Hilltop Holdings Inc. (NYSE:HTH) Q1 2021 Earnings Conference Call April 23, 2021 9:00 AM ET Company Participants Erik Yohe - Investor Relations Jeremy Ford - President and Chief Executive Officer Will Furr - Chief Financial Officer Conference Call Participants Michael Young - Truist Michael Rose - Raymond James Brad Millsaps - Piper Sandler Matthew Olny - Stephens, Inc. Woody Lay - KBW Operator Good morning everyone and welcome to the Hilltop Holdings First Quarter Year 2021 Earnings Conference Call and Web ...

Hilltop Holdings Inc. Q1 2021Earnings Presentation April 23, 2021 Preface Corporate Headquarters Additional Information 6565 Hillcrest Ave Dallas, TX 75205 Phone: 214-855-2177 www.hilltop-holdings.com Please Contact: Erik Yohe Phone: 214-525-4634 Email: eyohe@hilltop-holdings.com FORWARD-LOOKING STATEMENTS This presentation and statements made by representatives of Hilltop Holdings Inc. ("Hilltop" or the "Company") during the course of this presentation include "forwardlooking statements" within the meaning ...

Part I [Business](index=6&type=section&id=Item%201.%20Business) Hilltop Holdings Inc. is a Texas-based financial holding company operating through three primary segments and subject to extensive regulation - Hilltop Holdings is a diversified financial holding company with primary business units in banking (PlainsCapital Corporation) and securities (Hilltop Securities Holdings LLC)[19](index=19&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk) - The company operates through three reportable business segments: banking, broker-dealer, and mortgage origination[24](index=24&type=chunk) - On June 30, 2020, the company sold its insurance segment (National Lloyds Corporation - NLC), which is now presented as discontinued operations[26](index=26&type=chunk)[365](index=365&type=chunk) Consolidated Financial Highlights (as of December 31, 2020) | Metric | Value (Billions) | | :--- | :--- | | Total Assets | $16.9 | | Total Deposits | $11.2 | | Total Loans (incl. held for sale) | $10.3 | | Stockholders' Equity | $2.4 | [Business Segments](index=6&type=section&id=Business%20Segments) The company's operations are divided into three core segments: Banking, Broker-Dealer, and Mortgage Origination, each providing distinct financial services - Banking Segment (PlainsCapital Bank): At year-end 2020, this segment had **$13.3 billion in assets** and **$11.4 billion in deposits**[28](index=28&type=chunk)[30](index=30&type=chunk) - Broker-Dealer Segment (Hilltop Securities): At year-end 2020, Hilltop Securities had **net capital of $291.2 million**, which was **$284.2 million in excess** of its minimum requirement[46](index=46&type=chunk)[48](index=48&type=chunk) - Mortgage Origination Segment (PrimeLending): Originated **$23.0 billion in closed mortgage loan volume** during 2020, with **58.4% related to home purchases**[58](index=58&type=chunk)[59](index=59&type=chunk)[61](index=61&type=chunk) [Government Supervision and Regulation](index=19&type=section&id=Government%20Supervision%20and%20Regulation) The company and its subsidiaries are subject to extensive federal and state regulations, including Basel III, CARES Act, and AML Act of 2020 - The company is regulated as a financial holding company by the Federal Reserve Board and exceeded all Basel III capital adequacy requirements at year-end 2020[90](index=90&type=chunk)[102](index=102&type=chunk)[112](index=112&type=chunk) - The CARES Act provided regulatory relief, allowing loan modifications not to be classified as troubled debt restructurings, and the Bank participated in the Paycheck Protection Program (PPP)[81](index=81&type=chunk)[84](index=84&type=chunk) - The company is managing the transition from LIBOR to an alternative reference rate like SOFR, expected to be completed after 2021[88](index=88&type=chunk)[230](index=230&type=chunk) - The Broker-Dealer segment is regulated by the SEC and FINRA, maintaining minimum net capital compliance at year-end 2020[156](index=156&type=chunk)[160](index=160&type=chunk) - The Mortgage Origination segment is subject to CFPB, FHA, and VA rules, including "Ability to Repay" and "Qualified Mortgage" rules[171](index=171&type=chunk)[174](index=174&type=chunk) [Risk Factors](index=49&type=page&id=Item%201A.