Table of Contents
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, 2024
☐
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
84-1477939
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
6565 Hillcrest Avenue
Dallas, TX
75205
(Address of principal executive offices)
(Zip Code)
(214) 855-2177
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
Common Stock, par value $0.01 per share
HTH
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.
þ 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 þ 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.
þ 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).
þ 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
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant 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. þ
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. þ
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
☐ Yes þ 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 28, 2024, was approximately $1.45 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 12, 2025 was 64,864,275.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant’s definitive Proxy Statement pertaining to the 2025 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.
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2
TABLE OF CONTENTS
MARKET AND INDUSTRY DATA AND FORECASTS
FORWARD-LOOKING STATEMENTS
PART I
Item 1.
Business
5
Item 1A.
Risk Factors
28
Item 1B.
Unresolved Staff Comments
51
Item 1C.
Cybersecurity
52
Item 2.
Properties
54
Item 3.
Legal Proceedings
55
Item 4.
Mine Safety Disclosures
55
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
56
Item 6.
[Reserved]
57
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
57
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
109
Item 8.
Financial Statements and Supplementary Data
113
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
113
Item 9A.
Controls and Procedures
113
Item 9B.
Other Information
114
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
114
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
115
Item 11.
Executive Compensation
115
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
115
Item 13.
Certain Relationships and Related Transactions, and Director Independence
115
Item 14.
Principal Accounting Fees and Services
115
PART IV
Item 15.
Exhibits, Financial Statement Schedules
116
Item 16.
Form 10-K Summary
116
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.
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3
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.
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, information technology expenses, cybersecurity incidents, capital levels, mortgage servicing rights (“MSR”) assets,
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, expected future
benchmarks rates, anticipated investment yields, our expectations regarding accretion of discount on loans in future periods,
the collectability of loans, 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 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 and any legal, reputational and financial and
financial risks following a cybersecurity incident;
●
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;
●
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;
●
disruptions to the economy and financial services industry, risks associated with uninsured deposits and responsive
measures by federal or state governments or banking regulators, including increases in the cost of our deposit
insurance assessments;
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4
●
cost and availability of capital;
●
changes in state and federal laws, regulations or policies affecting one or more of our business segments, including
changes in policies under the new Presidential administration, changes in regulatory fees, deposit insurance
premiums, capital requirements and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-
Frank Act”);
●
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.
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5
PART I
Item 1. Business.
General
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, 2024, on a consolidated basis, we had total assets of $16.3 billion, total deposits of $11.1 billion, total loans,
including loans held for sale, of $8.7 billion and stockholders’ equity of $2.2 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.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.com/ under the tab “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.
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6
The following graphic reflects our current business segments.
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 27 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, 2024, had $13.4 billion in assets and total
deposits of $11.3 billion. The primary sources of our deposits are residents of and businesses located in Texas. At December
31, 2024, the Bank employed approximately 1,000 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 $1.3 billion in warehouse lines of credit extended to PrimeLending and its affiliated
business arrangements (“ABAs”), of which $0.8 billion was drawn at December 31, 2024. 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.
Total
% of Total
Loans Held
Loans Held
for Investment
for Investment
Commercial real estate:
Non-owner occupied
$
1,921,691
22.8 %
Owner occupied
1,435,945
17.0 %
Commercial and industrial
1,300,914
15.4 %
Mortgage warehouse lending
241,026
2.9 %
Construction and land development
866,245
10.3 %
1-4 family residential
1,792,602
21.3 %
Consumer
28,410
0.3 %
7,586,833
90.0 %
PrimeLending warehouse lines of credit
848,296
10.0 %
Total loans held for investment
$
8,435,129
100.0 %
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7
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.
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 real estate (including construction and land
development), wholesale/retail trade, healthcare, institutions of higher education, agribusiness and energy 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, commercial real estate loans, lines of credit, equipment loans,
letters of credit, agricultural loans and other lending products.
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.
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8
The Bank also offers construction financing for commercial, retail, office, industrial, warehouse, single-family and multi-
family developments. 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 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 provides personal trust, investment management and employee benefit plan administration services, including estate
planning, management and administration, investment portfolio management and employee benefit account and individual
retirement account services.
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, Inc. (“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 with the SEC under the Investment Advisers Act of 1940, as amended, (the “Advisers Act”).
At December 31, 2024, Hilltop Securities had total assets of $2.8 billion and net capital of $264.2 million, which was $258.1
million in excess of its minimum net capital requirement of $6.1 million. At December 31, 2024, the Hilltop Broker-Dealers
employed approximately 790 people and maintained 39 locations in 15 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.
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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
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 product expertise related to
derivatives for U.S. Agency to-be-announced (“TBA”) and commodities. The business line participates in programs in which
it issues forward purchase commitments of mortgage-backed products to certain non-profit housing clients and sells TBA
mortgage-backed securities. The structured finance business line also specializes in the sales and trading of mortgage-backed,
asset-backed and commercial mortgage-backed securities. Additionally, this business line provides agricultural insurance
through Hilltop Securities Insurance Agency Inc., whereby we act as an agent in these transactions and retain no underwriting
risk with regard to the sale of insurance products.
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 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 customers 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 to
facilitate securities transactions. Through Hilltop Securities 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 act as an agent in these transactions and 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 and clients. 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, 2024, we employed 92 registered representatives in 19
retail brokerage offices and had contracts with 166 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, 2024, we provided services to 99 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 customers have failed to deliver securities by the required
settlement date, and lending securities to other broker-dealers for similar purposes.
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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 additional lending through its ABAs. During 2024,
funded loan volume through ABAs was approximately 16% of the mortgage origination segment’s total loan volume. At
December 31, 2024, our mortgage origination segment operated from over 182 locations in 46 states, originating 31.5%, 7.7%
and 5.3%, respectively, of its mortgage loans (by dollar volume) from its Texas, California and South Carolina 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 buy or sell homes. As a result,
the results of operations for any single quarter in the mortgage origination segment are not necessarily indicative of the results
that may be achieved for a full fiscal year.
A decrease in mortgage interest rates tends to result in increased loan origination volume from refinancings, while an increase
in mortgage interest rates tends to result in decreased 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. In addition, the mortgage origination segment originates loans on
behalf of the Bank. 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, refinancing and market activity, and balance sheet
positioning at Hilltop. Loan volumes to be originated on behalf of and retained by the banking segment are evaluated each
quarter. Loans sold to and retained by the Bank during 2024, 2023 and 2022 were $124 million, $140 million and $532
million, respectively. Loan volumes to be originated on behalf of and retained by the banking segment are expected to 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. PrimeLending may, from time to time, manage its 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 and loans sold with servicing retained.
PrimeLending, including its ABAs, had a staff of approximately 1,409 people, including approximately 813 mortgage loan
officers, as of December 31, 2024 that produced $8.6 billion in closed mortgage loan volume during 2024, 90.1% 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, new construction loans, and Federal Housing Administration (“FHA”), Veterans Affairs (“VA”), and
United States Department of Agriculture 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).
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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 84% of the broker-dealer segment’s net revenues during 2024 generated through locations in Texas,
New York and California.
PrimeLending provides residential mortgage origination products and services from over 182 locations in 46 states. During
2024, an aggregate of 68% of PrimeLending’s origination volume was concentrated in ten states, with 44% concentrated in
Texas, California and South Carolina, collectively. Other than these ten states, none of the states in which PrimeLending
operated during 2024 represented more than 3% of PrimeLending’s origination volume.
Employees and Human Capital Resources
At December 31, 2024 we employed approximately 3,616 full-time employees and less than 30 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.
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, 2024,
approximately 36% of our current staff had been with us for ten years or more.
During 2024, women represented over 54% of Hilltop’s workforce, and 12% of the overall executive management team.
During 2024, 34% of our employees fell within the minority classification and approximately 39% of our employees were
below the age of 45.
Hilltop has three employee-based councils, namely the Culture Council, Diversity Momentum Council and Women
Momentum Council, each devoted to driving employee engagement and sponsoring events across the enterprise to promote
social networking amongst all employees. Various enterprise initiatives are presented to foster awareness, dialogue and
appreciation of cultural diversity, including recognition and celebration of ethnic holidays. In addition, in-person and virtual
panel discussions are held to encourage development and success of women within the workplace.
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.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.
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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 continues to be competitive 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.
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,
including artificial intelligence and automation, 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 and by various governmental and other regulatory
authorities. 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
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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,
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. In 2018, the Economic Growth,
Regulatory Relief and Consumer Protection Act (“EGRRCPA”) became law, 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.
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 Board of
Governors of the Federal Reserve System (the “Federal Reserve Board”), can also change the policy direction of these
agencies. Certain of these recent proposals and changes are described below.
The Anti-Money Laundering Act of 2020 (the “AML 2020 Act”) was enacted as part of the National Defense Authorization
Act for Fiscal Year 2021. The AML 2020 Act is the most significant revision to the anti-money laundering (“AML”) 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 2020 Act clarifies and streamlines the Currency and Foreign
Transactions Reporting Act of 1970, as amended, (the “Bank Secrecy Act”) and 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 clawback 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; among other amendments. Implementing regulations concerning certain provisions of the AML 2020 Act have
been proposed by FinCEN, but not all have been finalized. On September 29, 2022, FinCEN issued a final rule establishing a
beneficial ownership information reporting requirement under the Corporate Transparency Act (“CTA”), which was passed as
part of the AML 2020 Act. The rule, which became effective January 1, 2024, requires most corporations, limited liability
companies, and other entities created in or registered to do business in the United States to report information about their
beneficial owners—the persons who ultimately own or control the company, to FinCEN. The compliance date for enforcement
of the CTA’s beneficial ownership information reporting requirement has been stayed pending litigation.
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
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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 or 33% or more of any class of stock (voting or non-voting), 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% of any class of voting stock where certain other triggering factors exist. 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.
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 prohibits a bank or bank holding company 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
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.
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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 $2.4 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 Board, the Federal Deposit Insurance Corporation
(“FDIC”), and the Office of the Comptroller of the Currency (the “OCC”). On July 27, 2023, the Federal Reserve, the FDIC,
and the Office of the Comptroller issued a proposal, referred to as “Basel III Endgame,” that would result in significant
changes to the U.S. regulatory capital rules for banking organizations with total consolidated assets of $100 billion or more.
Since neither Hilltop, nor any of its banking organization subsidiaries, would surpass the $100 billion threshold, a discussion
of such proposal is not included herein.
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 Board, 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
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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 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.
Item
Requirement
Minimum common equity Tier 1 capital ratio
4.5 %
Common equity Tier 1 capital conservation buffer
2.5 %
Minimum common equity Tier 1 capital ratio plus capital conservation buffer
7.0 %
Minimum Tier 1 capital ratio
6.0 %
Minimum Tier 1 capital ratio plus capital conservation buffer
8.5 %
Minimum total capital ratio
8.0 %
Minimum total capital ratio plus capital conservation buffer
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
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requirements plus the capital conservation buffer should have exceeded the prompt corrective action well-capitalized
thresholds.
During 2024, our 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 2025.
At December 31, 2024, Hilltop had a total capital to risk-weighted assets ratio of 24.40%, Tier 1 capital to risk-weighted
assets ratio of 21.23% and a common equity Tier 1 capital to risk-weighted assets ratio of 21.23%. 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, 2024, PlainsCapital had a total capital to risk-weighted assets ratio of 16.54%, Tier 1 capital to risk-weighted
assets ratio of 15.35% and a common equity Tier 1 capital to risk-weighted assets ratio of 15.35%. 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. In March 2020, in connection with the economic uncertainties associated with the effects of the pandemic, 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 through December 31, 2024. We elected to exercise
this option for phase-in. As of January 1, 2025, Hilltop and PlainsCapital had fully captured the day-one regulatory capital
effects resulting from the implementation of CECL.
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
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 held for 60 days or
longer are presumed not to be held for short-term gain and therefore are not deemed to be proprietary trading. 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 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
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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 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 or 33% or more of the total equity of such other company, 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 is subject to the supervisory and enforcement authority by the
CFPB with respect to federal consumer protection laws, including laws relating to fair lending and the prohibition of unfair,
deceptive or abusive acts or practices in connection with the offer, sale or provision of consumer financial products and
services.
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 banking and nonbanking affiliates,
including Hilltop, PrimeLending, and PCC, are subject to Sections 23A and 23B of the Federal Reserve Act, as implemented
by the Federal Reserve Board’s Regulation W.
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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 expanded the definition of “covered
transactions” and clarified the amount of time that the collateral requirements must be satisfied for covered transactions, and
amended 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.
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
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 amended 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
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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, 2024.
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 FDIC
establishes an initial base deposit insurance assessment for banks with $10 billion or more in assets using a scorecard that is
generally 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 fund. 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, which was accomplished on November 28, 2018. However, extraordinary growth in
insured deposits in 2020 caused the DIF ratio to fall below 1.35%. Accordingly, on October 24, 2022, the FDIC published a
final rule to increase the initial base deposit insurance assessment rate schedules by 2 basis points beginning the first quarterly
assessment period of 2023 (i.e., January 1 through March 31, 2023). The increase in assessment rate schedules increased the
likelihood that the DIF ratio will reach the statutory minimum of 1.35% by the statutory deadline of September 30, 2028.
Accruals for DIF assessments were $7.1 million during 2024.
As a result of the bank failures during early 2023 and in an effort to strengthen public confidence in the banking system and
protect depositors, regulators announced that any losses to the DIF to support uninsured depositors will be recovered by a
special assessment on banking organizations, as required by law. On November 16, 2023, the FDIC adopted a final rule to
implement this special assessment based on a banking organization’s estimated uninsured deposits as of December 31, 2022,
excluding the first $5 billion in estimated uninsured deposits. The Bank was not impacted by this special assessment as the
uninsured deposits were less than $5 billion at December 31, 2022.
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 May 5, 2022, the Federal banking agencies released a notice of proposed rulemaking to
“strengthen and modernize” the CRA regulations by updating how CRA activities
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qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. The proposed
rulemaking was finalized on October 24, 2023, and will take effect on April 1, 2024, with staggered compliance dates of
January 1, 2026 and January 1, 2027.
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
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 Board, 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 clarified 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.
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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 continued to treat deposits swept to the Bank from the broker-dealer
segment as non-brokered with the cost of these sweep deposits being based on a current market rate of interest rather than a
per account fee. As of December 31, 2024, PlainsCapital was “well capitalized” and therefore not subject to any limitations
with respect to its brokered deposits.
On July 30, 2024, the FDIC approved a proposed rule to further revise brokered deposit regulations based on the FDIC’s
experience since the adoption of the 2020 final rule and the bank failures in 2023. The 2024 proposal aims to simplify the
definition of “deposit broker,” eliminate the “exclusive deposit placement arrangement” exception, and revise the
interpretation of the primary purpose exception (“PPE”) to consider the third party’s intent in placing customer funds at a
particular insured depository institution. In addition, the proposed rule would allow only insured depository institutions to file
notices and applications for PPEs, revise the “25 percent test” designated business exception for a PPE to be available only to
broker-dealers and investment advisers and only if less than 10% of the total assets that the broker-dealer or investment
adviser has under management for its customers is placed at one or more IDIs, eliminate the enabling transactions designated
business exception, and clarify when an insured depository institution that has lost its agent institution status can regain that
status for purposes of the limited exception for reciprocal 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.
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
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with the foregoing rules until such time as FinCEN adopts final regulations implementing the CTA, which is part of the AML
2020 Act. FinCEN issued a final rule, effective on January 1, 2024, imposing certain reporting requirements of beneficial
ownership of certain business entities other than those entities not meeting, or excluded from, the definition of a “reporting
company.” The compliance date for enforcement of the CTA’s beneficial ownership information reporting requirement has
been stayed pending litigation.
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. On May 6, 2024, the FDIC, the OCC, and the Federal Housing Finance Agency
(“FHFA”), adopted a proposed rule to address incentive-based compensation arrangements, as required under section 956 of
the Dodd-Frank Act. The proposed rule re-proposes the regulatory text previously proposed in June 2016, and seeks public
comment in the preamble on certain alternatives and questions. The proposed rule includes prohibitions intended to make
incentive-based compensation arrangements more sensitive to risk. These include a prohibition on incentive-based
compensation arrangements that do not include risk adjustment of awards, deferral of payments, and forfeiture and clawback
provisions. The prohibitions also emphasize the important role of sound governance and risk management control
mechanisms. The recordkeeping and disclosure requirements in the proposed regulatory text would assist the appropriate
Federal regulator in monitoring and identifying areas of potential concern at covered institutions. Section 956 of the Dodd-
Frank Act requires the FDIC, the Federal Reserve Board, the OCC, the National Credit Union Administration, the FHFA, and
the SEC to jointly prescribe regulations or guidelines with respect to incentive-based compensation practices at certain
financial institutions that have $1 billion or more in assets. Once the proposed rule is adopted by all six agencies, it will be
published in the Federal Register with a comment period of 60 days following publication. Until then, each agency acting on
the proposed rule will make it available on their respective website, and will accept comments. The remainder of the foregoing
agencies have yet to release a proposal.
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 a member of various securities exchanges and 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. While the SEC, the states, and the exchanges may conduct regulatory examinations, the Hilltop
Broker-Dealers are members of, and are primarily subject to regulation, supervision and regular examination by FINRA.
References to the Hilltop Broker-Dealers under the heading “Broker-Dealer” shall not include Hilltop Securities Asset
Management, LLC unless it is otherwise named or the context otherwise includes it.
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
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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, FINRA, 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 (including self-regulatory organizations) 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, FINRA and/or exchange approvals, which may take significant time and resources. References
to the Hilltop Broker-Dealers under the heading “Broker-Dealer” shall not include Hilltop Securities Asset Management, LLC
unless it is otherwise named or the context otherwise includes it. 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 into 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, 2024, 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 or limiting a broker-dealer
from distributing or withdrawing capital and requiring prior notice to, and/or approval from, the SEC and FINRA for certain
capital withdrawals.
Compliance with the net capital requirements may limit our operations and require a greater 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. As noted above in Net Capital Requirements, 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.
The SEC recently adopted amendments to Rule 15c3-3, which would be become effective as of March 14, 2025, and would
have a compliance date of December 31, 2025. The amendments will require certain broker-dealers that hold
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customer cash and securities to perform their reserve computations for accounts of customers and proprietary accounts of
broker-dealers daily rather than weekly as is currently required under Rule 15c3-3. Hilltop Securities currently performs its
reserve computation on a weekly basis. With the above noted amendment, Hilltop Securities may be moving to a daily reserve
computation frequency. Momentum Independent Network is exempt from the computation for determination of reserve
requirements and information relating to the possession or control requirements pursuant to 15c3-3 under paragraph (k)(2)(ii)
of that Rule. A carrying broker-dealer with “average total credits” under Rule 15c3-3 equal to or greater than $500 million will
be required to compute its reserve daily (and must make any necessary reserve deposit by 10 a.m. local time on the second
following business day after the required daily computation). The first 12-month determination must be made beginning with
the June 30, 2024 FOCUS Report and ending with the July 31, 2025 FOCUS Report. If a carrying broker-dealer meets the
$500 million threshold of average total credits over such 12 months, then it must commence computing its reserve on a daily
basis no later than six months thereafter (i.e., beginning no later than December 31, 2025). The SEC also adopted a
corresponding amendment to Rule 15c3-1 to permit such broker-dealers to reduce aggregate debit items (i.e., customer-related
receivables) by 2% rather than 3% as part of the computation. A carrying broker-dealer (including ones below the $500
million threshold) also may voluntarily perform a daily customer reserve computation and apply the 2% debit reduction,
provided it notifies its designated examining authority (such as FINRA) in writing at least 30 calendar days prior to beginning
the daily customer reserve computation that applies the 2% debit reduction.
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 anti-money laundering laws such as the USA
PATRIOT Act and other related laws, rules and regulations discussed herein, including FINRA AML 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. On August 28, 2024, FinCEN, a division of the
Department of Treasury, also issued a new rule imposing anti-money laundering requirements on investment advisers
registered with the SEC with respect to their investment advisory businesses. The requirements are similar but not identical to
the AML requirements for broker-dealers. The date of compliance is January 1, 2026. Hilltop Securities Asset Management,
LLC, Hilltop Securities and Momentum Independent Network will evaluate how the new AML rule affects their respective
businesses.
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 Advisers
Act. 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 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, profit disgorgement, monetary penalties, 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
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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, conduct 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 (including Hilltop
Securities Asset Management, LLC) 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 and Qualified Mortgage Standards Under the Truth in Lending Act (Regulation Z). 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 rule also
established 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.
High-Cost Mortgage and Homeownership Counseling Amendments to the Truth in Lending Act (Regulation Z). This final
rule strengthens consumer protections for high-cost mortgages (generally bans balloon payments and prepayment
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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 (Regulation Z). The final rule permits a creditor to extend a higher-priced (subprime)
mortgage loan 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.
Disclosure and Delivery Requirement for Copies of Appraisals and Other Written Valuations Under the Equal Credit
Opportunity Act (Regulation B). 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 under the Truth in Lending Act (Regulation Z). 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.
Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act
Regulation Z). Two final rules under 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.
Loan Originator Compensation Under the Truth in Lending Act (Regulation Z). 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 (Dodd Frank Act). 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.
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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 material risk factors with a more detailed discussion following.
●
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.
●
Adverse developments affecting the financial services industry, such as bank failures or concerns involving liquidity,
may have a material effect on the Company’s operations.
●
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.
●
Our banking segment is subject to risk arising from conditions in the commercial real estate market and may be
adversely affected by weaknesses in the commercial real estate market.
●
Our business and results of operations may be adversely affected by unpredictable economic, market and business
conditions.
●
Our business is subject to interest rate risk, and fluctuations in interest rates may adversely affect our earnings, capital
levels and overall results.
●
Inflationary pressures and rising prices may affect our results of operations and financial condition.
●
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.
●
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.
●
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.
●
We depend on our computer and communications systems and an interruption in service would negatively affect our
business.
●
Climate change could adversely affect our business and performance, including indirectly through impacts on our
customers.
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●
We are heavily dependent on dividends from our subsidiaries.
●
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.
●
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.
●
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 value of our mortgage servicing rights portfolio fluctuates due to changes in interest rates, which may increase the
volatility of our earnings.
●
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 estimates.
●
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.
●
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 Subordinated 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 indentures governing the Subordinated Notes contain, and any instruments governing future indebtedness would
likely contain, restrictions that limit our flexibility in operating our business.
●
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.
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Risks Related to our Business
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 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
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.
Adverse developments affecting the financial services industry, such as bank failures or concerns involving liquidity, may
have a material effect on the Company’s operations.
Events in early 2023 relating to the failures of certain banking entities have caused general uncertainty and concern regarding
the liquidity adequacy of the banking sector as a whole. Although we were not directly affected by these bank failures, the
resulting speed and ease in which news, including social media commentary, led depositors to withdraw or attempt to
withdraw their funds from these and other financial institutions as well as caused the stock prices of many financial
institutions to become volatile. In the future, events such as these bank failures or negative news or the public perception
thereof, could have an adverse effect on our financial condition and results of operations, either directly or through an adverse
impact on certain of our customers.
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In response to these failures and the resulting market reaction, the Secretary of the Treasury approved actions enabling the
FDIC to complete its resolutions of the failed banks in a manner that fully protects depositors by utilizing the Deposit
Insurance Fund, including the use of Bridge Banks to assume all of the deposit obligations of the failed banks, while leaving
unsecured lenders and equity holders of such institutions exposed to losses. In addition, the Federal Reserve Bank announced
it would make available additional funding to eligible depository institutions under a Bank Term Funding Program to help
assure banks have the ability to meet the needs of all their depositors. In an effort to strengthen public confidence in the
banking system and protect depositors, regulators announced that any losses to the Deposit Insurance Fund to support
uninsured depositors will be recovered by a special assessment on banks, as required by law, which could increase the cost of
our FDIC insurance assessments. However, it is uncertain whether these steps by the government will be sufficient to reduce
the risk of additional bank failures in the future or resultant significant depositor withdrawals at other institutions. As a result
of this uncertainty, we face the potential for reputational risk, deposit outflows, increased costs and competition for liquidity,
and increased credit risk which, individually or in the aggregate, could have a material adverse effect on our business,
financial condition and results of operations.
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 and threats of cyber attacks
from these activities due to a combination of new technologies and the increasing use of the Internet to conduct financial
transactions, including the usage of artificial intelligence and automation, 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, and have experienced cyber attacks. Evolving technologies and the increased
use of artificial intelligence and automation by third parties further increase the risk of cyber attacks and threats of cyber
attacks against us or those third parties that we depend upon. 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.
During the second quarter in 2023, a third-party vendor of the Bank confirmed that data specific to the Bank’s customers was
likely obtained in a security incident targeting the vendor’s instance of the MOVEit Transfer Application. As a result of this,
an unauthorized party likely obtained information in the vendor’s possession about substantially all of the Bank’s customers,
including social security numbers and account numbers. Hilltop Securities was notified by the same vendor that certain of its
data was also likely obtained in the incident; however, based on the review conducted to date, we do not have indication that
protected or confidential information was present within the information obtained related to Hilltop Securities. Given the
widespread use of the MOVEit Transfer Application, additional vendors of ours may have been impacted. We have incurred,
and may continue to incur, expenses related to this incident, and we remain subject to risks and uncertainties as a result of the
incident, including litigation and additional regulatory scrutiny.
The continued occurrence of cybersecurity incidents and threats thereof 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, as
amended by the California Privacy Rights Act (“CPRA”) in 2023, 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. Other state privacy laws with similarities to the CCPA/CPRA, such as the
Texas Data Privacy and Security Act, the Colorado Privacy Act, the Connecticut Data Privacy Act, the Oregon Consumer Data
Privacy Act, the Montana Consumer Data Privacy Act, the Utah Consumer Privacy Act, the Virginia Consumer Data Privacy
Act, came into force in 2023 and 2024. Iowa, Indiana,
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and Tennessee have each recently passed their own general consumer privacy laws, which are expected to come into force
later in 2025 and 2026, and there have been ongoing discussions and proposals in the U.S. Congress with respect to new
federal data privacy and security laws to which we would become subject if enacted.
These upcoming and evolving laws and regulations could result in increased operating expenses or increase our exposure to
the risk of litigation or regulatory inquiries or proceedings.
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 protection 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.
Our banking segment is subject to risk arising from conditions in the commercial real estate market and may be adversely
affected by weaknesses in the commercial real estate market.
As of December 31, 2024, commercial real estate loans comprised approximately 40% of our banking segment’s loan
portfolio. Commercial real estate loans generally involve a greater degree of credit risk than residential real estate loans
because they typically have larger balances and are more affected by adverse conditions in the economy. Because payments on
loans secured by commercial real estate often depend upon the successful operation and management of the properties and the
businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s
control, such as adverse conditions in the real estate market or the economy or changes in government regulations. A failure
by the banking segment to have adequate risk management policies, procedures and controls could result in an increased rate
of delinquencies in, and increased losses from, this portfolio, which, accordingly, could have a material adverse effect on the
Company’s business, financial condition and results of operations.
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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:
●
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 tightening monetary policies by central banks,
rising energy prices, 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. 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.
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 August 2019 and March 2020, the Federal Open Market Committee of the Federal Reserve Board decreased its
target range for the federal funds rate by 200 basis points, while between March 2022 and December 2023, it raised the target
range for the federal funds rate by 525 basis points. Between September 2024 and December 2024, the Federal Reserve Board
decreased its target range for the federal funds rate by 100 basis points and indicated that further changes may occur in 2025.
Changes in interest rates have in the past and may continue to impact our net interest income in our banking segment in the
future 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. Given the potential for an adverse impact on
our net interest income associated with interest rate cycle transitions, we periodically evaluate our current “gap” position and
determine whether a repositioning of the banking segment’s balance sheet is appropriate. 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 continued inversion of the yield curve, as measured by the difference between 10-year U.S. Treasury bond yields and
3-month yields, could adversely
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impact the net interest income of our banking segment as the spread between interest-earning assets and interest-bearing
liabilities becomes further compressed.
As of December 31, 2024, approximately 58% of our loans were advanced to our customers on a variable or adjustable-
rate basis and approximately 42% of our loans were advanced to our customers on a fixed-rate basis. 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. Certain
of our variable rate loans only provide for resets of interest rates periodically, which can result in significant periods of time
between resets in loan rates, which can negatively impact our margins and profitability. Further, a portion of our adjustable
rate loans have interest rate floors at or above the loan's contractual interest rate. As of December 31, 2024, approximately
10% of our total loans’ rates are floored, with most expected to reprice to the loan’s contractual rate at the next reset date. 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
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, political factors, 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.
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Inflationary pressures and rising prices may affect our results of operations and financial condition.
Inflation rose sharply at the end of 2021 and continued rising into 2024 at elevated levels. While the rise in inflation has
slowed during the latter half of 2024, inflationary pressures are still expected to remain elevated throughout 2025. Small to
medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economics of
scale to mitigate cost pressures compared to larger businesses. Consequently, the ability of our business customers to repay
their loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results
of operations and financial condition. Similarly, rising interest rates will negatively impact our mortgage business by making
home mortgages more expensive for home buyers and by making mortgage refinancing transactions less likely, which would
adversely impact our results of operations and financial condition in PrimeLending. Furthermore, a prolonged period of
inflation could cause wages and other costs to Hilltop and its subsidiaries to increase, which could adversely affect our results
of operations and financial condition.
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
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.
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, including increased usage of artificial intelligence and automation. 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
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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, 2024, an aggregate of 76% of the real estate loans in
our loan portfolio, and included within the commercial real estate and 1-4 family residential portfolio segments, were secured
by properties in Texas. Specifically, 28%, 17%, 8% and 5% of the real estate loans were secured by properties located within
the Dallas-Fort Worth, Austin, Houston and San Antonio 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 were to be depressed for an extended period, 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 and Winter Storm Uri, in 2021 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 2024, 31.5% and 7.7% of our mortgage loans originated (by dollar volume) were collateralized by
properties located in Texas and California, respectively. Also, in our broker-dealer segment, 76% of public finance services net
revenues were from entities located in Texas, and 87% of retail brokerage service net revenues were generated through
locations in Texas and California. Any regional or local economic downturn that affects Texas or, to a lesser extent, California,
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.
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, 2024, 64% 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.
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
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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.
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.
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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.
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:
●
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 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.
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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
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.
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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, 2024,
included goodwill of $267.4 million and other intangible assets, net of accumulated amortization, of $6.6 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. 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.
In light of continuing macroeconomic challenges in the mortgage industry given tight housing inventories and mortgage
interest rate levels, our mortgage origination segment experienced lower-than-forecasted operating results during 2022 and
2023. These headwinds, coupled with inflationary pressures associated with compensation, occupancy and software costs
within our business segments since 2022 have had, and are expected to continue to have, an adverse impact on our operating
results during 2025. Given the potential impacts of the operating performance of our reporting segments and overall economic
conditions, 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.
We 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, we determined that as of October 1, 2024 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 future operating performance of our reportable business segments, overall
economic conditions, market capitalization, and any other triggering events or circumstances that may indicate an impairment
in the future.
To the extent future operating performance of our reporting segments remains challenged and below forecasted projections,
significant assumptions such as expected future cash flows or the risk-adjusted discount rate used to estimate fair value are
adversely impacted, or upon 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, an impairment charge may be
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.
The value of our mortgage servicing rights portfolio fluctuates due to changes in interest rates, which may increase the
volatility of our earnings.
As a result of our mortgage servicing business, we have a portfolio of MSR assets, which we grew to historically elevated
levels before selling the vast majority of our MSR assets, and at December 31, 2024, the mortgage origination segment’s MSR
asset had a fair value of $5.9 million. An MSR is the right to service a mortgage loan – collect principal,
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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, and as a result, the value of
our MSR assets fluctuates due to changes in interest rates, which may increase volatility of earnings.
The rising interest rate environment that began in 2022 and continued through 2023 resulted in an increased valuation of the
MSR asset, however 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. An 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.
If we increase the size of our MSR portfolio, it could result 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.
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 and market trends related to MSR sales, 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 increase the size of our MSR assets
in the future, these risks could increase.
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 estimates.
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 estimates, 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 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 operation. 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
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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.
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 (such as the bank failures in the first half of 2023), is inherent in our business.
Adverse perceptions concerning our reputation or financial institutions in general 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 our common stock if investors determine that we have 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 we, or our relationships
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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.
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.
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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, 2024, on a consolidated basis, we had total deposits of $11.1 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”), which have since
been redeemed in full, $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” and, collectively with the 2030 Subordinated Notes, the “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;
●
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.
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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 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 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 Subordinated Notes, which depends on, among other things, our compliance with
the covenants in the indentures governing the 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 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 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 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 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 us, 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, 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.
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The indentures governing the 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 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
Subordinated Notes. Upon a default, holders of the Subordinated Notes have the ability ultimately to force us into bankruptcy
or liquidation, subject to the indentures governing the Subordinated Notes. In addition, a default under the indentures
governing the 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. For example, bank failures during the first half of
2023 put additional financial pressure and uncertainty on other financial institutions and led to increased regulatory scrutiny in
the industry. Similar bank failures, or the perception thereof, could adversely affect our operations. 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 continues to be competitive 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
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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. 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,
including the rise of artificial intelligence and automation, 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.
Legal and Regulatory Risks
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 the Bank Holding Company Act, the Bank Merger
Act, 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.
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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 customers of broker-dealer businesses rather than stockholders or other debt holders. Additionally, the Bank is subject to
the CFPB’s supervisory and enforcement authority with respect to federal consumer financial laws.
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 enforcement actions, 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 AML 2020 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 occurred in 2025, when
it involves a change in the governing 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. For example, on July 27, 2023, the Federal
Reserve Board, the FDIC, and the OCC issued a proposal, referred to as “Basel III Endgame,” that would result in significant
changes to the U.S. regulatory capital rules for banking organizations with total consolidated assets of $100 billion or more.
This proposal has not yet been finalized.
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If we fail to meet the minimum capital guidelines and other regulatory requirements as applicable to us, 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.
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.
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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
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, 2024, 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
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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 2024, we
declared and paid cash dividends of $0.68 per common share.
In January 2024, our board of directors authorized a new stock repurchase program through January 2025, pursuant to which
we are authorized to repurchase, in the aggregate, up to $75.0 million of our outstanding common stock. During 2024, we paid
$19.9 million to repurchase an aggregate of 640,042 shares of our common stock at an average price of $31.04 per share
pursuant to the stock repurchase program. These shares were returned to the pool of authorized but unissued shares of
common stock.
In January 2025, our board of directors authorized a new stock repurchase program through January 2026, pursuant to which
we are authorized to repurchase, in the aggregate, up to $100.0 million of our outstanding common stock. Such purchases may
be subject to a nondeductible excise tax under the Inflation Reduction Act of 2022 equal to 1% of the fair market value of the
shares repurchased, subject to certain limitations.
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.
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52
Item 1C. Cybersecurity.
Risk Management and Strategy
Hilltop recognizes the critical importance of protecting company data and the information systems that collect, process and
maintain data, and we have developed an enterprise-wide program for assessing, identifying and managing material
cybersecurity risks and threats. The systems we utilize include safeguards to protect against or mitigate possible threats, as
well as controls designed to ensure accountability, availability, integrity and confidentiality of the data. Security measures are
implemented to guard against unauthorized access, alteration, disclosure or destruction of data and systems, including
accidental loss and destruction. Our program is supported by management and the board of directors.
Organizational Model
Our Information Security Department is comprised of four primary functions:
●
Information Security Risk assesses technology risks and controls, evaluates application systems’ conformance to
internally defined and approved security standards, coordinates audits and examinations for Information Technology
(“IT”) and Information Security, as well as tracks open risk issues and exceptions.
●
IT Security defines security policies and standards, conducts security awareness and training, evaluates security
configuration and assesses vulnerability risk.
●
Security Operations utilizes security solutions to detect and respond to security threats and supports the end-user
security needs. We recognize the critical importance of developing, implementing, and maintaining robust
cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity and
availability of our data.
●
Security Engineering plans, builds, and maintains technical controls and solutions that enhance our security posture
that mitigate risk to the enterprise while assuring the integrity of the engineering design process.
Managing Material Cybersecurity Risks
As a part of our overall risk management strategy, Information Security Risk conducts risk assessments on the technology
environment as well as application systems implemented to support the various business functions of Hilltop based on the
Gramm-Leach-Bliley Act guidance. Risks are identified from the Enterprise Risk Management and Internal Audit assessments
of IT and Information Security. Information Security then quantifies the incidents and risks that have been identified and
reports to the Operations & Strategy Committee, which is comprised of executives from across the enterprise representing
disciplines including compliance, regulatory, information technology, risk, finance, and operations, if they meet certain
thresholds. The necessary controls are identified to address the risk and this control evaluation contributes to the assessment of
the residual risk value. In 2024, additional assessments were completed utilizing the FFIEC Cybersecurity Assessment Tool
and the Ransomware Self-Assessment Tool for the enterprise.
Engage Third-Parties on Risk Management
Recognizing the complexity and evolving nature of cybersecurity threats, Hilltop engages with a range of external experts,
including cybersecurity assessors, consultants and auditors in evaluating and testing our risk management systems. These
partnerships enable us to leverage specialized knowledge and insights, ensuring our cybersecurity strategies and processes
remain at the forefront of industry best practices. Our collaboration with these third-parties includes regular audits, threat
assessments, and consultation on security enhancements. In particular, each year we engage a firm to perform penetration
testing. We do not allow the same firm to be engaged for more than three years in an effort to obtain diversity in methods of
testing. Additionally, at least every two years, we engage a firm to perform a red-team exercise for a simulated cybersecurity
event.
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53
Service Provider Oversight
HTH Procurement processes contract requests, contract renewals and onboard of vendors. Such process creates a single point
of entry for all sourcing and contract requests. Vendors who match certain inherent risk levels are then sent to Vendor Risk
Management (“VRM”) for further review and due diligence. Vendors who host Non-Public Personally Identifiable
Information or vendors who we deem materially critical, regardless of risk, are managed by VRM. The VRM’s due diligence
process is risk-based and serves as a verification and analysis tool to assist in the evaluation of risk associated with new
vendor relationships and ongoing reviews of inherently high-risk and vital vendors. VRM also is tasked with monitoring
managed vendors business continuity and disaster recovery processes.
VRM considers specific factors in performing their due diligence based on the risk profile of the high-risk and vital vendor
and services being performed. The specific factors include, but are not limited to, a review of the vendor’s:
●
Information security and related controls (third-party audit);
●
Existence of disaster recovery and business continuity program and testing;
●
Financial status, including reviews of financial statements; and
●
Geographic location (country risk).
Material findings are reported to the Operations & Strategy Committee. A report of these vendors also is provided to the Risk
Committee of the board of directors, which provides updates to the full board of directors.
Risks from Cybersecurity Threats
We face a number of cybersecurity risks in connection with our business. We do not currently believe that any current
cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected, or are reasonably
likely to materially affect, Hilltop, including its business strategy, results of operations or financial condition. For more
information about the cybersecurity risks we face, see Item 1A., “Risk Factors — 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.”
Governance
The board of directors is acutely aware of the critical nature of managing risks associated with cybersecurity threats. To
address the significance of these threats to our operations, customers and stockholders, we have established oversight
mechanisms to ensure effective management, oversight and governance in managing risks associated with cybersecurity
threats.
Board of Directors 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. The Risk Committee is
central to the board of directors’ oversight of cybersecurity risks and bears the primary responsibility for this function. The
Risk Committee is composed of board members with diverse expertise including, risk management assisting them to oversee
cybersecurity risks. The Risk Committee receives regular reports from our Chief Information Security Officer (“CISO”) and
provides updates to the full board of directors at each regular meeting of the board of directors. The Risk Committee also
reviews all information security plans and policies, which are then recommended to the full board of directors for its review
and approval.
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54
Management’s Role Managing Risk
Our CISO plays a pivotal role in informing the Risk Committee on cybersecurity risks and developments. Our CISO provides
comprehensive briefings to the Risk Committee on a regular basis, with a minimum frequency of four times per year. These
briefings encompass a broad range of topics, including:
●
Current cybersecurity landscape and emerging threats;
●
Status of ongoing cybersecurity initiatives and strategies;
●
Incident reports and learnings from any cybersecurity events;
●
Vulnerability management, including software patching, reviews of risk accepted vulnerabilities (remediated,
renewed and top risks) and trends related thereto; and
●
Compliance with regulatory requirements and industry standards.
In addition to Risk Committee meetings, our CISO generally meets with executive management weekly to provide updates
regarding current activities and areas of focus. In the event of a potential or actual cybersecurity event, the CISO immediately
notifies the General Counsel at which point the information security incident response plan is activated if warranted. The
information security incident response plan provides the procedures for responding, including personnel required to be
informed and updated. The board of directors is informed promptly in the event such incident is, or is reasonably expected to
have, a material impact on operations or financial condition. We also conduct cybersecurity tabletop exercises each year to
ensure our processes and procedures align with our technical controls, and to ensure that the organization is prepared for a
security-related event.
Primary responsibility for assessing, monitoring and managing our cybersecurity risks rests with our CISO. With over twenty
years of experience in the field of cybersecurity, our CISO brings a wealth of expertise to his role. His background includes
extensive experience in all facets of information technology and information security and is well-recognized within the
industry. His in-depth knowledge and experience are instrumental in developing and executing our cybersecurity strategies.
Our CISO is responsible for our Information Security Program and our information security leaders report directly to our
CISO. We also maintain a standing committee, the Information Security Governance Committee, which consists of certain
members of executive management, our CISO and information security leaders. Our Information Security Governance
Committee allows for direct management reporting for IT Risk management, audit/examination report(s) review, and
oversight of our Information Security strategy and program, and daily Security Operations.
