F-10
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Securities
Management classifies securities at the time of purchase and reassesses such designation at each balance sheet date.
Securities held for resale to facilitate principal transactions with customers are classified as trading and are carried at fair
value, with changes in fair value reflected in the consolidated statements of operations. The Company reports interest
income on trading securities as interest income on securities and other changes in fair value as other noninterest income.
Debt securities held but not intended to be held to maturity or on a long-term basis are classified as available for sale.
Securities included in this category are those that management intends to use as part of its asset/liability management
strategy and that may be sold in response to changes in interest rates, prepayment risk or other factors related to interest
rate and prepayment risk. Debt securities available for sale are carried at fair value. Unrealized holding gains and losses
on debt securities available for sale, net of taxes, are reported in other comprehensive income (loss) until realized.
Premiums and discounts are recognized in interest income using the effective interest method and reflect any optionality
that may be embedded in the security.
Equity securities are carried at fair value, with changes in fair value reflected in the consolidated statements of operations.
Equity securities that do not have readily determinable fair values are initially recorded at cost and subsequently
remeasured when there is (i) an observable transaction involving the same investment, (ii) an observable transaction
involving a similar investment from the same issuer or (iii) an impairment. These remeasurements are reflected in the
consolidated statements of operations.
Allowance for Credit Losses on Available for Sale and Held to Maturity Securities
Available for sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least
quarterly. For available for sale debt securities, a decline in fair value due to credit loss results in recording an allowance
for credit losses to the extent the fair value is less than the amortized cost basis. Declines in fair value that have not been
recorded through an allowance for credit losses, such as declines due to changes in market interest rates, are recorded
through other comprehensive income, net of applicable taxes.
Allowances for credit losses may result from credit deterioration of the issuer or the collateral underlying the security. In
performing an assessment of whether any decline in fair value is due to a credit loss, all relevant information is considered
at the individual security level. In assessing whether a credit loss exists, the Company compares the present value of cash
flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash
flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance
for credit losses is recorded, limited to the amount by which the fair value is less than the amortized cost basis.
Under the new credit loss guidance adopted on January 1, 2020, the previous other-than-temporary-impairment (“OTTI”)
model was replaced. Under the OTTI model, credit losses were recognized as a reduction to the cost basis of the
investment with recovery of an impairment loss recognized prospectively over time as interest income, and reversals of
impairment were not allowed. Effective January 1, 2020, if the Company intends to sell a debt security, or it is more
likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, the debt
security is written down to its fair value and the write down is charged against the allowance for credit losses, with any
incremental impairment reported in earnings. Reversals of the allowance for credit losses are permitted and should not
exceed the allowance amount initially recognized.
For debt securities held to maturity, estimated expected credit losses are calculated in a manner like that used for loans
held for investment. That is, the historical lifetime probability of default and severity of loss in the event of default is
derived or obtained from external sources and adjusted for the expected effects of reasonable and supportable forecasts
over the expected lives of the securities on those historical credit losses. With respect to certain classes of debt securities,
primarily U.S. Treasuries, the Company considers the history of credit losses, current conditions and reasonable and
supportable forecasts, which may indicate that the expectation that nonpayment of the amortized cost basis is or continues
to be zero, even if the U.S. government were to technically default. Therefore, the Company has not recorded expected
credit losses for those securities.
F-11
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Loans Held for Sale
Loans held for sale consist primarily of single-family residential mortgages funded through PrimeLending. These loans
are generally on the consolidated balance sheet between 30 and 45 days. Substantially all mortgage loans originated by
PrimeLending are sold to various investors in the secondary market, historically with the majority with servicing released.
Mortgage loans held for sale are carried at fair value in accordance with the provisions of the Fair Value Option
Subsections of the ASC (the “Fair Value Option”). Changes in the fair value of the loans held for sale are recognized in
earnings and fees and costs associated with origination are recognized as incurred. The specific identification method is
used to determine realized gains and losses on sales of loans, which are reported as net gains (losses) in noninterest
income. Loans sold are subject to certain indemnification provisions with investors, including the repurchase of loans sold
and repayment of certain sales proceeds to investors under certain conditions. In addition, certain mortgage loans
guaranteed by U.S. Government agencies and sold into Government National Mortgage Association (“GNMA”) pools
may, under certain conditions specified in the government programs, become subject to repurchase by PrimeLending.
When such loans subject to repurchase no longer qualify for sale accounting, they are reported as loans held for sale in the
consolidated balance sheets.
Loans Held for Investment
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at
the amount of unpaid principal reduced by unearned income, net unamortized deferred fees and an allowance for credit
losses. Unearned income on installment loans and interest on other loans is recognized using the effective interest method.
Net fees received for providing loan commitments and letters of credit that result in loans are deferred and amortized to
interest income over the life of the related loan, beginning with the initial borrowing. Net fees on commitments and letters
of credit that are not expected to be funded are amortized to noninterest income over the commitment period. Income on
direct financing leases is recognized on a basis that achieves a constant periodic rate of return on the outstanding
investment.
The accrual of interest on credit deteriorated loans is discontinued when, in management’s opinion, there is a clear
indication that the borrower’s 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. When a loan is
placed on non-accrual status, all previously accrued and unpaid interest is charged against income. Once placed on non-
accrual status, interest income is recognized on a cash basis. Additionally, accretion of purchased discount on non-
accrual loans is suspended.
The Company follows applicable regulatory guidance when measuring past due status. The Company uses the actual
days elapsed since the payment due date of the loan to determine delinquency. In response to the ongoing COVID-19
pandemic, the Company allowed modifications, such as payment deferrals for up to 90 days and temporary forbearance,
to credit-worthy borrowers who are experiencing temporary hardship due to the effects of COVID-19. These
modifications generally met the criteria of the Economic Security Act (“CARES Act”) passed in March 2020. Therefore,
the Company did not account for such loan modifications as TDRs through January 1, 2022 when the provisions expired,
nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status
(provided the loans were not past due or on non-accrual status prior to the deferral). The Company elected to accrue and
recognize interest income on these modifications during the payment deferral period.
Management defines loans acquired in a business combination as acquired loans. Acquired loans are recorded at estimated
fair value on their purchase date with no carryover of the related allowance for credit losses. Acquired loans are
segregated between those considered to be credit deteriorated and those without credit deterioration at acquisition. To
make this determination, management considers such factors as past due status, non-accrual status and credit risk ratings.
For acquired performing loans, a lifetime allowance for credit losses is estimated as of the date of acquisition and is
recorded through provision for (reversal of) credit losses. The difference between the purchase price and loan receivable is
amortized over the remaining life of the loan.
All formerly designated purchased credit impaired (“PCI”) loans became purchased credit deteriorated (“PCD”) loans
effective January 1, 2020. PCD loans are loans that, as of the date of acquisition, have experienced a more-than-
insignificant deterioration in credit quality since origination. For PCD loans, any non-credit discount or premium related
to an acquired pool of PCD loans is allocated to each individual asset within the pool. On the acquisition date, the initial
F-12
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
allowance for credit losses measured on a pooled basis is allocated to each individual asset within the pool to allocate
any non-credit discount or premium. Credit losses are measured based on unpaid principal balance. A lifetime allowance
for credit losses is estimated as of the date of acquisition. The initial allowance for credit losses is added to the purchase
price and is considered to be part of the PCD loan amortized cost basis.
Allowance for Credit Losses for Loans Held for Investment
Credit quality within the loans held for investment portfolio is continuously monitored by management and is reflected
within the allowance for credit losses for loans. The allowance for credit losses, or reserve, is an estimate of expected
losses over the lifetime of a loan within the Company’s existing loans held for investment portfolio. The allowance for
credit losses for loans held for investment is adjusted by a provision for (reversal of) credit losses, which is reported in
earnings, and reduced by the charge-off of loan amounts, net of recoveries.
The credit loss estimation process involves procedures to appropriately consider the unique characteristics of the
Company’s loan portfolio segments, which are further disaggregated into loan classes, the level at which credit risk is
monitored. The allowance for credit losses for loans not evaluated for specific reserves is calculated using statistical
credit factors, including probabilities of default (“PD”) and loss given default (“LGD”), to the amortized cost of pools of
loan exposures with similar risk characteristics over its contractual life, adjusted for prepayments, to arrive at an estimate
of expected credit losses. Economic forecasts are applied over the period management believes it can estimate reasonable
and supportable forecasts. Reasonable and supportable forecast periods and reversion assumptions to historical data are
credit model specific. The Company typically forecasts economic variables over a one to four year horizon. Prepayments
are estimated by loan type using historical information and adjusted for current and future conditions.
Commercial loans that exceed a minimum size scope are underwritten and graded using credit models that leverage
national industry default data to score the loans. At the conclusion of the process of underwriting or re-grading a
borrower, each borrower (for commercial and industrial loans) or property (for commercial real estate loans) is assigned a
PD grade threshold. The valuation methodology of risk rating internal grades is based on the merits of the financial ratios
of the borrower or the property. In addition, an LGD grade is determined by the credit models utilizing collateral
information provided. A master rating scale effectively "pools" the loans by credit scores and assigns a standard one year
PD percentage and an LGD percentage equally for all loans that have a given score. For borrowers or loans that do not
meet the minimum balance threshold, an internal scorecard is utilized to approximate the grades derived from the credit
models and is mapped to the master rating scale. The resulting numerical PD grade is the credit quality indicator for
commercial loans. The grades on borrowers or properties that are scored in the credit models are determined at origination
and updated at least annually. The grades on the internal scorecards are updated annually if they meet a minimum
threshold, or if new circumstances (favorable or unfavorable) warrant a re-scoring.
When computing allowance levels, credit loss assumptions are estimated using models that analyze loans according to
credit risk ratings, historic loss experience, past due status and other credit trends and risk characteristics, including
current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the
allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain.
Future factors and forecasts may result in significant changes in the allowance and provision (reversal) for credit losses in
those future periods. The allowance for credit losses will primarily reflect estimated losses for pools of loans that share
similar risk characteristics, but will also consider individual loans that do not share risk characteristics with other loans.
Loans that Share Risk Characteristics with Other Loans (“Collectively Evaluated”)
In estimating the component of the allowance for credit losses for loans that share similar risk characteristics with other
loans, such loans are segregated into loan classes. Loans are designated into loan classes based on loans pooled by product
types and similar risk characteristics or areas of risk concentration. In determining the allowance for credit losses, the
Company derives an estimated credit loss assumption from a model that categorizes loan pools based on loan type and
internal risk rating or past due category as follows.
Commercial and Industrial and Commercial Real Estate Loans. The Company assesses the credit quality of the
borrower and assigns an internal risk rating by loan type for the commercial and industrial and commercial real estate
portfolios. Internal risk ratings are assigned at origination or acquisition, and if necessary, adjusted for changes in credit
quality over the life of the exposure. In assessing the internal PD risk rating of the loan or related unfunded
F-13
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
commitments, the Company separately evaluate owner and non-owner occupied real estate. The borrower’s financial
statements may be used to evaluate amounts and sources of repayments, debt service coverage, debt capacity, and
quality of earnings. Other non-financial metrics are also evaluated including the geographies and industries within which
it operates, its management strength, and its reputation and historical experience. The internal LGD risk rating also
considers assessment of collateral quality and current loan to value, collateral type and loan seniority, covenant strength
and performance, as well as any individual, corporate, or government guarantees.
These factors are based on an evaluation of historical and current information and sometimes involve subjective
assessment and interpretation. Specific considerations for construction are considered in the internal PD and LGD risk
ratings including property type, development phase and complexity, as well as lease-up and stabilization
projections. The PD and LGD factors are further sensitized in the models for future expectations over the loan’s
contractual life, adjusted for prepayments.
1-4 Family Residential Loans. The 1-4 family residential loan portfolio is segmented into pools of residential real estate
loans with similar credit risk characteristics. For 1-4 family residential loans, the Company utilizes separate credit
models designed for these types of loans to estimate the PD and LGD grades for the allowance for credit losses
calculation. The models calculate expected losses and prepayments using borrower information at origination, including
FICO score, loan type, collateral type, lien position, geography, origination year, and loan to value. Past due status post-
origination is also a key input in the models. Current and future changes in economic conditions, including
unemployment rates, home prices, index rates, and mortgage rates, are also considered. New originations and loan
purchases are scored using the FICO score at origination. FICO score bands are assigned following prevalent industry
standards and are used as the credit quality indicator for these types of loans. Substandard non-accrual loans are treated
as a separate category in the credit scoring grid as the probability of default is 100% and the FICO score is no longer a
relevant predictor.
Consumer Loans. The consumer loan portfolio is segmented into pools of consumer installment loans or revolving lines
of credit with similar credit characteristics. The models calculate expected losses using borrower information at
origination, including FICO score, origination year, geography, and collateral type.
Broker-Dealer Loans. The broker-dealer loan portfolio is evaluated on an individual basis using the collateral
maintenance practical expedient. The collateral maintenance practical expedient allows the broker-dealer to compare the
fair value of the collateral of each loan as of the reporting date to loan value. The underlying collateral of the loans to
customers and correspondents is marked to market daily and any required additional collateral is collected. The
allowance represents the amount of unsecured loan balances at the end of the period.
Qualitative Factors
Estimating the timing and amounts of future loss cash flows is subject to significant management judgment as these loss
cash flows rely upon estimates such as default rates, loss severities, collateral valuations, the amounts and timing of
principal payments (including any expected prepayments) or other factors that are reflective of current or future expected
conditions. These estimates, in turn, depend on the duration of current overall economic conditions, industry, borrower,
or portfolio specific conditions, the expected outcome of bankruptcy or insolvency proceedings, as well as, in certain
circumstances, other economic factors, including the level of current and future real estate prices. All of these estimates
and assumptions require significant management judgment and certain assumptions that are highly subjective. Model
imprecision also exists in the allowance for credit losses estimation process due to the inherent time lag of available
industry information and differences between expected and actual outcomes.
Management considers adjustments for these conditions in its allowance for credit loss estimates qualitatively where
they may not be measured directly in its individual or collective assessments, including but not limited to:
•
•
•
an adjustment to historical loss data to measure credit risk even if that risk is remote and does not meet the
scope of assets with zero expected losses;
the environmental factors and the areas in which credit is concentrated, such as the regulatory, environmental,
or technological environment, the geographical area or key industries, or in the national or regional economic
and business conditions where the borrower has exposure;
the nature and volume of the company’s financial assets;
F-14
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
•
•
•
•
•
•
•
the borrower’s financial condition, credit rating, credit score, asset quality, or business prospects;
the borrower’s ability to make scheduled interest or principal payments;
the remaining payment terms of the financial assets and the remaining time to maturity and the timing and
extent of prepayments on the financial assets;
the volume and severity of past due or adversely classified financial assets;
the value of underlying collateral in which the collateral-dependent practical expedient has not been utilized;
any updates to credit lending policies and procedures, including lending strategies, underwriting standards,
collection and recovery practices, not reflected in the models; and
the quality of the internal credit review system.
Loans that Do Not Share Risk Characteristics with Other Loans
When a loan is assigned a substandard non-accrual risk rating grade, the loan subsequently is evaluated on an individual
basis and no longer evaluated on a collective basis. The net realizable value of the loan is compared to the appropriate
loan basis (i.e. PCD loan versus non-PCD loan) to determine any allowance for credit losses. Loans that are below a
predetermined threshold, with the exception of 1-4 family residential loans, are fully reserved. The Company generally
considers non-accrual loans to be collateral-dependent. The practical expedient to measure credit losses using the fair
value of the collateral has been exercised.
For commercial real estate loans, the fair value of collateral is primarily based on appraisals. For owner occupied real
estate loans, underlying properties are occupied by the borrower in its business, and evaluations are based on business
operations used to service the debt. For non-owner occupied real estate loans, underlying properties are income-producing
and evaluations are based on tenant revenues. For income producing construction and land development loans, appraisals
reflect the assumption that properties are completed.
For 1-4 family residential loans that are graded substandard non-accrual, an assessment of value is made using the most
recent appraisal on file. If the appraisal on file is older than two years, the latest property tax assessment is used as a
screening value to determine if a reserve might be required. If the assessed value is less than the appraised value, this
value is discounted for selling costs and is used to measure the reserve required. If the appraisal is less than two years old,
the value is discounted for selling costs and compared to the appropriate basis in the loan.
Consumer loans are charged off when they reach 90 days delinquency as a general rule. There are limited cases where the
loan is not charged off due to special circumstances and is subject to the collateral review process.
Allowance for Loan Losses for Loans Held for Investment
Prior to the adoption of the new CECL standard on January 1, 2020, the Company’s allowance for loan losses was a
reserve established through a provision for loan losses charged to or recovered from expense, which represents
management’s best estimate of probable losses inherent in the existing portfolio of loans at the balance sheet date. The
allowance for loan losses included allowance allocations calculated in accordance with the regulatory Interagency Policy
Statement on the Allowance for Loan and Lease Losses and the Receivables and Contingencies Topics of the ASC. The
level of the allowance reflected management’s continuing evaluation of industry concentrations, specific credit risks, loan
loss experience, current loan portfolio quality, present economic, political and regulatory conditions, and unidentified
losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific credits; however, the
entire allowance is available for any credit that, in management’s judgment, should be charged off. While management
utilized its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety
of factors beyond its control, including the performance of the loan portfolio, the economy and changes in interest rates.
The Bank’s allowance for loan losses consisted of three elements: (i) specific valuation allowances established for
probable losses on individually impaired loans; (ii) general historical valuation allowances calculated based on historical
loan loss experience for homogenous loans with similar collateral; and (iii) valuation allowances to adjust general reserves
based on current economic conditions and other qualitative risk factors, including projected loss emergence period, both
internal and external to the Bank.
Changes in the volume and severity of past due, non-accrual and classified loans, as well as changes in the nature, volume
and terms of loans in the portfolio are key indicators of changes that could indicate a necessary adjustment to the historical
F-15
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
loss factors. Classified loans are defined as loans having a well-defined weakness or weaknesses related to the borrower's
financial capacity or to pledged collateral that may jeopardize the repayment of the debt. They are characterized by the
possibility that the Bank may sustain some loss if the deficiencies giving rise to the substandard classification are not
corrected. The magnitude of the impact of these factors on the qualitative assessment of the allowance for loan loss
changes from quarter to quarter. Periodically, management conducted an analysis to estimate the loss emergence period for
each loan portfolio segment based on historical charge-offs, loan type and loan payment history and considered available
industry peer bank data. Model output by loan category was reviewed to evaluate the reasonableness of the reserve levels
in comparison to the estimated loss emergence period applied to historical loss experience.
In connection with business combinations, the Bank acquired loans both with and without evidence of credit quality
deterioration since origination. PCI loans were accounted for in pools as well as on an individual loan basis. Cash flows
expected to be collected were recast quarterly for each loan or pool. These evaluations required the continued use and
updating of key assumptions and estimates such as default rates, loss severity given default and prepayment speed
assumptions (similar to those used for the initial fair value estimate). Management judgment was applied in developing
these assumptions. If expected cash flows for a loan or pool decreased, an increase in the allowance for loan losses was
made through a charge to the provision for loan losses. If expected cash flows for a loan or pool increased, any previously
established allowance for loan losses was reversed and any remaining difference increased the accretable yield. This
increase in accretable yield was taken into income over the remaining life of the loan.
Loans without evidence of credit impairment at acquisition were subsequently evaluated for any required allowance at
each reporting date. An allowance for loan losses was calculated using a methodology similar to that described above for
originated loans. The allowance as determined for each loan collateral type was compared to the remaining fair value
discount for that loan collateral type. If greater, the excess was recognized as an addition to the allowance through a
provision for loan losses. If less than the discount, no additional allowance was recorded. Charge-offs and losses first
reduced any remaining fair value discount for the loan and once the discount was depleted, losses were applied against the
allowance established for that loan.
Off-Balance Sheet Credit Exposures, Including Unfunded Loan Commitments
The Company maintains a separate allowance for credit losses from off-balance sheet credit exposures, including
unfunded loan commitments, which is included in other liabilities within the consolidated balance sheets. The Company
estimates expected losses by calculating a commitment usage factor based on industry usage factors. The commitment
usage factor is applied over the relevant contractual period. Loss factors from the underlying loans to which
commitments are related are applied to the results of the usage calculation to estimate any liability for credit losses
related for each loan type.
Broker-Dealer and Clearing Organization Transactions
Amounts recorded in broker-dealer and clearing organization receivables and payables include securities lending
activities, as well as amounts related to securities transactions for either customers of the Hilltop Broker-Dealers or for the
accounts of the Hilltop Broker-Dealers. Securities borrowed and securities loaned transactions are generally reported as
collateralized financings. Securities borrowed transactions require the Hilltop Broker-Dealers to deposit cash, letters of
credit, or other collateral with the lender. With respect to securities loaned, the Hilltop Broker-Dealers receive collateral in
the form of cash or other assets in an amount generally in excess of the market value of securities loaned. The Hilltop
Broker-Dealers monitor the market value of securities borrowed and loaned on a daily basis, with additional collateral
obtained or refunded as necessary. Interest income and interest expense associated with collateralized financings is
included in the accompanying consolidated statements of operations.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and amortization computed principally on the
straight-line method over the estimated useful lives of the assets, which range between 3 and 25 years. Gains or losses on
disposals of premises and equipment are included in results of operations.
