# Hilltop Holdings Inc. (HTH) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from Hilltop Holdings Inc.'s 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/1265131/000155837024001160/hth-20231231x10k.htm Accession: 0001558370-24-001160 Filing date: 2024-02-14 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/HTH/ All MD&A years: /company/HTH/mda/ Previous year: /company/HTH/mda/fy2022/ (FY 2022) Next year: /company/HTH/mda/fy2024/ (FY 2024) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. ​ The following discussion is intended to help the reader understand our results of operations and financial condition and is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements and the accompanying notes thereto commencing on page F-1. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Item 1A. Risk Factors” and elsewhere in this Annual Report. See “Forward-Looking Statements.” ​ Unless the context otherwise indicates, all references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, to the “Company,” “we,” “us,” “our” or “ours” or similar words are to Hilltop Holdings Inc. and its direct and indirect wholly owned subsidiaries, references to “Hilltop” refer solely to Hilltop Holdings Inc., references to “PCC” refer to PlainsCapital Corporation (a wholly owned subsidiary of Hilltop), references to “Securities Holdings” refer to Hilltop Securities Holdings LLC (a wholly owned subsidiary of Hilltop), references to “Hilltop Securities” refer to Hilltop Securities Inc. (a wholly owned subsidiary of Securities Holdings), references to “Momentum Independent Network” refer to Momentum Independent Network Inc. (a wholly owned subsidiary of Securities Holdings), Hilltop Securities and Momentum Independent Network are collectively referred to as the “Hilltop Broker-Dealers,” references to the “Bank” refer to PlainsCapital Bank (a wholly owned subsidiary of PCC), references to “FNB” refer to First National Bank, references to “SWS” refer to the former SWS Group, Inc., references to “PrimeLending” refer to PrimeLending, a PlainsCapital Company (a wholly owned subsidiary of the Bank) and its subsidiaries as a whole. ​ 56 Table of Contents OVERVIEW ​ We are a financial holding company registered under the Bank Holding Company Act of 1956. Our primary line of business is to provide business and consumer banking services from offices located throughout Texas through the Bank. We also provide an array of financial products and services through our broker-dealer and mortgage origination segments. The following includes additional details regarding the financial products and services provided by each of our primary business units. ​ PCC. PCC is a financial holding company that provides, through its subsidiaries, traditional banking and wealth, investment and treasury management services primarily in Texas and residential mortgage loans throughout the United States. ​ Securities Holdings. Securities Holdings is a holding company that provides, through its subsidiaries, investment banking and other related financial services, including municipal advisory, sales, trading and underwriting of taxable and tax-exempt fixed income securities, clearing, securities lending, structured finance and retail brokerage services throughout the United States. ​ The following historical consolidated data for the periods indicated has been derived from our historical consolidated financial statements included elsewhere in this Annual Report (dollars in thousands, except per share data and weighted average shares outstanding). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","2023","","2022","","2021"],["Statement of Operations Data:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net interest income","\u200b","$","466,847","\u200b","$","458,975","\u200b","$","422,982","\u200b"],["Provision for (reversal of) credit losses","\u200b","","18,392","\u200b","","8,309","\u200b","","(58,213)","\u200b"],["Total noninterest income","\u200b","","728,973","\u200b","","832,460","\u200b","","1,410,275","\u200b"],["Total noninterest expense","\u200b","","1,028,309","\u200b","","1,126,999","\u200b","","1,387,398","\u200b"],["Income before income taxes","\u200b","","149,119","\u200b","","156,127","\u200b","","504,072","\u200b"],["Income tax expense","\u200b","","31,140","\u200b","","36,833","\u200b","","117,976","\u200b"],["Net income","\u200b","\u200b","117,979","\u200b","\u200b","119,294","\u200b","\u200b","386,096","\u200b"],["Less: Net income attributable to noncontrolling interest","\u200b","","8,333","\u200b","","6,160","\u200b","","11,601","\u200b"],["Income attributable to Hilltop","\u200b","$","109,646","\u200b","$","113,134","\u200b","$","374,495","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Per Share Data:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Diluted earnings per common share","\u200b","$","1.69","\u200b","$","1.60","\u200b","$","4.61","\u200b"],["Diluted weighted average shares outstanding","\u200b","$","65,045","\u200b","$","70,626","\u200b","$","81,173","\u200b"],["Cash dividends declared per common share","\u200b","$","0.64","\u200b","$","0.60","\u200b","$","0.48","\u200b"],["Dividend payout ratio (1)","\u200b","\u200b","37.97","%","\u200b","37.36","%","\u200b","10.34","%"],["Book value per common share (end of year)","\u200b","$","32.58","\u200b","$","31.49","\u200b","$","31.95","\u200b"],["Tangible book value per common share (2) (end of year)","\u200b","$","28.35","\u200b","$","27.18","\u200b","$","28.37","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Balance Sheet Data:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total assets","\u200b","$","16,466,996","\u200b","$","16,259,282","\u200b","$","18,689,080","\u200b"],["Cash and due from banks","\u200b","","1,858,700","\u200b","\u200b","1,579,512","\u200b","\u200b","2,823,138","\u200b"],["Securities","\u200b","","2,836,584","\u200b","\u200b","3,289,530","\u200b","\u200b","3,046,500","\u200b"],["Loans held for sale","\u200b","","943,846","\u200b","\u200b","982,616","\u200b","\u200b","1,878,190","\u200b"],["Loans held for investment, net of unearned income","\u200b","","8,079,745","\u200b","\u200b","8,092,673","\u200b","\u200b","7,879,904","\u200b"],["Allowance for credit losses","\u200b","","(111,413)","\u200b","\u200b","(95,442)","\u200b","\u200b","(91,352)","\u200b"],["Total deposits","\u200b","","11,063,192","\u200b","\u200b","11,315,749","\u200b","\u200b","12,818,077","\u200b"],["Notes payable","\u200b","","347,145","\u200b","\u200b","346,654","\u200b","\u200b","387,904","\u200b"],["Total stockholders' equity","\u200b","","2,150,329","\u200b","\u200b","2,063,529","\u200b","\u200b","2,549,203","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Capital Ratios:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Common equity to assets ratio","\u200b","","12.89","%","","12.53","%","","13.50","%"],["Tangible common equity to tangible assets (2)","\u200b","","11.41","%","","11.00","%","","12.17","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Dividend payout ratio is defined as cash dividends declared per common share divided by basic earnings per common share."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","For a reconciliation to the nearest GAAP measure, see \u201c\u2014Reconciliation and Management\u2019s Explanation of Non-GAAP Financial Measures.\u201d"]] [[/GREPCENT_TABLE]] 57 Table of Contents ​ Consolidated income before income taxes during 2023 included the following contributions from our reportable business segments. ​ [[GREPCENT_TABLE]] [["","\u25cf","The banking segment contributed $199.0 million of income before income taxes during 2023;"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","The broker-dealer segment contributed $73.5 million of income before income taxes during 2023; and"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","\u25cf","The mortgage origination segment incurred $62.8 million of losses before income taxes during 2023."]] [[/GREPCENT_TABLE]] ​ During 2023, we paid an aggregate of $5.1 million to repurchase shares of our common stock, and declared and paid total common dividends of $41.6 million. ​ 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. 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 January 25, 2024, our board of directors declared a quarterly cash dividend of $0.17 per common share, a 6% increase from the prior quarter, payable on February 28, 2024 to all common stockholders of record as of the close of business on February 12, 2024. Additionally, our board of directors authorized a new stock repurchase program through January 2025, pursuant to which we are authorized to repurchase, in the aggregate, up to $75.0 million of our outstanding common stock. During 2023, we paid $5.1 million to repurchase an aggregate of 164,604 shares of our common stock at an average price of $30.95 per share pursuant to the stock repurchase program. These shares were returned to the pool of authorized but unissued shares of common stock. ​ Reconciliation and Management’s Explanation of Non-GAAP Financial Measures ​ We present certain measures in our selected financial data that are not measures of financial performance recognized by GAAP. “Tangible book value per common share” is defined as our total stockholders’ equity reduced by goodwill and other intangible assets, divided by total common shares outstanding. “Tangible common equity to tangible assets” is defined as our total stockholders’ equity reduced by goodwill and other intangible assets, divided by total assets reduced by goodwill and other intangible assets. These measures are important to investors interested in changes from period to period in tangible common equity per share exclusive of changes in intangible assets. For companies such as ours that have engaged in business combinations, purchase accounting can result in the recording of significant amounts of goodwill and other intangible assets related to those transactions. ​ You should not view this disclosure as a substitute for results determined in accordance with GAAP, and our disclosure is not necessarily comparable to that of other companies that use non-GAAP measures. The following table reconciles these non-GAAP financial measures to the most comparable GAAP financial measures, “book value per common share” and “equity to total assets” (dollars in thousands, except per share data). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b"],["\u200b","","2023","","2022","","2021"],["Book value per common share","\u200b","$","32.58","\u200b","$","31.49","\u200b","$","31.95","\u200b"],["Effect of goodwill and intangible assets per share","\u200b","\u200b","(4.23)","\u200b","\u200b","(4.31)","\u200b","\u200b","(3.58)","\u200b"],["Tangible book value per common share","\u200b","$","28.35","\u200b","$","27.18","\u200b","$","28.37","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Hilltop stockholders\u2019 equity","\u200b","$","2,122,967","\u200b","$","2,036,924","\u200b","$","2,522,668","\u200b"],["Less: goodwill and intangible assets, net","\u200b","\u200b","275,904","\u200b","\u200b","278,764","\u200b","\u200b","282,731","\u200b"],["Tangible common equity","\u200b","$","1,847,063","\u200b","$","1,758,160","\u200b","$","2,239,937","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total assets","\u200b","$","16,466,996","\u200b","$","16,259,282","\u200b","$","18,689,080","\u200b"],["Less: goodwill and intangible assets, net","\u200b","\u200b","275,904","\u200b","\u200b","278,764","\u200b","\u200b","282,731","\u200b"],["Tangible assets","\u200b","$","16,191,092","\u200b","$","15,980,518","\u200b","$","18,406,349","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Equity to assets","\u200b","","12.89","%","","12.53","%","","13.50","%"],["Tangible common equity to tangible assets","\u200b","","11.41","%","","11.00","%","","12.17","%"]] [[/GREPCENT_TABLE]] ​ 58 Table of Contents Recent Developments ​ Economic Environment ​ Beginning in 2022, and continuing through 2023, our operational and financial results have been volatile due to economic headwinds including tight housing inventories on mortgage volumes, declining deposit balances, rapid increases in market interest rates and a volatile economic forecast. The impacts of such headwinds in 2024 remain uncertain and will depend on several developments outside of our control including, among others, the timing and significance of further changes in U.S. treasury yields and mortgage interest rates, exposure to increasing funding costs, inflationary pressures associated with compensation, occupancy and software costs and labor market conditions, and international armed conflicts and their impact on supply chains. ​ In addition, the banking sector experienced increased uncertainty and concerns associated with liquidity positions primarily due to high-profile bank failures during early 2023 as depositors sought to reduce risks associated with uninsured deposits and withdraw such deposits from existing bank relationships. As a result, both regulatory scrutiny and market focus on liquidity increased. While immediate financial institution safety and soundness concerns have somewhat subsided, these failures underscore the importance of maintaining access to diverse sources of funding. ​ In light of the above events, we have continued our efforts to monitor deposit flows and balance sheet trends to ensure that our liquidity needs and financial flexibility are maintained. During 2023, we began increasing interest-bearing deposit rates to address rising market interest rates and intense competition for liquidity to combat deposit outflows. The Bank also accessed additional core deposits from our Hilltop Securities Federal Deposit Insurance Corporation (“FDIC”) insured sweep program and utilized its Federal Home Loan Bank (“FHLB”) borrowing capacity through the use of short-term borrowings. Further, to bolster our liquidity position, we increased brokered deposits at the Bank by approximately $390 million during the second quarter of 2023 that had a remaining balance of approximately $208 million at December 31, 2023. Additionally, at December 31, 2023, we accessed approximately $1.1 billion of core deposits from our Hilltop Securities FDIC insured sweep program, while the Bank is not utilizing any of its FHLB borrowing capacity. ​ Market conditions and external factors may unpredictably impact the competitive landscape for deposits such as those experienced during the first quarter of 2023. Additionally, the rising market interest rate environment has increased competition for liquidity and the premium at which liquidity is available to meet funding needs. An unexpected influx of withdrawals of deposits could adversely impact our ability to rely on organic deposits to primarily fund our operations, potentially requiring greater reliance on secondary sources of liquidity to meet withdrawal deposits or to fund continuing operations. These sources may include proceeds from FHLB advances, sales of investment securities and loans, federal fund lines of credit with correspondent banks, securities sold under agreements to repurchase, brokered time deposits, borrowings from the Federal Reserve and borrowings under lines of credit with other financial institutions. Refer to the discussions in the “Segment Results – Banking Segment” and “Liquidity and Capital Resources – Banking Segment” sections that follow for more details regarding the Bank’s deposits, available liquidity and borrowing capacity at December 31, 2023. ​ As a result of the bank failures during early 2023 and in an effort to strengthen public confidence in the banking system and protect depositors, regulators announced that any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law. On November 16, 2023, the FDIC adopted a final rule to implement this special assessment based on a banking organizations estimated uninsured deposits as of December 31, 2022, excluding the first $5 billion in estimated uninsured deposits. Based on our calculation, we do not expect the Bank to be impacted by this special assessment. Additionally, on March 12, 2023, the Treasury Department, Federal Reserve and FDIC jointly announced the Bank Term Funding Program (“BTFP”). The BTFP aims to enhance liquidity by allowing institutions to pledge certain securities at par value, and at a borrowing rate of ten basis points over the one-year overnight index swap rate. The BTFP is available to eligible U.S. federally insured depository institutions, with advances having a term of up to one year and no prepayment penalties. The future impact of these failures on the economy, financial institutions and their depositors, as well as a governmental regulatory response or actions resulting from the same, is uncertain at this time. To date, we have not leveraged the discount window at the Federal Reserve or the BTFP. ​ 59 Table of Contents We expect uncertainties related to economic headwinds discussed above, the impact of interest rate movements on the shape and inversions of the yield curve, and the increasing cost and challenge for deposits that persisted through 2023 to continue into 2024. ​ Asset Valuation ​ At each reporting date between annual impairment tests, we consider potential indicators of impairment, including the condition of the economy and financial services industry; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the business segment; performance of our stock and other relevant events. ​ In light of the recent and continuing macroeconomic challenges in the mortgage industry given tight housing inventories and mortgage interest rate levels, and specifically that our mortgage origination segment did not meet forecasted projections, we identified these collective factors as a triggering event during the second quarter of 2023. As a result, we performed an interim quantitative impairment test on the mortgage origination segment’s goodwill as of June 1, 2023 using revised forecasts and considering sensitivities of assumptions, and the decline in its carrying value, concluded that it was more likely than not that the mortgage origination segment’s estimated fair value of goodwill exceeded its carrying value. Subsequently, the mortgage origination segment continued to experience lower-than-forecasted operating results during the remainder of 2023 due to conditions and challenges noted above and discussed in detail within the discussion of segment results that follow. ​ Continuing macroeconomic challenges related to mortgage loan origination volumes, customer sensitivity to interest rates and resulting demand for certain products have resulted in a challenging environment associated with the broker-dealer segment’s short- and long-term financial condition, resulting in variability in its operating results. ​ 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. The mortgage origination and broker-dealer segments have been assigned goodwill of $13.1 million and $7.0 million, respectively. Further, as a part of the most recent annual quantitative analysis performed as of October 1, 2023, management’s evaluation considered the sensitivities performed and the fact that the resulting estimated fair value of our mortgage origination and broker-dealer segments exceeded their respective book values by approximately 25% and 9%, respectively. 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. 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. In the event that we conclude that all or a portion of our goodwill and other intangible assets are impaired, a non-cash charge for the respective amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital. ​ Outlook ​ Our balance sheet, operating results and certain metrics during 2023 reflected economic headwinds including tight housing inventories on mortgage volumes, declining deposit balances, increases in U.S. treasury yields and mortgage interest rates, and a volatile economic forecast. These headwinds, coupled with exposure to increasing funding costs, inflationary pressures associated with compensation, occupancy and software costs and labor market conditions, international armed conflicts and their impact on supply chains 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. ​ 60 Table of Contents See “Item 1A. Risk Factors” for additional discussion of the potential adverse impacts of unpredictable economic, market and business conditions on our business, results of operations and financial condition. ​ Factors Affecting Results of Operations ​ As a financial institution providing products and services through our banking, broker-dealer and mortgage origination segments, we are directly affected by general economic and market conditions, many of which are beyond our control and unpredictable. A key factor impacting our results of operations is changes in the level of interest rates in addition to twists in the shape of the yield curve with the magnitude and direction of the impact varying across the different lines of business. Other factors impacting our results of operations include, but are not limited to, fluctuations in volume and price levels of securities, inflation, political events, investor confidence, investor participation levels, legal, regulatory, and compliance requirements and competition. All of these factors have the potential to impact our financial position, operating results and liquidity. In addition, the recent economic and political environment has led to legislative and regulatory initiatives, both enacted and proposed, that could substantially change the regulation of the financial services industry and may significantly impact us. ​ Factors Affecting Comparability of Results of Operations ​ LIBOR Cessation  ​ In July 2017, the Financial Conduct Authority (“FCA”) announced that it intends to cease compelling banks to submit rates for the calculation of the London Interbank Offered Rate (“LIBOR”) after 2021. In March 2021, the FCA and the Intercontinental Exchange (“ICE”) Benchmark Administration concurrently confirmed their original intention to stop requesting banks to submit the rates required to calculate LIBOR after the 2021 calendar year and additionally announced firm target dates for the phase out of various LIBOR tenors. Pursuant to the announcement, one week and two-month LIBOR ceased to be published on December 31, 2021, and all remaining USD LIBOR tenors ceased to be published or lost representativeness immediately after June 30, 2023. Additionally, the Financial Accounting Standards Board (“FASB”) issued specific accounting guidance that permits the use of the Overnight Index Swap rate based on the Secured Overnight Financing Rate (“SOFR”) to be designated as a benchmark interest rate for hedge accounting purposes. ​ Certain loans we originated bore interest at a floating rate based on LIBOR. We also paid interest on certain borrowings based on LIBOR and were counterparty to derivative agreements that were based on LIBOR and had contracts with payment calculations that used LIBOR as the reference rate. ​ In light of the LIBOR phase out, we took necessary actions, including the negotiation of certain of our agreements based on established alternative benchmark rates. 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. 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”). The Revisions are intended to modernize the FDIC’s framework for regulating brokered deposits and ensure that the classification of a deposit as brokered appropriately reflects changes in the banking landscape. In addition, the Revisions are intended to modify the interest rate restrictions applicable to certain depository institutions and clarify the application of the brokered deposit requirements to non-maturity deposits. The Revisions became effective on April 1, 2021, but full compliance was not required during a transitionary period ended January 1, 2022. We evaluated the Revisions and published FDIC guidance and effective January 1, 2022, after consulting with the FDIC, continue to treat deposits swept to the banking segment from the broker-dealer segment as non-brokered, while the cost of these sweep deposits will be based on a current market rate of interest rather than a per account fee. ​ 61 Table of Contents Recent Acquisitions ​ On November 30, 2012, we acquired PlainsCapital Corporation pursuant to a plan of merger whereby PlainsCapital Corporation merged with and into our wholly owned subsidiary (the “PlainsCapital Merger”), which continued as the surviving entity under the name “PlainsCapital Corporation”. Concurrent with the consummation of the PlainsCapital Merger, Hilltop became a financial holding company registered under the Bank Holding Company Act of 1956. ​ On September 13, 2013 (the “Bank Closing Date”), the Bank assumed substantially all of the liabilities, including all of the deposits, and acquired substantially all of the assets of Edinburg, Texas-based FNB from the FDIC, as receiver, and reopened former branches of FNB acquired from the FDIC under the “PlainsCapital Bank” name (the “FNB Transaction”). ​ On January 1, 2015, we acquired SWS in a stock and cash transaction (the “SWS Merger”), whereby SWS’s broker-dealer subsidiaries became subsidiaries of Securities Holdings and SWS’s banking subsidiary, Southwest Securities, FSB, was merged into the Bank. On October 5, 2015, Southwest Securities, Inc. was renamed “Hilltop Securities Inc.” ​ On August 1, 2018, we acquired privately-held, Houston-based BORO in an all-cash transaction (“BORO Acquisition”). In connection with the BORO Acquisition, we merged BORO into the Bank, and all customer accounts were converted to the PlainsCapital Bank platform. ​ Segment Information ​ We have two primary business units, PCC (banking and mortgage origination) and Securities Holdings (broker-dealer). Under accounting principles generally accepted in the United States (“GAAP”), the business units are comprised of three reportable business segments organized primarily by the core products offered to the segments’ respective customers: banking, broker-dealer and mortgage origination. Consistent with our historical segment operating results, we anticipate that future revenues will be driven primarily from the banking segment, with the remainder being generated by our broker-dealer and mortgage origination segments. Operating results for the mortgage origination segment have historically been more volatile than operating results for the banking and broker-dealer segments. ​ The banking segment includes the operations of the Bank. The banking segment primarily provides business and consumer banking services from offices located throughout Texas and generates revenue from its portfolio of earning assets. The Bank’s results of operations are primarily dependent on net interest income. The Bank also derives revenue from other sources, including service charges on customer deposit accounts and trust fees. ​ The broker-dealer segment includes the operations of Securities Holdings, which operates through its wholly owned subsidiaries Hilltop Securities, Momentum Independent Network and Hilltop Securities Asset Management, LLC. The broker-dealer segment generates a majority of its revenues from fees and commissions earned from investment advisory and securities brokerage services. Hilltop Securities is a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority (“FINRA”) and a member of the New York Stock Exchange (“NYSE”). Momentum Independent Network is an introducing broker-dealer that is also registered with the SEC and FINRA. Hilltop Securities, Momentum Independent Network and Hilltop Securities Asset Management, LLC are registered investment advisers under the Investment Advisers Act of 1940. ​ The mortgage origination segment includes the operations of PrimeLending, which offers a variety of loan products and generates revenue predominantly from fees charged on the origination and servicing of loans and from selling these loans in the secondary market. ​ Corporate includes certain activities not allocated to specific business segments. These activities include holding company financing and investing activities, merchant banking investment opportunities, and management and administrative services to support the overall operations of the Company. ​ 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). This table serves as a basis for the discussion and analysis in the segment operating results sections that follow. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b","Variance 2023 vs 2022","\u200b","Variance 2022 vs 2021"],["\u200b","\u200b","2023","\u200b","2022","\u200b","\u200b","2021","\u200b","Amount","\u200b","Percent","\u200b","Amount","\u200b","Percent"],["Net interest income (expense):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Banking","\u200b","$","397,936","\u200b","$","413,603","\u200b","$","406,524","\u200b","$","(15,667)","\u200b","(4)","\u200b","$","7,079","\u200b","2"],["Broker-Dealer","\u200b","\u200b","52,894","\u200b","\u200b","51,597","\u200b","\u200b","43,296","\u200b","\u200b","1,297","\u200b","3","\u200b","\u200b","8,301","\u200b","19"],["Mortgage Origination","\u200b","\u200b","(20,305)","\u200b","\u200b","(10,529)","\u200b","\u200b","(20,400)","\u200b","\u200b","(9,776)","\u200b","(93)","\u200b","\u200b","9,871","\u200b","48"],["Corporate","\u200b","\u200b","(12,961)","\u200b","\u200b","(13,135)","\u200b","\u200b","(17,239)","\u200b","\u200b","174","\u200b","1","\u200b","\u200b","4,104","\u200b","24"],["All Other and Eliminations (1)","\u200b","\u200b","49,283","\u200b","\u200b","17,439","\u200b","\u200b","10,801","\u200b","\u200b","31,844","\u200b","183","\u200b","\u200b","6,638","\u200b","61"],["Hilltop Consolidated","\u200b","$","466,847","\u200b","$","458,975","\u200b","$","422,982","\u200b","$","7,872","\u200b","2","\u200b","$","35,993","\u200b","9"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Provision for (reversal of) credit losses:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Banking","\u200b","$","18,525","\u200b","$","8,250","\u200b","$","(58,175)","\u200b","$","10,275","\u200b","125","\u200b","$","66,425","\u200b","NM"],["Broker-Dealer","\u200b","\u200b","(133)","\u200b","\u200b","59","\u200b","\u200b","(38)","\u200b","\u200b","(192)","\u200b","(325)","\u200b","\u200b","97","\u200b","NM"],["Mortgage Origination","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u2014","\u200b","\u200b","-","\u200b","-"],["Corporate","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u2014","\u200b","\u200b","-","\u200b","-"],["All Other and Eliminations","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u2014","\u200b","\u200b","-","\u200b","-"],["Hilltop Consolidated","\u200b","$","18,392","\u200b","$","8,309","\u200b","$","(58,213)","\u200b","$","10,083","\u200b","121","\u200b","$","66,522","\u200b","NM"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Noninterest income:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Banking","\u200b","$","45,830","\u200b","$","49,307","\u200b","$","45,113","\u200b","$","(3,477)","\u200b","(7)","\u200b","$","4,194","\u200b","9"],["Broker-Dealer","\u200b","\u200b","403,538","\u200b","\u200b","341,943","\u200b","\u200b","381,125","\u200b","\u200b","61,595","\u200b","18","\u200b","\u200b","(39,182)","\u200b","(10)"],["Mortgage Origination","\u200b","\u200b","316,840","\u200b","\u200b","452,915","\u200b","\u200b","986,990","\u200b","\u200b","(136,075)","\u200b","(30)","\u200b","\u200b","(534,075)","\u200b","(54)"],["Corporate","\u200b","\u200b","12,887","\u200b","\u200b","7,525","\u200b","\u200b","9,133","\u200b","\u200b","5,362","\u200b","71","\u200b","\u200b","(1,608)","\u200b","(18)"],["All Other and Eliminations (1)","\u200b","\u200b","(50,122)","\u200b","\u200b","(19,230)","\u200b","\u200b","(12,086)","\u200b","\u200b","(30,892)","\u200b","(161)","\u200b","\u200b","(7,144)","\u200b","(59)"],["Hilltop Consolidated","\u200b","$","728,973","\u200b","$","832,460","\u200b","$","1,410,275","\u200b","$","(103,487)","\u200b","(12)","\u200b","$","(577,815)","\u200b","(41)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Noninterest expense:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Banking","\u200b","$","226,234","\u200b","$","235,190","\u200b","$","226,915","\u200b","$","(8,956)","\u200b","(4)","\u200b","$","8,275","\u200b","4"],["Broker-Dealer","\u200b","\u200b","383,024","\u200b","\u200b","355,713","\u200b","\u200b","380,798","\u200b","\u200b","27,311","\u200b","8","\u200b","\u200b","(25,085)","\u200b","(7)"],["Mortgage Origination","\u200b","\u200b","359,285","\u200b","\u200b","478,904","\u200b","\u200b","731,056","\u200b","\u200b","(119,619)","\u200b","(25)","\u200b","\u200b","(252,152)","\u200b","(34)"],["Corporate","\u200b","\u200b","60,631","\u200b","\u200b","59,030","\u200b","\u200b","50,507","\u200b","\u200b","1,601","\u200b","3","\u200b","\u200b","8,523","\u200b","17"],["All Other and Eliminations","\u200b","\u200b","(865)","\u200b","\u200b","(1,838)","\u200b","\u200b","(1,878)","\u200b","\u200b","973","\u200b","53","\u200b","\u200b","40","\u200b","2"],["Hilltop Consolidated","\u200b","$","1,028,309","\u200b","$","1,126,999","\u200b","$","1,387,398","\u200b","$","(98,690)","\u200b","(9)","\u200b","$","(260,399)","\u200b","(19)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Income (loss) before taxes:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Banking","\u200b","$","199,007","\u200b","$","219,470","\u200b","$","282,897","\u200b","$","(20,463)","\u200b","(9)","\u200b","$","(63,427)","\u200b","(22)"],["Broker-Dealer","\u200b","\u200b","73,541","\u200b","\u200b","37,768","\u200b","\u200b","43,661","\u200b","\u200b","35,773","\u200b","95","\u200b","\u200b","(5,893)","\u200b","(13)"],["Mortgage Origination","\u200b","\u200b","(62,750)","\u200b","\u200b","(36,518)","\u200b","\u200b","235,534","\u200b","\u200b","(26,232)","\u200b","(72)","\u200b","\u200b","(272,052)","\u200b","(116)"],["Corporate","\u200b","\u200b","(60,705)","\u200b","\u200b","(64,640)","\u200b","\u200b","(58,613)","\u200b","\u200b","3,935","\u200b","6","\u200b","\u200b","(6,027)","\u200b","(10)"],["All Other and Eliminations","\u200b","\u200b","26","\u200b","\u200b","47","\u200b","\u200b","593","\u200b","\u200b","(21)","\u200b","(45)","\u200b","\u200b","(546)","\u200b","(92)"],["Hilltop Consolidated","\u200b","$","149,119","\u200b","$","156,127","\u200b","$","504,072","\u200b","$","(7,008)","\u200b","(4)","\u200b","$","(347,945)","\u200b","(69)"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","All other and eliminations amounts during each period include FDIC sweep program revenues and expenses earned on broker-dealer segment deposits placed with the banking segment that are eliminated in consolidation."]] [[/GREPCENT_TABLE]] NMNot meaningful ​ Key Performance Indicators ​ We utilize several key indicators of financial condition and operating performance to evaluate the various aspects of our business. In addition to traditional financial metrics, such as revenue and growth trends, we monitor several other financial measures and non-financial operating metrics to help us evaluate growth trends, measure the adequacy of our capital based on regulatory reporting requirements, measure the effectiveness of our operations and assess operational efficiencies. These indicators change from time to time as the opportunities and challenges in our businesses change. ​ 63 Table of Contents Specifically, performance ratios and asset quality ratios are typically used for measuring the performance of banking and financial institutions. We consider return on average stockholders’ equity, return on average assets and net interest margin to be important supplemental measures of operating performance that are commonly used by securities analysts, investors and other parties interested in the banking and financial industry. The net recoveries (charge-offs) to average loans outstanding ratio is also considered a key measure for our banking segment as it indicates the performance of our loan portfolio. ​ In addition, we consider regulatory capital ratios to be key measures that are used by us, as well as banking regulators, investors and analysts, to assess our regulatory capital position and to compare our regulatory capital to that of other financial services companies. We monitor our capital strength in terms of both leverage ratio and risk-based capital ratios based on capital requirements administered by the federal banking agencies. The risk-based capital ratios are minimum supervisory ratios generally applicable to banking organizations, but banking organizations are widely expected to operate with capital positions well above the minimum ratios. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that, if undertaken, could have a material effect on our financial condition or results of operations. ​ How We Generate Revenue ​ We generate revenue from net interest income and from noninterest income. Net interest income represents the difference between the income earned on our assets, including our loans and investment securities, and our cost of funds, including the interest paid on the deposits and borrowings that are used to support our assets. Net interest income is a significant contributor to our operating results. Fluctuations in interest rates, as well as the amounts and types of interest-earning assets and interest-bearing liabilities we hold, affect net interest income. We generated $466.8 million in net interest income during 2023, compared with net interest income of $459.0 million and $423.0 million during 2022 and 2021, respectively. The change in reportable business segment net interest income during 2023, compared with 2022, primarily reflected decreases within our banking and mortgage origination segments. ​ The other component of our revenue is noninterest income, which is primarily comprised of the following: ​ [[GREPCENT_TABLE]] [["","(i)","Income from broker-dealer operations. 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."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","(ii)","Income from mortgage operations. Through PrimeLending, we generate noninterest income by originating and selling mortgage loans. During 2023, 2022 and 2021, we generated $316.7 million, $452.0 million and $986.0 million, respectively, in net gains from sale of loans, other mortgage production income (including income associated with retained mortgage servicing rights), and mortgage loan origination fees."]] [[/GREPCENT_TABLE]] ​ In the aggregate, we generated $0.7 billion, $0.8 billion and $1.4 billion in noninterest income during 2023, 2022 and 2021, respectively. The decrease in noninterest income during 2023, compared with 2022, was predominantly attributable, as noted in the segment results table previously presented, to a decrease of $135.3 million in net gains from sale of loans, other mortgage production income and mortgage loan origination fees within our mortgage origination segment, partially offset by an increase of $35.9 million in gains from derivative and trading portfolio activities within our broker-dealer segment. ​ We also incur noninterest expenses in the operation of our businesses. Our businesses engage in labor intensive activities and, consequently, employees’ compensation and benefits represent the majority of our noninterest expenses. ​ 64 Table of Contents Consolidated Operating Results ​ Income applicable to common stockholders during 2023 was $109.6 million, or $1.69 per diluted share, compared with $113.1 million, or $1.60 per diluted share, during 2022, and $374.5 million, or $4.61 per diluted share, during 2021. Hilltop’s financial results during 2023 included decreases in year-over-year mortgage origination segment net gains from sales of loans and other mortgage production income, a decline in net interest income within the banking segment, and increases in net revenues within all of the broker-dealer segment’s business lines. ​ Hilltop’s financial results during 2022 reflected a significant decreases in year-over-year mortgage origination segment net gains from sales of loans and other mortgage production income, while the banking segment recorded a provision for credit losses as opposed to a reversal of credit losses in the prior year. ​ Certain items included in net income during 2023, 2022 and 2021 resulted from purchase accounting associated with the PlainsCapital Merger, the FNB Transaction, the SWS Merger and the BORO Acquisition (collectively, the “Bank Transactions”). Income before income taxes during 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. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b"],["\u200b","\u200b","2023","","\u200b","2022","","\u200b","2021"],["Return on average stockholders' equity (1)","\u200b","5.31","%","\u200b","5.11","%","\u200b","15.38","%"],["Return on average assets (2)","\u200b","0.71","%","\u200b","0.69","%","\u200b","2.17","%"],["Net interest margin (3) (4)","\u200b","3.07","%","\u200b","2.87","%","\u200b","2.57","%"],["Leverage ratio (5) (end of year)","\u200b","12.23","%","\u200b","11.47","%","\u200b","12.58","%"],["Common equity Tier 1 risk-based capital ratio (6) (end of year)","\u200b","19.32","%","\u200b","18.23","%","\u200b","21.22","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Return on average stockholders\u2019 equity is defined as consolidated income attributable to Hilltop divided by average total Hilltop stockholders\u2019 equity."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","Return on average assets is defined as consolidated net income divided by average assets."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(3)","Net interest margin is defined as net interest income divided by average interest-earning assets. We consider net interest margin as a key indicator of profitability as it represents interest earned on our interest-earning assets compared to interest incurred."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(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."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(5)","The leverage ratio is a regulatory capital ratio and is defined as Tier 1 risk-based capital divided by average consolidated assets."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(6)","The common equity Tier 1 risk-based capital ratio is a regulatory capital ratio and is defined as common equity Tier 1 risk-based capital divided by risk weighted assets. Common equity includes common equity Tier 1 capital (common stockholders\u2019 equity and certain minority interests in the equity capital accounts of consolidated subsidiaries, but excluding goodwill and various intangible assets) and additional Tier 1 capital (certain qualifying minority interests not included in common equity Tier 1 capital, certain preferred stock and related surplus, and certain subordinated debt)."]] [[/GREPCENT_TABLE]] ​ We present net interest margin and net interest income below on a taxable-equivalent basis. Net interest margin (taxable equivalent), a non-GAAP measure, is defined as taxable equivalent net interest income divided by average interest earning assets. Taxable equivalent adjustments are based on the applicable corporate federal income tax rate of 21% for all periods presented. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest margins for all earning assets, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. ​ During 2023, 2022 and 2021, purchase accounting contributed 6, 7 and 12 basis points, respectively, to our consolidated taxable equivalent net interest margin of 3.09%, 2.88% and 2.58%, respectively. The purchase accounting activity is primarily related to the accretion of discount of loans which totaled $8.6 million, $10.5 million and $18.8 million during 2023, 2022 and 2021, respectively, associated with the Bank Transactions. ​ 65 Table of Contents The table below provides additional details regarding our consolidated net interest income (dollars in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,"],["\u200b","\u200b","2023","\u200b","2022","\u200b","2021"],["\u200b","","Average","","Interest","","Annualized","","Average","","Interest","","Annualized","","Average","","Interest","","Annualized"],["\u200b","\u200b","Outstanding","\u200b","Earned","\u200b","Yield or","\u200b","Outstanding","\u200b","Earned","\u200b","Yield or","\u200b","Outstanding","\u200b","Earned","\u200b","Yield or"],["\u200b","\u200b","Balance","\u200b","or Paid","\u200b","Rate","\u200b","Balance","\u200b","or Paid","\u200b","Rate","\u200b","Balance","\u200b","or Paid","\u200b","Rate"],["Assets","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest-earning assets","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loans held for sale","\u200b","$","944,470","\u200b","$","53,736","","5.69","%","$","1,221,235","\u200b","$","52,315","","4.28","%","$","2,293,543","\u200b","$","64,767","","2.82","%"],["Loans held for investment, gross (1)","\u200b","\u200b","7,950,878","\u200b","\u200b","488,538","","6.23","%","\u200b","7,840,848","\u200b","\u200b","363,892","","4.71","%","\u200b","7,645,292","\u200b","\u200b","339,548","","4.44","%"],["Investment securities - taxable","\u200b","","2,726,763","\u200b","","108,250","","3.97","%","","2,819,282","\u200b","","75,805","","2.69","%","","2,493,848","\u200b","","47,582","","1.91","%"],["Investment securities - non-taxable (2)","\u200b","","363,493","\u200b","","13,463","","3.70","%","","310,315","\u200b","","11,608","","3.74","%","","313,703","\u200b","","11,448","","3.65","%"],["Federal funds sold and securities purchased under agreements to resell","\u200b","","145,696","\u200b","","8,954","","6.15","%","","162,575","\u200b","","4,098","","2.52","%","","152,273","\u200b","","372","","0.24","%"],["Interest-bearing deposits in other financial institutions","\u200b","","1,597,865","\u200b","","79,657","","4.99","%","","2,306,960","\u200b","","31,705","","1.37","%","","2,078,666","\u200b","","2,942","","0.14","%"],["Securities borrowed","\u200b","\u200b","1,409,765","\u200b","\u200b","71,924","\u200b","5.03","%","\u200b","1,298,276","\u200b","\u200b","44,414","\u200b","3.37","%","\u200b","1,445,464","\u200b","\u200b","61,667","\u200b","4.21","%"],["Other","\u200b","","65,912","\u200b","","16,554","","25.11","%","","55,280","\u200b","","8,873","","16.05","%","","50,929","\u200b","","3,332","","6.54","%"],["Interest-earning assets, gross (2)","\u200b","","15,204,842","\u200b","","841,076","","5.53","%","","16,014,771","\u200b","","592,710","","3.70","%","","16,473,718","\u200b","","531,658","","3.23","%"],["Allowance for credit losses","\u200b","","(103,975)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","(92,828)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","(129,689)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest-earning assets, net","\u200b","","15,100,867","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","15,921,943","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","16,344,029","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Noninterest-earning assets","\u200b","","1,404,393","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","1,488,970","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","1,451,928","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total assets","\u200b","$","16,505,260","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","17,410,913","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","17,795,957","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Liabilities and Stockholders' Equity","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest-bearing liabilities","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest-bearing deposits","\u200b","$","7,711,570","\u200b","$","223,179","","2.89","%","$","7,561,501","\u200b","$","50,412","","0.67","%","$","7,722,584","\u200b","$","23,624","","0.31","%"],["Securities loaned","\u200b","\u200b","1,331,443","\u200b","\u200b","65,175","\u200b","4.90","%","\u200b","1,184,498","\u200b","\u200b","38,570","\u200b","3.26","%","\u200b","1,374,142","\u200b","\u200b","50,974","\u200b","3.71","%"],["Notes payable and other borrowings","\u200b","","1,579,170","\u200b","","83,174","","5.27","%","","1,293,133","\u200b","","43,158","","3.34","%","","1,216,381","\u200b","","32,393","","2.66","%"],["Total interest-bearing liabilities","\u200b","","10,622,183","\u200b","","371,528","","3.50","%","","10,039,132","\u200b","","132,140","","1.32","%","","10,313,107","\u200b","","106,991","","1.04","%"],["Noninterest-bearing liabilities","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Noninterest-bearing deposits","\u200b","","3,441,437","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","4,455,779","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","4,157,962","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Other liabilities","\u200b","","351,938","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","675,628","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","863,976","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total liabilities","\u200b","","14,415,558","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","15,170,539","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","15,335,045","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Stockholders\u2019 equity","\u200b","","2,063,174","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","2,213,733","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","2,435,185","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Noncontrolling interest","\u200b","","26,528","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","26,641","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","25,727","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total liabilities and stockholders' equity","\u200b","$","16,505,260","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","17,410,913","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","17,795,957","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net interest income (2)","\u200b","\u200b","\u200b","\u200b","$","469,548","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","460,570","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","424,667","\u200b","\u200b","\u200b"],["Net interest spread (2)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","2.03","%","\u200b","\u200b","\u200b","\u200b","\u200b","","2.38","%","\u200b","\u200b","\u200b","\u200b","\u200b","","2.19","%"],["Net interest margin (2)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","3.09","%","\u200b","\u200b","\u200b","\u200b","\u200b","","2.88","%","\u200b","\u200b","\u200b","\u200b","\u200b","","2.58","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Average balance includes non-accrual loans."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(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."]] [[/GREPCENT_TABLE]] ​ The banking segment’s net interest margin exceeds our consolidated net interest margin shown above. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our banking segment and reduce our consolidated net interest margin, such as the borrowing costs of Hilltop and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities, such as securities borrowed in the broker-dealer segment and securities loaned in the broker-dealer segment, including items related to securities financing operations that particularly decrease net interest margin. In addition, yields and costs on certain interest-earning assets, such as lines of credit extended to other operating segments by the banking segment, are eliminated from the consolidated financial statements. ​ 66 Table of Contents On a consolidated basis, the changes in net interest income during 2023, compared with 2022, were primarily due to changes within the banking segment related to changes in the rates earned or paid on interest-earning assets and interest-bearing liabilities and increased net yields on mortgage loans held for sale and decreases in average warehouse line balance with an unaffiliated bank within the mortgage origination segment. Refer to the discussion in the “Banking Segment” section that follows for more details on the changes in net interest income, including the component changes in the volume of average interest-earning assets and interest-bearing liabilities and changes in the rates earned or paid on those items. ​ The provision for (reversal of) credit losses is determined by management as the amount necessary to maintain the allowance for credit losses at the amount of expected credit losses inherent within the loans held for investment portfolio. The amount of expense and the corresponding level of allowance for credit losses for loans are based on our evaluation of the collectability of the loan portfolio based on historical loss experience, reasonable and supportable forecasts, and other significant qualitative and quantitative factors. Substantially all of our consolidated provision for (reversal of) credit losses is related to the banking segment. During 2023, the provision for credit losses reflected a significant build in the allowance related to loan portfolio changes since December 31, 2022 and a deteriorating outlook for commercial real estate markets. During 2022, the provision for credit losses was driven by a deteriorating U.S. economic outlook since December 31, 2021. Refer to the discussion in the “Financial Condition – Allowance for Credit Losses on Loans” section that follows for more details regarding the significant assumptions and estimates involved in estimating credit losses. ​ Noninterest income decreased during 2023, compared with 2022, primarily due to decreases in total mortgage loan sales volume and average loan sales margin within our mortgage origination segment, partially offset by net increases within all of the broker-dealer segment’s business lines. The decrease in noninterest income during 2022, compared with 2021, was primarily due to decreases in total mortgage loan sales volume and average loan sales margin within our mortgage origination segment, and net declines in investment advisory fees and trading gains primarily within the broker-dealer segment’s public finance services and structured finance business lines. ​ Noninterest expense decreased during 2023, compared with 2022, primarily due to decreases in variable compensation associated with decreases in total mortgage loan sales volume and average loan sales margin within our mortgage origination segment, partially offset by increases in non-variable compensation and other segment operating costs within our broker-dealer segment. We have experienced an increase in certain noninterest expenses during 2023 and 2022, compared with respective prior periods, including compensation, occupancy, and software costs, due to inflationary pressures. We expect such inflationary headwinds to continue and result in higher fixed costs into 2024. The decrease in noninterest expense during 2022, compared with 2021, was primarily due to decreases in both variable and non-variable compensation within our mortgage origination segment associated with the decreased mortgage loan originations, and a decline in variable compensation within our broker-dealer segment, partially offset by increases within our banking segment. ​ Effective income tax rates were 20.9%, 23.6% and 23.4% for 2023, 2022 and 2021, respectively. The effective tax rate for 2023 was lower than the applicable statutory rate due to the impacts of excess tax benefits on share-based payment awards, investments in tax-exempt instruments and changes in accumulated tax reserves, partially offset by nondeductible expenses and the booking of additional taxes from a recent change in the source of funding for an acquired non-qualified, deferred compensation plan, while 2022 and 2021 approximated statutory rates and included the effect of investments in tax-exempt instruments, offset by nondeductible expenses. ​ ​ ​ 67 Table of Contents Segment Results ​ Banking Segment ​ The following table presents certain information about the operating results of our banking segment (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b","Variance"],["\u200b","\u200b","2023","\u200b","2022","\u200b","2021","\u200b","2023 vs 2022","\u200b","2022 vs 2021"],["Net interest income","\u200b","$","397,936","\u200b","$","413,603","\u200b","$","406,524","\u200b","$","(15,667)","\u200b","$","7,079"],["Provision for (reversal of) credit losses","\u200b","","18,525","\u200b","","8,250","\u200b","","(58,175)","\u200b","","10,275","\u200b","","66,425"],["Noninterest income","\u200b","","45,830","\u200b","","49,307","\u200b","","45,113","\u200b","","(3,477)","\u200b","","4,194"],["Noninterest expense","\u200b","\u200b","226,234","\u200b","","235,190","\u200b","","226,915","\u200b","\u200b","(8,956)","\u200b","","8,275"],["Income before income taxes","\u200b","$","199,007","\u200b","$","219,470","\u200b","$","282,897","\u200b","$","(20,463)","\u200b","$","(63,427)"]] [[/GREPCENT_TABLE]] ​ The decrease in income before income taxes during 2023, compared with 2022, was primarily due to a decrease in net interest income and an increase in the provision for credit losses, partially offset by a decline in noninterest expense, while the decrease in income before income taxes during 2022, compared with 2021, was driven by the impact of reversals of credit losses throughout 2021. Changes to net interest income related to the component changes in the volume of average interest-earning assets and interest-bearing liabilities and changes in the rates earned or paid on those items are discussed in more detail below. ​ As discussed in more detail below, given the intense competition for liquidity and as customers seek higher yields on deposits, the banking segment’s cost of deposits has increased during 2023. We expect such costs during 2024 to continue to be driven by various factors, including competition as well as economic and market area factors. The resulting net interest income spread compression has had, and is expected to continue to have, a negative impact on banking segment operating results. ​ The information shown in the table below includes certain key indicators of the performance and asset quality of our banking segment. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,"],["\u200b","","2023","","2022","\u200b","2021"],["Efficiency ratio (1)","","50.98","%","50.81","%","50.25","%"],["Return on average assets (2)","","1.15","%","1.19","%","1.55","%"],["Net interest margin (3)","\u200b","3.13","%","3.11","%","3.07","%"],["Net recoveries (charge-offs) to average loans outstanding (4)","\u200b","(0.03)","%","(0.06)","%","0.01","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Efficiency ratio is defined as noninterest expenses divided by the sum of total noninterest income and net interest income for the period. We consider the efficiency ratio to be a measure of the banking segment\u2019s profitability."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","Return on average assets is defined as net income divided by average assets."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(3)","Net interest margin is defined as net interest income divided by average interest-earning assets. We consider net interest margin as a key indicator of profitability, as it represents interest earned on interest-earning assets compared to interest incurred."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(4)","Net recoveries (charge-offs) to average loans outstanding is defined as the greater of recoveries or charge-offs during the reported period minus charge-offs or recoveries divided by average loans outstanding. We use the ratio to measure the credit performance of our loan portfolio."]] [[/GREPCENT_TABLE]] ​ The banking segment presents net interest margin and net interest income in the following discussion and table below, on a taxable equivalent basis. Net interest margin (taxable equivalent), a non-GAAP measure, is defined as taxable equivalent net interest income divided by average interest-earning assets. Taxable equivalent adjustments are based on the applicable corporate federal income tax rates of 21% for all periods presented. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest margins for all earning assets, we use net interest income on a taxable equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. ​ During 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. These purchase accounting 68 Table of Contents items are primarily related to accretion of discount of loans associated with the Bank Transactions as discussed in the Consolidated Operating Results section. ​ The table below provides additional details regarding our banking segment’s net interest income (dollars in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,"],["\u200b","\u200b","2023","\u200b","2022","\u200b","2021"],["\u200b","","Average","","Interest","","Annualized","","Average","","Interest","","Annualized","","Average","","Interest","","Annualized"],["\u200b","\u200b","Outstanding","\u200b","Earned","\u200b","Yield or","\u200b","Outstanding","\u200b","Earned","\u200b","Yield or","\u200b","Outstanding","\u200b","Earned","\u200b","Yield or"],["\u200b","\u200b","Balance","\u200b","or Paid","\u200b","Rate","\u200b","Balance","\u200b","or Paid","\u200b","Rate","\u200b","Balance","\u200b","or Paid","\u200b","Rate"],["Assets","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest-earning assets","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loans held for investment, gross (1)","\u200b","$","7,786,984","\u200b","$","454,132","","5.83","%","$","7,371,397","\u200b","$","339,356","","4.60","%","$","7,069,485","\u200b","$","323,136","","4.57","%"],["Subsidiary warehouse lines of credit","\u200b","","867,011","\u200b","","70,024","","7.97","%","","1,128,576","\u200b","","58,153","","5.08","%","","2,124,700","\u200b","","80,761","","3.75","%"],["Investment securities - taxable","\u200b","","2,284,654","\u200b","","72,771","","3.19","%","","2,377,483","\u200b","","45,282","","1.90","%","","2,026,189","\u200b","","29,215","","1.44","%"],["Investment securities - non-taxable (2)","\u200b","","112,408","\u200b","","3,907","","3.48","%","","109,911","\u200b","","3,871","","3.52","%","","114,118","\u200b","","3,905","","3.42","%"],["Federal funds sold and securities purchased under agreements to resell","\u200b","","67,011","\u200b","","3,575","","5.41","%","","118,686","\u200b","","2,190","","1.87","%","","30,395","\u200b","","89","","0.30","%"],["Interest-bearing deposits in other financial institutions","\u200b","","1,543,471","\u200b","","79,657","","5.16","%","","2,174,529","\u200b","","31,705","","1.46","%","","1,837,196","\u200b","","2,459","","0.13","%"],["Other","\u200b","","50,673","\u200b","","2,353","","4.64","%","","36,843","\u200b","","3,876","","10.52","%","","36,813","\u200b","","460","","1.25","%"],["Interest-earning assets, gross (2)","\u200b","","12,712,212","\u200b","\u200b","686,419","","5.40","%","","13,317,425","\u200b","\u200b","484,433","","3.64","%","","13,238,896","\u200b","\u200b","440,025","","3.32","%"],["Allowance for credit losses","\u200b","","(103,180)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","(92,377)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","(129,303)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest-earning assets, net","\u200b","","12,609,032","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","13,225,048","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","13,109,593","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Noninterest-earning assets","\u200b","","848,093","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","919,618","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","966,296","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total assets","\u200b","$","13,457,125","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","14,144,666","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","14,075,889","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Liabilities and Stockholders\u2019 Equity","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest-bearing liabilities","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest-bearing deposits","\u200b","$","7,578,587","\u200b","$","265,560","","3.50","%","$","7,379,265","\u200b","$","63,148","","0.86","%","$","7,578,963","\u200b","$","30,988","","0.41","%"],["Notes payable and other borrowings","\u200b","","579,462","\u200b","","22,230","","3.84","%","","311,735","\u200b","","6,864","","2.20","%","","142,705","\u200b","","1,586","","1.11","%"],["Total interest-bearing liabilities","\u200b","","8,158,049","\u200b","","287,790","","3.53","%","","7,691,000","\u200b","","70,012","","0.91","%","","7,721,668","\u200b","","32,574","","0.42","%"],["Noninterest-bearing liabilities","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Noninterest-bearing deposits","\u200b","","3,582,356","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","4,695,265","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","4,512,227","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Other liabilities","\u200b","","156,980","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","145,272","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","155,979","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total liabilities","\u200b","","11,897,385","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","12,531,537","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","12,389,874","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Stockholders\u2019 equity","\u200b","","1,559,740","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","1,613,129","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","1,686,015","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total liabilities and stockholders\u2019 equity","\u200b","$","13,457,125","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","14,144,666","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","14,075,889","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net interest income (2)","\u200b","\u200b","\u200b","\u200b","$","398,629","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","414,421","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","407,451","\u200b","\u200b","\u200b"],["Net interest spread (2)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","1.87","%","\u200b","\u200b","\u200b","\u200b","\u200b","","2.73","%","\u200b","\u200b","\u200b","\u200b","\u200b","","2.90","%"],["Net interest margin (2)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","3.14","%","\u200b","\u200b","\u200b","\u200b","\u200b","","3.11","%","\u200b","\u200b","\u200b","\u200b","\u200b","","3.08","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Average balance includes non-accrual loans."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(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."]] [[/GREPCENT_TABLE]] ​ The banking segment’s net interest margin exceeds our consolidated net interest margin. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our banking segment and reduce our consolidated net interest margin, such as the borrowing costs of Hilltop and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities, such as securities borrowed in the broker-dealer segment and securities loaned in the broker-dealer segment, including items related to securities financing operations that particularly decrease net interest margin. In addition, yields and costs on certain interest-earning assets, such as lines of credit extended to other operating segments by the banking segment, are eliminated from the consolidated financial statements. 69 Table of Contents ​ The following table summarizes the changes in the banking segment’s net interest income for the periods indicated below, including the component changes in the volume of average interest-earning assets and interest-bearing liabilities and changes in the rates earned or paid on those items (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,"],["\u200b","\u200b","2023 vs. 2022","\u200b","2022 vs. 2021"],["\u200b","\u200b","Change Due To (1)","\u200b","\u200b","\u200b","\u200b","Change Due To (1)","\u200b","\u200b","\u200b"],["\u200b","","Volume","","Yield/Rate","","Change","","Volume","","Yield/Rate","","Change"],["Interest income","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loans held for investment, gross (2)","\u200b","$","19,117","\u200b","$","95,659","\u200b","$","114,776","\u200b","$","13,797","\u200b","$","2,423","\u200b","$","16,220","\u200b"],["Subsidiary warehouse lines of credit (3)","\u200b","","(13,293)","\u200b","","25,164","\u200b","","11,871","\u200b","","(37,355)","\u200b","","14,747","\u200b","","(22,608)","\u200b"],["Investment securities - taxable","\u200b","","(1,768)","\u200b","","29,257","\u200b","","27,489","\u200b","","5,059","\u200b","","11,008","\u200b","","16,067","\u200b"],["Investment securities - non-taxable (4)","\u200b","","88","\u200b","","(52)","\u200b","","36","\u200b","","(144)","\u200b","","110","\u200b","","(34)","\u200b"],["Federal funds sold and securities purchased under agreements to resell","\u200b","","(967)","\u200b","","2,352","\u200b","","1,385","\u200b","","265","\u200b","","1,836","\u200b","","2,101","\u200b"],["Interest-bearing deposits in other financial institutions","\u200b","","(9,201)","\u200b","","57,153","\u200b","","47,952","\u200b","","439","\u200b","","28,807","\u200b","","29,246","\u200b"],["Other","\u200b","","1,455","\u200b","","(2,978)","\u200b","","(1,523)","\u200b","","\u2014","\u200b","","3,416","\u200b","","3,416","\u200b"],["Total interest income (4)","\u200b","\u200b","(4,569)","\u200b","\u200b","206,555","\u200b","\u200b","201,986","\u200b","\u200b","(17,939)","\u200b","\u200b","62,347","\u200b","\u200b","44,408","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest expense","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Deposits","\u200b","$","1,706","\u200b","$","200,706","\u200b","$","202,412","\u200b","$","(819)","\u200b","$","32,979","\u200b","$","32,160","\u200b"],["Notes payable and other borrowings","\u200b","","5,895","\u200b","","9,471","\u200b","","15,366","\u200b","","1,876","\u200b","","3,402","\u200b","","5,278","\u200b"],["Total interest expense","\u200b","","7,601","\u200b","","210,177","\u200b","","217,778","\u200b","","1,057","\u200b","","36,381","\u200b","","37,438","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net interest income (4)","\u200b","$","(12,170)","\u200b","$","(3,622)","\u200b","$","(15,792)","\u200b","$","(18,996)","\u200b","$","25,966","\u200b","$","6,970","\u200b"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Changes attributable to both volume and yield/rate are included in yield/rate column."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","Changes in the yields earned on loans held for investment, gross included a decline during 2023 of $1.9 million in accretion of discount on loans, compared with 2022, and a decrease of $8.3 million during 2022, compared with 2021. Accretion of discount on loans is expected to decrease in future periods as loans acquired in the Bank Transaction are repaid, refinanced or renewed."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(3)","Subsidiary warehouse lines of credit extended to PrimeLending are eliminated from the consolidated financial statements."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(4)","Annualized taxable equivalent."]] [[/GREPCENT_TABLE]] ​ 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. During a period of rising interest rates, being asset sensitive tends to result in an increase in net interest income, but during a period of declining interest rates, tends to result in a decrease in net interest income. ​ Our portfolio includes loans that periodically reprice or mature prior to the end of an amortized term. The extent and timing of this impact on interest income will ultimately be driven by the timing, magnitude and frequency of interest rate and yield curve movements, as well as changes in market conditions and timing of management strategies. At December 31, 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. If interest rates rise further, yields on the portion of our loan portfolio that remain at applicable rate floors would rise more slowly than increases in market interest rates, unless such loans are refinanced or repaid. Competition for loan growth could also continue to put pressure on new loan origination rates. If interest rates were to fall, the impact on our interest income for certain variable-rate loans would be limited by these rate floors. ​ Additionally, within our banking segment, the composition of the deposit base and ultimate cost of funds on deposits and net interest income are affected by the level of market interest rates, the interest rates and products offered by competitors, the volatility of equity markets and other factors. Deposit products and pricing structures relative to the market are regularly evaluated to maintain competitiveness over time. During a period of rising interest rates, the cost of 70 Table of Contents funds on deposits, and therefore, interest expense, tends to increase. Given the intense competition for liquidity and the banking industry disruption, and as customers seek higher yields on deposits, our cost of deposits increased during 2023 compared with 2022. We expect such costs during 2024 to continue to be driven by various factors, including continued intense competition for deposits as well as economic and market area factors. The Bank’s deposit base primarily includes a combination of commercial, wealth, and public funds deposits, without a high level of industry concentration. At December 31, 2023, total estimated uninsured deposits were $4.7 billion, or approximately 42% of total deposits, while estimated uninsured deposits, excluding collateralized deposits of $315.7 million, were $4.4 billion, or approximately 40% of total deposits. ​ Refer to the discussion in the “Liquidity and Capital Resources – Banking Segment” section that follows for more detail regarding the Bank’s activities regarding deposits, available liquidity and borrowing capacity. ​ To help mitigate net interest income spread compression between our assets and liabilities as the Federal Reserve increases interest rates, management continues to execute certain derivative trades, as either cash flow hedges or fair value hedges, that benefit the banking segment as interest rates rise. Any changes in interest rates across the term structure will continue to impact net interest income and net interest margin. The impact of rate movements will change with the shape of the yield curve, including any changes in steepness or flatness and inversions at any points on the yield curve. ​ 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. These loans are purchased by the banking segment at par. For origination services provided, the banking segment reimburses the mortgage origination segment for direct origination costs associated with these mortgage loans, in addition to payment of a correspondent fee. The correspondent fees are eliminated in consolidation. The determination of mortgage loan retention levels by the banking segment will be impacted by, among other things, an ongoing review of the prevailing mortgage rates, balance sheet positioning at Hilltop and the banking segment’s outlook for commercial loan growth. ​ The banking segment’s provision for (reversal of) credit losses has been subject to significant year-over-year and quarterly changes primarily attributable to the effects of the changing economic outlook, macroeconomic forecast assumptions and resulting impact on reserves. Specifically, during 2023, the banking segment’s provision for credit losses reflected a build in the allowance related to loan portfolio changes since December 31, 2022 and a deteriorating outlook for commercial real estate markets. The net impact to the allowance of changes associated with collectively evaluated loans during 2023 included a provision for credit losses of $12.7 million, while individually evaluated loans included a provision for credit losses of $5.8 million. The change in the allowance during 2023 was also impacted by net charge-offs of $2.4 million. During 2022, the banking segment’s provision for credit 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 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. The changes in the allowance for credit losses during the noted periods also reflected other factors including, but not limited to, loan growth, loan mix, and changes in risk grades and qualitative factors from the prior quarter. Refer to the discussion in the “Financial Condition – Allowance for Credit Losses on Loans” section that follows for more details regarding the significant assumptions and estimates involved in estimating credit losses. ​ The banking segment’s noninterest income decreased during 2023, compared with 2022, primarily due to a decline in service charges on depositor accounts, oil and gas management fees and non-recurring income related to CRA investment that occurred in 2022. Noninterest income during 2022, compared with 2021, increased primarily due to increased wealth management fees. ​ The banking segment’s noninterest expenses decreased during 2023, compared with 2022, primarily due to decreases in compensation-related expenses, partially offset by an increase in FDIC assessment, professional fees and software related expenses. Noninterest expenses during 2022, compared with 2021, increased primarily due to increased expenses associated with employees’ compensation and benefits and professional fees. ​ 71 Table of Contents ​ ​ Broker-Dealer Segment ​ The following table provides additional details regarding our broker-dealer segment operating results (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b","Variance"],["\u200b","","2023","","2022","\u200b","2021","","2023 vs 2022","\u200b","2022 vs 2021"],["Net interest income:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Wealth management:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Securities lending","\u200b","$","6,749","\u200b","$","5,844","\u200b","$","10,693","\u200b","$","905","\u200b","$","(4,849)"],["Clearing services","\u200b","\u200b","8,064","\u200b","\u200b","7,598","\u200b","\u200b","7,314","\u200b","\u200b","466","\u200b","\u200b","284"],["Structured finance","\u200b","\u200b","7,957","\u200b","\u200b","6,680","\u200b","\u200b","2,857","\u200b","\u200b","1,277","\u200b","\u200b","3,823"],["Fixed income services","\u200b","\u200b","1,294","\u200b","\u200b","19,096","\u200b","\u200b","19,249","\u200b","\u200b","(17,802)","\u200b","\u200b","(153)"],["Other","\u200b","\u200b","28,830","\u200b","\u200b","12,379","\u200b","\u200b","3,183","\u200b","\u200b","16,451","\u200b","\u200b","9,196"],["Total net interest income","\u200b","\u200b","52,894","\u200b","\u200b","51,597","\u200b","\u200b","43,296","\u200b","\u200b","1,297","\u200b","\u200b","8,301"],["Noninterest income:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Securities commissions and fees by business line (1):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Fixed income services","\u200b","\u200b","27,760","\u200b","\u200b","32,893","\u200b","\u200b","47,844","\u200b","\u200b","(5,133)","\u200b","\u200b","(14,951)"],["Wealth management:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Retail","\u200b","\u200b","87,226","\u200b","\u200b","76,213","\u200b","\u200b","73,149","\u200b","\u200b","11,013","\u200b","\u200b","3,064"],["Clearing services","\u200b","\u200b","40,081","\u200b","\u200b","28,749","\u200b","\u200b","22,478","\u200b","\u200b","11,332","\u200b","\u200b","6,271"],["Structured finance","\u200b","\u200b","11,078","\u200b","\u200b","11,216","\u200b","\u200b","3,275","\u200b","\u200b","(138)","\u200b","\u200b","7,941"],["Other","\u200b","\u200b","2,849","\u200b","\u200b","3,684","\u200b","\u200b","4,016","\u200b","\u200b","(835)","\u200b","\u200b","(332)"],["\u200b","\u200b","\u200b","168,994","\u200b","\u200b","152,755","\u200b","\u200b","150,762","\u200b","\u200b","16,239","\u200b","\u200b","1,993"],["Investment and securities advisory fees and commissions by business line:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Public finance services","\u200b","\u200b","89,437","\u200b","\u200b","86,573","\u200b","\u200b","108,372","\u200b","\u200b","2,864","\u200b","\u200b","(21,799)"],["Fixed income services","\u200b","\u200b","10,865","\u200b","\u200b","7,143","\u200b","\u200b","8,442","\u200b","\u200b","3,722","\u200b","\u200b","(1,299)"],["Wealth management:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Retail","\u200b","\u200b","31,016","\u200b","\u200b","30,744","\u200b","\u200b","31,453","\u200b","\u200b","272","\u200b","\u200b","(709)"],["Clearing services","\u200b","\u200b","1,660","\u200b","\u200b","1,741","\u200b","\u200b","1,945","\u200b","\u200b","(81)","\u200b","\u200b","(204)"],["Structured finance","\u200b","\u200b","1,105","\u200b","\u200b","863","\u200b","\u200b","1,850","\u200b","\u200b","242","\u200b","\u200b","(987)"],["Other","\u200b","\u200b","244","\u200b","\u200b","335","\u200b","\u200b","381","\u200b","\u200b","(91)","\u200b","\u200b","(46)"],["\u200b","\u200b","\u200b","134,327","\u200b","\u200b","127,399","\u200b","\u200b","152,443","\u200b","\u200b","6,928","\u200b","\u200b","(25,044)"],["Other:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Structured finance","\u200b","\u200b","62,858","\u200b","\u200b","47,192","\u200b","\u200b","77,424","\u200b","\u200b","15,666","\u200b","\u200b","(30,232)"],["Fixed income services","\u200b","\u200b","34,267","\u200b","\u200b","13,698","\u200b","\u200b","(2,197)","\u200b","\u200b","20,569","\u200b","\u200b","15,895"],["Other","\u200b","\u200b","3,092","\u200b","\u200b","899","\u200b","\u200b","2,693","\u200b","\u200b","2,193","\u200b","\u200b","(1,794)"],["\u200b","\u200b","\u200b","100,217","\u200b","\u200b","61,789","\u200b","\u200b","77,920","\u200b","\u200b","38,428","\u200b","\u200b","(16,131)"],["Total noninterest income","\u200b","\u200b","403,538","\u200b","\u200b","341,943","\u200b","\u200b","381,125","\u200b","\u200b","61,595","\u200b","\u200b","(39,182)"],["Net revenue (2)","\u200b","\u200b","456,432","\u200b","\u200b","393,540","\u200b","\u200b","424,421","\u200b","\u200b","62,892","\u200b","\u200b","(30,881)"],["Noninterest expense:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Variable compensation (3)","\u200b","\u200b","144,984","\u200b","\u200b","138,705","\u200b","\u200b","161,264","\u200b","\u200b","6,279","\u200b","\u200b","(22,559)"],["Non-variable compensation and benefits","\u200b","\u200b","121,411","\u200b","\u200b","112,440","\u200b","\u200b","114,912","\u200b","\u200b","8,971","\u200b","\u200b","(2,472)"],["Segment operating costs (4)","\u200b","\u200b","116,496","\u200b","\u200b","104,627","\u200b","\u200b","104,584","\u200b","\u200b","11,869","\u200b","\u200b","43"],["Total noninterest expense","\u200b","\u200b","382,891","\u200b","\u200b","355,772","\u200b","\u200b","380,760","\u200b","\u200b","27,119","\u200b","\u200b","(24,988)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Income before income taxes","\u200b","$","73,541","\u200b","$","37,768","\u200b","$","43,661","\u200b","$","35,773","\u200b","$","(5,893)"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Securities commissions and fees includes income from FDIC sweep investments with the banking segment of $47.1 million, $13.6 million, and $6.9 million during 2023, 2022, and 2021, respectively, that is eliminated in consolidation."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","Net revenue is defined as the sum of total net interest income and total noninterest income. We consider net revenue to be a key performance measure in the evaluation of the broker-dealer segment\u2019s financial position and operating performance as we believe it is a primary revenue performance measure used by investors and analysts. Net revenue provides for some level of comparability of trends across the financial services industry as it reflects both noninterest income, including investment and securities advisory fees and commissions, as well as net interest income. Internally, we assess the broker-dealer segment\u2019s performance on a revenue basis for comparability with our banking segment."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(3)","Variable compensation represents performance-based commissions and incentives."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(4)","Segment operating costs include provision for (reversal of) credit losses associated with the broker-dealer segment within other noninterest expenses."]] [[/GREPCENT_TABLE]] ​ 72 Table of Contents The increase in net revenue and income before income taxes during 2023, compared with 2022, was primarily related to the combined impacts of the rising interest rate environment and a more favorable housing environment in certain areas of the country, which was evidenced by improved results period-over-period within our various business lines. All the broker-dealer business lines experienced an increase in net revenues when compared to 2022. Specifically, the broker-dealer segment’s structured finance business line experienced an increase in net revenues due to increased production volumes, and support from certain state legislatures for down payment assistance programs. The wealth management business line’s net revenue improvement was driven by improved customer balance revenues, which included increases in FDIC sweep revenue, despite weaker retail division transactional production. The increase in net revenues in the broker-dealer segment’s fixed income services business line was primarily due to improved trading revenues in both taxable and municipal products offset by a decrease in net interest income from the increase in the cost to carry inventory positions. The increase in net revenues in the broker-dealer segment’s public finance services business line was primarily due to fees earned from managed assets within our treasury management and government investment pool divisions of our public finance services business line and underwriting transactions, offset by a decrease in advisory revenue due to the unfavorable national issuance trends. ​ The broker-dealer segment is subject to interest rate risk as a consequence of maintaining inventory positions, trading in interest rate sensitive financial instruments and maintaining a matched stock loan book. Changes in interest rates are likely to have a meaningful impact on our overall financial performance. Our broker-dealer segment has historically earned a significant portion of its revenues from advisory fees upon the successful completion of client transactions, which could be adversely impacted by interest rate volatility. Rapid or significant changes in interest rates could adversely affect the broker-dealer segment’s bond trading, sales, underwriting activities and other interest spread-sensitive activities described below. The broker-dealer segment also receives administrative fees for providing money market and FDIC investment alternatives to clients, which tend to be sensitive to short term interest rates. In addition, the profitability of the broker-dealer segment depends, to an extent, on the spread between revenues earned on customer loans and excess customer cash balances, and the interest expense paid on customer cash balances, as well as the interest revenue earned on trading securities, net of financing costs. The broker-dealer segment is also exposed to interest rate risk through its structured finance business line, which is dependent on mortgage loan production that tends to be adversely impacted by increasing interest rates and may result in valuation-related adjustments. ​ As noted under the section titled “Asset Valuation” earlier in this Item 7, continuing macroeconomic challenges related to mortgage loan origination volumes, customer sensitivity to interest rates and resulting demand for certain products have resulted in a challenging environment associated with the broker-dealer segment’s short- and long-term financial condition, resulting in variability in its operating results. As a part of the most recent annual quantitative analysis performed as of October 1, 2023 using revised forecasts and considering sensitivities of assumptions, we concluded that it was more likely than not that the broker-dealer segment’s estimated fair value of goodwill exceeded its carrying value. 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. 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 increase in net interest income during 2023, compared with 2022, was primarily due to the increase in corporate interest, retail and clearing services business line revenues and the amount of interest received on a structured product investments offset by a decrease in net interest income from the fixed income services business line due to the increased cost to carry inventory positions. The improvement in net interest income during 2022, compared with 2021, was primarily due to the increases in net interest income from our structured finance business line and other divisions within our public finance and wealth management business lines, partially offset by the decline in net interest income within the securities lending division of our wealth management business line. ​ 73 Table of Contents Noninterest income increased during 2023, compared with 2022, primarily due to increases in securities commissions and fees, investment and securities advisory fees and commissions, and other noninterest income. Noninterest income decreased during 2022, compared with 2021, primarily due to declines in investment banking and advisory fees as well as other noninterest income. ​ Securities commissions and fees increased during 2023, compared with 2022, primarily due to an increase in FDIC sweep revenue given higher short-term interest rates, partially offset by a decrease in fixed income and retail commissions. As FDIC sweep revenues are closely correlated to short-term interest rates, changes in short-term interest rates may affect these revenues. Securities commissions and fees increased during 2022, compared with 2021, primarily due to an increase in money market and FDIC sweep revenues and commission and fees earned on commodities sales transactions, partially offset by a decrease in customer demand for fixed income services. In addition, securities commissions and fees during 2022, compared with 2021, were impacted by decreases in commissions earned in insurance product sales transactions, commissions earned on fixed income products, and net clearing revenues due to the decrease in clearing fees. ​ Investment and securities advisory fees and commissions increased during 2023, compared with 2022, primarily due to increases in fees earned from managed assets within our treasury management and government investment pool divisions of our public finance services business line and underwriting transactions. Investment and securities advisory fees and commissions decreased during 2022, compared with 2021, primarily due to decreases in fees earned from our municipal advisory and underwriting transactions. Public finance national issuance volume declined approximately 21% during 2022 compared with 2021. ​ The increase in other noninterest income during 2023, compared with 2022, was primarily due to fixed income trading activities and increases in trading gains earned from structured finance. Specifically, mortgage originations increased 72% during 2023 and customer demand improved compared with 2022. Increased fixed income trading gains during 2023, compared with 2022, were primarily driven by government and agency, mortgage and asset-backed securities trading, partially offset by a decrease in net trading gains from derivative transactions. Also contributing to the overall increase in noninterest income was an increase in the value of the broker-dealer segment’s deferred compensation plan’s assets of $2.5 million during 2023, compared with 2022. 