10q10k10q10k.net
Hilltop Holdings Inc.

Hilltop Holdings Inc.HTHEarnings & Financial Report

NYSE · Financials · State Commercial Banks

Hilltop Holdings Inc. is a financial holding company based in Dallas, Texas. It offers financial products and banking services through three primary subsidiaries: PlainsCapital Bank, PrimeLending, and HilltopSecurities.

What changed in Hilltop Holdings Inc.'s 10-K — 2022 vs 2023

Top changes in Hilltop Holdings Inc.'s 2023 10-K

546 paragraphs added · 531 removed · 423 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

93 edited+10 added−12 removed193 unchanged
Several aspects of the Dodd-Frank Act have affected our business, including, without limitation, capital requirements, mortgage regulation, restrictions on proprietary trading in securities, restrictions on investments in hedge funds and private equity funds (the “Volcker Rule”), executive compensation restrictions, potential federal oversight of the insurance industry and disclosure and reporting requirements.
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.
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; 16 Table of Contents ● 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.
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.
For additional discussion of Basel III, see the section entitled “Government Supervision and Regulation — Corporate — Capital Adequacy Requirements and Basel III” earlier in this Item 1. ​ On December 13, 2019, the Federal Reserve, the FDIC and the OCC published a final rule modifying the treatment of high volatility commercial real estate (“HVCRE”) exposures as required by EGRRCPA.
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.
Regulation BI heightens the standard of care for broker-dealers when making investment recommendations and imposes disclosure and policy and procedural obligations that could impact the compensation our wealth management line of business and its representatives receive for selling certain types of products, particularly those that offer different compensation across different share classes (such as mutual funds and variable annuities).
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).
The retail group acts as a securities broker for retail investors in the purchase and sale of securities, options, and futures contracts that are traded on various exchanges or in the over-the-counter market through our employee-registered representatives or independent contractor arrangements. We extend margin credit on a secured basis to our retail customers in order to facilitate securities transactions.
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 in order to facilitate securities transactions.
Compliance with the final rule began January 1, 2021, however, banking entities were allowed to voluntarily comply with the final rule in whole or in part prior to the compliance date, subject to the agencies’ completion of necessary technological changes. ​ In July 2020, the federal banking agencies published a final rule to streamline and improve the covered funds provisions of the Volcker Rule by making the following changes: permitting the activities of qualifying foreign excluded funds; revising the exclusions from the definition of “covered fund” for foreign public funds, loan securitizations, public welfare investments and small business investment companies; creating new exclusions from the definition of “covered fund” for credit funds, qualifying venture capital funds, family wealth management vehicles, and customer facilitation vehicles; permitting certain transactions that could otherwise be prohibited under affiliate transaction restrictions unique to the Volcker Rule; modifying the definition of “ownership interest”; and providing that certain investments made in parallel with a covered fund, as well as certain restricted profit interests held by an employee or director, need not be included in a banking entity’s calculation of its ownership interest in the covered fund. ​ While management continues to assess compliance with the Volcker Rule, we have reviewed our processes and procedures in regard to proprietary trading and covered funds activities and we believe we are currently complying with the provisions of the Volcker Rule.
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 17 Table of Contents welfare investments and small business investment companies; creating new exclusions from the definition of “covered fund” for credit funds, qualifying venture capital funds, family wealth management vehicles, and customer facilitation vehicles; permitting certain transactions that could otherwise be prohibited under affiliate transaction restrictions unique to the Volcker Rule; modifying the definition of “ownership interest”; and providing that certain investments made in parallel with a covered fund, as well as certain restricted profit interests held by an employee or director, need not be included in a banking entity’s calculation of its ownership interest in the covered fund. ​ While management continues to assess compliance with the Volcker Rule, we have reviewed our processes and procedures in regard to proprietary trading and covered funds activities and we believe we are currently complying with the provisions of the Volcker Rule.
Additionally, the Net Capital Rule and certain FINRA rules impose requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior notice to, and approval from, the SEC and FINRA for certain capital withdrawals. ​ Compliance with the net capital requirements may limit our operations and require a greater use of capital.
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.
The SEC, securities exchanges, self-regulatory organizations and states may conduct administrative and enforcement proceedings that can result in censure, fine, profit disgorgement, monetary penalties, suspension, revocation of registration or expulsion of broker-dealers, their registered persons, officers or employees.
The 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.
Broker-Dealer ​ The “Hilltop Broker-Dealers” include the operations of Hilltop Securities, a broker-dealer subsidiary registered with the SEC and the Financial Industry Regulatory Authority (“FINRA”) and a member of the NYSE, Momentum Independent Network, an introducing broker-dealer subsidiary that is also registered with the SEC and FINRA, and Hilltop Securities Asset Management, LLC.
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 under the Investment Advisers Act of 1940.
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.
The AML 2020 Act is the most significant revision to the anti-money laundering laws since the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism of 2001, as amended (the “USA PATRIOT Act”).
The AML 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”).
Two final rules, the Truth in Lending Act and the Real Estate Settlement Procedures Act, protect consumers from detrimental actions by mortgage servicers and to provide consumers with better tools and information when dealing with mortgage servicers.
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.
PlainsCapital was classified as “well capitalized” at December 31, 2022. ​ 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 .
PlainsCapital was classified as “well capitalized” at December 31, 2023. ​ 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 AML 2020 Act clarifies and streamlines the Currency and Foreign Transactions Reporting Act of 1970, as amended, (the “Bank Secrecy Act”) and anti-money laundering (“AML”) obligations in the following ways: requires U.S. entities and entities doing business in the United States to report into a national registry maintained by the Financial Crimes Enforcement Network (“FinCEN”) certain beneficial ownership information, subject to exceptions; modernizes the statutory definition of “financial institution” to include (i) entities that provide services involving “value that substitutes for currency,” which includes stored value and virtual currencies and (ii) any person engaged in the trade of antiquities, including an advisor, consultant or any other person who deals in the sale of antiquities; enhances penalties for Bank Secrecy Act and AML violations, including claw back of bonuses; increases AML whistleblower awards and expands whistleblower protections; requires the Secretary of the Treasury to establish and update every four years National AML Priorities, which are incorporated into the Bank Secrecy Act compliance programs at financial institutions subject to the Bank Secrecy Act; among other amendments.
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 claw back of bonuses; increases AML whistleblower awards and expands whistleblower protections; requires the Secretary of the Treasury to establish and update every four years National AML Priorities, which are incorporated into the Bank Secrecy Act compliance programs at financial institutions subject to the Bank Secrecy Act; among other amendments.
Participation in new business lines, including trading of new products or participation on new exchanges or in new countries often requires governmental and/or exchange approvals, which may take significant time and resources.
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.
When the rules were fully phased-in in 2019, the minimum capital requirements plus the capital conservation buffer should have exceeded the prompt corrective action well-capitalized thresholds. ​ During 2022, 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.
When the rules were fully phased-in in 2019, the minimum capital requirements plus the capital conservation buffer should have exceeded the prompt corrective action well-capitalized thresholds. ​ During 2023, 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.
The final rule clarifies certain defined terms in the HVCRE exposure definition in a manner generally consistent with the call report instructions as well as the treatment of credit facilities that finance one- to four-family residential properties and the development of land. The final rule became effective on April 1, 2020. ​ The FDIC Improvement Act .
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 .
The Dodd-Frank Act amends the statutes placing limitations on loans to insiders by including credit exposures to the person arising from a derivatives transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction between the member bank and the person within the definition of an extension of credit. ​ Restrictions on Distribution of Subsidiary Bank Dividends and Assets.
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.
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 14 Table of Contents of financial and managerial strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress; however, no such proposed regulations have yet been published. ​ Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each of its banking subsidiaries and commit resources to their support.
The Dodd-Frank Act requires the regulatory agencies to issue regulations requiring that all bank and savings and loan holding companies serve as a source of financial and managerial strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress; however, no such proposed regulations have yet been published. ​ Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each of its banking subsidiaries and commit resources to their support.
This final rule strengthens consumer protections for high-cost mortgages (generally bans balloon payments and prepayment penalties, subject to exceptions and bans or limits certain fees and practices) and requires consumers to receive information about homeownership counseling prior to taking out a high-cost mortgage. ​ Appraisals for High-Risk Mortgages .
This final rule strengthens consumer protections for high-cost mortgages (generally bans balloon payments and prepayment penalties, subject to exceptions and bans or limits certain fees and practices) and requires consumers to receive information about homeownership counseling prior to taking out a high-cost mortgage. ​ Appraisals for High-Risk Mortgages (Regulation Z) .
PrimeLending does not currently originate subprime loans (which it defines to be conventional and government loans that (i) are ineligible for sale to the Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”) or Government National Mortgage Association (“GNMA”), or (ii) do not comply with approved investor-specific underwriting guidelines). ​ Geographic Dispersion of our Businesses ​ The Bank provides traditional banking and wealth, investment and treasury management services.
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). ​ 10 Table of Contents Geographic Dispersion of our Businesses ​ The Bank provides traditional banking and wealth, investment and treasury management services.
Additionally, this business line provides agricultural insurance through Hilltop Securities Insurance Agency Inc., formerly Southwest 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 .
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 .
References in this Annual Report to applicable statutes and regulations are brief summaries thereof, do not purport to be complete, and are qualified in their entirety by reference to such statutes and regulations. ​ The Dodd-Frank Act, which significantly altered the regulation of financial institutions and the financial services industry, established the Consumer Financial Protection Bureau (“CFPB”) and requires the CFPB and other federal agencies to implement many provisions of the Dodd-Frank Act.
References in this Annual Report to applicable statutes and regulations are brief summaries thereof, do not purport to be complete, and are qualified in their entirety by reference to such statutes and regulations. ​ 12 Table of Contents 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.
At December 31, 2022, 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.
At December 31, 2023, 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.
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. ​ 20 Table of Contents The FDIC is required to maintain a designated reserve ratio of the deposit insurance fund (“DIF”) to insured deposits in the United States.
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.
Provisions of the Volcker Rule and the final rules implementing the Volcker Rule restrict certain activities provided by the Company, including proprietary trading and sponsoring or investing in “covered funds,” which include many venture capital, private equity and hedge funds.
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.
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, 2022, on a consolidated basis, we had total assets of $16.3 billion, total deposits of $11.3 billion, total loans, including loans held for sale, of $9.0 billion and stockholders’ equity of $2.1 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.
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, 2023, on a consolidated basis, we had total assets of $16.5 billion, total deposits of $11.1 billion, total loans, including loans held for sale, of $8.9 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.
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.
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 16 Table of Contents 2.5% at the beginning of the quarter.
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.
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 19 Table of Contents institutions are placed.
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 10 Table of Contents (“VA”), and United States Department of Agriculture (“USDA”) loans.
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 (“USDA”) loans.
The agencies consider 21 Table of Contents 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.
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.
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. ​
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. ​ ​ ​ 26 Table of Contents
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.
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 22 Table of Contents policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.
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. ​ 12 Table of Contents Government Supervision and Regulation ​ General ​ We are subject to extensive regulation under federal and state laws.
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.
At December 31, 2022, PlainsCapital was “well capitalized” and therefore not subject to any limitations with respect to its brokered deposits. ​ Check Clearing for the 21 st Century Act .
At December 31, 2023, PlainsCapital was “well capitalized” and therefore not subject to any limitations with respect to its brokered deposits. ​ Check Clearing for the 21 st Century Act .
Many of our competitors have substantially greater financial resources, lending limits and branch networks than we do, and offer a broader range of products and services. ​ Our banking segment primarily competes with national, regional and community banks within the various markets where the Bank operates.
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. ​ 11 Table of Contents Our banking segment primarily competes with national, regional and community banks within the various markets where the Bank operates.
Federal Reserve Board guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. ​ Final rules published by the Federal Reserve, the FDIC, and the OCC implemented the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.
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. ​ 15 Table of Contents 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.
As a general matter, an investor is deemed to control a depository institution or other company if the investor owns or controls 25% or more of any class of voting stock, and in certain other circumstances, an investor may be presumed to control a depository institution or other company if the investor owns or controls less than 25% or more of any class of voting stock. ​ Banking ​ The Bank is subject to various requirements and restrictions under the laws of the United States, and to regulation, supervision and regular examination by the Texas Department of Banking.