%20Risk%20Factors) The company faces diverse risks, including the COVID-19 pandemic, credit risk under CECL, interest rate fluctuations, cybersecurity threats, and geographic concentration - The COVID-19 pandemic poses significant risks, potentially leading to increased credit losses, liquidity constraints, and operational disruptions[189](index=189&type=chunk)[193](index=193&type=chunk) - Credit risk is a major concern, with the allowance for credit losses potentially inadequate due to CECL implementation and economic forecasts[195](index=195&type=chunk)[198](index=198&type=chunk) - Fluctuations in interest rates present substantial risk to earnings, affecting net interest income, fixed-income inventory, and MSR asset valuation[204](index=204&type=chunk)[205](index=205&type=chunk)[206](index=206&type=chunk) - The company's geographic concentration in Texas for banking operations magnifies the impact of regional economic downturns, especially those related to the energy sector[226](index=226&type=chunk)[227](index=227&type=chunk) - Cybersecurity threats and reliance on technology are critical operational risks, with potential for financial liability, reputational damage, and regulatory penalties[214](index=214&type=chunk)[218](index=218&type=chunk) [Properties](index=95&type=section&id=Item%202.%20Properties) The company's headquarters are in University Park, Texas, with most segment locations leased across Texas and other states - The company's main office is in University Park, Texas[334](index=334&type=chunk) - As of December 31, 2020, the company's segments operated from the following locations: - **Banking:** **65 locations** throughout Texas - **Broker-Dealer:** **51 locations** in **19 states** - **Mortgage Origination:** Over **290 locations** in **45 states**[335](index=335&type=chunk)[336](index=336&type=chunk) [Legal Proceedings](index=95&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding material pending legal proceedings is incorporated by reference from Note 21 to the Consolidated Financial Statements - For details on material pending legal proceedings, refer to Note 21 of the Consolidated Financial Statements[337](index=337&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=96&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Hilltop's common stock trades on the NYSE, with significant cash dividends and stock repurchases in 2020, including a tender offer and a new 2021 repurchase program - The company paid total cash dividends of **$0.36 per common share** in 2020 and announced an increase in its quarterly dividend to **$0.12 per share** in January 2021[342](index=342&type=chunk) - In November 2020, the company completed a tender offer, repurchasing **8,058,947 shares at $24.00 per share** for a total of **$193.4 million**[328](index=328&type=chunk)[348](index=348&type=chunk) - A stock repurchase program authorized in January 2020 was suspended in April due to COVID-19 uncertainty, with a new **$75.0 million** program authorized in January 2021[327](index=327&type=chunk)[329](index=329&type=chunk) [Selected Financial Data](index=98&type=section&id=Item%206.%20Selected%20Financial%20Data) The company's 2020 financial performance significantly improved, with net income nearly doubling due to increased noninterest income from mortgage origination, despite a large provision for credit losses Selected Financial Data (Years Ended December 31) | (in thousands, except per share data) | 2020 | 2019 | | :--- | :--- | :--- | | **Operations Data** | | | | Net Interest Income | $424,166 | $438,979 | | Provision for Credit Losses | $96,491 | $7,206 | | Total Noninterest Income | $1,690,480 | $1,062,817 | | Income from Continuing Operations | $431,281 | $218,987 | | Net Income Applicable to Common Stockholders | $447,836 | $225,291 | | Diluted EPS | $5.01 | $2.44 | | **Balance Sheet Data (End of Period)** | | | | Total Assets of Continuing Operations | $16,944,264 | $14,924,019 | | Loans Held for Investment, net | $7,544,097 | $7,320,264 | | Total Deposits | $11,242,319 | $9,032,214 | | Total Stockholders' Equity | $2,350,647 | $2,128,796 | | Book Value per Common Share | $28.28 | $23.20 | - The company provides non-GAAP measures such as "Tangible book value per common share," which was **$24.77 in 2020**, up from **$19.65 in 2019**[357](index=357&type=chunk)[359](index=359&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=101&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Hilltop's 2020 results were shaped by the COVID-19 pandemic, with record mortgage income offset by significant credit loss provisions, while