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. Other noninterest income decreased during 2022, compared with 2021, were primarily due to decreases in trading gains earned from our structured finance business line’s derivative activities, given decreased volumes and interest rate volatility. Specifically, the decreased volumes were due to lower mortgage originations, with loan lock volumes totaling $3.8 billion in 2022, a 46% decline when compared with 2021. The decrease in other noninterest income during 2022, compared with the same period in 2021, also reflected a decline within our broker-dealer segment’s deferred compensation plan of $2.8 million. ​ The increase in noninterest expenses during 2023, compared with 2022, were due to increases in segment operating costs and compensation. The increase in segment operating costs was attributable to an increase in software expenses, travel expenses, quotation and transaction clearing costs and legal fees. The increase in compensation expenses during 2023, compared with 2022, were primarily due to overall increases in non-variable compensation, the impact of changes in variable compensation on improved results, increases in deferred compensation expenses from both the restricted stock plan and the broker-dealer segment’s deferred compensation plan. The declines in noninterest expenses during 2022, compared with 2021, were primarily due to the impact of changes in variable compensation. ​ 74 Table of Contents Selected information concerning the broker-dealer segment, including key performance indicators, follows (dollars in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Year Ended December 31,","\u200b"],["\u200b","2023","","\u200b","2022","","\u200b","2021","\u200b"],["Total compensation as a % of net revenue (1)","\u200b","58.4","%","\u200b","63.8","%","\u200b","65.1","%"],["Pre-tax margin (2)","\u200b","16.1","%","\u200b","9.6","%","\u200b","10.3","%"],["FDIC insured program balances at the Bank (end of year)","$","1,132,106","\u200b","$","1,122,091","\u200b","$","803,941","\u200b"],["Other FDIC insured program balances (end of year)","$","852,653","\u200b","$","695,873","\u200b","$","1,503,277","\u200b"],["Customer funds on deposit, including short credits (end of year)","$","223,414","\u200b","$","278,670","\u200b","$","499,476","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Public finance services:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Number of issues (3)","\u200b","804","\u200b","\u200b","894","\u200b","\u200b","1,143","\u200b"],["Aggregate amount of offerings (3)","$","46,343,892","\u200b","$","38,952,431","\u200b","$","59,929,698","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Structured finance:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Lock production/TBA volume","$","6,468,566","\u200b","$","3,763,743","\u200b","$","7,007,564","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Fixed income services:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total volumes","$","259,412,621","\u200b","$","219,791,737","\u200b","$","244,643,358","\u200b"],["Net inventory (end of year)","$","481,052","\u200b","$","701,923","\u200b","$","551,289","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Wealth management (Retail and Clearing services groups):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Retail employee representatives (end of year)","\u200b","92","\u200b","\u200b","99","\u200b","\u200b","106","\u200b"],["Independent registered representatives (end of year)","\u200b","186","\u200b","\u200b","163","\u200b","\u200b","177","\u200b"],["Correspondents (end of year)","\u200b","105","\u200b","\u200b","111","\u200b","\u200b","122","\u200b"],["Correspondent receivables (end of year)","$","119,996","\u200b","$","156,859","\u200b","$","306,064","\u200b"],["Customer margin balances (end of year)","$","223,384","\u200b","$","274,339","\u200b","$","426,584","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Wealth management (Securities lending group):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest-earning assets - stock borrowed (end of year)","$","1,406,937","\u200b","$","1,012,573","\u200b","$","1,518,372","\u200b"],["Interest-bearing liabilities - stock loaned (end of year)","$","1,371,896","\u200b","$","916,570","\u200b","$","1,432,196","\u200b"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Total compensation includes the sum of non-variable compensation and benefits and variable compensation. We consider total compensation as a percentage of net revenue to be a key performance measure and indicator of segment profitability."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(2)","Pre-tax margin is defined as income before income taxes divided by net revenue. We consider pre-tax margin to be a key performance measure given its use as a profitability metric representing the percentage of net revenue earned that results in a profit."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(3)","Noted balances during all prior periods include certain reclassifications to conform to current period presentation."]] [[/GREPCENT_TABLE]] ​ ​ Mortgage Origination Segment ​ The following table presents certain information regarding the operating results of our mortgage origination segment (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b","Variance"],["\u200b","\u200b","2023","\u200b","2022","\u200b","2021","\u200b","2023 vs 2022","\u200b","2022 vs 2021"],["Net interest income (expense)","\u200b","$","(20,305)","\u200b","$","(10,529)","\u200b","$","(20,400)","\u200b","$","(9,776)","\u200b","$","9,871"],["Noninterest income","\u200b","","316,840","\u200b","","452,915","\u200b","","986,990","\u200b","","(136,075)","\u200b","","(534,075)"],["Noninterest expense","\u200b","\u200b","359,285","\u200b","","478,904","\u200b","","731,056","\u200b","","(119,619)","\u200b","","(252,152)"],["Income (loss) before income taxes","\u200b","$","(62,750)","\u200b","$","(36,518)","\u200b","$","235,534","\u200b","$","(26,232)","\u200b","$","(272,052)"]] [[/GREPCENT_TABLE]] ​ The mortgage lending business is subject to variables that can impact loan origination volume, including seasonal transaction volumes and interest rate fluctuations. Historically, the mortgage origination segment has experienced increased loan origination volume from purchases of homes during the spring and summer months, when more people tend to move and buy or sell homes. An increase in mortgage interest rates tends to result in decreased loan origination volume from refinancings, while a decrease in mortgage interest rates tends to result in increased loan origination volume from refinancings. While changes in mortgage interest rates have historically had a lesser impact on home purchases volume than on refinancing volume, significant increases in mortgage interest rates that began in 2022, and continued into 2023, negatively impacted home purchase volume. A slight decline in mortgage rates experienced during 75 Table of Contents the end of the fourth quarter of 2023 had minimal impact on 2023 loan origination volume. See details regarding loan origination volume in the table below. ​ Recent trends, as well as typical historical patterns in loan origination volume from purchases of homes or from refinancings because of movements in mortgage interest rates, may not be indicative of future loan origination volumes. During 2022, and continuing through 2023, certain events adversely impacted total mortgage market origination volumes because of their effect on the economy, including inflation and rising interest rates, the Federal Reserve’s actions and communications, and geopolitical threats. These events have also adversely impacted the willingness and ability of the mortgage origination segment’s customers to conduct mortgage transactions. Specifically, current home inventory shortages and affordability challenges are impacting customers’ abilities to purchase homes. The increase in interest rates that began during 2022, which has led to a sharp reduction in national refinancing volume and the reduction of willing and eligible home buyers, has resulted in competitive mortgage pricing pressure. During the first quarter of 2023, this led to a decline in the average combined net gains from mortgage loan sales and mortgage loan origination fees when compared to the 2022 average. Between March 31, 2023 and December 31, 2023, the average increased slightly, peaking in the third quarter of 2023 and trending back towards the second quarter average during the fourth quarter of 2023. Even though the average improved between the beginning and the end of 2023, the fourth quarter 2023 average remained below the average for the first quarter of 2022. Currently, we anticipate that lower seasonal transaction volumes and the continuation of the mortgage loan production and operating results trends experienced by the mortgage origination segment during 2023 will continue into 2024. 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. As noted under the section titled “Asset Valuation” earlier in this Item 7, the mortgage origination segment experienced operating losses during the second half of 2022 which continued as expected into the first quarter of 2023 due to conditions discussed in detail within this discussion of segment results. However, during the second quarter of 2023, the mortgage origination segment’s operating losses continued which did not meet our forecasted projections. In light of the macroeconomic challenges in the mortgage industry given tight housing inventories and mortgage interest rate levels, and specifically that the mortgage origination segment did not meet forecasted projections at that time, we identified these collective factors as a triggering event during the second quarter of 2023. As a result, we performed an interim quantitative impairment test as of June 1, 2023 using revised forecasts and considering sensitivities of assumptions, and the decline in its carrying value, concluded that it was more likely than not that the mortgage origination segment’s estimated fair value of goodwill exceeded its carrying value at that time. Subsequently, the mortgage origination segment continued to experience lower-than-forecasted operating results during the remainder of 2023 due to conditions and challenges noted above. As a part of the most recent annual quantitative analysis performed as of October 1, 2023 using revised forecasts and considering sensitivities of assumptions, and the decline in its carrying value, concluded that it was more likely than not that the mortgage origination segment’s estimated fair value of goodwill exceeded its carrying value. However, in the event future operating performance remains challenged, the fair value of the mortgage origination segment may decline and we may be required to record a goodwill impairment charge. These conditions will continue to be considered during future impairment evaluations of goodwill. ​ As a GNMA approved lender, we are subject to certain HUD reporting requirements, including timely reporting if a quarter’s operating loss exceeds more than 20% of its previous quarter or year-end net worth (“the operating loss ratio”). If this occurs, certain additional financial reporting submissions are required. During the first and fourth quarters of 2023, the operating loss ratios were 21.2% and 20.5%. respectively, which were reported to HUD. During the second and third quarters of 2023, the operating loss ratios were below the 20% threshold at 15.8% and 10.0%, respectively. ​ In addition, as a FNMA and FHLMC approved lender, we are subject to certain minimum capital, net worth and liquidity requirements established by FNMA and FHLMC. These agencies may also monitor additional financial performance trends at their discretion, including risk-based analyses focused on loans that the mortgage origination segment is currently responsible for representation and warranties that agency loans sold meet certain requirements, including representations as to underwriting standards and the validity of certain borrower representations in connection with the loan. One FNMA discretionary performance trend monitors the change in adjusted net worth during the prior twelve months. FNMA’s acceptable threshold for this performance trend is less than minus 30%, but is only considered if a company has four consecutive quarterly losses. During the second, third, and fourth quarters of 2023, PrimeLending 76 Table of Contents experienced four consecutive quarterly losses; the loss ratios during these periods were 50.2%, 37.6%, and 39.8%, respectively. These trends have been reported to FNMA. ​ The loss before income taxes increased significantly in 2023, compared with 2022. This decrease was primarily the result of decreases in the volume of interest rate lock commitments (“IRLCs”), mortgage loan originations and sales and an increase in the net interest expense, partially offset by a decrease in noninterest expense. ​ During 2022 and continuing through the beginning of the fourth quarter of 2023, the U.S. 10-Year Treasury Rate and mortgage interest rates increased significantly. During the later part of the fourth quarter of 2023, both rates decreased to levels that approximated rates at the beginning of 2023. Overall, average interest rates during 2023 exceeded average interest rates during 2022. Refinancing volume as a percentage of total origination volume decreased during 2023, compared with 2022. Although we anticipate a relatively stable percentage of refinancing volume relative to total loan origination volume during 2024 as compared to 2023, a higher refinance percentage could be driven by a slowing of purchase volume due to the negative impact on new and existing home sales resulting from existing home inventory shortages and affordability challenges related to new home construction, and/or an increase in all-cash buyers. ​ The mortgage origination segment primarily originates its mortgage loans through a retail channel, with limited lending through its affiliated business arrangements (“ABAs”). For 2023, funded volume through ABAs was approximately 14% of the mortgage origination segment’s total loan volume. During March 2023 and July 2023, respectively, all of the respective members of two ABAs mutually agreed to dissolve the entities, effective June 2023 and September 2023, respectively. Currently, PrimeLending owns a greater than 50% interest in two remaining ABAs. We expect total production within the ABA channel to approximate 15% of loan volume of the mortgage origination segment during 2024. ​ The following table provides further details regarding our mortgage loan originations and sales for the periods indicated below (dollars in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Year Ended December 31,","","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","2023","\u200b","2022","\u200b","2021","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","\u200b","","% of","","","\u200b","","% of","","","\u200b","","% of","","\u200b","Variance"],["\u200b","Amount","\u200b","Total","\u200b","Amount","\u200b","Total","\u200b","Amount","\u200b","Total","","\u200b","2023 vs 2022","\u200b","\u200b","2022 vs 2021"],["Mortgage Loan Originations - units","\u200b","26,964","\u200b","\u200b","\u200b","\u200b","41,121","\u200b","\u200b","\u200b","\u200b","77,263","\u200b","\u200b","\u200b","\u200b","(14,157)","\u200b","\u200b","(36,142)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Mortgage Loan Originations - volume:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Conventional","$","5,147,101","","62.44","%","$","8,276,434","","65.37","%","$","15,787,942","","69.65","%","$","(3,129,333)","\u200b","$","(7,511,508)"],["Government","","1,904,237","","23.10","%","","2,572,257","","20.32","%","","3,387,270","","14.94","%","","(668,020)","\u200b","","(815,013)"],["Jumbo","","297,509","","3.61","%","","1,052,508","","8.31","%","","2,511,442","","11.08","%","","(754,999)","\u200b","","(1,458,934)"],["Other","","894,284","","10.85","%","","758,957","","6.00","%","","981,629","","4.33","%","","135,327","\u200b","","(222,672)"],["\u200b","$","8,243,131","","100.00","%","$","12,660,156","","100.00","%","$","22,668,283","","100.00","%","$","(4,417,025)","\u200b","$","(10,008,127)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Home purchases","$","7,701,758","","93.43","%","$","10,823,002","","85.49","%","$","14,429,190","","63.65","%","$","(3,121,244)","\u200b","$","(3,606,188)"],["Refinancings","","541,373","","6.57","%","","1,837,154","","14.51","%","","8,239,093","","36.35","%","","(1,295,781)","\u200b","","(6,401,939)"],["\u200b","$","8,243,131","","100.00","%","$","12,660,156","","100.00","%","$","22,668,283","","100.00","%","$","(4,417,025)","\u200b","$","(10,008,127)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Texas","$","2,379,425","","28.87","%","$","2,910,754","","22.99","%","$","4,224,691","","18.64","%","$","(531,329)","\u200b","$","(1,313,937)"],["California","","647,831","","7.86","%","","1,077,906","","8.51","%","","2,692,198","","11.88","%","","(430,075)","\u200b","","(1,614,292)"],["South Carolina","","427,298","","5.18","%","","569,206","","4.50","%","","950,028","","4.19","%","","(141,908)","\u200b","","(380,822)"],["Florida","","390,708","","4.74","%","","613,896","","4.85","%","","1,013,206","","4.47","%","","(223,188)","\u200b","","(399,310)"],["New York","","364,979","","4.43","%","","546,043","","4.31","%","","705,601","","3.11","%","","(181,064)","\u200b","","(159,558)"],["Arizona","","345,738","","4.19","%","","562,590","","4.44","%","","1,045,218","","4.61","%","","(216,852)","\u200b","","(482,628)"],["Missouri","","304,723","","3.70","%","","398,826","","3.15","%","","742,220","","3.27","%","","(94,103)","\u200b","","(343,394)"],["Ohio","","251,480","","3.05","%","","529,939","","4.19","%","","868,378","","3.83","%","","(278,459)","\u200b","","(338,439)"],["North Carolina","","239,616","","2.91","%","","391,224","","3.09","%","","740,169","","3.27","%","","(151,608)","\u200b","","(348,945)"],["Maryland","","208,367","","2.53","%","","321,835","","2.54","%","","665,538","","2.94","%","","(113,468)","\u200b","","(343,703)"],["All other states","","2,682,966","","32.54","%","","4,737,937","","37.43","%","\u200b","9,021,036","\u200b","39.79","%","\u200b","(2,054,971)","\u200b","\u200b","(4,283,099)"],["\u200b","$","8,243,131","","100.00","%","$","12,660,156","","100.00","%","$","22,668,283","","100.00","%","$","(4,417,025)","\u200b","$","(10,008,127)"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Mortgage Loan Sales - volume:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Third parties","$","7,906,297","","98.26","%","$","12,668,252","","95.97","%","$","22,280,872","","96.62","%","$","(4,761,955)","\u200b","$","(9,612,620)"],["Banking segment","","140,288","","1.74","%","","532,219","","4.03","%","","778,288","","3.38","%","","(391,931)","\u200b","","(246,069)"],["\u200b","$","8,046,585","","100.00","%","$","13,200,471","","100.00","%","$","23,059,160","","100.00","%","$","(5,153,886)","\u200b","$","(9,858,689)"]] [[/GREPCENT_TABLE]] ​ We consider the mortgage origination segment’s total loan origination volume to be a key performance measure. Loan origination volume is central to the segment’s ability to generate income by originating and selling mortgage loans, 77 Table of Contents resulting in net gains from the sale of loans, other mortgage production income and other mortgage loan origination fees. Total loan origination volume is a measure utilized by management, our investors, and analysts in assessing market share and growth of the mortgage origination segment. The mortgage origination segment’s total loan origination volume decreased 34.9% during 2023, compared with 2022, while loss before income taxes increased 71.8%, compared with 2022. The increase in loss before income taxes during 2023 was primarily due to decreases in the volume of IRLCs and mortgage loan originations and sales, a decrease in the average value of IRLCs, and to a lesser extent, an increase in net interest expense, compared with 2022. These trends were partially offset by a decrease in variable compensation, an increase in the average value of mortgage loan origination fees, and to a lesser extent, decreases in non-variable compensation and benefits expense, and segment operating costs, compared with 2022. During 2022, the mortgage origination segment’s total loan origination volume decreased 44.2% compared with 2021, while income before income taxes decreased 115.5% during 2022, compared with 2021. The decrease in income before income taxes during 2022 was primarily due to a decrease in net gains from sale of loans. Mortgage loan origination fees decreased slightly during 2022 compared with 2021, as average mortgage loan origination fees increased. These decreases were partially offset by a decrease in variable compensation, and to a lesser extent, decreases in non-variable compensation and benefits expense, segment operating costs, and net interest expense. ​ The information shown in the table below includes certain key performance indicators for the mortgage origination segment. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b"],["\u200b","\u200b","2023","\u200b","2022","\u200b","2021","\u200b"],["Net gains from mortgage loan sales (basis points):","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","\u200b","\u200b"],["Loans sold to third parties","\u200b","\u200b","198","\u200b","\u200b","263","\u200b","\u200b","375","\u200b"],["Impact of loans retained by banking segment","\u200b","\u200b","(4)","\u200b","\u200b","(11)","\u200b","\u200b","(13)","\u200b"],["As reported","\u200b","\u200b","194","\u200b","\u200b","252","\u200b","\u200b","362","\u200b"],["Variable compensation as a percentage of total compensation","\u200b","\u200b","47.4","%","\u200b","51.9","%","\u200b","65.8","%"],["Mortgage servicing rights asset ($000's) (end of year) (1)","\u200b","$","96,662","\u200b","$","100,825","\u200b","$","86,990","\u200b"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Reported on a consolidated basis and therefore does not include mortgage servicing rights assets related to loans serviced for the banking segment, which are eliminated in consolidation."]] [[/GREPCENT_TABLE]] Net interest expense was comprised of interest income earned on loans held for sale offset by interest incurred on warehouse lines of credit primarily held with the Bank, and related intercompany financing costs. The changes in net interest expense during 2023, compared with 2022, reflected the effects of decreased net yields on mortgage loans held for sale, partially offset by a decrease in the average warehouse line balance between the two periods, and during 2022, compared with 2021, included the effects of increased net yields on mortgage loans held for sale between the two periods. ​ Noninterest income was comprised of the items set forth in the table below (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b","Variance","\u200b"],["\u200b","","2023","","2022","","2021","","2023 vs 2022","","2022 vs 2021"],["Net gains from sale of loans","\u200b","$","156,190","\u200b","$","332,732","\u200b","$","834,580","\u200b","$","(176,542)","\u200b","$","(501,848)","\u200b"],["Mortgage loan origination fees and other related income","\u200b","\u200b","144,539","\u200b","\u200b","149,598","\u200b","\u200b","160,011","\u200b","\u200b","(5,059)","\u200b","\u200b","(10,413)","\u200b"],["Other mortgage production income:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Change in net fair value and related derivative activity:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["IRLCs and loans held for sale","\u200b","\u200b","832","\u200b","\u200b","(69,668)","\u200b","\u200b","(67,714)","\u200b","\u200b","70,500","\u200b","\u200b","(1,954)","\u200b"],["Mortgage servicing rights asset","\u200b","\u200b","(16,589)","\u200b","\u200b","2,733","\u200b","\u200b","2,446","\u200b","\u200b","(19,322)","\u200b","\u200b","287","\u200b"],["Servicing fees","\u200b","\u200b","31,868","\u200b","\u200b","37,520","\u200b","\u200b","57,667","\u200b","\u200b","(5,652)","\u200b","\u200b","(20,147)","\u200b"],["Total noninterest income","\u200b","$","316,840","\u200b","$","452,915","\u200b","$","986,990","\u200b","$","(136,075)","\u200b","$","(534,075)","\u200b"]] [[/GREPCENT_TABLE]] ​ The decrease in net gains from sale of loans during 2023, compared with 2022, was primarily the result of a decrease of 39.0% in total loan sales volume, in addition to a decrease in average loan sales margin. Since PrimeLending sells substantially all mortgage loans it originates to various investors in the secondary market, the decrease in loan sales volume during 2023 was consistent with the decrease in loan origination volume during the period. 78 Table of Contents ​ The decrease in mortgage loan origination fees during 2023, compared with 2022, was minimal at 3.4%. The negative impact on fees resulting from a decrease in loan origination volume, was mostly offset by an increase in average mortgage loan origination fees. ​ Fluctuations in mortgage loan origination fees and net gains on sale of loans are not always aligned with fluctuations in loan origination and loan sale volumes, respectively, since customers may opt to pay PrimeLending discount fees on their mortgage loans, which are included in mortgage loan origination fees, in exchange for a lower interest rate, which decreases the value of a loan in the secondary market. ​ We consider the mortgage origination segment’s net gains from sale of loans margin, in basis points, to be a key performance measure. Net gains from mortgage loan sales margin is defined as net gains from sale of loans divided by mortgage loan sales volume. The net gains from sale of loans is central to the segment’s generation of income and may include loans sold to third parties and loans sold to and retained by the banking segment. For origination services provided, the mortgage origination segment was reimbursed direct origination costs associated with loans retained by the banking segment, in addition to payment of a correspondent fee. The reimbursed origination costs and correspondent fee are included in the mortgage origination segment operating results, and the correspondent fees are eliminated in consolidation. Loan volumes to be originated on behalf of and retained by the banking segment are evaluated each quarter. Loans sold to and retained by the banking segment during 2023, 2022 and 2021 were $140 million, $532 million and $778 million, respectively. Loan volumes to be originated on behalf of and retained by the banking segment are expected to be impacted by, among other things, an ongoing review of the prevailing mortgage rates, balance sheet positioning at Hilltop and the banking segment’s outlook for commercial loan growth. ​ Noninterest income included changes in the net fair value of the mortgage origination segment’s IRLCs and loans held for sale and the related activity associated with forward commitments used by the mortgage origination segment to mitigate interest rate risk associated with its IRLCs and mortgage loans held for sale (“net fair value of IRLCs and loans held for sale”). The increase in net fair value of IRLCs and loans held for sale during 2023, compared with 2022, was primarily the result of an increase in the average value of IRLCs and loans held for sale, partially offset by a decrease in the total volume of individual IRLCs and loans held for sale at each year-end. ​ The mortgage origination segment sells substantially all mortgage loans it originates to various investors in the secondary market. In addition, the mortgage origination segment originates loans on behalf of the Bank. The mortgage origination segment’s determination of whether to retain or release servicing on mortgage loans it sells is impacted by, among other things, changes in mortgage interest rates, refinancing and market activity, and balance sheet positioning at Hilltop. During 2023, 2022 and 2021, the mortgage origination segment retained servicing on approximately 18%, 25% and 29%, respectively, of loans sold. A reduction in third-party mortgage servicers purchasing mortgage servicing rights, even if modest, may result in PrimeLending increasing the rate of retained servicing on mortgage loans sold at any time. The mortgage origination segment may, from time to time, manage its MSR asset through different strategies, including varying the percentage of mortgage loans sold servicing released and opportunistically selling MSR assets. The mortgage origination segment has also retained servicing on certain loans sold to and retained by the banking segment. Gains and losses associated with such sales to the banking segment and the related MSR asset are eliminated in consolidation. ​ The mortgage origination segment uses derivative financial instruments, including U.S. Treasury bond futures and options and MBS commitments, to mitigate interest rate risk associated with its MSR asset. Changes in the net fair value of the MSR asset are associated with normal customer payments, changes in discount rates, prepayment speed assumptions and customer payoffs. During 2023, the operating results of the mortgage origination segment were impacted by a decrease of $12.5 million in the net fair value of the MSR asset. This decrease was primarily driven by market sales trends during the first quarter of 2023 and 2022. The remaining losses of $4.1 million were generated by the derivatives used to hedge the MSR. During June 2023, the mortgage origination segment sold MSR assets of $19.1 million, which represented $991.0 million of its serviced loan volume at the time. During 2022 and 2021, the mortgage origination segment sold MSR assets of approximately $65 million and $143 million, respectively, with a serviced loan volume totaling $3.7 billion and $12.4 billion, respectively. In addition to net losses generated by changes in the net fair value of the MSR asset and related derivatives, net servicing income of $13.5 million was recognized during 2023. 