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.
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”).
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.” ​ 24 Table of Contents Regulation Best Interest (“Regulation BI”) and Form CRS Relationship Summary (“Form CRS”).
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”. ​ 18 Table of Contents Control Acquisitions .
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 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.
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.
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 25 Table of Contents mortgage loan products. PrimeLending and the Bank are also subject to the provisions of the Dodd-Frank Act.
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.
These activities involve borrowing securities to cover short sales and to complete transactions in which clients have failed to deliver securities by the required settlement date, and lending securities to other broker-dealers for similar purposes. ​ Mortgage Origination ​ Our mortgage origination segment operates through a wholly owned subsidiary of the Bank, PrimeLending, which is a residential mortgage banker licensed to originate and close loans in all 50 states and the District of Columbia.
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. 9 Table of Contents ​ 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.
All loans, advances and other extensions of credit made by the FHLB to the 22 Table of Contents 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 .
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 .
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 .
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. ​ 18 Table of Contents Restrictions on Transactions with Affiliates .
We are required to have systems and procedures to ensure compliance with such laws and regulations. ​ 24 Table of Contents 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.
We are required to have systems and procedures to ensure compliance with such laws and regulations. ​ CFTC Oversight . Hilltop Securities and Momentum Independent Network are registered as introducing brokers with the CFTC and NFA. The CFTC also has net capital regulations (CFTC Rule 1.17) that must be satisfied.
At December 31, 2022, the Hilltop Broker-Dealers employed approximately 720 people and maintained 40 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. 8 Table of Contents 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 .
At December 31, 2023, the Hilltop Broker-Dealers employed approximately 770 people and maintained 40 locations in 16 states. ​ Our broker-dealer segment has four primary lines of business: (i) public finance services, (ii) structured finance, (iii) fixed income services, and (iv) wealth management, which includes retail, clearing services and securities lending. 8 Table of Contents 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 .
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 19 Table of Contents approval of the Texas Banking Commissioner.
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.
For more information, see our current Environmental, Social and Governance, or ESG, and Sustainability Report, available on our website at https://hilltop-holdings.com/ under the tab “Who We Are – ESG & 11 Table of Contents Sustainability.” The references to our website in this Annual Report are inactive textual references only.
For more information, see our current Environmental, Social and Governance, or ESG, and Sustainability Report, available on our website at https://hilltop-holdings.com/ under the tab “Who We Are – ESG & Sustainability.” The references to our website in this Annual Report are inactive textual references only.
The 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.
The Gramm-Leach-Bliley Act defines “financial in nature” to include: securities underwriting; dealing and market making; sponsoring mutual funds and investment 14 Table of Contents companies; insurance underwriting and agency; merchant banking activities; and activities that the Federal Reserve Board has determined to be closely related to banking.
Among other changes, the Dodd-Frank Act expands the definition of “covered transactions” and clarifies the amount of time that the collateral requirements must be satisfied for covered transactions, and amends the definition of “affiliate” in Section 23A to include “any investment fund with respect to which a member bank or an affiliate thereof is an investment adviser.” ​ Affiliate transactions are also subject to Section 23B of the Federal Reserve Act, which generally requires that certain transactions between the Bank and its affiliates be on terms substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions with or involving other nonaffiliated persons.
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.
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.
These rules also dictate the ratio of debt-to-equity in the regulatory capital 23 Table of Contents composition of a broker-dealer, and constrain the ability of a broker-dealer to expand its business under certain circumstances.
The primary sources of our deposits are residents and businesses located in Texas. At December 31, 2022, the Bank employed approximately 1,100 people. ​ The table below sets forth a distribution of the banking segment’s loans, classified by portfolio segment.
The primary sources of our deposits are residents of and businesses located in Texas. At December 31, 2023, the Bank employed approximately 1,000 people. ​ The table below sets forth a distribution of the banking segment’s loans, classified by portfolio segment.
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.
Failure to adequately 20 Table of Contents 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.
The penalties can be as high as $2.20 million for each day the activity continues. In addition, the Dodd-Frank Act authorizes the Federal Reserve Board to require reports from and examine 15 Table of Contents bank holding companies and their subsidiaries, and to regulate functionally regulated subsidiaries of bank holding companies. ​ Anti-tying Restrictions .
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 .
The banking segment’s loan portfolio included $2.1 billion in warehouse lines of credit extended to PrimeLending and its affiliated business arrangements (“ABAs”), of which $0.9 billion was drawn at December 31, 2022.
The banking segment’s loan portfolio included $1.6 billion in warehouse lines of credit extended to PrimeLending and its affiliated business arrangements (“ABAs”), of which $0.9 billion was drawn at December 31, 2023.
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 2022, 2021 and 2020, were $532 million, $778 million, and $193 million, respectively.
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 2023, 2022 and 2021 were $140 million, $532 million, and $778 million, respectively.
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. ​ 23 Table of Contents Limitation on Businesses .
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 .
Dollar LIBOR as a reference rate and all remaining USD LIBOR tenors will cease to be published or lose representativeness immediately after June 30, 2023. ​ 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.
Dollar LIBOR as a reference rate and all remaining USD LIBOR tenors ceased to be published or lost representativeness immediately after June 30, 2023. ​ 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. ​ 13 Table of Contents Corporate ​ Hilltop is a legal entity separate and distinct from PCC and its other subsidiaries.
See also Note 28 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, 2022, had $13.4 billion in assets and total deposits of $11.3 billion.
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, 2023, had $13.3 billion in assets and total deposits of $11.1 billion.
PrimeLending primarily originates its mortgage loans through a retail channel, with limited lending through its ABAs. During 2022, funded loan volume through ABAs was approximately 10% of the mortgage origination segment’s total loan volume.
PrimeLending primarily originates its mortgage loans through a retail channel, with limited lending through its ABAs. During 2023, funded loan volume through ABAs was approximately 14% of the mortgage origination segment’s total loan volume.
Other than these ten states, none of the states in which PrimeLending operated during 2022 represented more than 3% of PrimeLending’s origination volume. ​ Employees and Human Capital Resources At December 31, 2022 we employed approximately 4,120 full-time employees and less than 50 part-time employees. Our employees are not represented by any collective bargaining group.
Other than these ten states, none of the states in which PrimeLending operated during 2023 represented more than 3% of PrimeLending’s origination volume. ​ Employees and Human Capital Resources At December 31, 2023 we employed approximately 3,800 full-time employees and less than 20 part-time employees. Our employees are not represented by any collective bargaining group.
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. ​ 5 Table of Contents The following graphic reflects our current business segments.
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. ​ 5 Table of Contents The following graphic reflects our current business segments. Corporate includes certain activities not allocated to specific business segments.
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 had a staff of approximately 1,927 people, including approximately 1,100 mortgage loan officers, as of December 31, 2022 that produced $12.7 billion in closed mortgage loan volume during 2022, 85.5% of which related to home purchases volume.
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 had a staff of approximately 1,560 people, including approximately 930 mortgage loan officers, as of December 31, 2023 that produced $8.2 billion in closed mortgage loan volume during 2023, 93.4% of which related to home purchases volume.
At December 31, 2022, we provided services to 111 financial organizations, including correspondent firms, correspondent broker-dealers, registered investment advisers, discount and full-service brokerage firms, and institutional firms. 9 Table of Contents ​ 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.
At December 31, 2023, we provided services to 105 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.
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, 2022, PlainsCapital had a total capital to risk-weighted assets ratio of 15.91%, Tier 1 capital to risk-weighted assets ratio of 14.98% and a common equity Tier 1 capital to risk-weighted assets ratio of 14.98%.
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, 2023, PlainsCapital had a total capital to risk-weighted assets ratio of 16.58%, Tier 1 capital to risk-weighted assets ratio of 15.44% and a common equity Tier 1 capital to risk-weighted assets ratio of 15.44%.
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 65% of the broker-dealer segment’s net revenues during 2022 generated through locations in Texas, California and Oklahoma. ​ PrimeLending provides residential mortgage origination products and services from over 245 locations in 44 states.
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 2023 generated through locations in Texas, New York and California. ​ PrimeLending provides residential mortgage origination products and services from over 210 locations in 45 states.
The commissions received from these third party carriers are paid directly to the advisor. At December 31, 2022, we employed 99 registered representatives in 19 retail brokerage offices and had contracts with 163 independent retail representatives for the administration of their securities business. ​ Clearing Services .
The commissions received from these third-party carriers are paid directly to the advisor. At December 31, 2023, we employed 92 registered representatives in 16 retail brokerage offices and had contracts with 186 independent retail representatives for the administration of their securities business. ​ Clearing Services .
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. 26 Table of Contents ​ Risk Retention.
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).
In March 2020, in connection with the economic uncertainties associated with the effects of COVID-19, the agencies’ issued an additional transition option that permitted banking 17 Table of Contents institutions to mitigate the estimated cumulative regulatory capital effects from CECL over a five-year transitionary period. We elected to exercise this option for phase-in. ​ Volcker Rule .
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. ​ Volcker Rule .
This statute also limited deposit insurance coverage, implemented changes in consumer protection laws and provided for least-cost resolution and prompt regulatory action with regard to troubled institutions. ​ FDICIA requires every bank with total assets in excess of $500 million to have an annual independent audit made of the Bank’s financial statements by a certified public accountant to verify that the financial statements of the Bank are presented in accordance with GAAP and comply with such other disclosure requirements as prescribed by the FDIC. ​ Brokered Deposits .
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. 21 Table of Contents This statute also limited deposit insurance coverage, implemented changes in consumer protection laws and provided for least-cost resolution and prompt regulatory action with regard to troubled institutions. ​ FDICIA requires every bank with total assets in excess of $500 million to have an annual independent audit made of the Bank’s financial statements by a certified public accountant to verify that the financial statements of the Bank are presented in accordance with GAAP and comply with such other disclosure requirements as prescribed by the FDIC. ​ Brokered Deposits .
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 .
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) .
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 .
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) .
Transactions between the Bank and its nonbanking affiliates, including Hilltop and PCC, are subject to Section 23A of the Federal Reserve Act. In general, Section 23A imposes limits on the amount of such transactions, and also requires certain levels of collateral for loans to affiliated parties.
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 Regulations W. ​ In general, Section 23A imposes limits on the amount of such transactions, and also requires certain levels of collateral for loans to affiliated parties.
This final rule requires a minimum duration of five years for an escrow account on certain higher-priced mortgage loans, subject to certain exemptions for loans made by certain creditors that operate predominantly in rural or underserved areas, as long as certain other criteria are met. ​ Servicing .
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) .
At December 31, 2022, our mortgage origination segment operated from over 245 locations in 44 states, originating 23.0%, 8.5% and 4.9%, respectively, of its mortgage loans (by dollar volume) from its Texas, California and Florida locations. The mortgage lending business is subject to variables that can impact loan origination volume, including seasonal and interest rate fluctuations.
At December 31, 2023, our mortgage origination segment operated from over 210 locations in 45 states, originating 28.9%, 7.9% and 5.2%, 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.
We anticipate similar results during 2023. ​ At December 31, 2022, Hilltop had a total capital to risk-weighted assets ratio of 20.98%, Tier 1 capital to risk-weighted assets ratio of 18.23% and a common equity Tier 1 capital to risk-weighted assets ratio of 18.23%.
We anticipate similar results during 2024. ​ At December 31, 2023, Hilltop had a total capital to risk-weighted assets ratio of 22.34%, Tier 1 capital to risk-weighted assets ratio of 19.32% and a common equity Tier 1 capital to risk-weighted assets ratio of 19.32%.
The increase in assessment rate schedules will increase the likelihood that the DIF ratio will reach the statutory minimum of 1.35% by the statutory deadline of September 30, 2028. The FDIC will notify the Bank of the assessment rate that we will be charged for the assessment period.
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.
As the result of the COVID-19 pandemic, the CFPB approved a final rule on April 27, 2021 that delayed the mandatory compliance date for the General Qualified Mortgage final rule from July 1, 2021 to October 1, 2022 to ensure flexibility for consumers affected by the COVID-19 pandemic. ​ High-Cost Mortgage .
As the result of the pandemic, the CFPB approved a final rule on April 27, 2021 that delayed the mandatory compliance date for the General Qualified Mortgage final rule from July 1, 2021 to October 1, 2022 to ensure flexibility for consumers affected by the pandemic. 25 Table of Contents ​ High-Cost Mortgage and Homeownership Counseling Amendments to the Truth in Lending Act (Regulation Z) .
For purposes of the Volcker Rule, purchases or sales of financial instruments such as securities, derivatives, contracts of sale of commodities for future delivery or options on the foregoing for the purpose of short-term gain are deemed to be proprietary trading (with financial instruments held for less than 60 days presumed to be for proprietary trading unless an alternative purpose can be demonstrated), unless certain exemptions apply.
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.