Monitor Cybersecurity Incidents
Our CISO is continually informed about the latest developments in cybersecurity, including potential threats and innovative
risk management techniques. This ongoing knowledge acquisition is crucial for the effective prevention, detection, mitigation
and remediation of cybersecurity incidents. To assist our information security team in such knowledge acquisition, we
subscribe to certain services that provide us alerts on security incidents and threats. Our CISO oversees the implementation of,
and the processes for, the regular monitoring of our information systems. This includes the deployment of advanced security
measures and regular system audits to identify potential vulnerabilities. As previously noted, in the event of a cybersecurity
incident, the information security incident response plan is enacted. This plan includes immediate actions to mitigate the
impact of and remediate the incident.
Item 2. Properties.
The principal office for both Hilltop and the Bank since February 2020 has been located in the City of University Park, Texas.
In addition to our principal office, our 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, 2024, our banking segment conducted business at 59 locations throughout Texas, including four
support facilities. The Bank leases 35 banking locations, including its principal offices, and owns the remaining 24 banking
locations.
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55
Broker-Dealer. At December 31, 2024, our broker-dealer segment conducted business from 39 locations in 15 states. Each of
these locations is leased by Hilltop Securities.
Mortgage Origination. At December 31, 2024, our mortgage origination segment conducted business from over 182 locations
in 46 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
18 to our Consolidated Financial Statements, which is incorporated by reference herein.
Item 4. Mine Safety Disclosures.
Not applicable.
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56
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 12, 2025, there were
64,864,275 shares of our common stock outstanding with 293 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 2024, we declared and
paid cash dividends of $0.68 per common share. On January 30, 2025, we announced that our board of directors increased our
quarterly dividend to $0.18 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, 2024 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
20, Stock-Based Compensation, in the notes to our consolidated financial statements.
Equity Compensation Plan Information
Number of securities
Number of securities
remaining available for
to be issued upon
Weighted-average
future issuance under
exercise of
exercise price of
equity compensation plans
outstanding options,
outstanding options,
(excluding securities
Plan Category
warrants and rights
warrants and rights
reflected in first column)
Equity compensation plans approved by security
holders*
—
$
—
1,416,696
Total
—
$
—
1,416,696
*
Represents shares available for future issuance under the Hilltop Holdings Inc. 2020 Equity Incentive Plan (the “2020 Plan”).
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57
Issuer Repurchases of Equity Securities
The following table details our repurchases of shares of common stock during the three months ended December 31, 2024.
Period
Total Number of
Shares
Purchased
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)
October 1 - October 31, 2024
—
$
—
—
$
55,152,099
November 1 - November 30, 2024
—
—
—
55,152,099
December 1 - December 31, 2024
—
—
—
55,152,099
Total
—
$
—
—
(1)
On January 25, 2024, we announced that our board of directors authorized a new stock repurchase program through January 2025, pursuant to which we
are authorized to repurchase, in the aggregate, up to $75.0 million of our outstanding common stock, inclusive of repurchases to offset dilution related to
grants of stock-based compensation. In January 2025, our board of directors authorized a new stock repurchase program through January 2026, 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 2025, the stock repurchase plan
authorized in January 2024 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.
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58
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 and shares in thousands, except per share data).
2024
2023
2022
Statement of Operations Data:
Net interest income
$
417,798
$
466,847
$
458,975
Provision for credit losses
941
18,392
8,309
Total noninterest income
770,956
728,973
832,460
Total noninterest expense
1,033,556
1,028,309
1,126,999
Income before income taxes
154,257
149,119
156,127
Income tax expense
31,047
31,140
36,833
Net income
123,210
117,979
119,294
Less: Net income attributable to noncontrolling interest
9,997
8,333
6,160
Income attributable to Hilltop
$
113,213
$
109,646
$
113,134
Per Share Data:
Diluted earnings per common share
$
1.74
$
1.69
$
1.60
Diluted weighted average shares outstanding
$
65,046
$
65,045
$
70,626
Cash dividends declared per common share
$
0.68
$
0.64
$
0.60
Dividend payout ratio (1)
39.06 %
37.97 %
37.36 %
Book value per common share (end of year)
$
33.71
$
32.58
$
31.49
Tangible book value per common share (2) (end of year)
$
29.49
$
28.35
$
27.18
Balance Sheet Data:
Total assets
$
16,268,129
$
16,466,996
$
16,259,282
Cash and due from banks
2,298,977
1,858,700
1,579,512
Securities
2,659,661
2,836,584
3,289,530
Loans held for sale
858,665
943,846
982,616
Loans held for investment, net of unearned income
7,950,551
8,079,745
8,092,673
Allowance for credit losses
(101,116)
(111,413)
(95,442)
Total deposits
11,065,322
11,063,192
11,315,749
Notes payable
347,667
347,145
346,654
Total stockholders' equity
2,218,312
2,150,329
2,063,529
Capital Ratios:
Common equity to assets ratio
13.46 %
12.89 %
12.53 %
Tangible common equity to tangible assets (2)
11.98 %
11.41 %
11.00 %
(1)
Dividend payout ratio is defined as cash dividends declared per common share divided by basic earnings per common share.
(2)
For a reconciliation to the nearest GAAP measure, see “—Reconciliation and Management’s Explanation of Non-GAAP Financial Measures.”
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59
Consolidated income before income taxes during 2024 included the following contributions from our reportable business
segments.
●
The banking segment contributed $181.9 million of income before income taxes during 2024;
●
The broker-dealer segment contributed $63.5 million of income before income taxes during 2024; and
●
The mortgage origination segment incurred $33.7 million of losses before income taxes during 2024.
During 2024, we paid an aggregate of $19.9 million to repurchase shares of our common stock, and declared and paid total
common dividends of $44.3 million.
On January 25, 2024, our board of directors authorized a new stock repurchase program through January 2025, pursuant to
which we are authorized to repurchase, in the aggregate, up to $75.0 million of our outstanding common stock.
On January 30, 2025, our board of directors declared a quarterly cash dividend of $0.18 per common share, a 6% increase
from the prior quarter, payable on February 27, 2025 to all common stockholders of record as of the close of business on
February 13, 2025. Additionally, our board of directors authorized a new stock repurchase program through January 2026,
pursuant to which we are authorized to repurchase, in the aggregate, up to $100.0 million of our outstanding common stock,
an increase from the $75.0 million authorized under our previous program. We commenced share repurchases under the stock
repurchase program in the first quarter of 2025.
During 2024, we paid $19.9 million to repurchase an aggregate of 640,042 shares of our common stock at an average price of
$31.04 per share. During 2023, we paid $5.1 million to repurchase an aggregate of 164,604 shares of our common stock at an
average price of $30.95 per share. These shares were repurchased under previous stock repurchase programs and returned to
the pool of authorized but unissued shares of common stock.
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).
December 31,
2024
2023
2022
Book value per common share
$
33.71
$
32.58
$
31.49
Effect of goodwill and intangible assets per share
(4.22)
(4.23)
(4.31)
Tangible book value per common share
$
29.49
$
28.35
$
27.18
Hilltop stockholders’ equity
$
2,189,965
$
2,122,967
$
2,036,924
Less: goodwill and intangible assets, net
274,080
275,904
278,764
Tangible common equity
$
1,915,885
$
1,847,063
$
1,758,160
Total assets
$
16,268,129
$
16,466,996
$
16,259,282
Less: goodwill and intangible assets, net
274,080
275,904
278,764
Tangible assets
$
15,994,049
$
16,191,092
$
15,980,518
Equity to assets
13.46 %
12.89 %
12.53 %
Tangible common equity to tangible assets
11.98 %
11.41 %
11.00 %
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60
Recent Developments
Senior Notes Redemption
On January 15, 2025 (the “Redemption Date”), we redeemed all of our outstanding 5% senior notes due 2025 (the “Senior
Notes”) at a redemption price equal to the aggregate principal amount of $150 million, plus accrued and unpaid interest to,
but excluding, the Redemption Date (collectively, the “Redemption Price”). The redemption of the Senior Notes was
pursuant to the indenture, dated as of April 9, 2015 (the “Senior Notes Indenture”), between the Company and U.S. Bank
National Association, as Trustee (solely in its capacity as trustee for the Senior Notes), which permitted the redemption of the
Senior Notes beginning 90 days prior to April 15, 2025 (the maturity date of the Senior Notes). The Company irrevocably
deposited with the trustee funds using cash on hand in an amount sufficient to pay the Redemption Price on the Redemption
Date to satisfy and discharge its obligations under the Senior Notes and the Senior Notes Indenture.
Pending Merchant Bank Transaction
In January 2025, our merchant bank subsidiary entered into a definitive agreement to sell all of the capital stock of Moser
Acquisition, Inc. Our approximate 30% aggregate interest in Moser Holdings, LLC, which owns Moser Acquisition, Inc., is
expected to result in an estimated net gain on sale of approximately $23 million to $27 million. The closing of the
transaction, which is expected to occur in the first quarter of 2025, is subject to customary closing conditions.
Economic Environment
The extent of the impacts of uncertain economic conditions on our financial performance that began in 2022, and have
continued during 2024, will depend in part on developments outside of our control including, among others, the timing and
significance of further changes in U.S. Treasury yields and mortgage interest rates, changes in funding costs, inflationary
pressures, changes in the political environment and international armed conflicts and their impact on supply chains.
In addition, the banking sector experienced increased uncertainty and concerns associated with liquidity positions primarily
due to high-profile bank failures during early 2023 as depositors sought to reduce risks associated with uninsured deposits
and withdraw such deposits from existing bank relationships. As a result, both regulatory scrutiny and market focus on
liquidity increased. While financial institution safety and soundness concerns have subsided, these failures underscore the
importance of maintaining access to diverse sources of funding.
In light of the above events, we have continued our efforts to monitor deposit flows and balance sheet trends to ensure that our
liquidity needs and financial flexibility are maintained. During 2023, we increased interest-bearing deposit rates to address
rising market interest rates and intense competition for liquidity to combat deposit outflows. Throughout 2023 and 2024, we
experienced net interest margin compression reflecting deposit repricing activity and demand deposit migration into interest-
bearing accounts. Deposit costs remained elevated throughout 2024; however, the interest paid on our deposits increased at a
slower pace during the second, third and fourth quarters of 2024 as we reduced higher cost brokered deposits and our interest-
bearing deposits yield flattened and market expectations for a decrease in the Federal Reserve funds emerged. Additionally, at
December 31, 2024, we continued to access core deposits from our Hilltop Securities Federal Deposit Insurance Corporation
(“FDIC”) insured sweep program, while the Bank was not utilizing any of its Federal Home Loan Bank (“FHLB”) borrowing
capacity.
Market conditions and external factors may unpredictably impact the competitive landscape for deposits such as those
experienced during the first quarter of 2023. Additionally, throughout 2023 and 2024, the market interest rate environment
increased competition for liquidity and the premium at which liquidity was available to meet funding needs. While funding
costs will continue to be influenced by various factors, including competitive pressures and broader economic conditions, with
the cumulative 100-basis point decrease in the target range for the federal funds rate since September 2024 and the possibility
of additional rate cuts in 2025, we anticipate that our cost of deposits will begin to trend modestly downward. An unexpected
influx of withdrawals of deposits could adversely impact our ability to rely on
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organic deposits to primarily fund our operations, potentially requiring greater reliance on secondary sources of liquidity to
meet withdrawal deposits or to fund continuing operations. These sources may include proceeds from FHLB advances, sales
of investment securities and loans, federal fund lines of credit with correspondent banks, securities sold under agreements to
repurchase, brokered time deposits, borrowings from the Federal Reserve and borrowings under lines of credit with other
financial institutions. Refer to the discussions in the “Segment Results – Banking Segment” and “Liquidity and Capital
Resources – Banking Segment” sections that follow for more details regarding the Bank’s deposits, available liquidity and
borrowing capacity at December 31, 2024.
We expect uncertainties related to economic headwinds discussed above, the impact of interest rate movements on the shape
and inversions of the yield curve, and the increasing cost and challenge for deposits that persisted through 2023 and 2024 to
continue in 2025.
Asset Valuation
At each reporting date between annual impairment tests, we consider potential indicators of impairment, including 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 business segment; performance of our stock and other relevant
events.
Continuing macroeconomic challenges related to mortgage loan origination volumes, customer sensitivity to interest rates and
resulting demand for certain products have resulted in a challenging environment associated with our reporting segments,
resulting in variability in their operating results.
Given the potential impacts of the operating performance of our reporting segments and overall economic conditions, actual
results may differ materially from our current estimates as the scope of such impacts evolves or if the duration of business
disruptions are longer than currently anticipated. We further considered the amount by which fair value exceeded book value
in the most recent quantitative analysis and sensitivities performed. Accordingly, at the conclusion of the annual assessments,
we determined that as of October 1, 2024 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 overall economic conditions,
market capitalization, and any other triggering events or circumstances that may indicate an impairment in the future.
To the extent future operating performance of our reporting segments remain challenged and below forecasted projections
during 2025, significant assumptions such as expected future cash flows or the risk-adjusted discount rate used to estimate fair
value are adversely impacted, or upon 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, an impairment
charge may be 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.
Outlook
Our balance sheet, operating results and certain metrics during 2024 reflected economic conditions that remain uncertain for
2025, and will depend in part on several developments outside of our control including, among others, changes in the political
environment, the timing and significance of further changes in U.S. treasury yields and mortgage interest rates, and a volatile
economic forecast. These economic conditions, coupled with exposure to changes in funding costs, inflationary pressures, and
international armed conflicts and their impact on supply chains within our business segments during 2023 and 2024 have had,
and are expected to continue to have, an adverse impact on our operating results during 2025.
See “Item 1A. Risk Factors” for additional discussion of the potential adverse impacts of unpredictable economic, market and
business conditions on our business, results of operations and financial condition.
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62
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 is 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.
Acquisitions
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 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
The Company has two primary business units, PCC (banking and mortgage origination) and Securities Holdings (broker-
dealer). Under accounting principles generally accepted in the United States (“GAAP”), the Company’s 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 Securities and Exchange Commission
(the “SEC”) and the Financial Industry Regulatory Authority, Inc. (“FINRA”) and a member of the New York Stock
Exchange. Momentum Independent Network is an introducing broker-dealer that is also registered with the
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SEC and FINRA. Hilltop Securities, Momentum Independent Network and Hilltop Securities Asset Management, LLC are
investment advisers registered with the SEC under the Investment Advisers Act of 1940, as amended.
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 business segments is presented in Note 27, “Segment and Related Information,” in the notes to our
consolidated financial statements.
The following table presents certain information about the continuing operating results of our reportable business 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,
Variance 2024 vs 2023
Variance 2023 vs 2022
2024
2023
2022
Amount
Percent
Amount
Percent
Net interest income (expense):
Banking
$
372,546
$
397,936
$
413,603
$
(25,390)
(6)
$
(15,667)
(4)
Broker-Dealer
48,942
52,894
51,597
(3,952)
(7)
1,297
3
Mortgage Origination
(16,867)
(20,305)
(10,529)
3,438
17
(9,776)
(93)
Corporate
(12,838)
(12,961)
(13,135)
123
1
174
1
All Other and Eliminations (1)
26,015
49,283
17,439
(23,268)
(47)
31,844
183
Hilltop Consolidated
$
417,798
$
466,847
$
458,975
$
(49,049)
(11)
$
7,872
2
Provision for (reversal of) credit losses:
Banking
$
992
$
18,525
$
8,250
$
(17,533)
(95)
$
10,275
125
Broker-Dealer
(51)
(133)
59
82
62
(192)
(325)
Mortgage Origination
—
—
—
-
—
-
-
Corporate
—
—
—
-
—
-
-
All Other and Eliminations
—
—
—
-
—
-
-
Hilltop Consolidated
$
941
$
18,392
$
8,309
$
(17,451)
(95)
$
10,083
121
Noninterest income:
Banking
$
43,295
$
45,830
$
49,307
$
(2,535)
(6)
$
(3,477)
(7)
Broker-Dealer
422,801
403,538
341,943
19,263
5
61,595
18
Mortgage Origination
313,229
316,840
452,915
(3,611)
(1)
(136,075)
(30)
Corporate
18,515
12,887
7,525
5,628
44
5,362
71
All Other and Eliminations (1)
(26,884)
(50,122)
(19,230)
23,238
46
(30,892)
(161)
Hilltop Consolidated
$
770,956
$
728,973
$
832,460
$
41,983
6
$
(103,487)
(12)
Noninterest expense:
Banking
$
232,954
$
226,234
$
235,190
$
6,720
3
$
(8,956)
(4)
Broker-Dealer
408,283
383,024
355,713
25,259
7
27,311
8
Mortgage Origination
330,088
359,285
478,904
(29,197)
(8)
(119,619)
(25)
Corporate
63,110
60,631
59,030
2,479
4
1,601
3
All Other and Eliminations
(879)
(865)
(1,838)
(14)
(2)
973
53
Hilltop Consolidated
$
1,033,556
$
1,028,309
$
1,126,999
$
5,247
1
$
(98,690)
(9)
Income (loss) before taxes:
Banking
$
181,895
$
199,007
$
219,470
$
(17,112)
(9)
$
(20,463)
(9)
Broker-Dealer
63,511
73,541
37,768
(10,030)
(14)
35,773
95
Mortgage Origination
(33,726)
(62,750)
(36,518)
29,024
46
(26,232)
(72)
Corporate
(57,433)
(60,705)
(64,640)
3,272
5
3,935
6
All Other and Eliminations
10
26
47
(16)
(62)
(21)
(45)
Hilltop Consolidated
$
154,257
$
149,119
$
156,127
$
5,138
3
$
(7,008)
(4)
(1)
All other and eliminations amounts during each period include FDIC sweep program revenues and expenses earned on broker-dealer segment deposits placed with the
banking segment that are eliminated in consolidation.
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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.
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.
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 $417.8 million in net interest income during 2024,
compared with net interest income of $466.8 million and $459.0 million during 2023 and 2022, respectively. The change in
reportable business segment net interest income during 2024, compared with 2023, primarily reflected decreases within our
banking and broker-dealer segments.
The other component of our revenue is noninterest income, which is primarily comprised of the following:
(i)
Income from broker-dealer operations. Through Securities Holdings, we provide investment banking and
other related financial services that generated $268.6 million, $234.9 million and $242.6 million in
securities commissions and fees and investment and securities advisory fees and commissions, and $125.1
million, $118.4 million and $85.0 million in gains from derivative and trading portfolio activities (included
within other noninterest income) during 2024, 2023 and 2022, respectively.
(ii)
Income from mortgage operations. Through PrimeLending, we generate noninterest income by originating
and selling mortgage loans. During 2024, 2023 and 2022, we generated $313.1 million, $316.7 million and
$452.0 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 $771.0 million, $729.0 million and $832.5 million in noninterest income during 2024, 2023
and 2022, respectively. The increase in noninterest income during 2024, compared with 2023, was predominantly attributable,
as noted in the segment results table previously presented, to increases in securities commissions and fees and investment and
securities advisory fees and commissions, and gains from derivative and trading portfolio activities
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within our broker-dealer segment, partially offset by a net decline in net gains from sale of loans, other mortgage production
income and mortgage loan origination fees within our mortgage origination 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 applicable to common stockholders during 2024 was $113.2 million, or $1.74 per diluted share, compared with $109.6
million, or $1.69 per diluted share, during 2023, and $113.1 million, or $1.60 per diluted share, during 2022. Hilltop’s
financial results during 2024, compared with 2023, included a decline in net interest income, partially offset by a decline in
the provision for credit losses within the banking segment, net revenues and noninterest expenses increased within the broker-
dealer segment, and the mortgage origination segment had decreases in both noninterest income and expenses.
Hilltop’s financial results during 2023, compared with 2022, reflected decreases in year-over-year mortgage origination
segment net gains from sales of loans and other mortgage production income, a decline in net interest income within the
banking segment, and increases in net revenues within all of the broker-dealer segment’s business lines.
Certain items included in net income during 2024, 2023 and 2022 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 2024, 2023 and 2022 included net accretion on earning assets and
liabilities of $5.1 million, $8.6 million and $10.8 million, respectively, and amortization of identifiable intangibles of $1.8
million, $2.9 million and $4.5 million, respectively, related to the Bank Transactions.
The information shown in the table below includes certain key performance indicators on a consolidated basis.
Year Ended December 31,
2024
2023
2022
Return on average stockholders' equity (1)
5.29 %
5.31 %
5.11 %
Return on average assets (2)
0.78 %
0.71 %
0.69 %
Net interest margin (3) (4)
2.81 %
3.07 %
2.87 %
Leverage ratio (5) (end of year)
12.57 %
12.23 %
11.47 %
Common equity Tier 1 risk-based capital ratio (6)
(end of year)
21.23 %
19.32 %
18.23 %
(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 24 basis points, 26 basis points and 21 basis points during 2024, 2023 and 2022, 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 Company performs periodic reviews of the classification and categorization of the components impacting the
calculation of net interest margin. 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,
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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 2024, 2023 and 2022, purchase accounting contributed 4, 6 and 7 basis points, respectively, to our consolidated taxable
equivalent net interest margin of 2.83%, 3.09% and 2.88%, respectively. The purchase accounting activity is primarily related
to the accretion of discount on loans which totaled $5.1 million, $8.6 million and $10.5 million during 2024, 2023 and 2022,
respectively, associated with the Bank Transactions.
The table below provides additional details regarding our consolidated net interest income (dollars in thousands).
Year Ended December 31,
2024
2023
2022
Average
Interest Annualized
Average
Interest Annualized
Average
Interest Annualized
Outstanding
Earned
Yield or
Outstanding
Earned
Yield or
Outstanding
Earned
Yield or
Balance
or Paid
Rate
Balance
or Paid
Rate
Balance
or Paid
Rate
Assets
Interest-earning assets
Loans held for sale
$
934,983
$ 53,073
5.60 % $
944,470
$ 53,736
5.69 % $ 1,221,235
$ 52,315
4.28 %
Loans held for investment, gross
(1)
7,921,528
491,432
6.20 %
7,950,878
488,538
6.23 %
7,840,848
363,892
4.71 %
Investment securities - taxable
2,537,856
107,007
4.16 % 2,726,763
108,250
3.97 % 2,819,282
75,805
2.69 %
Investment securities - non-
taxable (2)
324,684
12,638
3.84 %
363,493
13,463
3.70 %
310,315
11,608
3.74 %
Federal funds sold and
securities purchased under
agreements to resell
98,337
7,232
7.35 %
145,696
8,954
6.15 %
162,575
4,098
2.52 %
Interest-bearing deposits in
other financial institutions
1,526,748
75,633
4.95 % 1,597,865
79,657
4.99 % 2,306,960
31,705
1.37 %
Securities borrowed
1,355,554
77,785
5.66 %
1,409,765
71,924
5.03 %
1,298,276
44,414
3.37 %
Other
159,141
14,041
8.82 %
65,912
16,554
25.11 %
55,280
8,873
16.05 %
Interest-earning assets, gross (2)
14,858,831
838,841
5.65 % 15,204,842
841,076
5.53 % 16,014,771
592,710
3.70 %
Allowance for credit losses
(110,123)
(103,975)
(92,828)
Interest-earning assets, net
14,748,708
15,100,867
15,921,943
Noninterest-earning assets
1,130,198
1,404,393
1,488,970
Total assets
$ 15,878,906
$ 16,505,260
$ 17,410,913
Liabilities and Stockholders' Equity
Interest-bearing liabilities
Interest-bearing deposits
$ 7,822,536
$ 275,291
3.52 % $ 7,711,570
$ 223,179
2.89 % $ 7,561,501
$ 50,412
0.67 %
Securities loaned
1,335,155
72,614
5.44 %
1,331,443
65,175
4.90 %
1,184,498
38,570
3.26 %
Notes payable and other
borrowings
1,397,313
70,686
5.06 % 1,579,170
83,174
5.27 % 1,293,133
43,158
3.34 %
Total interest-bearing liabilities
10,555,004
418,591
3.97 % 10,622,183
371,528
3.50 % 10,039,132
132,140
1.32 %
Noninterest-bearing liabilities
Noninterest-bearing deposits
2,824,450
3,441,437
4,455,779
Other liabilities
332,340
351,938
675,628
Total liabilities
13,711,794
14,415,558
15,170,539
Stockholders’ equity
2,139,732
2,063,174
2,213,733
Noncontrolling interest
27,380
26,528
26,641
Total liabilities and stockholders'
equity
$ 15,878,906
$ 16,505,260
$ 17,410,913
Net interest income (2)
$ 420,250
$ 469,548
$ 460,570
Net interest spread (2)
1.68 %
2.03 %
2.38 %
Net interest margin (2)
2.83 %
3.09 %
2.88 %
(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 $2.5 million, $2.7 million and $1.6 million during 2024, 2023 and 2022, 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, such as securities borrowed in the
broker-dealer segment and securities loaned 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
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interest-earning assets, such as lines of credit extended to other operating segments by the banking segment, are eliminated
from the consolidated financial statements.
On a consolidated basis, the changes in net interest income during 2024, compared with 2023, were primarily due to changes
within the banking segment related to changes in the rates earned or paid on interest-earning assets and interest-bearing
liabilities. 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 2024, the provision for credit losses reflected a build in the allowance related to specific reserves since
December 31, 2023, significantly offset by both the change in the U.S. economic outlook and changes in the collectively
evaluated loan portfolio. During 2023, the provision for credit losses reflected a significant build in the allowance related to
loan portfolio changes since December 31, 2022 and a deteriorating outlook for commercial real estate markets. 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 increased during 2024, compared with 2023, primarily due to net increases within the broker-dealer
segment’s structured finance and public finance services business lines, an increase in pre-tax gains associated with the sale of
merchant bank equity investments within corporate and increases in mortgage loan gains from sale of loans within our
mortgage origination segment, partially offset by declines in mortgage loan origination fees and other related income within
the mortgage origination segment and declines within the broker-dealer segment’s fixed income services and wealth
management business lines. The decrease in noninterest income during 2023, compared with 2022, was primarily due to
decreases in total mortgage loan sales volume and average loan sales margin within our mortgage origination segment,
partially offset by net increases within all of the broker-dealer segment’s business lines.
Noninterest expense increased during 2024, compared with 2023, primarily due to increases in both variable and non-variable
compensation and other segment operating costs within our broker-dealer segment and an increase in variable compensation
within our mortgage origination segment, partially offset by decreases in non-variable compensation and other segment
operating costs within our mortgage origination segment. We continue to experience increases in certain noninterest expenses
during 2024 and 2023, compared with respective prior periods, including compensation, occupancy, and software costs, due to
inflationary pressures. We expect such inflationary headwinds to continue and result in further increased fixed costs during
2025.
Effective income tax rates were 20.1%, 20.9% and 23.6% for 2024, 2023 and 2022, respectively. The effective tax rate for
2024 was lower than the applicable statutory rate primarily due to investments in tax-exempt instruments, state refund claims
and return to provision adjustments, partially offset by the impact of nondeductible expenses, nondeductible compensation
expense and other permanent adjustments. The effective tax rate for 2023 was lower than the applicable statutory rate due to
the impacts of excess tax benefits on share-based payment awards, investments in tax-exempt instruments and changes in
accumulated tax reserves, partially offset by nondeductible expenses and the booking of additional taxes from a recent change
in the source of funding for an acquired non-qualified, deferred compensation plan, while 2022 approximated statutory rates
and included the effect of investments in tax-exempt instruments, offset by nondeductible expenses.
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Segment Results
Banking Segment
The following table presents certain information about the operating results of our banking segment (in thousands).
Year Ended December 31,
Variance
2024
2023
2022
2024 vs 2023
2023 vs 2022
Net interest income
$
372,546
$
397,936
$
413,603
$
(25,390) $
(15,667)
Provision for credit losses
992
18,525
8,250
(17,533)
10,275
Noninterest income
43,295
45,830
49,307
(2,535)
(3,477)
Noninterest expense
232,954
226,234
235,190
6,720
(8,956)
Income before income taxes
$
181,895
$
199,007
$
219,470
$
(17,112) $
(20,463)
The decrease in income before income taxes during 2024, compared with 2023, was primarily due to a decline in net interest
income and an increase in noninterest expense, partially offset by a decline in the provision for credit losses. The decrease in
income before income taxes during 2023, compared with 2022, was primarily due to a decrease in net interest income and an
increase in the provision for credit losses, partially offset by a decline in noninterest expense. 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.
As discussed in more detail below, the banking segment’s cost of deposits increased during 2024 due to continued competition
for liquidity and customers seeking higher yields on deposits. The resulting net interest income spread compression has had,
and is expected to continue to have, a negative impact on banking segment operating results. While we expect deposit costs
during 2025 to continue to be driven by various factors, including competitive pressures and broader economic conditions,
with the cumulative 100-basis point decrease in the target range for the federal funds rate since September 2024, and the
possibility of additional rate cuts in 2025, we anticipate that our cost of deposits will begin to trend modestly downward.
The information shown in the table below includes certain key indicators of the performance and asset quality of our banking
segment.
Year Ended December 31,
2024
2023
2022
Efficiency ratio (1)
56.02 %
50.98 %
50.81 %
Return on average assets (2)
1.10 %
1.15 %
1.19 %
Net interest margin (3)
3.04 %
3.13 %
3.11 %
Net charge-offs to average loans outstanding (4)
(0.15)%
(0.03)%
(0.06)%
(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 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 banking segment performs periodic reviews of the
classification and categorization of the components impacting the calculation of net interest margin. 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
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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 2024, 2023 and 2022, purchase accounting contributed 4, 7 and 9 basis points, respectively, to the banking segment’s
taxable equivalent net interest margin of 3.04%, 3.14% and 3.11%, respectively. These purchase accounting items are
primarily related to accretion of discount on loans associated with the Bank Transactions presented in the Consolidated
Operating Results section.
The table below provides additional details regarding our banking segment’s net interest income (dollars in thousands).
Year Ended December 31,
2024
2023
2022
Average
Interest Annualized
Average
Interest Annualized
Average
Interest Annualized
Outstanding
Earned
Yield or
Outstanding
Earned
Yield or
Outstanding
Earned
Yield or
Balance
or Paid
Rate
Balance
or Paid
Rate
Balance
or Paid
Rate
Assets
Interest-earning assets
Loans held for sale
$
8,642
$
126
1.46 % $
—
$
—
— % $
—
$
—
— %
Loans held for investment, gross
(1)
7,685,903
463,133
6.02 %
7,786,984
454,132
5.83 %
7,371,397
339,356
4.60 %
Subsidiary warehouse lines of
credit
866,178
68,786
7.83 %
867,011
70,024
7.97 % 1,128,576
58,153
5.08 %
Investment securities - taxable
2,094,809
70,051
3.34 % 2,284,654
72,771
3.19 % 2,377,483
45,282
1.90 %
Investment securities - non-
taxable (2)
109,720
3,717
3.39 %
112,408
3,907
3.48 %
109,911
3,871
3.52 %
Federal funds sold and securities
purchased under agreements to
resell
72,512
3,990
5.50 %
67,011
3,575
5.41 %
118,686
2,190
1.87 %
Interest-bearing deposits in other
financial institutions
1,381,911
71,974
5.21 % 1,543,471
79,657
5.16 % 2,174,529
31,705
1.46 %
Other
38,155
1,723
4.52 %
50,673
2,353
4.64 %
36,843
3,876
10.52 %
Interest-earning assets, gross (2)
12,257,830
683,500
5.58 % 12,712,212
686,419
5.40 % 13,317,425
484,433
3.64 %
Allowance for credit losses
(109,975)
(103,180)
(92,377)
Interest-earning assets, net
12,147,855
12,609,032
13,225,048
Noninterest-earning assets
781,834
848,093
919,618
Total assets
$ 12,929,689
$ 13,457,125
$ 14,144,666
Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Interest-bearing deposits
$ 7,747,864
$ 296,505
3.83 % $ 7,578,587
$ 265,560
3.50 % $ 7,379,265
$ 63,148
0.86 %
Notes payable and other
borrowings
476,666
13,870
2.91 %
579,462
22,230
3.84 %
311,735
6,864
2.20 %
Total interest-bearing liabilities
8,224,530
310,375
3.77 % 8,158,049
287,790
3.53 % 7,691,000
70,012
0.91 %
Noninterest-bearing liabilities
Noninterest-bearing deposits
3,048,989
3,582,356
4,695,265
Other liabilities
103,531
156,980
145,272
Total liabilities
11,377,050
11,897,385
12,531,537
Stockholders’ equity
1,552,639
1,559,740
1,613,129
Total liabilities and stockholders’
equity
$ 12,929,689
$ 13,457,125
$ 14,144,666
Net interest income (2)
$ 373,125
$ 398,629
$ 414,421
Net interest spread (2)
1.81 %
1.87 %
2.73 %
Net interest margin (2)
3.04 %
3.14 %
3.11 %
(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 $0.6 million, $0.7 million and $0.8 million during 2024, 2023 and 2022, 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, such as securities borrowed in the broker-dealer
segment and securities loaned 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-
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earning assets, such as lines of credit extended to other operating segments by the banking segment, are eliminated from the
consolidated financial statements.
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).
Year Ended December 31,
2024 vs. 2023
2023 vs. 2022
Change Due To (1)
Change Due To (1)
Volume
Yield/Rate
Change
Volume
Yield/Rate
Change
Interest income
Loans held for sale
$
—
$
126
$
126
$
—
$
—
$
—
Loans held for investment, gross (2)
(5,893)
14,894
9,001
19,117
95,659
114,776
Subsidiary warehouse lines of credit (3)
(66)
(1,172)
(1,238)
(13,293)
25,164
11,871
Investment securities - taxable
(6,047)
3,327
(2,720)
(1,768)
29,257
27,489
Investment securities - non-taxable (4)
(93)
(97)
(190)
88
(52)
36
Federal funds sold and securities purchased
under agreements to resell
298
117
415
(967)
2,352
1,385
Interest-bearing deposits in other financial
institutions
(8,338)
655
(7,683)
(9,201)
57,153
47,952
Other
(581)
(49)
(630)
1,455
(2,978)
(1,523)
Total interest income (4)
(20,720)
17,801
(2,919)
(4,569)
206,555
201,986
Interest expense
Deposits
$
5,932
$ 25,013
$ 30,945
$
1,706
$ 200,706
$ 202,412
Notes payable and other borrowings
(3,944)
(4,416)
(8,360)
5,895
9,471
15,366
Total interest expense
1,988
20,597
22,585
7,601
210,177
217,778
Net interest income (4)
$ (22,708)
$ (2,796)
$ (25,504)
$ (12,170)
$
(3,622)
$ (15,792)
(1)
Changes attributable to both volume and yield/rate are included in yield/rate column.
(2)
Changes in the yields earned on loans held for investment, gross included a decline during 2024 of $3.6 million in accretion of discount on loans,
compared with 2023, and a decrease of $1.9 million during 2023, compared with 2022. Accretion of discount on loans is expected to decrease in future
periods as loans acquired in the Bank Transaction are repaid, refinanced or renewed.
(3)
Subsidiary warehouse lines of credit extended to PrimeLending are eliminated from the consolidated financial statements.
(4)
Annualized taxable equivalent.
With regard to net interest income, as of December 31, 2024, the banking segment maintained an asset sensitive rate risk
position, meaning 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. During a period of declining interest rates,
being asset sensitive tends to result in a decrease in net interest income, but during a period of rising interest rates, being asset
sensitive tends to result in an increase in net interest income. Given projected impacts on net interest income associated with
the expected transition into the next phase of the interest rate cycle, we continue to evaluate our current GAP position, which
may result in a repositioning of the banking segment towards a more neutral or liability sensitive balance sheet.
The decreases in net interest income, as noted in the table above, were primarily driven by the increased funding costs on our
deposit products from rate increases in 2023, the migration from non-interest-bearing deposits into interest-bearing products
during the year over year period, and decreases in average loans held for investment, investment securities and deposits held
in other financial institutions, partially offset by increased earnings on interest-earning assets, primarily loan yields. The
average rate paid on interest-bearing liabilities increased 24 basis points from 3.53% for 2023 to 3.77% for 2024, while the
average yield on interest-earning assets increased 18 basis points from 5.40% for 2023 to 5.58% for 2024.
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Our portfolio includes loans that periodically reprice or mature prior to the end of an amortized term. The extent and timing of
this impact on interest income 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. At December 31, 2024,
approximately $602 million of our floating rate loans held for investment remained at or below their applicable rate floor,
exclusive of our mortgage warehouse lending program, of which approximately 59% are not scheduled to reprice for more
than one year based upon agreed-upon terms. If interest rates were to continue to fall, the impact on our interest income for
certain variable-rate loans would be limited by these rate floors. If interest rates 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, unless such loans are
refinanced or repaid. Competition for loan growth could also continue to put pressure on new loan origination rates.
Additionally, within our banking segment, the composition of the deposit base and ultimate cost of funds on deposits and net
interest income 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. Deposit products and pricing structures relative to the market are regularly
evaluated to maintain competitiveness over time. As discussed above, our cost of deposits increased during 2024, compared to
2023. While we expect such costs during 2025 to continue to be driven by various factors, including competitive pressures and
broader economic conditions, with the cumulative 100-basis point decrease in the target range for the federal funds rate since
September 2024 and the possibility of additional rate cuts in 2025, we anticipate that our cost of deposits will begin to trend
modestly downward. The Bank’s deposit base primarily includes a combination of commercial, wealth, and public funds
deposits, without a high level of industry concentration. At December 31, 2024, total estimated uninsured deposits were $5.7
billion, or approximately 52% of total deposits, while estimated uninsured deposits, excluding collateralized deposits of
$363.1 million, were $5.3 billion, or approximately 48% of total deposits.
Refer to the discussion in the “Liquidity and Capital Resources – Banking Segment” section that follows for more detail
regarding the Bank’s activities regarding deposits, available liquidity and borrowing capacity.
To help mitigate net interest income spread volatility between our assets and liabilities, management maintains derivative
trades, as either cash flow hedges or fair value hedges, that better align repricing characteristics. Despite having these hedges
in place, changes in interest rates across the term structure may 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.
During 2024, 2023 and 2022, the banking segment retained approximately $124 million, $140 million and $532 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. 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 changing economic outlook, macroeconomic forecast assumptions and
resulting impact on reserves. Specifically, during 2024, the banking segment’s provision for credit losses reflected a build in
the allowance related to specific reserves since December 31, 2023, significantly offset by both the change in the U.S.
economic outlook and changes in the collectively evaluated loan portfolio. The net impact to the allowance of changes
associated with individually evaluated loans during 2024 included a provision for credit losses of $15.2 million, while
collectively evaluated loans during 2024 included a reversal of credit losses of $14.2 million. The change in the allowance
during 2024 was also impacted by net charge-offs of $11.2 million. During 2023, the banking segment’s provision for credit
losses reflected a build in the allowance related to loan portfolio changes since December 31, 2022 and a deteriorating outlook
for commercial real estate markets. The net impact to the allowance of changes associated with collectively evaluated loans
during 2023 included a provision for credit losses of $12.7 million, while individually evaluated loans included a provision for
credit losses of $5.8 million. The change in the allowance during 2023 was also impacted by net charge-offs of $2.4 million.
During 2022, the banking segment’s provision for credit
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72
losses was driven by a deteriorating U.S. economic outlook since December 31, 2021. The change in the allowance during
2022 was also impacted by net charge-offs of $4.2 million. 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 and
qualitative factors from the prior quarter. 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 decreased during 2024, compared with 2023, primarily due to valuation
adjustments associated with the sale of a single loan from loans held for sale during the second quarter of 2024 and a decrease
in oil and gas management fees, partially offset by an increase in service charges on depositor accounts. Noninterest income
during 2023, compared with 2022, decreased primarily due to a decline in service charges on depositor accounts, oil and gas
management fees and non-recurring income related to the Community Reinvestment Act of 1977 investment that occurred in
2022.
The banking segment’s noninterest expenses increased during 2024, compared with 2023, primarily due to a long-lived asset
impairment charge of $4.8 million associated with one of the Bank’s support facilities that management has the intent to sell.
The facility was written down to the estimated fair value of the property less the estimated costs to sell. The sale of the facility
is expected to be completed during the first quarter of 2025. Additionally, during 2024, the Bank incurred one-time
compensation expenses associated with Bank leadership changes, partially offset by decreases in professional fees.
Noninterest expenses during 2023, compared with 2022, decreased primarily due to decreases in compensation-related
expenses, partially offset by an increase in FDIC assessment, professional fees and software related expenses.
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73
Broker-Dealer Segment
The following table provides additional details regarding our broker-dealer segment operating results (in thousands).
Year Ended December 31,
Variance
2024
2023
2022
2024 vs 2023
2023 vs 2022
Net interest income:
Wealth management:
Securities lending
$
5,171
$
6,749
$
5,844
$
(1,578) $
905
Clearing services
10,490
8,064
7,598
2,426
466
Structured finance
7,207
7,957
6,680
(750)
1,277
Fixed income services
(1,709)
1,294
19,096
(3,003)
(17,802)
Other
27,783
28,830
12,379
(1,047)
16,451
Total net interest income
48,942
52,894
51,597
(3,952)
1,297
Noninterest income:
Securities commissions and fees by business line
(1) (6):
Fixed income services
29,210
22,893
29,513
6,317
(6,620)
Wealth management:
Retail
65,838
70,792
55,762
(4,954)
15,030
Clearing services
35,950
40,081
28,749
(4,131)
11,332
Structured finance
13,635
11,040
11,157
2,595
(117)
Other
5,881
2,845
3,633
3,036
(788)
150,514
147,651
128,814
2,863
18,837
Investment and securities advisory fees and
commissions by business line (2):
Public finance services
98,035
89,437
86,573
8,598
2,864
Fixed income services
4,997
10,865
7,143
(5,868)
3,722
Wealth management:
Retail
36,437
31,016
30,744
5,421
272
Clearing services
1,889
1,660
1,741
229
(81)
Structured finance
1,286
1,105
863
181
242
Other
346
244
335
102
(91)
142,990
134,327
127,399
8,663
6,928
Other (6):
Structured finance
80,399
62,896
47,251
17,503
15,645
Fixed income services
28,018
39,134
17,078
(11,116)
22,056
Other
20,880
19,530
21,401
1,350
(1,871)
129,297
121,560
85,730
7,737
35,830
Total noninterest income
422,801
403,538
341,943
19,263
61,595
Net revenue (3)
471,743
456,432
393,540
15,311
62,892
Noninterest expense:
Variable compensation (4)
153,062
144,984
138,705
8,078
6,279
Non-variable compensation and benefits
133,638
121,411
112,440
12,227
8,971
Segment operating costs (5)
121,532
116,496
104,627
5,036
11,869
Total noninterest expense
408,232
382,891
355,772
25,341
27,119
Income before income taxes
$
63,511
$
73,541
$
37,768
$
(10,030) $
35,773
(1)
Securities commissions and fees includes income from FDIC sweep investments with the banking segment of $24.9 million, $47.1 million, and $13.6 million during 2024,
2023, and 2022, respectively, that is eliminated in consolidation.