F-16
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Leases
The Company determines if an arrangement is a lease at inception. Operating leases with a term of greater than one year
are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the Company’s consolidated
balance sheets. Finance leases are included in premises and equipment and other liabilities on the Company’s
consolidated balance sheets. The Company has lease agreements with lease and nonlease components, which are
generally accounted for as a single lease component. Leases of low-value assets are assessed on a lease-by-lease basis to
determine the need for balance sheet capitalization.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its
obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized on the
lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s
leases do not provide an implicit rate, the Company uses the incremental borrowing rate commensurate with the lease
term based on the information available at the lease commencement date in determining the present value of lease
payments. No significant judgments or assumptions were involved in developing the estimated operating lease liabilities
as the Company’s operating lease liabilities largely represent the future rental expenses associated with operating leases,
and the incremental borrowing rates are based on publicly available interest rates. The operating lease ROU asset also
includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to
extend or terminate the lease. These options to extend or terminate are assessed on a lease-by-lease basis, and the ROU
assets and lease liabilities are adjusted when it is reasonably certain that an option will be exercised. Rental expense for
lease payments is recognized on a straight-line basis over the lease term and is included in occupancy and equipment, net
within our consolidated statements of operations.
Other Real Estate Owned
Real estate acquired through foreclosure (“OREO”) is included in other assets within the consolidated balance sheets and
is carried at management’s estimate of 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 credit losses when property is initially transferred to OREO.
Subsequent to the initial transfer to OREO, downward valuation adjustments are charged against earnings. Valuation
adjustments, revenue and expenses from operations of the properties and resulting gains or losses on sale are included
within the consolidated statements of operations in other noninterest income or expense, as appropriate.
Debt Issuance Costs
The Company capitalizes debt issuance costs associated with financing of debt. These costs are amortized using the
effective interest method over the repayment term of the debt. Unamortized debt issuance costs are presented in the
consolidated balance sheets as a direct reduction from the associated debt liability. Debt issuance costs of $0.4 million,
$0.3 million and $0.2 million during 2021, 2020 and 2019, respectively, were amortized and included in interest expense
within the consolidated statements of operations. In May 2020 and April 2015, debt issuance costs of $3.2 million and
$1.9 million, respectively, were capitalized in connection with Hilltop’s issuance of the Subordinated Notes due 2030 and
2035 (defined hereafter) and the 5% senior notes due 2025 (defined hereafter), respectively.
Goodwill
Goodwill, which represents the excess of cost over the fair value of the net assets acquired, is allocated to reporting units
and tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the
carrying amount should be assessed. The Company performs required annual impairment tests of its goodwill as of
October 1st for each of its reporting units, which is one level below an operating segment. Goodwill is assigned to
reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no
longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired
or internally generated, are available to support the value of the goodwill. The goodwill impairment test requires the
Company to make judgments in determining what assumptions to use in the calculation. The process consists of
estimating the fair value of each reporting unit based on valuation techniques, including a discounted cash flow model
using revenue and profit forecasts and recent industry transaction and trading multiples of peers, and comparing those
estimated fair values with the carrying values of the assets and liabilities of the reporting unit, which includes the
allocated goodwill. If the estimated fair value is less than the carrying value, the Company is required to recognize an
F-17
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, any loss
recognized will not exceed the total amount of goodwill allocated to that reporting unit.
Intangibles and Other Long-Lived Assets
Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of
contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in
combination with a related contract, asset or liability. The Company’s intangible assets primarily consist of core deposits,
trade names and customer relationships. Intangible assets with definite useful lives are generally amortized on the
straight-line method over their estimated lives, although certain intangibles, including core deposits, and customer
relationships, are amortized on an accelerated basis. Amortization of intangible assets is recorded in other noninterest
expense within the consolidated statements of operations. Intangible assets with indefinite useful lives are tested for
impairment on an annual basis as of October 1st, or more often if events or circumstances indicate there may be
impairment, and not amortized until their lives are determined to be definite. Intangible assets with definite useful lives,
premises and equipment, operating lease ROU assets, and other long-lived assets are tested for impairment whenever
events or changes in circumstances indicate the carrying amount of the assets may not be recoverable from future
undiscounted cash flows. Impaired assets are recorded at fair value.
Mortgage Servicing Rights
The Company determines its portfolio segment of residential mortgage servicing assets based on the asset type being
serviced along with the methods used to manage the risk inherent in the servicing assets, which includes the market inputs
used to value the servicing assets. The Company measures its servicing assets at fair value and reports changes in fair
value through earnings.
The retained mortgage servicing rights (“MSR”) asset is measured at fair value as of the date of sale of the related
mortgage loan. Subsequent fair value measurements of the MSR asset are determined by valuing the projected net
servicing cash flows, which are then discounted to estimate fair value using a discounted cash flow model. Assumptions
used include market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and ancillary fee
income.
The model assumptions and the MSR asset fair value estimates are compared to observable trades of similar portfolios as
well as to MSR asset broker valuations and industry surveys, as available. The expected life of the loan can vary from
management’s estimates due to prepayments by borrowers. The value of the MSR asset is also dependent upon the
discount rate used in the model, which is based on current market rates that are reviewed by management on an ongoing
basis.
Derivative Financial Instruments
The Company enters into various derivative financial instruments to manage interest rate risk or to hedge specified assets
and liabilities. The Company’s derivative financial instruments also include interest rate lock commitments (“IRLCs”)
executed with its customers that allow those customers to obtain a mortgage loan on a future date at an agreed-upon
interest rate. The IRLCs, forward commitments, interest rate swaps, U.S. Treasury bond futures and options, Eurodollar
futures, and credit default swaps meet the definition of a derivative under the provisions of the Derivatives and Hedging
Topic of the ASC.
Derivatives are recorded at fair value in the consolidated balance sheets. To qualify for hedge accounting, derivatives
must be highly effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge
at the inception of the derivative contract. If derivative instruments are designated as hedges of fair values, the change in
the fair value of both the derivative instrument and the hedged item are included in current earnings. Changes in the fair
value of derivatives designated as hedges of cash flows are recorded in other comprehensive income (loss). Actual cash
receipts and/or payments and related accruals on derivatives related to hedges are recorded as adjustments to the line item
where the hedged item’s effect on earnings is recorded.
F-18
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Revenue from Contracts with Customers
Certain activities primarily within the Company’s broker-dealer and banking segments are subject to the provisions of
ASC 606, Revenue from Contracts with Customers. The Company’s broker-dealer segment has four primary lines of
business: (i) public finance services, (ii) structured finance, (iii) fixed income services and (iv) wealth management, which
includes retail, clearing services and securities lending groups. Revenue from contracts with customers subject to the
guidance in ASC 606 from the broker-dealer segment is included within the securities commissions and fees and
investment and securities advisory fees and commissions line items within the consolidated statements of operations.
Commissions and fees revenue is generally recognized at a point in time upon the delivery of contracted services based on
a predefined contractual amount or on the trade date for trade execution services based on prevailing market prices and
internal and regulatory guidelines.
The Company’s banking segment has three primary lines of business: (i) business banking, (ii) personal banking and (iii)
wealth and investment management. Revenue from contracts with customers subject to the guidance in ASC 606 from the
banking segment (certain retail and trust fees) is included within the other noninterest income line item within the
consolidated statements of operations. Retail and trust fees are generally recognized at the time the related transaction
occurs or when services are completed. Fees are based on the dollar amount of the transaction or are otherwise predefined
in contracts associated with each customer account depending on the type of account and services provided.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities
when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.
Stock-Based Compensation
Stock-based compensation expense for all share-based awards granted is based on the grant date fair value estimated in
accordance with the provisions of the Stock Compensation Topic of the ASC. The Company recognizes these
compensation costs for only those awards expected to vest over the service period of the award.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recorded for the
estimated future tax effects of the temporary difference between the tax basis and book basis of assets and liabilities
reported in the accompanying consolidated balance sheets. The provision for income tax expense or benefit differs from
the amounts of income taxes currently payable because certain items of income and expense included in the consolidated
financial statements are recognized in different time periods by taxing authorities. Interest and penalties incurred related
to tax matters are charged to other interest expense or other noninterest expense, respectively. The revaluation of deferred
tax assets as a result of enacted tax rate changes, is recognized within income tax expense in continuing operations in the
period of enactment.
Benefits from uncertain tax positions are recognized in the consolidated financial statements only when it is more likely
than not that the tax position will be sustained upon examination by the appropriate taxing authority having full
knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is
measured at the largest amount of cumulative benefit that is greater than fifty percent likely of being realized upon
ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold are
recognized in the reporting period in which that threshold is met. Previously recognized tax positions that no longer meet
the more-likely-than-not recognition threshold are derecognized in the reporting period in which that threshold is no
longer met. If the Company were to prevail on all uncertain tax positions, the effect would be a benefit to the Company’s
effective tax rate. Due to uncertainties in any tax audit outcome, estimates of the ultimate settlement of unrecognized tax
positions may change and the actual tax benefits may differ significantly from the estimate.
Deferred tax assets, including net operating loss and tax credit carry forwards, are reduced by a valuation allowance
when, in the opinion of management, it is more-likely-than-not that any portion of these tax attributes will not be
realized. Periodic reviews of the carrying amount of deferred tax assets are made when it is more likely than not that all
or a portion of a deferred tax asset will not be realized.
F-19
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Cash, Cash Equivalents and Restricted Cash
For the purpose of presentation in the consolidated statements of cash flows, cash, cash equivalents and restricted cash are
defined as the amounts included in the consolidated balance sheet captions “Cash and due from banks”, “Federal funds
sold” and “Assets segregated for regulatory purposes.” Cash equivalents have original maturities of three months or less.
Repurchases of Common Stock
In accordance with Maryland law, the Company uses the par value method of accounting for its stock repurchases,
whereby the par value of the shares is deducted from common stock. The excess of the cost of shares acquired over the
par value is allocated to additional paid-in capital based on an estimated average sales price per issued share with the
excess amounts charged to retained earnings.
Basic and Diluted Net Income Per Share
Nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are
participating securities and are included in the computation of earnings per share pursuant to the two-class method
prescribed by the Earnings Per Share Topic of the ASC. The two-class method is an earnings allocation formula that
determines earnings per share for each class of common stock and participating security according to dividends declared
(or accumulated) and participation rights in undistributed earnings.
Net earnings, less any preferred dividends accumulated for the period (whether or not declared), is allocated between the
common stock and participating securities pursuant to the two-class method. Basic earnings per common share is
computed by dividing net earnings available to common stockholders by the weighted average number of common shares
outstanding during the period, excluding participating nonvested restricted shares. The Company calculated basic earnings
per common share using the treasury method instead of the two-class method because there were no instruments which
qualified as participating securities during 2021, 2020 or 2019.
Diluted earnings per common share is computed in a similar manner, except that first the denominator is increased to
include the number of additional common shares that would have been outstanding if potentially dilutive common shares,
excluding the participating securities, were issued using the treasury stock method. During 2021, 2020 and 2019,
restricted stock units (“RSUs”) were the only potentially dilutive non-participating instruments issued by Hilltop. Next,
the Company determines and includes in the diluted earnings per common share calculation the more dilutive effect of the
participating securities using the treasury stock method or the two-class method. Undistributed losses are not allocated to
the nonvested share-based payment awards (the participating securities) under the two-class method as the holders are not
contractually obligated to share in the losses of the Company.
2. Recently Issued Accounting Standards
Accounting Standards Adopted During 2021
In January 2020, FASB issued Accounting Standards Update (“ASU”) 2020-01 to clarify the interaction among ASC
321, ASC 323, and ASC 815 for equity securities, equity method investments, and certain financial instruments to
acquire equity securities. ASU 2020-01 clarifies whether re-measurement of equity investments is appropriate when
observable transactions cause the equity method to be triggered or discontinued. ASU 2020-01 also provides that certain
forward contracts and purchased options to acquire equity securities will be measured under ASC 321 without an
assessment of subsequent accounting upon settlement or exercise. The amendment was effective in periods beginning
after December 15, 2020. The Company adopted the provisions of ASU 2020-01 as of January 1, 2021. The adoption of
these provisions did not have a material impact on its consolidated financial statements.
In July 2021, FASB issued ASU 2021-05, which amends ASC 842 to require lessors to classify leases as operating
leases if they have variable lease payments that do not depend on an index or rate and would have selling losses if they
were classified as sales-type or direct financing leases. As permitted within the amendment, the Company elected to
early adopt the provisions as of July 31, 2021. The adoption of this amendment did not have a material impact on the
Company’s consolidated financial statements.
F-20
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
In August 2021, FASB issued ASU 2021-06 to both clarify and improve disclosures related to depository lending and
investment companies. The amendments in ASU 2021-06 were effective upon issuance. The impact of this amendment
is limited to presentation and disclosure changes that did not have a material impact on its consolidated financial
statements.
T
3. Discontinued Operations
NLC Sale
On June 30, 2020, Hilltop completed the sale of all of the outstanding capital stock of NLC, which comprised the
operations of the insurance segment, for cash proceeds of $154.1 million. During 2020, Hilltop recognized an aggregate
gain associated with this transaction of $36.8 million, net of customary transaction costs of $5.1 million and was subject
to post-closing adjustments. The resulting book gain from this sale transaction was not recognized for tax purposes due
to the excess tax basis over book basis being greater than the recorded book gain. Any tax loss related to this transaction
is deemed disallowed pursuant to the rules under the Internal Revenue Code.
During the first quarter of 2020, management determined that the then-pending sale of NLC met the criteria to be
presented as discontinued operations. All related notes to the consolidated financial statements for discontinued
operations have been included in this note.
The following table presents the results of discontinued operations for NLC for the periods indicated (in thousands).
Interest income:
Securities:
Taxable
Other
Total interest income
Interest expense:
Notes payable
Noninterest income:
Net insurance premiums earned
Other
Total noninterest income
Noninterest expense:
Employees' compensation and benefits
Occupancy and equipment, net
Professional services
Loss and loss adjustment expenses
Other
Total noninterest expense
Income from discontinued operations before income taxes
Gain on disposal of discontinued operations
Income tax expense
Income from discontinued operations, net of income taxes
Year Ended December 31,
2019
2020
1,752
71
1,823
775
65,077
3,051
68,128
6,002
464
18,201
38,419
3,987
67,073
2,103
36,811
518
38,396
$
$
3,611
522
4,133
1,806
132,284
10,915
143,199
11,663
991
35,528
68,940
10,796
127,918
17,608
—
3,618
13,990
$
$
F-21
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Reinsurance Activity
The effects of reinsurance on premiums written and earned are included within discontinued operations for all periods
presented and are summarized as follows (in thousands).
Premiums from direct business
Reinsurance assumed
Reinsurance ceded
Net premiums
Year Ended December 31,
2020
2019
Written
Earned
Written
Earned
$
$
63,811
6,396
(2,759)
67,448
$
$
61,384
6,452
(2,759)
65,077
$
$
125,157 $
13,148
(7,191)
131,114 $
126,434
13,041
(7,191)
132,284
The effects of reinsurance on incurred losses and LAE are included within discontinued operations and are as follows (in
thousands).
Losses and LAE incurred
Reinsurance recoverables
Net loss and LAE incurred
4. Fair Value Measurements
Fair Value Measurements and Disclosures
Year Ended December 31,
2020
38,225 $
194
38,419 $
2019
68,130
810
68,940
$
$
The Company determines fair values in compliance with The Fair Value Measurements and Disclosures Topic of the
ASC (the “Fair Value Topic”). The Fair Value Topic defines fair value, establishes a framework for measuring fair value
in GAAP and expands disclosures about fair value measurements. The Fair Value Topic defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
The Fair Value Topic assumes that transactions upon which fair value measurements are based occur in the principal
market for the asset or liability being measured. Further, fair value measurements made under the Fair Value Topic
exclude transaction costs and are not the result of forced transactions.
The Fair Value Topic includes a fair value hierarchy that classifies fair value measurements based upon the inputs used
in valuing the assets or liabilities that are the subject of fair value measurements. The fair value hierarchy gives the
highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs, as indicated below.
• Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities that the Company
can access at the measurement date.
• Level 2 Inputs: Observable inputs other than Level 1 prices. Level 2 inputs include quoted prices for similar
assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are
not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates,
yield curves, prepayment speeds, default rates, credit risks and loss severities), and inputs that are derived from
or corroborated by market data, among others.
• Level 3 Inputs: Unobservable inputs that reflect an entity’s own 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
The Company has elected to measure substantially all of PrimeLending’s mortgage loans held for sale and the retained
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
F-22
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
caused by measuring related assets and liabilities differently without having to apply complex hedge accounting
provisions. At December 31, 2021 and 2020, the aggregate fair value of PrimeLending’s mortgage loans held for sale
accounted for under the Fair Value Option was $1.78 billion and $2.52 billion, respectively, and the unpaid principal
balance of those loans was $1.73 billion and $2.41 billion, respectively. The interest component of fair value is reported
as interest income on loans in the accompanying consolidated statements of operations.
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, as further described below. Those inputs include quotes from mortgage loan
investors and derivatives dealers and data from independent pricing services. The fair value of loans held for sale is
determined using an exit price method.
Trading Securities — Trading securities are reported at fair value primarily using either Level 1 or Level 2 inputs in the
same manner as discussed below for available for sale securities.
Available For Sale Securities — Most securities available for sale are reported at fair value using Level 2 inputs. The
Company obtains fair value measurements from independent pricing services. As the Company is responsible for the
determination of fair value, control processes are designed to ensure that the fair values received from independent
pricing services are reasonable and the valuation techniques and assumptions used appear reasonable and consistent with
prevailing market conditions. The fair value measurements consider observable data that may include dealer quotes,
market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus
prepayment speeds, credit information and the financial instruments’ terms and conditions, among other things.
Equity Securities - For public common and preferred equity stocks, the determination of fair value uses Level 1 inputs
based on observable market transactions.
Loans Held for Sale — Mortgage loans held for sale are reported at fair value, as discussed above, using Level 2 inputs
that consist of commitments on hand from investors or prevailing market prices. These instruments are held for
relatively short periods, typically no more than 30 days. As a result, changes in instrument-specific credit risk are not a
significant component of the change in fair value. The fair value of certain loans held for sale that cannot be sold through
normal sale channels or are non-performing is measured using Level 3 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.
Derivatives — Derivatives, which are included in other assets and liabilities within the Company’s consolidated balance
sheets, are reported at fair value using either Level 2 or Level 3 inputs. The Bank uses dealer quotes to value interest rate
swaps, forward purchase commitments and forward sale commitments executed for both hedging and non-hedging
purposes. PrimeLending and the Hilltop Broker-Dealers use dealer quotes to value forward purchase commitments and
forward sale commitments, respectively, executed for both hedging and non-hedging purposes. PrimeLending also issues
IRLCs to its customers and the Hilltop Broker-Dealers issue forward purchase commitments to its clients that are valued
based on the change in the fair value of the underlying mortgage loan from inception of the IRLC or purchase
commitment to the balance sheet date, adjusted for projected loan closing rates. PrimeLending determines the value of
the underlying mortgage loan as discussed in “Loans Held for Sale”, above. The Hilltop Broker-Dealers determine the
value of the underlying mortgage loan from prices of comparable securities used to value forward sale commitments.
Additionally, PrimeLending also uses dealer quotes to value Eurodollar futures and U.S. Treasury bond futures and
options used to hedge interest rate risk, and the Hilltop Broker-Dealers use dealer quotes to value U.S. Treasury bond
futures and options, Eurodollar futures, credit default swaps and municipal market data, or MMD, rate locks, used to
hedge changes in the fair value of its securities.
MSR Asset — The MSR asset is reported at fair value using Level 3 inputs. The MSR asset 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 11 to the consolidated financial statements. The decrease in the prepayment rate used to value the MSR
asset at December 31, 2021, compared to December 31, 2020, reflects the effect of increased mortgage rates reducing
consumer refinancing activity.
F-23
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Securities Sold, Not Yet Purchased — Securities sold, not yet purchased are reported at fair value primarily using
either Level 1 or Level 2 inputs in the same manner as discussed above for trading and available for sale securities.
The following tables present information regarding financial assets and liabilities measured at fair value on a recurring
basis (in thousands).
December 31, 2021
Trading securities
Available for sale securities
Equity securities
Loans held for sale
Derivative assets
MSR asset
Securities sold, not yet purchased
Derivative liabilities
December 31, 2020
Trading securities
Available for sale securities
Equity securities
Loans held for sale
Derivative assets
MSR asset
Securities sold, not yet purchased
Derivative liabilities
Level 1
Inputs
$ 8,628
$
250
Level 2
Inputs
639,370
— 2,130,568
—
— 1,734,875
48,122
—
—
—
50,613
45,973
21,816
—
Level 3
Inputs
$
Total
Fair Value
— $ 647,998
2,130,568
—
250
—
1,782,591
47,716
48,122
—
86,990
86,990
96,586
—
21,816
—
Level 1
Inputs
$ 45,390
$
140
Level 3
Inputs
Level 2
Inputs
$ 648,865
— 1,462,205
—
— 2,449,588
—
126,898
—
54,494
—
Total
Fair Value
— $ 694,255
1,462,205
—
140
—
2,521,404
71,816
126,898
—
143,742
— 143,742
79,789
—
74,598
—
25,295
74,598
The following table includes a rollforward for those financial instruments measured at fair value using Level 3 inputs (in
thousands).
Balance,
Beginning of Purchases/
Additions
Year
Transfers
to (from)
Reductions Level 3
Sales/
Included in Comprehensive Balance,
Net Income Income (Loss)
End of Year
Total Gains or Losses
(Realized or Unrealized)
Included in
Other
Year ended December 31, 2021
Loans held for sale
MSR asset
Total
Year ended December 31, 2020
Loans held for sale
MSR asset
Total
Year ended December 31, 2019
Loans held for sale
MSR asset
Total
$
$
71,816
143,742
215,558
$
56,480
78,433
$ 134,913
$
(76,166) $ (4,139)
—
(142,558)
$ (218,724) $ (4,139)
$
$
67,195
55,504
122,699
$
61,410
162,914
$ 224,324
$
$
50,464
66,102
116,566
$
$
60,475
13,755
74,230
$
$
$
$
(57,682) $ 10,323
—
(36,750)
(94,432) $ 10,323
(34,849) $
—
(34,849) $
1,136
—
1,136
$
$
$
$
$
$
(275) $
7,373
7,098 $
— $
—
— $
47,716
86,990
134,706
(9,430) $
(37,926)
(47,356) $
(10,031) $
(24,353)
(34,384) $
— $
—
— $
71,816
143,742
215,558
— $
—
— $
67,195
55,504
122,699
All net realized and 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 December 31, 2021.
