Hilltop Holdings Inc. Announces Financial Results for Fourth Quarter and Full Year 2015

DALLAS--(BUSINESS WIRE)--Hilltop Holdings Inc. (NYSE: HTH) (“Hilltop”) today announced financial results for the fourth quarter and full year 2015. Hilltop produced income to common stockholders of $20.7 million, or $0.21 per diluted share, for the fourth quarter of 2015, compared to $31.7 million, or $0.35 per diluted share, for the fourth quarter of 2014. Income to common stockholders for the full year 2015 was $209.1 million, or $2.09 per diluted share, compared to $105.9 million, or $1.17 per diluted share, for the full year 2014. Hilltop’s annualized return on average assets and return on average equity for the fourth quarter of 2015 were 0.68% and 4.70%, respectively, compared to 1.42% and 8.55% for the fourth quarter of 2014, respectively. The return on average assets and return on average equity for the full year 2015 were 1.70% and 12.32%, respectively, compared to 1.26% and 8.01% for the full year 2014, respectively.

Jeremy Ford, CEO of Hilltop, commented, “Hilltop finished 2015 with a solid fourth quarter. PlainsCapital Bank generated robust loan growth, while maintaining a strong core net interest margin and healthy credit quality. PrimeLending continues to grow mortgage loan origination volume and defend its market share. Despite unseasonal severe storms in North Texas in late December, National Lloyds achieved profitable fourth quarter and full year results.”

Mr. Ford added, “We are excited to report our two broker-dealer subsidiaries have successfully merged into one entity, HilltopSecurities. While managing through the integration process, the broker-dealer segment’s profitability steadily improved during 2015, and we are now well-positioned to execute on our vision during 2016.”

Mr. Ford concluded, “The core fundamentals of our operating businesses continue to trend positively, led by the banking segment, during the current challenging market environment. With Hilltop’s strong excess capital position and diversified earnings stream, we are well-situated to pursue M&A and organic growth opportunities.”

Fourth Quarter 2015 Highlights for Hilltop:

• Hilltop’s total assets were $11.9 billion at December 31, 2015, compared to $12.4 billion at September 30, 2015;
• Hilltop’s common equity increased by $21.3 million from September 30, 2015 to $1.7 billion at December 31, 2015;
• Non-covered loans¹ held for investment, net of allowance for loan losses, increased by 4.4% to $5.2 billion, and covered loans¹, net of allowance for loan losses, decreased by 9.9% to $378.8 million from September 30, 2015 to December 31, 2015;
• Total deposits increased by $131.9 million from September 30, 2015 to $7.0 billion at December 31, 2015;
• Hilltop was well-capitalized with a Tier 1 Leverage Ratio² of 12.65% and Total Capital Ratio of 18.89% at December 31, 2015;
• Hilltop’s taxable equivalent net interest margin³ was 3.73% for the fourth quarter of 2015, a 47 basis point decrease from 4.20% in the third quarter of 2015;
• The provision for loan losses was $4.3 million during the fourth quarter of 2015, compared to $5.6 million in the third quarter of 2015;
• For the fourth quarter of 2015, noninterest income was $276.9 million, compared to $213.8 million in the fourth quarter of 2014, a 29.5% increase;
• For the fourth quarter of 2015, noninterest expense was $338.7 million, compared to $246.8 million in the fourth quarter of 2014, a 37.3% increase; and
• In connection with the SWS Merger, during the fourth quarter of 2015, Hilltop incurred $14.4 million in pre-tax transaction and integration costs, consisting of $4.9 million in the broker-dealer segment and $9.5 million within corporate.

¹ “Covered loans” refers to loans acquired in the FNB Transaction that are subject to loss-share agreements with the FDIC, while all other loans are referred to as “non-covered loans.”
² Based on the end of period Tier 1 capital divided by total average assets during the fourth quarter of 2015, excluding goodwill and intangible assets.
³ Taxable equivalent adjustments are based on a 35% tax rate. Measure is defined as taxable equivalent net interest income divided by average interest-earning assets.