… 35 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

73 edited+17 added−0 removed217 unchanged
As a result, our results of operations and financial condition may be materially adversely affected by a decrease in real estate market values. ​ The economic impact of the COVID-19 pandemic has adversely affected, and may continue to adversely affect, our business, financial condition, liquidity and results of operations. ​ The worldwide COVID-19 pandemic and related governmental control measures severely disrupted financial markets and overall economic conditions throughout 2020 and 2021 and adversely affected our business.
As a result, our results of operations and financial condition may be materially adversely affected by a decrease in real estate market values. ​ The economic impact of the pandemic has adversely affected, and may continue to adversely affect, our business, financial condition, liquidity and results of operations. ​ The worldwide COVID-19 pandemic and related governmental control measures severely disrupted financial markets and overall economic conditions throughout 2020 and 2021 and adversely affected our business.
If new debt is added to our current debt levels, the risks described above could increase. ​ 43 Table of Contents We may not be able to generate sufficient cash to service all of our indebtedness, including the Senior and Subordinated Notes, and may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful. ​ Our ability to satisfy our debt obligations will depend upon, among other things: ​ ● our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our control; and ● our future ability to refinance the Senior and Subordinated Notes, which depends on, among other things, our compliance with the covenants in the indentures governing the Senior and Subordinated Notes. ​ We cannot assure you that our business will generate sufficient cash flow from operations, or that we will be able to obtain financing in an amount sufficient to fund our liquidity needs. ​ If our cash flows and capital resources are insufficient to service our indebtedness, including the Senior and Subordinated Notes, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness, including the Senior and Subordinated Notes.
If new debt is added to our current debt levels, the risks described above could increase. ​ We may not be able to generate sufficient cash to service all of our indebtedness, including the Senior and Subordinated Notes, and may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful. ​ Our ability to satisfy our debt obligations will depend upon, among other things: ​ ● our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our control; and ● our future ability to refinance the Senior and Subordinated Notes, which depends on, among other things, our compliance with the covenants in the indentures governing the Senior and Subordinated Notes. ​ We cannot assure you that our business will generate sufficient cash flow from operations, or that we will be able to obtain financing in an amount sufficient to fund our liquidity needs. 44 Table of Contents ​ If our cash flows and capital resources are insufficient to service our indebtedness, including the Senior and Subordinated Notes, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness, including the Senior and Subordinated Notes.
Decreases in short-term interest rates, such as those announced by the Federal Reserve late in our 2019 fiscal year and during the first fiscal quarter of 2020 had a negative impact on our results of operations, as we have certain assets and liabilities that are sensitive to changes in interest rates. ​ The length of the adverse consequences of the pandemic and the impact to the macroeconomic environment are unknown.
Decreases in short-term interest rates, such as those announced by the Federal Reserve Board late in our 2019 fiscal year and during the first fiscal quarter of 2020 had a negative impact on our results of operations, as we have certain assets and liabilities that are sensitive to changes in interest rates. ​ The length of the adverse consequences of the pandemic and the impact to the macroeconomic environment are unknown.
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.
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; 31 Table of Contents ● 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.
Generally, our nonperforming loans and other real estate owned (“OREO”) reflect operating difficulties of individual borrowers and weaknesses in the economies of the markets we serve. ​ Under the acquisition method of accounting requirements, we were required to estimate the fair value of the loan portfolios acquired in each of the PlainsCapital Merger, the Federal Deposit Insurance Corporation (“FDIC”) -assisted transaction (the “FNB Transaction”) whereby the Bank acquired certain assets and assumed certain liabilities of FNB, the acquisition of SWS Group, Inc. in a stock and cash transaction (the “SWS Merger”) and the acquisition of The Bank of River Oaks (“BORO”) in an all-cash transaction (“BORO Acquisition”, and collectively with the PlainsCapital Merger, FNB Transaction and the SWS Merger, the “Bank Transactions”) as of the applicable acquisition date and write down the recorded value of each such acquired portfolio to the applicable estimate.
Generally, our nonperforming loans and other real estate owned (“OREO”) reflect operating difficulties of individual borrowers and weaknesses in the economies of the markets we serve. ​ Under the acquisition method of accounting requirements, we were required to estimate the fair value of the loan portfolios acquired in each of the PlainsCapital Merger, the Federal Deposit Insurance Corporation (“FDIC”) -assisted transaction (the “FNB Transaction”) whereby the Bank acquired certain assets and assumed certain liabilities of FNB, the acquisition of SWS Group, Inc. in a stock and cash transaction (the “SWS Merger”) and the acquisition of The Bank of River Oaks (“BORO”) in an all-cash transaction (“BORO Acquisition,” and collectively with the PlainsCapital Merger, FNB Transaction and the SWS Merger, the “Bank Transactions”) as of the applicable acquisition date and write down the recorded value of each such acquired portfolio to the applicable estimate.
Until the consequences subside, we could be subject to any of the following risks: ● further increases in the allowance for credit losses and possible recognition of credit losses, especially if businesses close or are substantially limited in their operating capacity, unemployment rates increase, consumer and business confidence declines, consumer trends change and clients and customers draw on their lines of credit or seek additional loans to help finance their businesses; ● possible constraints on liquidity and capital, whether due to increases in risk-weighted assets related to supporting client activities or to regulatory actions; and ● the possibility that significant portions of our workforce are unable to work effectively, including because of illness, quarantines, sheltering-in-place arrangements, government actions or other restrictions related to the pandemic. ​ We also could experience a material reduction in trading volume and lower securities prices in times of market volatility, which would result in lower brokerage revenues, including losses on firm inventory.
Until the consequences subside, we could be subject to any of the following risks: ● further increases in the allowance for credit losses and possible recognition of credit losses, especially if businesses close or are substantially limited in their operating capacity, unemployment rates increase, consumer and business confidence declines, consumer trends change and clients and customers draw on their lines of credit or seek additional loans to help finance their businesses; 35 Table of Contents ● possible constraints on liquidity and capital, whether due to increases in risk-weighted assets related to supporting client activities or to regulatory actions; and ● the possibility that significant portions of our workforce are unable to work effectively, including because of illness, quarantines, sheltering-in-place arrangements, government actions or other restrictions related to the pandemic. ​ We also could experience a material reduction in trading volume and lower securities prices in times of market volatility, which would result in lower brokerage revenues, including losses on firm inventory.
Similarly, rising interest rates will negatively impact our mortgage business by making home mortgages more expensive for home buyers any by making mortgage refinancing transactions less likely, which would adversely impact our results of operations and financial condition in PrimeLending.
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.
These headwinds, coupled with inflationary pressures associated with compensation, occupancy and software costs within our business segments during 2022 have had, and are expected to continue to have, an adverse impact on our operating results during 2023.
These headwinds, coupled with inflationary pressures associated with compensation, occupancy and software costs within our business segments during 2022 and 2023 have had, and are expected to continue to have, an adverse impact on our operating results during 2024.
These changes become less predictable, yet more likely to occur, following the transition of power from one presidential administration to another, especially as in 2021, when it involves a change in political party.
These changes become less predictable, yet more likely to occur, following the transition of power from one presidential administration to another, especially as in 2021, when it involves a change in the governing political party.
Any regional or local economic downturn that affects Texas or, to a lesser extent, California or Oklahoma, whether caused by recession, inflation, unemployment, changing oil prices, natural disasters, supply chain disruptions or other factors, may affect us and our profitability more significantly and more adversely than our competitors that are less geographically concentrated, and could have a material adverse effect on our results of operations and financial condition. ​ 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, 2022, 59% of the loan portfolio of our banking segment was comprised of loans with commercial or residential real estate as the primary component of collateral.
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, 2023, 59% of the loan portfolio of our banking segment was comprised of loans with commercial or residential real estate as the primary component of collateral.
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, 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. ​ 49 Table of Contents 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.
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.
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. 50 Table of Contents ​ 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.
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, 2022, no shares of preferred stock were outstanding. ​ Banking Laws .
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, 2023, no shares of preferred stock were outstanding. ​ Banking Laws .
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.
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. ​ 38 Table of Contents 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.
Although the United States economy has begun to recover from the COVID-19 pandemic as many health and safety restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic continue to impact the macroeconomic environment and may persist for some time, including labor shortages and disruptions of global supply chains.
Although the United States economy has begun to recover from the pandemic as many health and safety restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic continue to impact the macroeconomic environment and may persist for some time, including labor shortages and disruptions of global supply chains.
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.
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. ​ 33 Table of Contents 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.
Any such poor performance could adversely affect our investment advisory business and the advisory fees that we earn on client assets. ​ 37 Table of Contents 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.
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 implementation of any new requirements from these amendments may increase our cost of regulatory compliance. ​ 47 Table of Contents 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 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.
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.
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 46 Table of Contents savings and loan associations.
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. 35 Table of Contents ​ 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.
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.
Any financial liability or reputational damage could have a material 41 Table of Contents 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.
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.
These provisions of our bylaws and charter may delay, discourage or prevent an attempted acquisition or change in control of us. ​ 49 Table of Contents 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.
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.
These shares were returned to the pool of authorized but unissued shares of common stock. ​ 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.
These shares were returned to the pool of authorized but unissued shares of common stock. ​ 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.
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.
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. 42 Table of Contents ​ 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.
Inflationary pressures are currently expected to remain elevated throughout 2023. 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.
Inflationary pressures are currently expected to remain elevated throughout 2024. 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.
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. ​ 36 Table of Contents 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.
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.
Losses on these investments could have an adverse impact on our profitability, results of operations and financial condition. ​ 42 Table of Contents 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.
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.
As a result of the COVID-19 pandemic and the related adverse economic consequences, we could experience material adverse effects on our business, financial condition, liquidity, and results of operations. The length of the adverse consequences of the pandemic and the impact to the macroeconomic environment are unknown.
As a result of the pandemic and the related adverse economic consequences, we could experience material adverse effects on our business, financial condition, liquidity, and results of operations. The length of the adverse consequences of the pandemic and the impact to the macroeconomic environment are unknown.
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.
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. ​ 36 Table of Contents 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.
At the conclusion of the annual assessment, we determined that as of October 1, 2022 it was more likely than not that the fair value of goodwill and other intangible assets exceeded their respective carrying values.
At the conclusion of the annual assessment, we determined that as of October 1, 2023 it was more likely than not that the fair value of goodwill and other intangible assets exceeded their respective carrying values.
These broad market fluctuations may adversely affect the market price of our common stock. ​ 48 Table of Contents 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.
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.
Also, future additions to our allowance for credit losses will reduce our future earnings. ● 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 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. ● 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. ● The economic impact of the COVID-19 pandemic has adversely affected, and may continue to adversely affect, our business, financial condition, liquidity and results of operations. ● 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. 27 Table of Contents ● 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. ● We are heavily dependent on dividends from our subsidiaries. ● Our indebtedness may affect our ability to operate our business, and may have a material adverse effect on our financial condition and results of operations.
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. ● 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. ● The economic impact of the pandemic has adversely affected, and may continue to adversely affect, our business, financial condition, liquidity and results of operations. ● 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. 27 Table of Contents ● Climate change could adversely affect our business and performance, including indirectly through impacts on our customers. ● We are heavily dependent on dividends from our subsidiaries. ● Our indebtedness may affect our ability to operate our business, and may have a material adverse effect on our financial condition and results of operations.
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 40 Table of Contents fund a loan that we would not have funded or on terms we would not have extended.
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.
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.
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. ​ 45 Table of Contents 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.
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.