(2)
Investment and securities advisory fees and commissions includes a de minimis amount of income from the securitization of Small Business Administration, or SBA, loans
originated with the banking segment during 2024, that is eliminated in consolidation.
(3)
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 net revenue basis for comparability with our banking
segment.
(4)
Variable compensation represents performance-based commissions and incentives.
(5)
Segment operating costs include provision for (reversal of) credit losses associated with the broker-dealer segment within other noninterest expenses.
(6)
During the second quarter of 2024, the Company identified an immaterial error related to the classification within noninterest income associated with the allocation of earned
revenue between commission and principal gains on certain principal trades of fixed income securities. As a result, certain prior period amounts within securities commissions
and fees noninterest income and other noninterest income have been corrected for consistency with the current period presentation.
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The decline in income before income taxes during 2024, compared with 2023, was primarily due to increases in segment
compensation and other segment operating costs, partially offset by an increase in net revenue. The increase in net revenue
during 2024, compared with 2023, was primarily due to improved period-over-period results within our structured finance and
public finance services business lines, partially offset by declines within our fixed income services and wealth management
business lines. The increase in the structured finance business line’s net revenues was primarily due to an increase in trading
gains from the U.S. Agency to-be-announced (“TBA”) business and commissions earned on commodities transactions. The
increase in net revenues in the broker-dealer segment’s public finance services business line was primarily due to fees earned
from managed assets and municipal advisory revenues. The wealth management business line’s net revenue decrease was
driven by decreases in commissions earned from our FDIC sweep program on lower customer balances. These decreases were
partially offset by improved advisory fees revenues generated from customer assets under management. The decrease in net
revenues in the broker-dealer segment’s fixed income services business line was primarily due to declines in revenues from
net interest income earned on inventory positions and trading profits.
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. The broker-dealer segment is also exposed to interest rate risk through its structured finance business line, which is
dependent on mortgage loan production that tends to be adversely impacted by increasing interest rates, resulting in valuation-
related adjustments.
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
decrease in net interest income during 2024, compared with 2023, was primarily due to the decrease in the net interest income
from the fixed income services business line due to decreases in net interest earned on inventory positions. The increase in net
interest income during 2023, compared with 2022, was primarily due to the increase in corporate interest, retail and clearing
services business line revenues and the amount of interest received on a structured product investments offset by a decrease in
net interest income from the fixed income services business line due to the increased cost to carry inventory positions.
Noninterest income increased during 2024, compared with 2023, primarily due to increases in securities commissions and
fees, investment and securities advisory fees and other noninterest income. Noninterest income increased during 2023,
compared with 2022, primarily due to increases in other noninterest income, securities commissions and fees and investment
and securities advisory fees and commissions.
Securities commissions and fees increased during 2024, compared with 2023, primarily due to increases in both the broker-
dealer segment’s fixed income services and structured finance business lines. The increase in the fixed income services
business line was primarily due to increased volumes and the increase in the structured finance business line was primarily
due to an increase in commissions earned on commodities transactions. These increases were partially offset by declines in
securities commissions and fees in the broker-dealer segment’s wealth management business line due to decreases in FDIC
sweep revenues and net clearing revenues, as well as a decline in commissions earned on insurance product sales. Securities
commissions and fees increased during 2023, compared with 2022, primarily due to an increase in FDIC sweep revenue given
higher short-term interest rates, partially offset by a decrease in fixed income and retail commissions. As FDIC sweep
revenues are closely correlated to short-term interest rates, changes in short-term interest rates may affect these revenues.
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Investment and securities advisory fees and commissions increased during 2024, compared with 2023, primarily due to
increases in fees earned from managed assets and municipal advisory transactions. Investment and securities advisory fees and
commissions increased during 2023, compared with 2022, primarily due increases in fees earned from managed assets within
our treasury management and government investment pool divisions of our public finance services business line and
underwriting transactions.
The increase in other noninterest income during 2024, compared with 2023, was primarily due to increases in trading gains
earned from structured finance trading activities and distributions received on investments, partially offset by decreases in
trading gains earned from fixed income trading activities. Buy-side demand improved resulting in increases in noninterest
income in the structured finance business line for 2024, when compared to 2023. The decrease in fixed income trading gains
in 2024, compared with 2023, was primarily driven by municipal and taxable securities trading. Other noninterest income
increased during 2023, compared with 2022, was primarily due to fixed income trading activities and increases in trading
gains earned from structured finance. Specifically, mortgage originations increased 72% during 2023 and customer demand
improved compared with 2022. Increased fixed income trading gains during 2023, compared with 2022, were primarily driven
by government and agency, mortgage and asset-backed securities trading, partially offset by a decrease in net trading gains
from derivative transactions. Also contributing to the overall increase in noninterest income was an increase in the value of the
broker-dealer segment’s deferred compensation plan’s assets of $2.5 million during 2023, compared with 2022.
The increase in noninterest expenses during 2024, compared with 2023, was due to increases in segment compensation and
other segment operating costs, primarily quotation expenses. The increase in noninterest expenses during 2023, compared with
2022, was primarily due to increases in segment operating costs, including software expenses, travel expenses, quotation and
transaction clearing costs, legal fees and both non-variable and variable compensation expenses.
Selected information concerning the broker-dealer segment, including key performance indicators, follows (dollars in
thousands).
Year Ended December 31,
2024
2023
2022
Total compensation as a % of net revenue (1)
60.8 %
58.4 %
63.8 %
Pre-tax margin (2)
13.5 %
16.1 %
9.6 %
FDIC insured program balances at the Bank (end of year)
$
572,188
$
1,132,106
$
1,122,091
Other FDIC insured program balances (end of year)
$
1,350,298
$
852,653
$
695,873
Customer funds on deposit, including short credits (end of year)
$
258,480
$
223,414
$
278,670
Public finance services:
Number of issues
901
804
894
Aggregate amount of offerings
$
63,343,100
$
46,343,892
$
38,952,431
Structured finance:
Lock production/TBA volume (3)
$
4,628,337
$
6,468,566
$
3,763,743
Fixed income services:
Total volumes
$
384,976,739
$
259,412,621
$
219,791,737
Net inventory (end of year)
$
457,946
$
481,052
$
701,923
Wealth management (Retail and Clearing services groups):
Retail employee representatives (end of year)
92
92
99
Independent registered representatives (end of year)
166
186
163
Correspondents (end of year)
99
105
111
Correspondent receivables (end of year)
$
150,013
$
119,996
$
156,859
Customer margin balances (end of year)
$
212,070
$
223,384
$
274,339
Wealth management (Securities lending group):
Interest-earning assets - stock borrowed (end of year)
$
1,292,365
$
1,406,937
$
1,012,573
Interest-bearing liabilities - stock loaned (end of year)
$
1,291,725
$
1,371,896
$
916,570
(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
be a key performance measure and indicator of segment profitability.
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76
(2)
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.
(3)
Noted balances during all prior periods include certain reclassifications to conform to current period presentation.
Mortgage Origination Segment
The following table presents certain information regarding the operating results of our mortgage origination segment (in
thousands).
Year Ended December 31,
Variance
2024
2023
2022
2024 vs 2023
2023 vs 2022
Net interest income (expense)
$
(16,867)
$
(20,305)
$ (10,529)
$
3,438
$
(9,776)
Noninterest income
313,229
316,840
452,915
(3,611)
(136,075)
Noninterest expense
330,088
359,285
478,904
(29,197)
(119,619)
Loss before income taxes
$
(33,726)
$
(62,750)
$ (36,518)
$
29,024
$
(26,232)
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. A decrease in mortgage interest rates tends to result in increased loan origination volume from refinancings,
while an increase in mortgage interest rates tends to result in decreased loan origination volume from refinancings. While
changes in mortgage interest rates have historically had a lesser impact on home purchases volume than on refinancing
volume, net increases in mortgage interest rates since 2022 continued to negatively impact home purchase volume through
2024. A modest decline in mortgage rates experienced between the fourth quarter of 2023 and the third quarter of 2024 had a
slight impact on loan origination volume in 2024, with a moderate increase in refinancings as a percentage of total loan
origination volume. During the fourth quarter of 2024, mortgage interest rates approached levels approximating rates at the
end of 2023. 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
because of movements in mortgage interest rates, may not be indicative of future loan origination volumes. During 2023, and
continuing through 2024, certain events adversely impacted total mortgage market origination volumes because of their effect
on the economy, including inflation, an increase in average interest rates during these periods when compared to the average
of the three years prior to 2023, the Federal Reserve’s actions and communications, and geopolitical events. These events have
also adversely impacted the willingness and ability of the mortgage origination segment’s customers to conduct mortgage
transactions. Specifically, current home inventory shortages and affordability challenges are impacting customers’ abilities to
purchase homes. Between September and December 2024, the Federal Reserve cut the target range for the federal funds rate
by 100 basis points to 4.25% - 4.5% as of December 31, 2024 and were the first reductions since March 2022 when the target
range was 0.25% - 0.50%. PrimeLending experienced a measurable increase in interest rate lock commitments (“IRLCs”) in
September 2024 due to the first rate cut and a corresponding decrease in mortgage interest rates. However, despite the
decrease in the federal funds rate since September 2024, average mortgage interest rates increased during the fourth quarter of
2024, which hampered mortgage production. PrimeLending continues to evaluate its cost structure to address the current
mortgage environment.
We believe that ongoing initiatives are critical to improving PrimeLending’s short- and long-term financial condition and
operating results. The mortgage origination segment experienced operating losses that began during the second half of 2022
and continued as expected during 2023 and, to lesser extent, during 2024 due to conditions and challenges discussed in detail
within this discussion of segment results. In light of these macroeconomic challenges in the mortgage industry including tight
housing inventories and mortgage interest rate levels, the fair value of the mortgage origination reporting unit may decline,
and we may be required to record a goodwill impairment charge. These conditions will continue to be considered during
future impairment evaluations of goodwill.
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77
As a GNMA approved lender, we are subject to certain HUD and GNMA minimum capital ratio reporting requirements,
including timely reporting if a quarter’s operating loss exceeds more than 20% of its previous quarter or year-end net worth
(the “operating loss ratio”) and/or if a quarter’s capital ratio is below 6% (the “GNMA capital ratio”). If this occurs, certain
additional financial reporting submissions are required. During the first and fourth quarters of 2023, the operating loss ratios
were 21.2% and 20.5%, respectively, while during the second and third quarters of 2023, the HUD operating loss ratio
decreased to 15.8% and 10.0%, respectively. During the first quarter of 2024, the HUD operating loss ratio was 22.6%, while
during the second quarter of 2024, PrimeLending reported a HUD operating gain. During the third and fourth quarters of
2024, the operating loss ratios were below the 20% threshold at 14.4% and 16.6%, respectively. During each quarter of 2023,
the GNMA capital ratio exceeded the required 6%. However, during the first and second quarters of 2024, the GNMA capital
ratio decreased to 5.56% and 4.41%, respectively. Including two $10 million capital infusions received by PrimeLending from
its parent company, PlainsCapital Bank, in September and December 2024, the GNMA capital ratio increased to 6.38% and
6.36% during the third and fourth quarters of 2024, respectively. All trends requiring notification to GNMA and HUD have
been reported to those entities, respectively. Such capital infusions are likely in future periods, including those in the near-
term, based on various factors including PrimeLending’s financial performance.
In addition, as a FNMA and FHLMC approved lender, we are subject to certain minimum capital, net worth and liquidity
requirements established by FNMA and FHLMC, including maintaining a minimum capital ratio of 6% (the “FNMA/FHLMC
capital ratio”). During each quarter of 2023 and the first quarter of 2024, the FNMA/FHLMC capital ratio exceeded the
required 6%, however during the second quarter of 2024, the FNMA/FHLMC capital ratio decreased to 5.52%. During the
third and fourth quarters of 2024, the capital ratio, including the capital infusions previously noted, exceeded the required 6%.
FNMA and FHLMC may also monitor additional financial performance trends at their discretion, including risk-based
analyses focused on loans that the mortgage origination segment is currently responsible for representations and warranties
that agency loans sold meet certain requirements, including representations as to underwriting standards and the validity of
certain borrower representations in connection with the loan. One FNMA discretionary performance trend monitors the
change in adjusted net worth during the prior twelve months. FNMA’s acceptable threshold for this performance trend is less
than minus 30%, but is only considered if a company has four consecutive quarterly losses. During the second, third and
fourth quarters of 2023, PrimeLending experienced four consecutive quarterly losses; the loss ratio during these periods were
50.2%, 37.6% and 39.8%, respectively. PrimeLending also recognized four consecutive quarterly losses during the first,
second, third and fourth quarters of 2024; the loss ratio during these periods was 37.5%, 29.9%, 23.9% and 11.5%,
respectively. All trends requiring notification to FNMA and FHLMC have been reported to those entities.
The loss before income taxes decreased in 2024, compared with 2023. This decrease was primarily the result of a decrease in
noninterest expense. The loss before income taxes increased significantly in 2023, compared with 2022. This decrease was
primarily the result of decreases in the volume of IRLCs, mortgage loan originations and sales and an increase in the net
interest expense, partially offset by a decrease in noninterest expense.
During 2022 and continuing through the beginning of the fourth quarter of 2023, the U.S. 10-Year Treasury Rate and
mortgage interest rates increased significantly. During the later part of the fourth quarter of 2023, both rates decreased to
levels that approximated rates at the beginning of 2023. Between January 1 and September 30, 2024, both rates decreased
slightly, then increased during the fourth quarter to levels that approximated rates at the beginning of 2024. Refinancing
volume as a percentage of total origination volume was slightly higher during 2024, compared with 2023. Although we
anticipate a slightly higher percentage of refinancing volume relative to total loan origination volume during 2025, as
compared to 2024, an even 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 and affordability challenges related
to new home construction, and/or an increase in all-cash buyers.
The mortgage origination segment primarily originates its mortgage loans through a retail channel, with additional lending
through its affiliated business arrangements (“ABAs”). For 2024, funded volume through ABAs was approximately 16% of
the mortgage origination segment’s total loan volume. Currently, PrimeLending owns a greater than 50% interest in two
ABAs. We expect total production within the ABA channel to approximate 13% of loan volume of the mortgage origination
segment during 2025.
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78
The following table provides further details regarding our mortgage loan originations and sales for the periods indicated below
(dollars in thousands).
Year Ended December 31,
2024
2023
2022
% of
% of
% of
Variance
Amount
Total
Amount
Total
Amount
Total
2024 vs 2023
2023 vs 2022
Mortgage Loan Originations - units
26,893
26,964
41,121
(71)
(14,157)
Mortgage Loan Originations - volume:
Conventional
$
5,235,729
60.77 % $
5,147,101
62.44 % $
8,276,434
65.37 % $
88,628
$
(3,129,333)
Government
1,849,513
21.47 %
1,904,237
23.10 %
2,572,257
20.32 %
(54,724)
(668,020)
Jumbo
435,716
5.06 %
297,509
3.61 %
1,052,508
8.31 %
138,207
(754,999)
Other
1,095,395
12.70 %
894,284
10.85 %
758,957
6.00 %
201,111
135,327
$
8,616,353
100.00 % $
8,243,131
100.00 % $
12,660,156
100.00 % $
373,222
$
(4,417,025)
Home purchases
$
7,759,812
90.06 % $
7,701,758
93.43 % $
10,823,002
85.49 % $
58,054
$
(3,121,244)
Refinancings
856,541
9.94 %
541,373
6.57 %
1,837,154
14.51 %
315,168
(1,295,781)
$
8,616,353
100.00 % $
8,243,131
100.00 % $
12,660,156
100.00 % $
373,222
$
(4,417,025)
Texas
$
2,709,566
31.45 % $
2,379,425
28.87 % $
2,910,754
22.99 % $
330,141
$
(531,329)
California
661,716
7.68 %
647,831
7.86 %
1,077,906
8.51 %
13,885
(430,075)
South Carolina
452,476
5.25 %
427,298
5.18 %
569,206
4.50 %
25,178
(141,908)
Missouri
373,148
4.33 %
304,723
3.70 %
398,826
3.15 %
68,425
(94,103)
New York
369,958
4.29 %
364,979
4.43 %
546,043
4.31 %
4,979
(181,064)
Florida
330,521
3.84 %
390,708
4.74 %
613,896
4.85 %
(60,187)
(223,188)
Arizona
278,043
3.23 %
345,738
4.19 %
562,590
4.44 %
(67,695)
(216,852)
Ohio
252,363
2.93 %
251,480
3.05 %
529,939
4.19 %
883
(278,459)
Washington
244,825
2.84 %
192,691
2.34 %
333,191
2.63 %
52,134
(140,500)
Maryland
169,411
1.97 %
208,367
2.53 %
321,835
2.54 %
(38,956)
(113,468)
All other states
2,774,326
32.19 %
2,729,891
33.11 %
4,795,970
37.89 %
44,435
(2,066,079)
$
8,616,353
100.00 % $
8,243,131
100.00 % $
12,660,156
100.00 % $
373,222
$
(4,417,025)
Mortgage Loan Sales - volume:
Third parties
$
8,099,425
98.49 % $
7,906,297
98.26 % $
12,668,252
95.97 % $
193,128
$
(4,761,955)
Banking segment
124,309
1.51 %
140,288
1.74 %
532,219
4.03 %
(15,979)
(391,931)
$
8,223,734
100.00 % $
8,046,585
100.00 % $
13,200,471
100.00 % $
177,149
$
(5,153,886)
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, mortgage loan origination fees, and other mortgage production income. 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 increased 4.5% during 2024, compared with 2023, while
loss before income taxes decreased 46.3%, compared with 2023. The decrease in loss before income taxes during 2024 was
primarily due to an increase in average loan sales margin, increases in average value of IRLCs and decreases in non-variable
compensation and benefits expense and segment operating costs, partially offset by a decrease in the average value of
mortgage loan origination fees and to a lesser extent, decreases in net servicing income and an increase in the loss on the
change in the net fair value and related derivative activity related to mortgage servicing rights assets, compared with 2023.
During 2023, the mortgage origination segment’s total loan origination volume decreased 34.9% compared with 2022, while
loss before income taxes increased 71.8% during 2023, compared with 2022. The increase in loss before income taxes during
2023 was primarily due to decreases in the volume of IRLCs and mortgage loan originations and sales, a decrease in the
average value of IRLCs, and to a lesser extent, an increase in net interest expense, compared with 2022. These trends were
partially offset by a decrease in variable compensation, an increase in the average value of mortgage loan origination fees, and
to a lesser extent, decreases in non-variable compensation and benefits expense, and segment operating costs, compared with
2022.
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The information shown in the table below includes certain additional key performance indicators for the mortgage origination
segment.
Year Ended December 31,
2024
2023
2022
Net gains from mortgage loan sales (basis points):
Loans sold to third parties
226
198
263
Impact of loans retained by banking segment
(4)
(4)
(11)
As reported
222
194
252
Variable compensation as a percentage of total compensation
52.6 %
47.4 %
51.9 %
Mortgage servicing rights asset ($000's) (end of year) (1)
$
5,723
$
96,662
$
100,825
(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 2024, compared with 2023, reflected a decrease in the negative net interest margin, and during 2023, compared with
2022, reflected the effects of an increased net interest margin on mortgage loans held for sale, partially offset by a decrease in
the average warehouse line balance between the two periods.
Noninterest income was comprised of the items set forth in the table below (in thousands).
Year Ended December 31,
Variance
2024
2023
2022
2024 vs 2023 2023 vs 2022
Net gains from sale of loans
$
182,937
$
156,190
$
332,732
$
26,747
$
(176,542)
Mortgage loan origination fees and other related income
123,066
144,539
149,598
(21,473)
(5,059)
Other mortgage production income:
Change in net fair value and related derivative activity:
IRLCs and loans held for sale
4,408
832
(69,668)
3,576
70,500
Mortgage servicing rights asset
(19,235)
(16,589)
2,733
(2,646)
(19,322)
Servicing fees
22,053
31,868
37,520
(9,815)
(5,652)
Total noninterest income
$
313,229
$
316,840
$
452,915
$
(3,611)
$
(136,075)
Net gains from sale of loans increased 17.1%, while total loans sales volume was relatively flat during 2024, compared with
2023. The increase in net gains from sales of loans was primarily the result of an increase in average loan sale margin. The
decrease in net gains from sale of loans during 2023, compared with 2022, was primarily the result of a decrease of 39.0% in
total loan sales volume, in addition to a decrease in average loan sales margin.
The 14.9% decrease in mortgage loan origination fees and other related income during 2024, compared with 2023, was
primarily the result of a decrease in average mortgage loan origination fees as loan origination volume increased 4.5%. The
decrease in mortgage loan origination fees during 2023, compared with 2022, was minimal at 3.4%. The negative impact on
fees resulting from a decrease in loan origination volume, was mostly offset by an increase in average mortgage loan
origination fees.
Fluctuations in mortgage loan origination fees and net gains on sale of loans are not always aligned with fluctuations in loan
origination and loan sale volumes, respectively, since customers may opt to pay PrimeLending discount fees on their mortgage
loans, which are included in mortgage loan origination fees, in exchange for a lower interest rate, which decreases the value of
a loan in the secondary market.
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 mortgage loan sales margin is defined as net gains from sale of loans divided by mortgage 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
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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. Loans sold to and
retained by the banking segment during 2024, 2023 and 2022 were $124 million, $140 million and $532 million, respectively.
Loan volumes to be originated on behalf of and retained by the banking segment are expected to 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.
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 mortgage loans held for sale (“net fair value of IRLCs and loans held for sale”). The
increase in net fair value of IRLCs and loans held for sale during 2024, compared with 2023, was primarily the result of 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. 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, refinancing and market activity, and balance sheet positioning at Hilltop. During
2024, 2023 and 2022, the mortgage origination segment retained servicing on approximately 7%, 18% and 25%, respectively,
of loans sold. A reduction in third-party mortgage servicers purchasing mortgage servicing rights, even if modest, may result
in PrimeLending increasing the rate of retained servicing on mortgage loans sold at any time. 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 and
MBS commitments, to mitigate interest rate risk associated with its MSR asset. During 2024, changes in the net fair value of
the MSR asset and the related derivatives resulted in net losses of $19.2 million. In addition to normal customer payments and
customer payoffs, these changes were primarily driven by losses totaling $12.3 million during 2024, to account for MSR
valuation assumption changes, including prepayment and discount rates used as inputs to value the MSR asset, and differences
between MSR carrying values and sales prices related to the sale of MSR assets. Fluctuations in the net fair value of the MSR
asset driven by net changes in long-term U.S. Treasury bond rates and the related derivatives used to hedge the MSR during
the respective periods resulted in net losses of $3.2 million. During the second quarter of 2024, the mortgage origination
segment signed a letter of intent to sell and completed the sale of MSR assets of $45.1 million, which represented $2.9 billion
of its serviced loan volume at the time. In addition, during September 2024, the mortgage origination segment signed a letter
of intent to sell MSR assets of $42.6 million, which represented $2.3 billion of its serviced loan volume. This sale was
completed during the fourth quarter of 2024. As a result, the mortgage origination segment does not currently expect the level
of MSR assets to be significant in the short-term. In addition to gains and losses generated by changes in the net fair value of
the MSR asset and related derivatives, net servicing income of $8.6 million was recognized during 2024. During 2023, the
operating results of the mortgage origination segment were impacted by a decrease of $12.5 million in the net fair value of the
MSR asset. This decrease was primarily driven by market sales trends during the first quarter of 2023 and 2022. The
remaining losses of $4.1 million were generated by the derivatives used to hedge the MSR. During June 2023, the mortgage
origination segment sold MSR assets of $19.1 million, which represented $991.0 million of its serviced loan volume at the
time. During 2022, the mortgage origination segment sold MSR assets of approximately $65 million, with a serviced loan
volume totaling $3.7 billion. In addition to net losses generated by changes in the net fair value of the MSR asset and related
derivatives, net servicing income of $13.5 million was recognized during 2023.
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Noninterest expenses were comprised of the items set forth in the table below (in thousands).
Year Ended December 31,
Variance
2024
2023
2022
2024 vs 2023 2023 vs 2022
Variable compensation
$
121,720
$
118,977
$
183,804
$
2,743
$
(64,827)
Non-variable compensation and benefits
109,573
132,142
170,169
(22,569)
(38,027)
Segment operating costs
76,043
84,864
92,631
(8,821)
(7,767)
Lender paid closing costs
9,332
4,971
13,371
4,361
(8,400)
Servicing expense
13,420
18,331
18,929
(4,911)
(598)
Total noninterest expense
$
330,088
$
359,285
$
478,904
$
(29,197)
$
(119,619)
Total employees’ compensation and benefits accounted for the majority of the noninterest expenses incurred during all periods
presented. Historically, variable compensation comprises the majority of total employees’ compensation and benefits
expenses, but during 2023, as opposed to 2024 and 2022, non-variable compensation was greater than variable compensation.
Variable compensation, which is primarily driven by loan origination volume, tends to fluctuate to a greater 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 increased 4.5% during 2024, compared with 2023, the aggregate non-variable
compensation and benefits of the mortgage origination segment decreased by 17.1%. This decrease was primarily due to a
decrease in salaries and health insurance expense associated with a reduction in underwriting and loan fulfillment, operations
and corporate staff as PrimeLending continued to evaluate its cost structure to address current mortgage environment.
Segment operating costs decreased during 2024, compared with 2023, primarily due to decreases in occupancy and software
expense. During 2023, compared with 2022, segment operating costs decreased primarily due to decreases in occupancy and
equipment expense, advertising expense, professional fees and net loan related expenses, excluding credit report expense.
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, 2015 and December 31, 2024, the mortgage origination segment sold mortgage loans totaling $146.2
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 2015, it does not anticipate experiencing significant losses in the future on loans originated prior to 2015 as a result 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.
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82
The following is a summary of the mortgage origination segment’s claims resolution activity relating to loans sold between
January 1, 2015 and December 31, 2024 (dollars in thousands).
Original Loan Balance
Loss Recognized
% of
% of
Amount
Loans Sold
Amount
Loans Sold
Claims resolved with no payment
$
256,073
0.18 %$
—
- %
Claims resolved because of a loan repurchase or payment to
an investor for losses incurred (1)
351,612
0.24 %
27,054
0.02 %
$
607,685
0.42 %$
27,054
0.02 %
(1)
Losses incurred include refunded purchased servicing rights.
For each loan, when 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. 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 inquiries, 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.
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. During the second quarter of 2024,
PrimeLending increased the indemnification reserve rate applied to loans sold subsequent to April 30, 2024, to address recent
loss trends. During the third and fourth quarter of 2024, there was no adjustment made to the indemnification liability reserve.
PrimeLending will continue to monitor agency claim inquiry trends and assess its potential impact on the indemnification
liability reserve.
At December 31, 2024 and 2023, the mortgage origination segment’s total indemnification liability reserve totaled $8.1
million and $11.7 million, respectively. The related provision for indemnification losses was $2.8 million, $1.6 million and
$1.5 million during 2024, 2023 and 2022, respectively.
Corporate
The following table presents certain financial information regarding the operating results of corporate (in thousands).
Year Ended December 31,
Variance
2024
2023
2022
2024 vs 2023
2023 vs 2022
Net interest income (expense)
$
(12,838) $
(12,961)
$
(13,135)
$
123
$
174
Noninterest income
18,515
12,887
7,525
5,628
5,362
Noninterest expense
63,110
60,631
59,030
2,479
1,601
Loss before income taxes
$
(57,433) $
(60,705)
$
(64,640)
$
3,272
$
3,935
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. These merchant banking activities currently include investments within various
industries, including power generation, youth sports and entertainment, dental health and industrial equipment manufacturing,
with an aggregate carrying value of approximately $74 million at December 31, 2024.
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83
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 2024 was primarily comprised of dividend income from merchant banking investment
activities, in addition to interest income earned on intercompany notes.
Interest expense during 2024, 2023 and 2022 included recurring annual interest expense of $7.7 million incurred on our
$150.0 million aggregate principal amount of 5% Senior Notes due April 15, 2025. During 2024, 2023 and 2022, we incurred
interest expense of $12.4 million, $12.4 million and $12.3 million, respectively, on our $50 million aggregate principal
amount of 5.75% fixed-to-floating rate subordinated notes due May 15, 2030 (“2030 Subordinated Notes”) and on our $150
million aggregate principal amount of 6.125% fixed-to-floating subordinated notes due May 15, 2035 (“2035 Subordinated
Notes,” the 2030 Subordinated Notes and the 2035 Subordinated Notes, collectively, the “Subordinated Notes”), which were
issued in May 2020. On January 15, 2025, we redeemed all of our outstanding Senior Notes using cash on hand, which also
satisfied and discharged our obligations under the Senior Notes and Senior Notes Indenture.
Noninterest income during each period included activity related to our investment in a real estate development in Dallas’
University Park, which also serves as headquarters for both Hilltop and the Bank, and net noninterest income associated with
activity within our merchant bank subsidiary. During 2024, noninterest income included pre-tax gains of $5.3 associated with
the sale of merchant bank equity investments.
Noninterest expenses were primarily comprised of employees’ compensation and benefits, occupancy expenses and
professional fees, including corporate governance, legal and transaction costs. During 2024, compared with 2023, the increase
in noninterest expenses was primarily due to increases associated with software costs and employees’ compensation and
benefits, partially offset by a decrease in professional services expenses. During 2023, compared with 2022, the increase in
noninterest expenses was primarily due to inflationary increases associated with employees’ compensation and benefits,
partially offset by decreases in professional services and occupancy expenses.
Financial Condition
The following discussion contains a more detailed analysis of our financial condition at December 31, 2024 as compared with
December 31, 2023 and December 31, 2022.
Securities Portfolio
At December 31, 2024, 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.
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84
The table below summarizes our securities portfolio (in thousands).
December 31,
2024
2023
2022
Trading securities, at fair value
U.S. Treasury securities
$
2,553
$
3,736
$
10,466
U.S. government agencies:
Bonds
9,984
12,867
20,878
Residential mortgage-backed securities
35,440
124,768
214,100
Collateralized mortgage obligations
125,515
86,281
182,717
Other
19,877
13,079
—
Corporate debt securities
60,594
37,569
42,685
States and political subdivisions
244,076
180,890
260,271
Private-label securitized product
16,208
47,768
9,265
Other
10,669
9,033
14,650
524,916
515,991
755,032
Securities available for sale, at fair value
U.S. Treasury securities
4,762
4,617
19,144
U.S. government agencies:
Bonds
111,868
166,166
202,257
Residential mortgage-backed securities
341,186
349,870
406,358
Commercial mortgage-backed securities
220,327
191,746
175,499
Collateralized mortgage obligations
657,600
736,481
818,894
Corporate debt securities
29,816
24,418
—
States and political subdivisions
30,990
34,297
36,614
1,396,549
1,507,595
1,658,766
Securities held to maturity, at amortized cost
U.S. government agencies:
Residential mortgage-backed securities
255,880
278,172
301,583
Commercial mortgage-backed securities
147,696
172,879
180,942
Collateralized mortgage obligations
257,230
284,208
314,705
States and political subdivisions
77,093
77,418
78,302
737,899
812,677
875,532
Equity securities, at fair value
297
321
200
Total securities portfolio
$
2,659,661
$
2,836,584
$
3,289,530
We had net unrealized losses of $101.9 million, $114.2 million and $129.8 million at December 31, 2024, 2023 and 2022,
respectively, related to the available for sale investment portfolio. Within the held to maturity portfolio, we had net unrealized
losses of $88.0 million, $80.8 million and $90.2 million at December 31, 2024, 2023 and 2022. Equity securities included net
unrealized gains of $0.2 million, $0.3 million and $0.1 million at December 31, 2024, 2023 and 2022, respectively. In future
periods, we expect changes in prevailing market interest rates, coupled with changes in the aggregate size of the investment
portfolio, to be significant drivers of changes in the unrealized losses or gains in these portfolios, and therefore accumulated
other comprehensive income (loss).
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, 2024, the banking segment’s securities portfolio of $2.1 billion was comprised of
trading securities of $9.7 million, available for sale securities of $1.4 billion, held to maturity securities of $737.9 million and
equity securities of $0.3 million, in addition to $10.4 million of other investments included in other assets within the
consolidated balance sheets.
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85
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 to the statements of operations. Accordingly, the securities portfolio of the
Hilltop Broker-Dealers included trading securities of $515.2 million at December 31, 2024. 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 $57.2 million at December 31, 2024.
Corporate
At December 31, 2024, the corporate portfolio included other investments, including those associated with merchant banking,
of available for sale securities of $29.8 million and other assets of $43.5 million within the consolidated balance sheet.
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, 2024. In addition, as of December 31, 2024, we
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, 2024.
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86
The following table sets forth the estimated maturities of our debt securities, excluding trading securities, at December 31,
2024. Contractual maturities may be different (dollars in thousands, yields are tax-equivalent).
One Year One Year to Five Years to Greater Than
Or Less
Five Years
Ten Years
Ten Years
Total
U.S. Treasury securities:
Amortized cost
—
$
4,991
—
—
$
4,991
Fair value
—
$
4,762
—
—
$
4,762
Weighted average yield (1)
—
0.87 %
—
—
0.87 %
U.S. government agencies:
Bonds:
Amortized cost
—
$
41,398
$
32,104
$
38,791
$
112,293
Fair value
—
$
41,450
$
31,806
$
38,612
$
111,868
Weighted average yield (1)
—
4.76 %
5.22 %
5.55 %
5.16 %
Residential mortgage-backed securities:
Amortized cost
—
$
6,006
$
67,180
$
562,345
$
635,531
Fair value
—
$
5,851
$
63,656
$
495,938
$
565,445
Weighted average yield (1)
—
2.68 %
2.55 %
2.57 %
2.56 %
Commercial mortgage-backed securities:
Amortized cost
$ 40,310
$
85,139
$
245,321
$
3,252
$
374,022
Fair value
$ 40,067
$
82,653
$
231,861
$
2,754
$
357,335
Weighted average yield (1)
3.44 %
3.52 %
2.46 %
2.99 %
2.81 %
Collateralized mortgage obligations:
Amortized cost
$
7,148
$
40,680
$
139,110
$
780,955
$
967,893
Fair value
$
7,112
$
40,123
$
135,920
$
693,406
$
876,561
Weighted average yield (1)
3.46 %
3.95 %
3.49 %
3.06 %
3.16 %
Corporate debt securities:
Amortized cost
—
$
30,139
—
—
$
30,139
Fair value
—
$
29,816
—
—
$
29,816
Weighted average yield
—
1.14 %
—
—
1.14 %
States and political subdivisions:
Amortized cost
$
1,933
$
11,304
$
62,425
$
35,783
$
111,445
Fair value
$
1,923
$
10,943
$
57,746
$
30,022
$
100,634
Weighted average yield (1)
2.62 %
2.73 %
2.95 %
2.55 %
2.79 %
Total securities portfolio:
Amortized cost
$ 49,391
$
219,657
$
546,140
$
1,421,126
$ 2,236,314
Fair value
$ 49,102
$
215,598
$
520,989
$
1,260,732
$ 2,046,421
Weighted average yield (1)
3.41 %
3.38 %
2.95 %
2.92 %
2.98 %
(1)
Weighted average yield is defined as interest earned by average interest-earning assets.
Loan Portfolio
Consolidated loans held for investment are detailed in the table below, classified by portfolio segment (in thousands).
December 31,
Loan Held for Investment
2024
2023
2022
Commercial real estate:
Non-owner occupied
$
1,921,691
$
1,889,882
$
1,870,552
Owner occupied
1,435,945
1,422,234
1,375,321
Commercial and industrial
1,541,940
1,607,833
1,639,980
Construction and land development
866,245
1,031,095
980,896
1-4 family residential
1,792,602
1,757,178
1,767,099
Consumer
28,410
27,351
27,602
Broker-dealer
363,718
344,172
431,223
Loans held for investment, gross
7,950,551
8,079,745
8,092,673
Allowance for credit losses
(101,116)
(111,413)
(95,442)
Loans held for investment, net of allowance
$
7,849,435
$
7,968,332
$
7,997,231
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87
Banking Segment
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.
As discussed in more detail within the section captioned “Financial Condition – Allowance for Credit Losses on Loans”
below, the banking segment’s credit policies emphasize strong underwriting and governance standards and early detection of
potential problem credits in order to develop and implement action plans on a timely basis to mitigate potential losses. These
formal credit policies and procedures provide the banking segment with a framework for consistent underwriting and a basis
for sound credit decisions. The banking segment strives to avoid the risk of concentrations of credit in any particular industry,
collateral type, location, or with any individual customer or counterparty.
To manage the credit risks associated with its loan portfolio, management may, depending upon current or anticipated
economic conditions and related exposures, apply enhanced risk management measures to loans through analysis of a specific
borrower’s financial condition, including cash flow, collateral values, and guarantees, among other credit factors. Given the
current market dynamics, including economic uncertainties, the heightened level of market interest rates since 2022, and a
deteriorating outlook for commercial real estate markets, management has heightened its specific review procedures of credits
maturing in the next six to twelve months as well as those credits associated with real estate.
The banking segment’s total loans held for investment, net of the allowance for credit losses, were $8.3 billion, $8.5 billion
and $8.5 billion at December 31, 2024, 2023 and 2022, respectively. At December 31, 2024, the banking segment’s loan
portfolio included warehouse lines of credit extended to PrimeLending and its ABAs of $1.3 billion, of which $0.8 billion was
drawn. At December 31, 2023 and 2022, amounts drawn on the available warehouse lines of credit was $0.9 billion during
each period, respectively. 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.
A significant portion of the banking segment’s loan portfolio at December 31, 2024 consisted of commercial real estate loans
secured by properties. Such loans 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.
The table below sets forth the banking segment’s commercial real estate loan portfolio, by portfolio industry sector and
collateral location as of December 31, 2024 (in thousands).
Brownsville-
Other
Dallas-
Harlingen-
San
Outside
Commercial Real Estate
Fort Worth
Austin
Houston
McAllen
Antonio
Lubbock
Texas
Texas
Total
Non-owner occupied:
Office
$
136,266
$ 224,503
$ 32,525
$
15,354
$ 20,192
$
2,884
$ 55,593
$
315
$
487,632
Retail
154,753
69,374
25,941
21,737
20,436
7,669
32,387
8,695
340,992
Hotel/Motel
48,213
24,194
33,944
17,103
99
16,712
34,797
13,671
188,733
Multifamily
44,613
53,295
38,736
49,107
46,950
35,597
52,538
16,410
337,246
Industrial
110,369
51,236
8,201
3,192
2,473
879
20,292
6,976
203,618
All other
107,189
57,307
28,079
11,144
19,505
48,006
64,196
28,044
363,470
$
601,403
$ 479,909
$ 167,426
$
117,637
$ 109,655
$ 111,747
$ 259,803
$ 74,111
$ 1,921,691
Owner occupied:
Office
$
133,273
$ 90,231
$ 22,337
$
13,905
$ 33,192
$
7,054
$ 10,501
$
3,850
$
314,343
Retail
11,017
16,073
3,057
984
1,074
146
4,570
954
37,875
Industrial
195,818
42,241
34,781
9,214
20,888
6,615
29,489
20,090
359,136
All other
314,864
75,985
77,441
21,090
50,395
13,342
148,473
23,001
724,591
$
654,972
$ 224,530
$ 137,616
$
45,193
$ 105,549
$ 27,157
$ 193,033
$ 47,895
$ 1,435,945
Total commercial real estate loans
$ 1,256,375
$ 704,439
$ 305,042
$
162,830
$ 215,204
$ 138,904
$ 452,836
$ 122,006
$ 3,357,636
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88
At December 31, 2024, 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 44.3%, 23.6% and 11.4%, respectively, of the banking segment’s total loans held for
investment at December 31, 2024. The banking segment’s loan concentrations were within regulatory guidelines at December
31, 2024.
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 remain uncertain given future supply and demand for oil are influenced by international armed conflicts, return to
business travel, new energy policies and government regulation, and the pace of transition towards renewable energy
resources. At December 31, 2024, the Bank’s energy loan exposure was approximately $54 million of loans held for
investment with unfunded commitment balances of approximately $24 million. The allowance for credit losses on the Bank’s
energy portfolio was $0.5 million, or 1.0% of loans held for investment at December 31, 2024.
The following table provides information regarding the maturities of the banking segment’s gross loans held for investment,
net of unearned income (in thousands). The commercial and industrial portfolio segment includes amounts advanced against
the warehouse lines of credit extended to PrimeLending.
December 31, 2024
Due Within
Due From One
Due from Five
Due After
One Year
To Five Years
To Fifteen Years
Fifteen Years
Total
Commercial real estate:
Non-owner occupied
$
655,128
$
975,094
$
291,273
$
196
$ 1,921,691
Owner occupied
390,057
539,197
490,975
15,716
1,435,945
Commercial and industrial
1,975,478
339,311
75,447
—
2,390,236
Construction and land development
717,885
128,256
19,253
851
866,245
1-4 family residential
188,770
572,306
321,784
709,742
1,792,602
Consumer
13,428
14,274
699
9
28,410
Total
$ 3,940,746
$ 2,568,438
$
1,199,431
$ 726,514
$ 8,435,129
The following table provides information regarding the interest rate composition, based on contractual terms, of the banking
segment's loans held for investment, net of unearned income (in thousands).