Consolidated Financial and Other Information

Consolidated Balance Sheets	December 31,			September 30,			June 30,			March 31,			December 31,
(in 000s)	2015			2015			2015			2015			2014
Cash and due from banks	$	652,036		$	526,692		$	583,043		$	694,108		$	782,473
Federal funds sold		17,409			24,861			22,814			14,425			30,602
Securities purchased under agreements to resell		105,660			83,889			79,153			67,227			—
Assets segregated for regulatory purposes		158,613			228,251			188,094			278,280			76,013
Securities:
Trading, at fair value		214,146			292,418			265,429			320,153			65,717
Available for sale, at fair value		673,706			726,132			763,463			859,212			925,535
Held to maturity, at amortized cost		332,022			305,316			312,960			183,792			118,209
		1,219,874			1,323,866			1,341,852			1,363,157			1,109,461
Loans held for sale		1,533,678			1,354,107			1,397,617			1,215,308			1,309,693
Non-covered loans, net of unearned income		5,220,040			4,999,529			4,956,969			4,834,687			3,920,476
Allowance for non-covered loan losses		(45,415	)		(42,989	)		(40,484	)		(39,365	)		(37,041	)
Non-covered loans, net		5,174,625			4,956,540			4,916,485			4,795,322			3,883,435
Covered loans, net of allowance for covered loan losses		378,762			420,547			493,299			550,626			638,029
Broker-dealer and clearing organization receivables		1,362,499			2,111,864			2,070,598			2,221,756			167,884
Premises and equipment, net		200,618			204,273			206,411			215,684			206,991
FDIC indemnification asset		91,648			92,902			102,381			107,567			130,437
Covered other real estate owned		99,090			106,024			125,510			137,703			136,945
Other assets		565,813			644,916			637,747			585,909			458,862
Goodwill		251,808			251,808			251,808			251,808			251,808
Other intangible assets, net		54,868			58,916			61,527			64,267			59,783
Total assets	$	11,867,001		$	12,389,456		$	12,478,339		$	12,563,147		$	9,242,416
Deposits:
Non-interest bearing	$	2,235,436		$	2,173,890		$	2,135,988		$	2,259,790		$	2,076,385
Interest bearing		4,717,247			4,646,859			4,660,449			4,869,487			4,293,507
Total deposits		6,952,683			6,820,749			6,796,437			7,129,277			6,369,892
Broker-dealer and clearing organization payables		1,338,305			2,045,604			2,048,585			1,951,495			179,042
Short-term borrowings		947,373			910,490			1,100,025			999,476			762,696
Securities sold, not yet purchased, at fair value		130,044			156,775			135,592			139,481			48
Notes payable		238,716			243,556			245,420			108,682			56,684
Junior subordinated debentures		67,012			67,012			67,012			67,012			67,012
Other liabilities		454,743			428,442			410,004			386,932			345,803
Total liabilities		10,128,876			10,672,628			10,803,075			10,782,355			7,781,177
Preferred stock		—			—			—			114,068			114,068
Common stock		989			989			995			1,003			902
Additional paid-in capital		1,577,270			1,574,769			1,582,655			1,592,585			1,390,788
Accumulated other comprehensive income (loss)		2,629			4,592			(1,105	)		5,750			651
Retained earnings (accumulated deficit)		155,475			134,748			91,008			65,918			(45,957	)
Deferred compensation employee stock trust, net		1,034			1,182			1,182			1,189			—
Employee stock trust		(443	)		(590	)		(590	)		(597	)		—
Total Hilltop stockholders' equity		1,736,954			1,715,690			1,674,145			1,779,916			1,460,452
Noncontrolling interests		1,171			1,138			1,119			876			787
Total stockholders' equity		1,738,125			1,716,828			1,675,264			1,780,792			1,461,239
Total liabilities & stockholders' equity	$	11,867,001		$	12,389,456		$	12,478,339		$	12,563,147		$	9,242,416