For example, several aspects of the Dodd-Frank Act have affected our business, 47 Table of Contents 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.
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.
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 32 Table of Contents profitability. Further, a portion of our adjustable rate loans have interest rate floors at or above the loan's contractual interest rate.
We may incur additional indebtedness, including secured indebtedness. ​ At December 31, 2022, on a consolidated basis, we had total deposits of $11.3 billion and other indebtedness of $1.3 billion, including $150.0 million in aggregate principal amount of 5% senior notes due 2025 (the “Senior Notes”), $50.0 million aggregate principal amount of 5.75% fixed-to-floating rate subordinated notes due 2030 (the “2030 Subordinated Notes”) and $150.0 million aggregate principal amount of 6.125% fixed-to-floating rate subordinated notes due 2035 (the “2035 Subordinated Notes”).
We may incur additional indebtedness, including secured indebtedness. ​ At December 31, 2023, 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”), $50.0 million aggregate principal amount of 5.75% fixed-to-floating rate subordinated notes due 2030 (the “2030 Subordinated Notes”) and $150.0 million aggregate principal amount of 6.125% fixed-to-floating rate subordinated notes due 2035 (the “2035 Subordinated Notes”).
Our 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.
Our computer systems, software and networks may be adversely affected by cyber incidents such as 30 Table of Contents 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.
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 31 Table of Contents continued inversion of the yield curve, as measured by the difference between 10-year U.S.
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.
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. ​ 32 Table of Contents I nflationary pressures and rising prices may affect our results of operations and financial condition. ​ Inflation rose sharply at the end of 2021 and has continued rising in 2022 at levels not seen for over 40 years.
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. ​ I nflationary pressures and rising prices may affect our results of operations and financial condition. ​ Inflation rose sharply at the end of 2021 and has continued rising in 2022 and 2023 at levels not seen for over 40 years.
Such cyber incidents could 29 Table of Contents 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.
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.
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.
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 39 Table of Contents our MSR asset may be reduced in the future.
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.
If we ever became subject to significant environmental liabilities, our business, financial condition, liquidity and results of operations could be harmed. ​ 43 Table of Contents 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.
The fair values of certain of our investments could also be negatively impacted, resulting in unrealized or realized losses on such investments. Moreover, certain actions taken by U.S. or other governmental authorities, including the Federal Reserve, that are intended to ameliorate the macroeconomic effects of COVID-19 may cause additional harm to our business.
The fair values of certain of our investments could also be negatively impacted, resulting in unrealized or realized losses on such investments. Moreover, certain actions taken by U.S. or other governmental authorities, including the Federal Reserve Board, that are intended to ameliorate the macroeconomic effects of the pandemic may cause additional harm to our business.
Any failure to comply with these covenants could result in a default under the indentures governing the Senior and Subordinated Notes. Upon a default, holders of the Senior and Subordinated Notes have the ability 44 Table of Contents ultimately to force us into bankruptcy or liquidation, subject to the indentures governing the Senior and Subordinated Notes.
Any failure to comply with these covenants could result in a default under the indentures governing the Senior and Subordinated Notes. Upon a default, holders of the Senior and Subordinated Notes have the ability ultimately to force us into bankruptcy or liquidation, subject to the indentures governing the Senior and Subordinated Notes.
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, 2022, included goodwill of $267.4 million and other intangible assets, net of accumulated amortization, of $11.3 million.
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, 2023, included goodwill of $267.4 million and other intangible assets, net of accumulated amortization, of $8.5 million.
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.
In the event that we conclude that all or a portion of our goodwill 40 Table of Contents and other intangible assets are impaired, a non-cash charge for the respective amount of such impairment would be recorded to earnings.
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.
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. ​ 37 Table of Contents 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.
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 45 Table of Contents of operations. Increased competition may result in reduced revenue and loss of market share.
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.
Failure to comply with laws, regulations 46 Table of Contents or policies could result in money damages, civil money penalties or reputational damage, as well as sanctions and supervisory actions by regulatory agencies that could subject us to significant restrictions on or suspensions of our business and our ability to expand through acquisitions or branching.
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.
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.
Loans that do not meet the ability-to-repay standard can be 48 Table of Contents challenged in court by borrowers who default and the absence of ability-to-repay status can be used against a lender in foreclosure proceedings.
The growth in economic activity and in the demand for goods and services, coupled with labor shortages and 34 Table of Contents supply chain disruptions, has also contributed to rising inflationary pressures and the risk of recession.
The growth in economic activity and in the demand for goods and services, coupled with labor shortages and supply chain disruptions, has also contributed to rising inflationary pressures and the risk of recession.
Treasury bond yields and 3-month yields, could adversely impact the net interest income of our banking segment as the spread between interest-earning assets and interest-bearing liabilities becomes further compressed. ​ As of December 31, 2022, approximately 50% of our loans were advanced to our customers on a variable or adjustable-rate basis and approximately 50% of our loans were advanced to our customers on a fixed-rate basis.
Treasury bond yields and 3-month yields, could adversely impact the net interest income of our banking segment as the spread between interest-earning assets and interest-bearing liabilities becomes further compressed. ​ As of December 31, 2023, approximately 57% of our loans were advanced to our customers on a variable or adjustable-rate basis and approximately 43% of our loans were advanced to our customers on a fixed-rate basis.
Given the potential impacts as a result of the uncertainty of the operating performance of these reporting segments, 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.
Given the potential impacts of the operating performance of these 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.
However, no hedging strategy can protect us completely, and hedging strategies 38 Table of Contents 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.
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.
These may include significant time delays, cost overruns, loss of key personnel, technological problems, processing failures, 33 Table of Contents distraction of management and other adverse developments.
These may include significant time delays, cost overruns, loss of key personnel, technological problems, processing failures, distraction of management and other adverse developments.
Accordingly, you should be capable of affording the loss of any investment in our common stock. ​ Item 1B. Unresolved Staff Comments . ​ None. 50 Table of Contents ​
Accordingly, you should be capable of affording the loss of any investment in our common stock. ​ Item 1B. Unresolved Staff Comments . ​ None. ​
This could result in a reduction in our liquidity and cause a reduction in our capital ratios. The combination of these impacts along with other impacts, could cause us to not have sufficient liquidity or capital. At December 31, 2022, the mortgage origination segment’s MSR asset had a fair value of $101.1 million.
This could result in a reduction in our liquidity and cause a reduction in our capital ratios. The combination of these impacts along with other impacts, could cause us to not have sufficient liquidity or capital. At December 31, 2023, the mortgage origination segment’s MSR asset had a fair value of $96.9 million.
We continue to monitor developments regarding future operating performance of its reporting units, overall economic 39 Table of Contents 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 the mortgage origination and broker-dealer segments remain 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.
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.
As of December 31, 2022, 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.
As of December 31, 2023, approximately 9% of our total loans’ rates are floored, with most expected to reprice to the loan’s contractual rate at the next reset date.
Between August 2019 and March 2020, the Federal Open Market Committee of the Federal Reserve Board decreased its target range for short-term interest rates by 200 basis points, and between March 2022 and December 2022, it raised interest rates by 425 basis points and indicated that additional increases may occur in 2023.
Between August 2019 and March 2020, the Federal Open Market Committee of the Federal Reserve Board decreased its target range for short-term interest rates by 200 basis points, while between March 2022 and December 2023, it raised interest rates by 525 basis points and indicated that further changes may occur in 2024.
Any such increase in our provision for (reversal of) credit losses or additional loan charge-offs could have a material adverse effect on our results of operations and financial condition. ​ Our operational systems and networks have been, and will continue to be, subject to an increasing risk of continually evolving cybersecurity or other technological risks, which could result in a loss of customer business, financial liability, regulatory penalties, damage to our reputation or the disclosure of confidential information. ​ We rely heavily on communications and information systems to conduct our business and maintain the security of confidential information and complex transactions, which subjects us to an increasing risk of cyber incidents from these activities due to a combination of new technologies and the increasing use of the Internet to conduct financial transactions, as well as a potential failure, interruption or breach in the security of these systems, including those that could result from attacks or planned changes, upgrades and maintenance of these systems.
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 from these activities due to a combination of new technologies and the increasing use of the Internet to conduct financial transactions, as well as a potential failure, interruption or breach in the security of these systems, including those that could result from attacks or planned changes, upgrades and maintenance of these systems.
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.
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.
During 2022, 23.0% and 8.5% our mortgage loans originated (by dollar volume) were collateralized by properties located in Texas and California, respectively. Also, in our broker-dealer segment, 77% of public finance services net revenues were from entities located in Texas, and 88% of retail brokerage service net revenues were generated through locations in Texas, California and Oklahoma.
During 2023, 28.9% and 7.9% of our mortgage loans originated (by dollar volume) were collateralized by properties located in Texas and California, respectively. Also, in our broker-dealer segment, 79% of public finance services net revenues were from entities located in Texas, and 86% of retail brokerage service net revenues were generated through locations in Texas and California.
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.
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 41 Table of Contents concerning the securities, or the issuer of the securities, that it underwrites.
If we fail to meet these minimum capital guidelines and other regulatory requirements, we or our subsidiaries may be restricted in the types of activities we may conduct and we may be prohibited from taking certain capital actions, such as paying dividends and repurchasing or redeeming capital securities. ​ Failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on our financial condition and results of operations.
For example, on July 27, 2023, the Federal Reserve Board, the FDIC, and the Office of the Comptroller of the Currency 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. ​ 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.
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. ​ 30 Table of Contents 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.
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, 2023, commercial real estate loans comprised approximately 39% of our banking segment’s loan portfolio.
Further, because the Bank’s total assets were over $10.0 billion (as measured on four consecutive quarterly call reports of the Bank) as of June 30, 2020, along with the continued Federal Reserve consumer supervisory and enforcement, the Bank became subject to the CFPB’s supervisory and enforcement authority with respect to federal consumer financial laws, beginning in the second quarter of 2020. ​ These regulations affect our lending practices, capital structure, capital requirements, investment practices, brokerage and investment advisory activities, dividends and growth, among other things.
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.
If our third-party service providers encounter any of these issues, we could be exposed to disruption of service, reputation damages, and litigation risk, any of which could have a material adverse effect on our business. ​ The continued occurrence of cybersecurity incidents across a range of industries has resulted in increased legislative and regulatory scrutiny over cybersecurity and calls for additional data privacy laws and regulations at both the state and federal levels.
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 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.
During 2022, we declared and paid cash dividends of $0.60 per common share. ​ In January 2022, the Hilltop board of directors authorized a new stock repurchase program through January 2023, pursuant to which the Company was 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. ​ On May 2, 2022, we announced the commencement of a modified “Dutch auction” tender offer to purchase shares of our common stock for an aggregate cash purchase price of up to $400 million, inclusive of the $100.0 million stock repurchase program outlined above.
During 2023, we declared and paid cash dividends of $0.64 per common share. ​ 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.
These assets are sensitive to any significant changes in related results of operations of the underlying businesses. ​ Specifically, our mortgage origination and broker-dealer segments have each experienced lower-than-forecasted operating results during 2022 due to adverse conditions including tight housing inventories on mortgage volumes, declining economic forecasts, and rapid increases in U.S. treasury yields and mortgage interest rates.
These assets are sensitive to any significant changes in related results of operations of the underlying businesses. ​ In light of the recent and 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 2023.
On May 27, 2022, including the exercise of the right to purchase up to an additional 2% of our outstanding shares, we paid $442.3 million to repurchase an aggregate of approximately 14.87 million shares of common stock at a price of $29.75 per share pursuant to the tender offer.
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 pursuant to the stock repurchase program.
At December 31, 2022, substantially all of the real estate loans in our loan portfolio were secured by properties located in our four largest markets within Texas, with 38%, 25%, 15% and 6% secured by properties located in the Dallas/Fort Worth, Austin/San Antonio, Houston/Coastal Bend and Rio Grande Valley/South Texas markets, respectively.
Specifically, 28%, 16%, 9% and 5% of the real estate loans were secured by 34 Table of Contents properties located within the Dallas-Fort Worth, Austin, Houston and Brownsville-Harlingen-McAllen markets, respectively. Substantially all of these loans are made to borrowers who live and conduct business in Texas.
Added
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.
Added
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.
Added
In the future, events such as these bank failures 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. ​ 29 Table of Contents 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.
Added
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.
Added
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.
Added
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.
Added
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.