Loans maturing after one year
Fixed Interest
Floating Interest
December 31, 2024
Rate
Rate
Total
Commercial real estate:
Non-owner occupied
$
729,501
$
537,062
$
1,266,563
Owner occupied
682,918
362,970
1,045,888
Commercial and industrial
295,240
119,518
414,758
Construction and land development
73,191
75,169
148,360
1-4 family residential
929,530
674,302
1,603,832
Consumer
14,899
83
14,982
Total
$
2,725,279
$
1,769,104
$
4,494,383
In the table above, floating interest rate loans totaling $356.3 million as of December 31, 2024 had reached their applicable
rate floor and were expected to reprice, subject to their scheduled repricing timing and frequency terms. The majority of
floating rate loans carry an interest rate tied to a SOFR rate or The Wall Street Journal Prime Rate, as published in The Wall
Street Journal.
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89
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 $363.7 million, $344.1 million and
$431.0 million at December 31, 2024, 2023 and 2022, respectively. The increase from December 31, 2023 to December 31,
2024, was primarily attributable to an increase of $30.0 million, or 25%, in receivables from correspondents, partially offset
by a decrease of $11.3 million, or 5%, in customer margin accounts. The decrease from December 31, 2022 to December 31,
2023, was primarily attributable to a decrease of $51.0 million, or 19%, in customer margin accounts and a decrease of $36.9
million, or 24%, 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).
December 31,
2024
2023
2022
Loans held for sale:
Unpaid principal balance
$
802,987
$
802,348
$
850,277
Fair value adjustment
6,795
19,846
5,420
$
809,782
$
822,194
$
855,697
IRLCs:
Unpaid principal balance
$
384,528
$
383,767
$
506,278
Fair value adjustment
2,942
7,734
1,767
$
387,470
$
391,501
$
508,045
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, 2024, 2023 and 2022 were $932.6
million, $1.0 billion and $1.2 billion, respectively, while the related estimated fair values were $6.4 million, ($10.2) million
and $3.3 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
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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, 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.
Significant judgment is required to estimate the severity and duration of the current economic uncertainties, as well as its
potential impact on borrower default and loss severity. In particular, macroeconomic conditions and forecasts are rapidly
changing and remain highly 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, 2024, we utilized a single macroeconomic alternative scenario, or S5, published by Moody’s
Analytics in December 2024. The alternative scenario utilizes multiple economic variables in forecasting the economic
outlook. During our previous quarterly macroeconomic assessment as of September 30, 2024, we utilized the same single
macroeconomic alternative scenario published by Moody’s Analytics in September 2024. Management determined it
appropriate to utilize the S5 macroeconomic alternative scenario as of December 31, 2024 given that the ongoing resilience of
the U.S. economy, continued moderation of inflation, and the cumulative 100-basis point decrease in the target range since
September 2024 for the federal funds rate set by the Federal Reserve best align with our internal economic outlook.
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The following table and paragraphs summarize the U.S. Real Gross Domestic Product (“GDP”) growth rates and
unemployment rate assumptions used in our economic forecast, and based on the single macroeconomic scenario selected for
respective periods, to determine our best estimate of expected credit losses.
As of
December 31,
September 30,
June 30,
March 31,
December 31,
2024
2024
2024
2024
2023
GDP growth rates:
Q4 2023
1.1%
Q1 2024
2.4%
(1.6)%
Q2 2024
2.1%
0.7%
(2.4)%
Q3 2024
2.0%
1.2%
0.4%
(1.3)%
Q4 2024
2.6%
1.3%
0.6%
0.0%
1.3%
Q1 2025
1.2%
1.2%
1.0%
(1.8)%
2.6%
Q2 2025
1.0%
1.5%
(2.0)%
(2.8)%
3.0%
Q3 2025
0.3%
1.5%
(2.5)%
(1.7)%
Q4 2025
0.6%
1.5%
(1.3)%
Q1 2026
0.9%
1.5%
Q2 2026
0.9%
Unemployment rates:
Q4 2023
3.8%
Q1 2024
3.8%
4.8%
Q2 2024
4.0%
4.0%
5.6%
Q3 2024
4.3%
4.1%
4.0%
6.1%
Q4 2024
4.2%
4.4%
4.1%
4.0%
5.6%
Q1 2025
4.4%
4.7%
4.1%
4.8%
5.2%
Q2 2025
4.6%
4.9%
4.8%
5.6%
5.0%
Q3 2025
4.9%
5.2%
5.6%
6.0%
Q4 2025
5.1%
5.2%
6.0%
Q1 2026
5.2%
5.1%
Q2 2026
5.1%
As of December 31, 2024, our U.S. economic forecast assumes elevated borrowing costs reduce credit-sensitive spending,
higher tariffs, and concerns grow about broader international conflicts. The changes in real GDP on an annual average basis
are 1.6% in 2025 and 0.8% in 2026. The unemployment rate increases in 2025 and reaches a peak of 5.2% in the first quarter
of 2026 before slowly receding. Our forecast considers the potential for monetary policy to ease from the Federal Reserve
with the federal funds rate at 3.6% by year end 2025. Vacancy rates for certain commercial real estate sectors remain elevated,
and the interest rate outlook challenges the recovery.
During 2024, we updated our U.S. economic outlook to reflect our expectations of a period of below trend economic growth
beginning in 2025. The U.S. economic outlook was updated for recent changes in monetary policy and given that the ongoing
resilience of the U.S. economy. Given the moderation of inflation, the Federal Reserve has reduced the federal funds rate
target by 100-basis points since September 2024 to 4.25% - 4.5%. Labor market conditions eased as the unemployment rate
increased to 4.2% in November 2024. Trade policy changes to be implemented by the upcoming administration add
uncertainty to the outlook.
During 2023, our economic outlook was updated to reflect our expectations of a period of below trend economic growth
beginning in 2023 and a mild U.S. recession in 2024. The Federal Reserve increased its federal funds rate target from 4.00% -
4.25% in January 2023 to 5.25% - 5.50% in August 2023 and held rates steady through December 2023. In March and April
2023, as a result of three of the largest bank failures in U.S. history, the Federal Reserve implemented several liquidity
programs to stabilize consumer and business confidence. The Federal Reserve continued to balance inflation expectations and
labor market constraints with tighter financial conditions throughout 2023. The duration of the higher interest rates also
renewed credit and refinance risk concerns about residential and commercial real estate loans. The consumer price index
improved from 6.4% in January 2023 to 3.4% in December 2023, but inflation rates still remained above the Federal
Reserve’s 2% target. Global supply chains eased throughout 2023 and adjusted to the longer than expected Russia-Ukraine
conflict; however, conflicts in the Middle East between Israel and Hamas and the U.S. and
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Yemen added new uncertainties. Labor market conditions eased modestly but remained historically tight as the unemployment
rate increased from 3.4% to 3.7% during the year.
During 2022, our economic outlook was updated to reflect our expectations of a period of below trend economic growth
beginning in 2022 and a mild U.S. recession in 2023. COVID cases receded in the United States but continued to disrupt
global supply chains and tight labor market conditions. The Russian invasion of Ukraine contributed to global oil prices
increasing to near $120 per barrel and further disrupted supply chains due to economic sanctions imposed by the United States
and other trade partners. Inflation rates initially expected to be transitory proved to trend persistently higher as the consumer
price index rose to 9.1% on an annual basis in June. In response, the Federal Reserve adjusted monetary policy by increasing
its federal funds rate target from 0.0% - 0.25% in March 2022 to 4.25% - 4.50% by December 2022. With lower government
spending/stimulus and net exports, U.S. real GDP growth rates declined to (1.6%) and (0.6%) during the first and second
quarters of 2022. While the Company and most economists downgraded their economic outlooks, the U.S. did not enter a
recession. Real GDP growth improved to 3.2% during the third quarter of 2022 and U.S. labor markets proved resilient as
unemployment rates decreased during the year from 4.0% to 3.5%
During 2024, the provision for credit losses reflected a build in the allowance related to specific reserves since December 31,
2023, significantly offset by both the change in the U.S. economic outlook and changes in the collectively evaluated loan
portfolio. Specific to the Bank, the net impact to the allowance of changes associated with individually evaluated loans
included a provision for credit losses of $15.2 million, while collectively evaluated loans during 2024 included a reversal of
credit losses of $14.2 million. The change in the allowance for credit losses during 2024 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 period. The change in the allowance during 2024 was also impacted by net charge-offs of $11.2 million.
As noted above, the combined impacts of specific reserves and loan portfolio changes within the banking segment and
changes in the U.S. economic outlook since December 31, 2023 have resulted in a net decrease in the allowance at December
31, 2024, compared to December 31, 2023. The resulting 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 programs,
was 1.37%, 1.47% and 1.27% as of December 31, 2024, 2023 and 2022, respectively. While changes in the U.S. economic
outlook have been reflected in our current allowance at December 31, 2024, uncertainties that include, among others, the
uncertain timing, duration and significance of further increases in market interest rates and a worsening macroeconomic
forecast could adversely impact borrower cash flows and result in further increases in the allowance during future periods.
While all industries could experience adverse impacts, certain of our loan portfolio industry sectors and subsectors, including
real estate collateralized by office buildings, have an increased level of risk.
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The respective distribution of 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 programs, are presented in the
following table (dollars in thousands).
Allowance For
Credit Losses
Total
as a % of
Total
Allowance
Total Loans
Loans Held
for Credit
Held For
December 31, 2024
For Investment
Losses
Investment
Commercial real estate:
Non-owner occupied (1)
$
1,921,691
$
29,310
1.53 %
Owner occupied (2)
1,435,945
33,112
2.31 %
Commercial and industrial (3)
1,300,914
25,486
1.96 %
Construction and land development (4)
866,245
7,161
0.83 %
Total commercial loans
5,524,795
95,069
1.72 %
1-4 family residential
1,792,602
5,327
0.30 %
Consumer
28,410
547
1.93 %
Total retail loans
1,821,012
5,874
0.32 %
Total commercial and retail loans
7,345,807
100,943
1.37 %
Broker-dealer
363,718
50
0.01 %
Mortgage warehouse lending
241,026
123
0.05 %
Total loans held for investment
$
7,950,551
$
101,116
1.27 %
(1)
Included within commercial real estate non-owner occupied portfolio are loans within the office, retail and hotel/motel portfolio
industry subsectors. At December 31, 2024, the office, retail and hotel/motel loans held for investment balances of approximately
$488 million, $341 million and $189 million, respectively, had an allowance for credit losses of approximately $14 million, $3
million and $3 million, respectively, and an allowance for credit losses as a % of total loans held for investment of 2.9%, 0.8%
and 1.4%, respectively.
(2)
Included within commercial real estate owner occupied portfolio are loans within the industrial and office portfolio industry
subsectors. At December 31, 2024, the industrial and office loans held for investment balances of approximately $359 million
and $314 million, respectively, had an allowance for credit losses of approximately $8 million and $7 million, respectively, and
an allowance for credit losses as a % of total loans held for investment of 2.1% and 2.3%, respectively.
(3)
Commercial and industrial portfolio amounts reflect balances excluding banking segment mortgage warehouse lending. Included
within commercial and industrial portfolio are loans within the auto note financing industry subsector. At December 31, 2024, the
auto note financing loans held for investment balance of approximately $98 million had an allowance for credit losses of
approximately $5 million, and an allowance for credit losses as a percentage of total loans held for investment of 5.6%.
(4)
Included within construction and land development portfolio are loans within the office and retail portfolio industry subsectors.
At December 31, 2024, the office and retail loans held for investment balances of approximately $30 million and $34 million,
respectively, had an allowance for credit losses of approximately $0.7 million and $0.4 million, respectively, and an allowance
for credit losses as a % of total loans held for investment of 2.5% and 1.1%, respectively.
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, 2024, excluding margin loans in the broker-dealer segment,
and the banking segment mortgage warehouse programs, with modeled results using both upside (“S1”) and downside (“S3”)
economic scenario forecasts published by Moody’s Analytics.
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94
Compared to our economic forecast, the upside scenario assumes the economic impacts from international armed conflicts
recede faster than expected and an increased demand for U.S. exports and manufacturing. Real GDP is expected to grow 4.0%
in the first quarter of 2025, 3.4% in the second quarter of 2025, 2.8% in the third quarter of 2025, and 3.1% in the fourth
quarter of 2025. Average unemployment rates are expected to decline to 3.0% by the first quarter of 2026 before reverting to
historical data. The Federal Reserve reduces the federal funds rate to 3.9% during the fourth quarter of 2025.
Compared to our economic forecast, the downside scenario assumes the Federal Reserve’s efforts to resolve bank failures are
not successful at restoring consumer and business confidences, causing banks to tighten lending standards while the Federal
Reserve keeps the federal funds rate elevated due to inflation concerns. The international armed conflicts persist longer than
anticipated and global supply chain issues worsen causing weaker manufacturing, increased good shortages and the economy
to fall back into recession. Real GDP is expected to decrease 3.1% in the first quarter of 2025, 3.4% in the second quarter of
2025, and 3.9% in the third quarter of 2025. Average unemployment rates are expected to increase to 8.3% by the first quarter
of 2026 and revert back to historical average rates over time. The Federal Reserve reduces the federal funds rate to support the
economy to a 3.1% target by the fourth quarter of 2025 and a 2.5% target by the first quarter of 2026.
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 $21 million or a weighted average
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 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 $55 million or a
weighted average expected loss rate of 2.1% as a percentage of our total loan portfolio, excluding margin loans in the broker-
dealer segment and the banking segment mortgage warehouse 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.
Our allowance for credit losses reflects our best estimate of current expected credit losses, which is highly dependent on
several assumptions, including the macroeconomic outlook, inflationary pressures and labor market conditions, international
armed conflicts and their impact on supply chains, the U.S elections and other various fiscal and monetary policy decisions.
The sensitivities of many of these assumptions are often correlated and nonlinear so these results should not be simply
extrapolated to estimate the allowance for credit losses accurately for more severe changes in economic scenarios. Future
allowance for credit losses may vary considerably for these reasons.
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95
Allowance Activity
The following table presents the activity in our allowance for credit losses and selected credit metrics within our loan portfolio
for the periods presented (in thousands). Substantially all of the activity shown below occurred within the banking segment.
Year Ended December 31,
2024
2023
2022
Loans Held for Investment:
Balance, beginning of year
$
111,413
$
95,442
$
91,352
Provision for credit losses
941
18,392
8,309
Recoveries of loans previously charged off:
Commercial real estate:
Non-owner occupied
—
42
28
Owner occupied
149
41
100
Commercial and industrial
2,028
3,445
2,746
Construction and land development
2
—
—
1-4 family residential
170
135
133
Consumer
211
276
289
Broker-dealer
—
—
—
Total recoveries
2,560
3,939
3,296
Loans charged off:
Commercial real estate:
Non-owner occupied
1,647
34
—
Owner occupied
—
977
—
Commercial and industrial
11,865
4,888
6,945
Construction and land development
—
1
—
1-4 family residential
2
73
138
Consumer
284
387
432
Broker-dealer
—
—
—
Total charge-offs
13,798
6,360
7,515
Net charge-offs
(11,238)
(2,421)
(4,219)
Balance, end of year
$
101,116
$
111,413
$
95,442
Average loans held for investment for the year
$
7,921,528
$
7,950,878
$ 7,840,848
Total loans held for investment (end of year)
$
7,950,551
$
8,079,745
$ 8,092,673
Loans Held for Sale:
Average loans held for sale for the year
$
934,983
$
944,470
$ 1,221,235
Total loans held for sale (end of year)
$
858,665
$
943,846
$
982,616
Selected Credit Metrics:
Net charge-offs to average total loans held for investment (1)
(0.14)%
(0.03)%
(0.05)%
Non-accrual loans:
Loans held for investment (end of year)
$
84,418
$
64,337
$
24,674
Loans held for sale (end of year)
$
3,731
$
3,990
$
4,843
Non-accrual loans to total loans (end of year)
1.00 %
0.76 %
0.58 %
Allowance for credit losses on loans held for investment to:
Total loans (end of year)
1.15 %
1.23 %
1.05 %
Total loans held for investment (end of year)
1.27 %
1.38 %
1.18 %
Total non-accrual loans (end of year)
114.71 %
163.06 %
323.35 %
Non-accrual loans held for investment (end of year)
119.78 %
173.17 %
386.81 %
(1)
Net charge-offs to average total loans held for investment ratio presented on a consolidated basis for all periods. Refer to following table for details by
loan portfolio segment.
Total non-accrual loans classified as loans held for investment increased by $20.1 million from December 31, 2023 to
December 31, 2024, compared to an increase of $38.8 million from December 31, 2022 to December 31, 2023. These
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96
changes in non-accrual loans from December 31, 2023 to December 31, 2024, were primarily due to the addition of
commercial and industrial loans and commercial real estate owner occupied loans to non-accrual status, partially offset by a
decrease due to the reclassification of a single commercial real estate non-owner occupied loan from loan held for investment
to loan held for sale, which was sold during the second quarter of 2024.
The following table presents additional details regarding our net charge-offs to average total loans held for investment ratios
by loan portfolio segment for the periods presented (in thousands). Substantially all of the activity shown below occurred
within the banking segment.
Net
Total
Recoveries
Allowance
Net
Average
(Charge-Offs)
for Credit
Recoveries
Loans Held
as a % of
Year Ended December 31, 2024
Losses
(Charge-Offs)
for Investment
Average Loans
Commercial real estate:
Non-owner occupied
$
29,310
$
(1,647)
$
1,933,049
(0.09)%
Owner occupied
33,112
149
1,457,692
0.01 %
Commercial and industrial
25,609
(9,837)
1,589,711
(0.62)%
Construction and land development
7,161
2
906,028
— %
1-4 Family Residential
5,327
168
1,778,486
0.01 %
Consumer
547
(73)
26,077
(0.28)%
Broker-Dealer
50
—
230,485
— %
Total
$
101,116
$
(11,238)
$
7,921,528
(0.14)%
Net
Total
Recoveries
Allowance
Net
Average
(Charge-Offs)
for Credit
Recoveries
Loans Held
as a % of
Year Ended December 31, 2023
Losses
(Charge-Offs)
for Investment
Average Loans
Commercial real estate:
Non-owner occupied
$
40,061
$
8
$
1,863,359
— %
Owner occupied
28,114
(936)
1,400,349
(0.07)%
Commercial and industrial
20,926
(1,443)
1,643,337
(0.09)%
Construction and land development
12,102
(1)
1,070,530
— %
1-4 Family Residential
9,461
62
1,793,260
— %
Consumer
648
(111)
25,483
(0.44)%
Broker-Dealer
101
—
154,560
— %
Total
$
111,413
$
(2,421)
$
7,950,878
(0.03)%
Net
Total
Recoveries
Allowance
Net
Average
(Charge-Offs)
for Credit
Recoveries
Loans Held
as a % of
Year Ended December 31, 2022
Losses
(Charge-Offs)
for Investment
Average Loans
Commercial real estate:
Non-owner occupied
$
39,247
$
28
$
1,863,209
— %
Owner occupied
24,008
100
1,335,552
0.01 %
Commercial and industrial
16,035
(4,199)
1,715,934
(0.24)%
Construction and land development
6,051
—
944,048
— %
1-4 Family Residential
9,313
(5)
1,494,214
— %
Consumer
554
(143)
25,408
(0.56)%
Broker-Dealer
234
—
462,483
— %
Total
$
95,442
$
(4,219)
$
7,840,848
(0.05)%
As previously discussed in detail within this section, the allowance for credit losses has fluctuated from period to period,
which impacted the resulting ratios noted in the table above. During 2022, the increase in the allowance for credit losses was
driven by a deteriorating U.S. economic outlook since December 31, 2021, while during 2023 the significant build in the
allowance for credit losses reflected loan portfolio changes and a deteriorating outlook for commercial real estate markets.
Then, during 2024 the decline in the allowance for credit losses reflected net charge-offs, loan portfolio changes and changes
in the U.S. economic outlook. 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).
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97
December 31,
2024
2023
2022
% of
% of
% of
Allocation of the Allowance for Credit Losses
Reserve
Gross Loans
Reserve
Gross Loans
Reserve
Gross Loans
Commercial real estate:
Non-owner occupied
$
29,310
24.17 %
$
40,061
23.39 %
$
39,247
23.11 %
Owner occupied
33,112
18.06 %
28,114
17.60 %
24,008
17.00 %
Commercial and industrial
25,609
19.39 %
20,926
19.90 %
16,035
20.26 %
Construction and land development
7,161
10.90 %
12,102
12.76 %
6,051
12.12 %
1-4 family residential
5,327
22.55 %
9,461
21.75 %
9,313
21.84 %
Consumer
547
0.36 %
648
0.34 %
554
0.34 %
Broker-dealer
50
4.57 %
101
4.26 %
234
5.33 %
Total
$ 101,116
100.00 %
$ 111,413
100.00 %
$
95,442
100.00 %
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,
June 30,
March 31,
December 31,
2024
2024
2024
2024
2023
Commercial real estate:
Non-owner occupied
$
29,310
$
32,330
$
37,321
$
39,563
$
40,061
Owner occupied
33,112
34,378
32,772
28,737
28,114
Commercial and industrial
25,609
28,308
28,869
16,552
20,926
Construction and land development
7,161
7,924
7,594
10,008
12,102
1-4 family residential
5,327
7,161
7,912
8,744
9,461
Consumer
547
580
547
544
648
Broker-dealer
50
237
67
83
101
$
101,116
$
110,918
$
115,082
$
104,231
$
111,413
Unfunded Loan Commitments
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. Letters of credit are not currently reserved because they are issued primarily as credit enhancements and the
likelihood of funding is low.
Changes in the allowance for credit losses for loans with off-balance sheet credit exposures are shown below (in thousands).
Year Ended December 31,
2024
2023
2022
Balance, beginning of year
$
8,876
$
7,784
$
5,880
Other noninterest expense
(958)
1,092
1,904
Balance, end of year
$
7,918
$
8,876
$
7,784
During 2023, the increase in the reserve for unfunded commitments was primarily due to increases in expected loss rates.
During 2024, the decrease in the reserve for unfunded commitments was primarily due to decreases in commitment balances
and 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
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obligor’s potential operating or financial difficulties or whether repayment may depend on collateral or other risk mitigation.
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 include those loans assigned
a grade of special mention and substandard accrual 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.
At December 31, 2024, we had $166.9 million in potential problem loans, compared to $207.4 million at December 31, 2023
and $186.6 million at December 31, 2022. Our potential problem loans designated as substandard accrual at December 31,
2024, 2023 and 2022 totaled $152.6 million, $204.1 million and $182.6 million, respectively. The decrease in potential
problem loans from December 31, 2023 to December 31, 2024 was primarily attributable to decreases in commercial and
industrial loans and construction and land development loans, partially offset by increases in 1-4 family residential loans,
commercial real estate non-owner occupied loans and commercial real estate owner occupied loans. Of the $152.6 million of
potential problem loans designated as substandard accrual at December 31, 2024, $48.4 million, $37.3 million and $35.2
million were associated commercial real estate non-owner occupied, commercial real estate owner occupied loans and
commercial and industrial loans, respectively, compared to $41.2 million, $32.1 million and $87.4 million, respectively, at
December 31, 2023.
Potential problem loans designated as special mention were comprised of four credit relationships totaling $14.2 million at
December 31, 2024, compared with three credit relationships totaling $3.2 million at December 31, 2023 and four credit
relationships totaling $4.0 million at December 31, 2022. Of the $14.2 million of potential problem loans at December 31,
2024, $13.3 million was associated with two credit relationships.
Non-Performing Assets
The following table presents components of our non-performing assets (dollars in thousands).
December 31,
Variance
2024
2023
2022
2024 vs 2023
2023 vs 2022
Loans accounted for on a non-accrual basis:
Commercial real estate:
Non-owner occupied
$
7,166
$
36,440
$
1,250
$
(29,274)
$
35,190
Owner occupied
6,092
5,098
3,019
994
2,079
Commercial and industrial
59,025
9,502
9,095
49,523
407
Construction and land development
3,003
3,480
198
(477)
3,282
1-4 family residential
12,863
13,801
15,941
(938)
(2,140)
Consumer
—
6
14
(6)
(8)
Broker-dealer
—
—
—
—
—
$
88,149
$
68,327
$
29,517
$
19,822
$
38,810
Troubled debt restructurings included in accruing loans held for
investment (1)
—
—
803
—
(803)
Non-accrual loans (1)
$
88,149
$
68,327
$
30,320
$
19,822
$
38,007
Non-accrual loans as a percentage of total loans (1)
1.00 %
0.76 %
0.33 %
0.24 %
0.43 %
Other real estate owned
$
2,848
$
5,095
$
2,325
$
(2,247)
$
2,770
Other repossessed assets
$
98
$
—
$
—
$
98
$
—
Non-performing assets
$
91,095
$
73,422
$
32,645
$
17,673
$
40,777
Non-performing assets as a percentage of total assets
0.56 %
0.45 %
0.20 %
0.11 %
0.25 %
Loans past due 90 days or more and still accruing
$
22,090
$
115,090
$
92,099
$
(93,000)
$
22,991
(1)
Effective January 1, 2023, we adopted Accounting Standards Update 2022-02 which eliminated the recognition and measurement guidance on troubled
debt restructurings for creditors. Therefore, we no longer present troubled debt restructurings as a component of non-performing loans and assets.
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At December 31, 2024, non-accrual loans included 27 commercial and industrial relationships with loans secured primarily by
notes receivable, accounts receivable and equipment. Non-accrual loans at December 31, 2024 also included $3.7 million of
loans secured by residential real estate which were classified as loans held for sale. At December 31, 2023, non-accrual loans
included 40 commercial and industrial relationships with loans secured primarily by notes receivable, accounts receivable and
equipment. Non-accrual loans at December 31, 2023 also included $4.0 million of loans secured by residential real estate
which were classified as loans held for sale. At December 31, 2022, non-accrual loans included 40 commercial and industrial
relationships with loans secured by accounts receivable, automobiles, equipment and notes receivable. Non-accrual loans at
December 31, 2022 also included $4.8 million of loans secured by residential real estate which were classified as loans held
for sale. The change in loans in non-accrual status since December 31, 2023 was primarily driven by the addition of two credit
relationships of $45.4 million from the auto note financing industry subsector, partially offset by the decrease in commercial
real estate non-owner occupied loans due to the reclassification of a single non-accrual loan from loans held for investment to
loans held for sale during the first quarter of 2024. This loan was subsequently sold in the second quarter of 2024.
Other real estate owned (“OREO”) decreased from December 31, 2023 to December 31, 2024, primarily due to disposals and
valuation adjustments totaling $4.8 million, partially offset by additions totaling $2.5 million. OREO increased from
December 31, 2022 to December 31, 2023, primarily due to additions totaling $5.6 million, partially offset by disposals and
valuation adjustments totaling $2.8 million.
Loans past due 90 days or more and still accruing at December 31, 2024, 2023 and 2022 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 decline in loans included in loans past due 90 days or more and still accruing
since December 31, 2023 was primarily due to sale of such loans serviced by the mortgage origination segment during the
fourth quarter of 2024.
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. Currently, the banking segment is facing
continued competition for its deposit base as customers seek higher yields on deposits. Consistent with the consolidated trend
in average rates paid on interest-bearing deposits noted in the table below, the banking segment’s average rate paid on interest-
bearing deposits during 2024, 2023 and 2022 was 3.83%, 3.50% and 0.86%, respectively.
Given the cumulative 100-basis point decrease in interest rates since September 2024 and current deposit levels, the Bank’s
cumulative interest-bearing deposit pricing beta, excluding deposits from the Hilltop Securities FDIC-insured sweep program
and brokered deposits, has approximated 62%. The deposit pricing beta represents the change in interest-bearing deposit
pricing in response to a change in market interest rates. The historical interest-bearing deposit pricing beta for the Bank,
excluding deposits from our Hilltop Securities FDIC-insured sweep program and brokered deposits, has approximated 54%.
We expect that the Bank’s cost related to interest-bearing deposits during 2025 to continue to be driven by various factors,
including competition as well as economic and market area factors.
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The table below presents the average balance of, and rate paid on, consolidated deposits (dollars in thousands).
Year Ended December 31,
2024
2023
2022
Average
Average
Average
Average
Average
Average
Balance
Rate Paid
Balance
Rate Paid
Balance
Rate Paid
Noninterest-bearing demand deposits
$ 2,824,450
0.00 % $ 3,441,437
0.00 % $ 4,455,779
0.00 %
Interest-bearing deposits:
Demand
6,356,653
3.45 %
6,369,558
2.92 % 6,320,654
0.68 %
Savings
236,482
1.14 %
282,127
1.09 %
330,743
0.22 %
Time
1,229,401
4.34 %
1,059,885
3.24 %
910,104
0.73 %
7,822,536
3.52 %
7,711,570
2.89 %
7,561,501
0.67 %
Total deposits
$ 10,646,986
2.59 % $ 11,153,007
2.00 % $ 12,017,280
0.42 %
The table above includes interest-bearing brokered deposits with balances of approximately $15 million at December 31,
2024, compared with approximately $208 million and $14 million at December 31, 2023 and 2022, respectively. As
previously discussed, to bolster our liquidity position given banking sector uncertainties in early 2023, we increased brokered
deposits at the Bank by approximately $390 million during the second quarter of 2023, which have subsequently matured
during the first and second quarters of 2024. The variability in the level of brokered deposits has been, and will continue to be,
managed through asset/liability strategy and policies that are address diversification of funding sources and market conditions,
including demand by customers and other investors for those deposits, and the cost of funds available from alternative sources
at the time.
At December 31, 2024, total estimated uninsured deposits were $5.7 billion, or approximately 52% of total deposits, while
estimated uninsured deposits, excluding collateralized deposits of $363.1 million, were $5.3 billion, or approximately 48% of
total deposits. Total estimated uninsured deposits were $4.7 billion, or approximately 42% of total deposits, as of December
31, 2023.
The following table presents the scheduled maturities of the portion of our time deposits that are in excess of the FDIC
insurance limit of $250,000 as of December 31, 2024 (in thousands).
Months to maturity:
3 months or less
$
169,274
3 months to 6 months
20,557
6 months to 12 months
48,822
Over 12 months
101,081
$
339,734
Borrowings
Our consolidated borrowings are shown in the table below (dollars in thousands).
December 31,
2024
2023
2022
Average
Average
Average
Balance
Rate Paid
Balance
Rate Paid
Balance
Rate Paid
Short-term borrowings
$
834,023
4.64 % $
900,038
4.75 % $
970,056
2.27 %
Notes payable
347,667
4.22 %
347,145
4.27 %
346,654
4.33 %
$ 1,181,690
4.52 % $ 1,247,183
4.64 % $ 1,316,710
2.86 %
Short-term borrowings consisted of federal funds purchased, securities sold under agreements to repurchase, borrowings at the
FHLB, short-term bank loans and commercial paper. The decrease in short-term borrowings at December 31, 2024, compared
with December 31, 2023, primarily reflected decreases in federal funds purchased by the banking segment and securities sold
under agreements to repurchase by the broker-dealer segment, partially offset by an increase in commercial paper by the
broker-dealer segment. The decrease in short-term borrowings at December 31, 2023,
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compared with December 31, 2022, primarily reflected decreases in short-term bank loans and securities sold under
agreements to repurchase by the broker-dealer segment, partially offset by an increase in federal funds purchased by the
banking segment.
Notes payable at December 31, 2024 was comprised of $149.7 million related to the Senior Notes, net of loan origination fees,
and Subordinated Notes, net of origination fees, of $198.0 million. Notes payable at December 31, 2023 was comprised of
$149.5 million related to Senior Notes, net of loan origination fees, and Subordinated Notes, net of origination fees, of $197.6
million, while notes payable at December 31, 2022 was comprised of $149.3 million related to Senior Notes, net of loan
origination fees, Subordinated Notes, net of origination fees, of $197.4 million.
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, 2024,
Hilltop had $420.5 million in cash and cash equivalents, an increase of $228.9 million from $191.6 million at December 31,
2023. This increase in cash and cash equivalents was primarily due to the receipt of $200.8 million of dividends from
subsidiaries, partially offset by cash outflows of $44.3 million in cash dividends declared, $19.9 million in stock repurchases,
and other general corporate expenses. 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, redemption of debt obligations, interest on debt obligations, dividend payments
to stockholders and potential stock repurchases.
As discussed in more detail below, we have the ability to redeem the 2030 Subordinated Notes, in whole or in part, beginning
in May 2025, while all of our outstanding Senior Notes previously scheduled to mature in May 2025 were redeemed on
January 15, 2025 using cash on hand.
Economic Environment
As previously discussed, operational and financial headwinds during 2023 and 2024 have had, and are expected to continue to
have, an adverse impact on our operating results during 2025. The extent of the impacts of uncertain economic conditions on
our financial performance that began in 2022 and have continued throughout 2024, and are expected to continue in 2025, will
depend on several developments outside of our control, including, among others, changes in the political environment, the
timing and significance of further changes in U.S. treasury yields and mortgage interest rates, changes in funding costs,
inflationary pressures associated, and international armed conflicts and their impact on supply chains. As demonstrated during
the extreme volatility and disruptions in the capital and credit markets beginning in March 2020 resulting from the pandemic
and banking sector-related uncertainty and concerns associated with liquidity positions primarily due to bank failures during
early 2023 and their respective negative impacts on the economy, we will continue to monitor the economic environment and
evaluate appropriate actions to enhance our financial flexibility, protect capital, minimize losses and ensure target liquidity
levels.
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 2024, we
declared and paid cash dividends of $0.68 per common share, or $44.3 million.
On January 30, 2025, our board of directors declared a quarterly cash dividend of $0.18 per common share, payable on
February 27, 2025 to all common stockholders of record as of the close of business on February 13, 2025.
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.
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102
Stock Repurchases
In January 2023, our board of directors authorized a new stock repurchase program through January 2024, pursuant to which
we are authorized to repurchase, in the aggregate, up to $75.0 million of our outstanding common stock, inclusive of
repurchases to offset dilution related to grants of stock-based compensation. During 2023, Hilltop paid $5.1 million to
repurchase an aggregate of 164,604 shares of our common stock at an average price of $30.95 per share pursuant to the stock
repurchase program.
In January 2024, our board of directors authorized a new stock repurchase program through January 2025, pursuant to which
we are authorized to repurchase, in the aggregate, up to $75.0 million of our outstanding common stock, inclusive of
repurchases to offset dilution related to grants of stock-based compensation. During 2024, Hilltop paid $19.9 million to
repurchase an aggregate of 640,042 shares of our common stock at an average price of $31.04 per share pursuant to the stock
repurchase program.
In January 2025, our board of directors authorized a new stock repurchase program through January 2026, 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. We commenced share
repurchases under the stock repurchase program in the first quarter of 2025.
The Inflation Reduction Act of 2022, signed into law during August 2022, introduced a nondeductible excise tax equal to 1%
of the fair market value of certain shares repurchased beginning in 2023, subject to certain limitations. While we may
complete transactions subject to the new excise tax, we do not expect the tax to have a material impact to our financial
condition or results of operations.
Senior Notes due 2025
On January 15, 2025 (three months prior to the maturity date of the Senior Notes) we redeemed, at our election, all of our
outstanding Senior Notes at a redemption price equal to 100% of the principal amount of $150 million, plus accrued and
unpaid interest to, but excluding, the Redemption Date using cash on hand, which also satisfied and discharged our obligations
under the Senior Notes and the Senior Notes Indenture.
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 that mature on May 15, 2030 and May 15, 2035,
respectively. We collectively refer to the 2030 Subordinated Notes and the 2035 Subordinated Notes as the “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.
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,
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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, 2024, $200.0 million of our
Subordinated Notes was outstanding.
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, 2024
(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, 2024 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 current expected credit losses (“CECL”) over a five-year transitionary period through December 31, 2024. As of
January 1, 2025, Hilltop and PlainsCapital had fully captured the day-one regulatory capital effects resulting from the
implementation of CECL.
Minimum Capital
Requirements Including
To Be Well
December 31, 2024
Conservation Buffer
Capitalized
Amount
Ratio
Ratio
Ratio
Tier 1 capital (to average assets):
PlainsCapital
$ 1,317,664
9.99 %
4.0 %
5.0 %
Hilltop
2,031,069
12.57 %
4.0 %
N/A
Common equity Tier 1 capital
(to risk-weighted assets):
PlainsCapital
1,317,664
15.35 %
7.0 %
6.5 %
Hilltop
2,031,069
21.23 %
7.0 %
N/A
Tier 1 capital (to risk-weighted assets):
PlainsCapital
1,317,664
15.35 %
8.5 %
8.0 %
Hilltop
2,031,069
21.23 %
8.5 %
N/A
Total capital (to risk-weighted assets):
PlainsCapital
1,419,787
16.54 %
10.5 %
10.0 %
Hilltop
2,334,679
24.40 %
10.5 %
N/A
We discuss regulatory capital requirements in more detail in Note 21 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
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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.
The above sources of liquidity allow the banking segment to meet increased liquidity demands without adversely affecting
daily operations. The Bank’s borrowing capacity through access to secured funding sources is summarized in the following
table (in millions). Available liquidity noted below does not include borrowing capacity available through the discount
window at the Federal Reserve.
December 31,
2024
2023
FHLB capacity
$
4,284
$
4,205
Investment portfolio (available)
1,397
1,594
Fed deposits (excess daily requirements)
2,053
1,612
$
7,734
$
7,411
As previously discussed, the banking sector experienced increased uncertainty and concerns associated with its liquidity
positions primarily due to high-profile bank failures during early 2023 as depositors sought to reduce risks associated with
uninsured deposits and withdraw such deposits from existing bank relationships. As a result, both regulatory scrutiny and
market focus on liquidity increased. These failures underscore the importance of maintaining access to diverse sources of
funding. In light of these events, we have continued our efforts to monitor deposit flows and balance sheet trends to ensure
that our liquidity needs are maintained. During 2023, we began increasing interest-bearing deposit rates to address rising
market interest rates and intense competition for liquidity to combat deposit outflows. During 2024, our deposit funding costs
increased due to continued competition for liquidity to combat deposit outflows. While we expect deposit costs during 2025 to
continue to be driven by various factors, including competitive pressures and broader economic conditions, with the 100-basis
point decrease in the target range of the federal funds rate since September 2024 and the possibility of additional rate cuts in
2025, we anticipate that our cost of deposits will begin to trend modestly downward. At December 31, 2024, the Bank
accessed and included approximately $570 million of core deposits on its balance sheet from our Hilltop Securities FDIC-
insured sweep program. The Bank is not utilizing any of its FHLB borrowing capacity noted above through the use of short-
term borrowings.
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. 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. Currently, the Bank is facing continued competition
from bank and non-bank competitors for its deposit base and expects that its interest expense on certain deposits will continue
to be driven by various factors, including competition as well as economic and market area factors.
The Bank’s 15 largest depositors, excluding Hilltop and Hilltop Securities, collectively accounted for 13.88% of the Bank’s
total deposits, and the Bank’s five largest depositors, excluding Hilltop and Hilltop Securities, collectively accounted for
8.04% of the Bank’s total deposits at December 31, 2024. 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.
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Broker-Dealer Segment
The Hilltop Broker-Dealers finance their assets and operations primarily from 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, subject to their respective
compliance with broker-dealer net capital and customer protection rules. At December 31, 2024, Hilltop Securities had credit
arrangements with two unaffiliated banks, with maximum aggregate commitments of up to $425.0 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 two unaffiliated banks, with
aggregate availability of up to $200.0 million. At December 31, 2024, Hilltop Securities had no outstanding borrowings under
its credit arrangements or 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 were 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.
In December 2024, Hilltop Securities initiated a new commercial paper program, Series 2024-1 CP Notes. The first issuances
under this new program are not anticipated until fiscal 2025. Upon the first issuance, no more issuances will be allowed under
the Series 2019-1 CP Notes program. However, any amounts outstanding under Series 2019-1 CP Notes will remain
outstanding until maturity and then roll into the Series 2024-1 CP Notes program. Until the final maturity of the Series 2019-1
CP Note program, both the Series 2019-1 CP Notes and the 2024-1 CP Notes programs will be managed as a single program.
As a result, no more than an aggregate of $300 million combined will be allowed. The terms highlighted above for the Series
2019-1 CP Notes program will not change with issuances under the Series 2024-1 CP Notes. The Series 2019-2 CP program
will continue as originally issued.
As of December 31, 2024, the weighted average maturity of the CP Notes was 143 days at a rate of 5.29%, with a weighted
average remaining life of 59 days. At December 31, 2024, the aggregate amount outstanding under these secured
arrangements was $228.5 million, which was collateralized by securities held for Hilltop Securities accounts valued at $251.2
million.
Mortgage Origination Segment
PrimeLending funds the mortgage loans it originates through a warehouse line of credit maintained with the Bank which had a
total commitment of $1.2 billion, of which $812.0 million was drawn at December 31, 2024. 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, 2024.
PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC (“Ventures Management”)
which holds a controlling ownership interest in and is the managing member of certain ABAs. At
December 31, 2024, these ABAs had combined available lines of credit totaling $65.0 million, all of which was with the Bank,
with outstanding borrowings of $30.3 million.
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Other Material Contractual Obligations, Off-Balance Sheet Arrangements, Commitments and Guarantees
The following table presents information regarding other material contractual obligations at December 31, 2024 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, 2024.