F-24
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
For Level 3 financial instruments measured at fair value on a recurring basis at December 31, 2021 and 2020, the
significant unobservable inputs used in the fair value measurements were as follows.
Financial instrument
Loans held for sale
Valuation Technique
Market comparable
Unobservable Inputs
Projected price
December 31, 2021
94 - 95 % ( 95 %)
December 31, 2020
91 - 94 % ( 94 %)
Range (Weighted-Average)
MSR asset
Discounted cash flows Constant prepayment rate
Discount rate
10.02 %
14.32 %
12.15 %
14.60 %
The Company had no transfers between Levels 1 and 2 during the periods presented. Any transfers are based on changes
in the observability and/or significance of the valuation inputs and are assumed to occur at the beginning of the quarterly
reporting period in which they occur.
The following table presents those changes in fair value of instruments recognized in the consolidated statements of
operations that are accounted for under the Fair Value Option (in thousands).
Year Ended December 31, 2021
Other
Total
Year Ended December 31, 2020
Other
Total
Year Ended December 31, 2019
Other
Total
Loans held for sale
MSR asset
Net
Gains (Losses)
$
(55,442) $
7,373
Noninterest Changes in
Net
Noninterest Changes in
Net
Income
Fair Value Gains (Losses)
52,296
(37,926)
— $ (55,442) $
—
7,373
$
Income
Fair Value Gains (Losses)
$
12,775 $
(24,353)
— $
—
52,296
(37,926)
Income
Noninterest Changes in
Fair Value
12,775
(24,353)
— $
—
The Company determines the fair value of OREO on a non-recurring basis. In particular, the fair value of properties are
determined at their respective acquisition date fair values. In addition, facts and circumstances may dictate a fair value
measurement when there is evidence of impairment. The Company determines fair value primarily using independent
appraisals of OREO properties. The resulting fair value measurements are classified as Level 2 inputs. At December 31,
2021 and 2020, the estimated fair value of OREO was $2.8 million and $21.3 million, respectively, and the underlying
fair value measurements utilized Level 2 inputs. The amounts are included in other assets within the consolidated
balance sheets. During the reported periods, all fair value measurements for OREO subsequent to initial recognition
utilized Level 2 inputs. The Company recorded total losses of $1.2 million, $4.4 million and $1.4 million during 2021,
2020 and 2019, respectively, which represent a change in fair value subsequent to initial recognition of the asset.
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 measured at fair value on a recurring or non-recurring basis are discussed
above. For other financial assets and liabilities, the Company utilizes quoted market prices, if available, to estimate the
fair value of financial instruments. Because no quoted market prices exist for a significant portion of the Company’s
financial instruments, the fair value of such instruments has been derived based on management’s assumptions with
respect to future economic conditions, the amount and timing of future cash flows, and estimated discount rates.
Different assumptions could significantly affect these estimates. Accordingly, the estimates provided herein do not
necessarily indicate amounts which could be realized in a current transaction. Further, as it is management’s intent to
hold a significant portion of its financial instruments to maturity, it is not probable that the fair values shown below will
be realized in a current transaction.
Because of the wide range of permissible valuation techniques and the numerous estimates which must be made, it may
be difficult to make reasonable comparisons of the Company’s fair value information to that of other financial
institutions. The aggregate estimated fair value amount should in no way be construed as representative of the
underlying value of Hilltop and its subsidiaries. The following methods and assumptions are typically used in estimating
the fair value disclosures for financial instruments:
Cash and Cash Equivalents — For cash and due from banks and federal funds sold, the carrying amount is a
reasonable estimate of fair value.
Assets Segregated for Regulatory Purposes — Assets segregated for regulatory purposes may consist of cash and
securities with carrying amounts that approximate fair value.
F-25
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Securities Purchased Under Agreements to Resell — Securities purchased under agreements to resell are carried at
the amounts at which the securities will subsequently be resold as specified in the agreements. The carrying amounts
approximate fair value due to their short-term nature.
Held to Maturity Securities — For securities held to maturity, estimated fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar
securities.
Loans Held for Sale — Loans held for sale includes mortgage loans held for sale that are guaranteed by U.S.
government agencies that are subject to repurchase, or have been repurchased, by PrimeLending and certain mortgage
loans originated by PrimeLending on behalf of the Bank. Such loans are reported at fair value, as discussed above, using
Level 2 inputs that consist of commitments on hand from investors or prevailing market prices.
Loans Held for Investment — The estimated fair values of loans held for investment are measured using an exit price
method.
Broker-Dealer and Clearing Organization Receivables and Payables — The carrying amount approximates their fair
value.
Deposits — The estimated fair value of demand deposits, savings accounts and NOW accounts is the amount payable on
demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities. The carrying amount for variable-rate certificates of deposit
approximates their fair values.
Short-Term Borrowings — The carrying amounts of federal funds purchased, borrowings under repurchase
agreements, Federal Home Loan Bank (“FHLB”) and other short-term borrowings approximate their fair values.
Debt — The fair values are estimated using discounted cash flow analysis based on current incremental borrowing rates
for similar types of borrowing arrangements.
Other Assets and Liabilities — Other assets and liabilities primarily consists of cash surrender value of life insurance
policies and accrued interest receivable and payable with carrying amounts that approximate their fair values using
Level 2 inputs. The fair value of certain other receivables and investments is based on Level 3 inputs.
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).
December 31, 2021
Financial assets:
Carrying
Amount
Level 1
Inputs
Estimated Fair Value
Level 3
Inputs
Level 2
Inputs
Total
Cash and cash equivalents
Assets segregated for regulatory purposes
Securities purchased under agreements to resell
Held to maturity securities
Loans held for sale
Loans held for investment, net
Broker-dealer and clearing organization receivables
Other assets
$ 2,823,523
221,740
118,262
267,684
95,599
7,788,552
1,672,946
73,041
$ 2,823,523
221,740
—
—
—
—
—
—
$
— $
—
118,262
276,296
95,599
733,193
1,672,946
71,290
— $ 2,823,523
221,740
—
118,262
—
276,296
—
95,599
—
7,999,925
7,266,732
1,672,946
—
73,041
1,751
Financial liabilities:
Deposits
Broker-dealer and clearing organization payables
Short-term borrowings
Debt
Other liabilities
12,818,077
1,477,300
859,444
387,904
3,944
— 12,821,138
1,477,300
—
859,444
—
387,904
—
3,944
—
—
—
—
—
—
12,821,138
1,477,300
859,444
387,904
3,944
F-26
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 2020
Financial assets:
Carrying
Amount
Level 1
Inputs
Estimated Fair Value
Level 3
Inputs
Level 2
Inputs
Total
Cash and cash equivalents
Assets segregated for regulatory purposes
Securities purchased under agreements to resell
Held to maturity securities
Loans held for sale
Loans held for investment, net
Broker-dealer and clearing organization receivables
Other assets
$ 1,062,946
290,357
80,319
311,944
266,982
7,544,097
1,404,727
74,881
$ 1,062,946
290,357
—
—
—
—
—
—
$
— $
—
80,319
326,671
266,982
437,007
1,404,727
73,111
— $ 1,062,946
290,357
—
80,319
—
326,671
—
266,982
—
7,788,418
7,351,411
1,404,727
—
74,881
1,770
Financial liabilities:
Deposits
Broker-dealer and clearing organization payables
Short-term borrowings
Debt
Other liabilities
11,242,319
1,368,373
695,798
448,999
6,133
— 11,256,629
1,368,373
—
695,798
—
448,999
—
6,133
—
—
—
—
—
—
11,256,629
1,368,373
695,798
448,999
6,133
The Company held equity investments other than securities of $54.0 million and $63.6 million at December 31, 2021
and 2020, respectively, which are included within other assets in the consolidated balance sheets. Of the $54.0 million of
such equity investments held at December 31, 2021, $16.8 million do not have readily determinable fair values and each
is measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly
transactions for the identical or a similar investment of the same issuer.
The following table presents the adjustments to the carrying value of these investments (in thousands).
Balance, beginning of year
Additional investments
Upward adjustments
Impairments and downward adjustments
Dispositions
Balance, end of year
Year Ended December 31,
2020
2021
$
$
22,844
—
6,411
(1,072)
(11,366)
16,817
$
$
19,771
500
4,188
(1,615)
—
22,844
5. Securities
The fair value of trading securities are summarized as follows (in thousands).
U.S. Treasury securities
U.S. government agencies:
Bonds
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
Corporate debt securities
States and political subdivisions
Private-label securitized product
Other
Totals
December 31,
2021
$
3,728 $
2020
40,491
3,410
152,093
126,389
—
60,671
285,376
11,377
4,954
647,998 $
40
336,081
876
69,172
62,481
171,573
8,571
4,970
694,255
$
In addition to the securities shown above, the Hilltop Broker-Dealers enter into transactions that represent commitments
to purchase and deliver securities at prevailing future market prices to facilitate customer transactions and satisfy such
commitments. Accordingly, the Hilltop Broker-Dealers’ ultimate obligation may exceed the amount recognized in the
F-27
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
financial statements. These securities, which are carried at fair value and reported as securities sold, not yet purchased in
the consolidated balance sheets, had a value of $96.6 million and $79.8 million at December 31, 2021 and 2020,
respectively.
The amortized cost and fair value of available for sale and held to maturity securities are summarized as follows (in
thousands).
December 31, 2021
U.S. Treasury securities
U.S. government agencies:
Bonds
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
States and political subdivisions
Totals
December 31, 2020
U.S. government agencies:
Bonds
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
States and political subdivisions
Totals
December 31, 2021
U.S. government agencies:
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
States and political subdivisions
Totals
December 31, 2020
U.S. government agencies:
Residential mortgage-backed securities
Commercial mortgage-backed securities
Collateralized mortgage obligations
States and political subdivisions
Totals
Amortized
Cost
14,937
$
43,448
900,084
219,460
926,783
43,923
$ 2,148,635
Amortized
Cost
$
82,036
624,863
124,929
559,362
44,729
$ 1,435,919
Available for Sale
Unrealized
Gains
Unrealized
Losses
$
— $
(75) $
Fair Value
14,862
838
7,979
367
2,547
1,839
13,570 $
(153)
(9,617)
(9,128)
(12,464)
(200)
44,133
898,446
210,699
916,866
45,562
(31,637) $ 2,130,568
Available for Sale
Unrealized
Gains
Unrealized
Losses
Fair Value
1,095 $
17,194
768
6,916
2,613
28,586 $
(325) $
(446)
(1,159)
(370)
—
82,806
641,611
124,538
565,908
47,342
(2,300) $ 1,462,205
$
$
$
Held to Maturity
Amortized
Unrealized
Unrealized
Cost
Gains
Losses
Fair Value
$
$
9,892
145,742
43,990
68,060
267,684
$
$
400 $
5,311
476
2,428
8,615 $
— $
—
—
(3)
(3) $
10,292
151,053
44,466
70,485
276,296
Amortized
Cost
$
$
13,547
152,820
74,932
70,645
311,944
Held to Maturity
Unrealized
Unrealized
Gains
Losses
Fair Value
$
708 $
9,205
2,036
2,778
14,727 $
$
— $
—
—
—
— $
14,255
162,025
76,968
73,423
326,671
Additionally, the Company had unrealized net gains of $0.2 million and $0.1 million at December 31, 2021 and 2020
from equity securities with fair values of $0.2 million and $0.1 million at December 31, 2021 and 2020, respectively.
The Company recognized net gains of $0.1 million during 2021 and nominal net losses during 2020 due to changes in
the fair value of equity securities still held at the balance sheet date. During 2021 and 2020, net gains and losses
recognized from equity securities sold were nominal.
F-28
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Information regarding available for sale and held to maturity securities that were in an unrealized loss position is shown
in the following tables (dollars in thousands).
December 31, 2021
December 31, 2020
Number of
Securities Fair Value Losses
Unrealized Number of
Securities Fair Value Losses
Unrealized
Available for Sale
U.S. treasury securities:
Unrealized loss for less than twelve months
Unrealized loss for twelve months or longer
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months
Unrealized loss for twelve months or longer
Residential mortgage-backed securities:
Unrealized loss for less than twelve months
Unrealized loss for twelve months or longer
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months
Unrealized loss for twelve months or longer
Collateralized mortgage obligations:
Unrealized loss for less than twelve months
Unrealized loss for twelve months or longer
States and political subdivisions:
Unrealized loss for less than twelve months
Unrealized loss for twelve months or longer
Total available for sale:
Unrealized loss for less than twelve months
Unrealized loss for twelve months or longer
Held to Maturity
States and political subdivisions:
Unrealized loss for less than twelve months
Unrealized loss for twelve months or longer
Total held to maturity:
Unrealized loss for less than twelve months
Unrealized loss for twelve months or longer
2
—
2
2
1
3
52
17
69
5
14
19
72
10
82
14
—
14
$
$
14,862
—
14,862
9,904
6,184
16,088
548,392
104,378
652,770
65,636
138,619
204,255
618,464
62,647
681,111
5,576
—
5,576
75
—
75
94
59
153
6,915
2,702
9,617
1,776
7,352
9,128
11,316
1,148
12,464
200
—
200
— $
—
—
— $
—
—
8
—
8
15
—
15
10
—
10
10
5
15
—
—
—
60,298
—
60,298
86,287
—
86,287
105,386
—
105,386
101,990
13,611
115,601
—
—
—
—
—
—
325
—
325
429
—
429
1,176
—
1,176
324
46
370
—
—
—
147
42
189
1,262,834
311,828
$ 1,574,662
20,376
11,261
31,637
$
43
5
353,961
13,611
48 $ 367,572
$
2,254
46
2,300
December 31, 2021
December 31, 2020
Number of
Securities Fair Value Losses
Unrealized Number of
Unrealized
Securities Fair Value Losses
2
1
3
2
1
3
$
$
558
266
824
558
266
824
$
$
1
2
3
1
2
3
2 $
—
2
2
—
2 $
578
—
578
578
—
578
$
$
—
—
—
—
—
—
F-29
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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
equity securities, at December 31, 2021 are shown by contractual maturity below (in thousands).
Available for Sale
Held to Maturity
Amortized
Amortized
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Residential mortgage-backed securities
Collateralized mortgage obligations
Commercial mortgage-backed securities
$
Cost
11,837
36,068
13,852
40,551
102,308
900,084
926,783
219,460
$ 2,148,635
Fair Value
Cost
$
11,853 $
36,781
14,424
41,499
104,557
678 $
1,176
14,091
52,115
68,060
Fair Value
683
1,192
14,617
53,993
70,485
898,446
916,866
210,699
10,292
44,466
151,053
$ 2,130,568 $ 267,684 $ 276,296
9,892
43,990
145,742
During 2021, 2020 and 2019, the Company recognized net gains from its trading portfolio of $26.4 million, $122.0
million and $20.5 million, respectively. In addition, the Hilltop Broker-Dealers realized net gains from structured
product trading activities of $68.7 million, $77.1 million and $132.7 million during 2021, 2020 and 2019, respectively.
During 2021 and 2019, the Company had other realized losses on securities of $0.1 million and $2.5 million,
respectively, compared with other realized gains on securities during 2020 of $0.2 million. All such net gains and losses
are recorded as a component of other noninterest income within the consolidated statements of operations.
Securities with a carrying amount of $809.9 million and $712.3 million (with a fair value of $817.7 million and $733.8
million, respectively) at December 31, 2021 and 2020, respectively, were pledged by the Bank 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. Substantially all of these pledged securities were included in the Company’s available for sale and
held to maturity securities portfolios at December 31, 2021 and 2020.
Mortgage-backed securities and collateralized mortgage obligations consist principally of GNMA, Federal National
Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) pass-through and
participation certificates. GNMA securities are guaranteed by the full faith and credit of the United States, while FNMA
and FHLMC securities are fully guaranteed by those respective United States government-sponsored agencies, and
conditionally guaranteed by the full faith and credit of the United States.
6. Loans Held for Investment
The Bank originates loans to customers primarily in Texas. Although the Bank has diversified loan and leasing
portfolios and, generally, holds collateral against amounts advanced to customers, its debtors’ ability to honor their
contracts is substantially dependent upon the general economic conditions of the region and of the industries in which its
debtors operate, which consist primarily of agribusiness, construction, energy, real estate and wholesale/retail trade. The
Hilltop Broker-Dealers make loans to customers and correspondents through transactions originated by both employees
and independent retail representatives throughout the United States. The Hilltop Broker-Dealers control risk by requiring
customers to maintain collateral in compliance with various regulatory and internal guidelines, which may vary based
upon market conditions. Securities owned by customers and held as collateral for loans are not included in the
consolidated financial statements.
F-30
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Loans held for investment summarized by portfolio segment are as follows (in thousands).
Commercial real estate
Commercial and industrial (1)
Construction and land development
1-4 family residential
Consumer
Broker-dealer (2)
Allowance for credit losses
Total loans held for investment, net of allowance
December 31,
2020
2021
3,042,729 $ 3,133,903
2,627,774
1,875,420
828,852
892,783
629,938
1,303,430
35,667
32,349
733,193
437,007
7,693,141
7,879,904
(149,044)
(91,352)
7,788,552 $ 7,544,097
$
$
(1)
(2)
Included loans totaling $77.7 million and $486.7 million at December 31, 2021 and 2020, respectively funded
through the Paycheck Protection Program.
Primarily represents margin loans to customers and correspondents associated with broker-dealer segment operations.
The following table provides details associated with non-accrual loans, excluding those classified as held for sale (in
thousands).
Non-accrual Loans
December 31, 2021
With
Allowance Allowance
With No
December 31, 2020
With No
With
Total
Allowance Allowance
Total
Interest Income Recognized
Year Ended December 31,
2020
2021
2019
Commercial real estate:
Non-owner occupied
Owner occupied
Commercial and industrial
Construction and land development
1-4 family residential
Consumer
Broker-dealer
$
$
413 $
3,058
16,536
2
902
23
—
20,934 $
1,853
1,277
5,942
—
17,306
—
—
26,378
$
$
2,266
4,335
22,478
2
18,208
23
—
47,312
$
$
1,213
3,473
10,821
102
4,726
28
—
20,363
$
$
445
6,002
23,228
405
16,651
—
—
46,731
$
$
1,658
9,475
34,049
507
21,377
28
—
67,094
$
$
378 $
648
2,585
202
3,721
(120)
—
7,414 $
1,364
295
2,362
110
1,568
122
—
5,821
$
$
—
37
1,261
250
45
—
—
1,593
At December 31, 2021 and 2020, $2.9 million and $10.9 million, respectively, of real estate loans secured by residential
properties and classified as held for sale were in non-accrual status.
Loans accounted for on a non-accrual basis decreased from December 31, 2020 to December 31, 2021, by 19.8 million.
The change in non-accrual loans was primarily due to decreases in commercial and industrial loans of $11.6 million,
commercial real estate owner occupied loans of $5.1 million, and 1-4 family residential loans of $3.2 million. The
respective decreases in commercial and industrial loans and commercial real estate owner occupied loans in non-accrual
status since December 31, 2020 were primarily due to principal paydowns associated with six relationships.
The Company considers non-accrual loans to be collateral-dependent unless there are underlying mitigating
circumstances. The practical expedient to measure the allowance using the fair value of the collateral has been
implemented.
The Bank classifies loan modifications as troubled debt restructurings (“TDRs”) when it concludes that it has both
granted a concession to a debtor and that the debtor is experiencing financial difficulties. Loan modifications are
typically structured to create affordable payments for the debtor and can be achieved in a variety of ways. The Bank
modifies loans by reducing interest rates and/or lengthening loan amortization schedules. The Bank may also reconfigure
a single loan into two or more loans (“A/B Note”). The typical A/B Note restructure results in a “bad” loan which is
charged off and a “good” loan or loans, the terms of which comply with the Bank’s customary underwriting policies.
The debt charged off on the “bad” loan is not forgiven to the debtor.
In March 2020, the CARES Act was passed, which, among other things, allows the Bank to suspend the requirements for
certain loan modifications to be categorized as a TDR, including the related impairment for accounting purposes. On
December 27, 2020, the Consolidated Appropriations Act 2021 was signed into law. (Section 541) of this legislation,
“Extension of Temporary Relief From Troubled Debt Restructurings and Insurer Clarification,” extended certain relief
F-31
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
provisions from the March CARES Act that were set to expire at the end of 2020. This legislation extended the relief to
financial institutions to suspend TDR assessment and reporting requirements under GAAP for loan modifications to the
earlier of 60 days after the national emergency termination date or January 1, 2022. The Bank’s COVID-19 payment
deferral programs allow for a deferral of principal and/or interest payments with such deferred principal payments due
and payable on maturity date of the existing loan. The Bank’s actions included approval of approximately $1 billion in
COVID-19 related loan modifications as of December 31, 2020. During 2021, the Bank continued to support its
impacted banking clients through the approval of COVID-19 related loan modifications, which resulted in an additional
$16 million of new COVID-19 related loan modifications since December 31, 2020. The portfolio of active deferrals that
have not reached the end of their deferral period was approximately $4 million as of December 31, 2021. While the
majority of the portfolio of COVID-19 related loan modifications no longer require deferral, such loans may represent
elevated risk, and therefore management continues to monitor these loans.
Information regarding TDRs granted during 2021, 2020, and 2019 that do not qualify for the CARES Act exemption is
shown in the following table (dollars in thousands).