… 10 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
At December 31, 2022, our banking segment conducted business at 63 locations throughout Texas, including four support facilities. The Bank leases 38 banking locations, including its principal offices, and owns the remaining 25 banking locations. ​ Broker-Dealer. At December 31, 2022, our broker-dealer segment conducted business from 40 locations in 15 states.
At December 31, 2023, our banking segment conducted business at 62 locations throughout Texas, including four support facilities. The Bank leases 38 banking locations, including its principal offices, and owns the remaining 24 banking locations. ​ Broker-Dealer. At December 31, 2023, our broker-dealer segment conducted business from 40 locations in 16 states.
Each of these locations is leased by Hilltop Securities. ​ Mortgage Origination. At December 31, 2022, our mortgage origination segment conducted business from over 245 locations in 44 states. Each of these locations is leased by PrimeLending. ​
Each of these locations is leased by Hilltop Securities. ​ Mortgage Origination. At December 31, 2023, our mortgage origination segment conducted business from over 210 locations in 45 states. Each of these locations is leased by PrimeLending. ​

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed0 unchanged
Item 3. Legal Proceedings . ​ For a description of material pending legal proceedings, see the discussion set forth under the heading “Legal Matters” in Note 19 to our Consolidated Financial Statements, which is incorporated by reference herein. ​ Item 4. Mine Safety Disclosures . ​ Not applicable. 51 Table of Contents PART I I ​
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. 54 Table of Contents PART I I ​

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+2 added−1 removed4 unchanged
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, 2022 with respect to compensation plans under which shares of our common stock may be issued.
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, 2023 with respect to compensation plans under which shares of our common stock may be issued.
During 2022, we declared and paid cash dividends of $0.60 per common share. On January 26, 2023, we announced that our board of directors increased our quarterly dividend to $0.16 per common share. Although we expect to continue to pay dividends, we may elect not to pay dividends.
During 2023, we declared and paid cash dividends of $0.64 per common share. On January 25, 2024, we announced that our board of directors increased our quarterly dividend to $0.17 per common share. Although we expect to continue to pay dividends, we may elect not to pay dividends.
At February 16, 2023, there were 64,695,467 shares of our common stock outstanding with 313 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.
At February 12, 2024, there were 65,153,092 shares of our common stock outstanding with 304 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.
Additional information concerning our stock-based compensation plans is presented in Note 21, 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* — ​ $ — 2,469,241 ​ Total — ​ $ — 2,469,241 ​ ​ * Represents shares available for future issuance under the Hilltop Holdings Inc. 2020 Equity Incentive Plan (the “2020 Plan”).
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* — ​ $ — 1,995,985 ​ Total — ​ $ — 1,995,985 ​ ​ * Represents shares available for future issuance under the Hilltop Holdings Inc. 2020 Equity Incentive Plan (the “2020 Plan”). ​ Issuer Repurchases of Equity Securities ​ The following table details our repurchases of shares of common stock during the three months ended December 31, 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2023 — ​ $ — ​ — ​ $ 70,501,138 November 1 - November 30, 2023 20,001 ​ ​ 29.48 ​ 20,001 ​ ​ 69,911,473 December 1 - December 31, 2023 200 ​ ​ 29.50 ​ 200 ​ ​ 69,905,574 Total ​ 20,201 ​ $ 29.48 ​ 20,201 ​ ​ ​ 55 Table of Contents (1) On January 26, 2023, we announced that 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.
Removed
Shares may become available for awards under the 2020 Plan upon the future forfeiture, expiration, cancellation or settlement in cash of awards outstanding under the Hilltop Holdings Inc. 2012 Equity Incentive Plan. ​ Issuer Repurchases of Equity Securities ​ None. ​ ​ Item 6. [Reserved]. 52 Table of Contents ​
Added
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.
Added
With the adoption of the new stock repurchase plan in January 2024, the stock repurchase plan authorized in January 2023 expired. ​ Item 6. [Reserved]. ​

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

1 edited+0 added−0 removed0 unchanged
Item 6. [Reserved] ​ 52 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 53 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ​ 105 Item 8. Financial Statements and Supplementary Data ​ 109
Item 6. [Reserved] ​ 56 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 56 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ​ 108 Item 8. Financial Statements and Supplementary Data ​ 112