Payments Due by Period
More than 1
3 Years or
1 year
Year but Less
More but Less
5 Years
or Less
than 3 Years
than 5 Years
or More
Total
Finance lease obligations
$
886
$
1,261
$
149
$
—
$
2,296
Operating lease obligations
30,784
45,193
29,191
21,658
126,826
Total
$
31,670
$
46,454
$
29,340
$
21,658
$
129,122
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 $2.0 billion at December 31, 2024 and
outstanding financial and performance standby letters of credit of $61.1 million at December 31, 2024.
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. Historically, changes in interest rates affect the financial condition of a financial institution to a
far greater degree than changes in the inflation rate. However, inflation rose sharply at the end of 2021 and continued rising
into 2024. While the rise in inflation has slowed during 2024, inflationary pressures have moderated in recent periods with
the inflation rate coming down from its peak with the expectation that there will be
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continued moderation of inflation during 2025. Furthermore, a prolonged period of inflation has, and could cause our costs,
including compensation, occupancy and software costs, to increase, which could adversely affect our results of operations and
financial condition.
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.
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 and goodwill and
identifiable intangible assets.
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
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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 or worse 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 losses 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.
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 6 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.
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 reportable business
segments.
The goodwill impairment test requires us to make judgments and assumptions. The test consists of estimating the fair value of
each reportable business segment 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 business segment, 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 business segment’s fair value; however, any loss recognized will not exceed the total amount of
goodwill allocated to that business segment.
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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109
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 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. To help mitigate net interest income spread compression between our assets and liabilities, management
maintains derivative trades, as either cash flow hedges or fair value hedges, that better align repricing characteristics. Any
changes in interest rates across the term structure may 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.
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 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. 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.
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As illustrated in the table below, the banking segment is currently 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).
December 31, 2024
3 Months or > 3 Months to > 1 Year to > 3 Years to
Less
1 Year
3 Years
5 Years
> 5 Years
Total
Interest sensitive assets:
Loans
$ 4,229,642
$
1,313,646
$ 1,761,407
$
640,709
$
470,810
$
8,416,214
Securities
455,319
184,913
422,634
318,743
910,247
2,291,856
Federal funds sold and securities purchased under agreements to
resell
2,141,447
—
—
—
—
2,141,447
Other interest sensitive assets
8,495
—
—
—
59,569
68,064
Total interest sensitive assets
6,834,903
1,498,559
2,184,041
959,452
1,440,626
12,917,581
Interest sensitive liabilities:
Interest bearing checking
$ 6,891,795
$
—
$
—
$
—
$
—
$
6,891,795
Savings
221,667
—
—
—
—
221,667
Time deposits
670,162
383,586
144,354
50,939
—
1,249,041
Notes payable and other borrowings
514,430
—
—
—
—
514,430
Total interest sensitive liabilities
8,298,054
383,586
144,354
50,939
—
8,876,933
Interest sensitivity gap
$ (1,463,151)
$
1,114,973
$ 2,039,687
$
908,513
$
1,440,626
$
4,040,648
Cumulative interest sensitivity gap
$ (1,463,151)
$
(348,178)
$ 1,691,509
$ 2,600,022
$
4,040,648
Percentage of cumulative gap to total interest sensitive assets
(11.33)%
(2.70)%
13.09 %
20.13 %
31.28 %
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 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 (dollars in thousands).
Change in
Changes in
Changes in
Interest Rates
Net Interest Income
Economic Value of Equity
(basis points)
Amount
Percent
Amount
Percent
December 31, 2024
+200
$
47,270
11.49 %
$
170,230
10.84 %
+100
$
24,101
5.86 %
$
99,348
6.33 %
-50
$
(11,409)
(2.77)%
$
(70,531)
(4.49)%
-100
$
(21,983)
(5.34)%
$
(149,355)
(9.51)%
-200
$
(28,730)
(6.99)%
$
(337,987)
(21.53)%
December 31, 2023
+200
$
36,419
9.05 %
$
228,115
15.12 %
+100
$
19,731
4.90 %
$
139,016
9.22 %
-50
$
(10,352)
(2.57)%
$
(97,002)
(6.43)%
-100
$
(20,980)
(5.21)%
$
(210,224)
(13.94)%
-200
$
(43,972)
(10.92)%
$
(455,595)
(30.20)%
The projected changes in the table above were in compliance with established internal policy guidelines and are based on
numerous assumptions. The timing and magnitude of future interest rate movements, along with changes to the balance
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111
sheet composition, may impact projected changes in net interest income. We continue to evaluate the interest rate risk position
and may reposition the banking segment’s balance sheet in the future to better align with management’s target rate risk
position.
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.
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).
December 31, 2024
1 Year
> 1 Year
> 5 Years
or Less
to 5 Years
to 10 Years
> 10 Years
Total
Trading securities, at fair value
Municipal obligations
$
141
$
24,307
$
37,711
$
181,917
$
244,076
U.S. government and government agency
obligations
3,860
(9,740)
(19,510)
156,386
130,996
Corporate obligations
15,691
17,994
19,180
23,650
76,515
Total debt securities
19,692
32,561
37,381
361,953
451,587
Corporate equity securities
—
—
—
—
—
Other
6,359
—
—
—
6,359
$
26,051
$
32,561
$
37,381
$
361,953
$
457,946
Weighted average yield
Municipal obligations
0.01 %
4.46 %
4.40 %
5.10 %
4.48 %
U.S. government and government agency
obligations
4.21 %
4.29 %
3.72 %
3.39 %
3.56 %
Corporate obligations
5.20 %
5.78 %
4.97 %
4.66 %
5.08 %
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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.
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, and 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 MSR portfolio exposes us to 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.
Consolidated
At December 31, 2024, total debt obligations on our consolidated balance sheet, excluding short-term borrowings and
unamortized debt issuance costs and premiums, were $350 million, and was all subject to fixed 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. On January 15, 2025, we redeemed our
outstanding $150.0 million aggregate principal amount of Senior Notes using cash on hand.
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
Table of Contents
113
liabilities, and potential future repositioning of our GAP position, 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 (dollars in thousands).
Change in
Changes in
Interest Rates
Net Interest Income
(basis points)
Amount
Percent
December 31, 2024
+200
$
28,818
6.56 %
+100
$
13,560
3.09 %
-50
$
(26,356)
(6.00)%
-100
$
(46,457)
(10.58)%
-200
$
(59,571)
(13.57)%
December 31, 2023
+200
$
50,675
11.20 %
+100
$
26,814
5.92 %
-50
$
(13,740)
(3.04)%
-100
$
(27,726)
(6.13)%
-200
$
(57,406)
(12.68)%
The projected changes in the table above 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, 2024, 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
the period covered by this report, 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.
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114
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, 2024. 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. This assessment included controls over the
preparation of financial statements in accordance with the instructions for the Consolidated Financial Statements for Bank
Holding Companies (Form FR Y-9C) to meet the reporting requirements of Section 112 of the Federal Deposit Insurance
Corporation Improvement Act. Based on our assessment, management concluded that, as of December 31, 2024, 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, 2024, 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.
Pursuant to Item 408(a) of Regulation S-K, none of our directors or executive officers adopted, terminated or modified a Rule
10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter ended December 31, 2024.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
Table of Contents
115
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information called for by this Item is contained in our definitive Proxy Statement for our 2025 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 2025 Annual Meeting of
Stockholders, and is incorporated herein by reference.
In connection with the revision described under the heading “Revision of Previously Issued Financial Statements” in Note 1 to
our consolidated financial statements, our management performed a recovery analysis and determined that the revision did not
result in erroneously awarded incentive-based compensation tied to financial performance for any of our current and former
executive officers during the relevant recovery period. As such, there were no amounts recovered.
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 2025 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 2025 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 2025 Annual Meeting of
Stockholders, and is incorporated herein by reference.
Table of Contents
116
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)
The following documents are filed herewith as part of this Form 10-K.
Page
1.
Financial Statements.
Hilltop Holdings Inc.
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
F-2
Consolidated Balance Sheets
F-5
Consolidated Statements of Operations
F-6
Consolidated Statements of Comprehensive Income (Loss)
F-7
Consolidated Statements of Stockholders’ Equity
F-8
Consolidated Statements of Cash Flows
F-9
Notes to Consolidated Financial Statements
F-10
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.
Table of Contents
117
Exhibit
Number
Description of Exhibit
3.1
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).
3.2
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).
3.2.1
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).
3.3
Fourth Amended and Restated Bylaws of Hilltop Holdings Inc. (filed as Exhibit 3.1 to the Registrant’s Current
Report on Form 8-K filed on October 25, 2023 (File No. 001-31987) and incorporated herein by reference).
4.1
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).
4.2
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).
4.3
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).
4.4
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).
4.5
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).
4.6.1
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).
4.6.2
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).
4.6.3
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).
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118
4.7
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).
10.1.1†
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).
10.1.2†
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).
10.1.3†
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).
10.1.4†
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†
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).
10.2.3†
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).
10.2.4†
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).
10.2.5†
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).
10.2.6†
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).
10.2.7†
Form of Restricted Stock Unit Award Agreement (Time-Based Vesting for Non-Section 16 Officers) for awards
beginning in 2021 (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).
10.3.1†
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).
10.3.2†
First Amendment to Hilltop Holdings Inc Employee Stock Purchase Plan (filed as Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed July 22, 2022 (File No. 001-31987) and incorporated herein by reference).
Table of Contents
119
10.4†
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†
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).
10.6.2†
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).
10.6.3†
Second Amendment to Employment Agreement by and between Hilltop Holdings Inc. and William B. Furr dated
as of August 20, 2022 (filed as Exhibit 10.7.3 to the Registrant’s Current Report as Form 8-K filed August 31,
2022 (file No. 009-31987) and incorporated by reference).
10.7.1†
Employment Agreement, dated as of November 20, 2018, by and between Hilltop Holdings Inc. and Martin B.
Winges (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 12, 2018 (File
No. 001-31987) and incorporated herein by reference).
10.7.2†
First Amendment to Employment Agreement by and between Hilltop Holdings Inc. and M. Bradley Winges, dated
as of March 31, 2022, but effective February 19, 2022 (filed as Exhibit 10.7.2 to the Registrant’s Current Report
on Form 8-K filed April 5, 2022 (File No. 001-31987) and incorporated herein by reference).
10.8.1†
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).
10.8.2†
First Amendment to Employment Agreement by and between Hilltop Holdings Inc. and Steve Thompson, dated as
of December 30, 2022 (filed as Exhibit 10.8.2 to the Registrant’s Current Report on Form 8-K filed January 4,
2023 (File No. 001-31987) and incorporated herein by reference).
10.9†
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).
10.10†
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 (filed as Exhibit 10.11.1 to the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on February 15, 2022 (File
No. 001-31987) and incorporated herein by reference).
Table of Contents
120
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 (filed as Exhibit 10.12.1 to the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2021 filed on February 15, 2022 (File No. 001-31987) and incorporated herein by
reference).
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).
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 (filed as Exhibit 10.13.1 to the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2021 filed on February 15, 2022 (File No. 001-31987) and incorporated herein by
reference).
19.1*
Insider Trading Policy.
21.1*
List of subsidiaries of the Registrant.
23.1*
Consent of PricewaterhouseCoopers LLP.
31.1*
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
31.2*
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.
97*
Incentive Compensation Clawback Policy.
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.
Table of Contents
121
SIGNATURES
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.
HILLTOP HOLDINGS INC.
Date: February 14, 2025
By:/s/ William B. Furr
William B. Furr
Chief Financial Officer
(Principal Financial Officer and duly authorized officer)
Table of Contents
122
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
President, Chief Executive Officer and Director
February 14, 2025
Jeremy B. Ford
(Principal Executive Officer)
/s/ William B. Furr
Chief Financial Officer
February 14, 2025
William B. Furr
(Principal Financial Officer)
/s/ Keith E. Bornemann
Executive Vice President, Chief Accounting Officer
February 14, 2025
Keith E. Bornemann
(Principal Accounting Officer)
/s/ Rhodes Bobbitt
Director
February 14, 2025
Rhodes Bobbitt
/s/ Tracy A. Bolt
Director and Chairman of Audit Committee
February 14, 2025
Tracy A. Bolt
/s/ J. Taylor Crandall
Director
February 14, 2025
J. Taylor Crandall
/s/ Hill A. Feinberg
Director
February 14, 2025
Hill A. Feinberg
/s/ Gerald J. Ford
Chairman of the Board
February 14, 2025
Gerald J. Ford
/s/ J. Markham Green
Director and Audit Committee Member
February 14, 2025
J. Markham Green
/s/ Charlotte Jones
Director
February 14, 2025
Charlotte Jones
/s/ Lee Lewis
Director
February 14, 2025
Lee Lewis
/s/ W. Robert Nichols, III
Director
February 14, 2025
W. Robert Nichols, III
/s/ Thomas C. Nichols
Director
February 14, 2025
Thomas C. Nichols
/s/ Kenneth D. Russell
Director
February 14, 2025
Kenneth D. Russell
/s/ A. Haag Sherman
Director and Audit Committee Member
February 14, 2025
A. Haag Sherman
/s/ Jonathan S. Sobel
Director
February 14, 2025
Jonathan S. Sobel
/s/ Robert Taylor, Jr.
Director
February 14, 2025
Robert Taylor, Jr.
/s/ Carl B. Webb
Director
February 14, 2025
Carl B. Webb
Table of Contents
F-1
Index to Consolidated Financial Statements
Hilltop Holdings Inc.
Report of Independent Registered Public Accounting Firm
F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets
F-5
Consolidated Statements of Operations
F-6
Consolidated Statements of Comprehensive Income (Loss)
F-7
Consolidated Statements of Stockholders’ Equity
F-8
Consolidated Statements of Cash Flows
F-9
Notes to Consolidated Financial Statements
F-10
Table of Contents
F-2
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, 2024 and 2023, 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, 2024, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2024 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, 2024, based on criteria established in Internal Control – Integrated Framework (2013)
issued by the COSO.
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
Table of Contents
F-3
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 matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated 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 matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses for Loans Held for Investment – Collectively Evaluated
As described in Notes 1 and 6 to the consolidated financial statements, the Company’s allowance for credit losses for loans
held for investment was $101.1 million as of December 31, 2024. 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
alternative scenario published by a third-party that reflects the U.S. economic outlook. This alternative 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 alternative 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.
Table of Contents
F-4
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 alternative 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 alternative scenario and (iv) evaluating the reasonableness of qualitative adjustments to the allowance for
credit losses.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
February 14, 2025
We have served as the Company’s auditor since 1998.
Table of Contents
F-5
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 31,
2024
2023
Assets
Cash and due from banks
$
2,298,977
$
1,858,700
Federal funds sold
650
650
Assets segregated for regulatory purposes
70,963
57,395
Securities purchased under agreements to resell
88,728
80,011
Securities:
Trading, at fair value
524,916
515,991
Available for sale, at fair value, net (amortized cost of $1,498,415 and $1,621,747, respectively)
1,396,549
1,507,595
Held to maturity, at amortized cost, net (fair value of $649,872 and $731,858, respectively)
737,899
812,677
Equity, at fair value
297
321
2,659,661
2,836,584
Loans held for sale
858,665
943,846
Loans held for investment, net of unearned income
7,950,551
8,079,745
Allowance for credit losses
(101,116)
(111,413)
Loans held for investment, net
7,849,435
7,968,332
Broker-dealer and clearing organization receivables
1,452,366
1,573,931
Premises and equipment, net
148,245
168,856
Operating lease right-of-use assets
90,563
88,580
Mortgage servicing rights
5,723
96,662
Other assets
470,073
517,545
Goodwill
267,447
267,447
Other intangible assets, net
6,633
8,457
Total assets
$
16,268,129
$
16,466,996
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing
$
2,768,707
$
3,007,101
Interest-bearing
8,296,615
8,056,091
Total deposits
11,065,322
11,063,192
Broker-dealer and clearing organization payables
1,331,902
1,430,734
Short-term borrowings
834,023
900,038
Securities sold, not yet purchased, at fair value
57,234
34,872
Notes payable
347,667
347,145
Operating lease liabilities
109,103
109,002
Other liabilities
304,566
431,684
Total liabilities
14,049,817
14,316,667
Commitments and contingencies (see Notes 18 and 19)
Stockholders' equity:
Hilltop stockholders' equity:
Common stock, $0.01 par value, 125,000,000 shares authorized; 64,967,984 and 65,153,092
shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively
650
652
Additional paid-in capital
1,052,219
1,054,662
Accumulated other comprehensive loss
(111,497)
(121,505)
Retained earnings
1,248,593
1,189,222
Deferred compensation employee stock trust, net
—
228
Employee stock trust (0 and 10,290 shares, at cost, at December 31, 2024 and December 31, 2023,
respectively)
—
(292)
Total Hilltop stockholders' equity
2,189,965
2,122,967
Noncontrolling interests
28,347
27,362
Total stockholders' equity
2,218,312
2,150,329
Total liabilities and stockholders' equity
$
16,268,129
$
16,466,996
See accompanying notes.
Table of Contents
F-6
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
2024
2023
2022
Interest income:
Loans, including fees
$
544,505
$
542,274
$
416,207
Securities borrowed
77,785
71,924
44,414
Securities:
Taxable
107,007
108,250
75,805
Tax-exempt
10,186
10,763
10,013
Other
96,906
105,164
44,677
Total interest income
836,389
838,375
591,116
Interest expense:
Deposits
275,291
223,179
50,412
Securities loaned
72,614
65,175
38,570
Short-term borrowings
44,134
57,857
20,893
Notes payable
14,659
15,448
16,141
Other
11,893
9,869
6,125
Total interest expense
418,591
371,528
132,141
Net interest income
417,798
466,847
458,975
Provision for credit losses
941
18,392
8,309
Net interest income after provision for credit losses
416,857
448,455
450,666
Noninterest income:
Net gains from sale of loans and other mortgage production income
190,021
172,150
302,384
Mortgage loan origination fees
123,066
144,539
149,598
Securities commissions and fees
125,655
100,532
115,181
Investment and securities advisory fees and commissions
142,952
134,327
127,399
Other
189,262
177,425
137,898
Total noninterest income
770,956
728,973
832,460
Noninterest expense:
Employees' compensation and benefits
687,149
678,310
773,688
Occupancy and equipment, net
91,233
89,326
97,115
Professional services
44,437
49,100
48,495
Other
210,737
211,573
207,701
Total noninterest expense
1,033,556
1,028,309
1,126,999
Income before income taxes
154,257
149,119
156,127
Income tax expense
31,047
31,140
36,833
Net income
123,210
117,979
119,294
Less: Net income attributable to noncontrolling interest
9,997
8,333
6,160
Income attributable to Hilltop
$
113,213
$
109,646
$
113,134
Earnings per common share:
Basic
$
1.74
$
1.69
$
1.61
Diluted
$
1.74
$
1.69
$
1.60
Weighted average share information:
Basic
65,036
65,043
70,434
Diluted
65,046
65,045
70,626
See accompanying notes.
Table of Contents
F-7
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Year Ended December 31,
2024
2023
2022
Net income
$
123,210
$
117,979
$
119,294
Other comprehensive income (loss):
Change in fair value of cash flow hedges, net taxes of $(1,742), $(1,734), and
$4,874, respectively
(5,746)
(5,691)
16,226
Net unrealized gains (losses) on securities available-for-sale, net taxes of $3,113,
$3,762, and $(25,809), respectively
9,024
11,872
(89,136)
Reclassification adjustment for gains (losses) included in net income, net taxes of
$34, $1, and $3, respectively
114
4
10
Adjustment for unrealized losses on securities transferred from available-for sale to
held-to-maturity, net taxes of $0, $0, and $(17,033), respectively
—
—
(56,690)
Amortization of unrealized losses on securities transferred from available-for-sale
to held-maturity, net of tax $1,988, $1,755 and $1,886, respectively
6,616
5,841
6,278
Comprehensive income (loss)
133,218
130,005
(4,018)
Less: comprehensive income attributable to noncontrolling interest
9,997
8,333
6,160
Comprehensive income (loss) applicable to Hilltop
$
123,221
$
121,672
$
(10,178)
See accompanying notes.
Table of Contents
F-8
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Accumulated
Deferred
Total
Additional
Other
Compensation
Employee
Hilltop
Total
Common Stock
Paid-in
Comprehensive
Retained
Employee Stock
Stock Trust
Stockholders’
Noncontrolling
Stockholders’
Shares
Amount
Capital
Loss
Earnings
Trust, Net
Shares
Amount
Equity
Interest
Equity
Balance, December 31,
2021
78,965
$
790
$ 1,274,446
$
(10,219)
$1,257,014
$
752
6
$
(115)
$
2,522,668
$
26,535
$
2,549,203
Net income
—
—
—
—
113,134
—
—
—
113,134
6,160
119,294
Other comprehensive
loss
—
—
—
(123,312)
—
—
—
—
(123,312)
—
(123,312)
Stock-based
compensation
expense
—
—
15,027
—
—
—
—
—
15,027
—
15,027
Common stock
issued to board
members
22
—
599
—
—
—
—
—
599
—
599
Issuance of common
stock related to
share-based
awards, net
567
5
(5,102)
—
—
—
—
—
(5,097)
—
(5,097)
Repurchases of
common stock
(14,869)
(148)
(238,639)
—
(203,549)
—
—
—
(442,336)
—
(442,336)
Dividends on
common stock ($0.60
per share)
—
—
—
—
(42,963)
—
—
—
(42,963)
—
(42,963)
Deferred
compensation plan
—
—
—
—
—
(271)
17
(525)
(796)
—
(796)
Net cash contributed
to noncontrolling
interest
—
—
—
—
—
—
—
—
—
(6,090)
(6,090)
Balance, December 31,
2022
64,685
$
647
$ 1,046,331
$
(133,531)
$1,123,636
$
481
23
$
(640)
$
2,036,924
$
26,605
$
2,063,529
Net income
—
—
—
—
109,646
—
—
—
109,646
8,333
117,979
Other comprehensive
income
—
—
—
12,026
—
—
—
—
12,026
—
12,026
Stock-based
compensation
expense
—
—
14,967
—
—
—
—
—
14,967
—
14,967
Common stock
issued to board
members
17
—
548
—
—
—
—
—
548
—
548
Issuance of common
stock related to
share-based
awards, net
616
7
(4,542)
—
—
—
—
—
(4,535)
—
(4,535)
Repurchases of
common stock
(165)
(2)
(2,642)
—
(2,456)
—
—
—
(5,100)
—
(5,100)
Dividends on
common stock ($0.64
per share)
—
—
—
—
(41,604)
—
—
—
(41,604)
—
(41,604)
Deferred
compensation plan
—
—
—
—
—
(253)
(13)
348
95
—
95
Net cash contributed
to noncontrolling
interest
—
—
—
—
—
—
—
—
—
(7,576)
(7,576)
Balance, December 31,
2023
65,153
$
652
$ 1,054,662
$
(121,505)
$1,189,222
$
228
10
$
(292)
$
2,122,967
$
27,362
$
2,150,329
Net income
—
—
—
—
113,213
—
—
—
113,213
9,997
123,210
Other comprehensive
income
—
—
—
10,008
—
—
—
—
10,008
—
10,008
Stock-based
compensation
expense
—
—
10,192
—
—
—
—
—
10,192
—
10,192
Common stock
issued to board
members
16
—
483
—
—
—
—
—
483
—
483
Issuance of common
stock related to
share-based
awards, net
439
4
(2,845)
—
—
—
—
—
(2,841)
—
(2,841)
Repurchases of
common stock
(640)
(6)
(10,273)
—
(9,585)
—
—
—
(19,864)
—
(19,864)
Dividends on
common stock ($0.68
per share)
—
—
—
—
(44,257)
—
—
—
(44,257)
—
(44,257)
Deferred
compensation plan
—
—
—
—
—
(228)
(10)
292
64
—
64
Net cash contributed
to noncontrolling
interest
—
—
—
—
—
—
—
—
—
(9,012)
(9,012)
Balance, December 31,
2024
64,968
$
650
$ 1,052,219
$
(111,497)
$1,248,593
$
—
—
$
—
$
2,189,965
$
28,347
$
2,218,312
See accompanying notes.
Table of Contents
F-9
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2024
2023
2022
Operating Activities
Net income
$
123,210
$
117,979
$
119,294
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
941
18,392
8,309
Depreciation, amortization and accretion, net
19,948
19,630
32,625
Equity in undistributed earnings of merchant banking subsidiaries
(9,161)
(9,062)
(3,486)
Deferred income taxes
(19,535)
7,004
8,184
Other, net
4,114
14,185
15,257
Net change in securities purchased under agreements to resell
(8,717)
38,059
192
Net change in trading securities
25,288
239,041
(107,034)
Net change in broker-dealer and clearing organization receivables
102,019
(448,825)
936,861
Net change in other assets
42,195
25,016
(7,134)
Net change in broker-dealer and clearing organization payables
(64,509)
413,622
(734,242)
Net change in other liabilities
(10,886)
(2,942)
54,123
Net change in securities sold, not yet purchased
22,362
(18,151)
(43,563)
Proceeds from sale of mortgage servicing rights asset
87,268
19,055
65,108
Change in valuation of mortgage servicing rights asset
15,083
12,467
(21,969)
Net gains from sales of loans
(190,021)
(172,150)
(302,384)
Loans originated for sale
(10,007,122)
(9,485,477)
(14,214,874)
Proceeds from loans sold
10,141,455
9,655,180
15,384,181
Net cash provided by operating activities
273,932
443,023
1,189,448
Investing Activities
Proceeds from maturities and principal reductions of securities held to maturity
81,969
68,882
95,603
Proceeds from sales, maturities and principal reductions of securities available for sale
235,722
249,520
329,558
Proceeds from sales, maturities and principal reductions of equity securities
12,663
—
—
Purchases of securities held to maturity
—
—
(13,180)
Purchases of securities available for sale
(116,117)
(65,165)
(768,461)
Purchases of equity securities
(1,475)
(19,914)
(30)
Net change in loans held for investment
110,916
(71,419)
(515,326)
Purchases of premises and equipment and other assets
(7,131)
(8,488)
(9,798)
Proceeds from sales of premises and equipment, other real estate owned, and other assets
7,646
4,260
4,544
Proceeds from sale of loans held for sale transferred from loans held for investment
30,103
—
—
Net cash received from (paid to) Federal Home Loan Bank and Federal Reserve Bank stock
(75)
662
(212)
Net cash provided by (used in) investing activities
354,221
158,338
(877,302)
Financing Activities
Net change in deposits
(32,193)
(201,915)
(1,278,916)
Net change in short-term borrowings
(93,157)
(70,929)
108,369
Proceeds from long-term borrowings
918,713
490,151
821,570
Payments on long-term borrowings
(890,886)
(490,151)
(863,284)
Payments to repurchase common stock
(19,864)
(5,100)
(442,336)
Dividends paid on common stock
(44,257)
(41,604)
(42,963)
Net cash distributed to noncontrolling interest
(9,012)
(7,576)
(6,090)
Other, net
(3,652)
(5,391)
(5,860)
Net cash used in financing activities
(174,308)
(332,515)
(1,709,510)
Net change in cash, cash equivalents and restricted cash
453,845
268,846
(1,397,364)
Cash, cash equivalents and restricted cash, beginning of year
1,916,745
1,647,899
3,045,263
Cash, cash equivalents and restricted cash, end of year
$
2,370,590
$
1,916,745
$
1,647,899
Reconciliation of Cash, Cash Equivalents and Restricted Cash to Consolidated Balance Sheets
Cash and due from banks
$
2,298,977
$
1,858,700
$
1,579,512
Federal funds sold
650
650
650
Assets segregated for regulatory purposes
70,963
57,395
67,737
Total cash, cash equivalents and restricted cash
$
2,370,590
$
1,916,745
$
1,647,899
Supplemental Disclosures of Cash Flow Information
Cash paid for interest
$
426,777
$
357,403
$
128,414
Cash paid for income taxes, net of refunds
$
44,228
$
19,060
$
15,088
Supplemental Schedule of Non-Cash Activities
Conversion of loans to other real estate owned
$
3,001
$
5,638
$
1,251
Additions to mortgage servicing rights
$
11,412
$
27,359
$
56,974
See accompanying notes.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements
F-10
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.
The Company, headquartered in Dallas, Texas, provides its products and services through two primary business units,
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.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States (“GAAP”), and in conformity with the rules and regulations of the Securities and Exchange
Commission (“SEC”).
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 goodwill and identifiable intangible 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. 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 a controlling ownership interest in and is the managing member of certain affiliated business arrangements
(“ABAs”).
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. (“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 SEC and Financial Industry Regulatory Authority, Inc. (“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.
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-11
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 requirements of the Variable Interest Entities (“VIE”)
Subsections of the Financial accounting standards Board (“FASB”) Accounting standard codification (“ASC”). These entities
are related to the Hilltop Plaza investment discussed in detail in Note 17 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.
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.
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.
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.
Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability
to hold them until maturity. 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.
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-12
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.
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.
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, both with servicing retained and 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.
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-13
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. More specifically, a loan is placed
on non-accrual status if any one of the following three conditions are met: (i) loan is maintained on a cash basis because of
deterioration in the financial condition of the borrower; (ii) payment in full of principal or interest is not expected; (iii)
principal or interest has been in default for a period 90 days or more unless the loan asset is both well secured and in the
process of collection. When a loan is placed on non-accrual status, interest is discontinued, with all previously accrued and
unpaid interest charged against income. Additionally, accretion of purchased discount on non-accrual loans is suspended.
Payments received on non-accrual loans are generally expected to be treated consistent with the cost recovery method,
whereby any interest or principal received is recorded as a direct reduction to the amortized cost of the loan.
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.
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.
Purchased credit deteriorated (“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 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
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-14
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 commitments, the Company separately
evaluates 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.
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-15
1-4 Family Residential Loans. The 1-4 family residential loan portfolio is grouped 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 grouped 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 losses 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;
●
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.
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-16
Loans that Do Not Share Risk Characteristics with Other Loans
When a loan is assigned a substandard non-accrual or worse 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 for the assessment of
value. The assessment of value is discounted for selling costs and compared against the appropriate basis of the loan to
determine if a reserve might be required.
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.
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.
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-17
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 the Company’s 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 $0.5 million, $0.5 million and
$0.5 million during 2024, 2023 and 2022, 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 reportable business
segments 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 aligns with the Company’s reportable business segments. Goodwill is
assigned to business segments at the date the goodwill is initially recorded. Once goodwill has been assigned to business
segments, it no longer retains its association with a particular acquisition, and all of the activities within a business segment,
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
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-18
calculation. The process consists of estimating the fair value of each reportable business segment 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 business segment, which includes the allocated goodwill. If the estimated fair value is less than the carrying value, the
Company is required to recognize an impairment charge for the amount by which the carrying amount exceeds the business
segment’s fair value; however, any loss recognized will not exceed the total amount of goodwill allocated to that business
segment.
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, futures contracts, credit default
swaps and municipal market data (“MMD”) rate locks meet the definition of a derivative under the provisions of the
Derivatives and Hedging Topic of the ASC.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-19
Derivatives are recorded at fair value and included in other assets and other liabilities within 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.
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 Company generally enters into master netting agreements and collateral agreements with its counterparties.
These agreements provide the Company with the right, in the event of a default by the counterparty, to net a counterparty’s
rights and obligations under the agreement, and to liquidate and set off collateral against any net amount owed by the
counterparty. The Company presents required disclosures related to collateral and derivative positions on a gross basis.
Revenue from Contracts with Customers
Certain activities primarily within the Company’s banking and broker-dealer segments are subject to the provisions of ASC
606, Revenue from Contracts with Customers.
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.
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. Revenue from contracts with customers includes commission income and fees from
investment banking and asset management services. The recognition and measurement of revenue is based on the assessment
of individual contract terms. Significant judgement is required to determine whether performance obligations are satisfied at a
point in time or over time; how to allocate transaction prices where multiple performance obligations are identified; when to
recognize revenue based on the appropriate measure of the broker-dealer’s progress under the contact; whether revenue should
be presented gross or net of certain costs; and whether constraints on variable consideration should be applied due to uncertain
future events. The recognition of revenue within the broker-dealer segment is further evaluated as follows.
Investment and securities advisory fees and commissions
Financial advisory. Revenue from financial advisory service contracts is earned from services related to bond issuances.
Under financial advisory agreements, the broker-dealer provides public finance services for school districts, municipality and
government agencies to meet their financing needs such as assisting with the issuance of debt, advising on an on-going basis
and providing disclosure statements. The fee is either fixed or calculated based on the par value of the bond issuance. Revenue
is recognized when the performance obligation for the transaction is satisfied, which is typically the bond issuance date.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-20
Money Market and Bank-Insured Fund Fees. The broker-dealer earns revenue for placing clients’ deposits in money market
funds and brokerage sweep programs with third-party and affiliate banks. The amounts earned from these funds and banks are
impacted by short-term interest rates. The performance obligations with the funds and financial institutions that participate in
these programs are considered a series of distinct services that are substantially the same and are satisfied each day over the
contract term. The revenue is earned daily and settled monthly based on a rate applied, as a percentage, of the deposits placed.
Underwriting. The broker-dealer underwrites securities for business entities and governmental entities that want to raise funds
through a sale of securities. Revenues are earned from fees arising from securities offerings in which the broker-dealer acts as
the underwriter. Revenue is recognized on the trade date (the date on which the broker-dealer purchases the securities from the
issuer) for the portion the broker-dealer is contracted to buy. The broker-dealer believes that the trade date is the appropriate
point in time to recognize revenue for securities underwriting transactions, as there are no significant actions which the
broker-dealer need to take subsequent to this date and the issuer obtains the control and benefit of the capital markets offering
at that point.
Securities commissions and fees
Commissions. The broker-dealer buys and sells securities on behalf of its customers. Each time a customer enters a buy or sell
transaction, the broker-dealer charges a commission. Revenue is earned from buys and sells of securities from and to
customers where the broker-dealer may enter into a transaction by purchasing a security and then immediately selling the
security to the customer (riskless principal transactions), thereby not taking on market risk or holding any inventory.
Commissions and related clearing expenses are recorded on the trade date (the date the broker-dealer fills the trade order by
finding and contracting with a counterparty and confirms the trade with the customer). 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, internal and regulatory guidelines.
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 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
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-21
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.
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 2024, 2023 or 2022.
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, 2024, 2023 and 2022, 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.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-22
Revision of Previously Issued Financial Statements
During the second quarter of 2024, the Company identified an immaterial error related to the classification within noninterest
income associated with the allocation of earned revenue between commission and principal gains on certain principal trades of
fixed income securities. As a result, certain prior period amounts have been corrected for consistency with the current period
presentation. The Company assessed the materiality of this error and change in presentation on prior period consolidated
financial statements in accordance with the SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in the Current Year Financial Statements.” Based on this assessment, the
Company concluded that previously issued financial statements were not materially misstated based upon overall
considerations of both quantitative and qualitative factors. The revisions had no impact on the Consolidated Balance Sheets,
Consolidated Statements of Cash Flows, Consolidated Statements of Comprehensive Income or Consolidated Statements of
Changes in Stockholders’ Equity within these financial statements, or within previously filed financial statements. Further, the
revisions did not result in a change in quarterly or year-to-date net income, basic or diluted earnings per share, or regulatory
capital ratios. Accordingly, the Company corrected the immaterial error for the previously reported for the year ended
December 31, 2023 and 2022 in this Annual Report on Form 10-K. The following table presents the impact of the revisions of
the previously filed financial statements for the year ended December 31, 2023 and 2022 to correct for prior period immaterial
errors (in thousands).
Year Ended December 31, 2023
Year Ended December 31, 2022
As previously
Impact of
As previously
Impact of
reported
Revision
As adjusted
reported
Revision
As adjusted
Noninterest income:
Securities commission and fees
$
121,875
$
(21,343)
$
100,532
$
139,122
$
(23,941)
$
115,181
Other
156,082
21,343
177,425
113,957
23,941
137,898
The following table presents line items for prior period impacts to the components of other noninterest income as included in
the Company’s Notes to Consolidated Financial Statements that have been affected by the immaterial error discussed above
(in thousands).
Year Ended December 31, 2023
Year Ended December 31, 2022
As previously
Impact of
As previously
Impact of
reported
Revision
As adjusted
reported
Revision
As adjusted
Other noninterest income:
Net gains from Hilltop Broker-Dealer
structured product and derivative activities
$
42,284
$
1,844
$
44,128
$
37,407
$
3,911
$
41,318
Net gain from trading securities portfolio
54,750
19,499
74,249
23,666
20,030
43,696
2. Recently Issued Accounting Standards
Accounting Standards Adopted During 2024
In November 2023, the FASB issued ASU 2023-07 to enhance disclosures of significant expense and segment profitability
categories and amounts for each of the Company’s reportable business segments. The amendments are effective in annual
periods beginning after December 15, 2023 and subsequent interim periods, with early adoption permitted. The adoption of
this amendment did not have a material impact on the Company’s consolidated financial statements.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-23
Accounting Standards Adopted In 2025
In August 2023, the FASB issued ASU 2023-05 to require joint ventures to initially measure all contributions received and
liabilities assumed upon its formation at fair value. The guidance is applicable to joint venture entities with a formation date
on or after January 1, 2025, with early adoption permitted. The Company adopted the provisions of the amendments as of
January 1, 2025. The adoption of this amendment did not have a material impact on the Company’s consolidated financial
statements.
In March 2024, the FASB issued ASU 2024-01 to clarify how an entity should determine whether a profits interest or similar
award should be accounted for as a share-based payment arrangement or similar to a cash bonus or profit-sharing
arrangement. The amendments are effective in annual periods beginning after December 15, 2024, and interim periods within
those annual periods, with early adoption permitted. The Company adopted the provisions of the amendments as of January 1,
2025. The adoption of this amendment did not have a material impact on the Company’s consolidated financial statements.
Accounting Standards Issued But Not Yet Adopted
In October 2023, the FASB issued ASU 2023-06 to clarify or improve disclosure and presentation requirements of a variety of
topics, which will allow users to more easily compare entities subject to the SEC's existing disclosures with those entities that
were not previously subject to the requirements, and align the requirements in the FASB accounting standard codification with
the SEC's regulations. The amendments will be effective on the date the SEC removes related disclosure requirements from
Regulation S-X or Regulation S-K. If by June 30, 2027, the SEC has not removed the applicable disclosure requirements, the
pending amendments will not become effective. Early adoption is prohibited. The Company does not expect the future
adoption of this amendment to have a material impact on its consolidated financial statements since the Company is currently
subject to the SEC’s disclosure and presentation requirements under Regulation S-X and Regulation S-K.
In December 2023, the FASB issued ASU 2023-09 to improve disclosures and presentation requirements to the transparency
of the income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate
reconciliation and income taxes paid disaggregated by jurisdiction. The amendments are effective in annual periods beginning
after December 15, 2024, with early adoption permitted. The Company is currently evaluating the provisions of the
amendments, which are not expected to have an impact on its financial condition or results of operations. The Company
expects to adopt this guidance in its Annual Report on Form 10-K for the year ending December 31, 2025.
In November 2024, the FASB issued ASU 2024-03, which was further clarified through the issuance of ASU 2025-01 in
January 2025, to improve disclosure on an entity’s expenses and provide more detailed information for specific expense
categories in the notes to financial statements at interim and annual reporting periods. The amendments are effective in annual
periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15,
2027, with early adoption permitted. The Company is currently evaluating the provisions of the amendments and the impact
on its future consolidated statements.
T
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-24
3. Fair Value Measurements
Fair Value Measurements and Disclosures
The Company determines fair values in compliance with The Fair Value Measurements and Disclosures Topic of the ASC (the
“Fair Value Topic”). The Fair Value Topic defines fair value, establishes a framework for measuring fair value in GAAP and
expands disclosures about fair value measurements. The Fair Value Topic defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Fair Value Topic
assumes that transactions upon which fair value measurements are based occur in the principal market for the asset or liability
being measured. Further, fair value measurements made under the Fair Value Topic exclude transaction costs and are not the
result of forced transactions.
The Fair Value Topic 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 caused by
measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. At
December 31, 2024 and 2023, the aggregate fair value of PrimeLending’s mortgage loans held for sale accounted for under the
Fair Value Option was $809.8 million and $822.2 million, respectively, and the unpaid principal balance of those loans was
$803.0 million and $802.3 million, 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. Periodically, the Bank acquires certain government guaranteed
loans under Small Business Administration (“SBA”) lending programs which are later securitized into separate securities
(“SBA Loans”), including SBA pools and interest only (“IO”) strips. The SBA pools are reported at fair value using Level 2
inputs, while the IO strips are reported at fair value using Level 3 inputs. The fair value of the IO strips is impacted primarily
by prepayment rates.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-25
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. The fair value of certain available for
sale securities prior to the sale of such instruments during the second quarter of 2024, by the Company’s merchant bank
subsidiary were measured using the income approach with Level 3 inputs. The fair value of such financial instruments are
based upon estimates of expected cash flows using unobservable inputs, including credit spreads derived from comparable
securities and benchmark credit curves, and management’s knowledge of underlying collateral.
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 — Loans held for sale primarily consists of PrimeLending’s mortgage loans. As noted above, the Bank
periodically acquires SBA Loans that are reported at fair value using Level 2 inputs, including the underlying characteristics
of the SBA Loans. 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 to 45 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. Certain 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 are reported at amortized cost and are not recorded at fair value on either a
recurring or non-recurring basis.
Loans Held for Investment —The fair value of certain loans held for investment prior to the sale of such instruments during
the second quarter of 2024 by the Company’s merchant bank subsidiary were measured, under the provisions of the Fair Value
Option, using the income approach with Level 3 inputs. The fair value of such loans were based upon estimates of expected
cash flows using unobservable inputs, including credit spreads derived from comparable securities and benchmark credit
curves, and 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 futures contracts 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, futures contracts, credit default swaps and
MMD rate locks, used to hedge changes in the fair value of its securities. The fair value of certain derivatives by the
Company’s merchant bank subsidiary were measured using Level 3 inputs based upon estimates of expected cash flows using
unobservable inputs, including management’s knowledge of underlying collateral prior to the sale of such instruments during
the second quarter of 2024.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-26
MSR Asset — The MSR asset is reported at fair value, under the provisions of the Fair Value Option, 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 10 to the consolidated financial statements.