Year Ended December 31, 2021
Year Ended December 31, 2020
Year Ended December 31, 2019
Number of Balance at Balance at
End of Year
Extension
Loans
Number of Balance at Balance at
End of Year
Extension
Loans
Number of Balance at Balance at
End of Year
Extension
Loans
Commercial real estate:
Non-owner occupied
Owner occupied
Commercial and industrial
Construction and land
development
1-4 family residential
Consumer
Broker-dealer
$
—
1
—
—
—
—
—
1 $
—
725
—
—
—
—
—
725
$
$
—
713
—
—
—
—
—
713
— $
—
3
— $
—
9,464
—
5
—
—
8
—
438
—
—
9,902
$
$
—
—
4,116
—
438
—
—
4,554
—
—
4
—
—
—
—
$
— $
—
9,618
—
—
—
—
9,618
$
4 $
—
—
8,566
—
—
—
—
8,566
All of the loan modifications included in the table above involved payment term extensions. The Bank did not grant
principal reductions on any restructured loans during 2021, 2020 or 2019.
At December 31, 2021 and 2020, the Bank had nominal unadvanced commitments to borrowers whose loans have been
restructured in TDRs. There were no TDRs granted during the twelve months preceding December 31, 2021, 2020 or
2019 for which a payment was at least 30 days past due.
An analysis of the aging of the Company’s loan portfolio is shown in the following tables (in thousands).
December 31, 2021
Commercial real estate:
Non-owner occupied
Owner occupied
Commercial and industrial
Construction and land development
1-4 family residential
Consumer
Broker-dealer
December 31, 2020
Commercial real estate:
Non-owner occupied
Owner occupied
Commercial and industrial
Construction and land development
1-4 family residential
Consumer
Broker-dealer
Loans Past Due Loans Past Due Loans Past Due Total Past Current
Loans
90 Days or More Due Loans
60-89 Days
30-59 Days
Total
Loans
Accruing Loans
Past Due
90 Days or More
$
$
117
590
1,059
946
7,642
123
—
10,477
$
$
— $
688
277
—
2,738
22
—
3,725
$
1,173
2,273
13,640
—
4,842
22
—
21,950
$
$
1,290
3,551
14,976
946
15,222
167
—
36,152
$ 1,728,409 $ 1,729,699
1,313,030
1,875,420
892,783
1,303,430
32,349
733,193
$ 7,843,752 $ 7,879,904
1,309,479
1,860,444
891,837
1,288,208
32,182
733,193
$
$
—
—
1
—
100
—
—
101
Loans Past Due Loans Past Due Loans Past Due
60-89 Days
Total Past
90 Days or More Due Loans
30-59 Days
Current
Loans
Total
Loans
Accruing Loans
Past Due
90 Days or More
$
$
1,919
195
3,114
19
8,110
172
—
13,529
$
$
— $
522
407
—
3,040
123
—
4,092
$
199
8,328
7,318
—
12,420
26
—
28,291
$
$
2,118
9,045
10,839
19
23,570
321
—
45,912
$ 1,786,193 $ 1,788,311
1,345,592
2,627,774
828,852
629,938
35,667
437,007
$ 7,647,229 $ 7,693,141
1,336,547
2,616,935
828,833
606,368
35,346
437,007
$
$
—
—
6
—
—
—
—
6
In addition to the loans shown in the tables above, PrimeLending had $60.7 million and $243.6 million of loans included
in loans held for sale (with an aggregate unpaid principal balance of $61.7 million and $245.5 million, respectively) that
were 90 days past due and accruing interest at December 31, 2021 and 2020, respectively. The significant decrease in
F-32
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
these loans at December 31, 2021, compared to December 31, 2020, was due to PrimeLending’s sale of mortgage loans
previously reflected as 90 days past due and accruing interest. These loans are guaranteed by U.S. government agencies
and include loans that are subject to repurchase, or have been repurchased, by PrimeLending.
In response to the ongoing COVID-19 pandemic, the Company allowed modifications, such as payment deferrals for up
to 90 days and temporary forbearance, to credit-worthy borrowers who are experiencing temporary hardship due to the
effects of COVID-19. These short-term modifications generally meet the criteria of the CARES Act and, therefore, they
are not reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual
status prior to the deferral). The Company elected to accrue and recognize interest income on these modifications during
the payment deferral period.
Additionally, the Company granted temporary forbearance to borrowers of a federally backed mortgage loan
experiencing financial hardship due, directly or indirectly, to the COVID-19 pandemic. The CARES Act, which among
other things, established the ability for financial institutions to grant a forbearance for up to 180 days, which can be
extended for an additional 180-day period upon the request of the borrower. During that time, no fees, penalties or
interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full
under the mortgage contract will accrue on the borrower’s account. As of December 31, 2021, PrimeLending had $20.2
million of loans subject to repurchase under a forbearance agreement related to delinquencies on or after April 1, 2020.
Management tracks credit quality trends on a quarterly basis related to: (i) past due levels, (ii) non-performing asset
levels, (iii) classified loan levels, and (v) general economic conditions in state and local markets. The Company defines
classified loans as loans with a risk rating of substandard, doubtful or loss.
A description of the risk rating internal grades for commercial loans to is presented in the following table.
Risk Rating
Internal Grade
Pass low risk
1 - 3
Pass normal risk
4 - 7
Pass high risk
8 - 10
Watch
Special mention
Substandard accrual
Substandard non-accrual
Doubtful
Loss
11
12
13
14
15
16
Risk Rating Description
Represents loans to very high credit quality commercial borrowers of investment or near investment grade.
These borrowers have significant capital strength, moderate leverage, stable earnings and growth, and
readily available financing alternatives. Commercial borrowers entirely cash secured are also included in
this category.
Represents loans to commercial borrowers of solid credit quality with moderate risk. Borrowers in these
grades are differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset
quality and the stability of the industry or market area.
Represents "pass grade" loans to commercial borrowers of higher, but acceptable credit quality and risk.
Such borrowers are differentiated from Pass Normal Risk in terms of size, secondary sources of repayment
or they are of lesser stature in other key credit metrics.
Represents loans on management's "watch list" and is intended to be utilized on a temporary basis for pass
grade commercial borrowers where a significant risk-modifying action is anticipated in the near term.
Represents loans with potential weaknesses that deserve management's close attention. If left uncorrected,
these potential weaknesses may result in a deterioration of the repayment prospects for the loans and
weaken the Company's credit position at some future date.
Represents loans for which the accrual of interest has not been stopped, but are inadequately protected by
the current sound worth and paying capacity of the obligor or the collateral pledged, if any. Loans so
classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and are
characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not
corrected.
Represents loans for which the accrual of interest has been stopped and includes loans where interest is
more than 90 days past due and not fully secured and loans where a specific valuation allowance may be
necessary.
Represents loans that are placed on non-accrual status and may be dependent upon collateral having a value
that is difficult to determine or upon some near-term event which lacks certainty.
Represents loans that are to be charged-off or charged-down when payment is acknowledged to be
uncertain or when the timing or value of payments cannot be determined. Rating is not intended to imply
that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a
forgiveness of debt.
F-33
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following table presents loans held for investment grouped by asset class and credit quality indicator, segregated by
year of origination or renewal (in thousands).
Amortized Cost Basis by Origination Year
2021
2020
2019
2018
2017
2016 and
Prior
Revolving
December 31, 2021
Commercial real estate: non-owner occupied
Internal Grade 1-3 (Pass low risk)
Internal Grade 4-7 (Pass normal risk)
Internal Grade 8-11 (Pass high risk and watch)
Internal Grade 12 (Special mention)
Internal Grade 13 (Substandard accrual)
Internal Grade 14 (Substandard non-accrual)
Commercial real estate: owner occupied
Internal Grade 1-3 (Pass low risk)
Internal Grade 4-7 (Pass normal risk)
Internal Grade 8-11 (Pass high risk and watch)
Internal Grade 12 (Special mention)
Internal Grade 13 (Substandard accrual)
Internal Grade 14 (Substandard non-accrual)
Commercial and industrial
Internal Grade 1-3 (Pass low risk)
Internal Grade 4-7 (Pass normal risk)
Internal Grade 8-11 (Pass high risk and watch)
Internal Grade 12 (Special mention)
Internal Grade 13 (Substandard accrual)
Internal Grade 14 (Substandard non-accrual)
Construction and land development
Internal Grade 1-3 (Pass low risk)
Internal Grade 4-7 (Pass normal risk)
Internal Grade 8-11 (Pass high risk and watch)
Internal Grade 12 (Special mention)
Internal Grade 13 (Substandard accrual)
Internal Grade 14 (Substandard non-accrual)
Construction and land development - individuals
FICO less than 620
FICO between 620 and 720
FICO greater than 720
Substandard non-accrual
Other (1)
1-4 family residential
FICO less than 620
FICO between 620 and 720
FICO greater than 720
Substandard non-accrual
Other (1)
Consumer
FICO less than 620
FICO between 620 and 720
FICO greater than 720
Substandard non-accrual
Other (1)
12,027
162,441
209,652
—
7,382
—
51,173
124,524
103,483
—
9,309
—
29,971
84,497
74,513
—
12,589
15,646
30,728
125,843
47,178
—
—
—
$
$
$
$
$
$
$
$
23,994
103,841
113,089
3,130
13,863
—
17,226
114,361
47,881
—
1,959
(3)
27,252
24,824
33,352
—
5,406
35
3,119
25,841
45,067
—
28
—
— $
—
132
—
—
— $
—
—
—
—
$
$
$
$
8,983
43,841
84,631
—
16,337
—
25,929
87,591
76,145
—
10,460
345
6,971
22,193
11,794
—
6,800
388
1,586
11,319
1,087
—
—
—
— $
1,016
—
—
—
3,608
7,452
31,249
277
3,606
$
$
$
$
$
$
$
$
19,510
299,960
218,256
—
39,325
412
109,381
202,416
84,696
—
1,040
1,561
28,189
161,264
110,145
—
2,309
2,529
19,341
323,767
170,375
—
—
—
$
— $
1,232
16,171
—
1,601
1,622
7,541
782,137
—
95,308
1,095
4,421
9,528
—
4,405
$
$
1,369 $ 10,407 $
39,559
51,125
52,260 110,736
—
14,690
1,854
—
6,898
—
(2) $
59,263
866
—
—
—
Total
76,288
760,030
789,490
3,130
98,495
2,266
30,866 $ 37,433 $
22,985
16,002
—
6,747
2,270
72,113
26,707
—
11,330
162
753
15,326
859
—
—
—
9,373 $
12,689
6,944
—
3,808
413
938 $ 61,599
287,625
308,878
1
6,184
3,381
13,754
5,771
—
3,590
86
$ 272,761
639,316
355,773
—
40,845
4,335
$ 164,293
606,846
551,397
1
40,686
22,478
$
233 $
1,930
418
—
5,324
—
3,071 $
2,154
1,904
—
—
2
439
27,701
24,176
—
—
—
— $
—
—
—
—
— $
—
—
—
—
— $
—
—
—
—
58,517
518,555
290,205
—
5,352
2
—
2,248
16,303
—
1,601
$
$
$
$
$
$
463
10,872
125,293
(4)
9,785
327
915
2,076
—
765
641
7,376
53,296
795
5,751
394
845
854
—
348
$
51 $ 25,472 $
4,451
15,101
127
828
29,416
51,318
17,013
5,930
$
45
141
237
—
34
70 $
429
12
22
12
47 $
71
15
1
21
248
1,006
2,821
—
2,580
373
1,938
2,545
—
363
$
$
32,105
68,114
1,061,215
18,208
123,788
2,351
8,760
15,267
23
5,948
$ 6,656,992
$ 411,973
$
77,746
$ 733,193
$ 7,879,904
Total loans with credit quality measures
Commercial and industrial (mortgage warehouse lending)
Commercial and industrial (Paycheck Protection Program loans)
Broker-Dealer (margin loans and correspondent receivables)
Total loans held for investment
$ 2,719,537
$ 1,251,580
$ 674,565
$ 464,065
$ 241,191 $ 497,131 $ 808,923
(1) Loans classified in this category were assigned a FICO score based on various factors specific to the borrower for credit modeling purposes.
F-34
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Allowance for Credit Losses
Available for Sale Securities and Held to Maturity Securities
The Company has evaluated available for sale debt securities that are in an unrealized loss position and has determined
that any declines in value is unrelated to credit loss and related to changes in market interest rates since purchase. None
of the available for sale debt securities held were past due at December 31, 2021. In addition, as of December 31, 2021,
the Company had not made a decision to sell any of its debt securities held, nor did the Company consider it more likely
than not that it would be required to sell such securities before recovery of their amortized cost basis. The Company does
not expect to have credit losses associated with the debt securities and no allowance was recognized on the debt
securities portfolio at transition.
Loans Held for Investment
The allowance for credit losses for loans held for investment represents management’s best estimate of all expected
credit losses over the expected contractual life of our existing portfolio. Management revised its methodology for
determining the allowance for credit losses upon the implementation of CECL. Management considers the level of
allowance for credit losses to be a reasonable and supportable estimate of expected credit losses inherent within the loans
held for investment portfolio as of December 31, 2021. While the Company believes it has an appropriate allowance for
the existing loan portfolio at December 31, 2021, additional provision for losses on existing loans may be necessary in
the future. Future changes in the allowance for credit losses are expected to be volatile given dependence upon, among
other things, the portfolio composition and quality, as well as the impact of significant drivers, including prepayment
assumptions and macroeconomic conditions and forecasts. In addition to the allowance for credit losses, the Company
maintains a separate allowance for credit losses related to off-balance sheet credit exposures, including unfunded loan
commitments, and this amount is included in other liabilities within the consolidated balance sheets. For further
information on the policies that govern the estimation of the allowances for credit losses levels, see Note 1 to the
consolidated financial statements.
One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the
macroeconomic forecasts used to estimate credit losses over the reasonable and supportable forecast period. To
determine our best estimate of expected credit losses as of December 31, 2021, the Company utilized a single
macroeconomic consensus scenario published by Moody’s Analytics in December 2021 that was updated to reflect the
U.S. economic outlook. This consensus economic scenario utilizes multiple economic variables in forecasting the
economic outlook and is based on Moody’s Analytics’ review of a variety of surveys of baseline forecasts of the U.S.
economy. Significant variables that impact the modeled losses across our loan portfolios are the U.S. Real Gross
Domestic Product, or GDP, growth rates and unemployment rate assumptions. Changes in these assumptions and
forecasts of economic conditions could significantly affect the estimate of expected credit losses at the balance sheet date
or between reporting periods.
The COVID-19 pandemic disrupted financial markets and overall economic conditions that have affected borrowers
across our lending portfolios. Significant judgment is required to estimate the severity and duration of the current
economic uncertainties, as well as its potential impact on borrower defaults and loss severity. In particular,
macroeconomic conditions and forecasts are rapidly changing and remain highly uncertain as COVID-19 cases and
vaccine effectiveness, as well as government stimulus and policy measures, evolve nationally and in key geographies.
During the first quarter of 2020, the Company adopted the new CECL standard and recorded transition adjustment
entries that resulted in an allowance for credit losses of $73.7 million as of January 1, 2020, an increase of $12.6 million.
This increase included an increase in credit losses of $18.9 million from the expansion of the loss horizon to life of loan,
partially offset by the elimination of the non-credit component within the historical allowance related to previously
categorized PCI loans of $6.3 million.
During 2020, the significant build in the allowance included provision for credit losses on individually evaluated loans
of $20.2 million, while the provision for credit losses on expected losses of collectively evaluated loans accounted for
$76.1 million of the total provision primarily due to the identified changes in the Bank’s loan portfolio composition and
credit quality and the increase in the expected lifetime credit losses under CECL attributable to the deteriorating
F-35
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
economic outlook associated with the impact of the market disruption caused by the COVID-19 pandemic. The change
to the reserve due to the impact of COVID-19 reflected economic uncertainty which, along with the expectation of
continued higher unemployment and lower GDP, had increased the probability of default and loss given default rates
used in our estimate of the lifetime expected credit losses for our loan portfolio.
During 2021, the decreases in the allowance reflected improvement in both realized economic results and the
macroeconomic outlook and were significantly comprised of net reversals of credit losses on expected losses of
collectively evaluated loans of $58.3 million. Such reversals were primarily due to improvements in both macroeconomic
forecast assumptions and credit quality metrics on COVID-19 impacted industry sector exposures. The net impact to the
allowance of changes associated with individually evaluated loans during 2021 included a provision for credit losses of
$0.1 million. The change in the allowance for credit losses during 2021 was primarily attributable to the Bank and also
reflected other factors including, but not limited to, loan mix, and changes in loan balances and qualitative factors from
the prior year. The change in the allowance during 2021 was also impacted by net recoveries of $0.5 million.
Changes in the allowance for credit losses for loans held for investments, distributed by portfolio segment, are shown
below (in thousands).
Year Ended December 31, 2021
Commercial real estate
Commercial and industrial
Construction and land development
1-4 family residential
Consumer
Broker-dealer
Total
Year Ended December 31, 2020
Commercial real estate
Commercial and industrial
Construction and land development
1-4 family residential
Consumer
Broker-dealer
Total
Year Ended December 31, 2019
Commercial real estate
Commercial and industrial
Construction and land development
1-4 family residential
Consumer
Broker-dealer
Total
Unfunded Loan Commitments
Transition
Adjustment
CECL
Balance,
Beginning of
Year
109,629
27,703
6,677
3,946
876
213
149,044
$
$
$
$
Provision for
(Reversal of)
Credit Losses
(50,231)
(6,128)
(2,003)
409
(222)
(38)
(58,213)
— $
—
—
—
—
—
— $
Loans
Charged Off
$
(310) $
(2,249)
—
(312)
(357)
—
(3,228) $
$
Recoveries on
Charged Off
Loans
Balance,
Beginning of
Transition
Adjustment
Year
CECL
$
$
31,595
17,964
4,878
6,386
265
48
61,136
$
$
8,073
3,193
577
(29)
748
—
12,562
Provision for
(Reversal of)
Credit Losses
73,865
$
22,870
1,222
(1,717)
86
165
96,491
$
Loans
Charged Off
$
(4,517) $
(18,158)
(2)
(748)
(615)
—
(24,040) $
$
Recoveries on
Charged Off
Loans
Balance,
End of Year
59,354
21,982
4,674
4,589
578
175
91,352
Balance,
End of Year
109,629
27,703
6,677
3,946
876
213
149,044
$
$
$
$
266
2,656
—
546
281
—
3,749
613
1,834
2
54
392
—
2,895
Balance,
Beginning of
Transition
Adjustment
Year
CECL
$
$
27,100
21,980
6,061
3,956
267
122
59,486
$
$
Provision for
(Reversal of)
Credit Losses
5,649
(921)
(1,183)
3,276
459
(74)
7,206
— $
—
—
—
—
—
— $
$
Loans
Charged Off
$
Recoveries on
Charged Off
Balance,
(1,160) $
(5,924)
—
(907)
(498)
—
(8,489) $
Loans
6
2,829
—
61
37
—
2,933
$
End of Year
31,595
17,964
4,878
6,386
265
48
61,136
$
The Bank uses a process similar to that used in estimating the allowance for credit losses on the funded portion to
estimate the allowance for credit loss on unfunded loan commitments. The allowance is based on the estimated exposure
at default, multiplied by the lifetime PD grade and LGD grade for that particular loan segment. The Bank estimates
expected losses by calculating a commitment usage factor based on industry usage factors. The commitment usage factor
is applied over the relevant contractual period. Loss factors from the underlying loans to which commitments are related
are applied to the results of the usage calculation to estimate any liability for credit losses related for each loan type. The
expected losses on unfunded commitments align with statistically calculated parameters used to calculate the allowance
for credit losses on the funded portion. There is no reserve calculated for letters of credit as they are issued primarily as
credit enhancements and the likelihood of funding is low.
F-36
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Changes in the allowance for credit losses for loans with off-balance sheet credit exposures are shown below (in
thousands).
Balance, beginning of year
Transition adjustment CECL accounting standard
Other noninterest expense
Balance, end of year
2021
Year Ended December 31,
2020
2019
$
$
8,388
—
(2,508)
5,880
$
$
2,075 $
3,837
2,476
8,388 $
2,366
—
(291)
2,075
As previously discussed, the Company adopted the new CECL standard and recorded a transition adjustment entry that
resulted in an allowance for credit losses of $5.9 million as of January 1, 2020. During 2020, the increase in the reserve
for unfunded commitments was primarily due to the macroeconomic uncertainties associated with the impact of the
market disruption caused by COVID-19 conditions. During 2021, the decrease in the reserve for unfunded commitments
was primarily due to improvements in loan expected loss rates.
8. Cash and Due from Banks
Cash and due from banks consisted of the following (in thousands).
Cash on hand
Clearings and collection items
Deposits at Federal Reserve Bank
Deposits at Federal Home Loan Bank
Deposits in FDIC-insured institutions
December 31,
2021
2020
39,981
52,405
2,692,088
1,509
37,155
2,823,138
$
$
45,207
82,396
874,998
1,607
58,352
1,062,560
$
$
The amounts above include interest-bearing deposits of $2.7 billion and $878.0 million at December 31, 2021 and 2020,
respectively. Cash on hand and deposits at the Federal Reserve Bank satisfy regulatory reserve requirements at
December 31, 2021 and 2020.
9. Premises and Equipment
The components of premises and equipment are summarized as follows (in thousands).
Land and premises
Furniture and equipment
Less accumulated depreciation and amortization
December 31,
2021
122,376 $
275,171
397,547
(193,109)
204,438 $
2020
125,701
257,810
383,511
(171,916)
211,595
$
$
The amounts shown above include gross assets recorded under finance leases of $7.8 million and $7.8 million, with
accumulated amortization of $5.4 million and $4.8 million at December 31, 2021 and 2020, respectively.
Occupancy expense was reduced by rental income of $1.7 million, $1.7 million and $2.7 million during 2021, 2020 and
2019, respectively. Depreciation and amortization expense on premises and equipment, which includes amortization of
finance leases, amounted to $28.4 million, $27.9 million and $27.3 million during 2021, 2020 and 2019, respectively.