79 Table of Contents Noninterest expenses were comprised of the items set forth in the table below (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b","Variance","\u200b"],["\u200b","","2023","","2022","","2021","","2023 vs 2022","","2022 vs 2021"],["Variable compensation","\u200b","$","118,977","\u200b","$","183,804","\u200b","$","373,929","\u200b","$","(64,827)","\u200b","$","(190,125)","\u200b"],["Non-variable compensation and benefits","\u200b","\u200b","132,142","\u200b","\u200b","170,169","\u200b","\u200b","194,292","\u200b","\u200b","(38,027)","\u200b","\u200b","(24,123)","\u200b"],["Segment operating costs","\u200b","\u200b","84,864","\u200b","\u200b","92,631","\u200b","\u200b","113,020","\u200b","\u200b","(7,767)","\u200b","\u200b","(20,389)","\u200b"],["Lender paid closing costs","\u200b","\u200b","4,971","\u200b","\u200b","13,371","\u200b","\u200b","20,458","\u200b","\u200b","(8,400)","\u200b","\u200b","(7,087)","\u200b"],["Servicing expense","\u200b","\u200b","18,331","\u200b","\u200b","18,929","\u200b","\u200b","29,357","\u200b","\u200b","(598)","\u200b","\u200b","(10,428)","\u200b"],["Total noninterest expense","\u200b","$","359,285","\u200b","$","478,904","\u200b","$","731,056","\u200b","$","(119,619)","\u200b","$","(252,152)","\u200b"]] [[/GREPCENT_TABLE]] ​ Total employees’ compensation and benefits accounted for the majority of the noninterest expenses incurred during all periods presented. Historically, variable compensation comprises the majority of total employees’ compensation and benefits expenses, but during 2023, as opposed to 2022 and 2021, non-variable compensation was greater than variable compensation. Variable compensation, which is primarily driven by loan origination volume, tends to fluctuate to a greater degree than loan origination volume, because mortgage loan originator and fulfillment staff incentive compensation plans are structured to pay at increasing rates as higher monthly volume tiers are achieved. However, certain other incentive compensation plans driven by non-mortgage production criteria may alter this trend. ​ While total loan origination volumes decreased 34.9% during 2023, compared with 2022, the aggregate non-variable compensation and benefits of the mortgage origination segment decreased by 22.4%. This decrease was primarily due to a decrease in salaries associated with a reduction in underwriting and loan fulfillment, operations and corporate staff in response to the decreases in loan origination volume that started at the end of 2021, and continued through 2023. Severance costs, included in non-variable compensation above, incurred because of these staff reduction initiatives was $1.4 million during 2023. These actions during 2023 are expected to have an aggregate favorable impact on annualized pre-tax expenses of approximately $11 million. PrimeLending remains committed to evaluating staffing levels and maintaining an appropriate cost structure to address the dynamic mortgage loan origination trends. Segment operating costs decreased during 2023, compared with 2022, primarily due to decreases in occupancy and equipment expense, advertising expense, professional fees and net loan related expenses, excluding credit report expense. During 2022, compared with 2021, segment operating costs decreased primarily due to decreases in business development, professional fees, occupancy and loan-related costs. ​ In exchange for a higher interest rate, customers may opt to have PrimeLending pay certain costs associated with the origination of their mortgage loan (“lender paid closing costs”). Fluctuations in lender paid closing costs are not always aligned with fluctuations in loan origination volume. Other loan pricing conditions, including the mortgage loan interest rate, loan origination fees paid by the customer, and a customer’s willingness to pay closing costs, may influence fluctuations in lender paid closing costs. ​ Between January 1, 2014 and December 31, 2023, the mortgage origination segment sold mortgage loans totaling $148.1 billion. These loans were sold under sales contracts that generally include provisions that hold the mortgage origination segment responsible for errors or omissions relating to its representations and warranties that loans sold meet certain requirements, including representations as to underwriting standards and the validity of certain borrower representations in connection with the loan. In addition, the sales contracts typically require the refund of purchased servicing rights plus certain investor servicing costs if a loan experiences an early payment default. While the mortgage origination segment sold loans prior to 2014, it does not anticipate experiencing significant losses in the future on loans originated prior to 2014 because of investor claims under these provisions of its sales contracts. ​ When a claim for indemnification of a loan sold is made by an agency, investor, or other party, the mortgage origination segment evaluates the claim and determines if the claim can be satisfied through additional documentation or other deliverables. If the claim is valid and cannot be satisfied in that manner, the mortgage origination segment negotiates with the claimant to reach a settlement of the claim. Settlements typically result in either the repurchase of a loan or reimbursement to the claimant for losses incurred on the loan. ​ 80 Table of Contents Following is a summary of the mortgage origination segment’s claims resolution activity relating to loans sold between January 1, 2014 and December 31, 2023 (dollars in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Original Loan Balance","\u200b","Loss Recognized","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","% of","\u200b","\u200b","\u200b","\u200b","% of","\u200b"],["\u200b","","Amount","","Loans Sold","","Amount","","Loans Sold"],["Claims resolved with no payment","\u200b","$","239,695","\u200b","0.16","%","$","\u2014","\u200b","-","%"],["Claims resolved because of a loan repurchase or payment to an investor for losses incurred (1)","\u200b","\u200b","298,226","\u200b","0.20","%","\u200b","23,377","\u200b","0.02","%"],["\u200b","\u200b","$","537,921","\u200b","0.36","%","$","23,377","\u200b","0.02","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Losses incurred include refunded purchased servicing rights."]] [[/GREPCENT_TABLE]] ​ For each loan the mortgage origination segment concludes its obligation to a claimant is both probable and reasonably estimable, the mortgage origination segment has established a specific claims indemnification liability reserve. ​ An additional indemnification liability reserve has been established for probable agency, investor or other party losses that may have been incurred, but not yet reported to the mortgage origination segment based upon a reasonable estimate of such losses. Factors considered in the calculation of this reserve include, but are not limited to, the total volume of loans sold exclusive of specific claimant requests, actual claim inquiries, claim settlements and the severity of estimated losses resulting from future claims, and the mortgage origination segment’s history of successfully curing defects identified in claim requests. ​ Although management considers the total indemnification liability reserve to be appropriate, there may be changes in the reserve over time to address incurred losses due to unanticipated adverse changes in the economy and historical loss patterns, discrete events adversely affecting specific borrowers or industries, and/or actions taken by institutions or investors. The impact of such matters is considered in the reserving process when probable and estimable. Between March and June 2023 PrimeLending experienced an increase in agency claim inquiries relative to historical trending. However, subsequent to June 2023, agency claims decreased to more closely to approximate historical trends. While no adjustment has been made to the factors considered in the calculation of the indemnification liability reserve as a result of these trends as of December 31, 2023, PrimeLending will continue to monitor agency claim inquiry trends and assess its potential impact on the indemnification liability reserve. ​ At December 31, 2023 and 2022, the mortgage origination segment’s total indemnification liability reserve totaled $11.7 million and $20.5 million, respectively. The related provision for indemnification losses was $1.6 million, $1.5 million, and $10.0 million during 2023, 2022 and 2021, respectively. ​ Corporate ​ The following table presents certain financial information regarding the operating results of corporate (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b","Variance"],["\u200b","\u200b","2023","\u200b","2022","\u200b","2021","\u200b","2023 vs 2022","\u200b","2022 vs 2021"],["Net interest income (expense)","\u200b","$","(12,961)","\u200b","$","(13,135)","\u200b","$","(17,239)","\u200b","$","174","\u200b","$","4,104"],["Noninterest income","\u200b","","12,887","\u200b","","7,525","\u200b","","9,133","\u200b","","5,362","\u200b","","(1,608)"],["Noninterest expense","\u200b","\u200b","60,631","\u200b","","59,030","\u200b","","50,507","\u200b","\u200b","1,601","\u200b","","8,523"],["Loss before income taxes","\u200b","$","(60,705)","\u200b","$","(64,640)","\u200b","$","(58,613)","\u200b","$","3,935","\u200b","$","(6,027)"]] [[/GREPCENT_TABLE]] ​ Corporate includes certain activities not allocated to specific business segments. These activities include holding company financing and investing activities, merchant banking investment opportunities and management and administrative services to support the overall operations of the Company. Hilltop’s merchant banking investment activities include the identification of attractive opportunities for capital deployment in companies engaged in non-financial activities through its merchant bank subsidiary, Hilltop Opportunity Partners LLC. These merchant banking activities currently include investments within various industries, including power generation, consumer services, youth sports and entertainment, dental health, industrial equipment manufacturing and animal health, with an aggregate carrying value of approximately $78 million at December 31, 2023. ​ 81 Table of Contents As a holding company, Hilltop’s primary investment objectives are to support capital deployment for organic growth and to preserve capital to be deployed through acquisitions, dividend payments and potential stock repurchases. Investment and interest income earned during 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”). During 2023, 2022 and 2021, we incurred interest expense of $12.4 million, $12.3 million and $12.3 million, respectively, on our $50 million aggregate principal amount of 5.75% fixed-to-floating rate subordinated notes due May 15, 2030 (“2030 Subordinated Notes”) and on our $150 million aggregate principal amount of 6.125% fixed-to-floating subordinated notes due May 15, 2035 (“2035 Subordinated Notes,” the 2030 Subordinated Notes and the 2035 Subordinated Notes, collectively, the “Subordinated Notes”), which were issued in May 2020. Additionally, we incurred interest expense of $1.6 million during 2021, on junior subordinated debentures of $67.0 million issued by PCC (the “Debentures”). 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. 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. During 2023, compared with 2022, the increase in noninterest expenses was primarily due to inflationary increases associated with employees’ compensation and benefits, partially offset by decreases in professional fees and occupancy expenses. During 2022, compared with 2021, the increase in noninterest expenses was primarily due to inflationary increases associated with software and occupancy costs, as well as increases in professional fees. ​ Financial Condition ​ The following discussion contains a more detailed analysis of our financial condition at December 31, 2023 as compared with December 31, 2022 and December 31, 2021. ​ Securities Portfolio ​ At December 31, 2023, investment securities consisted of securities of the U.S. Treasury, U.S. government and its agencies, obligations of municipalities and other political subdivisions, primarily in the State of Texas, as well as mortgage-backed, corporate debt, and equity securities. We may categorize investments as trading, available for sale, held to maturity and equity securities. ​ Trading securities are bought and held principally for the purpose of selling them in the near term and are carried at fair value, marked to market through operations and held at the Bank and the Hilltop Broker-Dealers. Securities classified as available for sale may, from time to time, be bought and sold in response to changes in market interest rates, changes in securities’ prepayment risk, increases in loan demand, general liquidity needs and to take advantage of market conditions that create more economically attractive returns. Such securities are carried at estimated fair value, with unrealized gains and losses recorded in accumulated other comprehensive income (loss). Equity investments are carried at fair value, with all changes in fair value recognized in net income. Securities are classified as held to maturity based on the intent and ability of our management, at the time of purchase, to hold such securities to maturity. These securities are carried at amortized cost. ​ 82 Table of Contents The table below summarizes our securities portfolio (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","December 31,"],["\u200b","2023","","2022","","2021"],["Trading securities, at fair value","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["U.S. Treasury securities","$","3,736","\u200b","$","10,466","\u200b","$","3,728","\u200b"],["U.S. government agencies:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Bonds","\u200b","12,867","\u200b","\u200b","20,878","\u200b","\u200b","3,410","\u200b"],["Residential mortgage-backed securities","\u200b","124,768","\u200b","\u200b","214,100","\u200b","\u200b","152,093","\u200b"],["Collateralized mortgage obligations","\u200b","86,281","\u200b","\u200b","182,717","\u200b","\u200b","126,389","\u200b"],["Other","\u200b","13,079","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b"],["Corporate debt securities","\u200b","37,569","\u200b","\u200b","42,685","\u200b","\u200b","60,671","\u200b"],["States and political subdivisions","\u200b","180,890","\u200b","\u200b","260,271","\u200b","\u200b","285,376","\u200b"],["Private-label securitized product","\u200b","47,768","\u200b","\u200b","9,265","\u200b","\u200b","11,377","\u200b"],["Other","\u200b","9,033","\u200b","\u200b","14,650","\u200b","\u200b","4,954","\u200b"],["\u200b","\u200b","515,991","\u200b","\u200b","755,032","\u200b","\u200b","647,998","\u200b"],["Securities available for sale, at fair value","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["U.S. Treasury securities","","4,617","\u200b","\u200b","19,144","\u200b","","14,862","\u200b"],["U.S. government agencies:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Bonds","","166,166","\u200b","\u200b","202,257","\u200b","","44,133","\u200b"],["Residential mortgage-backed securities","","349,870","\u200b","\u200b","406,358","\u200b","","898,446","\u200b"],["Commercial mortgage-backed securities","\u200b","191,746","\u200b","\u200b","175,499","\u200b","","210,699","\u200b"],["Collateralized mortgage obligations","","736,481","\u200b","\u200b","818,894","\u200b","","916,866","\u200b"],["Corporate debt securities","","24,418","\u200b","\u200b","\u2014","\u200b","","\u2014","\u200b"],["States and political subdivisions","","34,297","\u200b","\u200b","36,614","\u200b","","45,562","\u200b"],["\u200b","","1,507,595","\u200b","\u200b","1,658,766","\u200b","","2,130,568","\u200b"],["Securities held to maturity, at amortized cost","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["U.S. government agencies:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Residential mortgage-backed securities","","278,172","\u200b","\u200b","301,583","\u200b","","9,892","\u200b"],["Commercial mortgage-backed securities","\u200b","172,879","\u200b","\u200b","180,942","\u200b","","145,742","\u200b"],["Collateralized mortgage obligations","","284,208","\u200b","\u200b","314,705","\u200b","","43,990","\u200b"],["States and political subdivisions","","77,418","\u200b","\u200b","78,302","\u200b","","68,060","\u200b"],["\u200b","","812,677","\u200b","","875,532","\u200b","","267,684","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Equity securities, at fair value","\u200b","321","\u200b","\u200b","200","\u200b","\u200b","250","\u200b"],["Total securities portfolio","$","2,836,584","\u200b","$","3,289,530","\u200b","$","3,046,500","\u200b"]] [[/GREPCENT_TABLE]] ​ We had net unrealized losses of $114.2 million, $129.8 million and $18.1 million at December 31, 2023, 2022 and 2021, respectively, related to the available for sale investment portfolio. 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. 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. As of the date of transfer, the related pre-tax net unrecognized losses of approximately $74 million within the accumulated other comprehensive loss balance are being amortized over the remaining term of the securities using the effective interest method. This transfer was completed after careful consideration of our intent and ability to hold these securities to maturity. 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. In addition, the securities portfolio is used to meet collateral requirements for public and trust deposits, securities sold under agreements to repurchase and other purposes. The available for sale and equity securities portfolios serve as a source of liquidity. Historically, the Bank’s policy has been to invest primarily in securities of the U.S. government and its agencies, obligations of municipalities in the State of Texas and other high grade fixed income securities to minimize credit risk. At December 31, 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. The interest rate risk inherent in holding these securities is managed by setting and monitoring limits on the size and duration of positions and on the length of time the securities can be held. The Hilltop Broker-Dealers are required to carry their securities at fair value and record changes in the fair value of the portfolio to the statements of operations. Accordingly, the securities portfolio of the Hilltop Broker-Dealers included trading securities of $515.9 million at December 31, 2023. In addition, the Hilltop Broker-Dealers enter into transactions that represent commitments to purchase and deliver securities at prevailing future market prices to facilitate customer transactions and satisfy such commitments. Accordingly, the Hilltop Broker-Dealers’ ultimate obligation may exceed the amount recognized in the financial statements. These securities, which are carried at fair value and reported as securities sold, not yet purchased in the consolidated balance sheets, had a value of $34.9 million at December 31, 2023. ​ Corporate ​ At December 31, 2023, the corporate portfolio included other investments, including those associated with merchant banking, of available for sale securities of $24.4 million and other assets of $43.6 million within the consolidated balance sheet. ​ Allowance for Credit Losses for Available for Sale Securities and Held to Maturity Securities ​ We have evaluated available for sale debt securities that are in an unrealized loss position and have determined that any declines in value are unrelated to credit loss and related to changes in market interest rates since purchase. None of the available for sale debt securities held were past due at December 31, 2023. In addition, as of December 31, 2023, we had evaluated our held to maturity debt securities, considering the current credit ratings and recognized losses, and determined the potential credit loss to be minimal. With respect to these securities, we considered the risk of credit loss to be negligible, and therefore, no allowance was recognized on the debt securities portfolio at December 31, 2023. ​ 84 Table of Contents The following table sets forth the estimated maturities of our debt securities, excluding trading securities, at December 31, 2023. Contractual maturities may be different (dollars in thousands, yields are tax-equivalent). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","One Year","","One Year to","","Five Years to","","Greater Than","","","\u200b"],["\u200b","\u200b","Or Less","\u200b","Five Years","\u200b","Ten Years","\u200b","Ten Years","\u200b","Total","\u200b"],["U.S. Treasury securities:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Amortized cost","\u200b","\u200b","\u2014","\u200b","$","4,985","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","$","4,985","\u200b"],["Fair value","\u200b","\u200b","\u2014","\u200b","$","4,617","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","$","4,617","\u200b"],["Weighted average yield (1)","\u200b","","\u2014","\u200b","","0.87","%","","\u2014","\u200b","","\u2014","\u200b","","0.87","%"],["U.S. government agencies:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Bonds:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Amortized cost","\u200b","$","30,005","\u200b","$","44,511","\u200b","$","43,675","\u200b","$","48,426","\u200b","$","166,617","\u200b"],["Fair value","\u200b","$","29,879","\u200b","$","44,570","\u200b","$","43,355","\u200b","$","48,362","\u200b","$","166,166","\u200b"],["Weighted average yield (1)","\u200b","","4.16","%","","5.07","%","","5.74","%","","5.67","%","","5.26","%"],["Residential mortgage-backed securities:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Amortized cost","\u200b","\u200b","\u2014","\u200b","$","7,165","\u200b","$","80,581","\u200b","$","579,586","\u200b","$","667,332","\u200b"],["Fair value","\u200b","\u200b","\u2014","\u200b","$","6,919","\u200b","$","76,572","\u200b","$","518,786","\u200b","$","602,277","\u200b"],["Weighted average yield (1)","\u200b","\u200b","\u2014","\u200b","","2.67","%","","2.56","%","","2.30","%","","2.34","%"],["Commercial mortgage-backed securities:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Amortized cost","\u200b","$","5,040","\u200b","$","86,455","\u200b","$","269,339","\u200b","$","12,281","\u200b","$","373,115","\u200b"],["Fair value","\u200b","$","5,010","\u200b","$","83,688","\u200b","$","252,571","\u200b","$","10,686","\u200b","$","351,955","\u200b"],["Weighted average yield (1)","\u200b","\u200b","2.99","%","","3.29","%","","2.53","%","","3.05","%","","2.73","%"],["Collateralized mortgage obligations:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Amortized cost","\u200b","\u200b","\u2014","\u200b","$","42,363","\u200b","$","173,974","\u200b","$","865,747","\u200b","$","1,082,084","\u200b"],["Fair value","\u200b","\u200b","\u2014","\u200b","$","41,531","\u200b","$","168,187","\u200b","$","773,782","\u200b","$","983,500","\u200b"],["Weighted average yield (1)","\u200b","","\u2014","\u200b","","4.09","%","","4.02","%","","3.15","%","","3.33","%"],["Corporate debt securities:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Amortized cost","\u200b","\u200b","\u2014","\u200b","$","25,919","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","$","25,919","\u200b"],["Fair value","\u200b","\u200b","\u2014","\u200b","$","24,418","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","$","24,418","\u200b"],["Weighted average yield","\u200b","","\u2014","\u200b","","1.14","%","","\u2014","\u200b","\u200b","\u2014","\u200b","","1.14","%"],["States and political subdivisions:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Amortized cost","\u200b","$","1,959","\u200b","$","10,452","\u200b","$","50,072","\u200b","$","51,889","\u200b","$","114,372","\u200b"],["Fair value","\u200b","$","1,949","\u200b","$","10,207","\u200b","$","48,070","\u200b","$","46,294","\u200b","$","106,520","\u200b"],["Weighted average yield (1)","\u200b","","2.63","%","","2.56","%","","3.00","%","","2.62","%","","2.78","%"],["Total securities portfolio:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Amortized cost","\u200b","$","37,004","\u200b","$","221,850","\u200b","$","617,641","\u200b","$","1,557,929","\u200b","$","2,434,424","\u200b"],["Fair value","\u200b","$","36,838","\u200b","$","215,950","\u200b","$","588,755","\u200b","$","1,397,910","\u200b","$","2,239,453","\u200b"],["Weighted average yield (1)","\u200b","","3.92","%","","3.44","%","","3.22","%","","2.89","%","","3.04","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Weighted average yield is defined as interest earned by average interest-earning assets."]] [[/GREPCENT_TABLE]] ​ Loan Portfolio ​ Consolidated loans held for investment are detailed in the table below, classified by portfolio segment (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","December 31,"],["Loan Held for Investment","\u200b","2023","\u200b","2022","\u200b","2021"],["Commercial real estate:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Non-owner occupied","\u200b","$","1,889,882","\u200b","$","1,870,552","\u200b","$","1,729,699"],["Owner occupied","\u200b","\u200b","1,422,234","\u200b","\u200b","1,375,321","\u200b","\u200b","1,313,030"],["Commercial and industrial","\u200b","","1,607,833","\u200b","\u200b","1,639,980","\u200b","\u200b","1,875,420"],["Construction and land development","\u200b","","1,031,095","\u200b","\u200b","980,896","\u200b","\u200b","892,783"],["1-4 family residential","\u200b","","1,757,178","\u200b","\u200b","1,767,099","\u200b","\u200b","1,303,430"],["Consumer","\u200b","\u200b","27,351","\u200b","\u200b","27,602","\u200b","\u200b","32,349"],["Broker-dealer","\u200b","\u200b","344,172","\u200b","\u200b","431,223","\u200b","\u200b","733,193"],["Loans held for investment, gross","\u200b","","8,079,745","\u200b","","8,092,673","\u200b","","7,879,904"],["Allowance for credit losses","\u200b","","(111,413)","\u200b","\u200b","(95,442)","\u200b","\u200b","(91,352)"],["Loans held for investment, net of allowance","\u200b","$","7,968,332","\u200b","$","7,997,231","\u200b","$","7,788,552"]] [[/GREPCENT_TABLE]] 85 Table of Contents ​ Banking Segment ​ The loan portfolio constitutes the primary earning asset of the banking segment and typically offers the best alternative for obtaining the maximum interest spread above the banking segment’s cost of funds. The overall economic strength of the banking segment generally parallels the quality and yield of its loan portfolio. ​ As discussed in more detail within the section captioned “Financial Condition – Allowance for Credit Losses on Loans” below, the banking segment’s credit policies emphasize strong underwriting and governance standards and early detection of potential problem credits in order to develop and implement action plans on a timely basis to mitigate potential losses. These formal credit policies and procedures provide the banking segment with a framework for consistent underwriting and a basis for sound credit decisions. The banking segment strives to avoid the risk of concentrations of credit in any particular industry, collateral type, location, or with any individual customer or counterparty. ​ To manage the credit risks associated with its loan portfolio, management may, depending upon current or anticipated economic conditions and related exposures, apply enhanced risk management measures to loans through analysis of a specific borrower’s financial condition, including cash flow, collateral values, and guarantees, among other credit factors. Given the current market dynamics, including economic uncertainties, the rapid increase in market interest rates since 2022, and a deteriorating outlook for commercial real estate markets, management has heightened its specific review procedures of credits maturing in the next six to twelve months as well as those credits associated with real estate. ​ The banking segment’s total loans held for investment, net of the allowance for credit losses, were $8.5 billion, $8.5 billion and $8.8 billion at December 31, 2023, 2022 and 2021, 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. Amounts advanced against the warehouse lines of credit are eliminated from net loans held for investment on our consolidated balance sheets. The banking segment does not generally participate in syndicated loan transactions and has no foreign loans in its portfolio. ​ A significant portion of the banking segment’s loan portfolio at December 31, 2023 consisted of commercial real estate loans secured by properties. Such loans can involve high principal loan amounts, and the repayment of these loans is dependent, in large part, on a borrower’s ongoing business operations or on income generated from the properties that are leased to third parties. The table below sets forth the banking segment’s commercial real estate loan portfolio, by portfolio industry sector and collateral location as of December 31, 2023 (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Brownsville-","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Other","\u200b","\u200b","\u200b"],["\u200b","Dallas-","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Harlingen-","\u200b","San","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Outside","\u200b","\u200b","\u200b"],["Commercial Real Estate","Fort Worth","\u200b","Austin","\u200b","Houston","\u200b","McAllen","\u200b","Antonio","\u200b","Lubbock","\u200b","Texas","\u200b","Texas","\u200b","Total"],["Non-owner occupied:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Office","$","149,558","\u200b","$","213,425","\u200b","$","53,118","\u200b","$","16,372","\u200b","$","22,071","\u200b","$","3,872","\u200b","$","62,741","\u200b","$","329","\u200b","$","521,486"],["Retail","\u200b","148,247","\u200b","\u200b","72,992","\u200b","\u200b","25,515","\u200b","\u200b","19,455","\u200b","\u200b","9,742","\u200b","\u200b","12,905","\u200b","\u200b","38,621","\u200b","\u200b","10,207","\u200b","\u200b","337,684"],["Hotel/Motel","\u200b","49,288","\u200b","\u200b","25,030","\u200b","\u200b","72,258","\u200b","\u200b","17,521","\u200b","\u200b","340","\u200b","\u200b","18,461","\u200b","\u200b","36,403","\u200b","\u200b","13,894","\u200b","\u200b","233,195"],["Multifamily","\u200b","11,355","\u200b","\u200b","11,089","\u200b","\u200b","41,984","\u200b","\u200b","57,099","\u200b","\u200b","\u2014","\u200b","\u200b","34,018","\u200b","\u200b","56,980","\u200b","\u200b","10,719","\u200b","\u200b","223,244"],["Industrial","\u200b","114,432","\u200b","\u200b","44,609","\u200b","\u200b","8,454","\u200b","\u200b","4,906","\u200b","\u200b","3,113","\u200b","\u200b","705","\u200b","\u200b","21,922","\u200b","\u200b","426","\u200b","\u200b","198,567"],["All other","\u200b","105,406","\u200b","\u200b","60,125","\u200b","\u200b","26,836","\u200b","\u200b","12,813","\u200b","\u200b","24,143","\u200b","\u200b","54,043","\u200b","\u200b","58,007","\u200b","\u200b","34,333","\u200b","\u200b","375,706"],["\u200b","$","578,286","\u200b","$","427,270","\u200b","$","228,165","\u200b","$","128,166","\u200b","$","59,409","\u200b","$","124,004","\u200b","$","274,674","\u200b","$","69,908","\u200b","$","1,889,882"],["Owner occupied:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Office","$","122,882","\u200b","$","88,139","\u200b","$","23,967","\u200b","$","14,534","\u200b","$","35,139","\u200b","$","8,376","\u200b","$","10,071","\u200b","$","4,027","\u200b","$","307,135"],["Retail","\u200b","12,165","\u200b","\u200b","15,619","\u200b","\u200b","3,337","\u200b","\u200b","1,104","\u200b","\u200b","190","\u200b","\u200b","173","\u200b","\u200b","3,931","\u200b","\u200b","1,005","\u200b","\u200b","37,524"],["Industrial","\u200b","170,169","\u200b","\u200b","37,230","\u200b","\u200b","33,669","\u200b","\u200b","8,509","\u200b","\u200b","13,054","\u200b","\u200b","7,103","\u200b","\u200b","33,186","\u200b","\u200b","23,935","\u200b","\u200b","326,855"],["All other","\u200b","334,361","\u200b","\u200b","65,670","\u200b","\u200b","87,858","\u200b","\u200b","22,214","\u200b","\u200b","48,649","\u200b","\u200b","14,677","\u200b","\u200b","159,554","\u200b","\u200b","17,737","\u200b","\u200b","750,720"],["\u200b","$","639,577","\u200b","$","206,658","\u200b","$","148,831","\u200b","$","46,361","\u200b","$","97,032","\u200b","$","30,329","\u200b","$","206,742","\u200b","$","46,704","\u200b","$","1,422,234"],["Total commercial real estate loans","$","1,217,863","\u200b","$","633,928","\u200b","$","376,996","\u200b","$","174,527","\u200b","$","156,441","\u200b","$","154,333","\u200b","$","481,416","\u200b","$","116,612","\u200b","$","3,312,116"]] [[/GREPCENT_TABLE]] ​ ​ At December 31, 2023, the banking segment had loan concentrations (loans to borrowers engaged in similar activities) that exceeded 10% of total loans in its real estate portfolio. The areas of concentration within our real estate portfolio were non-construction commercial real estate loans, non-construction residential real estate loans, and construction and 86 Table of Contents land development loans, which represented 42.9%, 22.7% and 13.3%, respectively, of the banking segment’s total loans held for investment at December 31, 2023. 