maintaining strong capital and liquidity - Income from continuing operations applicable to common stockholders was **$409.4 million ($4.58 per diluted share)** in 2020, a significant increase from **$211.3 million ($2.29 per diluted share)** in 2019[430](index=430&type=chunk) - The results were driven by record income from the mortgage origination segment (**$408.0 million pre-tax**), offset by a large provision for credit losses (**$96.5 million**) due to COVID-19 economic uncertainties[370](index=370&type=chunk)[430](index=430&type=chunk)[448](index=448&type=chunk) - The company completed the sale of its insurance segment (NLC) for **$154.1 million in cash**, resulting in a pre-tax gain of **$36.8 million**, reported in discontinued operations[365](index=365&type=chunk)[394](index=394&type=chunk)[540](index=540&type=chunk) - In response to COVID-19, the Bank provided loan modifications and participated in the PPP, funding over **2,800 loans** with approximately **$487 million outstanding** at year-end[383](index=383&type=chunk)[388](index=388&type=chunk) - Liquidity was enhanced through a **$200 million subordinated notes offering** in May 2020 and increased use of brokered deposits[395](index=395&type=chunk)[629](index=629&type=chunk) [Segment Results from Continuing Operations](index=127&type=section&id=Segment%20Results%20from%20Continuing%20Operations) Segment performance varied in 2020, with Mortgage Origination and Broker-Dealer segments showing significant income growth, while Banking income declined due to increased credit loss provisions Income (Loss) from Continuing Operations Before Taxes by Segment (in thousands) | Segment | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Banking | $103,474 | $182,207 | (43)% | | Broker-Dealer | $115,639 | $89,762 | 29% | | Mortgage Origination | $408,044 | $64,721 | 530% | | Corporate | $(63,287) | $(54,405) | (16)% | - The Banking segment's decline was driven by an **$89.0 million year-over-year increase** in the provision for credit losses, reflecting CECL adoption and the COVID-19 economic outlook[454](index=454&type=chunk)[473](index=473&type=chunk) - The Mortgage Origination segment's record results were fueled by a **47% increase in loan origination volume to $23.0 billion** and an increase in gain-on-sale margins to **406 bps from 324 bps** in 2019[504](index=504&type=chunk)[506](index=506&type=chunk)[511](index=511&type=chunk) [Financial Condition](index=152&type=section&id=Financial%20Condition) The company's balance sheet expanded in 2020, with total assets growing to **$16.9 billion**, funded by a **$2.2 billion** deposit increase, and a significant rise in allowance for credit losses Key Balance Sheet Items (in thousands) | Account | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $16,944,264 | $15,172,448 | | Loans Held for Investment, net | $7,544,097 | $7,320,264 | | Allowance for Credit Losses | $149,044 | $61,136 | | Total Deposits | $11,242,319 | $9,032,214 | | Total Stockholders' Equity | $2,350,647 | $2,128,796 | - The allowance for credit losses increased by **$87.9 million**, reflecting a **$12.6 million transition adjustment** for CECL adoption and a **$96.5 million provision** during the year[584](index=584&type=chunk)[600](index=600&type=chunk) - The allowance for credit losses as a percentage of total loans held for investment increased to **1.94%** at year-end 2020 from **0.83%** at year-end 2019[601](index=601&type=chunk) - Total deposits grew by **$2.2 billion, or 24.5%**, driven by increases in both noninterest-bearing and interest-bearing accounts, including brokered deposits[619](index=619&type=chunk)[1029](index=1029&type=chunk) [Liquidity and Capital Resources](index=177&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity and capital in 2020, with increased cash and all regulatory capital ratios for both the holding company and the bank remaining well above minimums - Hilltop's (parent company) cash and cash equivalents increased to **$374.8 million** at year-end 2020 from **$105.6 million** at year-end 2019[627](index=627&type=chunk) Hilltop Holdings Inc. Regulatory Capital Ratios (as of Dec 31, 2020) | Ratio | Actual | Minimum Requirement (incl. buffer) | | :--- | :--- | :--- | | Common Equity Tier 1 | 18.97% | 7.0% | | Tier 1 Capital | 19.57% | 8.5% | | Total Capital | 22.34% | 10.5% | | Leverage Ratio | 12.64% | 4.0% | - PlainsCapital's capital ratios were also strong, with