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

240 edited+92 added−94 removed156 unchanged
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.
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.
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.
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% to 0.25% in March 2022 to 4.25% to 4.50% by December 2022.
Since the third quarter of 2020, PrimeLending has been originating conventional adjustable-rate mortgage, or ARM, loan products utilizing a SOFR rate with terms consistent with government-sponsored enterprise, or GSE, guidelines. In addition, the Bank’s management team has significantly completed its efforts to amend LIBOR-based contractual terms and establish an alternative benchmark rate.
Since the third quarter of 2020, PrimeLending has been originating conventional adjustable-rate mortgage, or ARM, loan products utilizing a SOFR rate with terms consistent with government-sponsored enterprise, or GSE, guidelines. In addition, the Bank’s management team has completed its efforts to amend LIBOR-based contractual terms and establish an alternative benchmark rate.
To date, an immaterial amount of expenses have been incurred as a result of our efforts related to the transition of our systems and processes away from LIBOR. ​ Brokered Deposits ​ In December 2020, the Federal Deposit Insurance Corporation (“FDIC”) finalized revisions to its rules and prior guidance regarding brokered deposits (the “Revisions”).
An immaterial amount of expenses have been incurred as a result of our efforts related to the transition of our systems and processes away from LIBOR. ​ Brokered Deposits ​ In December 2020, the Federal Deposit Insurance Corporation (“FDIC”) finalized revisions to its rules and prior guidance regarding brokered deposits (the “Revisions”).
At December 31, 2022, $200.0 million of our Subordinated Notes was outstanding. ​ Junior Subordinated Debentures ​ Following receipt of regulatory approval, during June, July and August 2021, PCC submitted to the trustees of each of the statutory trusts a notice to redeem in full outstanding Debentures of $67.0 million issued by PCC, which resulted in the full redemption to the holders of the associated preferred securities and common securities during the third quarter of 2021. ​ The Debentures, which were held by four statutory trusts created for the sole purpose of issuing and selling preferred securities and common securities used to acquire the Debentures, had an original stated term of 30 years with original maturities ranging from July 2031 to February 2038.
At December 31, 2023, $200.0 million of our Subordinated Notes was outstanding. ​ Junior Subordinated Debentures ​ Following receipt of regulatory approval, during June, July and August 2021, PCC submitted to the trustees of each of the statutory trusts a notice to redeem in full outstanding Debentures of $67.0 million issued by PCC, which resulted in the full redemption to the holders of the associated preferred securities and common securities during the third quarter of 2021. ​ The Debentures, which were held by four statutory trusts created for the sole purpose of issuing and selling preferred securities and common securities used to acquire the Debentures, had an original stated term of 30 years with original maturities ranging from July 2031 to February 2038.
Specifically, during 2022, the banking segment’s provision for credit 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.
During 2022, the banking segment’s provision for credit 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.
Also, in March 2021, President Biden implemented new programs to extend COVID-19 testing and vaccine eligibility for most adults in the United States by May 2021. Most states also ended their participation in federal pandemic unemployment benefit programs in early summer 2021.
Also, in March 2021, President Biden implemented new programs to extend COVID testing and vaccine eligibility for most adults in the United States by May 2021. Most states also ended their participation in federal pandemic unemployment benefit programs in early summer 2021.
In August 2021, a second wave of COVID-19 cases progressed within the United States and Texas due to the delta variant, which slowed U.S. economic growth and real GDP growth rates to 2.3% in the third quarter of 2021.
In August 2021, a second wave of COVID cases progressed within the United States and Texas due to the delta variant, which slowed U.S. economic growth and real GDP growth rates to 2.3% in the third quarter of 2021.
Given these expectations, the mortgage origination segment continues to evaluate its cost structure to address the current mortgage environment. ​ We believe that current initiatives are critical to improving the mortgage origination segment’s short- and long-term financial condition and operating results.
Given these expectations, the mortgage origination segment continues to evaluate its cost structure to address the current mortgage environment. ​ We believe that ongoing initiatives are critical to improving the mortgage origination segment’s short- and long-term financial condition and operating results.
Net gains from sale of loans margin is defined as net gains from sale of loans divided by loan sales volume. The net gains from sale of loans is central to the segment’s generation of income and may include loans sold to third parties and loans sold to and retained by the banking segment.
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.
At December 31, 2022, $150.0 million of our Senior Notes was outstanding. ​ The indenture contains covenants that limit our ability to, among other things and subject to certain significant exceptions: (i) dispose of or issue voting stock of certain of our bank subsidiaries or subsidiaries that own voting stock of our bank subsidiaries, (ii) incur or permit to exist any mortgage, pledge, encumbrance or lien or charge on the capital stock of certain of our bank subsidiaries or subsidiaries that own capital stock of our bank subsidiaries and (iii) sell all or substantially all of our assets or merge or consolidate with or into other companies.
At December 31, 2023, $150.0 million of our Senior Notes was outstanding. ​ The indenture contains covenants that limit our ability to, among other things and subject to certain significant exceptions: (i) dispose of or issue voting stock of certain of our bank subsidiaries or subsidiaries that own voting stock of our bank subsidiaries, (ii) incur or permit to exist any mortgage, pledge, encumbrance or lien or charge on the capital stock of certain of our bank subsidiaries or subsidiaries that own capital stock of our bank subsidiaries and (iii) sell all or substantially all of our assets or merge or consolidate with or into other companies.
While the mortgage origination segment sold loans prior to 2013, it does not anticipate experiencing significant losses in the future on loans originated prior to 2013 because of investor claims under these provisions of its sales contracts. ​ When a claim for indemnification of a loan sold is made by an agency, investor, or other party, the mortgage origination segment evaluates the claim and determines if the claim can be satisfied through additional documentation or other deliverables.
While the mortgage origination segment sold loans prior to 2014, it does not anticipate experiencing significant losses in the future on loans originated prior to 2014 because of investor claims under these provisions of its sales contracts. ​ When a claim for indemnification of a loan sold is made by an agency, investor, or other party, the mortgage origination segment evaluates the claim and determines if the claim can be satisfied through additional documentation or other deliverables.
The notional amounts of these forward commitments at December 31, 2022, 2021 and 2020 were $1.2 billion, $2.4 billion and $4.0 billion, respectively, while the related estimated fair values were $3.3 million, $0.4 million and ($28.0) 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.
The notional amounts of these forward commitments at December 31, 2023, 2022 and 2021 were $1.0 billion, $1.2 billion and $2.4 billion, respectively, while the related estimated fair values were ($10.2) million, $3.3 million and $0.4 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.
When computing allowance levels, credit loss assumptions are estimated using 102 Table of Contents 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.
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 105 Table of Contents 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.
As discussed in more detail within the section titled “Liquidity and Capital Resources — Junior Subordinated Debentures” below, during the third quarter of 2021, PCC fully redeemed all outstanding Debentures. ​ 95 Table of Contents Liquidity and Capital Resources ​ Hilltop is a financial holding company whose assets primarily consist of the stock of its subsidiaries and invested assets.
As discussed in more detail within the section titled “Liquidity and Capital Resources — Junior Subordinated Debentures” below, during the third quarter of 2021, PCC fully redeemed all outstanding Debentures. ​ ​ ​ 98 Table of Contents Liquidity and Capital Resources ​ Hilltop is a financial holding company whose assets primarily consist of the stock of its subsidiaries and invested assets.
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, 2022. ​ 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.
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, 2023. ​ 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.
(2) Presented on a taxable equivalent basis with taxable equivalent adjustments based on the applicable corporate federal income tax rate of 21% for the periods presented. The adjustment to interest income was $1.6 million, $1.7 million and $1.2 million during 2022, 2021 and 2020, respectively. ​ The banking segment’s net interest margin exceeds our consolidated net interest margin shown above.
(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 $2.7 million, $1.6 million and $1.7 million during 2023, 2022 and 2021, respectively. ​ The banking segment’s net interest margin exceeds our consolidated net interest margin shown above.
(4) Annualized taxable equivalent. ​ With regard to net interest income, as of December 31, 2022, 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.
(4) Annualized taxable equivalent. ​ With regard to net interest income, as of December 31, 2023, 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.
As discussed in more detail in the section titled “Liquidity and Capital Resources — Junior Subordinated Debentures” below, during the third quarter of 2021, PCC fully redeemed all outstanding Debentures. ​ Noninterest income from continuing operations during each period included activity related to our investment in a real estate development in Dallas’ University Park, which also serves as headquarters for both Hilltop and the Bank, and net noninterest income associated with activity within our merchant bank subsidiary.
As discussed in more detail in the section titled “Liquidity and Capital Resources — Junior Subordinated Debentures” below, during the third quarter of 2021, PCC fully redeemed all outstanding Debentures. ​ Noninterest income 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.
These conditions will continue to be considered during future impairment evaluations of reporting unit goodwill. ​ 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.
These conditions will continue to be considered during future impairment evaluations of goodwill. ​ 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 banking segment’s loan concentrations were within regulatory guidelines at December 31, 2022. ​ 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.
The banking segment’s loan concentrations were within regulatory guidelines at December 31, 2023. ​ 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.
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. ​ 86 Table of Contents 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.
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. ​ 88 Table of Contents 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.
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, to mitigate interest rate risk associated with its MSR asset.
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.
Factors used in assessing the ability to hold these securities to maturity were future liquidity needs and sources of funding. ​ 81 Table of Contents Banking Segment ​ The banking segment’s securities portfolio plays a role in the management of our interest rate sensitivity and generates additional interest income.
Factors used in assessing the ability to hold these securities to maturity were future liquidity needs and sources of funding. ​ 83 Table of Contents Banking Segment ​ The banking segment’s securities portfolio plays a role in the management of our interest rate sensitivity and generates additional interest income.
None of the available for sale debt securities held were past due at December 31, 2022. In addition, as of December 31, 2022, we had evaluated our held to maturity debt securities, considering the current credit ratings and recognized losses, and determined the potential credit loss to be minimal.
None of the available for sale debt securities held were past due at December 31, 2023. In addition, as of December 31, 2023, we had evaluated our held to maturity debt securities, considering the current credit ratings and recognized losses, and determined the potential credit loss to be minimal.
Deposit products and pricing structures relative to the market are regularly evaluated to maintain competitiveness over time. During a period of rising interest rates, the cost of 68 Table of Contents funds on deposits, and therefore, interest expense, tends to increase.
Deposit products and pricing structures relative to the market are regularly evaluated to maintain competitiveness over time. During a period of rising interest rates, the cost of 70 Table of Contents funds on deposits, and therefore, interest expense, tends to increase.
As demonstrated during the extreme volatility and disruptions in the capital and credit markets beginning in March 2020 resulting from the COVID-19 crisis and its negative impact on the economy, we 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.
As demonstrated during the extreme volatility and disruptions in the capital and credit markets beginning in March 2020 resulting from the pandemic and its negative impact 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.
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. ​ 57 Table of Contents 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.
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. ​ Factors Affecting Results of Operations ​ As a financial institution providing products and services through our banking, broker-dealer and mortgage origination segments, we are directly affected by general economic and market conditions, many of which are beyond our control and unpredictable.
A key factor impacting our results of operations includes changes in the level of interest rates in addition to twists in the shape of the yield curve with the magnitude and direction of the impact varying across the different lines of business.
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.
With the expected rise in interest rates continuing into 2023, we anticipate continued volatility and generally lower levels of other noninterest income related to our structured finance and fixed income services business lines.
With the expected rise in interest rates continuing into 2024, we anticipate continued volatility and generally lower levels of other noninterest income related to our structured finance and fixed income services business lines.
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 period.
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 period.
During 2021, the banking segment had net reversals of credit losses on expected losses of collectively evaluated loans of $58.3 million, primarily due to improvements in both macroeconomic forecast assumptions and credit quality metrics on COVID-19 impacted industry sector exposures. The change in the allowance during 2021 was also impacted by net recoveries of $0.5 million.
During 2021, the banking segment had net reversals of credit losses on expected losses of collectively evaluated loans of $58.3 million, primarily due to improvements in both macroeconomic forecast assumptions and credit quality metrics on industry sector exposures impacted by the pandemic. The change in the allowance during 2021 was also impacted by net recoveries of $0.5 million.
During 2021, noninterest income included an aggregate of $6.5 million in pre-tax gains associated with observable transactions related to two merchant bank equity investments. ​ Noninterest expenses from continuing operations were primarily comprised of employees’ compensation and benefits, occupancy expenses and professional fees, including corporate governance, legal and transaction costs.
During 2021, noninterest income included an aggregate of $6.5 million in pre-tax gains associated with observable transactions related to two merchant bank equity investments. ​ Noninterest expenses were primarily comprised of employees’ compensation and benefits, occupancy expenses and professional fees, including corporate governance, legal and transaction costs.
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. ​ 98 Table of Contents 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, 2022 (dollars in thousands).
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, 2023 (dollars in thousands).
(2) Presented on a taxable equivalent basis with taxable equivalent adjustments based on the applicable corporate federal income tax rates of 21% for all periods presented. The adjustment to interest income was $0.8 million, $0.8 million and $0.8 million during 2022, 2021 and 2020, respectively. ​ The banking segment’s net interest margin exceeds our consolidated net interest margin.
(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 $0.7 million, $0.8 million and $0.8 million during 2023, 2022 and 2021, respectively. ​ The banking segment’s net interest margin exceeds our consolidated net interest margin.
In the event future operating performance remains challenged and below our forecasted projections, there are negative changes to long-term growth rates or discount rates increase, the fair value of the broker-dealer segment reporting unit may decline and we may be required to record a goodwill impairment charge.
However, in the event future operating performance remains challenged and below our forecasted projections, there are negative changes to long-term growth rates or discount rates increase, the fair value of the broker-dealer segment may decline and we may be required to record a goodwill impairment charge.
We monitor our capital strength in terms of both leverage ratio and risk-based capital ratios 61 Table of Contents 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.
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.
Future allowance for credit losses may vary considerably for these reasons. ​ 90 Table of Contents Allowance Activity ​ The following table presents the activity in our allowance for credit losses within our loan portfolio for the periods presented (in thousands).
Future allowance for credit losses may vary considerably for these reasons. ​ 92 Table of Contents Allowance Activity ​ The following table presents the activity in our allowance for credit losses within our loan portfolio for the periods presented (in thousands).
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.
Assumptions used include market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and ancillary fee income. 106 Table of Contents ​ 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.
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. 76 Table of Contents ​ 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.
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 majority of floating rate loans carry an interest rate tied to The Wall Street Journal Prime Rate, as published in The Wall Street Journal. ​ Broker-Dealer Segment ​ The loan portfolio of the broker-dealer segment consists primarily of margin loans to customers and correspondents that are due within one year.
The 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. ​ 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.
Under accounting principles generally accepted in the United States (“GAAP”), our continuing operations business units are comprised of three reportable business segments organized primarily by the core products offered to the segments’ respective customers: banking, broker-dealer and mortgage origination.
Under accounting principles generally accepted in the United States (“GAAP”), the 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.
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 the mortgage origination and broker-dealer segments remain 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.
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 2024, 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.