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. Crude oil prices remain uncertain given future supply and demand for oil are influenced by international armed conflicts, return to business travel, new energy policies and government regulation, and the pace of transition towards renewable energy resources. At December 31, 2023, the Bank’s energy loan exposure was approximately $46 million of loans held for investment with unfunded commitment balances of approximately $20 million. The allowance for credit losses on the Bank’s energy portfolio was $0.2 million, or 0.5% of loans held for investment at December 31, 2023. ​ The following table provides information regarding the maturities of the banking segment’s gross loans held for investment, net of unearned income (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31, 2023"],["\u200b","","Due Within","","Due From One","","Due from Five","","Due After","","","\u200b"],["\u200b","\u200b","One Year","\u200b","To Five Years","\u200b","To Fifteen Years","\u200b","Fifteen Years","\u200b","Total"],["Commercial real estate:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Non-owner occupied","\u200b","$","587,689","\u200b","$","906,892","\u200b","$","394,875","\u200b","$","426","\u200b","$","1,889,882"],["Owner occupied","\u200b","\u200b","305,411","\u200b","\u200b","532,137","\u200b","\u200b","529,324","\u200b","\u200b","55,362","\u200b","\u200b","1,422,234"],["Commercial and industrial","\u200b","\u200b","2,022,380","\u200b","\u200b","303,329","\u200b","\u200b","145,177","\u200b","\u200b","\u2014","\u200b","\u200b","2,470,886"],["Construction and land development","\u200b","\u200b","832,155","\u200b","\u200b","164,877","\u200b","\u200b","33,147","\u200b","\u200b","916","\u200b","\u200b","1,031,095"],["1-4 family residential","\u200b","\u200b","134,320","\u200b","\u200b","424,154","\u200b","\u200b","427,873","\u200b","\u200b","770,831","\u200b","\u200b","1,757,178"],["Consumer","\u200b","","14,619","\u200b","","12,537","\u200b","","181","\u200b","","14","\u200b","","27,351"],["Total","\u200b","$","3,896,574","\u200b","$","2,343,926","\u200b","$","1,530,577","\u200b","$","827,549","\u200b","$","8,598,626"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Fixed rate loans","\u200b","$","1,539,998","\u200b","$","1,676,660","\u200b","$","1,270,946","\u200b","$","827,549","\u200b","$","5,315,153"],["Floating rate loans","\u200b","","2,356,576","\u200b","","667,266","\u200b","","259,631","\u200b","","\u2014","\u200b","","3,283,473"],["Total","\u200b","$","3,896,574","\u200b","$","2,343,926","\u200b","$","1,530,577","\u200b","$","827,549","\u200b","$","8,598,626"]] [[/GREPCENT_TABLE]] ​ In the table above, commercial and industrial includes amounts advanced against the warehouse lines of credit extended to PrimeLending. Floating rate loans that have reached their applicable rate floor or ceiling are classified as fixed rate loans rather than floating rate loans. As of December 31, 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. 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. The interest rate on margin accounts is computed on the settled margin balance at a fixed rate established by management. These loans are collateralized by the securities purchased or by other securities owned by the clients and, because of collateral coverage ratios, are believed to present minimal collectability exposure. Additionally, these loans are subject to a number of regulatory requirements as well as the Hilltop Broker-Dealers’ internal policies. The broker-dealer segment’s total loans held for investment, net of the allowance for credit losses, were $344.1 million, $431.0 million and $733.0 million at December 31, 2023, 2022 and 2021, respectively. The decrease from December 31, 2022 to December 31, 2023, was primarily attributable to a decrease of $51.0 million, or 19%, in customer margin accounts and a decrease of $36.9 million, or 24%, in receivables from correspondents. The decrease from December 31, 2021 to December 31, 2022, was primarily attributable to a decrease of $152.2 million or 36%, in customer margin accounts and a decrease of $149.2 million, or 49%, in receivables from correspondents. ​ 87 Table of Contents Mortgage Origination Segment ​ The loan portfolio of the mortgage origination segment consists of loans held for sale, primarily single-family residential mortgages funded through PrimeLending, and IRLCs with customers pursuant to which we agree to originate a mortgage loan on a future date at an agreed-upon interest rate. The components of the mortgage origination segment’s loans held for sale and IRLCs are as follows (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,"],["\u200b","","2023","","2022","","2021"],["Loans held for sale:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Unpaid principal balance","\u200b","$","802,348","\u200b","$","850,277","\u200b","$","1,728,255","\u200b"],["Fair value adjustment","\u200b","","19,846","\u200b","","5,420","\u200b","","54,336","\u200b"],["\u200b","\u200b","$","822,194","\u200b","$","855,697","\u200b","$","1,782,591","\u200b"],["IRLCs:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Unpaid principal balance","\u200b","$","383,767","\u200b","$","506,278","\u200b","$","1,283,152","\u200b"],["Fair value adjustment","\u200b","","7,734","\u200b","","1,767","\u200b","","25,489","\u200b"],["\u200b","\u200b","$","391,501","\u200b","$","508,045","\u200b","$","1,308,641","\u200b"]] [[/GREPCENT_TABLE]] ​ The mortgage origination segment uses forward commitments to mitigate interest rate risk associated with its loans held for sale and IRLCs. The notional amounts of these forward commitments at December 31, 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. Loans are underwritten with careful consideration of the borrower’s financial condition, the specific purpose of the loan, the primary sources of repayment and any collateral pledged to secure the loan. ​ Underwriting procedures address financial components based on the size and complexity of the credit. The financial components include, but are not limited to, current and projected cash flows, shock analysis and/or stress testing, and trends in appropriate balance sheet and statement of operations ratios. The Bank’s loan policy provides specific underwriting guidelines by portfolio segment, including commercial and industrial, real estate, construction and land development, and consumer loans. The guidelines for each individual portfolio segment set forth permissible and impermissible loan types. With respect to each loan type, the guidelines within the Bank’s loan policy provide minimum requirements for the underwriting factors listed above. The Bank’s underwriting procedures also include an analysis of any collateral and guarantor. Collateral analysis includes a complete description of the collateral, as well as determined values, monitoring requirements, loan to value ratios, concentration risk, appraisal requirements and other information relevant to the collateral being pledged. Guarantor analysis includes liquidity and cash flow evaluation based on the significance with which the guarantors are expected to serve as secondary repayment sources. ​ The Bank maintains a loan review department that reviews credit risk in response to both external and internal factors that potentially impact the performance of either individual loans or the overall loan portfolio. The loan review process reviews the creditworthiness of borrowers and determines compliance with the loan policy. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel. Results of these reviews are presented to management, 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. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. Such future changes in the allowance for credit losses are expected to be volatile given dependence upon, among other things, the portfolio composition and quality, as well as the impact of significant drivers, including prepayment assumptions and macroeconomic conditions and forecasts. ​ Significant judgment is required to estimate the severity and duration of the current economic uncertainties, as well as its potential impact on borrower default and loss severity. In particular, macroeconomic conditions and forecasts are rapidly changing and remain highly uncertain. ​ One of the most significant judgments involved in estimating our allowance for credit losses relates to the macroeconomic forecasts used to estimate credit losses over the reasonable and supportable forecast period. To determine the allowance for credit losses as of December 31, 2023, we utilized a single macroeconomic alternative scenario, or S7, published by Moody’s Analytics in December 2023. The alternative scenario utilizes multiple economic variables in forecasting the economic outlook. During our previous quarterly macroeconomic assessment as of September 30, 2023, we utilized the same single macroeconomic alternative scenario published by Moody’s Analytics in September 2023. ​ The following table summarizes the U.S. Real Gross Domestic Product (“GDP”) growth rates and unemployment rate assumptions used in our economic forecast to determine our best estimate of expected credit losses. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","As of"],["\u200b","\u200b","\u200b","December 31,","\u200b","September 30,","\u200b","June 30,","\u200b","March 31,","\u200b","December 31,"],["\u200b","\u200b","\u200b","2023","\u200b","2023","\u200b","2023","\u200b","2023","\u200b","2022"],["GDP growth rates:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Q4 2022","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","0.8%"],["\u200b","Q1 2023","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","2.5%","\u200b","0.1%"],["\u200b","Q2 2023","\u200b","\u200b","\u200b","\u200b","\u200b","1.4%","\u200b","0.4%","\u200b","(1.4)%"],["\u200b","Q3 2023","\u200b","\u200b","\u200b","2.9%","\u200b","0.1%","\u200b","0.4%","\u200b","(2.5)%"],["\u200b","Q4 2023","\u200b","1.1%","\u200b","0.2%","\u200b","0.3%","\u200b","(3.1)%","\u200b","(2.4)%"],["\u200b","Q1 2024","\u200b","(1.6)%","\u200b","(1.9)%","\u200b","(3.1)%","\u200b","(2.2)%","\u200b","0.4%"],["\u200b","Q2 2024","\u200b","(2.4)%","\u200b","(3.0)%","\u200b","(2.7)%","\u200b","(1.1)%","\u200b","1.1%"],["\u200b","Q3 2024","\u200b","(1.3)%","\u200b","(1.5)%","\u200b","(0.9)%","\u200b","2.1%","\u200b","\u200b"],["\u200b","Q4 2024","\u200b","1.3%","\u200b","1.4%","\u200b","2.0%","\u200b","\u200b","\u200b","\u200b"],["\u200b","Q1 2025","\u200b","2.6%","\u200b","3.1%","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Q2 2025","\u200b","3.0%","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Unemployment rates:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Q4 2022","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","3.7%"],["\u200b","Q1 2023","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","3.5%","\u200b","4.0%"],["\u200b","Q2 2023","\u200b","\u200b","\u200b","\u200b","\u200b","3.5%","\u200b","3.7%","\u200b","4.6%"],["\u200b","Q3 2023","\u200b","\u200b","\u200b","3.8%","\u200b","3.8%","\u200b","4.0%","\u200b","5.3%"],["\u200b","Q4 2023","\u200b","3.8%","\u200b","4.1%","\u200b","4.0%","\u200b","4.7%","\u200b","6.0%"],["\u200b","Q1 2024","\u200b","4.8%","\u200b","4.9%","\u200b","4.9%","\u200b","5.6%","\u200b","5.9%"],["\u200b","Q2 2024","\u200b","5.6%","\u200b","5.7%","\u200b","5.6%","\u200b","6.0%","\u200b","5.6%"],["\u200b","Q3 2024","\u200b","6.1%","\u200b","6.0%","\u200b","6.0%","\u200b","5.7%","\u200b","\u200b"],["\u200b","Q4 2024","\u200b","5.6%","\u200b","5.7%","\u200b","5.8%","\u200b","\u200b","\u200b","\u200b"],["\u200b","Q1 2025","\u200b","5.2%","\u200b","5.3%","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Q2 2025","\u200b","5.0%","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]] [[/GREPCENT_TABLE]] ​ As of December 31, 2023, we updated our U.S. economic outlook for recent consumer and business spending. In the prior quarter’s forecast, we assumed a mild U.S. recession with real GDP growth contracting (0.6%) on an annual average basis and (1.6%) peak to trough in 2024. In the current economic forecast, real GDP growth contracts more modestly at (0.0%) on an annual average basis and (1.3%) peak to trough in 2024. Labor market conditions remained tighter than expected as the unemployment rate decreased to 3.7% in December despite several downward revisions to recent payroll data. We 89 Table of Contents expect monetary policy to remain restrictive at 5.25% to 5.50% in the near term but revert to 3.50% by year end 2025 as the Federal Reserve balances slower economic growth with its inflation targets. ​ During 2023, our economic outlook was updated to reflect our expectations of a period of below trend economic growth beginning in 2023 and a mild U.S. recession in 2024. The Federal Reserve increased its federal funds rate target from 4.00% to 4.25% in January 2023 to 5.25% to 5.50% in August 2023 and held rates steady through December 2023. In March and April 2023, as a result of three of the largest bank failures in U.S. history, the Federal Reserve implemented several liquidity programs to stabilize consumer and business confidence. The Federal Reserve continued to balance inflation expectations and labor market constraints with tighter financial conditions throughout 2023. The duration of the higher interest rates also renewed credit and refinance risk concerns about residential and commercial real estate loans. The consumer price index improved from 6.4% in January 2023 to 3.4% in December 2023, but inflation rates still remained above the Federal Reserve’s 2% target. Global supply chains eased throughout 2023 and adjusted to the longer than expected Russia-Ukraine conflict; however, conflicts in the Middle East between Israel and Hamas and the U.S. and Yemen added new uncertainties. Labor market conditions eased modestly but remained historically tight as the unemployment rate increased from 3.4% to 3.7% during the year.    ​ During 2022, our economic outlook was updated to reflect our expectations of a period of below trend economic growth beginning this year and a mild U.S. recession in 2023. COVID cases receded in the United States but continued to disrupt global supply chains and tight labor market conditions. The Russian invasion of Ukraine contributed to global oil prices increasing to near $120 per barrel and further disrupted supply chains due to economic sanctions imposed by the United States and other trade partners. Inflation rates initially expected to be transitory proved to trend persistently higher as the consumer price index rose to 9.1% on an annual basis in June. In response, the Federal Reserve adjusted monetary policy by increasing its federal funds rate target from 0.0% to 0.25% in March 2022 to 4.25% to 4.50% by December 2022. With lower government spending/stimulus and net exports, U.S. real GDP growth rates declined to (1.6%) and (0.6%) during the first and second quarters of 2022. While the Company and most economists downgraded their economic outlooks, the U.S. did not enter a recession. Real GDP growth improved to 3.2% during the third quarter of 2022 and U.S. labor markets proved resilient as unemployment rates decreased during the year from 4.0% to 3.5% ​ During 2021, our economic forecast improved year-over-year due to a third round of $1.9 trillion in government stimulus enacted in March 2021 through the American Rescue Plan Act. As a result of additional stimulus checks, enhanced unemployment benefits, extended lending from the PPP program, and expanded tax credits, consumer and business spending accelerated the U.S. real GDP growth rate in the second quarter of 2021 to 6.3% and in the third quarter of 2021 to 6.7%. Also, in March 2021, President Biden implemented new programs to extend COVID testing and vaccine eligibility for most adults in the United States by May 2021. Most states also ended their participation in federal pandemic unemployment benefit programs in early summer 2021. The U.S. unemployment rate decreased from 6.7% in December 2020 to 5.9% in June 2021 and decreased further to 4.2% by November 2021. In August 2021, a second wave of COVID cases progressed within the United States and Texas due to the delta variant, which slowed U.S. economic growth and real GDP growth rates to 2.3% in the third quarter of 2021. Then, in November 2021, Congress passed a fourth round of $0.6 trillion in government stimulus through the Infrastructure Investment and Jobs Act, and during December 2021, a third wave of COVID cases progressed in the United States and Texas due to the omicron variant. ​ During 2023, the provision for credit losses reflected a build in the allowance related to loan portfolio changes since December 31, 2022 and a deteriorating outlook for commercial real estate markets. Specific to the Bank, the net impact to the allowance of changes associated with collectively evaluated loans included a provision of credit losses of $12.7 million, while individually evaluated loans during 2023 included a provision for credit losses of $5.8 million. The change in the allowance for credit losses during 2023 was primarily attributable to the Bank and also reflected other factors including, but not limited to, loan mix, and changes in loan balances and qualitative factors from the prior period. The change in the allowance during 2023 was also impacted by net charge-offs of $2.4 million. ​ During 2022 and 2023, the impact of changes in the U.S. economic outlook and resulting impact on collectively evaluated loans has resulted in a net build in the allowance balance at December 31, 2023, compared with both December 31, 2022 and December 31, 2021. Taking into consideration changes in loan portfolio between noted periods, the resulting allowance for credit losses as a percentage of our total loan portfolio, excluding margin loans in the broker-dealer segment and banking segment mortgage warehouse lending programs, was 1.47%, 1.27% and 1.37% as of 90 Table of Contents December 31, 2023, 2022 and 2021, respectively. While changes in the U.S. economic outlook have been reflected in our current allowance at December 31, 2023, uncertainties that include, among others, the uncertain timing, duration and significance of further increases in market interest rates and a worsening macroeconomic forecast could adversely impact borrower cash flows and result in further increases in the allowance during future periods. In addition, while all industries could experience adverse impacts, certain of our loan portfolio industry sectors and subsectors, including real estate collateralized by office buildings, have an increased level of risk. ​ The respective distribution of the allowance for credit losses as a percentage of our total loan portfolio, excluding margin loans in the broker-dealer segment and banking segment mortgage warehouse lending programs, are presented in the following table (dollars in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Allowance For","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Credit Losses","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","Total","\u200b","as a % of"],["\u200b","\u200b","Total","\u200b","Allowance","\u200b","Total Loans","\u200b"],["\u200b","\u200b","Loans Held","\u200b","for Credit","\u200b","Held For"],["December 31, 2023","\u200b","For Investment","\u200b","Losses","\u200b","Investment","\u200b"],["Commercial real estate:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Non-owner occupied (1)","\u200b","$","1,889,882","\u200b","$","40,061","\u200b","2.12","%"],["Owner occupied (2)","\u200b","\u200b","1,422,234","\u200b","\u200b","28,114","\u200b","1.98","%"],["Commercial and industrial (3)","\u200b","\u200b","1,450,995","\u200b","\u200b","20,848","\u200b","1.44","%"],["Construction and land development (4)","\u200b","","1,031,095","\u200b","","12,102","\u200b","1.17","%"],["Total commercial loans","\u200b","\u200b","5,794,206","\u200b","\u200b","101,125","\u200b","1.75","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["1-4 family residential","\u200b","","1,757,178","\u200b","","9,461","\u200b","0.54","%"],["Consumer","\u200b","\u200b","27,351","\u200b","","648","\u200b","2.37","%"],["Total retail loans","\u200b","","1,784,529","\u200b","","10,109","\u200b","0.57","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total commercial and retail loans","\u200b","\u200b","7,578,735","\u200b","\u200b","111,234","\u200b","1.47","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Broker-dealer","\u200b","\u200b","344,172","\u200b","\u200b","101","\u200b","0.03","%"],["Mortgage warehouse lending","\u200b","\u200b","156,838","\u200b","\u200b","78","\u200b","0.05","%"],["Total loans held for investment","\u200b","$","8,079,745","\u200b","$","111,413","\u200b","1.38","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","(1)","Included within commercial real estate non-owner occupied portfolio are loans within the office, retail and hotel/motel portfolio industry subsectors. At December 31, 2023, the office, retail and hotel/motel loans held for investment balances of approximately $521 million, $338 million and $233 million, respectively, had an allowance for credit losses of approximately $20 million, $5 million and $5 million, respectively, and an allowance for credit losses as a % of total loans held for investment of 3.8%, 1.4% and 2.2%, respectively."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","(2)","Included within commercial real estate owner occupied portfolio are loans within the industrial and office portfolio industry subsectors. At December 31, 2023, the industrial and office loans held for investment balances of approximately $327 million and $307 million, respectively, had an allowance for credit losses of approximately $9 million and $7 million, respectively, and an allowance for credit losses as a % of total loans held for investment of 2.6% and 2.2%, respectively."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","(3)","Commercial and industrial portfolio amounts reflect balances excluding banking segment mortgage warehouse lending."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","(4)","Included within construction and land development portfolio are loans within the office and retail portfolio industry subsectors. At December 31, 2023, the office and retail loans held for investment balances of approximately $41 million and $19 million, respectively, had an allowance for credit losses of approximately $0.5 million and $0.4 million, respectively, and an allowance for credit losses as a % of total loans held for investment of 1.3% and 1.9%, respectively."]] [[/GREPCENT_TABLE]] ​ Allowance Model Sensitivity ​ Our allowance model was designed to capture the historical relationship between economic and portfolio changes. As such, evaluating shifts in individual portfolio attributes or macroeconomic variables in isolation may not be indicative of past or future performance. It is difficult to estimate how potential changes in any one factor or input might affect the overall allowance for credit losses because we consider a wide variety of factors and inputs in the allowance for credit losses estimate. Changes in the factors and inputs considered may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors and input may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. ​ 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. Real GDP is expected to grow 3.6% in the first quarter of 2024, 3.4% in the second quarter of 2024, 3.5% in the third quarter of 2024, and 3.4% in the fourth quarter of 2024. Average unemployment rates are expected to decline to 3.0% by the second quarter of 2024 before reverting to historical data. Inflation is expected to trend back toward the Federal Reserve’s target sooner than expected and we expect the federal funds rate to have peaked at 5.3% and return to 3.9% by the end of 2025. ​ Compared to our economic forecast, the downside scenario assumes the Federal Reserve’s efforts to resolve bank failures are not successful at restoring consumer and business confidences, causing banks to tighten lending standards while the Fed keeps the federal funds rate elevated due to inflation concerns. The international armed conflicts persist longer than anticipated and global supply chain issues worsen causing weaker manufacturing, increased good shortages and a U.S. recession during 2024. Real GDP is expected to decrease 3.3% in the first quarter of 2024, 3.5% in the second quarter of 2024, and 3.4% in the third quarter of 2024. Average unemployment rates are expected to increase to 7.7% by the first quarter of 2025, but improve to 6.9% by year-end 2025 and revert back to historical average rates over time. The Federal Reserve reduces the federal funds rate to support the economy to a 1.1% target by the fourth quarter of 2025 to slow inflation. Disagreements in Congress prevent any additional fiscal measures to stem the recession. ​ The impact of applying all of the assumptions of the upside economic scenario during the reasonable and supportable forecast period would have resulted in a decrease in the allowance for credit losses of approximately $33 million or a weighted average expected loss rate of 1.0% as a percentage of our total loan portfolio, excluding margin loans in the broker-dealer segment and the banking segment mortgage warehouse lending programs. ​ The impact of applying all of the assumptions of the downside economic scenario during the reasonable and supportable forecast period would have resulted in an increase in the allowance for credit losses of approximately $47 million or a weighted average expected loss rate of 2.1% as a percentage of our total loan portfolio, excluding margin loans in the broker-dealer segment and the banking segment mortgage warehouse lending programs. ​ This analysis relates only to the modeled credit loss estimates and is not intended to estimate changes in the overall allowance for credit losses as they do not reflect any potential changes in the adjustment to the quantitative calculation, which would also be influenced by the judgment management applies to the modeled lifetime loss estimates to reflect the uncertainty and imprecision of these modeled lifetime loss estimates based on then-current circumstances and conditions. ​ Our allowance for credit losses reflects our best estimate of current expected credit losses, which is highly dependent on several assumptions, including the macroeconomic outlook, inflationary pressures and labor market conditions, international armed conflicts and their impact on supply chains, the U.S elections and other various fiscal and monetary policy decisions. Future allowance for credit losses may vary considerably for these reasons. ​ 92 Table of Contents Allowance Activity ​ The following table presents the activity in our allowance for credit losses within our loan portfolio for the periods presented (in thousands). Substantially all of the activity shown below occurred within the banking segment. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,"],["Loans Held for Investment","\u200b","2023","","2022","","2021"],["Balance, beginning of year","\u200b","$","95,442","\u200b","$","91,352","\u200b","$","149,044","\u200b"],["Provision for (reversal of) credit losses","\u200b","","18,392","\u200b","","8,309","\u200b","","(58,213)","\u200b"],["Recoveries of loans previously charged off:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Commercial real estate:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b"],["Non-owner occupied","\u200b","\u200b","42","\u200b","\u200b","28","\u200b","\u200b","16","\u200b"],["Owner occupied","\u200b","\u200b","41","\u200b","\u200b","100","\u200b","\u200b","250","\u200b"],["Commercial and industrial","\u200b","","3,445","\u200b","","2,746","\u200b","","2,656","\u200b"],["Construction and land development","\u200b","","\u2014","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["1-4 family residential","\u200b","","135","\u200b","","133","\u200b","","546","\u200b"],["Consumer","\u200b","\u200b","276","\u200b","","289","\u200b","\u200b","281","\u200b"],["Broker-dealer","\u200b","\u200b","\u2014","\u200b","","\u2014","\u200b","\u200b","\u2014","\u200b"],["Total recoveries","\u200b","","3,939","\u200b","","3,296","\u200b","","3,749","\u200b"],["Loans charged off:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Commercial real estate:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b"],["Non-owner occupied","\u200b","\u200b","34","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b"],["Owner occupied","\u200b","\u200b","977","\u200b","\u200b","\u2014","\u200b","\u200b","310","\u200b"],["Commercial and industrial","\u200b","","4,888","\u200b","","6,945","\u200b","","2,249","\u200b"],["Construction and land development","\u200b","","1","\u200b","","\u2014","\u200b","","\u2014","\u200b"],["1-4 family residential","\u200b","","73","\u200b","","138","\u200b","","312","\u200b"],["Consumer","\u200b","\u200b","387","\u200b","","432","\u200b","\u200b","357","\u200b"],["Broker-dealer","\u200b","\u200b","\u2014","\u200b","","\u2014","\u200b","\u200b","\u2014","\u200b"],["Total charge-offs","\u200b","","6,360","\u200b","","7,515","\u200b","","3,228","\u200b"],["Net recoveries (charge-offs)","\u200b","","(2,421)","\u200b","","(4,219)","\u200b","","521","\u200b"],["Balance, end of year","\u200b","$","111,413","\u200b","$","95,442","\u200b","$","91,352","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average total loans for the year","\u200b","$","7,950,878","\u200b","$","7,840,848","\u200b","$","7,645,292","\u200b"],["Total loans held for investment (end of year)","\u200b","$","8,079,745","\u200b","$","8,092,673","\u200b","$","7,879,904","\u200b"],["Ratios:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net recoveries (charge-offs) to average total loans held for investment (1)","\u200b","\u200b","(0.03)","%","\u200b","(0.05)","%","\u200b","0.01","%"],["Non-accrual loans to total loans held for investment (end of year)","\u200b","\u200b","0.80","%","\u200b","0.30","%","\u200b","0.60","%"],["Allowance for credit losses on loans held for investment to:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total loans held for investment (end of year)","\u200b","\u200b","1.38","%","\u200b","1.18","%","\u200b","1.16","%"],["Non-accrual loans held for investment (end of year)","\u200b","\u200b","173.17","%","\u200b","386.81","%","\u200b","193.08","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Net recoveries (charge-offs) to average total loans held for investment ratio presented on a consolidated basis for all periods given relative immateriality of resulting measure by loan portfolio segment."]] [[/GREPCENT_TABLE]] ​ Total non-accrual loans increased by $38.8 million from December 31, 2022 to December 31, 2023, compared to a decrease of $20.7 million from December 31, 2021 to December 31, 2022. These changes in non-accrual loans were impacted by loans secured by residential real estate within our mortgage origination segment, which were classified as loans held for sale, of $4.0 million, $4.8 million and $2.9 million at December 31, 2023, 2022 and 2021, respectively. ​ In addition to changes in non-accrual loans classified as loans held for sale, the increase in non-accrual loans during 2023 was primarily due to the addition of a single commercial real estate non-owner occupied loan with a balance of $33.3 million, the addition of six construction and land development loans to non-accrual status, and the addition in commercial real estate owner occupied loans of three credit relationship with an aggregate loan balance of $4.2 million, partially offset by the foreclosure of one office property in Texas, while the decrease in non-accrual loans during 2022 was primarily due to principal paydowns, settlements and charge-offs associated with several commercial and industrial, single family residential loan and commercial real estate owner occupied loan relationships. ​ 93 Table of Contents As previously discussed in detail within this section, the allowance for credit losses has fluctuated from period to period, which impacted the resulting ratios noted in the table above. During 2021, the significant decline in the allowance for credit losses since December 31, 2020 reflected improvement in both realized economic results and the macroeconomic outlook due to improvements in both macroeconomic forecast assumptions and credit quality metrics on pandemic impacted industry sector exposures, while during 2022 the increase in the allowance for credit losses was driven by a deteriorating U.S. economic outlook since December 31, 2021. Then, during 2023 the significant build in the allowance for credit losses reflected loan portfolio changes and a deteriorating outlook for commercial real estate markets. The distribution of the allowance for credit losses among loan types and the percentage of the loans for that type to gross loans, excluding unearned income, within our loan portfolio is presented in the table below (dollars in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b"],["\u200b","\u200b","2023","\u200b","2022","\u200b","2021","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","% of","\u200b","\u200b","\u200b","\u200b","% of","\u200b","\u200b","\u200b","\u200b","% of","\u200b"],["Allocation of the Allowance for Credit Losses","\u200b","Reserve","\u200b","Gross Loans","\u200b","Reserve","\u200b","Gross Loans","\u200b","Reserve","\u200b","Gross Loans","\u200b"],["Commercial real estate:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","","\u200b","\u200b"],["Non-owner occupied","\u200b","$","40,061","\u200b","23.39","%","$","39,247","\u200b","23.11","%","$","36,001","\u200b","21.95","%"],["Owner occupied","\u200b","\u200b","28,114","\u200b","17.60","%","\u200b","24,008","\u200b","17.00","%","\u200b","23,353","\u200b","16.66","%"],["Commercial and industrial","","","20,926","\u200b","19.90","%","\u200b","16,035","\u200b","20.26","%","","21,982","","23.80","%"],["Construction and land development","","","12,102","\u200b","12.76","%","\u200b","6,051","\u200b","12.12","%","","4,674","","11.33","%"],["1-4 family residential","","","9,461","\u200b","21.75","%","\u200b","9,313","\u200b","21.84","%","","4,589","","16.54","%"],["Consumer","\u200b","\u200b","648","\u200b","0.34","%","\u200b","554","\u200b","0.34","%","","578","","0.41","%"],["Broker-dealer","\u200b","\u200b","101","\u200b","4.26","%","\u200b","234","\u200b","5.33","%","","175","","9.31","%"],["Total","","$","111,413","","100.00","%","$","95,442","","100.00","%","$","91,352","","100.00","%"]] [[/GREPCENT_TABLE]] ​ The following table summarizes historical levels of the allowance for credit losses on loans held for investment, distributed by portfolio segment (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","September 30,","\u200b","June 30,","\u200b","March 31,","\u200b","December 31,"],["\u200b","","2023","","2023","\u200b","2023","","2023","","2022"],["Commercial real estate:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Non-owner occupied","\u200b","$","40,061","\u200b","$","40,433","\u200b","$","43,582","\u200b","$","38,667","\u200b","$","39,247"],["Owner occupied","\u200b","\u200b","28,114","\u200b","\u200b","29,438","\u200b","\u200b","27,880","\u200b","\u200b","22,854","\u200b","\u200b","24,008"],["Commercial and industrial","\u200b","","20,926","\u200b","","19,722","\u200b","","17,315","\u200b","","16,615","\u200b","","16,035"],["Construction and land development","\u200b","","12,102","\u200b","","8,970","\u200b","","7,395","\u200b","","5,999","\u200b","","6,051"],["1-4 family residential","\u200b","","9,461","\u200b","","11,472","\u200b","","11,618","\u200b","","11,691","\u200b","","9,313"],["Consumer","\u200b","\u200b","648","\u200b","\u200b","601","\u200b","\u200b","615","\u200b","\u200b","563","\u200b","\u200b","554"],["Broker-dealer","\u200b","\u200b","101","\u200b","\u200b","186","\u200b","\u200b","901","\u200b","\u200b","965","\u200b","\u200b","234"],["\u200b","\u200b","$","111,413","\u200b","$","110,822","\u200b","$","109,306","\u200b","$","97,354","\u200b","$","95,442"]] [[/GREPCENT_TABLE]] ​ Unfunded Loan Commitments ​ In order to estimate the allowance for credit losses on unfunded loan commitments, the Bank uses a process similar to that used in estimating the allowance for credit losses on the funded portion. The allowance is based on the estimated exposure at default, multiplied by the lifetime probability of default grade and loss given default grade for that particular loan segment. The Bank estimates expected losses by calculating a commitment usage factor based on industry usage factors. The commitment usage factor is applied over the relevant contractual period. Loss factors from the underlying loans to which commitments are related are applied to the results of the usage calculation to estimate any liability for credit losses related for each loan type. Letters of credit are not currently reserved because they are issued primarily as credit enhancements and the likelihood of funding is low. ​ Changes in the allowance for credit losses for loans with off-balance sheet credit exposures are shown below (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","Year Ended December 31,"],["\u200b","2023","","2022","","2021"],["Balance, beginning of year","$","7,784","\u200b","$","5,880","\u200b","$","8,388"],["Other noninterest expense","\u200b","1,092","\u200b","\u200b","1,904","\u200b","\u200b","(2,508)"],["Balance, end of year","$","8,876","\u200b","$","7,784","\u200b","$","5,880"]] [[/GREPCENT_TABLE]] 94 Table of Contents ​ During 2022, the increase in the allowance for unfunded commitments was due to increases in both loan expected loss rates and available commitment balances. During 2023, the increase in the reserve for unfunded commitments was primarily due to increases in expected loss rates. ​ Potential Problem Loans ​ Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of an obligor to continue to comply with repayment terms because of the obligor’s potential operating or financial difficulties or whether repayment may depend on collateral or other risk mitigation. Management monitors these loans and reviews their performance on a regular basis. Potential problem loans contain potential weaknesses that could improve, persist or further deteriorate. If such potential weaknesses persist without improving, the loan is subject to downgrade, typically to substandard, in three to six months. Potential problem loans include those loans assigned a grade of special mention and substandard accrual within our risk grading matrix. Potential problem loans do not include purchased credit deteriorated (“PCD”) loans because PCD loans exhibited evidence of more than insignificant credit deterioration at acquisition that made it probable that all contractually required principal payments would not be collected. ​ At December 31, 2023, we had $207.4 million in potential problem loans, compared to $186.6 million at December 31, 2022 and $201.6 million at December 31, 2021. Our potential problem loans designated as substandard accrual at December 31, 2023, 2022 and 2021 totaled $204.1 million, $182.6 million and $198.5 million, respectively. The increase from December 31, 2022 to December 31, 2023 was primarily attributable to increases in commercial and industrial loans and construction and land development loans, significantly offset by a decrease in commercial real estate non-owner occupied loans. Of the $204.1 million of potential problem loans designated as substandard accrual at December 31, 2023, $87.4 million, $41.2 million and $32.1 million were associated with commercial and industrial, commercial real estate non-owner occupied and commercial real estate owner occupied loans. ​ Potential problem loans designated as special mention were comprised of three credit relationships totaling $3.2 million at December 31, 2023, compared with four credit relationships totaling $4.0 million at December 31, 2022 and two credit relationships totaling $3.1 million at December 31, 2021. Of the $3.2 million of potential problem loans at December 31, 2023, $1.6 million was associated with a single credit relationship. ​ 95 Table of Contents Non-Performing Assets ​ The following table presents components of our non-performing assets (dollars in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","Variance","\u200b"],["\u200b","","2023","","2022","","2021","\u200b","2023 vs 2022","\u200b","2022 vs 2021"],["Loans accounted for on a non-accrual basis:","\u200b","","\u200b","\u200b","","\u200b","\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Commercial real estate:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Non-owner occupied","\u200b","$","36,440","\u200b","$","1,250","\u200b","$","2,266","\u200b","$","35,190","\u200b","$","(1,016)","\u200b"],["Owner occupied","\u200b","\u200b","5,098","\u200b","\u200b","3,019","\u200b","\u200b","4,335","\u200b","\u200b","2,079","\u200b","\u200b","(1,316)","\u200b"],["Commercial and industrial","\u200b","","9,502","\u200b","","9,095","\u200b","","22,478","\u200b","\u200b","407","\u200b","\u200b","(13,383)","\u200b"],["Construction and land development","\u200b","","3,480","\u200b","","198","\u200b","","2","\u200b","\u200b","3,282","\u200b","\u200b","196","\u200b"],["1-4 family residential","\u200b","","13,801","\u200b","","15,941","\u200b","","21,123","\u200b","\u200b","(2,140)","\u200b","\u200b","(5,182)","\u200b"],["Consumer","\u200b","\u200b","6","\u200b","\u200b","14","\u200b","\u200b","23","\u200b","\u200b","(8)","\u200b","\u200b","(9)","\u200b"],["Broker-dealer","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b"],["\u200b","\u200b","$","68,327","\u200b","$","29,517","\u200b","$","50,227","\u200b","$","38,810","\u200b","$","(20,710)","\u200b"],["Troubled debt restructurings included in accruing loans held for investment (1)","\u200b","\u200b","\u2014","\u200b","\u200b","803","\u200b","\u200b","922","\u200b","\u200b","(803)","\u200b","\u200b","(119)","\u200b"],["Non-performing loans (1)","\u200b","$","68,327","\u200b","$","30,320","\u200b","$","51,149","\u200b","$","38,007","\u200b","$","(20,829)","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Non-performing loans as a percentage of total loans (1)","\u200b","","0.76","%","","0.33","%","","0.52","%","\u200b","0.43","%","\u200b","(0.19)","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Other real estate owned","\u200b","$","5,095","\u200b","$","2,325","\u200b","$","2,833","\u200b","$","2,770","\u200b","$","(508)","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Other repossessed assets","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","$","\u2014","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Non-performing assets (1)","\u200b","$","73,422","\u200b","$","32,645","\u200b","$","53,982","\u200b","$","40,777","\u200b","$","(21,337)","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Non-performing assets as a percentage of total assets (1)","\u200b","","0.45","%","","0.20","%","","0.29","%","\u200b","0.25","%","\u200b","(0.09)","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loans past due 90 days or more and still accruing","\u200b","$","115,090","\u200b","$","92,099","\u200b","$","60,775","\u200b","$","22,991","\u200b","$","31,324","\u200b"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["(1)","Effective January 1, 2023, we adopted Accounting Standards Update (\u201cASU\u201d) 2022-02 which eliminated the recognition and measurement guidance on troubled debt restructurings for creditors. Therefore, we no longer present troubled debt restructurings as a component of non-performing loans and assets."]] [[/GREPCENT_TABLE]] ​ At December 31, 2023, non-accrual loans included 40 commercial and industrial relationships with loans secured primarily by notes receivable, accounts receivable and equipment. Non-accrual loans at December 31, 2023 also included $4.0 million of loans secured by residential real estate which were classified as loans held for sale. As previously noted earlier in this section, the increase in non-accrual loans during 2023 was primarily due to the addition of a single commercial real estate non-owner occupied loan with a balance of $33.3 million. At December 31, 2022, non-accrual loans included 40 commercial and industrial relationships with loans secured by accounts receivable, automobiles, equipment and notes receivable. Non-accrual loans at December 31, 2022 also included $4.8 million of loans secured by residential real estate which were classified as loans held for sale. At December 31, 2021, non-accrual loans included 45 commercial and industrial relationships with loans secured by accounts receivable, life insurance, oil and gas, livestock and equipment. Non-accrual loans at December 31, 2021 also included $2.9 million of loans secured by residential real estate which were classified as loans held for sale. ​ OREO increased from December 31, 2022 to December 31, 2023, primarily due to additions totaling $5.6 million, partially offset by disposals and valuation adjustments totaling $2.8 million. 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. As of December 31, 2023, $4.2 million of loans subject to repurchase under a forbearance agreement had delinquencies on or after April 2020. 96 Table of Contents Deposits ​ The banking segment’s major source of funds and liquidity is its deposit base. Deposits provide funding for its investments in loans and securities. Interest paid for deposits must be managed carefully to control the level of interest expense and overall net interest margin. The composition of the deposit base (time deposits versus interest-bearing demand deposits and savings), as discussed in more detail within the section titled “Liquidity and Capital Resources — Banking Segment” below, is constantly changing due to the banking segment’s needs and market conditions. Currently, the banking segment is facing intense competition for its deposit base as customers seek higher yields on deposits. Consistent with the consolidated trend in average rates paid on interest-bearing deposits noted in the table below, the banking segment’s average rate paid on interest-bearing deposits during 2023, 2022 and 2021 was 3.50%, 0.86%, and 0.41% respectively. ​ Given the rising interest rate environment since the first quarter of 2022 and the intense competition for deposits in its market area, the Bank’s cumulative interest-bearing deposit pricing beta, excluding deposits from the Hilltop Securities FDIC-insured sweep program and brokered deposits, has approximated 65 percent. The deposit pricing beta represents the change in interest-bearing deposit pricing in response to a change in market interest rates. The historical interest-bearing deposit pricing beta for the Bank, excluding deposits from our Hilltop Securities FDIC-insured sweep program and brokered deposits, has approximated 50 percent. We expect that the Bank’s cost related to interest-bearing deposits during 2024 to continue to be driven by various factors, including competition as well as economic and market area factors. ​ The table below presents the average balance of, and rate paid on, consolidated deposits (dollars in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","Year Ended December 31,","\u200b"],["\u200b","\u200b","\u200b","2023","\u200b","2022","\u200b","2021","\u200b"],["\u200b","","\u200b","Average","","Average","","Average","","Average","","Average","","Average"],["\u200b","\u200b","\u200b","Balance","\u200b","Rate Paid","\u200b","Balance","\u200b","Rate Paid","\u200b","Balance","\u200b","Rate Paid","\u200b"],["Noninterest-bearing demand deposits","\u200b","\u200b","$","3,441,437","","0.00","%","$","4,455,779","","0.00","%","$","4,157,962","","0.00","%"],["Interest-bearing deposits:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Demand","\u200b","\u200b","","6,369,558","","2.92","%","\u200b","6,320,654","","0.68","%","","6,077,660","","0.19","%"],["Savings","\u200b","\u200b","","282,127","","1.09","%","\u200b","330,743","","0.22","%","","295,075","","0.06","%"],["Time","\u200b","\u200b","","1,059,885","","3.24","%","\u200b","910,104","","0.73","%","","1,349,849","","0.86","%"],["\u200b","\u200b","\u200b","\u200b","7,711,570","\u200b","2.89","%","\u200b","7,561,501","\u200b","0.67","%","\u200b","7,722,584","\u200b","0.30","%"],["Total deposits","\u200b","\u200b","$","11,153,007","","2.00","%","$","12,017,280","","0.42","%","$","11,880,546","","0.20","%"]] [[/GREPCENT_TABLE]] ​ The table above includes interest-bearing brokered deposits with balances of approximately $208 million at December 31, 2023, compared with approximately $14 million and $228 million at December 31, 2022 and 2021, respectively. As previously discussed, to bolster our liquidity position given banking sector uncertainties in early 2023, we increased brokered deposits at the Bank by approximately $390 million during the second quarter of 2023. The variability in the level of brokered deposits has been, and will continue to be, managed through asset/liability strategy and policies that are address diversification of funding sources and market conditions, including demand by customers and other investors for those deposits, and the cost of funds available from alternative sources at the time. As of December 31, 2023, brokered deposits carried an average weighted interest rate of 5.49% and an average remaining term of 87 days. ​ At December 31, 2023, total estimated uninsured deposits were $4.7 billion, or approximately 42% of total deposits, while estimated uninsured deposits, excluding collateralized deposits of $315.7 million, were $4.4 billion, or approximately 40% of total deposits. Total estimated uninsured deposits were $4.1 billion, or approximately 36% of total deposits, as of December 31, 2022. ​ 97 Table of Contents The following table presents the scheduled maturities of the portion of our time deposits that are in excess of the FDIC insurance limit of $250,000 as of December 31, 2023 (in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b"],["Months to maturity:","","\u200b"],["3 months or less","\u200b","$","256,568"],["3 months to 6 months","\u200b","","69,377"],["6 months to 12 months","\u200b","","154,900"],["Over 12 months","\u200b","","62,444"],["\u200b","\u200b","$","543,289"]] [[/GREPCENT_TABLE]] ​ ​ Borrowings ​ Our consolidated borrowings are shown in the table below (dollars in thousands). ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","December 31,","\u200b","\u200b"],["\u200b","\u200b","2023","\u200b","2022","\u200b","2021","\u200b"],["\u200b","\u200b","","\u200b","","Average","","","\u200b","","Average","","","\u200b","","Average"],["\u200b","\u200b","Balance","\u200b","Rate Paid","\u200b","Balance","\u200b","Rate Paid","\u200b","Balance","\u200b","Rate Paid"],["Short-term borrowings","\u200b","$","900,038","","4.75","%","$","970,056","","2.27","%","$","859,444","","1.22","%"],["Notes payable","\u200b","","347,145","","4.27","%","","346,654","","4.33","%","","387,904","","5.79","%"],["Junior subordinated debentures","\u200b","\u200b","\u2014","\u200b","\u2014","%","\u200b","\u2014","\u200b","\u2014","%","\u200b","\u2014","\u200b","3.45","%"],["\u200b","\u200b","$","1,247,183","","4.64","%","$","1,316,710","","2.86","%","$","1,247,348","","1.32","%"]] [[/GREPCENT_TABLE]] ​ Short-term borrowings consisted of federal funds purchased, securities sold under agreements to repurchase, borrowings at the FHLB, short-term bank loans and commercial paper. The decrease in short-term borrowings at December 31, 2023, compared with December 31, 2022, primarily reflected decreases in short term bank loans and securities sold under agreements to repurchase by the broker-dealer segment, partially offset by an increase in federal funds purchased by the banking segment. The increase in short-term borrowings at December 31, 2022 compared with December 31, 2021 primarily reflected increases in federal funds purchased by the banking segment and securities sold under agreement to repurchase by the broker-dealer segment, partially offset by decreases in commercial paper and short-term bank loans within the broker-dealer segment. ​ Notes payable at December 31, 2023 was comprised of $149.5 million related to the Senior Notes, net of loan origination fees, and Subordinated Notes, net of origination fees, of $197.6 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. 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. Hilltop’s primary investment objectives, as a holding company, are to support capital deployment for organic growth and to preserve capital to be deployed through acquisitions, dividend payments and stock repurchases. At December 31, 2023, Hilltop had $191.6 million in cash and cash equivalents, an increase of $19.1 million from $172.5 million at December 31, 2022. This increase in cash and cash equivalents was primarily due to the receipt of $90.8 million of dividends from subsidiaries, partially offset by cash outflows of $41.6 million in cash dividends declared, $5.1 million in stock repurchases, and other general corporate expenses. Subject to regulatory restrictions, Hilltop has received, and may also continue to receive, dividends from its subsidiaries. If necessary or appropriate, we may also finance acquisitions with the proceeds from equity or debt issuances. We believe that Hilltop’s liquidity is sufficient for the foreseeable future, with current short-term liquidity needs including operating expenses, interest on debt obligations, dividend payments to stockholders and potential stock repurchases. ​ As discussed in more detail below, our Senior Notes mature in May 2025 and we have the ability to redeem the 2030 Subordinated Notes, in whole or in part, beginning in May 2025. We have begun to evaluate our options and may choose to refinance and/or utilize available cash on hand to satisfy such existing indebtedness. Although it is difficult in the current economic environment to predict the terms and conditions of financing that may be available in the future, we believe that we have sufficient access to credit from financial institutions and/or financing from public and private debt and equity markets to refinance or repay our Senior Notes. ​ Economic Environment ​ As previously discussed, operational and financial headwinds during 2022 and 2023 have had, and are expected to continue to have, an adverse impact on our operating results during 2024. The impacts of noted headwinds in 2024 are highly uncertain and will depend on several developments outside of our control, including, among others, the timing and significance of further changes in U.S. treasury yields and mortgage interest rates, exposure to increasing funding costs, inflationary pressures associated with compensation, occupancy and software costs and labor market conditions, and international armed conflicts and their impact on supply chains. In addition, during early 2023, the banking sector experienced increased uncertainty and concerns associated with liquidity positions primarily due to bank failures during early 2023 as depositors sought to reduce risks associated with uninsured deposits and withdraw such deposits from existing bank relationships. 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. During 2023, we declared and paid cash dividends of $0.64 per common share, or $41.6 million. ​ On January 25, 2024, our board of directors declared a quarterly cash dividend of $0.17 per common share, payable on February 28, 2024 to all common stockholders of record as of the close of business on February 12, 2024. ​ Future dividends on our common stock are subject to the determination by the board of directors based on an evaluation of our earnings and financial condition, liquidity and capital resources, the general economic and regulatory climate, our ability to service any equity or debt obligations senior to our common stock and other factors. ​ Stock Repurchases ​ In January 2023, our board of directors authorized a new stock repurchase program through January 2024, pursuant to which we are authorized to repurchase, in the aggregate, up to $75.0 million of our outstanding common stock, inclusive of repurchases to offset dilution related to grants of stock-based compensation. During 2023, Hilltop paid $5.1 million to 99 Table of Contents repurchase an aggregate of 164,604 shares of our common stock at an average price of $30.95 per share pursuant to the stock repurchase program. ​ In January 2024, our board of directors authorized a new stock repurchase program through January 2025, pursuant to which we are authorized to repurchase, in the aggregate, up to $75.0 million of our outstanding common stock, inclusive of repurchases to offset dilution related to grants of stock-based compensation. Under the stock repurchase program authorized, we may repurchase shares in the open market or through privately negotiated transactions as permitted under Rule 10b-18 promulgated under the Exchange Act. The extent to which we repurchase our shares and the timing of such repurchases depends upon market conditions and other corporate considerations, as determined by Hilltop’s management team. Repurchased shares will be returned to our pool of authorized but unissued shares of common stock. ​ The Inflation Reduction Act of 2022, signed into law during August 2022, introduced a nondeductible excise tax equal to 1% of the fair market value of certain shares repurchased beginning in 2023, subject to certain limitations. While we may complete transactions subject to the new excise tax, we do not expect the tax to have a material impact to our financial condition or results of operations. ​ 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. 