a Total Capital ratio of **15.27%**, classifying it as "well-capitalized"[654](index=654&type=chunk)[1129](index=1129&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=196&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate sensitivity, managed through hedging strategies, particularly for the asset-sensitive Banking segment and the MSR portfolio - The Banking segment is asset sensitive, with a simulation estimating a **100 basis point parallel upward shift** in interest rates would increase net interest income by **0.89%** over the next 12 months[704](index=704&type=chunk)[707](index=707&type=chunk) - The Mortgage Origination segment uses forward commitments to sell MBSs and other derivatives to hedge interest rate risk on its mortgage loans held for sale, IRLCs, and MSR asset[719](index=719&type=chunk)[720](index=720&type=chunk) - A **10% adverse change (increase)** in the constant prepayment rate assumption would decrease the MSR fair value by an estimated **$5.6 million**[1025](index=1025&type=chunk) [Controls and Procedures](index=202&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with a prior material weakness successfully remediated - Management and PricewaterhouseCoopers LLP concluded that the company's internal control over financial reporting was effective as of December 31, 2020[729](index=729&type=chunk)[730](index=730&type=chunk) - A material weakness related to the allowance for loan losses process, identified in the 2019 10-K, was remediated as of December 31, 2020[731](index=731&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accounting Fees](index=206&type=section&id=Items%2010%2C%2011%2C%2012%2C%2013%2C%20and%2014) Information for Items 10 through 14 is incorporated by reference from the company's definitive Proxy Statement for its 2021 Annual Meeting of Stockholders - The information for Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accounting Fees and Services (Item 14) is incorporated by reference from the registrant's 2021 Proxy Statement[736](index=736&type=chunk)[737](index=737&type=chunk)[738](index=738&type=chunk)[739](index=739&type=chunk)[740](index=740&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=207&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section contains the company's consolidated financial statements and a list of exhibits filed with the report, with financial statements beginning on page F-2 - This part includes the consolidated financial statements for Hilltop Holdings Inc. and the corresponding report from the independent registered public accounting firm[743](index=743&type=chunk) - Item 16, Form 10-K Summary, is noted as 'None'[744](index=744&type=chunk)

Hilltop Holdings Inc. (NYSE:HTH) Q4 2020 Earnings Conference Call January 29, 2021 9:00 AM ET Company Participants Erik Yohe – Investor Relations Jeremy Ford – President and Chief Executive Officer Will Furr – Chief Financial Office Conference Call Participants Matt Olney – Stephens, Inc Michael Rose – Raymond James Woody Lay – KBW Michael Young – Truist Securities Operator Good morning and welcome to the Hilltop Holdings Fourth Quarter and Full Year 2020 Earnings Conference Call and Webcast. All participan ...

Hilltop Holdings Inc. Earnings Presentation Q4 2020 January 2021 Preface Corporate Headquarters Additional Information 6565 Hillcrest Ave Dallas, TX 75205 Phone: 214-855-2177 www.hilltop-holdings.com Please Contact: Erik Yohe Phone: 214-525-4634 Email: eyohe@hilltop-holdings.com FORWARD-LOOKING STATEMENTS This presentation and statements made by representatives of Hilltop Holdings Inc. ("Hilltop" or the "Company") during the course of this presentation include "forwardlooking statements" within the meaning ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-31987 Hilltop Holdings Inc. (Exact name of registrant as specified in its charter) Maryland 84-1477939 (State or other jurisdiction of incorporation or (I.R. ...

Hilltop Holdings Inc. (NYSE:HTH) Q3 2020 Earnings Conference Call October 23, 2020 9:00 AM ET Company Participants Jeremy Ford - President, Chief Executive Officer William Furr - Chief Financial Officer Erik Yohe - Executive Vice President, Corporate Development Conference Call Participants Michael Young - Truist Securities Michael Rose - Raymond James Matt Olney - Stephens Operator Good morning and welcome to the Hilltop Holdings third quarter 2020 earnings conference call and webcast. All participants wi ...