Equity Investments — The Company has elected to measure certain equity investments by the Company’s merchant bank
subsidiary under the provisions of the Fair Value Option using Level 3 inputs to mitigate volatility in reported earnings
changes in fair value and better align with merchant bank investment strategy. Changes in fair value are reported within other
noninterest income in the accompanying consolidated statements of operations.
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).
Level 1
Level 2
Level 3
Total
December 31, 2024
Inputs
Inputs
Inputs
Fair Value
Trading securities
$ 11,001
$
510,585
$
3,330
$
524,916
Available for sale securities
—
1,366,733
29,816
1,396,549
Equity securities
297
—
—
297
Loans held for sale
—
761,125
48,657
809,782
Derivative assets
—
67,821
—
67,821
MSR asset
—
—
5,723
5,723
Equity investments
—
—
22,015
22,015
Securities sold, not yet purchased
52,637
4,597
—
57,234
Derivative liabilities
—
11,290
—
11,290
Level 1
Level 2
Level 3
Total
December 31, 2023
Inputs
Inputs
Inputs
Fair Value
Trading securities
$
8,929
$
507,062
$
—
$
515,991
Available for sale securities
—
1,483,177
24,418
1,507,595
Equity securities
321
—
—
321
Loans held for sale
—
784,158
38,036
822,194
Loans held for investment
—
—
10,858
10,858
Derivative assets
—
76,778
820
77,598
MSR asset
—
—
96,662
96,662
Equity investments
—
—
19,540
19,540
Securities sold, not yet purchased
14,027
20,845
—
34,872
Derivative liabilities
—
27,106
—
27,106
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-27
The following table includes a rollforward for those material financial instruments measured at fair value using Level 3 inputs
(in thousands).
Total Gains or Losses
(Realized or Unrealized)
Included in
Balance,
Transfers
Other
Beginning of
Purchases/
Sales/
to (from)
Included in
Comprehensive
Balance,
Year
Additions
Reductions
Level 3
Net Income
Income (Loss)
End of Year
Year ended December 31, 2024
Trading securities
$
—
$
3,515
$
—
$
—
$
(185)
$
—
$
3,330
Available for sale securities
24,418
6,250
(4,702)
—
2,672
1,178
29,816
Loans held for sale
38,036
85,844
(60,326)
—
(14,897)
—
48,657
Loans held for investment
10,858
—
(11,352)
—
494
—
—
Derivative assets
820
—
(2,598)
—
1,778
—
—
MSR asset
96,662
11,412
(87,268)
—
(15,083)
—
5,723
Equity investment
19,540
2,475
—
—
—
—
22,015
Total
$
190,334
$
109,496
$
(166,246)
$
—
$
(25,221)
$
1,178
$
109,541
Year ended December 31, 2023
Available for sale securities
$
—
$
25,919
$
—
$
—
$
—
$
(1,501)
$
24,418
Loans held for sale
40,707
80,417
(61,522)
(1,008)
(20,558)
—
38,036
Loans held for investment
9,181
—
—
—
1,677
—
10,858
Derivative assets
—
782
—
—
38
—
820
MSR asset
100,825
27,359
(19,055)
—
(12,467)
—
96,662
Equity investment
—
19,540
—
—
—
—
19,540
Total
$
150,713
$
154,017
$
(80,577)
$
(1,008)
$
(31,310)
$
(1,501)
$
190,334
Year ended December 31, 2022
Loans held for sale
$
47,716
$
52,058
$
(48,900)
$
5,587
$
(15,754)
$
—
$
40,707
Loans held for investment
—
9,611
(562)
—
132
—
9,181
MSR asset
86,990
56,974
(65,108)
—
21,969
—
100,825
Total
$
134,706
$
118,643
$
(114,570)
$
5,587
$
6,347
$
—
$
150,713
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, 2024.
For material Level 3 financial instruments measured at fair value on a recurring basis at December 31, 2024 and 2023, the
significant unobservable inputs used in the fair value measurements were as follows.
Range (Weighted-Average)
Financial Instrument
Fair Value Valuation Technique
Unobservable Inputs
December 31, 2024
December 31, 2023
Trading securities
$
3,330
Discounted cash flow
Prepayment rate
10
-
12
%
( 11 %)
Available for sale securities
23,519
Discounted cash flow
Discount rate
12.75 - 14.00 %
14.25 - 15.50 %
6,297
Recent transaction
Recent transaction
Loans held for sale
48,657
Market comparable
Projected price
78
-
95
%
( 93%)
78
-
92
%
( 90%)
Loans held for investment
-
Discounted cash flow
Discount rate
10.00 %
Derivative assets
-
Discounted cash flow
Discount rate
15.00 %
MSR asset
5,723
Discounted cash flow
Constant prepayment rate
10.10 %
8.65 %
Discount rate
14.89 %
11.67 %
Equity investments
19,540
Market comparable
Market multiple
12.5x
1,000
Market comparable
Market multiple
2.0x -
5.4x
1,475
Recent transaction
Recent transaction
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-28
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 material instruments recognized in the consolidated statements of
operations that are accounted for under the Fair Value Option (in thousands).
Year Ended December 31, 2024
Year Ended December 31, 2023
Year Ended December 31, 2022
Net
Other
Total
Net
Other
Total
Net
Other
Total
Gains
Noninterest
Changes in
Gains
Noninterest
Changes in
Gains
Noninterest
Changes in
(Losses)
Income
Fair Value
(Losses)
Income
Fair Value
(Losses)
Income
Fair Value
Loans held for
sale
$ (15,023)
$
—
$ (15,023)
$ 14,426
$
—
$
14,426
$ (48,916)
$
—
$ (48,916)
Loans held for
investment
94
—
94
565
—
565
(660)
—
(660)
MSR asset
(15,083)
—
(15,083)
(12,467)
—
(12,467)
21,969
—
21,969
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, 2024
and 2023, the estimated fair value of OREO was $2.8 million and $5.1 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 a total gain of $0.4 million during 2024, compared with total losses of $0.1 million and $0.1 million during
2023 and 2022, respectively, which represent a change in fair value subsequent to initial recognition of the asset.
Financial Assets and Liabilities Not Measured at Fair Value on Recurring or Non-Recurring Basis
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.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-29
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 with carrying amounts that approximate
fair value. The fair value of certain mortgage loans originated by PrimeLending on behalf of the Bank are measured using
Level 3 inputs. Such loans are reported at fair value using an exit price method.
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.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-30
The following tables present the carrying values and estimated fair values of financial instruments not measured at fair value
on either a recurring or non-recurring basis (in thousands).
Estimated Fair Value
Carrying
Level 1
Level 2
Level 3
December 31, 2024
Amount
Inputs
Inputs
Inputs
Total
Financial assets:
Cash and cash equivalents
$
2,299,627
$ 2,299,627
$
—
$
—
$
2,299,627
Assets segregated for regulatory purposes
70,963
70,963
—
—
70,963
Securities purchased under agreements to resell
88,728
—
88,728
—
88,728
Held to maturity securities
737,899
—
649,872
—
649,872
Loans held for sale
48,883
—
1,436
49,435
50,871
Loans held for investment, net
7,849,435
—
363,718
7,572,849
7,936,567
Broker-dealer and clearing organization receivables
1,452,366
—
1,452,366
—
1,452,366
Other assets
69,545
—
69,545
—
69,545
Financial liabilities:
Deposits
11,065,322
—
11,058,234
—
11,058,234
Broker-dealer and clearing organization payables
1,331,902
—
1,331,902
—
1,331,902
Short-term borrowings
834,023
—
834,023
—
834,023
Debt
347,667
—
331,965
—
331,965
Other liabilities
16,779
—
16,779
—
16,779
Estimated Fair Value
Carrying
Level 1
Level 2
Level 3
December 31, 2023
Amount
Inputs
Inputs
Inputs
Total
Financial assets:
Cash and cash equivalents
$
1,859,350
$ 1,859,350
$
—
$
—
$
1,859,350
Assets segregated for regulatory purposes
57,395
57,395
—
—
57,395
Securities purchased under agreements to resell
80,011
—
80,011
—
80,011
Held to maturity securities
812,677
—
731,858
—
731,858
Loans held for sale
121,652
—
99,358
22,882
122,240
Loans held for investment, net
7,957,474
—
344,172
7,696,393
8,040,565
Broker-dealer and clearing organization receivables
1,573,931
—
1,573,931
—
1,573,931
Other assets
74,613
—
74,613
—
74,613
Financial liabilities:
Deposits
11,063,192
—
11,045,957
—
11,045,957
Broker-dealer and clearing organization payables
1,430,734
—
1,430,734
—
1,430,734
Short-term borrowings
900,038
—
900,038
—
900,038
Debt
347,145
—
319,505
—
319,505
Other liabilities
24,280
—
24,280
—
24,280
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-31
The Company held equity investments other than securities of $32.9 million and $59.2 million at December 31, 2024 and
2023, respectively, which are included within other assets in the consolidated balance sheets. Of the $32.9 million of such
equity investments held at December 31, 2024, $2.0 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).
Year Ended December 31,
2024
2023
Balance, beginning of year
$
6,607 $
27,264
Additional investments
—
374
Upward adjustments
—
611
Impairments and downward adjustments
(2,305)
(5,056)
Dispositions
(2,323)
—
Other
—
(16,586)
Balance, end of year
$
1,979
$
6,607
4. Securities
The fair value of trading securities are summarized as follows (in thousands).
December 31,
2024
2023
U.S. Treasury securities
$
2,553 $
3,736
U.S. government agencies:
Bonds
9,984
12,867
Residential mortgage-backed securities
35,440
124,768
Collateralized mortgage obligations
125,515
86,281
Other
19,877
13,079
Corporate debt securities
60,594
37,569
States and political subdivisions
244,076
180,890
Private-label securitized product
16,208
47,768
Other
10,669
9,033
Totals
$
524,916
$
515,991
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 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 $57.2 million and $34.9 million at December 31, 2024 and 2023, respectively.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-32
The amortized cost and fair value of available for sale and held to maturity securities are summarized as follows (in
thousands).
Available for Sale
Amortized
Unrealized
Unrealized
December 31, 2024
Cost
Gains
Losses
Fair Value
U.S. Treasury securities
$
4,991
$
—
$
(229) $
4,762
U.S. government agencies:
Bonds
112,293
214
(639)
111,868
Residential mortgage-backed securities
379,651
35
(38,500)
341,186
Commercial mortgage-backed securities
226,326
161
(6,160)
220,327
Collateralized mortgage obligations
710,663
328
(53,391)
657,600
Corporate debt securities
30,139
215
(538)
29,816
States and political subdivisions
34,352
10
(3,372)
30,990
Totals
$
1,498,415
$
963
$
(102,829) $
1,396,549
Available for Sale
Amortized
Unrealized
Unrealized
December 31, 2023
Cost
Gains
Losses
Fair Value
U.S. Treasury securities
$
4,985
$
—
$
(368) $
4,617
U.S. government agencies:
Bonds
166,617
360
(811)
166,166
Residential mortgage-backed securities
389,160
25
(39,315)
349,870
Commercial mortgage-backed securities
200,236
468
(8,958)
191,746
Collateralized mortgage obligations
797,876
291
(61,686)
736,481
Corporate debt securities
25,919
—
(1,501)
24,418
States and political subdivisions
36,954
39
(2,696)
34,297
Totals
$
1,621,747
$
1,183
$
(115,335) $
1,507,595
Held to Maturity
Amortized
Unrealized
Unrealized
December 31, 2024
Cost
Gains
Losses
Fair Value
U.S. government agencies:
Residential mortgage-backed securities
$
255,880
$
—
$
(31,621)
$
224,259
Commercial mortgage-backed securities
147,696
—
(10,688)
137,008
Collateralized mortgage obligations
257,230
—
(38,269)
218,961
States and political subdivisions
77,093
32
(7,481)
69,644
Totals
$
737,899
$
32
$
(88,059)
$
649,872
Held to Maturity
Amortized
Unrealized
Unrealized
December 31, 2023
Cost
Gains
Losses
Fair Value
U.S. government agencies:
Residential mortgage-backed securities
$
278,172
$
—
$
(25,765)
$
252,407
Commercial mortgage-backed securities
172,879
—
(12,670)
160,209
Collateralized mortgage obligations
284,208
—
(37,189)
247,019
States and political subdivisions
77,418
149
(5,344)
72,223
Totals
$
812,677
$
149
$
(80,968)
$
731,858
Additionally, the Company had unrealized net gains of $0.2 million and $0.3 million at December 31, 2024 and 2023 from
equity securities with fair values of $0.3 million and $0.3 million at December 31, 2024 and 2023, respectively. The Company
recognized nominal net losses and net gains of $0.1 million during 2024 and 2023, respectively, due to
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-33
changes in the fair value of equity securities still held at the balance sheet date. During 2024 and 2023, net gains and losses
recognized from equity securities sold were nominal.
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, 2024
December 31, 2023
Number of
Unrealized Number of
Unrealized
Securities
Fair Value
Losses
Securities
Fair Value
Losses
Available for Sale
U.S. treasury securities:
Unrealized loss for less than twelve months
—
$
—
$
—
—
$
—
$
—
Unrealized loss for twelve months or longer
1
4,762
229
1
4,617
368
1
4,762
229
1
4,617
368
U.S. government agencies:
Bonds:
Unrealized loss for less than twelve months
5
32,699
54
4
28,988
103
Unrealized loss for twelve months or longer
14
63,719
585
20
112,502
708
19
96,418
639
24
141,490
811
Residential mortgage-backed securities:
Unrealized loss for less than twelve months
20
56,122
1,384
14
8,989
616
Unrealized loss for twelve months or longer
107
283,691
37,116
109
338,769
38,699
127
339,813
38,500
123
347,758
39,315
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months
3
34,539
70
2
10,413
282
Unrealized loss for twelve months or longer
20
197,203
6,090
18
162,470
8,676
23
231,742
6,160
20
172,883
8,958
Collateralized mortgage obligations:
Unrealized loss for less than twelve months
2
9,944
146
2
11,560
22
Unrealized loss for twelve months or longer
132
629,089
53,245
138
709,571
61,665
134
639,033
53,391
140
721,131
61,687
Corporate debt securities:
Unrealized loss for less than twelve months
1
9,271
538
2
13,483
1,501
Unrealized loss for twelve months or longer
—
—
—
—
—
—
1
9,271
538
2
13,483
1,501
States and political subdivisions:
Unrealized loss for less than twelve months
4
1,919
9
10
7,023
55
Unrealized loss for twelve months or longer
52
24,916
3,363
50
20,857
2,640
56
26,835
3,372
60
27,880
2,695
Total available for sale:
Unrealized loss for less than twelve months
35
144,494
2,201
34
80,456
2,579
Unrealized loss for twelve months or longer
326
1,203,380
100,628
336
1,348,786
112,756
361
$
1,347,874
$
102,829
370
$
1,429,242
$
115,335
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-34
December 31, 2024
December 31, 2023
Number of
Unrealized Number of
Unrealized
Securities
Fair Value
Losses
Securities
Fair Value
Losses
Held to Maturity
U.S. government agencies:
Residential mortgage-backed securities:
Unrealized loss for less than twelve months
—
$
—
$
—
—
$
—
$
—
Unrealized loss for twelve months or longer
45
224,258
31,621
44
278,172
25,765
45
224,258
31,621
44
278,172
25,765
Commercial mortgage-backed securities:
Unrealized loss for less than twelve months
—
—
—
—
—
—
Unrealized loss for twelve months or longer
26
137,009
10,688
31
160,208
12,670
26
137,009
10,688
31
160,208
12,670
Collateralized mortgage obligations:
Unrealized loss for less than twelve months
—
—
—
—
—
—
Unrealized loss for twelve months or longer
53
218,961
38,269
54
247,019
37,189
53
218,961
38,269
54
247,019
37,189
States and political subdivisions:
Unrealized loss for less than twelve months
8
4,305
24
39
15,506
479
Unrealized loss for twelve months or longer
169
62,113
7,457
128
45,208
4,865
177
66,418
7,481
167
60,714
5,344
Total held to maturity:
Unrealized loss for less than twelve months
8
4,305
24
39
15,506
479
Unrealized loss for twelve months or longer
293
642,341
88,035
257
730,607
80,489
301
$ 646,646
$
88,059
296
$
746,113
$
80,968
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, 2024 are shown by contractual maturity below (in thousands).
Available for Sale
Held to Maturity
Amortized
Amortized
Cost
Fair Value
Cost
Fair Value
Due in one year or less
$
1,933
$
1,923
$
—
$
—
Due after one year through five years
84,010
83,362
3,822
3,609
Due after five years through ten years
51,019
50,190
50,101
46,061
Due after ten years
44,813
41,961
23,170
19,974
181,775
177,436
77,093
69,644
Residential mortgage-backed securities
379,651
341,186
255,880
224,259
Commercial mortgage-backed securities
226,326
220,327
147,696
137,008
Collateralized mortgage obligations
710,663
657,600
257,230
218,961
$ 1,498,415
$ 1,396,549
$ 737,899
$ 649,872
During 2024, 2023 and 2022, the Company recognized net gains from its trading portfolio of $39.7 million, $74.2 million and
$43.7 million, respectively. In addition, the Hilltop Broker-Dealers realized net gains from structured product trading activities
of $88.2 million, $51.9 million and $24.9 million during 2024, 2023 and 2022, respectively. During 2024, the Company’s
other realized gains on securities were nominal, while during 2023 and 2022 the Company’s other realized losses on securities
were nominal. 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 $563.9 million and $537.2 million (with a fair value of $520.0 million and $503.1
million, respectively) at December 31, 2024 and 2023, 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, 2024 and 2023.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-35
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.
5. 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 real estate (including construction and land development), wholesale/retail trade, agribusiness and energy. 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.
Loans held for investment summarized by portfolio segment are as follows (in thousands).
December 31,
2024
2023
Commercial real estate:
Non-owner occupied
$
1,921,691
$
1,889,882
Owner occupied
1,435,945
1,422,234
Commercial and industrial
1,541,940
1,607,833
Construction and land development
866,245
1,031,095
1-4 family residential
1,792,602
1,757,178
Consumer
28,410
27,351
Broker-dealer (1)
363,718
344,172
7,950,551
8,079,745
Allowance for credit losses
(101,116)
(111,413)
Total loans held for investment, net of allowance
$
7,849,435
$
7,968,332
(1)
Primarily represents margin loans to customers and correspondents associated with broker-dealer segment operations.
Past Due Loans and Non-accrual Loans
An analysis of the aging of the Company’s loan portfolio is shown in the following tables (in thousands).
Accruing Loans
Loans Past Due
Total Past
Current
Total
Past Due
December 31, 2024
30-59 Days
60-89 Days
90 Days or More
Due Loans
Loans
Loans
90 Days or More
Commercial real estate:
Non-owner occupied
$
1,095
$
361
$
5,012
$
6,468
$ 1,915,223
$ 1,921,691
$
—
Owner occupied
3,549
124
3,869
7,542
1,428,403
1,435,945
—
Commercial and industrial
2,488
7,179
23,101
32,768
1,509,172
1,541,940
43
Construction and land development
3,329
—
2,484
5,813
860,432
866,245
—
1-4 family residential
8,404
1,387
3,892
13,683
1,778,919
1,792,602
—
Consumer
174
1
—
175
28,235
28,410
—
Broker-dealer
—
—
—
—
363,718
363,718
—
$
19,039
$
9,052
$
38,358
$
66,449
$ 7,884,102
$ 7,950,551
$
43
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-36
Accruing Loans
Loans Past Due
Total Past
Current
Total
Past Due
December 31, 2023
30-59 Days
60-89 Days
90 Days or More
Due Loans
Loans
Loans
90 Days or More
Commercial real estate:
Non-owner occupied
$
6,125
$
—
$
799
$
6,924
$ 1,882,958
$ 1,889,882
$
—
Owner occupied
6,823
386
3,897
11,106
1,411,128
1,422,234
—
Commercial and industrial
3,348
1,496
2,074
6,918
1,600,915
1,607,833
—
Construction and land development
767
1,554
276
2,597
1,028,498
1,031,095
—
1-4 family residential
8,625
1,292
3,203
13,120
1,744,058
1,757,178
—
Consumer
28
4
5
37
27,314
27,351
—
Broker-dealer
—
—
—
—
344,172
344,172
—
$
25,716
$
4,732
$
10,254
$
40,702
$ 8,039,043
$ 8,079,745
$
—
In addition to the loans shown in the tables above, PrimeLending had $22.0 million and $115.1 million of loans included in
loans held for sale (with an aggregate unpaid principal balance of $22.9 million and $115.7 million, respectively) that were 90
days past due and accruing interest at December 31, 2024 and 2023, respectively. This significant decline in loans included in
loans past due 90 days or more and still accruing in loans held for sale since December 31, 2023 was primarily due to sale of
such loans serviced by PrimeLending during the fourth quarter of 2024. These loans are guaranteed by U.S. government
agencies and include loans that are subject to repurchase, or have been repurchased, by PrimeLending.
The following table provides details associated with non-accrual loans, excluding those classified as held for sale (in
thousands).
Non-accrual Loans
December 31, 2024
December 31, 2023
Interest Income Recognized
With
With No
With
With No
Year Ended December 31,
Allowance Allowance
Total
Allowance Allowance
Total
2024
2023
2022
Commercial real estate:
Non-owner occupied
$
396
$
6,770
$
7,166
$
33,728
$
2,712
$
36,440
$
1,754
$
592
$
483
Owner occupied
4,434
1,658
6,092
4,630
468
5,098
759
568
556
Commercial and industrial
29,914
29,111
59,025
5,216
4,286
9,502
1,614
1,840
1,099
Construction and land development
475
2,330
2,805
533
2,749
3,282
50
69
29
1-4 family residential
1,526
7,804
9,330
726
9,283
10,009
1,535
1,597
3,420
Consumer
—
—
—
6
—
6
—
—
—
Broker-dealer
—
—
—
—
—
—
—
—
—
$
36,745
$
47,673
$
84,418
$
44,839
$
19,498
$
64,337
$
5,712
$
4,666
$
5,587
At December 31, 2024 and 2023, $3.7 million and $4.0 million, respectively, of real estate loans secured by residential
properties and classified as held for sale were in non-accrual status.
As shown in the table above, loans accounted for on a non-accrual basis increased from December 31, 2023 to December 31,
2024, by $20.1 million. The change in non-accrual loans was primarily due to increases in commercial and industrial loans of
$49.5 million and commercial real estate owner occupied loans of $1.0 million, partially offset by a decrease in commercial
real estate non-owner occupied of $29.3 million. The increase in commercial and industrial loans in non-accrual status since
December 31, 2023 was primarily due to the addition of loans with an aggregate loan balance of $58.6 million, partially offset
by principal payoffs and charge-offs. Of the $49.5 million increase in commercial and industrial loans in non-accrual status,
$45.4 million was due to the addition of two credit relationships from the auto note financing industry subsector. The increase
in commercial real estate owner occupied loans was primarily due to the addition of a single loan to non-accrual status with a
loan balance of $3.9 million, partially offset by principal payoffs. The decrease in commercial real estate non-owner occupied
loans in non-accrual status since December 31, 2023 was primarily due to the reclassification of a single non-accrual loan
from loans held for investment to loans held for sale during the first quarter of 2024. This loan was subsequently sold in the
second quarter of 2024.
For non-accrual loans that are considered to be collateral-dependent, the Company has implemented the practical expedient to
measure the allowance using the fair value of the collateral. For non-accrual loans that are not collateral dependent, the
Company measures the allowance based on discounted expected cash flows.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-37
Loan Modifications
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 following table presents the amortized cost basis of the loans held for investment modified for borrowers experiencing
financial difficulty grouped by portfolio segment and type of modification granted during the periods presented (in thousands).
Total
Combination
Modifications as a
Interest Rate
Term
Principal
Payment
Term Extension and
% of Portfolio
Year Ended December 31, 2024
Reduction
Extension
Forgiveness
Delay
Rate Reduction
Segment
Commercial real estate:
Non-owner occupied
$
—
$
1,424
$
—
$
—
$
—
0.1 %
Owner occupied
—
468
—
—
—
— %
Commercial and industrial
—
50,116
—
—
456
3.3 %
Construction and land development
—
359
—
—
—
0.0 %
1-4 family residential
—
168
—
—
—
— %
Consumer
—
—
—
—
—
— %
Broker-dealer
—
—
—
—
—
— %
Total
$
—
$
52,535
$
—
$
—
$
456
0.7 %
Total
Combination
Modifications as a
Interest Rate
Term
Principal
Payment
Term Extension and
% of Portfolio
Year Ended December 31, 2023
Reduction
Extension
Forgiveness
Delay
Payment Delay
Segment
Commercial real estate:
Non-owner occupied
$
—
$
33,680
$
—
$
—
$
—
1.8 %
Owner occupied
—
2,183
—
—
—
0.2 %
Commercial and industrial
510
17,921
—
2,776
—
1.3 %
Construction and land development
—
13,001
—
—
—
1.3 %
1-4 family residential
—
—
—
—
—
— %
Consumer
—
—
—
—
—
— %
Broker-dealer
—
—
—
—
—
— %
Total
$
510
$
66,785
$
—
$
2,776
$
—
0.9 %
As shown in the tables above, loans modified for borrowers experiencing financial difficulty during 2024 included a term
extension modification for a single loan of $23 million in the auto note financing subsector within the commercial and
industrial loan portfolio.
For those loans held for investment modified for borrowers experiencing financial difficulty during the last twelve months, the
following table provides aging and non-accrual details grouped by portfolio segment (in thousands).
Modified Loans Past Due
Total Modified
Modified
December 31, 2024
30-59 Days
60-89 Days
90 Days or More
Past Due Loans
Non-accrual Loans
Commercial real estate:
Non-owner occupied
$
—
$
361
$
—
$
361
$
361
Owner occupied
86
—
8
94
94
Commercial and industrial
752
—
—
752
31,686
Construction and land development
—
—
—
—
—
1-4 family residential
—
—
—
—
26
Consumer
—
—
—
—
—
Broker-dealer
—
—
—
—
—
Total
$
838
$
361
$
8
$
1,207
$
32,167
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-38
Modified Loans Past Due
Total Modified
Modified
Year Ended December 31, 2023
30-59 Days
60-89 Days
90 Days or More
Past Due Loans
Non-accrual Loans
Commercial real estate:
Non-owner occupied
$
380
$
—
$
—
$
380
$
33,680
Owner occupied
—
—
11
11
11
Commercial and industrial
—
—
—
—
3,071
Construction and land development
—
—
—
—
257
1-4 family residential
—
—
—
—
—
Consumer
—
—
—
—
—
Broker-dealer
—
—
—
—
—
Total
$
380
$
—
$
11
$
391
$
37,019
The above tables that present aging and non-accrual details exclude $1.7 million and $0.8 million of commercial and
industrial loans that were modified and subsequently charged off during 2024 and 2023, respectively.
The following table presents the financial effects of the loans held for investment modified for borrowers experiencing
financial difficulty during the periods presented (in thousands).
Year Ended December 31, 2024
Year Ended December 31, 2023
Weighted-Average
Weighted-Average
Weighted-Average
Weighted-Average
Interest Rate
Term Extension
Interest Rate
Term Extension
Reduction
(in months)
Reduction
(in months)
Commercial real estate:
Non-owner occupied
— %
15
— %
26
Owner occupied
— %
20
— %
35
Commercial and industrial
0.5 %
25
0.5 %
10
Construction and land development
— %
5
— %
24
1-4 family residential
— %
56
— %
—
Consumer
— %
—
— %
—
Broker-dealer
— %
—
— %
—
Total
0.5 %
25
0.5 %
22
Troubled Debt Restructurings
Information regarding TDRs granted during 2022 that did not qualify for the CARES Act exemption is shown in the following
table (dollars in thousands).
Year Ended December 31, 2022
Number of
Balance at
Balance at
Loans
Extension
End of Year
Commercial real estate:
Non-owner occupied
—
$
—
$
—
Owner occupied
2
2,743
2,072
Commercial and industrial
1
873
734
Construction and land development
—
—
—
1-4 family residential
—
—
—
Consumer
—
—
—
Broker-dealer
—
—
—
3
$
3,616
$
2,806
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 2022.
At December 31, 2022, the Bank had nominal unadvanced commitments to borrowers whose loans have been restructured in
TDRs. There were two TDRs totaling $2.2 million granted during the twelve months preceding December 31, 2022 for which
a payment was at least 30 days past due. The $2.2 million included one commercial real estate owner occupied loan of $2.1
million and one 1-4 family residential loan of $0.1 million.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-39
Credit Risk Profile
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
Risk Rating Description
Pass low risk
1 - 3
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.
Pass normal risk
4 - 7
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.
Pass high risk
8 - 10
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.
Watch
11
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.
Special mention
12
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.
Substandard accrual
13
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.
Substandard non-accrual
14
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.
Doubtful
15
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.
Loss
16
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.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-40
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
Loans
2019 and
Converted to
December 31, 2024
2024
2023
2022
2021
2020
Prior
Revolving
Term Loans
Total
Commercial real estate: non-owner occupied
Internal Grade 1-3 (Pass low risk)
$
6,189 $
4,911 $
43,357 $
81,570 $
2,731 $
4,091 $
1
$
— $
142,850
Internal Grade 4-7 (Pass normal risk)
273,910
98,686
214,162
291,449
90,221
65,279
4,180
16,413
1,054,300
Internal Grade 8-11 (Pass high risk and watch)
79,453
117,961
169,361
60,955
112,520
78,961
35,305
1,198
655,714
Internal Grade 12 (Special mention)
—
—
—
—
2,087
11,139
—
—
13,226
Internal Grade 13 (Substandard accrual)
14,377
4,504
7,545
20,942
493
574
—
—
48,435
Internal Grade 14 (Substandard non-accrual)
361
3,783
1,323
1,228
—
471
—
—
7,166
Current period gross charge-offs
—
1,647
—
—
—
—
—
—
1,647
Commercial real estate: owner occupied
Internal Grade 1-3 (Pass low risk)
$
29,997 $
31,702 $
14,534 $
20,840 $
34,514 $
41,632 $
8,067
$
12,331 $
193,617
Internal Grade 4-7 (Pass normal risk)
112,897
107,032
123,534
203,532
54,189
171,250
16,838
9,086
798,358
Internal Grade 8-11 (Pass high risk and watch)
56,624
41,609
112,387
57,617
75,824
43,652
12,000
507
400,220
Internal Grade 12 (Special mention)
351
—
—
—
—
—
—
—
351
Internal Grade 13 (Substandard accrual)
6,065
3,018
8,131
8,194
2,530
9,369
—
—
37,307
Internal Grade 14 (Substandard non-accrual)
490
8
786
601
—
4,207
—
—
6,092
Current period gross charge-offs
—
—
—
—
—
—
—
—
—
Commercial and industrial
Internal Grade 1-3 (Pass low risk)
$
35,288 $
5,830 $
4,023 $
13,281 $
3,241 $
42 $
18,078
$
— $
79,783
Internal Grade 4-7 (Pass normal risk)
127,316
30,048
56,188
52,293
16,113
25,037
328,807
4,520
640,322
Internal Grade 8-11 (Pass high risk and watch)
131,300
53,713
47,455
34,276
13,660
5,942
196,235
3,312
485,893
Internal Grade 12 (Special mention)
—
—
—
643
—
—
—
—
643
Internal Grade 13 (Substandard accrual)
12,713
2,507
1,882
3,636
699
312
7,924
5,575
35,248
Internal Grade 14 (Substandard non-accrual)
11,092
7,764
8,063
1,802
306
120
4,450
25,428
59,025
Current period gross charge-offs
653
383
1,086
110
312
1,487
1,581
6,253
11,865
Construction and land development
Internal Grade 1-3 (Pass low risk)
$
6,527 $
— $
2,744 $
849 $
— $
126 $
—
$
— $
10,246
Internal Grade 4-7 (Pass normal risk)
202,539
140,653
86,334
8,999
5,811
2,332
3,150
—
449,818
Internal Grade 8-11 (Pass high risk and watch)
203,065
123,269
33,647
5,634
2,332
2,306
4,168
—
374,421
Internal Grade 12 (Special mention)
—
—
—
—
—
—
—
—
—
Internal Grade 13 (Substandard accrual)
12,848
503
153
—
—
—
—
—
13,504
Internal Grade 14 (Substandard non-accrual)
1,460
1,264
83
—
—
(2)
—
—
2,805
Current period gross charge-offs
—
—
—
—
—
—
—
—
—
Construction and land development - individuals
FICO less than 620
$
— $
— $
— $
— $
— $
— $
—
$
— $
—
FICO between 620 and 720
5,569
—
—
—
—
821
—
—
6,390
FICO greater than 720
6,787
2,062
—
118
47
—
—
—
9,014
Substandard non-accrual
—
—
—
—
—
—
—
—
—
Other (1)
47
—
—
—
—
—
—
—
47
Current period gross charge-offs
—
—
—
—
—
—
—
—
—
1-4 family residential
FICO less than 620
$
460 $
622 $
1,139 $
451 $
728 $
21,006 $
201
$
— $
24,607
FICO between 620 and 720
27,154
17,505
17,370
9,472
3,132
26,769
3,209
1,083
105,694
FICO greater than 720
132,165
125,613
487,137
663,532
76,402
67,753
2,297
419
1,555,318
Substandard non-accrual
902
274
—
1,184
—
6,970
—
—
9,330
Other (1)
52,442
14,315
5,277
—
1,334
3,082
916
20,287
97,653
Current period gross charge-offs
—
—
—
—
—
2
—
—
2
Consumer
FICO less than 620
$
902 $
155 $
194 $
20 $
44 $
5 $
384
$
5 $
1,709
FICO between 620 and 720
3,815
968
770
124
86
33
2,059
28
7,883
FICO greater than 720
2,977
1,912
1,410
439
133
—
3,167
—
10,038
Substandard non-accrual
—
—
—
—
—
—
—
—
—
Other (1)
7,552
380
431
92
9
9
307
—
8,780
Current period gross charge-offs
177
79
—
—
—
3
19
6
284
Total loans with credit quality measures
$ 1,565,634 $ 942,571 $ 1,449,420 $ 1,543,773 $ 499,186 $ 593,288 $ 651,743
$
100,192 $ 7,345,807
Commercial and industrial (mortgage warehouse lending)
$
241,026
Broker-dealer (margin loans and correspondent receivables)
$
363,718
Total loans held for investment
$ 7,950,551
(1) Loans classified in this category were assigned a FICO score based on various factors specific to the borrower for credit modeling purposes.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-41
6. 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 decline 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, 2024. In addition, as of December 31, 2024, 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.
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 the Company’s existing portfolio. Management’s methodology for determining the
allowance for credit losses uses the current expected credit losses (“CECL”) standard. 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, 2024. While the Company believes it has an appropriate allowance for the
existing loan portfolio at December 31, 2024, 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 changes in macroeconomic forecasts and loan cash flow assumptions. 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 the
Company’s best estimate of expected credit losses as of December 31, 2024, the Company utilized a single macroeconomic
alternative scenario, or S5, published by Moody’s Analytics in December 2024 that was updated to reflect the U.S. economic
outlook. During our previous macroeconomic assessment as of December 31, 2023, we utilized a single macroeconomic
alternative scenario, or S7, published by Moody’s Analytics in December 2023. The S5 alternative economic scenario expects
the economy to underperform in the long-term. In this alternative scenario, elevated borrowing costs reduce credit-sensitive
spending, higher tariffs weaken the economy, and concerns grow about broader international conflicts. Significant variables
that impact the modeled losses across the Company’s 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.
During 2022, the increase in provision for credit losses was driven by a deteriorating U.S. economic outlook since December
31, 2021. The net impact to the allowance of changes associated with collectively evaluated loans included a provision for
credit losses of $10.0 million, while individually evaluated loans during 2022 included reversals of credit losses of $1.7
million. The change in the allowance for credit losses during 2022 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 2022 was also impacted by net charge-offs of $4.2 million.
During 2023, the increase in provision for credit losses reflected a build in the allowance related to loan portfolio changes
since December 31, 2022 and a deteriorating outlook for commercial real estate markets. Specific to the Bank, the net
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-42
impact to the allowance of changes associated with collectively evaluated loans included a provision for credit losses of $12.7
million, while individually evaluated loans during 2023 included a provision for credit losses of $5.8 million. The change in
the allowance for credit losses during 2023 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 2023 was also impacted by net charge-offs of $2.4 million.
During 2024, the provision for credit losses reflected a build in the allowance related to specific reserves since December 31,
2023, significantly offset by both the change in the U.S. economic outlook and changes in the collectively evaluated loan
portfolio within the banking segment. Specific to the Bank, the net impact to the allowance of changes associated with
individually evaluated loans included a provision for credit losses of $15.2 million, while collectively evaluated loans during
2024 included a reversal of credit losses of $14.2 million. The change in the allowance for credit losses during 2024 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 2024 was also impacted by net
charge-offs of $11.2 million.
Changes in the allowance for credit losses for loans held for investments, distributed by portfolio segment, are shown below
(in thousands).
Balance,
Provision for
Recoveries on
Beginning of
(Reversal of)
Loans
Charged Off
Balance,
Year Ended December 31, 2024
Year
Credit Losses
Charged Off
Loans
End of Year
Commercial real estate:
Non-owner occupied
$
40,061
$
(9,104)
$
(1,647)
$
—
$
29,310
Owner occupied
28,114
4,849
—
149
33,112
Commercial and industrial
20,926
14,520
(11,865)
2,028
25,609
Construction and land development
12,102
(4,943)
—
2
7,161
1-4 family residential
9,461
(4,302)
(2)
170
5,327
Consumer
648
(28)
(284)
211
547
Broker-dealer
101
(51)
—
—
50
Total
$
111,413
$
941
$
(13,798)
$
2,560
$
101,116
Balance,
Provision for
Recoveries on
Beginning of
(Reversal of)
Loans
Charged Off
Balance,
Year Ended December 31, 2023
Year
Credit Losses
Charged Off
Loans
End of Year
Commercial real estate:
Non-owner occupied
$
39,247
$
806
$
(34)
$
42
$
40,061
Owner occupied
24,008
5,042
(977)
41
28,114
Commercial and industrial
16,035
6,334
(4,888)
3,445
20,926
Construction and land development
6,051
6,052
(1)
—
12,102
1-4 family residential
9,313
86
(73)
135
9,461
Consumer
554
205
(387)
276
648
Broker-dealer
234
(133)
—
—
101
Total
$
95,442
$
18,392
$
(6,360)
$
3,939
$
111,413
Balance,
Provision for
Recoveries on
Beginning of
(Reversal of)
Loans
Charged Off
Balance,
Year Ended December 31, 2022
Year
Credit Losses
Charged Off
Loans
End of Year
Commercial real estate:
Non-owner occupied
$
36,001
$
3,218
$
—
$
28
$
39,247
Owner occupied
23,353
555
—
100
24,008
Commercial and industrial
21,982
(1,748)
(6,945)
2,746
16,035
Construction and land development
4,674
1,377
—
—
6,051
1-4 family residential
4,589
4,729
(138)
133
9,313
Consumer
578
119
(432)
289
554
Broker-dealer
175
59
—
—
234
Total
$
91,352
$
8,309
$
(7,515)
$
3,296
$
95,442
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-43
Unfunded Loan Commitments
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.
Changes in the allowance for credit losses for loans with off-balance sheet credit exposures are shown below (in thousands).
Year Ended December 31,
2024
2023
2022
Balance, beginning of year
$
8,876
$
7,784
$
5,880
Other noninterest expense
(958)
1,092
1,904
Balance, end of year
$
7,918
$
8,876
$
7,784
During 2022, the increase in the allowance for unfunded commitments was due to increases in both loan expected loss rates
and available commitment balances. During 2023, the increase in the allowance for unfunded commitments was due to
increases in loan expected loss rates, while during 2024, the decrease in the allowance for unfunded commitments was
primarily due to decreases in commitment balances and loan expected loss rates.
7. Cash and Due from Banks
Cash and due from banks consisted of the following (in thousands).
December 31,
2024
2023
Cash on hand
$
38,224
$
34,835
Clearings and collection items
69,388
73,563
Deposits at Federal Reserve Bank
2,052,600
1,618,966
Deposits at Federal Home Loan Bank
1,523
2,415
Deposits in FDIC-insured institutions
137,242
128,921
$ 2,298,977
$ 1,858,700
The amounts above include interest-bearing deposits of $2.1 billion and $1.6 billion at December 31, 2024 and 2023,
respectively. Cash on hand and deposits at the Federal Reserve Bank satisfy regulatory reserve requirements at December 31,
2024 and 2023.
8. Premises and Equipment
The components of premises and equipment are summarized as follows (in thousands).
December 31,
2024
2023
Land and premises
$
121,934
$
124,067
Furniture and equipment
283,352
284,041
405,286
408,108
Less accumulated depreciation and amortization
(257,041)
(239,252)
$
148,245
$
168,856
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-44
The amounts shown above include gross assets recorded under finance leases of $4.8 million and $7.8 million, with
accumulated amortization of $4.0 million and $6.5 million at December 31, 2024 and 2023, respectively.
Occupancy expense was reduced by rental income of $2.2 million, $2.6 million and $2.4 million during 2024, 2023 and 2022,
respectively. Depreciation and amortization expense on premises and equipment, which includes amortization of finance
leases, amounted to $22.7 million, $23.3 million and $26.8 million during 2024, 2023 and 2022, respectively.
9. Goodwill and Other Intangible Assets
At December 31, 2024, 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 a wholly owned subsidiary (the “PlainsCapital Merger”). The banking, mortgage origination and broker-dealer
business segments have been assigned goodwill of $247.4 million, $13.1 million and $7.0 million, respectively.