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. ​ Senior Notes due 2025 ​ On April 9, 2015, we completed an offering of $150.0 million aggregate principal amount of our 5% senior notes due 2025 (“Senior Unregistered Notes”) in a private offering that was exempt from the registration requirements of the Securities Act. The Senior Unregistered Notes were issued pursuant to an indenture, dated as of April 9, 2015 (the “indenture”), by and between Hilltop and U.S. Bank National Association, as trustee. ​ On June 22, 2015, we exchanged substantially all of the Senior Unregistered Notes for notes registered under the Securities Act (the “Senior Registered Notes”) that are substantially identical to the Senior Unregistered Notes (including principal amount, interest rate, maturity and redemption rights), except that the Senior Registered Notes generally are not subject to transfer restrictions. We refer to the Senior Registered Notes and the Senior Unregistered Notes that remain outstanding collectively as the “Senior Notes.” ​ The Senior Notes bear interest at a rate of 5% per year, payable semi-annually in arrears in cash on April 15 and October 15 of each year, commencing on October 15, 2015. The Senior Notes will mature on April 15, 2025, unless we redeem the Senior Notes, in whole at any time or in part from time to time, on or after January 15, 2025 (three months prior to the maturity date of the Senior Notes) at our election at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date. At December 31, 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. The indenture also provides for certain events of default, which, if any of them occurs, would permit or require the principal amount, premium, if any, and accrued and unpaid interest on the then outstanding Senior Notes to be declared immediately due and payable. ​ 100 Table of Contents Subordinated Notes due 2030 and 2035 ​ On May 7, 2020, we completed a public offering of $50 million aggregate principal amount of 2030 Subordinated Notes and $150 million aggregate principal amount of 2035 Subordinated Notes that mature on May 15, 2030 and May 15, 2035, respectively. We collectively refer to the 2030 Subordinated Notes and the 2035 Subordinated Notes as the “Subordinated Notes”. The price to the public for the Subordinated Notes was 100% of the principal amount of the Subordinated Notes. The net proceeds from the offering, after deducting underwriting discounts and fees and expenses of $3.4 million, were $196.6 million. ​ We may redeem the Subordinated Notes, in whole or in part, from time to time, subject to obtaining Federal Reserve approval, beginning with the interest payment date of May 15, 2025 for the 2030 Subordinated Notes and beginning with the interest payment date of May 15, 2030 for the 2035 Subordinated Notes at a redemption price equal to 100% of the principal amount of the Subordinated Notes being redeemed plus accrued and unpaid interest to but excluding the date of redemption. ​ The 2030 Subordinated Notes bear interest at a rate of 5.75% per year, payable semi-annually in arrears commencing on November 15, 2020. The interest rate for the 2030 Subordinated Notes will reset quarterly beginning May 15, 2025 to an interest rate, per year, equal to the then-current benchmark rate, which is expected to be three-month term SOFR rate, plus 5.68%, payable quarterly in arrears. The 2035 Subordinated Notes bear interest at a rate of 6.125% per year, payable semi-annually in arrears commencing on November 15, 2020. The interest rate for the 2035 Subordinated Notes will reset quarterly beginning May 15, 2030 to an interest rate, per year, equal to the then-current benchmark rate, which is expected to be three-month term SOFR rate plus 5.80%, payable quarterly in arrears. At December 31, 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. The Debentures were callable at PCC’s discretion with a minimum of a 45- to 60- day notice. The redemptions noted above were funded from available cash balances held at PCC. ​ Regulatory Capital ​ We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements may prompt certain actions by regulators that, if undertaken, could have a direct material adverse effect on our financial condition and results of operations. Under capital adequacy and regulatory requirements, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. ​ In order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary bonus payments to executive officers, Basel III requires banking organizations to maintain a capital conservation buffer above minimum risk-based capital requirements measured relative to risk-weighted assets. ​ The following table shows PlainsCapital’s and Hilltop’s actual capital amounts and ratios in accordance with Basel III compared to the regulatory minimum capital requirements including conservation buffer ratio in effect at December 31, 2023 (dollars in thousands). Based on actual capital amounts and ratios shown in the following table, PlainsCapital’s ratios place it in the “well capitalized” (as defined) capital category under regulatory requirements. Actual capital amounts and ratios as of December 31, 2023 reflect PlainsCapital’s and Hilltop’s decision to elect the transition option as issued by 101 Table of Contents the federal banking regulatory agencies in March 2020 that permits banking institutions to mitigate the estimated cumulative regulatory capital effects from CECL over a five-year transitionary period through December 31, 2024. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Minimum Capital","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","Requirements Including","\u200b","To Be Well"],["\u200b","\u200b","December 31, 2023","\u200b","\u200b","Conservation Buffer","\u200b","Capitalized"],["\u200b","","Amount","","Ratio","","\u200b","Ratio","","Ratio"],["Tier 1 capital (to average assets):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["PlainsCapital","\u200b","$","1,407,660","","10.55","%","\u200b","4.0","%","5.0","%"],["Hilltop","\u200b","","1,974,918","","12.23","%","\u200b","4.0","%","N/A","\u200b"],["Common equity Tier 1 capital (to risk-weighted assets):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["PlainsCapital","\u200b","\u200b","1,407,660","","15.44","%","\u200b","7.0","%","6.5","%"],["Hilltop","\u200b","\u200b","1,974,918","","19.32","%","\u200b","7.0","%","N/A","\u200b"],["Tier 1 capital (to risk-weighted assets):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["PlainsCapital","\u200b","","1,407,660","","15.44","%","\u200b","8.5","%","8.0","%"],["Hilltop","\u200b","","1,974,918","","19.32","%","\u200b","8.5","%","N/A","\u200b"],["Total capital (to risk-weighted assets):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["PlainsCapital","\u200b","","1,511,239","","16.58","%","\u200b","10.5","%","10.0","%"],["Hilltop","\u200b","","2,284,357","","22.34","%","\u200b","10.5","%","N/A","\u200b"]] [[/GREPCENT_TABLE]] ​ We discuss regulatory capital requirements in more detail in Note 21 to our consolidated financial statements, as well as under the caption “Government Supervision and Regulation — Corporate — Capital Adequacy Requirements and BASEL III” set forth in Part I, Item I. of this Annual Report. ​ Banking Segment ​ Within our banking segment, our primary uses of cash are for customer withdrawals and extensions of credit as well as our borrowing costs and other operating expenses. Our corporate treasury group is responsible for continuously monitoring our liquidity position to ensure that our assets and liabilities are managed in a manner that will meet our short-term and long-term cash requirements. Our goal is to manage our liquidity position in a manner such that we can meet our customers’ short-term and long-term deposit withdrawals and anticipated and unanticipated increases in loan demand without penalizing earnings. Funds invested in short-term marketable instruments, the continuous maturing of other interest-earning assets, cash flows from self-liquidating investments such as mortgage-backed securities and collateralized mortgage obligations, the possible sale of available for sale securities, and the ability to securitize certain types of loans provide sources of liquidity from an asset perspective. The liability base provides sources of liquidity through deposits and the maturity structure of short-term borrowed funds. For short-term liquidity needs, we utilize federal fund lines of credit with correspondent banks, securities sold under agreements to repurchase, borrowings from the Federal Reserve and borrowings under lines of credit with other financial institutions. For intermediate liquidity needs, we utilize advances from the FHLB. To supply liquidity over the longer term, we have access to brokered time deposits, term loans at the FHLB and borrowings under lines of credit with other financial institutions. ​ The above sources of liquidity allow the banking segment to meet increased liquidity demands without adversely affecting daily operations. The Bank’s borrowing capacity through access to secured funding sources is summarized in the following table (in millions). Available liquidity noted below does not include borrowing capacity available through the discount window at the Federal Reserve. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,"],["\u200b","\u200b","2023","\u200b","2022"],["FHLB capacity","\u200b","$","4,205","\u200b","$","4,139"],["Investment portfolio (available)","\u200b","","1,594","\u200b","","1,606"],["Fed deposits (excess daily requirements)","\u200b","\u200b","1,612","\u200b","\u200b","1,332"],["\u200b","\u200b","$","7,411","\u200b","$","7,077"]] [[/GREPCENT_TABLE]] ​ As previously discussed, the banking sector experienced increased uncertainty and concerns associated with its liquidity positions primarily due to high-profile bank failures during early 2023 as depositors sought to reduce risks associated 102 Table of Contents with uninsured deposits and withdraw such deposits from existing bank relationships. As a result, both regulatory scrutiny and market focus on liquidity increased. These failures underscore the importance of maintaining access to diverse sources of funding. In light of these events, we have continued our efforts to monitor deposit flows and balance sheet trends to ensure that our liquidity needs are maintained. During 2023, we began increasing interest-bearing deposit rates to address rising market interest rates and intense competition for liquidity to combat deposit outflows. At December 31, 2023, the Bank also accessed and included approximately $1.1 billion of core deposits on its balance sheet from our Hilltop Securities FDIC-insured sweep program, while the Bank is not utilizing any of its FHLB borrowing capacity noted above through the use of short-term borrowings. ​ Further, to bolster our liquidity position, we increased brokered deposits at the Bank by approximately $390 million during the second quarter of 2023 that have a remaining balance of approximately $208 million at December 31, 2023. To date, we have not leveraged the discount window at the Federal Reserve or the BTFP. ​ Within our banking segment, deposit flows are affected by the level of market interest rates, the interest rates and products offered by competitors, the volatility of equity markets and other factors. An economic recovery and improved commercial real estate investment outlook may result in an outflow of deposits at an accelerated pace as customers utilize such available funds for expanded operations and investment opportunities. The Bank regularly evaluates its deposit products and pricing structures relative to the market to maintain competitiveness over time. Currently, the Bank is facing significant competition from bank and non-bank competitors for its deposit base and expects that its interest expense on certain deposits during 2024 to continue to be driven by various factors, including competition as well as economic and market area factors. ​ The Bank’s 15 largest depositors, excluding Hilltop and Hilltop Securities, collectively accounted for 9.31% of the Bank’s total deposits, and the Bank’s five largest depositors, excluding Hilltop and Hilltop Securities, collectively accounted for 4.49% of the Bank’s total deposits at December 31, 2023. The loss of one or more of our largest Bank customers, or a significant decline in our deposit balances due to ordinary course fluctuations related to these customers’ businesses, could adversely affect our liquidity and might require us to raise deposit rates to attract new deposits, purchase federal funds or borrow funds on a short-term basis to replace such deposits. ​ Broker-Dealer Segment ​ The Hilltop Broker-Dealers rely on their equity capital, short-term bank borrowings, interest-bearing and noninterest-bearing client credit balances, correspondent deposits, securities lending arrangements, repurchase agreement financing, commercial paper issuances and other payables to finance their assets and operations, subject to their respective compliance with broker-dealer net capital and customer protection rules. At December 31, 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. These credit arrangements are provided on an “as offered” basis and are not committed lines of credit. In addition, Hilltop Securities has committed revolving credit facilities with two unaffiliated banks, with aggregate availability of up to $200.0 million. At December 31, 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. The commercial paper notes (“CP Notes”) may be issued with maturities of 14 days to 270 days from the date of issuance. The CP Notes are issued under two separate programs, Series 2019-1 CP Notes and Series 2019-2 CP Notes, in maximum aggregate amounts of $300 million and $200 million, respectively. As of December 31, 2023, the weighted average maturity of the CP Notes was 138 days at a rate of 6.32%, with a weighted average remaining life of 67 days. At December 31, 2023, the aggregate amount outstanding under these secured arrangements was $200.3 million, which was collateralized by securities held for Hilltop Securities accounts valued at $222.6 million. ​ 103 Table of Contents Mortgage Origination Segment ​ PrimeLending funds the mortgage loans it originates through a warehouse line of credit maintained with the Bank which had a total commitment of $1.5 billion, of which $839 million was drawn at December 31, 2023. PrimeLending sells substantially all mortgage loans it originates to various investors in the secondary market, historically with the majority with servicing released. As these mortgage loans are sold in the secondary market, PrimeLending pays down its warehouse line of credit with the Bank. In addition, PrimeLending has an available line of credit with an unaffiliated bank of up to $1.0 million, of which no borrowings were drawn at December 31, 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. At December 31, 2023, these ABAs had combined available lines of credit totaling $65.0 million, all of which was with the Bank, with outstanding borrowings of $31.2 million. ​ Other Material Contractual Obligations, Off-Balance Sheet Arrangements, Commitments and Guarantees ​ The following table presents information regarding other material contractual obligations at December 31, 2023 not previously discussed (in thousands). Payments related to leases are based on actual payments specified in the underlying contracts, and the table below includes all leases that had commenced as of December 31, 2023. ​ [[GREPCENT_TABLE]] [["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Payments Due by Period"],["\u200b","","","\u200b","","More than 1","","3 Years or","","","\u200b","","","\u200b"],["\u200b","\u200b","1 year","\u200b","Year but Less","\u200b","More but Less","\u200b","5 Years","\u200b","\u200b","\u200b"],["\u200b","\u200b","or Less","\u200b","than 3 Years","\u200b","than 5 Years","\u200b","or More","\u200b","Total"],["Finance lease obligations","\u200b","$","1,163","\u200b","$","1,699","\u200b","$","597","\u200b","$","\u2014","\u200b","$","3,459","\u200b"],["Operating lease obligations","\u200b","","30,461","\u200b","","43,817","\u200b","","26,595","\u200b","","21,223","\u200b","","122,096","\u200b"],["Total","\u200b","$","31,624","\u200b","$","45,516","\u200b","$","27,192","\u200b","$","21,223","\u200b","$","125,555","\u200b"]] [[/GREPCENT_TABLE]] ​ ​ ​ Additionally, in the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets. ​ Banking Segment ​ We enter into contractual loan commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of our commitments to extend credit are contingent upon customers maintaining specific credit standards until the time of loan funding. We minimize our exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. We assess the credit risk associated with certain commitments to extend credit and have recorded a liability related to such credit risk in our consolidated financial statements. ​ Standby letters of credit are written conditional commitments issued by us to guarantee the performance of a customer to a third-party. In the event the customer does not perform in accordance with the terms of the agreement with the third-party, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek recovery from the customer. Our policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements. ​ In the aggregate, the Bank had outstanding unused commitments to extend credit of $2.2 billion at December 31, 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. Examples of such transactions include the sale of securities not yet purchased by customers or for the account of the Hilltop Broker-Dealers, use of derivatives to support certain non-profit housing organization clients, clearing agreements between the Hilltop Broker-Dealers and various clearinghouses and broker-dealers, secured financing arrangements that involve pledged securities, and when-issued underwriting and purchase commitments. ​ ​ Impact of Inflation and Changing Prices ​ Our consolidated financial statements included herein have been prepared in accordance with GAAP, which presently require us to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on our operations is reflected in increased operating costs. Historically, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. However, inflation rose sharply at the end of 2021 and has continued to rise in 2023 at levels not seen for over 40 years. Inflationary pressures are currently expected to remain elevated during 2024. Furthermore, a prolonged period of inflation could cause our costs, including compensation, occupancy and software costs, to increase, which could adversely affect our results of operations and financial condition. ​ While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond our control, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of the U.S. government, its agencies and various other governmental regulatory authorities. ​ Critical Accounting Estimates ​ We have identified certain accounting estimates which involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our accounting policies are more fully described in Note 1 to the consolidated financial statements. Actual amounts and values as of the balance sheet dates may be materially different than the amounts and values reported due to the inherent uncertainty in the estimation process. Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date. The critical accounting estimates, as summarized below, which we believe to be the most critical in preparing our consolidated financial statements relate to allowance for credit losses, mortgage servicing rights asset, goodwill and identifiable intangible assets and mortgage loan indemnification liability. ​ Allowance for Credit Losses ​ The allowance for credit losses for loans represents management’s estimate of all expected credit losses over the expected contractual life of our existing loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. ​ We employ a disciplined process and methodology to establish our allowance for credit losses that has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans; and second, a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics. ​ The credit loss estimation process for both on and off-balance sheet exposures involves procedures to appropriately consider the unique characteristics of our loan portfolio segments, which are further disaggregated into loan classes, the level at which credit risk is monitored. When computing allowance levels, credit loss assumptions are estimated using models that analyze loans according to credit risk ratings, loss history, delinquency status and other credit trends and risk 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. Real Gross Domestic Product, or GDP, growth rates and unemployment rate assumptions. Future factors and forecasts may result in significant changes in the allowance and provision for (reversal of) credit losses in those future periods. ​ Credit quality is assessed and monitored by evaluating various attributes, such as credit risk ratings, historic loss experience, past due status and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. The results of these continuous credit quality evaluations help form our underwriting criteria for new loans and also factor into the process for estimation of the allowance for credit losses. The allowance level is influenced by loan volumes, loan asset quality, delinquency status, historic loss experience and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. The allowance for credit losses will primarily reflect estimated losses for pools of loans that share similar risk characteristics, but will also consider individual loans that do not share risk characteristics with other loans. ​ In estimating the component of the allowance for credit losses for loans that share similar risk characteristics with other loans, such loans are segregated into loan classes. Loans are designated into loan classes based on loans pooled by product types and similar risk characteristics or areas of risk concentration. In determining the allowance for credit losses, we derive an estimated credit loss assumption from a model that categorizes loan pools based on loan type and internal risk rating or delinquency bucket. ​ When a loan moves to a substandard non-accrual or worse risk rating grade, it is removed from the collective evaluation allowance methodology and is subject to individual evaluation. A problem asset report is prepared for each loan in excess of a predetermined threshold and the net realizable value of the loan is determined. This value is compared to the appropriate loan basis (depending on whether the loan is a PCD loan or a non-PCD loan) to determine the required allowance for credit loss reserve amount. ​ Estimating the timing and amounts of future losses is subject to significant management judgment as these loss cash flows rely upon estimates such as default rates, loss severities, collateral valuations, the amounts and timing of principal payments (including any expected prepayments) or other factors that are reflective of current or future expected conditions. These estimates, in turn, depend on the duration of current overall economic conditions, industry, borrower, or portfolio specific conditions, the expected outcome of bankruptcy or insolvency proceedings, as well as, in certain circumstances, other economic factors, including the level of current and future real estate prices. All of these estimates and assumptions require significant management judgment and certain assumptions that are highly subjective. Model imprecision also exists in the allowance for credit losses estimation process due to the inherent time lag of available industry information and differences between expected and actual outcomes. ​ The provision for (reversal of) credit losses recorded through earnings, and reduced by the charge-off of loan amounts, net of recoveries, is the amount necessary to maintain the allowance for credit losses at the amount of expected credit losses inherent within the loans held for investment portfolio. The amount of expense and the corresponding level of allowance for credit losses for loans are based on our evaluation of the collectability of the loan portfolio based on historical loss experience, reasonable and supportable forecasts, and other significant qualitative and quantitative factors. Refer to “Financial Condition – Allowance for Credit Losses on Loans” and Notes 1 and 6 to the consolidated financial statements for further discussion of the methodology used in establishing the allowance and changes during the relevant period in the provision for (reversal of) credit losses. ​ Mortgage Servicing Rights Asset ​ We measure our residential mortgage servicing rights asset using the fair value method. Under the fair value method, the retained MSR assets are carried in the balance sheet at fair value and the changes in fair value are reported in earnings within other noninterest income in the period in which the change occurs. Retained MSR assets are measured at fair value as of the date of sale of the related mortgage loan. Subsequent fair value measurements are determined using a discounted cash flow model. In order to determine the fair value of the MSR asset, the present value of expected future cash flows is estimated. Assumptions used include market discount rates, anticipated prepayment speeds, delinquency and foreclosure rates, and ancillary fee income. 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. The expected life of the loan can vary from management’s estimates due to prepayments by borrowers, especially when rates fall. Prepayments in excess of management’s estimates would adversely impact the recorded value of the MSR asset. The value of the MSR asset is also dependent upon the discount rate used in the model, which is based on current market rates and is reviewed by management on an ongoing basis. An increase in the discount rate would result in a decrease in the value of the MSR asset. Refer to Notes 1, 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. Goodwill and other intangible assets having an indefinite useful life are not amortized for financial statement purposes. In the event that facts and circumstances indicate that the goodwill or other identifiable intangible assets may be impaired, an interim impairment test would be required. Intangible assets with finite lives are amortized over their useful lives. We perform required annual impairment tests of our goodwill and other intangible assets as of October 1st for our reportable business segments. ​ The goodwill impairment test requires us to make judgments and assumptions. The test consists of estimating the fair value of each reportable business segment based on valuation techniques, including a discounted cash flow model using revenue and profit forecasts and recent industry transaction and trading multiples of our peers, and comparing those estimated fair values with the carrying values of the assets and liabilities of each business segment, which includes the allocated goodwill. If the estimated fair value is less than the carrying value, we will recognize an impairment charge for the amount by which the carrying amount exceeds the business segment’s fair value; however, any loss recognized will not exceed the total amount of goodwill allocated to that business segment. ​ This evaluation includes multiple assumptions, including estimated discounted cash flows and other estimates that may change over time. If future discounted cash flows become less than those projected by us, future impairment charges may become necessary that could have a materially adverse impact on our results of operations and financial condition in the period in which the write-off occurs. ​ Mortgage Loan Indemnification Liability ​ The mortgage origination segment may be responsible for errors or omissions relating to its representations and warranties that the mortgage loans sold meet certain requirements, including representations as to underwriting standards and the validity of certain borrower representations in connection with a mortgage loan. If determined to be at fault, the mortgage origination segment either repurchases the mortgage loans from the investors or reimburses the investors’ losses (a “make-whole” payment). The mortgage origination segment has established an indemnification liability for such probable losses based upon, among other things, the level of current unresolved repurchase requests, the volume of estimated probable future repurchase requests, our ability to cure the defects identified in the repurchase requests, and the severity of an estimated loss upon repurchase. Although we consider this reserve to be appropriate, there can be no assurance that the reserve will prove to be appropriate over time to cover ultimate losses due to conditions outside of our control such as unanticipated adverse changes in the economy and historical loss patterns, discrete events adversely affecting specific borrowers or industries, or actions taken by institutions or investors. The impact of such matters will be considered in the reserving process when known. Refer to “Segment Results—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 ​