Washington, DC 20549 FORM 10-Q Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-31987 Hilltop Holdings Inc. (Exact name of registrant as specified in its charter) Maryland 84-1477939 (State or other jurisdiction of incorporation or (I.R.S. Em ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-31987 Hilltop Holdings Inc. (Exact name of registrant as specified in its charter) Maryland 84-1477939 (State or other jurisdiction of incorporation or (I.R.S. E ...

Part I [Business](index=6&type=section&id=Item%201.%20Business) Hilltop Holdings Inc. is a diversified financial holding company with banking, broker-dealer, mortgage, and insurance segments, primarily concentrated in Texas Consolidated Financial Highlights (as of December 31, 2019) | Metric | Amount (Billions) | | :--- | :--- | | Total Assets | $15.2 | | Total Deposits | $9.0 | | Total Loans (incl. held for sale) | $9.4 | | Stockholders' Equity | $2.1 | - The company operates through three primary business units organized into four reportable segments: banking (PlainsCapital Bank), broker-dealer (Hilltop Securities), mortgage origination (PrimeLending), and insurance (National Lloyds Corporation)[19](index=19&type=chunk)[25](index=25&type=chunk)[30](index=30&type=chunk) - Operations are geographically concentrated, with the bank operating exclusively in Texas, **36.4%** of mortgage originations in Texas, California, and Florida, and **69.6%** of insurance premiums written in Texas[26](index=26&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) [Banking Segment](index=9&type=section&id=Item%201.%20Business.Banking) PlainsCapital Bank, the largest segment, focuses on commercial and consumer banking in Texas, holding $11.1 billion in assets and $8.8 billion in deposits Banking Segment Loan Portfolio (December 31, 2019) | Loan Category | Amount (in thousands) | % of Total | | :--- | :--- | :--- | | Commercial and industrial | $3,866,169 | 44.7% | | Commercial real estate (Non-owner & Owner occupied) | $3,000,523 | 34.7% | | Construction and land development | $940,564 | 10.9% | | 1-4 family residential | $792,912 | 9.2% | | Consumer | $47,046 | 0.5% | | **Total loans held for investment** | **$8,647,214** | **100.0%** | - The commercial and industrial loan category includes **$2.2 billion** in warehouse lines of credit extended to the company's mortgage subsidiary, PrimeLending, of which **$1.8 billion** was drawn at year-end[35](index=35&type=chunk) - The bank's services encompass business banking (term loans, lines of credit), personal banking (deposit accounts, consumer loans), and wealth management for high net worth individuals[39](index=39&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) [Broker-Dealer Segment](index=13&type=section&id=Item%201.%20Business.Broker-Dealer) Hilltop Securities provides public finance, fixed income, and wealth management services, holding $3.5 billion in assets and strong net capital - The segment's four primary lines of business are public finance services, structured finance, fixed income services, and wealth management (which includes retail, clearing, and securities lending)[50](index=50&type=chunk) - At year-end 2019, Hilltop Securities had net capital of **$318.7 million**, which was **$310.9 million** in excess of its minimum requirement of **$7.8 million**[49](index=49&type=chunk) - The clearing services group provided back-office support to **145 financial organizations**, while the retail group employed **126 registered representatives** and contracted with **195 independent representatives**[57](index=57&type=chunk)[58](index=58&type=chunk) [Mortgage Origination Segment](index=15&type=section&id=Item%201.%20Business.Mortgage%20Origination) PrimeLending, a residential mortgage banker, originated $15.6 billion in 2019, primarily in home purchases across 44 states, selling most loans to the secondary market 2019 Mortgage Origination Highlights | Metric | Value | | :--- | :--- | | Closed Loan Volume | $15.6 billion | | Home Purchase Volume % | 75% | | Number of Employees | ~2,500 | | Mortgage Loan Officers | ~1,280 | - PrimeLending sells almost all of the mortgage loans it originates to investors in the secondary market, with the majority sold servicing-released[62](index=62&type=chunk) - The company does not currently originate subprime loans and focuses on conforming loans eligible for sale to FNMA, FHLMC, or GNMA[64](index=64&type=chunk) [Insurance Segment](index=17&type=section&id=Item%201.