F-37
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Goodwill and Other Intangible Assets
At December 31, 2021, the carrying amount of goodwill of $267.4 million was comprised of $39.6 million recorded in
connection with the acquisition of The Bank of River Oaks (“BORO”) in an all-cash transaction (“BORO Acquisition”)
and $227.8 million recorded in connection with the acquisition of PCC pursuant to a plan of merger whereby PCC
merged with and into our wholly owned subsidiary (the “PlainsCapital Merger”).
Other intangible assets were $15.3 million and $20.4 million at December 31, 2021 and 2020, respectively.
The Company performed required annual impairment tests of its goodwill and other intangible assets having an
indefinite useful life as of October 1st for each of its reporting units. At October 1, 2021, the Company determined that
the estimated fair value of each of its reporting units exceeded its carrying value. The Company estimated the fair values
of its reporting units based on both a market and income approach using historical, normalized actual and forecasted
results. Based on this evaluation, at December 31, 2021, the Company concluded that the goodwill and other identifiable
intangible assets were fully realizable.
The Company’s evaluation includes multiple assumptions, including estimated discounted cash flows and other
estimates that may change over time. If future discounted cash flows become less than those projected by the Company,
future impairment charges may become necessary that could have a materially adverse impact on the Company’s results
of operations and financial condition. As quoted market prices in active stock markets are relevant evidence of fair
value, a significant decline in the Company’s common stock trading price may indicate an impairment of goodwill.
Additionally, given the potential impacts as a result of economic uncertainties associated with the pandemic, actual
results may differ materially from the Company’s current estimates as the scope of such impacts evolves or if the
duration of business disruptions is longer than currently anticipated. While certain valuation assumptions and judgments
may change to account for pandemic-related circumstances, the Company does not anticipate significant changes in
methodology used to determine the fair value of its goodwill, intangible assets and other long-lived assets. The Company
will continue to monitor developments regarding the COVID-19 pandemic and measures implemented in response to the
pandemic, market capitalization, overall economic conditions and any other triggering events or circumstances that may
indicate an impairment in the future.
The carrying value of intangible assets subject to amortization was as follows (in thousands).
Estimated Gross
Useful Life
December 31, 2021
Core deposits
Trademarks and trade names
Noncompete agreements
Customer contracts and relationships
December 31, 2020
Core deposits
Trademarks and trade names
Noncompete agreements
Customer contracts and relationships
(Years)
4 - 12
20
4
12 - 14
Estimated
Useful Life
(Years)
4 - 12
20
4
12 - 14
Net
Intangible Accumulated Intangible
Assets
$ 48,930
16,500
4,310
15,300
$ 85,040
Amortization Assets
$ (44,370) $ 4,560
8,188
—
2,536
$ (69,756) $ 15,284
(8,312)
(4,310)
(12,764)
Gross
Net
Intangible Accumulated Intangible
Assets
$ 48,930
16,500
4,310
15,300
$ 85,040
Amortization Assets
$ (40,997) $ 7,933
8,937
—
3,494
$ (64,676) $ 20,364
(7,563)
(4,310)
(11,806)
Amortization expense related to intangible assets during 2021, 2020 and 2019 was $5.1 million, $6.3 million and $7.5
million, respectively.
F-38
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The estimated aggregate future amortization expense for intangible assets at December 31, 2021 is as follows (in
thousands).
2022
2023
2024
2025
2026
Thereafter
$
$
3,967
2,860
1,826
1,028
959
4,644
15,284
11. Mortgage Servicing Rights
The following tables present the changes in fair value of the Company’s MSR asset, and other information related to the
serviced portfolio (dollars in thousands).
Balance, beginning of year
Additions
Sales
Changes in fair value:
Due to changes in model inputs or assumptions (1)
Due to customer payoffs
Balance, end of year
Mortgage loans serviced for others (2)
MSR asset as a percentage of serviced mortgage loans
Year Ended December 31,
2021
143,742
78,433
(142,558)
30,525
(23,152)
86,990
$
$
2020
55,504
162,914
(36,750)
(27,261)
(10,665)
143,742
$
$
December 31,
2021
6,355,927
2020
$
14,643,623
1.37 %
0.98 %
$
$
$
2019
66,102
13,755
—
(16,054)
(8,299)
55,504
(1) Primarily represents normal customer payments, changes in discount rates and prepayment speed assumptions, which are primarily affected by
changes in interest rates and the refinement of other MSR model assumptions. Included in 2021 are MSR asset fair value adjustments totaling
$22.8 million, which reflects the difference between the MSR asset carrying values and the sale prices reflected in the letters of intent to sell the
applicable MSR assets.
(2) Represents unpaid principal balance of mortgage loans serviced for others.
The key assumptions used in measuring the fair value of the Company’s MSR asset were as follows.
Weighted average constant prepayment rate
Weighted average discount rate
Weighted average life (in years)
December 31,
2021
10.02 %
14.32 %
7.1
2020
12.15 %
14.60 %
6.3
A sensitivity analysis of the fair value of the Company’s MSR asset to certain key assumptions is presented in the
following table (in thousands).
Constant prepayment rate:
Impact of 10% adverse change
Impact of 20% adverse change
Discount rate:
Impact of 10% adverse change
Impact of 20% adverse change
December 31,
2021
2020
$
(2,603) $
(5,315)
(5,639)
(11,164)
(4,070)
(7,753)
(6,435)
(12,287)
F-39
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
This sensitivity analysis presents the effect of hypothetical changes in key assumptions on the fair value of the MSR
asset. The effect of such hypothetical changes in assumptions generally cannot be extrapolated because the relationship
of the change in one key assumption to the change in the fair value of the MSR asset is not linear. In addition, in the
analysis, the impact of an adverse change in one key assumption is calculated independent of any impact on other
assumptions. In reality, changes in one assumption may change another assumption.
Contractually specified servicing fees, late fees and ancillary fees earned of $57.7 million, $35.4 million and $25.3
million during 2021, 2020 and 2019, respectively, were included in net gains from sale of loans and other mortgage
production income within the consolidated statements of operations.
12. Deposits
Deposits are summarized as follows (in thousands).
Noninterest-bearing demand
Interest-bearing:
Demand accounts
Brokered - demand
Money market
Brokered - money market
Savings
Time
Brokered - time
December 31,
2021
2020
$ 4,577,183 $ 3,612,384
3,270,522
114,393
3,433,341
98,614
345,795
962,752
15,477
2,399,341
282,426
2,716,878
124,243
276,327
1,506,435
324,285
$ 12,818,077 $ 11,242,319
At December 31, 2021, remaining maturities of uninsured time deposits greater than $250,000 were $443.3 million.
Scheduled maturities of all time deposits at December 31, 2021 are as follows (in thousands).
2022
2023
2024
2025
2026 and thereafter
13. Short-term Borrowings
Short-term borrowings are summarized as follows (in thousands).
Federal funds purchased
Securities sold under agreements to repurchase
Federal Home Loan Bank
Short-term bank loans
Commercial paper
$
$
840,771
78,265
29,631
11,381
18,181
978,229
December 31,
2021
171,925 $
191,547
—
142,000
353,972
859,444 $
2020
180,325
237,856
—
—
277,617
695,798
$
$
Federal Funds Purchased and Securities Sold under Agreements to Repurchase
Federal funds purchased and securities sold under agreements to repurchase generally mature one to ninety days from
the transaction date, on demand, or on some other short-term basis. The Bank and the Hilltop Broker-Dealers execute
transactions to sell securities under agreements to repurchase with both customers and other broker-dealers. Securities
involved in these transactions are held by the Bank, the Hilltop Broker-Dealers or a third-party dealer.
F-40
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Information concerning federal funds purchased and securities sold under agreements to repurchase is shown in the
following tables (dollars in thousands).
Average balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Average interest rate at end of year
Securities underlying the agreements at end of year:
Carrying value
Estimated fair value
Federal Home Loan Bank (“FHLB”)
Year Ended December 31,
2021
363,964
0.34 %
427,553
$
$
2020
509,577 $
0.89 %
714,507 $
2019
605,858
2.48 %
693,750
December 31,
2021
2020
0.31 %
0.25 %
191,483
205,734
$
$
237,913
262,554
$
$
$
$
FHLB short-term borrowings mature over terms not exceeding 365 days and are collateralized by FHLB Dallas stock,
nonspecified real estate loans and certain specific commercial real estate loans. At December 31, 2021, the Bank had
available collateral of $4.2 billion, substantially all of which was blanket collateral. Other information regarding FHLB
short-term borrowings is shown in the following tables (dollars in thousands).
Average balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Short-Term Bank Loans
2021
Year Ended December 31,
2020
—
— %
—
$
$
38,634
1.63 %
150,000
$
$
$
$
2019
329,356
2.16 %
700,000
The Hilltop Broker-Dealers use short-term bank loans periodically to finance securities owned, margin loans to
customers and correspondents, and underwriting activities. Interest on the borrowings varies with the federal funds rate.
The weighted average interest rate on the short-term bank loan borrowings at December 31, 2021 and 2020 was 1.25%
and 0.00%, respectively.
Commercial Paper
Hilltop Securities uses the net proceeds (after deducting related issuance expenses) from the sale of two commercial
paper programs for general corporate purposes, including working capital and the funding of a portion of its securities
inventories. The commercial paper notes (“CP Notes”) may be issued with maturities of 14 days to 270 days from the
date of issuance. The CP Notes are issued under two separate programs, Series 2019-1 CP Notes and Series 2019-2 CP
Notes, in maximum aggregate amounts of $300 million and $200 million, respectively. The CP Notes are not
redeemable prior to maturity or subject to voluntary prepayment and do not bear interest, but are sold at a discount to
par. The CP Notes are secured by a pledge of collateral owned by Hilltop Securities. As of December 31, 2021, the
weighted average maturity of the CP Notes was 141 days at a rate of 0.99%, with a weighted average remaining life of
66 days. At December 31, 2021, the amount outstanding under these secured arrangements was $354.0 million, which
was collateralized by securities held for firm accounts valued at $384.7 million.
F-41
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Notes Payable
Notes payable consisted of the following (in thousands).
Senior Notes due April 2025, net of discount of $886 and $1,063, respectively
Subordinated Notes due May 2030, net of discount of $704 and $793, respectively
Subordinated Notes due May 2035, net of discount of $2,220 and $2,392, respectively
Ventures Management lines of credit
December 31,
2021
149,114 $
49,296
147,780
41,714
387,904 $
$
$
2020
148,937
49,207
147,608
36,235
381,987
Senior Notes
On April 9, 2015, Hilltop completed an offering of $150.0 million aggregate principal amount of its 5% senior notes due
2025 (“Senior Unregistered Notes”) in a private offering that was exempt from the registration requirements of the
Securities Act of 1933, as amended (the “Securities Act”). The Senior Unregistered Notes were offered within the
United States only to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to persons
outside of the United States under Regulation S under the Securities Act. The Senior Unregistered Notes were issued
pursuant to an indenture, dated as of April 9, 2015, by and between Hilltop and U.S. Bank National Association, as
trustee. The net proceeds from the offering, after deducting estimated fees and expenses and the initial purchasers’
discounts, were approximately $148 million. Hilltop used the net proceeds of the offering to redeem all of Hilltop’s
outstanding Non-Cumulative Perpetual Preferred Stock, Series B at an aggregate liquidation value of $114.1 million,
plus accrued but unpaid dividends of $0.4 million, and Hilltop utilized the remainder for general corporate purposes.
Unamortized debt issuance costs presented as a reduction from the Senior Notes are discussed further in Note 1 to the
consolidated financial statements.
In connection with the issuance of the Senior Unregistered Notes, on April 9, 2015, the Company entered into a
registration rights agreement with the initial purchasers of the Senior Unregistered Notes. Under the terms of the
registration rights agreement, the Company agreed to offer to exchange the Senior Unregistered Notes for notes
registered under the Securities Act (the “Senior Registered Notes”). The terms of the Senior Registered Notes are
substantially identical to the Senior Unregistered Notes for which they were exchanged (including principal amount,
interest rate, maturity and redemption rights), except that the Senior Registered Notes generally are not subject to
transfer restrictions. On May 22, 2015 and subject to the terms and conditions set forth in the Senior Registered Notes
prospectus, the Company commenced an offer to exchange the Senior Unregistered Notes for Senior Registered Notes.
Substantially all of the Senior Unregistered Notes were tendered in the exchange offer, and on June 22, 2015, the
Company fulfilled its requirements under the registration rights agreement for the Senior Unregistered Notes by issuing
Senior Registered Notes in exchange for the tendered Senior Unregistered Notes. The Senior Registered Notes and the
Senior Unregistered Notes that remain outstanding are collectively referred to as the “Senior Notes.”
The Senior Notes bear interest at a rate of 5% per year, payable semi-annually in arrears in cash on April 15 and
October 15 of each year. The Senior Notes will mature on April 15, 2025, unless Hilltop redeems the Senior Notes, in
whole at any time or in part from time to time, on or after January 15, 2025 (three months prior to the maturity date of
the Senior Notes) at its election at a redemption price equal to 100% of the principal amount of the Senior Notes to be
redeemed plus accrued and unpaid interest to, but excluding, the redemption date.
The indenture contains covenants that limit the Company’s ability to, among other things and subject to certain
significant exceptions: (i) dispose of or issue voting stock of certain of the Company’s bank subsidiaries or subsidiaries
that own voting stock of the Company’s bank subsidiaries, (ii) incur or permit to exist any mortgage, pledge,
encumbrance or lien or charge on the capital stock of certain of the Company’s bank subsidiaries or subsidiaries that
own capital stock of the Company’s bank subsidiaries and (iii) sell all or substantially all of the Company’s assets or
merge or consolidate with or into other companies. The indenture also provides for certain events of default, which, if
any of them occurs, would permit or require the principal amount, premium, if any, and accrued and unpaid interest on
the then outstanding Senior Notes to be declared immediately due and payable.
F-42
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Subordinated Notes
On May 7, 2020, Hilltop completed a public offering of $50 million aggregate principal amount of 5.75% fixed-to-
floating rate subordinated notes due May 15, 2030 (the “2030 Subordinated Notes”) and $150 million aggregate
principal amount of 6.125% fixed-to-floating rate subordinated notes due May 15, 2035 (the “2035 Subordinated
Notes”) (collectively, the “Subordinated Notes”). The price for the Subordinated Notes was 100% of the principal
amount of the Subordinated Notes. The net proceeds from the offering, after deducting underwriting discounts and fees
and expenses of $3.4 million, were $196.6 million.
The 2030 Subordinated Notes and the 2035 Subordinated Notes will mature on May 15, 2030 and May 15, 2035,
respectively. Hilltop may redeem the Subordinated Notes, in whole or in part, from time to time, subject to obtaining
regulatory approval, beginning with the interest payment date of May 15, 2025 for the 2030 Subordinated Notes and
beginning with the interest payment date of May 15, 2030 for the 2035 Subordinated Notes, in each case at a redemption
price equal to 100% of the principal amount of the Subordinated Notes being redeemed plus accrued and unpaid interest
to but excluding the date of redemption.
The 2030 Subordinated Notes bear interest at the rate of 5.75% per year, payable semi-annually in arrears commencing
on November 15, 2020. The interest rate for the 2030 Subordinated Notes will reset quarterly beginning May 15, 2025 to
an interest rate, per year, equal to the then-current benchmark rate, which is expected to be three-month term Secured
Overnight Financing Rate (“SOFR rate”), plus 5.68%, payable quarterly in arrears. The 2035 Subordinated Notes bear
interest at the rate of 6.125% per year, payable semi-annually in arrears commencing on November 15, 2020. The
interest rate for the 2035 Subordinated Notes will reset quarterly beginning May 15, 2030 to an interest rate, per year,
equal to the then-current benchmark rate, which is expected to be three-month term SOFR rate plus 5.80%, payable
quarterly in arrears.
Federal Home Loan Bank notes
The FHLB notes, as well as other borrowings from the FHLB, are collateralized by FHLB stock, a blanket lien on
commercial and real estate loans, as well as by the amount of securities that are in safekeeping at the FHLB.
Ventures Management Lines of Credit
At December 31, 2021, Ventures Management’s ABAs had combined available lines of credit totaling $145.0 million,
$55.0 million of which was with a single unaffiliated bank and $90.0 million of which was with the Bank. At
December 31, 2021, Ventures Management had outstanding borrowings of $60.4 million, $18.7 million of which was
with the Bank with stated interest rates of the greater of a calculated index rate on mortgage notes or 3.13% to 3.75%.
The weighted average interest rate of these lines of credit at December 31, 2021 was 3.32%. The Ventures Management
lines of credit are collateralized by mortgage notes, and the loan agreements relating to the lines of credit contain various
financial and other covenants which must be maintained until all indebtedness to the financial institution is repaid.
Scheduled Maturities
Scheduled maturities for notes payable outstanding at December 31, 2021 are as follows (in thousands).
2022
2023
2024
2025
2026
Thereafter
$
$
41,714
—
—
150,000
—
200,000
391,714
F-43
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Leases
Hilltop and its subsidiaries lease space, primarily for corporate offices, branch facilities and automated teller machines,
under both operating and finance leases. Certain of the Company’s leases have options to extend, with the longest
extension option being ten years, and some of the Company’s leases include options to terminate within one year. The
Company’s leases contain customary restrictions and covenants. The Company has certain intercompany leases and
subleases between its subsidiaries, and these transactions and balances have been eliminated in consolidation and are not
reflected in the tables and information presented below.
Supplemental balance sheet information related to finance leases is as follows (in thousands).
Finance leases:
Premises and equipment
Accumulated depreciation
Premises and equipment, net
December 31,
2021
December 31,
2020
$
$
7,780
(5,358)
2,422
$
$
7,780
(4,768)
3,012
Operating lease rental cost and finance lease amortization of ROU assets is included within occupancy and equipment,
net in the consolidated statements of operations. Finance lease interest expense is included within other interest expense
in the consolidated statements of operations. The Company does not generally enter into leases which contain variable
payments, other than due to the passage of time. The components of lease costs, including short-term lease costs, are as
follows (in thousands).
Operating lease cost
Less operating lease and sublease income
Net operating lease cost
Finance lease cost:
Amortization of ROU assets
Interest on lease liabilities
Total finance lease cost
2021
Year Ended December 31,
2020
2019
38,862
(1,719)
37,143
590
522
1,112
$
$
$
$
41,903 $
(1,676)
40,227 $
590 $
561
1,151 $
44,331
(2,657)
41,674
590
596
1,186
$
$
$
$
Supplemental cash flow information related to leases is as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Year Ended December 31,
2020
2019
2021
$
$
37,239 $
522
689
31,850 $
561
636
41,615 $
—
11,723 $
—
37,527
587
603
27,055
—
Information regarding the lease terms and discount rates of the Company’s leases is as follows.
December 31, 2021
December 31, 2020
Lease Classification
Operating
Finance
Weighted Average
Remaining Lease Weighted Average Remaining Lease Weighted Average
Term (Years)
Weighted Average
Term (Years)
Discount Rate
Discount Rate
5.9
4.8
3.89 %
4.84 %
5.5
5.6
4.67 %
4.81 %
F-44
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Future minimum lease payments, under lease agreements as of December 31, 2021, are presented below (in thousands).
2022
2023
2024
2025
2026
Thereafter
Total minimum lease payments
Less amount representing interest
Lease liabilities
Operating Leases
Finance Leases
26,608
30,466
22,245
16,141
13,056
38,511
147,027
(16,067)
130,960
$
$
1,241
1,280
1,163
886
813
598
5,981
(1,811)
4,170
$
$
As of December 31, 2021, the Company had additional operating leases that have not yet commenced with aggregate
future minimum lease payments of approximately $0.7 million. These operating leases commenced in January 2022 with
four year lease terms.
16. Junior Subordinated Debentures and Trust Preferred Securities
PCC had four statutory Trusts created for the sole purpose of issuing and selling preferred securities and common
securities, using the resulting proceeds to acquire junior subordinated debentures issued by PCC (the “Debentures”).
Accordingly, the Debentures were the sole assets of the Trusts, and payments under the Debentures were the sole
revenue of the Trusts. All of the common securities are owned by PCC; however, PCC is not the primary beneficiary of
the Trusts. Accordingly, the Trusts are not included in the Company’s consolidated financial statements.
As previously noted, following receipt of regulatory approval, during June, July and August 2021, PCC submitted to the
trustee of each of the Trusts notices to redeem in full outstanding Debentures of $67.0 million issued by PCC, which
resulted in the full redemption to the holders of the associated preferred securities and common securities during 2021.
The Debentures had an original stated term of 30 years with original maturities ranging from July 2031 to
February 2038. The Debentures were callable at PCC’s discretion with a minimum of a 45- to 60- day notice. At
December 31, 2021, PCC had no remaining borrowings associated with the Debentures. The redemptions noted above
were funded from available cash balances held at PCC.
17. Income Taxes
The significant components of the income tax provision are as follows (in thousands).
Year Ended December 31,
2020
2019
2021
Current:
Federal
State
Deferred:
Federal
State
$ 103,396
21,657
125,053
$
97,338 $ 58,562
9,215
19,150
67,777
116,488
$
(4,454) $ 13,325 $ (2,690)
(1,373)
3,258
(2,623)
(4,063)
16,583
(7,077)
$ 133,071 $ 63,714
$ 117,976
F-45
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The income tax provision differs from the amount that would be computed by applying the statutory federal income tax
rate to income before income taxes as a result of the following (in thousands). The applicable corporate federal income
tax rates were 21% for all periods presented.