Other intangible assets were $6.6 million and $8.5 million at December 31, 2024 and 2023, 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 reportable business segments. At October 1, 2024, the Company determined that the
estimated fair value of goodwill for each of its business segments and other intangible assets exceeded their carrying values.
The Company estimated the fair values of goodwill for its business segments based on both a market and income approach
using historical, normalized actual and forecasted results, taking into consideration the amount by which fair value exceeded
book value and sensitivities performed. Based on this evaluation, at December 31, 2024, 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 non-cash
impairment charges may become necessary that could have a materially adverse impact on the Company’s results of
operations and financial condition. Such a charge would have no impact on tangible capital or regulatory capital. 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.
To the extent future operating performance of the Company’s reporting segments remain challenged and below forecasted
projections during 2025, significant assumptions such as expected future cash flows or the risk-adjusted discount rate used to
estimate fair value are adversely impacted, or upon the occurrence of what management would deem to be a triggering event
that could, under certain circumstances, cause the Company to perform impairment tests on its goodwill and other intangible
assets, an impairment charge may be recorded for that period.
While certain valuation assumptions and judgments may change to account for operating performance of the reporting
segments and overall economic conditions, 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 future operating performance of its business segments, overall economic conditions, market
capitalization, and any other triggering events or circumstances that may indicate an impairment in the future.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-45
The carrying value of intangible assets subject to amortization was as follows (in thousands).
Estimated
Gross
Net
Useful Life
Intangible
Accumulated
Intangible
December 31, 2024
(Years)
Assets
Amortization
Assets
Core deposits
4
-
12
$ 48,930
$
(48,930)
$
—
Trademarks and trade names
20
16,500
(10,562)
5,938
Customer contracts and relationships
12
-
14
15,300
(14,605)
695
$ 80,730
$
(74,097)
$ 6,633
Estimated
Gross
Net
Useful Life
Intangible
Accumulated
Intangible
December 31, 2023
(Years)
Assets
Amortization
Assets
Core deposits
4
-
12
$ 48,930
$
(48,297)
$
633
Trademarks and trade names
20
16,500
(9,813)
6,687
Customer contracts and relationships
12
-
14
15,300
(14,163)
1,137
$ 80,730
$
(72,273)
$ 8,457
Amortization expense related to intangible assets during 2024, 2023 and 2022 was $1.8 million, $2.9 million and $4.0 million,
respectively. The estimated aggregate future amortization expense for intangible assets at December 31, 2024 is as follows (in
thousands).
2025
$
1,028
2026
959
2027
889
2028
820
2029
750
Thereafter
2,187
$
6,633
10. 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).
Year Ended December 31,
2024
2023
2022
Balance, beginning of year
$
96,662
$
100,825
$
86,990
Additions
11,412
27,359
56,974
Sales
(87,268)
(19,055)
(65,108)
Changes in fair value:
Due to changes in model inputs or assumptions (1)
(11,331)
(7,848)
31,292
Due to customer payoffs
(3,752)
(4,619)
(9,323)
Balance, end of year
$
5,723
$
96,662
$
100,825
December 31,
2024
2023
Mortgage loans serviced for others (2)
$
358,880
$
5,227,404
MSR asset as a percentage of serviced mortgage loans
1.59 %
1.85 %
(1)
Primarily represents normal customer payments, the impact of changes in interest rates, changes in discount rates and prepayment speed assumptions,
and the refinement of other MSR model assumptions. Included in 2024 and 2022 are MSR asset fair value adjustments totaling $12.3 million and $0.9
million, respectively, which reflected the difference between the MSR asset carrying values and the sale prices reflected in the respective signed letters
of intent to sell certain MSR assets.
(2)
Represents unpaid principal balance of mortgage loans serviced for others.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-46
The key assumptions used in measuring the fair value of the Company’s MSR asset were as follows.
December 31,
2024
2023
Weighted average constant prepayment rate
10.10 %
8.65 %
Weighted average discount rate
14.89 %
11.67 %
Weighted average life (in years)
7.8
8.2
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).
December 31,
2024
2023
Constant prepayment rate:
Impact of 10% adverse change
$
(220)
$
(3,511)
Impact of 20% adverse change
(426)
(6,796)
Discount rate:
Impact of 10% adverse change
(294)
(4,474)
Impact of 20% adverse change
(557)
(8,537)
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 $22.1 million, $31.9 million and $37.5 million
during 2024, 2023 and 2022, respectively, were included in net gains from sale of loans and other mortgage production
income within the consolidated statements of operations.
11. Deposits
Deposits are summarized as follows (in thousands).
December 31,
2024
2023
Noninterest-bearing demand
$
2,768,707
$
3,007,101
Interest-bearing:
Demand accounts
4,218,225
4,496,682
Brokered - demand
4,722
156,692
Money market
2,592,508
1,869,809
Brokered - money market
10,451
8,828
Savings
221,667
259,745
Time
1,249,042
1,221,935
Brokered - time
—
42,400
$ 11,065,322
$ 11,063,192
At December 31, 2024, time deposits in denominations that exceed the FDIC insurance limit of $250,000 were $597.5 million.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-47
Scheduled maturities of all time deposits at December 31, 2024 are as follows (in thousands).
2025
$ 1,051,080
2026
134,795
2027
12,228
2028
47,111
2029 and thereafter
3,828
$ 1,249,042
12. Short-term Borrowings
Short-term borrowings are summarized as follows (in thousands).
December 31,
2024
2023
Federal funds purchased
$
407,058
$
459,658
Securities sold under agreements to repurchase
198,418
240,050
Federal Home Loan Bank
—
—
Short-term bank loans
—
—
Commercial paper
228,547
200,330
$
834,023
$
900,038
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.
Information concerning federal funds purchased and securities sold under agreements to repurchase is shown in the following
tables (dollars in thousands).
Year Ended December 31,
2024
2023
2022
Average balance during the year
$
733,799
$
804,515
$
573,183
Average interest rate during the year
5.36 %
5.53 %
2.19 %
Maximum month-end balance during the year
$
798,149
$
1,341,502
$
741,499
December 31,
2024
2023
Average interest rate at end of year
5.06 %
5.60 %
Securities underlying the agreements at end of year:
Carrying value
$
198,174
$
239,103
Estimated fair value
$
214,538
$
262,408
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-48
Federal Home Loan Bank (“FHLB”)
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, 2024, the Bank had available
collateral of $4.3 billion, substantially all of which was blanket collateral. Other information regarding FHLB short-term
borrowings is shown in the following table (dollars in thousands).
Year Ended December 31,
2024
2023
2022
Average balance during the year
$
—
$
135,274
$
—
Average interest rate during the year
5.62 %
5.10 %
— %
Maximum month-end balance during the year
$
—
$
500,000
$
—
December 31,
2024
2023
Average interest rate at end of year
— %
— %
Short-Term Bank Loans
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. At December 31,
2024, Hilltop Securities had credit arrangements with two unaffiliated banks, with maximum aggregate commitments of up to
$425.0 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 two unaffiliated banks, with aggregate availability of up to $200.0 million. There were no outstanding short-term bank
loans at December 31, 2024 and 2023.
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 were 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.
In December 2024, Hilltop Securities initiated a new commercial paper program, Series 2024-1 CP Notes, the first issuances
under this new program are not anticipated until fiscal 2025. Upon the first issuance, no more issuances will be allowed under
the Series 2019-1 CP Notes program. However, any amounts outstanding under Series 2019-1 CP Notes will remain
outstanding until maturity and then roll into the Series 2024-1 CP Notes program. Until the final maturity of the Series 2019-1
CP Note program, both the Series 2019-1 CP Notes and the 2024-1 CP Notes programs will be managed as a single program.
As a results, no more than an aggregate of $300 million combined will be allowed. The terms highlighted above for the Series
2019-1 CP Notes program will not change with issuances under the Series 2024-1 CP Notes. The Series 2019-2 CP program
will continue as originally issued.
As of December 31, 2024, the weighted average maturity of the CP Notes was 143 days at a rate of 5.29%, with a weighted
average remaining life of 59 days. At December 31, 2024, the aggregate amount outstanding under these secured
arrangements was $228.5 million, which was collateralized by securities held for Hilltop Securities accounts valued at $251.2
million.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-49
13. Notes Payable
Notes payable consisted of the following (in thousands).
December 31,
2024
2023
Senior Notes due April 2025, net of discount of $295 and $502, respectively
$
149,705
$
149,498
Subordinated Notes due May 2030, net of discount of $405 and $511, respectively
49,596
49,489
Subordinated Notes due May 2035, net of discount of $1,634 and $1,842, respectively
148,366
148,158
$
347,667
$
347,145
Senior Notes
On April 9, 2015, Hilltop completed an offering of $150.0 million aggregate principal amount of its 5% senior notes due April
15, 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 (“Senior Notes 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.
On January 15, 2025 (the “Redemption Date”), Hilltop redeemed, at its election, all of its outstanding Senior Notes at a
redemption price equal to 100% of the principal amount of $150 million, plus accrued and unpaid interest to, but excluding,
the Redemption Date using cash on hand, which also satisfied and discharged the Company’s obligations under the Senior
Notes and the Senior Notes Indenture.
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.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-50
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, 2024, Ventures Management’s ABAs had combined available lines of credit totaling $65.0 million, all of
which was with the Bank. At December 31, 2024, Ventures Management had outstanding borrowings of $30.3 million, all of
which have been eliminated in consolidation in the table presented above, with stated interest rates ranging from the greater of
a 6.00% floor or The Wall Street Journal Prime Rate minus 50 basis points. The weighted average interest rate of these lines of
credit at December 31, 2024 was 6.01%. 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, 2024 are as follows (in thousands).
2025
$
150,000
2026
—
2027
—
2028
—
2029
—
Thereafter
200,000
$
350,000
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-51
14. 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).
December 31,
2024
2023
Finance leases:
Premises and equipment
$
4,780
$
7,780
Accumulated depreciation
(4,042)
(6,537)
Premises and equipment, net
$
738
$
1,243
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).
Year Ended December 31,
2024
2023
2022
Operating lease cost
$
33,658
$
34,606
$
36,950
Less operating lease and sublease income
(2,215)
(2,585)
(2,380)
Net operating lease cost
$
31,443
$
32,021
$
34,570
Finance lease cost:
Amortization of ROU assets
$
505
$
590
$
590
Interest on lease liabilities
352
424
478
Total finance lease cost
$
857
$
1,014
$
1,068
Supplemental cash flow information related to leases is as follows (in thousands).
Year Ended December 31,
2024
2023
2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
33,200
$
36,629
$
29,216
Operating cash flows from finance leases
358
427
482
Financing cash flows from finance leases
805
852
759
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
$
27,403
$
13,506
$
24,078
Finance leases
—
—
—
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-52
Information regarding the lease terms and discount rates of the Company’s leases is as follows.
December 31, 2024
December 31, 2023
Weighted Average
Weighted Average
Remaining Lease
Weighted Average
Remaining Lease
Weighted Average
Lease Classification
Term (Years)
Discount Rate
Term (Years)
Discount Rate
Operating
5.3
5.74 %
5.3
4.59 %
Finance
2.7
5.08 %
3.3
4.98 %
Future minimum lease payments, under lease agreements as of December 31, 2024, are presented below (in thousands).
Operating Leases
Finance Leases
2025
$
30,784
$
886
2026
25,087
813
2027
20,106
448
2028
15,616
149
2029
13,575
—
Thereafter
21,658
—
Total minimum lease payments
126,826
2,296
Less amount representing interest
(17,723)
(558)
Lease liabilities
$
109,103
$
1,738
As of December 31, 2024, the Company had additional operating leases that have not yet commenced with aggregate future
minimum lease payments of approximately $0.8 million. Certain of these operating leases commenced between January 2025
and February 2025 with lease terms ranging from two to three years with an additional operating lease expected to commence
in March 2025 with a lease term of five and a half years.
15. Income Taxes
The significant components of the income tax provision are as follows (in thousands).
Year Ended December 31,
2024
2023
2022
Current:
Federal
$
48,686
$
19,681
$
24,951
State
1,896
4,455
3,698
50,582
24,136
28,649
Deferred:
Federal
$
(16,262)
$
6,131
$
7,377
State
(3,273)
873
807
(19,535)
7,004
8,184
$
31,047
$
31,140
$
36,833
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-53
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 rate was
21% for all periods presented.
Year Ended December 31,
2024
2023
2022
Computed tax at federal statutory rate
$
32,394
$
31,315
$
32,787
Tax effect of:
Nondeductible expenses
2,325
1,953
1,290
Compensation limitation
1,881
2,918
4,106
State income taxes
1,809
1,466
3,559
Tax-exempt income, net
(2,225)
(2,390)
(1,620)
Minority interest
(2,099)
(1,721)
(1,294)
Other
(3,038)
(2,401)
(1,995)
$
31,047
$
31,140
$
36,833
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).
December 31,
2024
2023
Deferred tax assets:
Net operating loss carryforward
$
903
$
406
Purchase accounting adjustment - loans
3,629
4,751
Allowance for credit losses
23,881
26,711
Compensation and benefits
13,300
15,029
Legal and other reserves
3,467
4,116
Net unrealized losses on securities and other investments
32,939
36,332
Operating lease liabilities
24,932
25,811
Other
2,569
5,473
105,620
118,629
Deferred tax liabilities:
Premises and equipment
9,551
14,143
Intangible assets
1,504
1,946
Derivatives
612
1,801
Loan servicing
1,180
23,100
Operating lease ROU assets
20,701
21,079
Deferred loan fees
7,416
6,655
Other
1,327
3,097
42,291
71,821
Net deferred tax asset
$
63,329
$
46,808
The Company’s effective tax rate was 20.1%, 20.9% and 23.6% during 2024, 2023 and 2022, respectively. The effective tax
rate for 2024 was lower than the applicable statutory rate due to investments in tax-exempt instruments, state refund claims
and return to provision activity, partially offset by the impact of nondeductible expenses, nondeductible compensation expense
and other permanent adjustments. The effective tax rate for 2023 was lower than the applicable statutory rate due to the
impacts of excess tax benefits on share-based payment awards, investments in tax-exempt instruments and changes in
accumulated tax reserves, partially offset by nondeductible expenses and the booking of additional taxes from a recent change
in the source of funding for an acquired non-qualified, deferred compensation plan, while 2022 approximated statutory rates
and included the effect of investments in tax-exempt instruments, offset by nondeductible expenses.
At December 31, 2024 and 2023, the Company had net operating loss carryforwards for state income tax purposes of $0.9
million and $0.4 million, respectively, on a tax effected basis at applicable rates for respective tax years. These net operating
loss carryforwards expire in 2037 and later years. The net operating loss carryforwards are expected to be fully
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-54
realized prior to any expiration. Further, at December 31, 2024 and 2023, the Company had no net operating loss
carryforwards for federal income tax purposes. At December 31, 2023, the Company had fully recognized built-in loss
(“RBIL”) amounts arising from the ownership change resulting from the acquisition of SWS Group, Inc. (“SWS Merger”).
These RBILs were recognized during a five year recognition period and were 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, 2024 or 2023.
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, 2024 and
2023, the total amount of gross unrecognized tax benefits was $2.4 million and $2.9 million, respectively, of which $1.9
million and $2.3 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).
Year Ended December 31,
2024
2023
2022
Balance, beginning of year
$
2,884
$
5,273
$
4,869
Decreases related to tax positions taken during a prior year
(46)
(1,719)
(767)
Increases related to tax positions taken during the current year
221
266
2,077
Decreases related to expiration of the statute of limitations
(664)
(936)
(906)
Balance, end of year
$
2,395
$
2,884
$
5,273
Specific positions that may be resolved include issues involving apportionment and tax credits. At December 31, 2024, 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 2021. The Company is open for various state tax
examinations for tax years 2020 and later.
16. 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 $13.3 million, $10.4 million and $15.9 million during 2024, 2023 and 2022, 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 $0.4 million, $0.6 million and $0.8 million during 2024, 2023 and
2022, respectively.
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-55
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 December 31, 2023, the recorded
liability, including interest, was $2.7 million related to a single executive officer. The remaining liability was settled during
2024.
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, 2024 and 2023, the carrying value of the policies included
in other assets was $29.0 million and $28.6 million, respectively. During each of 2024, 2023 and 2022, the Bank recorded
income of $0.6 million, $0.5 million and $0.5 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 allowed former
SWS eligible officers and employees to defer a portion of their bonus compensation and commissions. The SWS Plan was
formally terminated in September 2022, and fully liquidated during the second quarter of 2024. The SWS Plan matched 15%
of the deferrals made by participants up to a predetermined limit through matching contributions that 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.
The assets of the SWS Plan were held in a rabbi trust and primarily include investments in company-owned life insurance
(“COLI”) and Hilltop common stock. These assets were consolidated with those of the Company. Prior to being fully
liquidated during 2024, investments in COLI were carried at the cash surrender value of the insurance policies and recorded in
other assets within the consolidated balance sheet. Investments in Hilltop common stock, which were 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.
17. 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 24.4% of the outstanding Hilltop common stock
at December 31, 2024.
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 $0.5 million and $0.5 million at December 31, 2024 and 2023, respectively.
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 2024, there were no principal additions and payments were de minimis.
At December 31, 2024 and 2023, the Bank held deposits of related parties of $79.3 million and $64.9 million, respectively.
A related party is the lessor in an operating lease with Hilltop. Hilltop’s minimum payment under the lease is currently $0.6
million annually through 2028, for an aggregate minimum remaining obligation of $2.5 million at December 31, 2024.
The Bank purchased loans from a company for which a related party served as a director, president and chief executive officer.
At December 31, 2023, the outstanding balance of the purchased loans were paid off. The loans were purchased with recourse
in the ordinary course of business and the related party had no direct financial interest in the transaction.
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-56
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.
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 separate 129-month office leases with an accounting commencement date of June 20, 2019
for a significant portion of the total rentable corporate office space in Hilltop Plaza, which serves as the headquarters for both
companies.
All intercompany transactions associated with the Hilltop Plaza investment and the related transactions discussed above are
eliminated in consolidation.
18. Commitments and Contingencies
During 2024, the Bank acted as agent on behalf of certain correspondent banks in the purchase and sale of federal funds. At
December 31, 2024 and 2023, the Bank did not have any federal funds sold acting as an agent.
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
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-57
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.
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.
In September 2020, PrimeLending received an investigative inquiry from the United States Attorney for the Western District
of Virginia regarding PrimeLending’s float down option. The United States Attorney has issued grand jury subpoenas to
PrimeLending and PlainsCapital Bank for additional materials regarding this matter. PrimeLending and PlainsCapital Bank
are continuing to cooperate with requests for information with respect to this matter.
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.
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-58
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 Inquiries, 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.
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, 2024 and 2023, the mortgage origination segment’s indemnification liability reserve totaled $8.1 million and
$11.7 million, respectively. The provision for indemnification losses was $2.8 million, $1.6 million and $1.5 million during
2024, 2023 and 2022, respectively.
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).
Representation and Warranty Specific Claims
Activity - Origination Loan Balance
Year Ended December 31,
2024
2023
2022
Balance, beginning of year
$
26,909
$
31,244
$
31,407
Claims made
32,356
54,507
56,579
Claims resolved with no payment
(11,474)
(12,851)
(14,499)
Repurchases
(23,469)
(40,875)
(42,243)
Indemnification payments
(2,729)
(5,116)
—
Balance, end of year
$
21,593
$
26,909
$
31,244
Indemnification Liability Reserve Activity
Year Ended December 31,
2024
2023
2022
Balance, beginning of year
$
11,691
$
20,528
$
27,424
Additions for new sales
2,789
1,649
2,532
Repurchases
(5,271)
(9,875)
(7,941)
Early payment defaults
(907)
(352)
(423)
Indemnification payments
(191)
(259)
—
Change in reserves for loans sold in prior years
—
—
(1,064)
Balance, end of year
$
8,111
$
11,691
$
20,528
December 31,
2024
2023
Reserve for Indemnification Liability:
Specific claims
$
557
$
951
Incurred but not reported claims
7,554
10,740
Total
$
8,111
$
11,691
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.
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-59
Other Contingencies
As discussed in Note 16 to the consolidated financial statements, effective upon completion of the PlainsCapital Merger,
Hilltop entered into separate retention agreements with certain executive officers. During 2024, the single retention agreement
remaining and associated liability was settled. This retention agreement provided 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.
19. 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 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 $2.0 billion at December 31, 2024 and
outstanding financial and performance standby letters of credit of $61.1 million at December 31, 2024.
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.
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Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-60
20. 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, 2024, 1,416,696 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 $10.7 million, $15.5 million and $15.6 million during 2024, 2023 and 2022, respectively.
During 2024, 2023 and 2022, Hilltop granted 15,923, 17,912 and 21,545 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.
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 for the periods presented (shares in thousands).
RSUs
Weighted
Average
Grant Date
Outstanding
Fair Value
Balance, December 31, 2021
1,869
$
23.16
Granted
551
$
33.22
Vested/Released
(732)
$
20.00
Forfeited
(140)
$
24.75
Balance, December 31, 2022
1,548
$
28.09
Granted
479
$
34.36
Vested/Released
(751)
$
21.93
Forfeited
(24)
$
32.30
Balance, December 31, 2023
1,252
$
34.10
Granted
591
$
30.72
Vested/Released
(531)
$
33.02
Forfeited
(27)
$
32.85
Balance, December 31, 2024
1,285
$
33.02
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-61
Vested/Released RSUs include an aggregate of 392,887 shares withheld to satisfy employee statutory tax obligations during
2024, 2023 and 2022.
During 2024, the Compensation Committee of the board of directors of the Company awarded certain executives and key
employees an aggregate of 493,726 RSUs pursuant to the 2020 Equity Plan. At December 31, 2024, 379,661 of these RSUs
are subject to time-based vesting conditions and generally cliff vest on the third anniversary of the grant date, and 103,995 of
these outstanding RSUs will cliff vest based upon the achievement of certain performance goals over a three-year period.
At December 31, 2024, in the aggregate, 956,015 of the outstanding RSUs are subject to time-based vesting conditions and
generally cliff vest on the third anniversary of the grant date, and 327,626 outstanding RSUs cliff vest based upon the
achievement of certain performance goals over a three-year period. At December 31, 2024, unrecognized compensation
expense related to outstanding RSUs of $14.8 million is expected to be recognized over a weighted average period of 1.19
years.
21. 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 the 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, 2024 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 through December 31, 2024. As of January 1, 2025, Hilltop
and PlainsCapital had fully captured the day-one regulatory capital effects resulting from the implementation of CECL.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-62
Minimum
Capital
Requirements
Including
Conservation
To Be Well
December 31, 2024
December 31, 2023
Buffer
Capitalized
Amount
Ratio
Amount
Ratio
Ratio
Ratio
Tier 1 capital (to average assets):
PlainsCapital
$ 1,317,664
9.99 % $ 1,407,660
10.55 %
4.0 %
5.0 %
Hilltop
2,031,069
12.57 % 1,974,918
12.23 %
4.0 %
N/A
Common equity Tier 1 capital
(to risk-weighted assets):
PlainsCapital
1,317,664
15.35 %
1,407,660
15.44 %
7.0 %
6.5 %
Hilltop
2,031,069
21.23 %
1,974,918
19.32 %
7.0 %
N/A
Tier 1 capital (to risk-weighted assets):
PlainsCapital
1,317,664
15.35 % 1,407,660
15.44 %
8.5 %
8.0 %
Hilltop
2,031,069
21.23 % 1,974,918
19.32 %
8.5 %
N/A
Total capital (to risk-weighted assets):
PlainsCapital
1,419,787
16.54 % 1,511,239
16.58 %
10.5 %
10.0 %
Hilltop
2,334,679
24.40 % 2,284,357
22.34 %
10.5 %
N/A
A reconciliation of equity capital to common equity Tier 1, Tier 1 and total capital (as defined) is as follows (in thousands).
December 31, 2024
December 31, 2023
PlainsCapital
Hilltop
PlainsCapital
Hilltop
Total equity capital
$ 1,469,492
$ 2,189,965
$ 1,549,451
$ 2,122,967
Add:
Net unrealized holding losses (gains) on securities
available for sale and held in trust
111,252
111,497
120,348
121,505
CECL transition adjustment
1,966
2,198
3,932
4,396
Deduct:
Goodwill and other disallowed intangible assets
(265,046)
(272,591)
(266,071)
(273,950)
Common equity Tier 1 capital (as defined)
1,317,664
2,031,069
1,407,660
1,974,918
Add: Tier 1 capital
—
—
—
—
Deduct: Additional Tier 1 capital deductions
—
—
—
—
Tier 1 capital (as defined)
1,317,664
2,031,069
1,407,660
1,974,918
Add: Allowable Tier 2 capital
Allowance for credit losses, including unfunded
commitments
107,316
109,035
113,965
120,289
Capital instruments
—
200,000
—
200,000
Deduct:
Additional Tier 2 capital deductions
(5,193)
(5,425)
(10,386)
(10,850)
Total capital (as defined)
$ 1,419,787
$ 2,334,679
$ 1,511,239
$ 2,284,357
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
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-63
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, 2024, the net capital position of each of the Hilltop Broker-Dealers was as follows (in thousands).
Momentum
Hilltop
Independent
Securities
Network
Net capital
$
264,154
$
5,242
Less: required net capital
6,085
340
Excess net capital
$
258,069
$
4,902
Net capital as a percentage of aggregate debit items
86.8 %
Net capital in excess of 5% aggregate debit items
$
248,941
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,
2024 and 2023, the Hilltop Broker-Dealers held cash of $71.0 million and $57.4 million, respectively, segregated in special
reserve bank accounts for the benefit of customers. The Hilltop Broker-Dealers were not required to segregate cash and
securities in special reserve accounts for the benefit of proprietary accounts of introducing broker-dealers at December 31,
2024.
Mortgage Origination
As a mortgage originator, PrimeLending and its subsidiaries are subject to minimum capital, 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 documenting their respective compliance with minimum capital, net worth
and liquidity requirements, including timely reporting if a quarter’s operating loss exceeds more than 20% of its previous
quarter or year-end net worth (“the operating loss ratio”) and/or if a quarter’s capital ratio is below 6% (the “GNMA capital
ratio”). If this occurs, certain additional financial reporting submissions are required. During the third and fourth quarters of
2024, PrimeLending received two $10 million capital infusions from its parent company, PlainsCapital Bank. As of December
31, 2024, PrimeLending and its subsidiaries’ minimum capital, net worth and liquidity exceeded the amounts required by both
HUD and GNMA, as applicable.
22. Stockholders’ Equity
The Bank is subject to certain restrictions on the amount of dividends it may declare without prior regulatory approval. At
December 31, 2024, $32.3 million of its earnings was available for dividend declaration without prior regulatory approval.
Dividends
During 2024, 2023 and 2022, the Company declared and paid cash dividends of $0.68, $0.64 and $0.60 per common share, or
an aggregate of $44.3 million, $41.6 million and $43.0 million, respectively.
On January 30, 2025, Hilltop’s board of directors declared a quarterly cash dividend of $0.18 per common share, payable on
February 27, 2025, to all common stockholders of record as of the close of business on February 13, 2025.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-64
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 2022, the Hilltop board of directors authorized a new stock repurchase program through January 2023, pursuant to
which the Company was originally 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. As a result of share
repurchased during 2022, including the tender offer described below, Hilltop had no further available share repurchase
capacity associated with its previously authorized stock repurchase program.
In January 2023, the Hilltop board of directors authorized a new stock repurchase program through January 2024, 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. During 2023, the Company paid $5.1
million to repurchase an aggregate of 164,604 shares of common stock at an average price of $30.95 per share pursuant to the
stock repurchase program.
In January 2024, the Hilltop board of directors authorized a new stock repurchase program through January 2025, 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. During 2024, the Company paid
$19.9 million to repurchase an aggregate of 640,042 shares of common stock at an average price of $31.04 per share pursuant
to the stock repurchase program.
In January 2025, the Hilltop board of directors authorized a new stock repurchase program through January 2026, 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 May 2, 2022, 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 of up to $400 million, inclusive of its $100.0 million stock
repurchase program authorized in January 2022. On May 27, 2022, including the exercise of its right to purchase up to an
additional 2% of its outstanding shares, the Company completed its tender offer, repurchasing 14,868,469 shares of
outstanding common stock at a price of $29.75 per share for a total of $442.3 million. The Company funded the tender offer
with cash on hand.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-65
23. Other Noninterest Income and Expense
The following table shows the components of other noninterest income and expense (in thousands).
Year Ended December 31,
2024
2023
2022
Other noninterest income:
Net gains from Hilltop Broker-Dealer structured product and derivative
activities (1)
$
85,137
$
44,128
$
41,318
Net gain from trading securities portfolio (1)
39,740
74,249
43,696
Service charges on depositor accounts
20,718
16,179
16,962
Trust fees
13,372
13,361
13,975
Other
30,295
29,508
21,947
$
189,262
$
177,425
$
137,898
Other noninterest expense:
Software and information technology
$
68,658
$
69,212
$
64,979
Brokerage commissions and fees
36,580
33,538
27,597
Mortgage origination and servicing
17,285
22,040
25,311
Travel, meals and entertainment
12,350
11,113
9,959
Business development
12,163
11,282
12,550
Unreimbursed loan closing costs
9,332
4,971
13,371
Funding fees
2,997
3,174
4,421
Office supplies
2,665
3,241
3,319
Amortization of intangible assets
1,824
2,860
3,967
Other
46,883
50,142
42,227
$
210,737
$
211,573
$
207,701
(1)
As discussed within Note 1 to the consolidated financial statements, during the second quarter of 2024, the Company identified an immaterial error
related to the classification within other noninterest income associated with the allocation of earned revenue between commission and principal gains on
certain principal trades of fixed income securities. As a result, certain prior period amounts within net gain from trading securities portfolio and net gains
from Hilltop broker-dealer structured product and derivative activities have been corrected for consistency with the current period presentation.
24. 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 futures contracts. Additionally, PrimeLending has interest rate risk relative to
its MSR asset and uses derivative instruments, including 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, futures contracts, credit default swaps and
MMD rate locks, to hedge changes in the fair value of its securities.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-66
Non-Hedging Derivative Instruments and the Fair Value Option
As discussed in Note 3 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 10 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).
Year Ended December 31,
2024
2023
2022
Increase (decrease) in fair value of derivatives during year:
PrimeLending
$
11,365
$
(7,097)
$
(21,282)
Hilltop Broker-Dealers
(3,092)
(7,814)
16,405
Bank
(6)
65
46
Hedging Derivative Instruments
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
portfolio layer, 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 cash flow 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 derivatives designated as
hedges of cash flows are included as a component of accumulated other comprehensive income or loss on the Company’s
consolidated balance sheets, and changes in the fair value of the derivatives designated as hedges of fair value are included in
current earnings. 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.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-67
Derivative positions are presented in the following table (in thousands).
December 31, 2024
December 31, 2023
Notional
Estimated
Notional
Estimated
Amount
Fair Value
Amount
Fair Value
Derivative instruments (not designated as hedges):
IRLCs
$
384,528
$
2,942
$
383,767
$
7,734
Commitments to purchase MBSs
1,152,841
280
1,470,142
15,666
Commitments to sell MBSs
1,954,405
8,577
2,222,225
(17,870)
Interest rate swaps
32,000
1,088
33,500
(5,349)
Interest rate swaps back-to-back (asset) (1)
24,928
277
1,421
176
Interest rate swaps back-to-back (liability) (1)
24,928
(298)
1,421
(191)
U.S. Treasury bond futures and options (2)
119,200
—
306,200
430
Interest rate and other futures (2)
245,200
—
224,800
—
Credit default swaps
14,000
3
—
—
Warrants
—
—
866
820
Derivative instruments (designated as hedges):
Interest rate swaps designated as cash flow hedges
$
285,000
$
6,748
$
410,000
$
14,277
Interest rate swaps designated as fair value hedges (3)
354,471
36,914
325,193
34,799
(1)
Noted derivative instruments include both customer-facing derivatives as well as offsetting derivatives facing other dealer banks. The fair value of
these derivatives include a net credit valuation adjustment that was nominal at December 31, 2024 and 2023, reducing the fair value of the liability.
(2)
Noted derivative instruments include contracts between the Hilltop Broker-Dealers and PrimeLending and their respective counterparties with changes
in fair value of the contracts that are settled daily.
(3)
The Company designated $376.5 million and $325.3 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 $339.4 million and $290.2 million as of December 31, 2024 and 2023, respectively), of which, a
subset of these hedges are in portfolio layer hedging relationships. The cumulative basis adjustment included in the carrying value of the hedged items
totaled $37.1 million and $35.0 million as of December 31, 2024 and 2023, respectively.
The Bank and PrimeLending held aggregate cash collateral advances of $50.9 million and $51.8 million to offset net asset
derivative positions on its commitments to sell MBSs and derivative instruments designated as hedges at December 31, 2024
and 2023, respectively. PrimeLending had advanced cash collateral totaling $14.7 million to offset net liability positions on its
commitments to sell MBSs at December 31, 2023. In addition, PrimeLending and the Hilltop Broker-Dealers had advanced
cash collateral totaling $4.9 million and $7.6 million on various derivative instruments at December 31, 2024 and 2023,
respectively. These cash collateral amounts are included in either other assets or other liabilities within the consolidated
balance sheets.
Derivatives on Behalf of Customers
The Bank offers derivative contracts to certain customers in connection with their risk management needs. These derivatives
include back-to-back interest rate swaps. The Bank manages the risk associated with these contracts by entering into an equal
and offsetting derivative with a third-party dealer bank. These derivatives generally work together as an economic interest rate
hedge, but the Bank does not designate them for hedge accounting treatment. Consequently, changes in fair value of the
corresponding derivative financial asset or liability were recorded as either a charge or credit to current earnings during the
period in which the changes in fair value occurred, typically resulting in no net earnings impact.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-68
25. 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 Company’s accounting policy is to present required disclosures related to collateral and derivative positions
on a gross basis.
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 Not Offset in
Net Amounts
the Balance Sheet
Gross Amounts Gross Amounts
of Assets
Cash
of Recognized
Offset in the
Presented in the
Financial
Collateral
Net
Assets
Balance Sheet
Balance Sheet
Instruments
Pledged
Amount
December 31, 2024
Securities borrowed:
Institutional counterparties
$
1,292,365
$
—
$
1,292,365
$
(1,214,081)
$
—
$
78,284
Interest rate swaps:
Institutional counterparties
45,243
—
45,243
—
(44,155)
1,088
Credit default swaps:
Institutional counterparties
3
—
3
—
—
3
Reverse repurchase agreements:
Institutional counterparties
88,728
—
88,728
(86,371)
—
2,357
Forward MBS derivatives:
Institutional counterparties
14,719
—
14,719
(61)
(4,325)
10,333
$
1,441,058
$
—
$
1,441,058
$
(1,300,513)
$
(48,480)
$
92,065
December 31, 2023
Securities borrowed:
Institutional counterparties
$
1,406,937
$
—
$
1,406,937
$
(1,332,856)
$
—
$
74,081
Interest rate swaps:
Institutional counterparties
49,253
—
49,253
—
(49,253)
—
Reverse repurchase agreements:
Institutional counterparties
80,011
—
80,011
(80,011)
—
—
Forward MBS derivatives:
Institutional counterparties
16,755
—
16,755
(194)
—
16,561
Treasury futures and options derivatives:
Institutional counterparties
430
—
430
—
—
430
$
1,553,386
$
—
$
1,553,386
$
(1,413,061)
$
(49,253)
$
91,072
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-69
Gross Amounts Not Offset in
Net Amounts
the Balance Sheet
Gross Amounts Gross Amounts
of Liabilities
Cash
of Recognized
Offset in the
Presented in the
Financial
Collateral
Net
Liabilities
Balance Sheet
Balance Sheet
Instruments
Pledged
Amount
December 31, 2024
Securities loaned:
Institutional counterparties
$
1,291,725
$
—
$
1,291,725
$
(1,211,426)
$
—
$
80,299
Interest rate swaps:
Institutional counterparties
514
—
514
—
—
514
Repurchase agreements:
Institutional counterparties
198,174
—
198,174
(198,174)
—
—
Forward MBS derivatives:
Institutional counterparties
5,862
—
5,862
(61)
—
5,801
$
1,496,275
$
—
$
1,496,275
$
(1,409,661)
$
—
$
86,614
December 31, 2023
Securities loaned:
Institutional counterparties
$
1,371,896
$
—
$
1,371,896
$
(1,296,828)
$
—
$
75,068
Interest rate swaps:
Institutional counterparties
5,349
—
5,349
(5,349)
—
—
Repurchase agreements:
Institutional counterparties
239,103
—
239,103
(239,103)
—
—
Forward MBS derivatives:
Institutional counterparties
18,958
—
18,958
(194)
(10,515)
8,249
$
1,635,306
$
—
$
1,635,306
$
(1,541,474)
$
(10,515)
$
83,317
Secured Borrowing Arrangements
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.
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-70
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, 2024 and 2023.
Remaining Contractual Maturities
Overnight and
Greater Than
December 31, 2024
Continuous
Up to 30 Days
30-90 Days
90 Days
Total
Repurchase agreement transactions:
Asset-backed securities
$
117,847
$
80,327
$
—
$
—
$
198,174
Securities lending transactions:
Corporate securities
52
—
—
—
52
Equity securities
1,291,673
—
—
—
1,291,673
Total
$
1,409,572
$
80,327
$
—
$
—
$
1,489,899
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above
$
1,489,899
Amount related to agreements not included in offsetting disclosure above
$
—
Remaining Contractual Maturities
Overnight and
Greater Than
December 31, 2023
Continuous
Up to 30 Days
30-90 Days
90 Days
Total
Repurchase agreement transactions:
U.S. Treasury and agency securities
$
8,389
$
—
$
—
$
—
$
8,389
Asset-backed securities
81,419
149,295
—
—
230,714
Securities lending transactions:
Corporate securities
52
—
—
—
52
Equity securities
1,371,844
—
—
—
1,371,844
Total
$
1,461,704
$
149,295
$
—
$
—
$
1,610,999
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above
$
1,610,999
Amount related to agreements not included in offsetting disclosure above
$
—
26. Broker-Dealer and Clearing Organization Receivables and Payables
Broker-dealer and clearing organization receivables and payables consisted of the following (in thousands).
December 31,
2024
2023
Receivables:
Securities borrowed
$
1,292,365
$
1,406,937
Securities failed to deliver
16,045
28,120
Trades in process of settlement
125,736
123,722
Other
18,220
15,152
$
1,452,366
$
1,573,931
Payables:
Securities loaned
$
1,291,725
$
1,371,896
Correspondents
17,025
33,286
Securities failed to receive
16,623
18,135
Other
6,529
7,417
$
1,331,902
$
1,430,734
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-71
27. Segment and Related Information
The Company has two primary business units, PCC (banking and mortgage origination) and Securities Holdings (broker-
dealer). Under GAAP, the Company’s 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
(“CODM”), the Company’s President and Chief Executive Officer, to evaluate segment performance, develop strategy and
allocate resources.
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.
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 reportable business segment revenues, operating
results, goodwill and assets (in thousands).
Year Ended December 31, 2024
Banking
Broker-Dealer
Mortgage
Origination
Corporate
All Other and
Eliminations
Hilltop
Consolidated
Interest income
$
682,921
$
166,421
$
55,628
$
7,128
$
(75,709) $
836,389
Interest expense (1)
310,375
117,479
72,495
19,966
(101,724)
418,591
Net interest income (expense)
372,546
48,942
(16,867)
(12,838)
26,015
417,798
Noninterest income
43,295
422,801
313,229
18,515
(26,884)
770,956
$
415,841
$
471,743
$
296,362
$
5,677
$
(869) $
1,188,754
Provision for (reversal of) loan losses
992
(51)
-
-
-
941
Non-variable compensation and benefits
130,974
133,638
109,573
38,159
-
412,344
Variable compensation (2)
-
153,062
121,720
23
-
274,805
Occupancy and equipment, net
43,765
18,569
21,172
8,393
(666)
91,233
Professional services
8,122
15,897
15,209
5,247
(38)
44,437
Other segment expense items (3)
50,093
87,117
62,414
11,288
(175)
210,737
$
232,954
$
408,283
$
330,088
$
63,110
$
(879) $
1,033,556
Income (loss) before taxes
$
181,895
$
63,511
$
(33,726) $
(57,433)
$
10
$
154,257
Year Ended December 31, 2023
Banking
Broker-Dealer
Mortgage
Origination
Corporate
All Other and
Eliminations
Hilltop
Consolidated
Interest income
$
685,727
$
166,934
$
55,559
$
7,098
$
(76,943) $
838,375
Interest expense (1)
287,791
114,040
75,864
20,059
(126,226)
371,528
Net interest income (expense)
397,936
52,894
(20,305)
(12,961)
49,283
466,847
Noninterest income
45,830
403,538
316,840
12,887
(50,122)
728,973
$
443,766
$
456,432
$
296,535
$
(74)
$
(839) $
1,195,820
Provision for (reversal of) loan losses
18,525
(133)
-
-
-
18,392
Non-variable compensation and benefits
123,345
121,411
132,142
37,451
-
414,349
Variable compensation (2)
-
144,984
118,977
-
-
263,961
Occupancy and equipment, net
36,473
18,781
26,837
7,900
(665)
89,326
Professional services
12,008
16,502
14,102
6,488
-
49,100
Other segment expense items (3)
54,408
81,346
67,227
8,792
(200)
211,573
$
226,234
$
383,024
$
359,285
$
60,631
$
(865) $
1,028,309
Income (loss) before taxes
$
199,007
$
73,541
$
(62,750) $
(60,705)
$
26
$
149,119
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-72
Year Ended December 31, 2022
Banking
Broker-Dealer
Mortgage
Origination
Corporate
All Other and
Eliminations
Hilltop
Consolidated
Interest income
$
483,613
$
112,502
$
52,315
$
6,914
$
(64,228) $
591,116
Interest expense (1)
70,010
60,905
62,844
20,049
(81,667)
132,141
Net interest income (expense)
413,603
51,597
(10,529)
(13,135)
17,439
458,975
Noninterest income
49,307
341,943
452,915
7,525
(19,230)
832,460
$
462,910
$
393,540
$
442,386
$
(5,610)
$
(1,791) $
1,291,435
Provision for loan losses
8,250
59
-
-
-
8,309
Non-variable compensation and benefits
137,532
112,440
170,169
31,038
-
451,179
Variable compensation (2)
-
138,705
183,804
-
-
322,509
Occupancy and equipment, net
37,226
19,759
31,800
9,028
(698)
97,115
Professional services
9,823
15,607
13,141
9,924
-
48,495
Other segment expense items (3)
50,609
69,202
79,990
9,040
(1,140)
207,701
$
235,190
$
355,713
$
478,904
$
59,030
$
(1,838) $
1,126,999
Income (loss) before taxes
$
219,470
$
37,768
$
(36,518) $
(64,640)
$
47
$
156,127
(1)
Significant interest expenses for each reportable segment that are regularly provided to the CODM include:
Banking segment – primarily comprised of deposit interest expense.