	Three Months Ended
Consolidated Income Statements	December 31,		September 30,		June 30,		March 31,		December 31,
(in 000s, except per share data)	2015		2015		2015		2015		2014
Interest income:
Loans, including fees	$	94,689	$	111,315	$	96,967	$	87,388	$	88,791
Securities borrowed		11,242		10,116		9,675		10,018		1,837
Securities:
Taxable		7,046		6,262		6,227		7,049		6,312
Tax-exempt		1,647		1,683		1,557		1,741		1,102
Other		1,338		1,169		1,236		1,473		1,274
Total interest income		115,962		130,545		115,662		107,669		99,316
Interest expense:
Deposits		3,589		3,719		3,900		4,315		4,770
Securities loaned		8,388		7,110		6,889		7,506		1,034
Short-term borrowings		1,218		1,189		1,143		1,024		608
Notes payable		2,661		2,524		2,289		669		619
Junior subordinated debentures		616		605		595		585		595
Other		177		187		179		178		176
Total interest expense		16,649		15,334		14,995		14,277		7,802
Net interest income		99,313		115,211		100,667		93,392		91,514
Provision for loan losses		4,277		5,593		158		2,687		4,125
Net interest income		95,036		109,618		100,509		90,705		87,389
Noninterest income:
Net realized gains on securities		—		—		—		4,403		—
Net gains from sale of loans and other mortgage production income		114,080		137,303		147,175		120,545		96,575
Mortgage loan origination fees		19,514		22,647		20,958		14,589		16,091
Net insurance premiums earned		41,001		41,196		40,318		39,567		41,607
Securities commissions and fees		37,459		39,070		41,213		42,918		6,464
Investment and securities advisory fees and commissions		33,678		27,667		29,665		24,922		27,756
Bargain purchase gain		—		—		—		81,289		—
Other		31,195		28,586		22,071		24,613		25,302
Total noninterest income		276,927		296,469		301,400		352,846		213,795
Noninterest expense:
Employees' compensation and benefits		182,472		200,620		200,291		182,504		133,426
Loss and loss adjustment expenses		21,630		17,335		41,241		18,860		18,188
Policy acquisition and other underwriting expenses		11,928		11,784		11,740		11,674		12,032
Occupancy and equipment, net		30,285		29,341		30,842		29,185		24,252
Other		92,406		74,422		69,203		72,253		58,870
Total noninterest expense		338,721		333,502		353,317		314,476		246,768
Income before income taxes		33,242		72,585		48,592		129,075		54,416
Income tax expense		12,020		25,338		18,137		15,420		20,950
Net income		21,222		47,247		30,455		113,655		33,466
Less: Net income attributable to noncontrolling interest		495		353		405		353		325
Income attributable to Hilltop		20,727		46,894		30,050		113,302		33,141
Dividends on preferred stock		—		—		428		1,426		1,425
Income applicable to Hilltop common stockholders	$	20,727	$	46,894	$	29,622	$	111,876	$	31,716
Earnings per common share:
Basic	$	0.21	$	0.47	$	0.30	$	1.12	$	0.35
Diluted	$	0.21	$	0.47	$	0.30	$	1.11	$	0.35
Weighted average shares outstanding:
Basic		98,412		98,676		99,486		99,741		89,713
Diluted		99,266		99,556		100,410		100,627		90,560

	Three Months Ended December 31, 2015
Segment Results						Mortgage								All Other and			Hilltop
(in 000s)	Banking		Broker-Dealer			Origination			Insurance		Corporate			Eliminations			Consolidated
Net interest income (expense)	$	89,415	$	8,652		$	(2,594	)	$	893	$	(1,820	)	$	4,767		$	99,313
Provision for loan losses		4,390		(113	)		—			—		—			—			4,277
Noninterest income		14,346		90,902			133,849			42,969		—			(5,139	)		276,927
Noninterest expense		65,138		95,987			127,408			36,828		14,381			(1,021	)		338,721
Income (loss) before income taxes	$	34,233	$	3,680		$	3,847		$	7,034	$	(16,201	)	$	649		$	33,242