These activities include holding company financing and investing activities, merchant banking investment opportunities, and management and administrative services to support the overall operations of the Company. ​ The eliminations of intercompany transactions are included in “All Other and Eliminations.” Additional information concerning our reportable segments is presented in Note 28, Segment and Related Information, in the notes to our consolidated financial statements. ​ 60 Table of Contents The following table presents certain information about the continuing operating results of our reportable segments (in thousands).
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. ​ 62 Table of Contents 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).
On May 27, 2022, including the exercise of our right to purchase up to an additional 2% of our outstanding shares, we completed our 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. We funded the tender offer with cash on hand.
On May 27, 2022 including the exercise of our right to purchase up to an additional 2% of our outstanding shares, we completed our 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.
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 $2.5 billion at December 31, 2022 and outstanding financial and performance standby letters of credit of $75.8 million at December 31, 2022. ​ 101 Table of Contents 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.
Our policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements. ​ In the aggregate, the Bank had outstanding unused commitments to extend credit of $2.2 billion at December 31, 2023 and outstanding financial and performance standby letters of credit of $52.8 million at December 31, 2023. ​ 104 Table of Contents 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.
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 2022, 2021 and 2020, the banking segment retained approximately $532 million, $778 million and $193 million, respectively, in mortgage loans originated by the mortgage origination segment.
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 2023, 2022 and 2021, the banking segment retained approximately $140 million, $532 million and $778 million, respectively, in mortgage loans originated by the mortgage origination segment.
Refer to Notes 1, 4 and 11 to the consolidated financial statements for further discussion of the methodology used in establishing the MSR asset and changes during the relevant period thereof. ​ Goodwill and Identifiable Intangible Assets ​ Goodwill and other identifiable intangible assets are initially recorded at their estimated fair values at the date of acquisition.
Refer to Notes 1, 3 and 10 to the consolidated financial statements for further discussion of the methodology used in establishing the MSR asset and changes during the relevant period thereof. ​ Goodwill and Identifiable Intangible Assets ​ Goodwill and other identifiable intangible assets are initially recorded at their estimated fair values at the date of acquisition.
These indicators change from time to time as the opportunities and challenges in our businesses change. ​ Specifically, performance ratios and asset quality ratios are typically used for measuring the performance of banking and financial institutions.
These indicators change from time to time as the opportunities and challenges in our businesses change. ​ 63 Table of Contents Specifically, performance ratios and asset quality ratios are typically used for measuring the performance of banking and financial institutions.
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, 2022, excluding margin loans in the broker-dealer 89 Table of Contents 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. ​ Compared to our economic forecast, the upside scenario assumes the economic impacts from military conflicts between Russia and Ukraine and global supply chain concerns recede faster than expected.
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. ​ 91 Table of Contents 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, 2023, 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. ​ Compared to our economic forecast, the upside scenario assumes the economic impacts from international armed conflicts and global supply chain concerns recede faster than expected.
Loan origination volume is central to the segment’s ability to generate income by originating and selling mortgage loans, resulting in net gains from the sale of loans, other mortgage production income and other mortgage loan origination fees.
Loan origination volume is central to the segment’s ability to generate income by originating and selling mortgage loans, 77 Table of Contents resulting in net gains from the sale of loans, other mortgage production income and other mortgage loan origination fees.
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, 2022. ​ 82 Table of Contents The following table sets forth the estimated maturities of our debt securities, excluding trading securities, at December 31, 2022.
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, 2023. ​ 84 Table of Contents The following table sets forth the estimated maturities of our debt securities, excluding trading securities, at December 31, 2023.
(a wholly owned subsidiary of Securities Holdings), Hilltop Securities and Momentum Independent Network are collectively referred to as the “Hilltop Broker-Dealers,” references to the “Bank” refer to PlainsCapital Bank (a wholly owned subsidiary of PCC), references to “FNB” refer to First National Bank, references to “SWS” refer to the former SWS Group, Inc., references to “PrimeLending” refer to PrimeLending, a PlainsCapital Company (a wholly owned subsidiary of the Bank) and its subsidiaries as a whole, references to “NLC” refer to National Lloyds Corporation (formerly a wholly owned subsidiary of Hilltop) and its wholly owned subsidiaries. ​ 53 Table of Contents OVERVIEW ​ We are a financial holding company registered under the Bank Holding Company Act of 1956.
(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. ​ 56 Table of Contents OVERVIEW ​ We are a financial holding company registered under the Bank Holding Company Act of 1956.
Subsequent fair value measurements are determined using a discounted cash flow model. In order to determine the fair value of the MSR asset, the present value of expected future 103 Table of Contents cash flows is estimated.
Subsequent fair value measurements are determined using a discounted cash flow model. In order to determine the fair value of the MSR asset, the present value of expected future cash flows is estimated.
The test consists of estimating the fair value of each reporting unit based on valuation techniques, including a discounted cash flow model using revenue and profit forecasts and recent industry transaction and trading multiples of our peers, and comparing those estimated fair values with the carrying values of the assets and liabilities of each reporting unit, which includes the allocated goodwill.
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.
To provide more meaningful comparisons of net interest margins for all earning assets, we use net interest income on a taxable equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. ​ During 2022, 2021 and 2020, purchase accounting contributed 9, 16 and 18 basis points, respectively, to the banking segment’s taxable equivalent net interest margin of 3.11%, 3.08% and 3.31%, respectively.
To provide more meaningful comparisons of net interest margins for all earning assets, we use net interest income on a taxable equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. ​ During 2023, 2022 and 2021, purchase accounting contributed 7, 9 and 16 basis points, respectively, to the banking segment’s taxable equivalent net interest margin of 3.14%, 3.11% and 3.08%, respectively.
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. ​ Tender Offer ​ On May 2, 2022, we announced the commencement of a modified “Dutch auction” tender offer to purchase shares of our common stock for an aggregate cash purchase price of up to $400 million, inclusive of the aforementioned stock repurchase program.
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. ​ Tender Offer ​ On May 2, 2022, we announced the commencement of a modified “Dutch auction” tender offer to purchase shares of our common stock for an aggregate cash purchase price of up to $400 million, inclusive of our $100.0 million stock repurchase program authorized in January 2022.
Income before income taxes during 2022, 2021 and 2020 included net accretion on earning assets and liabilities of $10.8 million, $19.2 million and $18.9 million, respectively, and amortization of identifiable intangibles of $4.5 million, $5.2 million and $6.3 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, ​ ​ ​ 2022 ​ 2021 ​ 2020 Return on average stockholders' equity (1) ​ 5.11 % ​ 15.38 % ​ 20.03 % Return on average assets (2) ​ 0.69 % ​ 2.17 % ​ 2.88 % Net interest margin (3) (4) ​ 2.87 % ​ 2.57 % ​ 2.85 % Leverage ratio (5) (end of year) ​ 11.47 % ​ 12.58 % ​ 12.64 % Common equity Tier 1 risk-based capital ratio (6) (end of year) ​ 18.23 % ​ 21.22 % ​ 18.97 % (1) Return on average stockholders’ equity is defined as consolidated income attributable to Hilltop divided by average total Hilltop stockholders’ equity.
Income before income taxes during 2023, 2022 and 2021 included net accretion on earning assets and liabilities of $8.6 million, $10.8 million and $19.2 million, respectively, and amortization of identifiable intangibles of $2.9 million, $4.5 million and $5.2 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, ​ ​ ​ 2023 ​ 2022 ​ 2021 Return on average stockholders' equity (1) ​ 5.31 % ​ 5.11 % ​ 15.38 % Return on average assets (2) ​ 0.71 % ​ 0.69 % ​ 2.17 % Net interest margin (3) (4) ​ 3.07 % ​ 2.87 % ​ 2.57 % Leverage ratio (5) (end of year) ​ 12.23 % ​ 11.47 % ​ 12.58 % Common equity Tier 1 risk-based capital ratio (6) (end of year) ​ 19.32 % ​ 18.23 % ​ 21.22 % (1) Return on average stockholders’ equity is defined as consolidated income attributable to Hilltop divided by average total Hilltop stockholders’ equity.
If the estimated fair value is less than the carrying value, we will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, any loss recognized will not exceed the total amount of goodwill allocated to that reporting unit. ​ This evaluation includes multiple assumptions, including estimated discounted cash flows and other estimates that may change over time.
If 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.
These credit arrangements are provided on an “as offered” basis and are not committed lines of credit. In addition, Hilltop Securities has committed revolving credit facilities with three unaffiliated banks, with aggregate availability of up to $250.0 million.
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.
Accordingly, at the conclusion of the annual assessment, the Company determined that as of October 1, 2022 it was more likely than not that the fair value of goodwill and other intangible assets exceeded their respective carrying values.
Accordingly, at the conclusion of the annual assessments, the Company determined that as of October 1, 2023 it was more likely than not that the fair value of goodwill and other intangible assets exceeded their respective carrying values.
(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 21 basis points, 16 basis points and 25 basis points during 2022, 2021 and 2020, respectively.
(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 26 basis points, 21 basis points and 16 basis points during 2023, 2022 and 2021, respectively.
OREO decreased from December 31, 2020 to December 31, 2021, primarily due to disposals and valuation adjustments totaling $22.0 million, partially offset by additions totaling of $3.6 million. ​ Loans past due 90 days or more and still accruing at December 31, 2022, 2021 and 2020 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.
OREO decreased from December 31, 2021 to December 31, 2022, primarily due to disposals and valuation adjustments totaling $1.8 million, partially offset by additions totaling of $1.3 million. ​ Loans past due 90 days or more and still accruing at December 31, 2023, 2022 and 2021 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.
Through Securities Holdings, we provide investment banking and other related financial services that generated $266.5 million, $296.3 million and $274.0 million in securities commissions and fees and investment and securities advisory fees and commissions, and $61.1 million, $75.2 million and $203.1 million in gains from derivative and trading portfolio activities (included within other noninterest income) during 2022, 2021 and 2020, respectively.
Through Securities Holdings, we provide investment banking and other related financial services that generated $256.2 million, $266.5 million and $296.3 million in securities commissions and fees and investment and securities advisory fees and commissions, and $97.0 million, $61.1 million and $75.2 million in gains from derivative and trading portfolio activities (included within other noninterest income) during 2023, 2022 and 2021, respectively.
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 2022, 2021 and 2020 were $532 million, $778 million and $193 million, respectively.
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 2023, 2022 and 2021 were $140 million, $532 million and $778 million, respectively.
In addition, the mortgage origination segment originates loans on behalf of the Bank. The mortgage origination segment’s determination of whether to retain or release servicing on mortgage loans it sells is impacted by, among other things, changes in mortgage interest rates, and refinancing and market activity.
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 .
Investment and interest income earned during 2022 was primarily comprised of dividend income from merchant banking investment activities, in addition to interest income earned on intercompany notes. ​ Interest expense from continuing operations during 2022, 2021 and 2020 included recurring annual interest expense of $7.7 million incurred on our $150.0 million aggregate principal amount of 5% senior notes due 2025 (“Senior Notes”).
Investment and interest income earned during 2023 was primarily comprised of dividend income from merchant banking investment activities, in addition to interest income earned on intercompany notes. ​ Interest expense during 2023, 2022 and 2021 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 (“Senior Notes”).
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 $754.9 million at December 31, 2022.
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 $515.9 million at December 31, 2023.
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 $431.0 million, $733.0 million and $436.8 million at December 31, 2022, 2021 and 2020, respectively.
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 $344.1 million, $431.0 million and $733.0 million at December 31, 2023, 2022 and 2021, respectively.
At December 31, 2022, the banking segment’s loan portfolio included warehouse lines of credit extended to PrimeLending and its ABAs of $2.1 billion, of which $0.9 billion was drawn. At December 31, 2021 and 2020, amounts drawn on the available warehouse lines of credit were $1.7 billion and $2.5 billion, respectively.
At December 31, 2023, the banking segment’s loan portfolio included warehouse lines of credit extended to PrimeLending and its ABAs of $1.6 billion, of which $0.9 billion was drawn. At December 31, 2022 and 2021, amounts drawn on the available warehouse lines of credit were $0.9 billion and $1.7 billion, respectively.
Floating rate loans that have reached their applicable rate floor or ceiling are classified as fixed rate loans rather than floating rate loans. As of December 31, 2022, floating rate loans totaling $733.8 million had reached their applicable rate floor and were expected to reprice, subject to their scheduled repricing timing and frequency terms.
Floating rate loans that have reached their applicable rate floor or ceiling are classified as fixed rate loans rather than floating rate loans. As of December 31, 2023, floating rate loans totaling $707 million had reached their applicable rate floor and were expected to reprice, subject to their scheduled repricing timing and frequency terms.
Notes payable at December 31, 2021 was comprised of $149.1 million related to Senior Notes, net of loan origination fees, Subordinated Notes, net of origination fees, of $197.1 million and mortgage origination segment borrowings of $41.7 million.
Notes payable at December 31, 2022 was comprised of $149.3 million related to Senior Notes, net of loan origination fees, and Subordinated Notes, net of origination fees, of $197.4 million, while notes payable at December 31, 2021 was comprised of $149.1 million related to Senior Notes, net of loan origination fees, Subordinated Notes, net of origination fees, of $197.1 million and mortgage origination segment borrowings of $41.7 million.
At December 31, 2022, approximately $734 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 80% are not scheduled to reprice for more than one year based upon agreed-upon terms.
At December 31, 2023, approximately $707 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 83% are not scheduled to reprice for more than one year based upon agreed-upon terms.
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, 2013 and December 31, 2022, the mortgage origination segment sold mortgage loans totaling $152.1 billion.
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, 2014 and December 31, 2023, the mortgage origination segment sold mortgage loans totaling $148.1 billion.
The impact of such matters will be considered in the reserving process when known. Refer to “Segment Results from Continuing Operations—Mortgage Origination Segment” and Notes 1 and 20 to the consolidated financial statements for further discussion of the methodology used in establishing the mortgage loan indemnification liability and changes during the relevant period thereof. 104 Table of Contents ​
The impact of such matters will be considered in the reserving process when known. Refer to “Segment Results—Mortgage Origination Segment” and Notes 1 and 19 to the consolidated financial statements for further discussion of the methodology used in establishing the mortgage loan indemnification liability and changes during the relevant period thereof. 107 Table of Contents ​
At December 31, 2022, Hilltop Securities had $57.5 million in borrowings under its credit arrangements and had no borrowings under its credit facilities. ​ Hilltop Securities uses the net proceeds (after deducting related issuance expenses) from the sale of two commercial paper programs for general corporate purposes, including working capital and the funding of a portion of its securities inventories.
At December 31, 2023, Hilltop Securities had no 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.
At December 31, 2022, Hilltop Securities had credit arrangements with three unaffiliated banks, with maximum aggregate commitments of up to $500.0 million. These credit arrangements are used to finance securities owned, securities held for correspondent accounts, receivables in customer margin accounts and underwriting activities.
At December 31, 2023, 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.
At December 31, 2022, the banking segment’s securities portfolio of $2.5 billion was comprised of trading securities of $0.1 million, available for sale securities of $1.7 billion, held to maturity securities of $876 million and equity securities of $0.2 million, in addition to $12.1 million of other investments included in other assets within the consolidated balance sheets. ​ Broker-Dealer Segment ​ The broker-dealer segment holds securities to support sales, underwriting and other customer activities.
At December 31, 2023, the banking segment’s securities portfolio of $2.3 billion was comprised of trading securities of $0.1 million, available for sale securities of $1.5 billion, held to maturity securities of $812.7 million and equity securities of $0.3 million, in addition to $11.8 million of other investments included in other assets within the consolidated balance sheets. ​ Broker-Dealer Segment ​ The broker-dealer segment holds securities to support sales, underwriting and other customer activities.
In future periods, changes in prevailing market interest rates, coupled with changes in the aggregate size of the investment portfolio, are expected to be significant drivers to changes in the unrealized losses or gains in these portfolios. ​ We transferred certain agency-issued securities from the available-for-sale to held-to-maturity portfolio on March 31, 2022 having a book value of approximately $782 million and a market value of approximately $708 million.
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). ​ We transferred certain agency-issued securities from the available-for-sale to held-to-maturity portfolio on March 31, 2022 having a book value of approximately $782 million and a market value of approximately $708 million.
Within the held to maturity portfolio, we had net unrealized losses of $90.2 million at December 31, 2022, compared with net unrealized gains of $8.6 million and $14.7 million at December 31, 2022, 2021 and 2020, respectively. Equity securities included net unrealized gains of $0.1 million, $0.2 million and $0.1 million at December 31, 2022, 2021 and 2020, respectively.
Within the held to maturity portfolio, we had net unrealized losses of $80.8 million and $90.2 million at December 31, 2023 and 2022 compared with net unrealized gains of $8.6 million at December 31, 2021. Equity securities included net unrealized gains of $0.3 million, $0.1 million and $0.2 million at December 31, 2023, 2022 and 2021, respectively.