Computed tax at federal statutory rate
Tax effect of:
Nondeductible expenses
State income taxes
Tax-exempt income, net
Minority interest
Other
2021
$ 105,855
Year Ended December 31,
2020
2019
$ 118,629 $ 59,392
4,057
15,037
(2,347)
(2,436)
(2,190)
$ 117,976
2,304
17,702
(1,706)
(4,587)
729
2,681
6,195
(1,727)
(1,614)
(1,213)
$ 133,071 $ 63,714
The components of the tax effects of temporary differences that give rise to the net deferred tax asset included in other
assets within the consolidated balance sheets are as follows (in thousands).
Deferred tax assets:
Net operating and built-in loss carryforward
Purchase accounting adjustment - loans
Allowance for credit losses
Compensation and benefits
Legal and other reserves
Foreclosed property
Operating lease liabilities
Other
Deferred tax liabilities:
Premises and equipment
Intangible assets
Derivatives
Loan servicing
Operating lease ROU assets
Other
Net deferred tax asset
December 31,
2021
2020
3,599 $
8,299
21,784
26,443
9,146
1,182
32,830
6,168
109,451
20,066
3,325
6,034
21,279
28,469
123
79,296
30,155 $
5,736
11,814
35,542
22,513
7,097
1,913
29,348
9,717
123,680
20,076
4,518
17,688
34,868
24,755
8,015
109,920
13,760
$
$
The Company’s effective tax rate was 23.4%, 23.6% and 22.5% during 2021, 2020 and 2019, respectively. The effective
tax rates for 2021, 2020 and 2019 approximated statutory rates and included the effect of investments in tax-exempt
instruments, offset by nondeductible expenses.
At December 31, 2021, the Company had no net operating loss carryforwards for federal income tax purposes. At
December 31, 2021, the Company had a recognized built-in loss (“RBIL”) carryover of $13.7 million from the
ownership change resulting from the acquisition of SWS Group, Inc. (“SWS Merger”). These RBILs that were
recognized during a five year recognition period before January 1, 2020 are subject to an annual Section 382 limitation.
The RBILs are expected to be fully realized prior to any expiration.
Based on the Company’s evaluation of its deferred tax assets, management determined that no valuation allowance
against its gross deferred tax assets was necessary at December 31, 2021 or 2020.
GAAP requires the measurement of uncertain tax positions. Uncertain tax positions are the difference between a tax
position taken, or expected to be taken, in a tax return and the benefit recognized for accounting purposes. At December
31, 2021 and 2020, the total amount of gross unrecognized tax benefits was $4.9 million and $3.8 million, respectively,
F-46
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
of which $3.8 million and $3.0 million, respectively, if recognized, would favorably impact the Company’s effective tax
rate.
The aggregate changes in gross unrecognized tax benefits, which excludes interest and penalties, are as follows (in
thousands).
Balance, beginning of year
Increases related to tax positions taken during a prior year
Decreases related to tax positions taken during a prior year
Increases related to tax positions taken during the current year
Decreases related to expiration of the statute of limitations
Balance, end of year
2021
Year Ended December 31,
2020
2019
3,778
603
—
1,249
(761)
4,869
$
$
2,808 $
327
—
1,017
(374)
3,778 $
3,056
317
(423)
288
(430)
2,808
$
$
Specific positions that may be resolved include issues involving apportionment and tax credits. At December 31, 2021,
the unrecognized tax benefit is a component of taxes receivable, which is included in other assets within the consolidated
balance sheet.
The Company files income tax returns in U.S. federal and numerous state jurisdictions. The Company is subject to tax
examinations in numerous jurisdictions in the United States until the applicable statute of limitations expires. The
Company is no longer subject to U.S. federal tax examinations for tax years prior to 2018. The Company is open for
various state tax examinations for tax years 2017 and later.
18. Employee Benefits
Hilltop and its subsidiaries have benefit plans that provide for elective deferrals by employees under Section 401(k) of
the Internal Revenue Code. Employee contributions are determined by the level of employee participation and related
salary levels per Internal Revenue Service regulations. Hilltop and its subsidiaries match a portion of employee
contributions based on the amount of eligible employees’ contributions and salaries. The amount charged to operating
expense for these matching contributions totaled $18.5 million, $17.7 million and $15.5 million during 2021, 2020 and
2019, respectively.
In July 2020, pursuant to stockholders’ approval, the Company adopted the Hilltop Holdings Inc. Employee Stock
Purchase Plan (the “ESPP”) to provide a means for eligible employees of the Company to purchase shares of Hilltop
common stock at a discounted price by accumulating funds, normally through payroll deductions and is intended to
qualify under Section 423 of the Internal Revenue Code. Participating employees may purchase shares of common stock
at 90% of the fair market value on the last day of each quarterly offering period. The initial offering period commenced
on January 1, 2021. The amount charged to operating expense related to participant discount totaled $0.8 million during
2021.
Effective upon the completion of the PlainsCapital Merger, the Company recorded a liability associated with separate
retention agreements originally entered into between Hilltop and two executive officers. At both December 31, 2021 and
2020, the recorded liability, including interest, was $2.6 million and related to a single executive officer.
The Bank purchased $15.0 million of flexible premium universal life insurance in 2001 to help finance the annual
expense incurred in providing various employee benefits. At December 31, 2021 and 2020, the carrying value of the
policies included in other assets was $27.4 million and $26.8 million, respectively. During each of 2021, 2020 and 2019,
the Bank recorded income of $0.5 million, $0.5 million and $1.0 million, respectively, related to the policies that was
reported in other noninterest income within the consolidated statement of operations.
Deferred Compensation Plan
As a result of the SWS Merger, the Company assumed a deferred compensation plan (the “SWS Plan”) that allows
former SWS eligible officers and employees to defer a portion of their bonus compensation and commissions. The SWS
Plan matched 15% of the deferrals made by participants up to a predetermined limit through matching contributions that
F-47
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
vest ratably over four years. Pursuant to the terms of the SWS Plan, the trustee periodically purchased the former SWS
common stock in the open market. As a result of the SWS Merger, the former SWS common shares were converted into
Hilltop common stock based on the terms of the merger agreement. No further contributions can be made to this plan.
The assets of the SWS Plan are held in a rabbi trust and primarily include investments in company-owned life insurance
(“COLI”) and Hilltop common stock. These assets are consolidated with those of the Company. Investments in COLI are
carried at the cash surrender value of the insurance policies and recorded in other assets within the consolidated balance
sheet at December 31, 2021 and 2020. Investments in Hilltop common stock, which are carried at cost, and the
corresponding liability related to the deferred compensation plan are presented as components of stockholders’ equity as
employee stock trust and deferred compensation employee stock trust, net, at December 31, 2021 and 2020.
19. Related Party Transactions
Jeremy B. Ford, a director and the President and Chief Executive Officer of Hilltop, is the beneficiary of a trust that
owns a 49% limited partnership interest in Diamond A Financial, L.P., which owned 19.9% of the outstanding Hilltop
common stock at December 31, 2021.
Jeremy B. Ford is the son of Gerald J. Ford. Corey G. Prestidge, Hilltop’s General Counsel and Secretary, is the son-in-
law of Gerald J. Ford. Accordingly, Messrs. Jeremy Ford and Corey Prestidge are brothers-in-law.
In the ordinary course of business, the Bank has granted loans to certain directors, executive officers and their affiliates
(collectively referred to as related parties) totaling $0.6 million at December 31, 2021 and 2020. These loans were made on
substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable
transactions with other unaffiliated persons and do not involve more than normal risk of collectability. For such loans
during 2021, there were no principal additions and payments were de minimis.
At December 31, 2021 and 2020, the Bank held deposits of related parties of $320.3 million and $154.1 million,
respectively.
A related party is the lessor in an operating lease with Hilltop. Hilltop’s minimum payment under the lease is $0.5
million annually through 2028, for an aggregate remaining obligation of $3.8 million at December 31, 2021.
The Bank purchased loans from a company for which a related party served as a director, president and chief executive
officer. At December 31, 2021 and 2020, the outstanding balance of the purchased loans was $0.3 million and $0.5
million, respectively. The loans were purchased with recourse in the ordinary course of business and the related party
had no direct financial interest in the transaction.
Hilltop Plaza Investment
On July 31, 2018, Hillcrest Land LLC purchased approximately 1.7 acres of land in the City of University Park, Texas
for $38.5 million. Hillcrest Land LLC is owned equally between Hilltop Investments I, LLC, a wholly owned entity of
Hilltop, and Diamond Ground, LLC, an affiliate of Mr. Gerald J. Ford. Each of Hilltop Investments I, LLC and Diamond
Ground, LLC contributed $19.3 million to Hillcrest Land LLC to complete the purchase. As the voting rights of Hillcrest
Land LLC are shared equally between the Company and Diamond Ground, LLC, there is no primary beneficiary, and
Diamond Ground, LLC’s interest in Hillcrest Land LLC has been reflected as a noncontrolling interest in the Company’s
consolidated financial statements. Therefore, the Company has consolidated Hillcrest Land LLC under the VIE model
according to the “most-closely associated” test. Trusts for which Jeremy Ford and the wife of Corey Prestidge are a
beneficiary own 10.2% and 10.1%, respectively, of Diamond Ground, LLC.
In connection with the purchase of the land, Hillcrest Land LLC entered into a 99-year ground lease of the land with
three tenants-in-common: SPC Park Plaza Partners LLC (“Park Plaza LLC”), an unaffiliated entity which received an
undivided 50% leasehold interest; HTH Project LLC, a wholly owned subsidiary of Hilltop, which received an
undivided 25% leasehold interest; and Diamond Hillcrest, LLC (“Diamond Hillcrest”), an entity owned by Mr. Gerald J.
Ford, which received an undivided 25% leasehold interest (collectively, the “Co-Owners”). The ground lease was
classified as an operating lease under ASC 840, and the accounting commencement date was determined to be July 31,
2018, the date the land was available to the Co-Owners.
F-48
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Concurrent with the ground lease, the Co-Owners entered into an agreement to purchase the improvements of a mixed-
use project containing a six-story building (“Hilltop Plaza”). HTH Project LLC and Diamond Hillcrest each own an
undivided 25% interest in Hilltop Plaza. Park Plaza LLC owns the remaining undivided 50% interest in Hilltop Plaza.
Park Plaza LLC has agreed to serve as the Co-Owner property manager under the Co-Owners Agreement; however,
certain actions require unanimous approval of all Co-Owners. HTH Project LLC’s undivided interest in Hilltop Plaza is
accounted for as an equity method investment as the tenants-in-common have joint control over decisions regarding
Hilltop Plaza. The investment is included within other assets in the consolidated balance sheets and any income (loss) is
included within other noninterest income in the consolidated statements of operations.
Hilltop and the Bank entered into leases for a significant portion of the total rentable corporate office space in Hilltop
Plaza which serves as the headquarters for both companies. Affiliates of Mr. Gerald J. Ford also entered into leases for
office space in the building. The two separate 129-month office and retail leases of Hilltop and the Bank, respectively,
have combined total base rent of approximately $35 million with the first nine months of rent abated. The accounting
commencement date of both leases was determined to be June 20, 2019, the date the building was delivered in order for
tenant improvement work to commence. The combined operating lease liability, net of lease incentives, recognized
during 2019 as a result of the commencement of these leases was $18.9 million. During 2018, the office and retail leases
were considered under the build-to-suit provisions of ASC 840, and the Company was determined to be the accounting
owner of the project as its affiliate, HTH Project LLC, has an equity investment in the project. At December 31, 2018,
the $27.8 million of costs incurred to date were included within premises and equipment and other liabilities,
respectively, in the consolidated balance sheets. The Company reassessed its accounting ownership of the Hilltop Plaza
assets under construction as of January 1, 2019, under the build-to-suit provisions of the newly adopted ASC 842, Leases
and concluded it was not the accounting owner. As such, the assets and liabilities of the project were derecognized on
January 1, 2019, with the $1.4 million offset representing deferred expenses recognized on the date through
December 31, 2018, recorded as an increase to retained earnings.
All intercompany transactions associated with the Hilltop Plaza investment and the related transactions discussed above
are eliminated in consolidation.
20. Commitments and Contingencies
During 2021, the Bank acted as agent on behalf of certain correspondent banks in the purchase and sale of federal funds.
At December 31, 2021, the Bank did not have any federal funds sold acting as an agent, while there was an aggregate of
$2.5 million at December 31, 2020.
Legal Matters
The Company is subject to loss contingencies related to litigation, claims, investigations and legal and administrative
cases and proceedings arising in the ordinary course of business. The Company evaluates these contingencies based on
information currently available, including advice of counsel. The Company establishes accruals for those matters when a
loss contingency is considered probable and the related amount is reasonably estimable. Any accruals are periodically
reviewed and may be adjusted as circumstances change. A portion of the Company’s exposure with respect to loss
contingencies may be offset by applicable insurance coverage. In determining the amounts of any accruals or estimates
of possible loss contingencies, the Company does not take into account the availability of insurance coverage. When it is
practicable, the Company estimates loss contingencies for possible litigation and claims, whether or not there is an
accrued probable loss. When the Company is able to estimate such probable losses, and when it estimates that it is
reasonably possible it could incur losses in excess of amounts accrued, the Company is required to make a disclosure of
the aggregate estimation. As available information changes, however, the matters for which the Company is able to
estimate, as well as the estimates themselves, will be adjusted accordingly.
Assessments of litigation and claims exposures are difficult due to many factors that involve inherent unpredictability.
Those factors include the following: the varying stages of the proceedings, particularly in the early stages; unspecified,
unsupported, or uncertain damages; damages other than compensatory, such as punitive damages; a matter presenting
meaningful legal uncertainties, including novel issues of law; multiple defendants and jurisdictions; whether discovery
has begun or is complete; whether meaningful settlement discussions have commenced; and whether the claim involves
a class action and if so, how the class is defined. As a result of some of these factors, the Company may be unable to
estimate reasonably possible losses with respect to some or all of the pending and threatened litigation and claims
asserted against the Company.
F-49
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company is involved in information-gathering requests and investigations (both formal and informal), as well as
reviews, examinations and proceedings (collectively, “Inquiries”) by various governmental regulatory agencies, law
enforcement authorities and self-regulatory bodies regarding certain of its businesses, business practices and policies, as
well as the conduct of persons with whom it does business. Additional Inquiries will arise from time to time. In
connection with those Inquiries, the Company receives document requests, subpoenas and other requests for information.
The Inquiries could develop into administrative, civil or criminal proceedings or enforcement actions that could result in
consequences that have a material effect on the Company's consolidated financial position, results of operations or cash
flows as a whole. Such consequences could include adverse judgments, findings, settlements, penalties, fines, orders,
injunctions, restitution, or alterations in the Company’s business practices, and could result in additional expenses and
collateral costs, including reputational damage.
PrimeLending received an investigative inquiry from the United States Attorney for the Western District of Virginia
regarding PrimeLending’s float down option. At this time, the United States Attorney has requested certain materials
with respect to this matter, and PrimeLending is fully cooperating with such requests.
While the final outcome of litigation and claims exposures or of any Inquiries is inherently unpredictable, management
is currently of the opinion that the outcome of pending and threatened litigation and Inquiries will not, except related to
specific matters disclosed above, have a material effect on the Company’s business, consolidated financial position,
results of operations or cash flows as a whole. However, in the event of unexpected future developments, it is reasonably
possible that an adverse outcome in any matter, including the matters discussed above, could be material to the
Company’s business, consolidated financial position, results of operations or cash flows for any particular reporting
period of occurrence.
Indemnification Liability Reserve
The mortgage origination segment may be responsible to agencies, investors, or other parties for errors or omissions
relating to its representations and warranties that each loan sold meets certain requirements, including representations as
to underwriting standards and the validity of certain borrower representations in connection with the loan. If determined to
be at fault, the mortgage origination segment either repurchases the affected loan from or indemnifies the claimant against
loss. The mortgage origination segment has established an indemnification liability reserve for such probable losses.
Generally, the mortgage origination segment first becomes aware that an agency, investor, or other party believes a loss
has been incurred on a sold loan when it receives a written request from the claimant to repurchase the loan or reimburse
the claimant’s losses. Upon completing its review of the claimant’s request, the mortgage origination segment
establishes a specific claims reserve for the loan if it concludes its obligation to the claimant is both probable and
reasonably estimable.
An additional reserve has been established for probable agency, investor or other party losses that may have been
incurred, but not yet reported to the mortgage origination segment based upon a reasonable estimate of such losses.
Factors considered in the calculation of this reserve include, but are not limited to, the total volume of loans sold
exclusive of specific claimant requests, actual claim settlements and the severity of estimated losses resulting from future
claims, and the mortgage origination segment’s history of successfully curing defects identified in claim requests. In
addition, the mortgage origination segment has considered that GNMA, FNMA and FHLMC have imposed certain
restrictions on loans the agencies will accept under a forbearance agreement resulting from the COVID-19 pandemic,
which could increase the magnitude of indemnification losses on these loans.
While the mortgage origination segment’s sales contracts typically include borrower early payment default repurchase
provisions, these provisions have not been a primary driver of claims to date, and therefore, are not a primary factor
considered in the calculation of this reserve.
At December 31, 2021 and 2020, the mortgage origination segment’s indemnification liability reserve totaled $27.4
million and $21.5 million, respectively. The provision for indemnification losses was $10.0 million, $11.2 million, and
$3.1 million during 2021, 2020, and 2019, respectively.
F-50
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following tables provide for a rollforward of claims activity for loans put-back to the mortgage origination segment
based upon an alleged breach of a representation or warranty with respect to a loan sold and related indemnification
liability reserve activity (in thousands).
Balance, beginning of year
Claims made
Claims resolved with no payment
Repurchases
Indemnification payments
Balance, end of year
Balance, beginning of year
Additions for new sales
Repurchases
Early payment defaults
Indemnification payments
Change in reserves for loans sold in prior years
Balance, end of year
Reserve for Indemnification Liability:
Specific claims
Incurred but not reported claims
Total
Representation and Warranty Specific Claims
Activity - Origination Loan Balance
Year Ended December 31,
2020
2019
2021
30,085
26,290
(11,690)
(11,934)
(1,344)
31,407
$
$
32,144 $
17,429
(7,778)
(11,588)
(122)
30,085 $
33,784
20,054
(14,154)
(6,170)
(1,370)
32,144
Indemnification Liability Reserve Activity
Year Ended December 31,
2020
2021
2019
21,531
10,966
(3,559)
(189)
(366)
(959)
27,424
$
$
11,776 $
9,991
(768)
(624)
(39)
1,195
21,531 $
10,701
3,116
(495)
(380)
(352)
(814)
11,776
December 31,
2021
2020
345
27,079
27,424
$
$
961
20,570
21,531
$
$
$
$
$
$
Although management considers the total indemnification liability reserve to be appropriate, there may be changes in the
reserve over time to address incurred losses due to unanticipated adverse changes in the economy and historical loss
patterns, discrete events adversely affecting specific borrowers or industries, and/or actions taken by institutions or
investors. The impact of such matters is considered in the reserving process when probable and estimable.
Other Contingencies
As discussed in Note 18 to the consolidated financial statements, effective upon completion of the PlainsCapital Merger,
Hilltop entered into separate retention agreements with certain executive officers. As of December 31, 2021, a single
retention agreement remains, with an initial term of two years (with automatic one-year renewals at the end of the first
year and each anniversary thereof). This retention agreement provides for severance pay benefits if the executive
officer’s employment is terminated without “cause”.
In addition to this retention agreement, Hilltop and its subsidiaries maintain employment contracts with certain officers
that provide for benefits in the event of a “change in control” as defined in these agreements.
21. Financial Instruments with Off-Balance Sheet Risk
Banking
The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit and standby letters
of credit that involve varying degrees of credit and interest rate risk in excess of the amount recognized in the
consolidated financial statements. Such financial instruments are recorded in the consolidated financial statements when
F-51
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
they are funded or related fees are incurred or received. The contract amounts of those instruments reflect the extent of
involvement (and therefore the exposure to credit loss) the Bank has in particular classes of financial instruments.
Commitments to extend credit are agreements to lend to a customer provided that the terms established in the contract
are met. Commitments generally have fixed expiration dates and may require payment of fees. Because some
commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Standby letters of credit are conditional commitments issued to guarantee the
performance of a customer to a third party. These letters of credit are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in
extending loan commitments to customers.
In the aggregate, the Bank had outstanding unused commitments to extend credit of $2.2 billion at December 31, 2021
and outstanding financial and performance standby letters of credit of $96.3 million at December 31, 2021.
The Bank uses the same credit policies in making commitments and standby letters of credit as it does for loans held for
investment. The amount of collateral obtained, if deemed necessary, in these transactions is based on management’s
credit evaluation of the borrower. Collateral held varies but may include real estate, accounts receivable, marketable
securities, interest-bearing deposit accounts, inventory, and property, plant and equipment.
Broker-Dealer
In the normal course of business, the Hilltop Broker-Dealers execute, settle, and finance various securities transactions
that may expose the Hilltop Broker-Dealers to off-balance sheet risk in the event that a customer or counterparty does
not fulfill its contractual obligations. Examples of such transactions include the sale of securities not yet purchased by
customers or for the accounts of the Hilltop Broker-Dealers, use of derivatives to support certain non-profit housing
organization clients and to hedge changes in the fair value of certain securities, clearing agreements between the Hilltop
Broker-Dealers and various clearinghouses and broker-dealers, secured financing arrangements that involve pledged
securities, and when-issued underwriting and purchase commitments.