	Three Months Ended
	December 31,		September 30,		June 30,		March 31,		December 31,
Selected Financial Data	2015		2015		2015		2015		2014
Hilltop Consolidated:
Return on average stockholders' equity	4.70	%	10.97	%	7.12	%	26.76	%	8.55	%
Return on average assets	0.68	%	1.49	%	0.97	%	3.64	%	1.42	%
Net interest margin (taxable equivalent)(1):
As reported	3.73	%	4.20	%	3.75	%	3.53	%	4.72	%
Impact of purchase accounting	79 bps		137 bps		96 bps		69 bps		122 bps
Book value per common share ($)	17.56		17.35		16.82		16.61		14.93
Shares outstanding, end of period (000s)	98,896		98,893		99,515		100,286		90,182
Banking Segment:
Net interest margin (taxable equivalent)(1):
As reported	4.92	%	5.79	%	5.02	%	4.59	%	5.08	%
Impact of purchase accounting	119 bps		210 bps		145 bps		109 bps		143 bps
Accretion of discount on loans ($000s)	19,503		36,000		23,632		16,984		21,582
Non-covered net charge-offs (recoveries) ($000s)	2,088		1,775		(532	)	470		76
Return on average assets	1.07	%	1.64	%	1.41	%	1.28	%	1.38	%
Fee income ratio	13.83	%	11.64	%	14.20	%	18.79	%	16.70	%
Efficiency ratio	62.78	%	50.56	%	57.14	%	56.96	%	56.03	%
Broker-Dealer Segment:
Compensation as a % of net revenue	63.2	%	69.6	%	73.0	%	73.7	%	59.2	%
Pre-tax margin (2)	8.62	%	3.85	%	3.54	%	-0.36	%	12.15	%
Mortgage Origination Segment:
Mortgage loan originations - volume ($000s):
Home purchases	2,344,328		2,945,626		2,913,479		1,688,359		2,022,437
Refinancings	721,308		693,572		920,286		1,125,161		690,329
Total mortgage loan originations - volume	3,065,636		3,639,198		3,833,765		2,813,520		2,712,766
Mortgage loan sales - volume ($000s)	2,888,903		3,699,047		3,635,853		2,905,266		2,685,258
Mortgage servicing rights asset ($000s) (3)	52,285		47,527		44,985		31,648		36,155
Variable compensation expense ($000s)	48,706		64,582		67,172		48,130		42,300
Insurance Segment:
Loss and LAE ratio	52.8	%	42.1	%	102.3	%	47.7	%	43.7	%
Expense ratio	34.2	%	33.3	%	33.5	%	34.1	%	33.1	%
Combined ratio	87.0	%	75.4	%	135.8	%	81.8	%	76.8	%

(1)	Taxable equivalent adjustments are based on a 35% tax rate. Measure is defined as taxable equivalent net interest income divided by average interest-earning assets.
(2)	Excludes pre-tax merger and integration-related costs directly attributable to the SWS Merger.
(3)	Excludes mortgage servicing rights assets related to loans serviced for the banking segment.

	December 31,		September 30,		June 30,		March 31,		December 31,
Capital Ratios	2015		2015		2015		2015		2014
Tier 1 capital (to average assets):
Bank	13.22	%	12.77	%	12.17	%	11.34	%	10.31	%
Hilltop	12.65	%	12.01	%	11.87	%	12.68	%	14.17	%
Common equity Tier 1 capital (to risk-weighted assets):
Bank	16.23	%	17.36	%	16.46	%	16.46	%	NA
Hilltop	17.87	%	18.36	%	18.02	%	18.05	%	NA
Tier 1 capital (to risk-weighted assets):
Bank	16.25	%	17.36	%	16.46	%	16.46	%	13.74	%
Hilltop	18.48	%	18.89	%	18.74	%	20.26	%	19.02	%
Total capital (to risk-weighted assets):
Bank	16.99	%	18.13	%	17.17	%	17.19	%	14.45	%
Hilltop	18.89	%	19.29	%	19.29	%	20.82	%	19.69	%