%20Business.Insurance) National Lloyds Corporation specializes in property and casualty insurance for low-value dwellings, primarily in southern states, managing risk through disciplined underwriting and reinsurance - NLC's insurance subsidiaries, NLIC and ASIC, had their **"A" (Excellent) financial strength ratings affirmed by A.M. Best in May 2019**[66](index=66&type=chunk) - The majority of NLC's property coverage is written on policies that provide actual cash value payments, which deducts for depreciation, as opposed to replacement cost coverage[69](index=69&type=chunk) - NLC purchases reinsurance to cede a portion of its risk, reducing its exposure to liability on individual risks and protecting against catastrophe losses[72](index=72&type=chunk)[73](index=73&type=chunk) [Government Supervision and Regulation](index=21&type=section&id=Item%201.%20Business.Government%20Supervision%20and%20Regulation) The company and its subsidiaries are subject to extensive federal and state regulations governing capital, activities, and consumer protection across all segments - As a financial holding company, Hilltop is subject to supervision by the Federal Reserve Board and must adhere to **Basel III capital adequacy requirements**, which were fully phased in as of January 1, 2019[91](index=91&type=chunk)[102](index=102&type=chunk)[108](index=108&type=chunk) - The Bank is regulated by the Texas Department of Banking and the Federal Reserve; it expects to become subject to **CFPB supervisory and enforcement authority** starting in the second quarter of 2020 due to its asset size exceeding **$10 billion**[122](index=122&type=chunk)[123](index=123&type=chunk) - The broker-dealer subsidiaries are regulated by the SEC and FINRA, covering aspects like sales practices, net capital requirements, and customer protection, and must comply with the upcoming **Regulation Best Interest (Regulation BI) by June 30, 2020**[156](index=156&type=chunk)[157](index=157&type=chunk)[168](index=168&type=chunk) - The insurance subsidiaries are regulated by state agencies, primarily the Texas Department of Insurance, which oversee solvency, capital levels (RBC), and market conduct[184](index=184&type=chunk)[185](index=185&type=chunk)[189](index=189&type=chunk) [Risk Factors](index=53&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including credit, interest rate, geographic concentration in Texas, operational, cybersecurity, and evolving regulatory compliance challenges - The allowance for loan losses may be insufficient to cover actual losses; the adoption of the Current Expected Credit Loss (CECL) standard on January 1, 2020, is estimated to increase the allowance for credit losses by **$80 million to $100 million**, which will decrease opening retained earnings[211](index=211&type=chunk)[214](index=214&type=chunk) - Fluctuations in interest rates present a significant risk, potentially compressing net interest income in the banking segment, reducing demand for mortgage originations, and decreasing the value of fixed-income securities held by the broker-dealer and insurance segments[216](index=216&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk) - The company's operational systems are subject to increasing cybersecurity risks, which could lead to financial liability, regulatory penalties, and reputational damage; a "spear phishing" attack in 2018 resulted in a **$4.0 million wire fraud loss**[230](index=230&type=chunk)[233](index=233&type=chunk) - Significant geographic concentration in Texas exposes the company to regional economic downturns; substantially all of the bank's real estate loans are in Texas, **19.3% of mortgage originations** were in Texas, and **69.6% of insurance premiums** were written in Texas in 2019[239](index=239&type=chunk)[240](index=240&type=chunk) - The pending sale of the insurance segment (NLC) is subject to regulatory approvals and other closing conditions; failure to complete the transaction could adversely affect the company's stock price and financial condition[223](index=223&type=chunk)[224](index=224&type=chunk) [Unresolved Staff Comments](index=101&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - None[373](index=373&type=chunk) [Properties](index=101&type=section&id=Item%202.%20Properties) The company operates from numerous owned and leased locations across its segments, including a new headquarters occupied in February 2020 - The company's new headquarters, Hilltop Plaza, is located in University Park, Texas and was occupied starting in February 2020[374](index=374&type=chunk) - As of December 31, 2019, the banking segment operated from **68 locations**, the broker-dealer from **52 locations**, and the mortgage segment from over **300 locations**[375](index=375&type=chunk)[376](index=376&type=chunk) [Legal Proceedings](index=101&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding material pending legal proceedings is incorporated by reference from Note 19 to the Consolidated Financial Statements - For details on legal proceedings, the report refers to Note 19 of the Consolidated Financial Statements[377](index=377&type=chunk) [Mine Safety