Broker-dealer segment – primarily comprised of securities loaned and short-term borrowings interest expense.
Mortgage origination segment – primarily comprised of interest incurred on warehouse lines of credit held with the Bank.
(2)
Variable compensation represents performance-based commissions and incentives.
(3)
Other segment items for certain reportable segments that are regularly provided to the CODM include:
Broker-dealer – included brokerage commission and fees expense and travel, meals and entertainment expense.
Mortgage origination segment – included mortgage origination and servicing expenses, unreimbursed loan closing costs and business development
expense.
Mortgage
All Other and
Hilltop
Banking
Broker-Dealer
Origination
Corporate
Eliminations
Consolidated
December 31, 2024
Goodwill
$
247,368
$
7,008
$
13,071
$
—
$
—
$
267,447
Total assets
$ 13,354,407
$
2,823,582
$
1,010,727
$
2,601,888
$
(3,522,475)
$
16,268,129
December 31, 2023
Goodwill
$
247,368
$
7,008
$
13,071
$
—
$
—
$
267,447
Total assets
$ 13,288,627
$
2,929,296
$
1,181,316
$
2,543,057
$
(3,475,300)
$
16,466,996
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-73
28. Earnings per Common Share
The following table presents the computation of basic and diluted earnings per common share (in thousands, except per share
data).
Year Ended December 31,
2024
2023
2022
Basic earnings per share:
Income attributable to Hilltop
$
113,213
$
109,646
$
113,134
Weighted average shares outstanding - basic
65,036
65,043
70,434
Basic earnings per common share:
$
1.74
$
1.69
$
1.61
Diluted earnings per share:
Income attributable to Hilltop
$
113,213
$
109,646
$
113,134
Weighted average shares outstanding - basic
65,036
65,043
70,434
Effect of potentially dilutive securities
10
2
192
Weighted average shares outstanding - diluted
65,046
65,045
70,626
Diluted earnings per common share:
$
1.74
$
1.69
$
1.60
29. Financial Statements of Parent
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
Year Ended December 31,
2024
2023
2022
Dividends from bank subsidiaries
$
202,000
$
105,000
$
205,000
Dividends from nonbank subsidiaries
87,833
28,821
10,732
Investment income
7,128
7,098
6,914
Interest expense
19,966
20,059
20,049
Other income
18,515
12,887
7,525
General and administrative expense
63,111
60,631
59,030
Income before income taxes and equity in undistributed earnings of
subsidiaries activity
232,399
73,116
151,092
Income tax benefit
(12,409)
(8,596)
(13,124)
Equity in undistributed earnings of subsidiaries
(121,598)
36,267
(44,922)
Net income
$
123,210
$
117,979
$
119,294
Other comprehensive income (loss), net
10,008
12,026
(123,312)
Comprehensive income (loss)
$
133,218
$
130,005
$
(4,018)
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-74
Condensed Combined Balance Sheets
December 31,
2024
2023
2022
Assets:
Cash and cash equivalents
$
466,738
$
245,696
$
205,887
Available for sale securities
29,816
24,418
—
Loans held for investment, net of unearned income
—
10,858
9,181
Investment in subsidiaries:
Bank subsidiaries
1,469,491
1,549,450
1,533,491
Nonbank subsidiaries
420,685
457,675
427,516
Other assets
215,158
254,960
289,438
Total assets
$
2,601,888
$
2,543,057
$
2,465,513
Liabilities and Stockholders’ Equity:
Accounts payable and accrued expenses
$
20,845
$
26,658
$
34,569
Notes payable
364,819
367,861
370,823
Stockholders’ equity
2,216,224
2,148,538
2,060,121
Total liabilities and stockholders’ equity
$
2,601,888
$
2,543,057
$
2,465,513
Condensed Combined Statements of Cash Flows
Year Ended December 31,
2024
2023
2022
Operating Activities:
Net income
$
123,210
$
117,979
$
119,294
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of subsidiaries
121,598
(36,267)
44,922
Deferred income taxes
1,705
2,716
1,064
Other, net
2,042
21,473
(981)
Net cash provided by operating activities
248,555
105,901
164,299
Investing Activities:
Repayment of advances to/investments in nonbank subsidiaries
21,269
15,000
15,000
Purchases of securities available for sale
—
(11,696)
—
Purchases of equity investments (including merchant banking investments)
(7,725)
(19,914)
(20,006)
Purchases of premises and equipment and other
(837)
(2,423)
(1,015)
Proceeds from sales of securities available for sale
4,701
—
—
Proceeds from sales/disposition of equity investments
9,654
—
4,000
Net change in loans held for investment
11,351
—
—
Net cash provided by (used in) investing activities
38,413
(19,033)
(2,021)
Financing Activities:
Payments to repurchase common stock
(19,864)
(5,100)
(442,336)
Dividends paid on common stock
(44,257)
(41,604)
(42,963)
Net cash contributed from (to) noncontrolling interest
(937)
832
(918)
Other, net
(868)
(1,187)
(1,434)
Net cash used in financing activities
(65,926)
(47,059)
(487,651)
Net change in cash and cash equivalents
221,042
39,809
(325,373)
Cash and cash equivalents, beginning of year
245,696
205,887
531,260
Cash and cash equivalents, end of year
$
466,738
$
245,696
$
205,887
Table of Contents
Hilltop Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
F-75
30. Subsequent Event
On January 27, 2025, the Company announced that its merchant bank subsidiary entered into a definitive agreement to sell all
of the capital stock of Moser Acquisition, Inc. The Company has an approximate 30% aggregate interest in Moser Holdings,
LLC, which owns Moser Acquisition, Inc. The closing of the transaction, which is expected to occur in the first quarter of
2025, is subject to customary closing conditions.
31. Selected Quarterly Financial Information (Unaudited)
Selected quarterly financial information is summarized as follows (in thousands, except per share data).
Year Ended December 31, 2024
Fourth
Third
Second
First
Full
Quarter
Quarter
Quarter
Quarter
Year
Interest income
$
208,590
$
211,042
$
207,143
$
209,614
$
836,389
Interest expense
103,106
105,999
103,493
105,993
418,591
Net interest income
105,484
105,043
103,650
103,621
417,798
Provision for (reversal of) credit losses
(5,852)
(1,270)
10,934
(2,871)
941
Noninterest income
195,590
200,443
193,305
181,618
770,956
Noninterest expense
262,757
264,312
256,464
250,023
1,033,556
Income before income taxes
44,169
42,444
29,557
38,087
154,257
Income tax expense
6,285
9,539
6,658
8,565
31,047
Net income
37,884
32,905
22,899
29,522
123,210
Less: Net income attributable to noncontrolling interest
2,365
3,212
2,566
1,854
9,997
Income attributable to Hilltop
$
35,519
$
29,693
$
20,333
$
27,668
$
113,213
Earnings per common share:
Basic:
$
0.55
$
0.46
$
0.31
$
0.42
$
1.74
Diluted:
$
0.55
$
0.46
$
0.31
$
0.42
$
1.74
Cash dividends declared per common share
$
0.17
$
0.17
$
0.17
$
0.17
$
0.68
Year Ended December 31, 2023
Fourth
Third
Second
First
Full
Quarter
Quarter
Quarter
Quarter
Year
Interest income
$
216,767
$
216,755
$
213,426
$
191,427
$
838,375
Interest expense
105,541
101,105
95,160
69,722
371,528
Net interest income
111,226
115,650
118,266
121,705
466,847
Provision for (reversal of) credit losses
1,265
(40)
14,836
2,331
18,392
Noninterest income
178,978
196,849
190,652
162,494
728,973
Noninterest expense
250,845
260,017
266,977
250,470
1,028,309
Income before income taxes
38,094
52,522
27,105
31,398
149,119
Income tax expense
7,132
13,211
7,167
3,630
31,140
Net income
30,962
39,311
19,938
27,768
117,979
Less: Net income attributable to noncontrolling interest
2,291
2,269
1,805
1,968
8,333
Income attributable to Hilltop
$
28,671
$
37,042
$
18,133
$
25,800
$
109,646
Earnings per common share:
Basic:
$
0.44
$
0.57
$
0.28
$
0.40
$
1.69
Diluted:
$
0.44
$
0.57
$
0.28
$
0.40
$
1.69
Cash dividends declared per common share
$
0.16
$
0.16
$
0.16
$
0.16
$
0.64
Exhibit 19.1
Approved: April 18, 2024
INSIDER TRADING POLICY
This Insider Trading Policy (the “Policy”) sets forth the policy for directors, officers and other
employees (for purposes of this Policy, employees shall include consultants) of Hilltop Holdings Inc. (“Hilltop”)
and its subsidiaries (collectively, the “Company”) with respect to transactions in Hilltop’s securities.
Applicability of Policy
This Policy applies to all transactions in Hilltop’s securities, including common stock, preferred stock,
options and warrants for common stock and any other securities Hilltop may issue from time to time, such as
convertible debentures and other derivative securities relating to Hilltop’s stock, whether or not issued by
Hilltop, such as exchange-traded options (collectively, “HTH Securities”). It applies to all directors, officers and
other employees of the Company that receive or have access to Material Nonpublic Information (as defined
below) concerning the Company. This group of people, members of their immediate families, and members
of their households are sometimes referred to in this Policy as “Insiders.” This Policy also applies to any
person who receives Material Nonpublic Information from any Insider.
General Policy
It is against Company policy for any employee or director to make an unauthorized disclosure of any
nonpublic information acquired in the workplace or as a result of their position with the Company. It also is
against Company policy for any employee or director to misuse Material Nonpublic Information in trading
HTH Securities. The Company has established procedures for releasing material information in a manner that
is designed to achieve broad public dissemination of the information immediately upon its release. You may
not, therefore, disclose information to anyone outside the Company, including family members and friends,
other than in accordance with those procedures. You also may not discuss the Company or its business in an
internet “chat room” or similar internet-based forum.
Specific Policies
1.
Trading on Material Nonpublic Information
It is illegal and against Company policy for any Insider to trade in HTH Securities while he or she
possesses Material Nonpublic Information about the Company.
Transactions that may be necessary or justifiable for independent reasons (such as the need to raise
money for an emergency expenditure) are not excepted from the Policy. The securities laws do not recognize
such mitigating circumstances, and, in any event, even the appearance of an improper transaction must be
avoided to preserve the Company’s reputation for adhering to the highest standards of conduct.
2
2.
Short Sales
No Insider shall engage in a short sale of HTH Securities. Furthermore, Section 16(c) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), prohibits officers and directors from engaging in
short sales. A “short sale” is a sale of securities not owned by the seller or, if owned, not delivered against
such sale within 20 days thereafter (commonly known as a “short against the box”). Transactions in certain
put and call options for HTH Securities may in some instances constitute a short sale.
3.
Publicly Traded Options
A transaction in options is, in effect, a bet on the short-term movement of HTH Securities and,
therefore, may create the appearance that the director or employee is trading based on inside information.
Transactions in options also may focus the director’s or employee’s attention on short-term performance at
the expense of the Company’s long-term objectives. Accordingly, transactions in puts, calls or other derivative
securities, on an exchange or in any other organized market, are prohibited by this Policy. (Option positions
arising from certain types of hedging transactions are governed by the section below captioned “Hedging
Transactions.”)
4.
Standing Orders
Standing orders should be used only for a very brief period of time. A standing order placed with a
broker to sell or purchase securities at a specified price leaves you with no control over the timing of the
transaction. A standing order transaction executed by the broker when you are aware of Material Nonpublic
Information may result in unlawful insider trading. Transactions pursuant to a plan adopted in accordance
with Rule 10b5-1 of the Exchange Act, discussed below, may be excepted from this prohibition against
standing orders.
5.
Hedging Transactions
Certain forms of hedging or monetization transactions, such as zero-cost collars and forward sale
contracts, allow an employee to lock in much of the value of his or her securities holdings, often in exchange
for all or part of the potential for upside appreciation in the security. These transactions allow the director or
employee to continue to own the covered securities, but without the full risks and rewards of ownership.
When that occurs, the director or employee may no longer have the same objectives as Hilltop’s other
security holders. Any person wishing to enter into such an arrangement must first pre-clear the proposed
transaction with Hilltop’s General Counsel. Any request for pre-clearance of a hedging or similar arrangement
must be submitted to Hilltop’s General Counsel at least two weeks prior to the proposed execution of
documents evidencing the proposed transaction and must set forth a justification for the proposed
transaction. Hilltop’s General Counsel may decline any request in his sole discretion.
6.
Margin Accounts and Pledges
Securities held in a margin account may be sold by the broker without the customer’s consent if the
customer fails to meet a margin call. Similarly, securities pledged (or hypothecated) as collateral for a loan
may be sold in foreclosure if the borrower defaults on the loan. A margin or foreclosure sale that
3
occurs when the pledgor is aware of Material Nonpublic Information may, under some circumstances, result
in unlawful insider trading. Because of this danger, Insiders should exercise caution in holding HTH Securities
in a margin account or pledging HTH Securities as collateral for a loan. In addition, certain Insiders may be
required to publicly disclose the amount of HTH Securities pledged as collateral for a loan. Any person wishing
to enter into such an arrangement must first pre-clear the proposed transaction with Hilltop’s General
Counsel. Any request for pre-clearance of a margin, pledging or similar arrangement must be submitted to
Hilltop’s General Counsel at least two weeks prior to the proposed execution of documents evidencing the
proposed transaction and must set forth a justification for the proposed transaction. Hilltop’s General Counsel
may decline any request in his sole discretion. Accordingly, margin accounts or pledging HTH Securities as
collateral is prohibited unless pre-cleared as set forth herein.
7.
Short-Term Trading
If an Insider subject to Section 16 of the Exchange Act purchases or sells HTH Securities, such Insider
may not conduct an opposite way transaction in any HTH Securities of the same class for at least six (6)
months after the purchase or sale, unless the Insider first pre-clears the proposed transaction with Hilltop’s
General Counsel.
8.
Tipping
No Insider shall disclose (commonly known as a “tip”) Material Nonpublic Information of the
Company to any other person (including family members) where such information may be used by such
person to his or her profit by trading (buying or selling) in HTH Securities, nor shall such Insider or related
person make recommendations or express opinions on the basis of Material Nonpublic Information as to
trading in HTH Securities.
9.
Confidentiality of Nonpublic Information
Nonpublic information relating to the Company is the property of the Company and the unauthorized
disclosure of such information is forbidden. In the event any Insider receives any inquiry for information from
outside the Company, such as from a stock analyst or investor, the inquiry should be referred to Hilltop’s
Investor Relations who is responsible for coordinating and overseeing the release of such information to the
investing public, analysts and others in compliance with applicable laws and regulations.
10.
Post-Termination Transactions
This Policy continues to apply to your transactions in HTH Securities even after you have terminated
employment. If you are in possession of Material Nonpublic Information of the Company when your
employment terminates, you may not trade in HTH Securities until that information has become public or is
no longer material.
4
Potential Criminal and Civil Liability and/or Disciplinary Action
1.
Liability for Insider Trading
Pursuant to federal and state securities laws, Insiders may be subject to penalties of up to $5,000,000
and up to 25 years in jail for engaging in transactions in HTH Securities at a time when they have knowledge
of Material Nonpublic Information regarding the Company.
2.
Liability for Tipping
Insiders also may be liable for improper transactions by any person (commonly referred to as a
“tippee”) to whom they have disclosed Material Nonpublic Information regarding the Company or to whom
they have made recommendations or expressed opinions on the basis of such information as to trading in
HTH Securities. The Securities and Exchange Commission (the “SEC”) has imposed large penalties even when
the disclosing person did not profit from the trading. The SEC, the stock exchanges and the Financial Industry
Regulatory Authority use sophisticated electronic surveillance techniques to uncover insider trading.
3.
Liability of Control Persons
If the Company or its supervisory personnel fail to take appropriate steps to prevent illegal insider
trading, they may be subject to the following penalties:
(a)
A civil penalty of up to $1,425,000 or, if greater, three times the profit gained, or loss
avoided, as a result of the employee’s violation; and
(b)
A criminal penalty of up to $5,000,000 and up to 20 years in jail for individuals and/or
a fine of $25,000,000 for the Company.
4.
Possible Disciplinary Actions
Employees of the Company who violate this Policy also may be subject to disciplinary action by the
Company, which may include ineligibility for future participation in Hilltop’s equity incentive plans or
termination of employment.
Trading Guidelines and Requirements
1.
Black-Out Periods and Trading Window
(a)
Black-Out Period
The period beginning on the close of trading on the 10th calendar day of the last month of a fiscal
quarter and ending at the commencement of trading on the next Trading Day following two calendar days
after the date of public disclosure of the financial results for that fiscal quarter is a particularly sensitive
period of time for transactions in HTH Securities from the perspective of compliance with applicable
securities laws. This sensitivity arises because Insiders will often possess Material Nonpublic Information
about the expected financial results for the quarter during that period. Accordingly, this period of time is
referred to as a “black-out” period (“Black-Out Period”). Accordingly, all directors and executive officers
(“executive officers”) subject to Section 16 of the Exchange Act
5
(collectively, the “Section 16 Persons”) and certain individuals identified from time to time in Attachment 1
(the “Other Individuals”) are prohibited from trading during such period.
(b)
Trading Window
To ensure compliance with this Policy and applicable federal and state securities laws, Hilltop requires
that all Section 16 Persons and Other Individuals refrain from conducting transactions involving the purchase
or sale of HTH Securities other than during the “Trading Window.” The “Trading Window” generally will be
the period beginning at the commencement of trading on the next Trading Day following two full calendar
days after the release of financial results for a particular fiscal quarter or year and continuing until the close of
trading on the 10th calendar day of the last month of a fiscal quarter. As used herein, the term “Trading Day”
shall mean a day on which national stock exchanges are open for trading.
It is understood that, even during a Trading Window, Hilltop also may prohibit all or certain directors,
executive officers and other employees of the Company from trading HTH Securities because of material
developments known to the Company and not yet disclosed to the public. Accordingly, upon receipt of
written notice by email or otherwise from Hilltop’s General Counsel, all such designated directors, executive
officers and other employees of the Company may not engage in any transaction involving the purchase or
sale of HTH Securities and may not disclose to any others the fact of such suspension of trading. Hilltop
hereby agrees to re-open the Trading Window at the commencement of trading on the next Trading Day
following two full calendar days after the date of public disclosure of the material development, or at such
time as it is determined that the development is no longer material. Hilltop’s General Counsel will notify such
designated persons as soon as possible of such disclosure or such determination.
In addition, Hilltop may prohibit executive officers from directly or indirectly trading HTH Securities
during a pension plan blackout period and may temporarily prevent plan participants or beneficiaries from
engaging in transactions in HTH Securities through their plan accounts, if the executive officer acquired the
security in connection with his or her service or employment as an executive officer of the Company.
It should be noted, however, that even during the Trading Window, any person possessing Material
Nonpublic Information concerning the Company should not engage in any transactions, except for those
exceptions listed below, in HTH Securities until such information has been known publicly for at least two
full calendar days. Trading in HTH Securities during the Trading Window should not be considered a “safe
harbor,” and all directors, executive officers and Other Individuals should use good judgment at all times.
2.
Pre-clearance of Trades
Hilltop has determined that all Section 16 Persons and Other Individuals must refrain from trading in
HTH Securities without first complying with Hilltop’s “pre-clearance” process, even if there is not a Black-Out
Period. Each such person should contact Hilltop’s General Counsel prior to commencing any trade in HTH
Securities.
6
3.
Individual Responsibility
Every officer, director and employee has the individual responsibility to comply with this Policy
against insider trading. An Insider may, from time to time, have to forego a proposed transaction in HTH
Securities even if he or she planned to make the transaction before learning of the Material Nonpublic
Information and even though the Insider believes he or she may suffer an economic loss or forego anticipated
profit by waiting.
Applicability of Policy to Inside Information Regarding Other Companies
This Policy also applies to Material Nonpublic Information of other companies with whom the
Company conducts business, including proposed business combinations (“business partners”), when that
information is obtained from services performed by or for the Company. Civil and criminal penalties, and
termination of employment, may result from trading on inside information regarding the Company’s vendors
and customers. All directors and employees should treat Material Nonpublic Information about the
Company’s vendors or customers with the same care required with respect to information related directly to
the Company. Similarly, you must not discuss Material Nonpublic Information relating to the Company’s
vendors or customers in an internet “chat room” or similar internet-based forum.
Definition of “Material Nonpublic Information”
It is not possible to define all categories of material information. Information should, however, be
regarded as material if there is a reasonable likelihood that it would be considered important to a reasonable
investor in making an investment decision regarding the purchase or sale of HTH Securities.
While it may be difficult under this standard to determine whether particular information is material,
there are various categories of information that are particularly sensitive and, as a general rule, should always
be considered material. Examples of such information may include:
●
Financial results;
●
Known but unannounced future earnings or losses;
●
Projections of future earnings or losses, or other earnings guidance or targets;
●
Earnings that are inconsistent with the consensus expectations of the investment community;
●
Execution or termination of significant contracts with vendors;
●
News of a pending or proposed merger or other acquisition;
●
News of the disposition, construction or acquisition of significant assets;
●
Impending bankruptcy or financial liquidity problems;
●
Significant developments involving corporate relationships;
●
Changes in dividend policy;
●
New product announcements or policies of a significant nature;
●
Stock splits;
●
New equity or debt offerings;
●
Positive or negative developments in outstanding litigation;
●
Significant litigation exposure due to actual or threatened litigation; or
●
Changes in senior management, the Company’s auditors or the Board of Directors.
Either positive or negative information may be material.
7
Nonpublic information is information that has not been previously disclosed to the general public and
is otherwise not available to the general public.
Certain Exceptions
1.
Stock Option Exercises and Restricted Stock Vesting
This Policy does not apply to the exercise of a director or employee stock option or the vesting of
restricted stock or restricted stock units if the shares acquired upon exercise or vesting, as applicable, are
held rather than sold into the public market, or to the exercise of a tax withholding right pursuant to which
you elect to have Hilltop withhold shares to satisfy tax withholding requirements. The Policy does apply,
however, to any sale of stock as part of a broker-assisted cashless exercise of an option, or any other market
sale for the purpose of generating the cash needed to pay taxes or exercise prices.
2.
Gifts
Bona fide gifts of Hilltop’s securities generally will be exempt from this Policy. However, all such gifts
by executive officers, directors and Other Individuals must be pre-cleared by Hilltop’s General Counsel if a
Black-Out Period is in effect at the time of the gift. Hilltop’s General Counsel may prohibit any gift that is
subject to pre-clearance in his sole discretion.
3.
Blind Trusts and Pre-Arranged Trading Programs
Rule 10b5-1 of the Exchange Act provides an affirmative defense against insider trading liability for a
transaction done pursuant to “blind trusts” (trusts in which investment control has been delegated to a third
party, such as an institutional or professional trustee) or pursuant to a written plan, or a binding contract or
instruction, entered into or modified (i) at a time when the Insider was not aware of Material Nonpublic
Information and (ii) in good faith and not as part of a plan or scheme to evade the prohibitions on Rule 10b-5
promulgated under the Exchange Act. Except as may be permitted by law, persons other than Hilltop shall be
prohibited from having more than one trading plan. Officers and directors will be required to provide
quarterly disclosure with respect to trading plans they adopt, modify or terminate and, when transactions
occur under the trading plan, on the Form 4 or Form 5 filed by such officer or director.
Hilltop may, in appropriate circumstances, permit executive officers, directors or Other Individuals to
enter into a blind trust or a trading program that complies with Rule 10b5-1. With respect to officers and
directors, such trading plan shall be subject to the applicable cooling-off periods, which is the later (i) 90 days
after the adoption or modification of the trading plan or (ii) two business days following the filing of the Form
10-Q or Form 10-K for the fiscal quarter in which the plan was adopted or modified. With respect to persons
other than Hilltop, officers and directors, the applicable cooling-off period is 30 days after the adoption or
modification of the trading plan. If you wish to establish a blind trust or trading program, you must pre-clear it
with Hilltop’s General Counsel. With respect to arrangements that result or may result in transactions taking
place during Black-Out Periods, the General Counsel will review such arrangements in light of guidelines that
it from time to time establishes, with input, if appropriate, from outside legal counsel. Hilltop reserves the
right to bar any transactions in HTH Securities, including transactions pursuant to arrangements previously
approved, if Hilltop’s General Counsel determines that such a bar is in the best interests of the Company. In
addition, if you are otherwise permitted to do so under the Policy, you may not engage in any hedging
8
transactions (as described above) if you are trading in HTH Securities pursuant to a blind trust or a Rule 10b5-
1 trading program.
Inquiries
Any person who has a question about this Policy or its application to any proposed transaction may
obtain additional guidance from Hilltop’s General Counsel. Ultimately, however, the responsibility for
adhering to this Policy and avoiding unlawful transactions rests with the individual director, officer or other
employee.
Certifications
All directors, officers and employees must certify their understanding of, and intent to comply with,
this Policy. Please sign the certification attached hereto as Attachment 2.
9
ATTACHMENT 1
HILLTOP HOLDINGS INC.
PERSONNEL SUBJECT TO PRE-CLEARANCE
1.
Members of Hilltop’s Board of Directors
2.
Section 16 Executive Officers of Hilltop
3.
Additional Employees Subject to Pre-Clearance of Trades
NOTE: if you are one of these additional employees, you will be individually notified
As well as such other persons as designated by the President, Chief Financial Officer or General
Counsel from time to time.
10
ATTACHMENT 2
CERTIFICATIONS
I certify that:
1.
I have read and understand Hilltop Holdings Inc.’s Insider Trading Policy (the “Policy”). I
understand that Hilltop’s General Counsel is available to answer any questions I have regarding the Policy.
2.
Since the date, this Policy became effective, or such shorter period of time that I have been a
director, officer or other employee of the Company, I have complied with the Policy.
3.
I will continue to comply with the Policy for as long as I am subject to the Policy.
Signature:
Date:
Print
Name:
Exhibit 21.1
List of Subsidiaries of Hilltop Holdings Inc.
As of February 14, 2025
Name
State or Other Jurisdiction
of Incorporation or Formation
ARC Insurance Holdings, Inc.
Delaware
First Southwest Holdings LLC
Delaware
First Southwest Capital Investments, Inc.
Delaware
First Southwest Leasing Company
Delaware
FSC Asset Administrator, LLC
Delaware
Highland HomeLoans, LLC
Delaware
Hilltop Investments I LLC
Delaware
Hilltop Opportunity Partners LLC
Texas
Hilltop OP FPDS Preferred Holdings LLC
Texas
Hilltop OP Moser Holdings GP LLC
Delaware
Hilltop OP Moser Holdings LP
Delaware
Hilltop OP Pioneer GP LLC
Delaware
Hilltop OP Pioneer Holdings LLC
Delaware
Hilltop OP Pioneer LP
Delaware
Hilltop OP Power Test Common Holdings LLC
Texas
Hilltop OP Power Test Preferred Holdings LLC
Texas
Hilltop OP Viking Common Holdings LLC
Delaware
Hilltop OP Viking Preferred Holdings LLC
Delaware
Hilltop Securities Asset Management, LLC
Delaware
Hilltop Securities Holdings LLC
Delaware
Hilltop Securities Inc.
Delaware
Hilltop Securities Insurance Agency Inc.
Texas
HTH Diamond Hillcrest Land LLC
Texas
HTH Hillcrest Project LLC
Texas
Kindred HomeLoans, LLC
Delaware
Momentum Independent Network Inc.
Texas
OpenRange Capital LLC
Delaware
PlainsCapital Corporation
Maryland
PlainsCapital Bank
Texas
PCB – ARC, Inc.
Texas
PrimeLending, a PlainsCapital Company
Texas
PrimeLending Ventures Management, LLC
Texas
RGV – ARC, Inc.
Texas
The names of particular subsidiaries may be omitted if the unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary as of the end of the year covered by this report. (See the definition of “significant subsidiary” in Rule 1-02(w) (17 CFR 210.1-02(w)) of
Regulation S-X.)
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Post Effective Amendment No. 1 on Form S-8 to the Registration
Statement on Form S-4 (No. 333-196367), the Registration Statement on Form S-3 (No. 333-237447), the Registration
Statement on Form S-8 (No. 333-266662), and the Registration Statement on Form S-8 (No. 333-240090) of Hilltop Holdings
Inc. of our report dated February 14, 2025 relating to the financial statements and the effectiveness of internal control over
financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
February 14, 2025
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Jeremy B. Ford, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Hilltop Holdings Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 14, 2025
By: /s/ Jeremy B. Ford
Jeremy B. Ford
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, William B. Furr, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Hilltop Holdings Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 14, 2025
By: /s/ William B. Furr
William B. Furr
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K for the period ended December 31, 2024 (the “Report”) of Hilltop
Holdings Inc. (the “Company”), the undersigned hereby certify in their capacities as President and Chief Executive Officer
and Chief Financial Officer, respectively, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to their knowledge:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934, as amended; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company as of, and for, the periods presented in the Report.
Date: February 14, 2025
By: /s/ Jeremy B. Ford
Jeremy B. Ford
President and Chief Executive Officer
Date: February 14, 2025
By: /s/ William B. Furr
William B. Furr
Chief Financial Officer
The foregoing certification is furnished as an exhibit to the Report and will not be deemed “filed” for purposes of Section 18
of the Securities Exchange Act of 1934, as amended, and will not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or
after the date hereof, regardless of any general incorporation language in such filing.
Exhibit 97
Approved: January 30, 2025
INCENTIVE COMPENSATION CLAWBACK POLICY
OVERVIEW
The Board of Directors (“Board”) of Hilltop Holdings Inc. (the “Company”) has adopted this Policy in
order to maintain a culture of focused, diligent and responsible management that discourages conduct
detrimental to the growth of the Company and its subsidiary entities (“Subsidiaries”) and to ensure that
incentive-based compensation (“Incentive-Based Compensation”) paid by the Company is based upon
accurate financial data. This Policy is designed to comply with, and shall be interpreted to be consistent
with, Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rule 10D-1
promulgated under the Exchange Act (“Rule 10D-1”) and Section 303A.14 of the New York Stock
Exchange Listed Company Manual.
This Policy applies in the event of an accounting restatement (“Restatement”) of the Company's financial
statements due to the Company’s material non-compliance with any financial reporting requirement under
the securities laws, including any required accounting restatement to correct an error in previously issued
financial statements that is material to the previously issued financial statements, or that would result in a
material misstatement if the error were corrected in the current period or left uncorrected in the current
period. This Policy does not apply in any situation where a Restatement is not due to material non-
compliance with financial reporting requirements, such as, but not limited to, a retrospective:
•
application of a change in accounting principles;
•
revision to reportable segment information due to a change in the structure of the Company's
internal organization;
•
reclassification due to a discontinued operation;
•
application of a change in reporting entity, such as from a reorganization of entities under
common control;
•
adjustment to provision amounts in connection with a prior business combination; or
•
revision for stock splits (collectively the “Restatement Exclusions”).
APPLICATION
The executive officers of the Company whose Incentive-Based Compensation is covered by this Policy
include the Company's current and former Chief Executive Officer, President, Chief Financial Officer,
Chief Accounting Officer, any Vice-President of the Company in charge of a principal business unit,
division or function, and any other officer or person who performs a significant policy-making function for
the Company (the “Executive Officers”). All of these Executive Officers are
2
subject to this Policy, even if an Executive Officer had no responsibility for the financial statement errors
that required Restatement.
This Policy applies to Incentive-Based Compensation received by an Executive Officer (a) after beginning
services as an Executive Officer; (b) if that person served as an Executive Officer at any time during the
performance period for such Incentive-Based Compensation; and (c) while the Company had a listed class
of securities on a national securities exchange.
Incentive-Based Compensation includes any compensation, including cash and equity, which is granted,
earned, or vested based wholly or in part upon the attainment of any financial reporting measure. Financial
reporting measures are those that are determined and presented in accordance with the accounting
principles used in preparing the Company's financial statements and any measures derived wholly or in
part from such financial information.
Incentive-Based Compensation is deemed received in the fiscal period during which the applicable
financial reporting measure (as specified in the terms of the award) is attained, even if the payment or
grant occurs after the end of that fiscal period. At the time of the award of Incentive-Based Compensation
by the Company to any Executive Officer, the Company shall identify in writing to said Executive Officer,
what, if any, portion of the Incentive-Based Compensation awarded to the Executive Officer is based upon
the attainment of any financial reporting measure.
CORPORATE RESPONSIBILITY
Incentive-Based Compensation does not include base annual salary, compensation that is awarded based
purely on service to the Company (e.g. a time-vested award, including time-vesting restricted stock) or
compensation that is awarded solely at the discretion of the Compensation Committee of the Board, nor
does it include compensation that is awarded based on subjective standards, strategic measures (e.g.
completion of a merger) or operational measures (e.g. attainment of a certain market share).
TIME PERIOD COVERED BY POLICY
This Policy applies to any Incentive-Based Compensation paid to an Executive Officer during any of the
three (3) fiscal completed years immediately preceding the date the Company is required to prepare a
Restatement (the “Clawback Period”), meaning the earlier of:
(A)
the date that the Audit Committee of the Board (or the Board, if Board action is required)
concludes that the Company's previously issued financial statements contain a material
error; or
(B)
the date on which a court, regulator or other similarly authorized body causes the Company
to restate its financial information to correct a material error.
CALCULATION AND RECOVERY OF RECOVERABLE AMOUNT
The recoverable amount under this Policy is the amount of Incentive-Based Compensation received by the
Executive Officer that exceeds the amount of Incentive-Based Compensation that otherwise
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would have been received had it been determined based on the Restatement (the “Recoverable Amount”).
Applying this definition, after a Restatement, the Compensation Committee will recalculate the applicable
financial reporting measure and the amount of Incentive-Based Compensation based thereon for the
applicable periods. The Compensation Committee will determine whether, based on that financial
reporting measure as calculated relying on the original financial statements, an Executive Officer received
a greater amount of Incentive-Based Compensation than would have been received applying the
recalculated financial measure.
Where Incentive-Based Compensation is based only in part on the achievement of a financial reporting
measure performance goal, the Compensation Committee will determine the portion of the original
Incentive-Based Compensation based on or derived from the financial reporting measure that was restated
and will recalculate the affected portion based on the financial reporting measure as restated to determine
the difference between the greater amount based on the original financial statements and the lesser amount
that would have been received based on the Restatement. The Recoverable Amounts will be calculated on
a pre-tax basis to ensure that the Company recovers the full amount of Incentive-Based Compensation that
was erroneously awarded. With respect to deferred compensation, the Recoverable Amounts shall be
forfeited, subject to compliance with Section 409A of the Internal Revenue Code and the regulations
promulgated thereunder.
If equity compensation is recoverable due to being granted to the Executive Officer (when the accounting
results were the reason the equity compensation was granted) or vested by the Executive Officer (when the
accounting results were the reason the equity compensation was vested), in each case in the Clawback
Period, the Company will recover the excess portion of the equity award that would not have been granted
or vested based on the Restatement, as follows:
•
if the equity award is still outstanding, the Executive Officer will forfeit the excess portion of
the award;
•
if the equity award has been exercised or settled into shares (the “Underlying Shares”), and
the Executive Officer still holds the Underlying Shares, the Company will recover the number
of Underlying Shares relating to the excess portion of the award (less any exercise price paid
for the Underlying Shares); and
•
if the Underlying Shares have been sold by the Executive Officer, the Company will recover
the proceeds received by the Executive Officer from the sale of the Underlying Shares relating
to the excess portion of the award (less any exercise price paid for the Underlying Shares).
For Incentive-Based Compensation based on stock price or total shareholder return: (a) the Compensation
Committee shall determine the Recoverable Amount based upon a reasonable estimate of the Restatement
on the stock price or total shareholder return upon which the Incentive-Based Compensation was received;
and (b) the Company shall maintain documentation of the determination of that reasonable estimate and
provide such documentation to the New York Stock Exchange (the “NYSE”).
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The Compensation Committee of the Board (or the Board, if Board action is required) will take such
action as it deems appropriate, in its sole and absolute discretion, to accomplish prompt recovery of the
Recoverable Amount. Given that the Recoverable Amount must be calculated by the Company on a pre-
tax basis, the Company will recover first, the post-tax portion of the Recoverable Amount received by the
Executive Officer; then that portion of the Recoverable Amount that represents the tax paid by the
Executive Officer once that amount is recovered by the Executive Officer.
Subject to compliance with any applicable law, the Compensation Committee may affect recovery under
this Policy from any amount otherwise payable to the Executive Officer, including amounts payable to
such individual under any otherwise applicable Company plan or program, including base salary, bonuses
or commissions and compensation previously deferred by the Executive Officer. The Company is obliged
to promptly recover erroneously paid Incentive-Based Compensation from its Executive Officers, except
under two limited circumstances:
•
if the Compensation Committee of the Board determines that it would be impracticable to
recover the excess compensation from an Executive Officer because the direct costs of
enforcing recovery will exceed the Recoverable Amount. Before concluding that it would be
impracticable to recover any Recoverable Amount based on expense of enforcement, the
Compensation Committee must make a reasonable attempt to recovery such Recoverable
Amount, document such reasonable attempt to recover and provide that documentation to the
NYSE;
•
if the recovery of the Incentive-Based Compensation will violate the home country laws of the
Company where that law was adopted prior to November 28, 2022. Before concluding that it
would be impracticable to recovery any amount of the Recoverable Amount based on violation
home country law of the Company, the Compensation Committee must satisfy the applicable
opinion and disclosure requirements of Rule 10D-1 and the listing standards of the NYSE; or
•
Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits
are broadly available to employees of the Company, to fail to meet the requirements of 26
U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.
NO ADDITIONAL PAYMENTS
In no event shall the Company be required to award Executive Officers an additional payment if the
restated or accurate financial results would have resulted in a higher incentive compensation payment.
INDEMNIFICATION
Notwithstanding the terms of any indemnification or insurance policy or any contractual arrangement with
any Executive Officer that may be interpreted to the contrary, the Company shall not indemnify any
Executive Officer against the loss of any Recoverable Amount, including any payment or reimbursement
for the cost of third-party insurance purchased by an Executive Officer to fund potential clawback
obligations under this Policy.
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COMPANY INDEMNIFICATION
Any members of the Compensation Committee, the Audit Committee and the Board shall not be
personally liable for any action, determination or interpretation made with respect to this Policy and shall
be fully indemnified by the Company to the fullest extent under applicable law and Company policy with
respect to any such action, determination or interpretation. The foregoing sentence shall not limit any other
rights to indemnification of the members of the Board under applicable law or Company policy.
EFFECTIVE DATE; RETROACTIVE APPLICATION
This Policy shall be effective as of October 2, 2023 (the “Effective Date”). The terms of this Policy shall
apply to any Incentive-Based Compensation that is received by Executive Officers on or after the Effective
Date, even if such Incentive-Based Compensation was approved, awarded, granted or paid to Executive
Officers prior to the Effective Date. Without limiting the generality of the provision governing
recoverability hereunder, the Compensation Committee may affect recovery under this Policy from any
amount of compensation approved, awarded, granted, payable or paid to Executive Officers prior to, on or
after the Effective Date.
AMENDMENT
The Board may amend, modify, supplement, rescind or replace all or any portion of this Policy at any time
and from time to time in its discretion, and shall amend this Policy as it deems necessary to comply with
applicable law or any rules or standards adopted by the NYSE.
GENERAL
The provisions of this Policy are intended to be applied to the fullest extent of the law; provided however,
to the extent that any provisions of this Policy are found to be unenforceable or invalid under any
applicable law, such provision will be applied to the maximum extent permitted, and shall automatically be
deemed amended in a manner consistent with its objectives to the extent necessary to conform to any
limitations required under applicable law.
Any recoupment, forfeiture, or cancellation under this Policy is in addition to, and not in lieu of, any other
remedies or rights of recoupment that may be available to the Company pursuant to the terms of any
similar policy in any employment agreement, incentive or equity compensation plan or award or other
agreement and any other legal rights or remedies available to the Company.
All determinations and decisions made by the Compensation Committee of the Board (or the Board, if
Board action is required) pursuant to the provisions of this Policy shall be final, conclusive and binding on
the Company, its Subsidiaries and the persons to whom this Policy applies.
This Policy shall be binding and enforceable against all Executive Officers and their respective
beneficiaries, heirs, executors, administrators or other legal representatives.
This Policy is addition to, and shall be applied in conjunction with, any other clawback policies and
processes of the Company, including, without limitation, the clawback from any annual or long-term
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incentive award for improper risk taking or significant compliance issues provided for in the Company’s
compensation program.
A copy of this Policy and any amendment thereto shall be posted on the Company’s website and filed as an
exhibit to the Company’s Annual Report on Form 10-K.