	December 31,		September 30,		June 30,		March 31,		December 31,
Non-Covered Non-Performing Loans Portfolio Data	2015		2015		2015		2015		2014
Non-covered loans accounted for on a non-accrual basis ($000s):
Commercial and industrial	17,764		22,302		23,353		23,222		16,648
Real estate	7,160		7,087		6,612		2,481		4,707
Construction and land development	114		118		253		726		703
Consumer	7		14		21		—		—
	25,045		29,521		30,239		26,429		22,058
Non-covered non-performing loans as a % of total non-covered loans	0.37	%	0.46	%	0.48	%	0.44	%	0.42	%
Non-covered other real estate owned ($000s)	394		511		920		6,263		808
Other repossessed assets ($000s)	—		—		—		87		361
Non-covered non-performing assets ($000s)	25,439		30,032		31,159		32,779		23,227
Non-covered non-performing assets as a percentage of total assets	0.21	%	0.24	%	0.25	%	0.26	%	0.25	%
Non-covered non-PCI loans past due 90 days or more and still accruing ($000s)	50,776		37,435		31,073		24,248		19,237
Troubled debt restructurings included in accruing non-covered loans ($000s)	1,418		3,664		2,830		2,879		2,901

	Three Months Ended December 31,
	2015							2014
	Average			Interest		Annualized		Average			Interest		Annualized
	Outstanding			Earned or		Yield or		Outstanding			Earned or		Yield or
	Balance			Paid		Rate		Balance			Paid		Rate
Assets
Interest-earning assets
Loans, gross ^(1)	$	6,641,385		$	94,689	5.63	%	$	5,602,554		$	88,791	6.25	%
Investment securities - taxable		1,089,791			7,027	2.57	%		1,009,788			6,313	2.49	%
Investment securities - non-taxable ^(2)		251,733			2,369	3.76	%		177,487			1,654	3.73	%
Federal funds sold and securities purchased under agreements to resell		109,365			68	0.25	%		11,579			9	0.31	%
Interest-bearing deposits in other financial institutions		461,738			352	0.30	%		690,282			386	0.22	%
Other		2,098,123			12,179	2.27	%		251,819			2,715	4.27	%
Interest-earning assets, gross		10,652,135			116,684	4.33	%		7,743,509			99,868	5.09	%
Allowance for loan losses		(44,995	)						(45,263	)
Interest-earning assets, net		10,607,140							7,698,246
Noninterest-earning assets		1,684,642							1,308,911
Total assets	$	12,291,782						$	9,007,157
Liabilities and Stockholders' Equity
Interest-bearing liabilities
Interest-bearing deposits	$	4,657,125		$	3,588	0.31	%	$	4,235,895		$	4,769	0.45	%
Notes payable and other borrowings		2,999,487			13,060	1.72	%		931,924			3,032	1.28	%
Total interest-bearing liabilities		7,656,612			16,648	0.86	%		5,167,819			7,801	0.60	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		2,248,847							2,070,772
Other liabilities		636,884							282,345
Total liabilities		10,542,343							7,520,936
Stockholders’ equity		1,748,632							1,485,680
Noncontrolling interest		807							541
Total liabilities and stockholders' equity	$	12,291,782						$	9,007,157
Net interest income ^(2)				$	100,036						$	92,067
Net interest spread ^(2)						3.47	%						4.49	%
Net interest margin ^(2)						3.73	%						4.72	%

(1)	Average balance includes non-accrual loans.
(2)	Annualized taxable equivalent adjustments are based on a 35% tax rate. The adjustment to interest income was $0.7 million and $0.6 million for the three months ended December 31, 2015 and 2014, respectively.

	December 31,		September 30,
PlainsCapital Bank - Energy Exposure	2015		2015
Select Energy Statistics
Outstanding energy loan balance ($M)	179.8		194.9
Energy loans as a % of total loans	3.6	%	4.0	%
Classified and criticized energy loans ($M):
Criticized energy loans	3.4		0.0
Performing classified energy loans	25.7		27.0
Non-performing classified energy loans	3.6		2.8
	32.7		29.8
Unimpaired energy reserves ($M)	7.3		6.5
Energy reserves as a % of energy loans	4.4	%	3.4	%
Energy NCOs ($M)	1.2		1.1
Energy Portfolio Breakdown
Exploration and production	19	%	20	%
Services:
Field services	21	%	15	%
Pipeline construction	23	%	25	%
	44	%	40	%
Midstream:
Distribution	25	%	25	%
Transportation	7	%	7	%
	32	%	32	%
Other:
Wholesalers	2	%	2	%
Equipment rentals	1	%	5	%
Equipment wholesalers	2	%	1	%
Total	100	%	100	%

Conference Call Information

Hilltop will host a live webcast and conference call at 8:00 AM Central (9:00 AM Eastern) on Thursday, February 25, 2016. Hilltop President and CEO Jeremy B. Ford and other key management members will discuss 2015 year end results. Interested parties can access the conference call by dialing 1-877-508-9457 (domestic) or 1-412-317-0789 (international). The conference call also will be webcast simultaneously on Hilltop’s Investor Relations website (http://ir.hilltop-holdings.com).