22. Stock-Based Compensation
Since 2012, the Company has issued stock-based incentive awards pursuant to the Hilltop Holdings Inc. 2012 Equity
Incentive Plan (the “2012 Plan”). In July 2020, pursuant to stockholders’ approval, the Company adopted the Hilltop
Holdings Inc. 2020 Equity Incentive Plan (the “2020 Plan”). The 2020 Plan serves as successor to the 2012 Plan. The
2012 Plan and the 2020 Plan are referred to collectively as “the Equity Plans.” The Equity Plans provide for the grant of
nonqualified stock options, stock appreciation rights, restricted stock, RSUs, performance awards, dividend equivalent
rights and other awards to employees of the Company, its subsidiaries and outside directors of the Company. Shares
available for grant under the 2012 Plan that were reserved but not issued as of the effective date of the 2020 Plan were
added to the reserves of the 2020 Plan. No additional awards may be made under the 2012 Plan, but the 2012 Plan
remains in effect as to outstanding awards. Outstanding awards under the Equity Plans continue to be subject to the
terms and conditions of the respective Plans. The number of shares authorized for issuance pursuant to awards under the
2020 Plan is 3,650,000 plus any shares that become available upon the forfeiture, expiration, cancellation or settlement
in cash awards outstanding under the 2012 Plan as of April 30, 2020. At December 31, 2021, 2,900,286 shares of
common stock remained available for issuance pursuant to awards granted under the 2020 Plan, excluding shares that
may be delivered pursuant to outstanding awards. Compensation expense related to the Equity Plans was $17.5 million,
$14.6 million and $11.8 million during 2021, 2020 and 2019, respectively.
During 2021, 2020 and 2019, Hilltop granted 17,330, 31,222 and 26,659 shares of common stock, respectively, pursuant
to the Equity Plans to certain non-employee members of the Company’s board of directors for services rendered to the
Company.
F-52
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Restricted Stock Units
The Compensation Committee of the board of directors of the Company issued RSUs to certain employees pursuant to
the Equity Plans.
Certain RSUs are subject to time-based vesting conditions and generally provided for a cliff vest on the third anniversary
of the grant date, while other RSUs provided for vesting based upon the achievement of certain performance goals over a
three-year period subject to service conditions set forth in the award agreements, with associated costs generally
recognized on a straight-line basis over the respective vesting periods. The RSUs are not transferable, and the shares of
common stock issuable upon conversion of vested RSUs may be subject to transfer restrictions for a period of one year
following conversion, subject to certain exceptions. In addition, the applicable RSU award agreements provide for
accelerated vesting under certain conditions.
The following table summarizes information about nonvested RSU activity (shares in thousands).
Balance, December 31, 2018
Granted
Vested/Released
Forfeited
Balance, December 31, 2019
Granted
Vested/Released
Forfeited
Balance, December 31, 2020
Granted
Vested/Released
Forfeited
Balance, December 31, 2021
RSUs
Weighted
Average
Grant Date
Fair Value
Outstanding
1,270
719
(496)
(56)
1,437
777
(350)
(31)
1,833
532
(475)
(21)
1,869
$
$
$
$
$
$
$
$
$
$
$
$
$
22.44
20.02
18.17
24.12
22.64
21.79
26.83
22.38
21.48
32.93
27.63
23.29
23.16
Vested/Released RSUs include an aggregate of 238,414 shares withheld to satisfy employee statutory tax obligations
during 2021, 2020 and 2019.
During 2021, the Compensation Committee of the board of directors of the Company awarded certain executives and
key employees an aggregate of 471,505 RSUs pursuant to the Equity Plans. At December 31, 2021, 316,492 of these
RSUs are subject to time-based vesting conditions and generally cliff vest on the third anniversary of the grant date, and
150,668 of these outstanding RSUs will cliff vest based upon the achievement of certain performance goals over a three-
year period.
At December 31, 2021, in the aggregate, 1,504,910 of the RSUs are subject to time-based vesting conditions and
generally cliff vest on the third anniversary of the grant date, and 364,149 outstanding RSUs cliff vest based upon the
achievement of certain performance goals over a three-year period. At December 31, 2021, unrecognized compensation
expense related to outstanding RSUs of $20.2 million is expected to be recognized over a weighted average period of
1.24 years.
F-53
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
23. Regulatory Matters
Banking and Hilltop
PlainsCapital, which includes the Bank and PrimeLending, and Hilltop are subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a
direct, material effect on the consolidated financial statements. The regulations require PlainsCapital and Hilltop to meet
specific capital adequacy guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. The Company performs reviews of the classification and
calculation of risk-weighted assets to ensure accuracy and compliance with the Basel III regulatory capital requirements
as implemented by the Board of Governors of the Federal Reserve System. The capital classifications are also subject to
qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures
established by regulation to ensure capital adequacy require the companies to maintain minimum amounts and ratios (set
forth in the following table) of Tier 1 capital (as defined in the regulations) to total average assets (as defined), and
minimum ratios of common equity Tier 1, Tier 1 and total capital (as defined) to risk-weighted assets (as defined).
In order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain
discretionary bonus payments to executive officers, Basel III requires banking organizations to maintain a capital
conservation buffer above minimum risk-based capital requirements measured relative to risk-weighted assets.
The following table shows PlainsCapital’s and Hilltop’s actual capital amounts and ratios in accordance with Basel III
compared to the regulatory minimum capital requirements including conservation buffer ratio in effect at the end of the
period (dollars in thousands). Based on actual capital amounts and ratios shown in the following table, PlainsCapital’s
ratios place it in the “well capitalized” (as defined) capital category under regulatory requirements. Actual capital
amounts and ratios as of December 31, 2021 reflect PlainsCapital’s and Hilltop’s decision to elect the transition option
as issued by the federal banking regulatory agencies in March 2020 that permits banking institutions to mitigate the
estimated cumulative regulatory capital effects from CECL over a five-year transitionary period.
December 31, 2021
Amount
Ratio
December 31, 2020
Amount
Ratio
Minimum
Capital
Requirements
Including
Conservation
Buffer
Ratio
To Be Well
Capitalized
Ratio
Tier 1 capital (to average assets):
PlainsCapital
Hilltop
Common equity Tier 1 capital (to risk-
weighted assets):
PlainsCapital
Hilltop
Tier 1 capital (to risk-weighted assets):
PlainsCapital
Hilltop
Total capital (to risk-weighted assets):
PlainsCapital
Hilltop
$ 1,469,695
2,262,356
10.20 % $ 1,385,842
12.58 % 2,111,580
10.44 %
12.64 %
4.0 %
4.0 %
5.0 %
N/A
1,469,695
2,262,356
16.00 % 1,385,842
21.22 % 2,046,580
14.40 %
18.97 %
1,469,695
2,262,356
16.00 % 1,385,842
21.22 % 2,111,580
14.40 %
19.57 %
7.0 %
7.0 %
8.5 %
8.5 %
1,540,100
2,532,008
16.77 % 1,470,364
23.75 % 2,409,684
15.27 %
22.34 %
10.5 %
10.5 %
6.5 %
N/A
8.0 %
N/A
10.0 %
N/A
F-54
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
A reconciliation of equity capital to common equity Tier 1, Tier 1 and total capital (as defined) is as follows (in thousands).
Total equity capital
Add:
Net unrealized holding losses (gains) on securities
available for sale and held in trust
CECL transition adjustment
Deduct:
Goodwill and other disallowed intangible assets
Other
Common equity Tier 1 capital (as defined)
Add: Tier 1 capital
Trust preferred securities
Deduct:
Additional Tier 1 capital deductions
Tier 1 capital (as defined)
Add: Allowable Tier 2 capital
Allowance for credit losses, including unfunded
commitments
Capital instruments
Deduct:
December 31, 2021
December 31, 2020
PlainsCapital
$ 1,721,780
Hilltop
$ 2,522,668
PlainsCapital
Hilltop
$ 1,654,249 $ 2,323,939
10,219
7,864
10,219
8,792
(17,763)
22,905
(17,763)
23,842
(270,168)
—
1,469,695
(279,323)
—
2,262,356
(273,330)
(219)
1,385,842
(283,187)
(251)
2,046,580
—
—
—
65,000
—
1,469,695
—
—
1,385,842
2,262,356
—
2,111,580
91,177
—
91,352
200,000
120,334
—
134,853
200,000
Additional Tier 2 capital deductions
Total capital (as defined)
(20,772)
$ 1,540,100
(21,700)
$ 2,532,008
(35,812)
(36,749)
$ 1,470,364 $ 2,409,684
Broker-Dealer
Pursuant to the net capital requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
Hilltop Securities has elected to determine its net capital requirements using the alternative method. Accordingly, Hilltop
Securities is required to maintain minimum net capital, as defined in Rule 15c3-1 promulgated under the Exchange Act,
equal to the greater of $1,000,000 or 2% of aggregate debit balances, as defined in Rule 15c3-3 promulgated under the
Exchange Act. Additionally, the net capital rule of the NYSE provides that equity capital may not be withdrawn or cash
dividends paid if resulting net capital would be less than 5% of the aggregate debit items. Momentum Independent
Network follows the primary (aggregate indebtedness) method, as defined in Rule 15c3-1 promulgated under the
Exchange Act, which requires the maintenance of the larger of $250,000 or 6-2/3% of aggregate indebtedness.
At December 31, 2021, the net capital position of each of the Hilltop Broker-Dealers was as follows (in thousands).
Net capital
Less: required net capital
Excess net capital
Net capital as a percentage of aggregate debit items
Net capital in excess of 5% aggregate debit items
Hilltop
Securities
Momentum
Independent
Network
3,781
255
3,526
201,734 $
11,620
190,114 $
34.7 %
172,684
$
$
$
Under certain conditions, Hilltop Securities may be required to segregate cash and securities in a special reserve account
for the benefit of customers under Rule 15c3-3 promulgated under the Exchange Act. Assets segregated for regulatory
purposes under the provisions of the Exchange Act are restricted and not available for general corporate purposes. At
December 31, 2021 and 2020, the Hilltop Broker-Dealers held cash of $221.7 million and $290.4 million, respectively,
segregated in special reserve bank accounts for the benefit of customers. The Hilltop Broker-Dealers were not required
to segregate cash or securities in special reserve accounts for the benefit of proprietary accounts of introducing broker-
dealers at December 31, 2021.
F-55
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Mortgage Origination
As a mortgage originator, PrimeLending and its subsidiaries are subject to minimum net worth and liquidity
requirements established by HUD and GNMA, as applicable. On an annual basis, PrimeLending and its subsidiaries
submit audited financial statements to HUD and GNMA, as applicable, documenting their respective compliance with
minimum net worth and liquidity requirements. As of December 31, 2021, PrimeLending and its subsidiaries net worth
and liquidity exceeded the amounts required by HUD and GNMA, as applicable.
24. Stockholders’ Equity
The Bank is subject to certain restrictions on the amount of dividends it may declare without prior regulatory approval.
At December 31, 2021, $257.2 million of its earnings was available for dividend declaration without prior regulatory
approval.
Dividends
During 2021, 2020 and 2019, the Company declared and paid cash dividends of $0.48, $0.36 and $0.32 per common
share, or $39.0 million, $32.5 million and $29.6 million, respectively.
On January 27, 2022, the Company announced that its board of directors declared a quarterly cash dividend of $0.15 per
common share, payable on February 28, 2022, to all common stockholders of record as of the close of business on
February 15, 2022.
Stock Repurchase Programs
The Company’s board of directors has periodically approved stock repurchase programs under which it authorized the
Company to repurchase its outstanding common stock. Under the respective stock repurchase program authorized, the
Company could repurchase shares in open-market purchases or through privately negotiated transactions as permitted
under Rule 10b-18 promulgated under the Exchange Act. The extent to which the Company repurchased its shares and
the timing of such repurchases depended upon market conditions and other corporate considerations, as determined by
Hilltop’s management team. Repurchased shares will be returned to the Company’s pool of authorized but unissued
shares of common stock.
In January 2019, the Hilltop board of directors authorized a stock repurchase program through January 2020, pursuant to
which the Company was authorized to repurchase, in the aggregate, up to $50.0 million of its outstanding common
stock. On August 19, 2019, the Company entered into a Securities Purchase Agreement to purchase 2,175,404 shares of
its common stock from Oak Hill Capital Partners III, L.P., Oak Hill Capital Management Partners III, L.P. and Oak Hill
Capital Management, LLC (collectively, “Oak Hill Capital”). The Hilltop board of directors, other than Messrs. J. Taylor
Crandall and Gerald J. Ford, considered and approved the purchase of the shares of Hilltop common stock from Oak Hill
Capital. Hilltop director J. Taylor Crandall is a founding Managing Partner of Oak Hill Capital Management, LLC. The
purchase was consummated on August 20, 2019 at a purchase price of $48.4 million, or $22.25 per share. The purchase
price per share was determined by the weighted average of the closing prices of Hilltop common stock as reported by the
New York Stock Exchange for each trading day commencing on August 12, 2019 and ending on August 16, 2019. The
repurchase of shares by Hilltop from Oak Hill Capital fully utilized all remaining availability of the stock repurchase
program previously authorized in January 2019.
During 2019, the Company paid $73.4 million to repurchase an aggregate of 3,390,247 shares of common stock at an
average price of $21.64 per share. These amounts are inclusive of the repurchase of shares by Hilltop from Oak Hill
Capital discussed above. This stock repurchase program expired in January 2020. The purchases were funded from
available cash balances.
In January 2020, the Hilltop board of directors authorized a new stock repurchase program through January 2021,
pursuant to which the Company is authorized to repurchase, in the aggregate, up to $75.0 million of its outstanding
common stock, inclusive of repurchases to offset dilution related to grants of stock-based compensation. As previously
announced on April 30, 2020, in light of the uncertain outlook for 2020 due to the COVID-19 pandemic, Hilltop’s board
of directors suspended its stock repurchase program. During 2020, prior to its suspension, the Company paid $15.2
F-56
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
million to repurchase an aggregate of 720,901 shares of common stock at an average price of $21.13 per share associated
with the stock repurchase program.
In January 2021, the Hilltop board of directors authorized a new stock repurchase program through January 2022,
pursuant to which the Company was originally authorized to repurchase, in the aggregate, up to $75.0 million of its
outstanding common stock. In July 2021, the Hilltop board of directors authorized an increase to the aggregate amount
of common stock the Company may repurchase under this program by $75.0 million to $150.0 million. Then, in
October 2021, the Hilltop board of directors authorized an increase to the aggregate amount of common stock the
Company may repurchase under this program by $50.0 million to $200.0 million, which is inclusive of repurchases to
offset dilution related to grants of stock-based compensation. During 2021, the Company paid $123.6 million to
repurchase an aggregate of 3,632,482 shares of common stock at an average price of $34.01 per share.
In January 2022, the Hilltop board of directors authorized a new stock repurchase program through January 2023,
pursuant to which the Company is authorized to repurchase, in the aggregate, up to $100.0 million of its outstanding
common stock, inclusive of repurchases to offset dilution related to grants of stock-based compensation.
Tender Offer
On September 23, 2020, the Company announced the commencement of a modified “Dutch auction” tender offer to
purchase shares of its common stock for an aggregate cash purchase price up to $350 million. On November 17, 2020,
the Company completed its tender offer, repurchasing 8,058,947 shares of outstanding common stock at a price of
$24.00 per share for a total of $193.4 million excluding fees and expenses. The Company funded the tender offer with
cash on hand.
25. Other Noninterest Income and Expense
The following table shows the components of other noninterest income and expense (in thousands).
Other noninterest income:
Net gains from Hilltop Broker-Dealer structured product and
derivative activities
Net gain from trading securities portfolio
Service charges on depositor accounts
Trust fees
Other
Other noninterest expense:
Software and information technology
Mortgage origination and servicing
Brokerage commissions and fees
Unreimbursed loan closing costs
Business development
Travel, meals and entertainment
Amortization of intangible assets
Funding fees
Office supplies
Other
Year Ended December 31,
2020
2019
2021
$
$
$
$
48,816
26,353
18,081
10,998
23,786
128,034
68,105
35,421
25,826
20,458
11,998
7,646
5,081
4,768
3,469
42,519
225,291
$
$
$
$
81,111 $
121,983
14,845
9,804
15,862
243,605 $
56,872 $
27,808
24,113
21,696
10,190
4,804
6,301
4,461
3,953
64,560
224,758 $
129,571
20,521
15,170
10,255
10,833
186,350
50,751
19,892
20,039
16,784
12,940
12,160
7,567
5,393
4,809
43,051
193,386
F-57
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
26. Derivative Financial Instruments
The Company uses various derivative financial instruments to mitigate interest rate risk. The Bank’s interest rate risk
management strategy involves effectively managing the re-pricing characteristics of certain assets and liabilities to
mitigate potential adverse impacts from changes in interest rates on the Bank’s net interest margin. Additionally, the
Bank manages variability of cash flows associated with its variable rate debt in interest-related cash outflows with
interest rate swap contracts. PrimeLending has interest rate risk relative to interest rate lock commitments (“IRLCs”) and
its inventory of mortgage loans held for sale. PrimeLending is exposed to such interest rate risk from the time an IRLC is
made to an applicant to the time the related mortgage loan is sold. To mitigate interest rate risk, PrimeLending executes
forward commitments to sell mortgage-backed securities (“MBSs”) and Eurodollar futures. Additionally, PrimeLending
has interest rate risk relative to its MSR asset and uses derivative instruments, including interest rate swaps and U.S.
Treasury bond futures and options, to hedge this risk. The Hilltop Broker-Dealers use forward commitments to both
purchase and sell MBSs to facilitate customer transactions and as a means to hedge related exposure to interest rate risk
in certain inventory positions. Additionally, Hilltop Securities uses various derivative instruments, including U.S.
Treasury bond futures and options, Eurodollar futures, credit default swaps and municipal market data, or MMD, rate
locks, to hedge changes in the fair value of its securities.
Non-Hedging Derivative Instruments and the Fair Value Option
As discussed in Note 4 to the consolidated financial statements, the Company has elected to measure substantially all
mortgage loans held for sale at fair value under the provisions of the Fair Value Option. The election provides the
opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently
without applying hedge accounting provisions. The fair values of PrimeLending’s IRLCs and forward commitments are
recorded in other assets or other liabilities, as appropriate, and changes in the fair values of these derivative instruments
are recorded as a component of net gains from sale of loans and other mortgage production income. These changes in
fair value are attributable to changes in the volume of IRLCs, mortgage loans held for sale, commitments to purchase
and sell MBSs and MSR assets, and changes in market interest rates. Changes in market interest rates also conversely
affect the value of PrimeLending’s mortgage loans held for sale and its MSR asset, which are measured at fair value
under the Fair Value Option. The effect of the change in market interest rates on PrimeLending’s loans held for sale and
MSR asset is discussed in Note 11 to the consolidated financial statements. The fair values of the Hilltop Broker-
Dealers’ and the Bank’s derivative instruments are recorded in other assets or other liabilities, as appropriate. Changes in
the fair value of derivatives are presented in the following table (in thousands).
Increase (decrease) in fair value of derivatives during year:
PrimeLending
Hilltop Broker-Dealers
Bank
Hedging Derivative Instruments
Year Ended December 31,
2021
2020
2019
$ (22,170)
(19,884)
43
$ 33,714 $ 8,550
(3,085)
(148)
3,969
(7)
The Company has entered into interest rate swap contracts to manage the exposure to changes in fair value associated with
certain available for sale fixed rate collateralized mortgage backed securities and fixed rate loans held for investment
attributable to changes in the designated benchmark interest rate. Certain of these fair value hedges have been designated as
a last-of-layer hedge, which provides the Company the ability to execute a fair value hedge of the interest rate risk
associated with a portfolio of similar prepayable assets whereby the last dollar amount estimated to remain in the portfolio
of assets is identified as the hedged item. Additionally, the Company has outstanding interest rate swap contracts designated
as cash flow hedges and utilized to manage the variability of cash flows associated with its variable rate borrowings.
Under each of its interest rate swap contracts designated as hedges, the Company receives a floating rate and pays a fixed
rate on the outstanding notional amount. The Company assesses the hedge effectiveness both at the onset of the hedge and
at regular intervals throughout the life of the derivative. To the extent that the derivative instruments are highly effective
in offsetting the variability of the hedged cash flows or fair value, changes in the fair value of the derivative are included
as a component of other comprehensive loss on our consolidated balance sheets. Although the Company has determined at
the onset of the hedges that the derivative instruments will be highly effective hedges throughout the term of the contract,
any portion of derivative instruments subsequently determined to be ineffective will be recognized in earnings.
F-58
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Derivative positions are presented in the following table (in thousands).
December 31, 2021
Notional
Amount
Estimated
Fair Value
December 31, 2020
Notional
Amount
Estimated
Fair Value
Derivative instruments (not designated as hedges):
IRLCs
Commitments to purchase MBSs
Commitments to sell MBSs
Interest rate swaps
U.S. Treasury bond futures and options (1)
Eurodollar and other futures (1)
Credit default swaps
Derivative instruments (designated as hedges):
$ 1,283,152
1,575,264
3,314,173
68,413
247,800
2,061,800
7,000
$
25,489
(674)
(355)
(1,949)
$ 2,470,013 $
2,478,041
6,141,079
43,786
225,400
—
—
76,048
22,311
(40,621)
(2,196)
—
—
—
—
—
(15)
Interest rate swaps designated as cash flow hedges
Interest rate swaps designated as fair value hedges (2)
$
190,000
221,232
$
603
3,207
$
105,000 $
60,618
(3,112)
(130)
(1)
(2)
Changes in the fair value of these contracts are settled daily with the respective counterparties of PrimeLending and the Hilltop Broker-Dealers.
The Company designated $221.2 million and $60.6 million as the hedged amount (from a closed portfolio of prepayable available for sale
securities and loans held for investment with a carrying value of $218.0 million and $60.7 million as of December 31, 2021 and 2020,
respectively), of which, a subset of these hedges are in last-of-layer hedging relationships. The cumulative basis adjustment included in the
carrying value of the hedged items totaled $3.2 million and $0.1 million as of December 31, 2021 and 2020, respectively.