Disclosures](index=101&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[378](index=378&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=102&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Hilltop's common stock trades on the NYSE, with the company paying dividends and authorizing a new $75.0 million stock repurchase program in 2020 - The company paid total cash dividends of **$0.32 per common share** in 2019 and increased the quarterly dividend to **$0.09 per share** starting in January 2020[381](index=381&type=chunk) - In January 2020, a new stock repurchase program was authorized for up to **$75.0 million** of outstanding common stock through January 2021[385](index=385&type=chunk) - As of December 31, 2019, there were **556,368 securities** available for future issuance under the company's equity compensation plans[383](index=383&type=chunk) [Selected Financial Data](index=104&type=section&id=Item%206.%20Selected%20Financial%20Data) Selected financial data for 2019 shows significant growth in assets, loans, and deposits, with net income and diluted EPS nearly doubling from 2018 Selected Historical Financial Data (2017-2019) | Metric (in thousands, except per share) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | **Total Assets** | $15,172,448 | $13,683,572 | $13,365,786 | | **Total Loans Held for Investment, net** | $7,320,264 | $6,870,972 | $6,392,112 | | **Total Deposits** | $9,032,214 | $8,536,156 | $7,978,119 | | **Total Stockholders' Equity** | $2,128,796 | $1,973,893 | $1,914,807 | | **Net Interest Income** | $441,306 | $436,324 | $421,748 | | **Total Noninterest Income** | $1,206,016 | $1,022,790 | $1,205,064 | | **Income Attributable to Hilltop** | $225,291 | $121,441 | $132,544 | | **Earnings per common share - diluted** | $2.44 | $1.28 | $1.36 | | **Book value per common share** | $23.20 | $20.83 | $19.92 | | **Tangible book value per common share** | $19.65 | $17.31 | $16.92 | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=107&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2019, Hilltop's net income nearly doubled to $225.3 million, driven by strong noninterest income from broker-dealer and mortgage segments, with a subsequent agreement to sell the insurance segment Consolidated Performance Summary (2018 vs. 2019) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Income to Common Stockholders | $225.3M | $121.4M | | Diluted EPS | $2.44 | $1.28 | | Total Noninterest Income | $1.21B | $1.02B | | Total Assets | $15.2B | $13.7B | - On January 30, 2020, the company entered into an agreement to sell its insurance segment, NLC, for a cash purchase price of **$150.0 million**, with the transaction expected to close in the second quarter of 2020[406](index=406&type=chunk) - Results in 2019 were impacted by **$9.3 million** in pre-tax charges related to leadership changes and **$1.7 million** in efficiency initiative-related charges[414](index=414&type=chunk)[416](index=416&type=chunk) [Segment Results](index=128&type=section&id=Item%207.%20MD%26A.Segment%20Results) All four segments reported improved pre-tax income in 2019, with significant surges in broker-dealer and mortgage origination income Income (Loss) Before Income Taxes by Segment (in thousands) | Segment | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Banking | $182,207 | $152,424 | $164,008 | | Broker-Dealer | $89,762 | $32,582 | $64,644 | | Mortgage Origination | $64,721 | $12,871 | $49,574 | | Insurance | $17,491 | $5,669 | $(4,111) | [Financial Condition](index=153&type=section&id=Item%207.%20MD%26A.Financial%20Condition) The company's financial condition strengthened in 2019, marked by increased total assets, loans, and deposits, alongside improved non-performing asset ratios Key Balance Sheet Items (in billions) | Item | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $15.2 | $13.7 | | Loans Held for Sale | $2.1 | $1.4 | | Loans Held for Investment, net | $7.3 | $6.9 | | Total Deposits | $9.0 | $8.5 | - Non-performing assets decreased to **$54.3 million (0.36% of total assets)** at year-end 2019, down from **$61.6 million (0.45% of total assets)** at year-end 2018[615](index=615&type=chunk) - The allowance for loan losses was **$61.1 million, or 0.83% of gross loans held for investment**, at December 31, 2019, compared to **$59.5 million, or 0.86%**, at the end of 2018[608](index=608&type=chunk) [Liquidity and Capital Resources](index=175&type=section&id=Item%207.%20MD%26A.Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity and capital in 2019, exceeding regulatory minimums and returning capital to shareholders through dividends and repurchases Regulatory Capital Ratios (as of December 31, 2019) | Ratio | Hilltop (Parent) | PlainsCapital (Bank) | Well-Capitalized Minimum | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 | 16.70% | 13.45% | 6.5% | | Tier 1 Capital | 17.13% | 13.45% | 8.0% | | Total Capital | 17.55% | 14.13% | 10.0% | | Leverage Ratio | 12.71% | 11.61% | 5.0% | - During 2019, the company repurchased **3,390,247 shares** of common stock for **$73.4 million**[641](index=641&type=chunk) - The holding company's primary sources of liquidity are dividends from its subsidiaries, which totaled **$173.0 million** in 2019[634](index=634&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=191&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate sensitivity across all segments, managed through asset-sensitive positioning and derivatives for mortgage assets Banking Segment Interest Rate Sensitivity Analysis (as of Dec 31, 2019) | Change in Interest Rates (bps) | Change in Net Interest Income ($) | Change in Net Interest Income (%) | Change in Economic Value of Equity ($) | Change in Economic Value of Equity (%) | | :--- | :--- | :--- | :--- | :--- | | +200 | $30,261 | 8.60% | $274,752 | 15.43% | | +100 | $14,776 | 4.20% | $161,765 | 9.08% | | -50 | $(1,466) | (0.42)% | $(119,377) | (6.70)% | | -100 | $(1,730) | (0.49)% | $(295,657) | (16.60)% | - The banking segment is asset sensitive, with a cumulative one-year interest sensitivity gap of **$635.1 million**, or **6.20% of total interest-sensitive assets**[696](index=696&type=chunk) - The mortgage origination segment uses forward commitments to sell MBSs and other derivatives to mitigate interest rate risk on its IRLCs, loans held for sale, and MSR asset[709](index=709&type=chunk)[710](index=710&type=chunk) [Financial Statements and Supplementary Data](index=197&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's consolidated financial statements, which commence on page F-1 of the report - The company's audited consolidated financial statements and supplementary data are included starting on page F-1 of the Annual Report[713](index=713&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=197&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[714](index=714&type=chunk) [Controls and Procedures](index=197&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management identified a material weakness in internal controls over financial reporting related to loan loss allowance estimation, with remediation efforts underway - Management identified a **material weakness** in internal control over financial reporting as of December 31, 2019[717](index=717&type=chunk) - The weakness relates to ineffective design and maintenance of controls over the qualitative factors used in the allowance for loan losses estimation process[721](index=721&type=chunk) - A remediation plan was implemented during the fourth quarter of 2019 to enhance the analysis supporting the qualitative factors, but the weakness will not be considered fully remediated until the new controls have operated effectively for a sufficient time[723](index=723&type=chunk)[724](index=724&type=chunk) [Other Information](index=201&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[727](index=727&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=202&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) The information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement[730](index=730&type=chunk) [Executive Compensation](index=202&type=section&id=Item%2011.%20Executive%20Compensation) The information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement[731](index=731&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=202&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) The information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement[732](index=732&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=202&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement[733](index=733&type=chunk) [Principal Accounting Fees and Services](index=202&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) The information required for this item is incorporated by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders - Information is incorporated by reference from the 2020 Annual Meeting of Stockholders Proxy Statement[734](index=734&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=203&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits filed as part of the Form 10-K, including consolidated financial statements - This section includes the Report of Independent Registered Public Accounting Firm and the company's Consolidated Financial Statements[737](index=737&type=chunk) - All financial statement schedules have been omitted because they are not required, not applicable, or the information is included elsewhere[737](index=737&type=chunk) [Form 10-K Summary](index=203&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has not provided a summary for this item - None[738](index=738&type=chunk)