… 346 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+2 added−1 removed42 unchanged
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, 2022, 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.
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, 2023, 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.
Moreover, if prepayments are greater than expected, the cash we receive over the life of the mortgage loans would be reduced. The mortgage origination segment uses derivative financial instruments, including U.S. Treasury bond futures and options, Eurodollar futures and forward MBS commitments, as a means to mitigate market risk associated with MSR assets.
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, futures contracts and forward MBS commitments, as a means to mitigate market risk associated with MSR assets.
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. ​ 105 Table of Contents As illustrated in the table below, the banking segment is currently asset sensitive overall.
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. ​ 108 Table of Contents As illustrated in the table below, the banking segment is currently asset sensitive overall.
Given projected impacts on net interest income associated with the expected transition into the next phase of the interest rate cycle in 2023, we are evaluating our current GAP position, which may result in a repositioning of the banking segment towards a more neutral or liability sensitive balance sheet. ​ Our portfolio includes loans that periodically reprice or mature prior to the end of an amortized term.
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. ​ Our portfolio includes loans that periodically reprice or mature prior to the end of an amortized term.
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.
No hedging strategy can protect us completely, and hedging strategies may fail because they are improperly designed, improperly executed and documented 111 Table of Contents or based on inaccurate assumptions and, as a result, could actually increase our risks and losses.
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 108 Table of Contents 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 at December 31, 2022 (dollars in thousands). ​ ​ ​ ​ ​ ​ ​ ​ Change in ​ Changes in ​ Interest Rates ​ Net Interest Income ​ (basis points) Amount Percent +300 ​ $ 99,932 ​ 17.56 % +200 ​ $ 64,953 11.41 % +100 ​ $ 33,327 5.86 % -50 ​ $ (17,260) (3.03) % -100 ​ $ (35,646) (6.26) % -200 ​ $ (75,696) (13.30) % ​ The projected changes in net interest income to changes in interest rates at December 31, 2022 were in compliance with established internal policy guidelines.
Refer to the discussion in the “Banking Segment” section above that provides more details regarding sources of interest rate risk and asset/liability management policies and procedures employed to manage our interest-earning assets and interest-bearing liabilities, 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 at December 31, 2023 (dollars in thousands). ​ ​ ​ ​ ​ ​ ​ ​ Change in ​ Changes in ​ Interest Rates ​ Net Interest Income ​ (basis points) Amount Percent +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 the Bank’s sensitivity 106 Table of Contents given simulation analysis assumptions/limitations.
Furthermore, the projected changes in net interest income are being impacted by the heightened level of cash balances, which represent a significant portion of the Bank’s sensitivity given simulation analysis assumptions/limitations.
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, 2022 ​ ​ ​ 1 Year ​ > 1 Year ​ > 5 Years ​ ​ ​ ​ ​ ​ ​ or Less ​ to 5 Years ​ to 10 Years ​ > 10 Years ​ Total ​ Trading securities, at fair value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Municipal obligations ​ $ 187 ​ $ 38,372 ​ $ 62,124 ​ $ 159,588 ​ $ 260,271 ​ U.S. government and government agency obligations ​ ​ (940) ​ ​ 12,115 ​ ​ 4,456 ​ ​ 390,107 ​ ​ 405,738 ​ Corporate obligations ​ ​ 2,117 ​ ​ 853 ​ ​ 5,874 ​ ​ 15,588 ​ ​ 24,432 ​ Total debt securities ​ ​ 1,364 ​ ​ 51,340 ​ ​ 72,454 ​ ​ 565,283 ​ ​ 690,441 ​ Corporate equity securities ​ ​ (3,145) ​ ​ — ​ ​ — ​ ​ — ​ ​ (3,145) ​ Other ​ ​ 14,627 ​ ​ — ​ ​ — ​ ​ — ​ ​ 14,627 ​ ​ ​ $ 12,846 ​ $ 51,340 ​ $ 72,454 ​ $ 565,283 ​ $ 701,923 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average yield ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Municipal obligations ​ ​ 0.40 % ​ 3.47 % ​ 3.60 % ​ 3.95 % ​ 3.78 % U.S. government and government agency obligations ​ ​ 4.69 % ​ 4.10 % ​ 2.11 % ​ 5.04 % ​ 4.86 % Corporate obligations ​ ​ 5.42 % ​ 6.16 % ​ 6.00 % ​ 2.25 % ​ 4.86 % ​ Derivatives are used to support certain customer programs and hedge our related exposure to interest rate risks. 107 Table of Contents ​ 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.
Our funding sources are generally short term with interest rates that can vary daily. ​ 110 Table of Contents 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, 2023 ​ ​ ​ 1 Year ​ > 1 Year ​ > 5 Years ​ ​ ​ ​ ​ ​ ​ or Less ​ to 5 Years ​ to 10 Years ​ > 10 Years ​ Total ​ Trading securities, at fair value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Municipal obligations ​ $ 5,672 ​ $ 36,163 ​ $ 46,271 ​ $ 92,784 ​ $ 180,890 ​ U.S. government and government agency obligations ​ ​ 4,124 ​ ​ 10,971 ​ ​ (7,007) ​ ​ 218,549 ​ ​ 226,637 ​ Corporate obligations ​ ​ 4,903 ​ ​ 37,895 ​ ​ 13,657 ​ ​ 19,732 ​ ​ 76,187 ​ Total debt securities ​ ​ 14,699 ​ ​ 85,029 ​ ​ 52,921 ​ ​ 331,065 ​ ​ 483,714 ​ Corporate equity securities ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Other ​ ​ (2,662) ​ ​ — ​ ​ — ​ ​ — ​ ​ (2,662) ​ ​ ​ $ 12,037 ​ $ 85,029 ​ $ 52,921 ​ $ 331,065 ​ $ 481,052 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average yield ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Municipal obligations ​ ​ 0.51 % ​ 0.49 % ​ 1.86 % ​ 3.38 % ​ 2.43 % U.S. government and government agency obligations ​ ​ 0.42 % ​ 4.43 % ​ 3.76 % ​ 5.75 % ​ 5.49 % Corporate obligations ​ ​ 4.60 % ​ 5.68 % ​ 3.38 % ​ 3.12 % ​ 4.43 % ​ 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.
Also, unlike GAP analysis, simulation analysis takes into account the effect of embedded options in the securities and loan portfolios as well as any off-balance-sheet derivatives. ​ The table below shows the estimated impact of a range of changes in interest rates on net interest income and on economic value of equity for the banking segment at December 31, 2022 (dollars in thousands). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in ​ Changes in ​ ​ Changes in Interest Rates ​ Net Interest Income ​ ​ Economic Value of Equity (basis points) Amount Percent Amount Percent +300 ​ $ 40,069 ​ 8.80 % ​ $ 185,702 ​ 8.72 % +200 ​ $ 25,192 5.53 % ​ $ 128,656 6.04 % +100 ​ $ 13,512 2.97 % ​ $ 84,782 3.98 % -50 ​ $ (6,710) (1.47) % ​ $ (57,214) (2.69) % -100 ​ $ (14,576) (3.20) % ​ $ (131,488) (6.18) % -200 ​ $ (33,663) (7.39) % ​ $ (229,779) (10.79) % ​ The projected changes in net interest income and economic value of equity to changes in interest rates at December 31, 2022 were in compliance with established internal policy guidelines.
Also, unlike GAP analysis, simulation analysis takes into account the effect of embedded options in the securities and loan portfolios as well as any off-balance-sheet derivatives. ​ The table below shows the estimated impact of a range of changes in interest rates on net interest income and on economic value of equity for the banking segment at December 31, 2023 (dollars in thousands). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in ​ Changes in ​ ​ Changes in Interest Rates ​ Net Interest Income ​ ​ Economic Value of Equity (basis points) Amount Percent Amount Percent +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, with the exception of the estimated change in economic value of equity impact based on a -200 basis points change in interest rates which marginally exceeded management’s internal policy limit.
Removed
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, 2022 ​ 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 ​ $ 3,924,236 ​ $ 1,347,554 ​ $ 1,986,455 ​ $ 843,993 ​ $ 441,327 ​ $ 8,543,565 ​ Securities ​ 574,432 ​ 247,538 ​ 479,613 ​ 369,439 ​ 1,073,267 ​ 2,744,289 ​ Federal funds sold and securities purchased under agreements to resell ​ 78,960 ​ — ​ — ​ — ​ — ​ 78,960 ​ Other interest sensitive assets ​ 1,343,580 ​ — ​ — ​ — ​ 29,627 ​ 1,373,207 ​ Total interest sensitive assets ​ 5,921,208 ​ 1,595,092 ​ 2,466,068 ​ 1,213,432 ​ 1,544,221 ​ 12,740,021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest sensitive liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest bearing checking ​ $ 6,013,782 ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 6,013,782 ​ Savings ​ 312,140 ​ — ​ — ​ — ​ — ​ 312,140 ​ Time deposits ​ 143,276 ​ 395,979 ​ 309,219 ​ 15,932 ​ 1 ​ 864,407 ​ Notes payable and other borrowings ​ 397,182 ​ 135 ​ 430 ​ 559 ​ 2,241 ​ 400,547 ​ Total interest sensitive liabilities ​ 6,866,380 ​ 396,114 ​ 309,649 ​ 16,491 ​ 2,242 ​ 7,590,876 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest sensitivity gap ​ $ (945,172) ​ $ 1,198,978 ​ $ 2,156,419 ​ $ 1,196,941 ​ $ 1,541,979 ​ $ 5,149,145 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cumulative interest sensitivity gap ​ $ (945,172) ​ $ 253,806 ​ $ 2,410,225 ​ $ 3,607,166 ​ $ 5,149,145 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage of cumulative gap to total interest sensitive assets ​ (7.42) % 1.99 % 18.92 % 28.31 % 40.42 % ​ ​ ​ ​ The positive GAP in the interest rate analysis indicates that banking segment net interest income would generally rise if rates increase.
Added
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, 2023 ​ 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 ​ $ 4,037,906 ​ $ 1,360,570 ​ $ 1,890,126 ​ $ 703,995 ​ $ 606,344 ​ $ 8,598,941 ​ Securities ​ 515,770 ​ 219,420 ​ 442,560 ​ 331,592 ​ 970,615 ​ 2,479,957 ​ Federal funds sold and securities purchased under agreements to resell ​ 1,661,581 ​ — ​ — ​ — ​ — ​ 1,661,581 ​ Other interest sensitive assets ​ 8,107 ​ — ​ — ​ — ​ 29,710 ​ 37,817 ​ Total interest sensitive assets ​ 6,223,364 ​ 1,579,990 ​ 2,332,686 ​ 1,035,587 ​ 1,606,669 ​ 12,778,296 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest sensitive liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest bearing checking ​ $ 6,430,544 ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 6,430,544 ​ Savings ​ 259,745 ​ — ​ — ​ — ​ — ​ 259,745 ​ Time deposits ​ 615,486 ​ 552,468 ​ 44,074 ​ 52,308 ​ — ​ 1,264,336 ​ Notes payable and other borrowings ​ 459,877 ​ 91 ​ 299 ​ 403 ​ 1,729 ​ 462,399 ​ Total interest sensitive liabilities ​ 7,765,652 ​ 552,559 ​ 44,373 ​ 52,711 ​ 1,729 ​ 8,417,024 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest sensitivity gap ​ $ (1,542,288) ​ $ 1,027,431 ​ $ 2,288,313 ​ $ 982,876 ​ $ 1,604,940 ​ $ 4,361,272 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cumulative interest sensitivity gap ​ $ (1,542,288) ​ $ (514,857) ​ $ 1,773,456 ​ $ 2,756,332 ​ $ 4,361,272 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage of cumulative gap to total interest sensitive assets ​ (12.07) % (4.03) % 13.88 % 21.57 % 34.13 % ​ ​ ​ ​ The positive GAP in the interest rate analysis indicates that banking segment net interest income would generally rise if rates increase.
Added
These projected changes are based on numerous assumptions. Upon implementation of pending assumption updates based on the expected transition into the next interest 109 Table of Contents rate cycle, management anticipates that over time the estimated change in economic value of equity impact will return to compliance with established internal policy limit.

Other HTH 10-K year-over-year comparisons