PrimeLending had advanced cash collateral totaling $3.7 million and $26.1 million to offset net liability positions on its
commitments to sell MBSs at December 31, 2021 and 2020, respectively. In addition, PrimeLending and the Hilltop
Broker-Dealers had advanced cash collateral totaling $4.2 million and $2.7 million on various derivative instruments at
December 31, 2021 and 2020, respectively. The advanced cash collateral amounts are included in other assets within the
consolidated balance sheets.
27. Balance Sheet Offsetting
Certain financial instruments, including resale and repurchase agreements, securities lending arrangements and
derivatives, may be eligible for offset in the consolidated balance sheets and/or subject to master netting arrangements or
similar agreements. The following tables present the assets and liabilities subject to enforceable master netting
arrangements, repurchase agreements, or similar agreements with offsetting rights (in thousands).
Gross Amounts Gross Amounts
of Recognized
Assets
Offset in the
Balance Sheet
Net Amounts
of Assets
Presented in the
Balance Sheet
Gross Amounts Not Offset in
the Balance Sheet
Financial
Instruments
Cash
Collateral
Pledged
Net
Amount
December 31, 2021
Securities borrowed:
Institutional counterparties
$
1,518,372
$
— $
1,518,372
$
(1,445,590) $
—
$
72,782
118,262
—
118,262
(118,262)
—
—
Reverse repurchase agreements:
Institutional counterparties
Forward MBS derivatives:
Institutional counterparties
December 31, 2020
Securities borrowed:
2,955
1,639,589
$
Institutional counterparties
$
1,338,855
Reverse repurchase agreements:
Institutional counterparties
Forward MBS derivatives:
Institutional counterparties
80,319
22,311
1,441,485
$
$
$
$
(1,773)
(1,773)
$
1,182
1,637,816
— $
1,338,855
—
80,319
—
— $
22,311
1,441,485
$
$
$
(744)
(1,564,596) $
—
—
$
438
73,220
(1,273,955) $
—
$
64,900
(79,925)
—
394
(22,311)
(1,376,191) $
—
—
$
—
65,294
F-59
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Net Amounts
Gross Amounts Gross Amounts of Liabilities
of Recognized
Liabilities
Offset in the
Balance Sheet
Presented in the
Balance Sheet
Financial
Instruments
Cash
Collateral
Pledged
Net
Amount
Gross Amounts Not Offset in
the Balance Sheet
December 31, 2021
Securities loaned:
Institutional counterparties
$
1,432,196
$
— $
1,432,196
$
(1,359,850) $
— $
72,346
Interest rate swaps:
Institutional counterparties
Credit default swaps:
Institutional counterparties
Repurchase agreements:
Institutional counterparties
Forward MBS derivatives:
Institutional counterparties
1,949
15
191,483
2,211
1,627,854
$
December 31, 2020
Securities loaned:
Institutional counterparties
$
1,245,066
—
—
—
1,949
(1,919)
15
(15)
191,483
(205,734)
—
—
—
30
—
(14,251)
$
$
—
— $
2,211
1,627,854
— $
1,245,066
$
$
(2,211)
(1,569,729) $
—
— $
—
58,125
(1,179,090) $
— $
65,976
Interest rate swaps:
Institutional counterparties
Repurchase agreements:
Institutional counterparties
Forward MBS derivatives:
Institutional counterparties
Secured Borrowing Arrangements
2,196
237,856
—
—
2,196
(2,123)
237,856
(237,856)
—
—
73
—
40,741
1,525,859
$
$
(120)
(120)
$
40,621
1,525,739
$
(12,670)
(1,431,739) $
—
— $
27,951
94,000
Secured Borrowings (Repurchase Agreements) — The Company participates in transactions involving securities sold
under repurchase agreements, which are secured borrowings and generally mature one to ninety days from the
transaction date or involve arrangements with no definite termination date. Securities sold under repurchase agreements
are reflected at the amount of cash received in connection with the transactions. The Company may be required to
provide additional collateral based on the fair value of the underlying securities, which is monitored on a daily basis.
Securities Lending Activities — The Company’s securities lending activities include lending securities for other
broker-dealers, lending institutions and its own clearing and retail operations. These activities involve lending securities
to other broker-dealers to cover short sales, to complete transactions in which there has been a failure to deliver
securities by the required settlement date and as a conduit for financing activities.
When lending securities, the Company receives cash or similar collateral and generally pays interest (based on the
amount of cash deposited) to the other party to the transaction. Securities lending transactions are executed pursuant to
written agreements with counterparties that generally require securities loaned to be marked-to-market on a daily basis.
The Company receives collateral in the form of cash in an amount generally in excess of the fair value of securities
loaned. The Company monitors the fair value of securities loaned on a daily basis, with additional collateral obtained or
refunded, as necessary. Collateral adjustments are made on a daily basis through the facilities of various clearinghouses.
The Company is a principal in these securities lending transactions and is liable for losses in the event of a failure of any
other party to honor its contractual obligation. Management sets credit limits with each counterparty and reviews these
limits regularly to monitor the risk level with each counterparty. The Company is subject to credit risk through its
securities lending activities if securities prices decline rapidly because the value of the Company’s collateral could fall
below the amount of the indebtedness it secures. In rapidly appreciating markets, credit risk increases due to short
positions. The Company’s securities lending business subjects the Company to credit risk if a counterparty fails to
perform or if collateral securing its obligations is insufficient. In securities transactions, the Company is subject to credit
risk during the period between the execution of a trade and the settlement by the customer.
F-60
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following tables present the remaining contractual maturities of repurchase agreement and securities lending
transactions accounted for as secured borrowings (in thousands). The Company had no repurchase-to-maturity
transactions outstanding at both December 31, 2021 and 2020.
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above
Amount related to agreements not included in offsetting disclosure above
December 31, 2021
Repurchase agreement transactions:
Asset-backed securities
Securities lending transactions:
Corporate securities
Equity securities
Total
December 31, 2020
Repurchase agreement transactions:
Asset-backed securities
Securities lending transactions:
Corporate securities
Equity securities
Total
Overnight and
Continuous
Up to 30 Days
30-90 Days
Greater Than
90 Days
Total
Remaining Contractual Maturities
93,651
—
86,357
11,475
191,483
113
1,432,083
1,525,847
$
$
—
—
— $
—
—
86,357 $
—
—
11,475
113
1,432,083
1,623,679
1,623,679
—
$
$
$
Overnight and
Continuous
Up to 30 Days
30-90 Days
Greater Than
90 Days
Total
Remaining Contractual Maturities
110,831
$
— $
127,025 $
—
$
237,856
$
$
113
1,244,953
1,355,897
$
—
—
— $
—
—
127,025 $
—
—
—
$
$
$
113
1,244,953
1,482,922
1,482,922
—
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above
Amount related to agreements not included in offsetting disclosure above
28. Broker-Dealer and Clearing Organization Receivables and Payables
Broker-dealer and clearing organization receivables and payables consisted of the following (in thousands).
Receivables:
Securities borrowed
Securities failed to deliver
Trades in process of settlement
Other
Payables:
Securities loaned
Correspondents
Securities failed to receive
Trades in process of settlement
Other
December 31,
2021
2020
$
$
$
$
1,518,372
5,664
144,773
4,137
1,672,946
1,432,196
20,571
18,808
—
5,725
1,477,300
$
$
$
$
1,338,855
58,244
—
7,628
1,404,727
1,245,066
33,547
61,589
21,765
6,406
1,368,373
29. Segment and Related Information
Following the sale of NLC on June 30, 2020, the Company has two primary business units within continuing operations,
PCC (banking and mortgage origination) and Securities Holdings (broker-dealer). Under GAAP, the Company’s
continuing operations business units are comprised of three reportable business segments organized primarily by the core
products offered to the segments’ respective customers: banking, broker-dealer and mortgage origination. These
segments reflect the manner in which operations are managed and the criteria used by the chief operating decision
maker, the Company’s President and Chief Executive Officer, to evaluate segment performance, develop strategy and
allocate resources.
F-61
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The banking segment includes the operations of the Bank. The broker-dealer segment includes the operations of
Securities Holdings, and the mortgage origination segment is composed of PrimeLending.
As discussed in Note 3 to the consolidated financial statements, during the first quarter of 2020, management had
determined that the insurance segment met the criteria to be presented as discontinued operations. On June 30, 2020,
Hilltop completed the sale of NLC, which comprised the operations of the former insurance segment. As a result,
insurance segment results have been presented as discontinued operations in the consolidated financial statements. There
was no income from discontinued operations before taxes during 2021, while income from discontinued operations
before taxes was $38.9 million and $17.6 million during 2020 and 2019, respectively.
Corporate includes certain activities not allocated to specific business segments. These activities include holding
company financing and investing activities, merchant banking investment opportunities and management and
administrative services to support the overall operations of the Company.
Balance sheet amounts not discussed previously and the elimination of intercompany transactions are included in “All
Other and Eliminations.” The following tables present certain information about continuing operations reportable
business segment revenues, operating results, goodwill and assets (in thousands).
Year Ended December 31, 2021
Net interest income (expense)
Provision for (reversal of) credit losses
Noninterest income
Noninterest expense
Income (loss) from continuing operations before taxes
Year Ended December 31, 2020
Net interest income (expense)
Provision for (reversal of) credit losses
Noninterest income
Noninterest expense
Income (loss) from continuing operations before taxes
Year Ended December 31, 2019
Net interest income (expense)
Provision for (reversal of) credit losses
Noninterest income
Noninterest expense
Income (loss) from continuing operations before taxes
Banking
406,524
(58,175)
45,113
226,915
282,897
Broker-Dealer
43,296
$
(38)
381,125
380,798
43,661
$
Banking
390,871
96,326
41,376
232,447
103,474
Broker-Dealer
39,912
$
165
491,355
415,463
115,639
$
Banking
379,258
7,280
41,753
231,524
182,207
Broker-Dealer
51,308
$
(74)
404,411
366,031
89,762
$
$
$
$
$
$
$
$
$
$
$
$
Mortgage
Origination
Corporate
(20,400) $
—
986,990
731,056
235,534
$
All Other and
Eliminations
10,801
—
(12,086)
(1,878)
593
(17,239) $
—
9,133
50,507
(58,613) $
Continuing
Operations
422,982
(58,213)
1,410,275
1,387,398
504,072
$
$
Mortgage
Origination
Corporate
(10,489) $
—
1,172,450
753,917
408,044
$
All Other and Continuing
Operations
Eliminations
424,166
18,064
96,491
—
1,690,480
(18,646)
1,453,803
(1,064)
564,352
482
(14,192) $
—
3,945
53,040
(63,287) $
$
$
Corporate
Mortgage
Origination
$
(6,273) $
—
634,992
563,998
64,721
$
All Other and Continuing
Operations
Eliminations
438,979
20,227
7,206
—
1,062,817
(20,443)
1,211,889
(632)
282,701
416
(5,541) $
—
2,104
50,968
(54,405) $
$
$
December 31, 2021
Goodwill
Total assets
December 31, 2020
Goodwill
Total assets
Banking
Broker-Dealer
Mortgage
Origination
Corporate
All Other and Continuing
Operations
Eliminations
$
247,368
$
14,944,249
$
247,368
$
13,338,930
$
$
$
$
7,008
3,673,346
7,008
3,196,346
$
$
$
$
13,071
2,207,822
13,071
3,285,005
$
$
$
$
— $
— $
267,447
2,940,670 $
(5,077,007) $
18,689,080
— $
— $
267,447
2,823,374 $
(5,699,391) $
16,944,264
F-62
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
30. Earnings per Common Share
The following table presents the computation of basic and diluted earnings per common share (in thousands, except per
share data).
Basic earnings per share:
Income from continuing operations
Income from discontinued operations
Income attributable to Hilltop
Weighted average shares outstanding - basic
Basic earnings per common share:
Income from continuing operations
Income from discontinued operations
Diluted earnings per share:
Income from continuing operations
Income from discontinued operations
Income attributable to Hilltop
Weighted average shares outstanding - basic
Effect of potentially dilutive securities
Weighted average shares outstanding - diluted
Diluted earnings per common share:
Income from continuing operations
Income from discontinued operations
31. Financial Statements of Parent
$
$
$
$
$
$
Year Ended December 31,
2020
2019
2021
374,495
—
374,495
$
$
409,440 $
38,396
447,836 $
211,301
13,990
225,291
80,708
89,280
92,345
$
$
$
$
4.64
—
4.64
374,495
—
374,495
80,708
465
81,173
4.59 $
0.43
5.02 $
409,440 $
38,396
447,836 $
89,280
24
89,304
2.29
0.15
2.44
211,301
13,990
225,291
92,345
49
92,394
$
$
$
4.61
—
4.61 $
4.58 $
0.43
5.01 $
2.29
0.15
2.44
The following tables present the condensed combined financial statements of the Company’s bank holding company
entities, Hilltop and PCC. The tables also include the corporate activities associated with Hilltop Opportunity Partners
LLC and the Hilltop Plaza Entities (in thousands). Investments in subsidiaries are determined using the equity method of
accounting.
Condensed Combined Statements of Operations and Comprehensive Income
Dividends from bank subsidiaries
Dividends from nonbank subsidiaries
Investment income
Interest expense
Other income
General and administrative expense
Income before income taxes and equity in undistributed
earnings of subsidiaries activity
Income tax benefit
Equity in undistributed earnings of subsidiaries
Net income
Other comprehensive income (loss), net
Comprehensive income
$
$
$
F-63
2021
295,000
81,675
4,322
21,561
9,070
50,507
$
Year Ended December 31,
2020
249,771 $
56,150
4,102
18,294
45,887
58,130
317,999
(14,065)
54,032
386,096
(27,982)
358,114
$
$
279,486
(13,897)
176,294
469,677 $
6,344
476,021 $
2019
143,000
36,950
5,933
11,474
2,221
50,968
125,662
(12,706)
94,609
232,977
20,046
253,023
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Condensed Combined Balance Sheets
Assets:
Cash and cash equivalents
Investment in subsidiaries:
Bank subsidiaries
Nonbank subsidiaries
Other assets
Total assets
Liabilities and Stockholders’ Equity:
Accounts payable and accrued expenses
Notes payable
Stockholders’ equity
Total liabilities and stockholders’ equity
Condensed Combined Statements of Cash Flows
2021
December 31,
2020
2019
$
$
$
$
531,260
$
478,826 $
116,471
1,721,780
409,835
277,795
2,940,670
25,762
369,618
2,545,290
2,940,670
$
$
$
1,654,249
453,847
236,452
2,823,374 $
64,635 $
412,764
2,345,975
2,823,374 $
1,523,549
533,844
219,740
2,393,604
53,418
215,780
2,124,406
2,393,604
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiaries
Net realized gains on equity investments
Net realized gains on disposal of discontinued operations
Deferred income taxes
Other, net
Net cash provided by operating activities
Investing Activities:
Advancement to nonbank subsidiaries
Repayment of advances to/investments in nonbank subsidiaries
Purchases of equity investments
Purchases of premises and equipment and other
Proceeds from sales of equity investments
Proceeds from sale of discontinued operations
Net cash provided by (used in) investing activities
Financing Activities:
Payments to repurchase common stock
Proceeds from issuance of notes payable
Payments on junior subordinated debentures
Dividends paid on common stock
Net cash contributed from (to) noncontrolling interest
Other, net
Net cash used in financing activities
2021
Year Ended December 31,
2020
2019
$
386,096
$
469,677 $
232,977
(54,032)
(926)
—
(3,049)
14,725
342,814
(176,294)
—
(41,901)
4,432
37,465
293,379
(75,000)
5,762
—
(2,154)
12,292
—
(59,100)
—
—
(29,365)
(12,547)
—
154,963
113,051
(123,631)
—
(67,012)
(38,978)
(909)
(750)
(231,280)
(208,664)
196,657
—
(32,524)
825
(369)
(44,075)
(94,609)
—
—
(123)
44,943
183,188
—
—
—
(17,302)
—
—
(17,302)
(73,385)
—
—
(29,627)
100
(908)
(103,820)
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
52,434
478,826
531,260
$
362,355
116,471
478,826 $
62,066
54,405
116,471
$
F-64
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
32. Selected Quarterly Financial Information (Unaudited)
Selected quarterly financial information is summarized as follows (in thousands, except per share data).
Year Ended December 31, 2021
Interest income
Interest expense
Net interest income
Provision for (reversal of) credit losses
Noninterest income
Noninterest expense
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income
Less: Net income attributable to noncontrolling interest
Income attributable to Hilltop
Fourth
Quarter
$ 123,054
18,760
104,294
(18,565)
284,846
322,194
85,511
20,715
64,796
—
64,796
2,612
62,184
$
Third
Quarter
$ 125,178
20,088
105,090
(5,819)
367,945
355,174
123,680
28,257
95,423
—
95,423
2,517
92,906
$
Second
Quarter
$ 134,818 $ 146,923 $
Quarter
First
26,902
107,916
(28,720)
339,899
343,368
133,167
31,234
101,933
—
101,933
2,873
41,241
105,682
(5,109)
417,585
366,662
161,714
37,770
123,944
—
123,944
3,599
$
99,060 $ 120,345 $
Full
Year
529,973
106,991
422,982
(58,213)
1,410,275
1,387,398
504,072
117,976
386,096
—
386,096
11,601
374,495
Earnings per common share:
Basic:
Earnings from continuing operations
Earnings from discontinued operations
Diluted:
Earnings from continuing operations
Earnings from discontinued operations
Cash dividends declared per common share
Interest income
Interest expense
Net interest income
Provision for (reversal of) credit losses
Noninterest income
Noninterest expense
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income
Less: Net income attributable to noncontrolling interest
Income attributable to Hilltop
Earnings per common share:
Basic:
Earnings from continuing operations
Earnings from discontinued operations
Diluted:
Earnings from continuing operations
Earnings from discontinued operations
Cash dividends declared per common share
$
$
$
$
$
0.79
—
0.79
0.78
—
0.78
0.12
$
$
$
$
$
1.16
—
1.16
1.15
—
1.15
0.12
$
$
$
$
$
1.21 $
—
1.21 $
1.21 $
—
1.21 $
1.46 $
—
1.46 $
1.46 $
—
1.46 $
0.12 $
0.12 $
4.64
—
4.64
4.61
—
4.61
0.48
Year Ended December 31, 2020
Fourth
Quarter
$ 136,861
29,489
107,372
(3,482)
447,931
402,348
156,437
39,295
117,142
3,734
120,876
4,431
$ 116,445
Third
Quarter
$ 129,828
27,928
101,900
(602)
502,711
399,345
205,868
46,820
159,048
736
159,784
6,505
$ 153,279
Second
Quarter
First
Quarter
$ 134,931 $ 144,875 $
30,373
104,558
66,026
468,125
370,209
136,448
31,808
104,640
30,775
135,415
6,939
$ 128,476 $
34,539
110,336
34,549
271,713
281,901
65,599
15,148
50,451
3,151
53,602
3,966
49,636 $
Full
Year
546,495
122,329
424,166
96,491
1,690,480
1,453,803
564,352
133,071
431,281
38,396
469,677
21,841
447,836
$
$
$
$
$
1.31
0.04
1.35
1.30
0.05
1.35
0.09
$
$
$
$
$
1.69
0.01
1.70
1.69
0.01
1.70
0.09
$
$
$
$
$
1.08 $
0.34
1.42 $
1.08 $
0.34
1.42 $
0.51 $
0.04
0.55 $
0.51 $
0.04
0.55 $
0.09 $
0.09 $
4.59
0.43
5.02
4.58
0.43
5.01
0.36
F-65
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C O R P O R A T E I N F O R M A T I O N
Corporate Headquarters
6565 Hilllcrest Avenue
Dallas, Texas 75205
Telephone: (214) 855-2177
Facsimile: (214) 855-2173
www.hilltop-holdings.com
Transfer Agent and Registrar
American Stock Transfer & Trust Company
New York, New York
Toll free: (800) 937-5449
Telephone: (718) 921-8124
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Dallas, Texas
Stock Symbol
Common Stock: HTH
New York Stock Exchange
Available Information
Hilltop Holdings Inc. makes available, free of charge,
its annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, press
releases, the Code of Business Conduct and Ethics and
other company information. Such information will be
furnished upon written request to:
Hilltop Holdings Inc.
6565 Hillcrest Avenue
Dallas, Texas 75205
Attn: Investor Relations
This information also is available on our website,
www.hilltop-holdings.com. Reports we
file with
the Securities and Exchange Commission also are
available at www.sec.gov.
Board of Directors*
Gerald J. Ford – Chairman
Rhodes R. Bobbitt
Tracy A. Bolt
J. Taylor Crandall
Charles R. Cummings
Hill A. Feinberg
Jeremy B. Ford
J. Markham Green
William T. Hill, Jr.
Charlotte Jones
Lee Lewis
Andrew J. Littlefair
W. Robert Nichols, III
Thomas C. Nichols
Kenneth D. Russell
A. Haag Sherman
Jonathan S. Sobel
Robert C. Taylor, Jr.
Carl B. Webb
Executive Officers
Jeremy B. Ford
President and Chief Executive Officer
William B. Furr
Executive Vice President, Chief Financial Officer
Corey G. Prestidge
Executive Vice President, General Counsel and Secretary
Darren E. Parmenter
Executive Vice President, Chief Administrative Officer
Keith E. Bornemann
Executive Vice President, Chief Accounting Officer
Jerry L. Schaffner
President and Chief Executive Officer of PlainsCapital Bank
Stephen Thompson
President and Chief Executive Officer of PrimeLending
M. Bradley Winges
President and Chief Executive Officer of HilltopSecurities
*With the exception of Mr. Cummings, who is not standing for reelection, biographical information for directors is contained under the heading “Proposal One – Election of
Directors – Nominees for Election as Directors” beginning on page 5 of the Proxy Statement.
6565 Hillcrest Avenue
Dallas, Texas 75205
Telephone: (214) 855-2177
Facsimile: (214) 855-2173
© 2022 Hilltop Holdings Inc. HTH8894780608