About Hilltop

Hilltop Holdings is a Dallas-based financial holding company. Through its wholly owned subsidiary, PlainsCapital Corporation, a regional commercial banking franchise, it has two operating subsidiaries: PlainsCapital Bank and PrimeLending. Through its wholly owned subsidiaries Hilltop Securities Inc. and Hilltop Securities Independent Network Inc. it provides a full complement of securities brokerage, institutional and investment banking services in addition to clearing services and retail financial advisory. Through Hilltop Holdings’ other wholly owned subsidiary, National Lloyds Corporation, it provides property and casualty insurance through two insurance companies, National Lloyds Insurance Company and American Summit Insurance Company. At December 31, 2015, Hilltop employed approximately 5,300 people and operated approximately 400 locations in 44 states. Hilltop Holdings' common stock is listed on the New York Stock Exchange under the symbol "HTH." Find more information at Hilltop-Holdings.com, PlainsCapital.com, PrimeLending.com, Nationallloydsinsurance.com and Hilltopsecurities.com.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements anticipated in such statements. Forward-looking statements speak only as of the date they are made and, except as required by law, we do not assume any duty to update forward-looking statements. Such forward-looking statements include, but are not limited to, statements concerning such things as our business strategy, our financial condition, our efforts to make strategic acquisitions, the integration of the operations acquired in the SWS Merger, our revenue, our liquidity and sources of funding, market trends, operations and business, expectations concerning mortgage loan origination volume, expected losses on covered loans and related reimbursements from the Federal Deposit Insurance Corporation (“FDIC”), expected levels of refinancing as a percentage of total loan origination volume, projected losses on mortgage loans originated, anticipated changes in our revenues or earnings, the effects of government regulation applicable to our operations, the appropriateness of our allowance for loan losses and provision for loan losses, and the collectability of loans and litigation, our other plans, objectives, strategies, expectations and intentions and other statements that are not statements of historical fact, and may be identified by 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. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: (i) risks associated with merger and acquisition integration, including our ability to promptly and effectively integrate our businesses with those acquired in the SWS Merger and achieve the anticipated synergies and cost savings in connection therewith, as well as the diversion of management time on acquisition- and integration-related issues; (ii) our ability to estimate loan losses; (iii) changes in the default rate of our loans; (iv) changes in general economic, market and business conditions in areas or markets where we compete, including changes in the price of crude oil; (v) risks associated with concentration in real estate related loans; (vi) severe catastrophic events in Texas and other areas of the southern United States; (vii) changes in the interest rate environment; (viii) cost and availability of capital; (vix) effectiveness of our data security controls in the face of cyber attacks; (x) changes in state and federal laws, regulations or policies affecting one or more of the our business segments, including changes in regulatory fees, deposit insurance premiums, capital requirements and the Dodd-Frank Wall Street Reform and Consumer Protection Act; (xi) approval of new, or changes in, accounting policies and practices; (xii) changes in key management; (xiii) competition in our banking, broker-dealer, mortgage origination and insurance segments from other banks and financial institutions, as well as investment banking and financial advisory firms, mortgage bankers, asset-based non-bank lenders, government agencies and insurance companies; (xiv) our ability to obtain reimbursements for losses on acquired loans under loss-share agreements with the FDIC to the extent the FDIC determines that we did not adequately manage the debt loan portfolio; (xv) failure of our insurance segment reinsurers to pay obligations under reinsurance contracts; and (xvi) our ability to use excess cash in an effective manner, including the execution of successful acquisitions. For further discussion of such factors, see the risk factors described in the Hilltop Annual Report on Form 10-K for the year ended December 31, 2015 and other reports filed with the Securities and Exchange Commission. All forward-looking statements are qualified in their entirety by this cautionary statement.