 | Hilltop Holdings Inc. 6565 Hillcrest Avenue Dallas, Texas 75205 Tel: 214.855.2177 Fax: 214.855.2173 www.hilltop-holdings.com NYSE: HTH |
| January 10, 2024 | Via EDGAR |
United States Securities and Exchange Commission
Division of Corporate Finance
Mail Stop 4720
100 F Street, N.E.
Washington, D.C. 20549
Attn: Jee Yeon Ahn and Lory Empie
| Re: | Hilltop Holdings Inc. |
Form 10-K for Fiscal Year Ended December 31, 2022
Filed February 17, 2023
Form 10-Q for the Quarterly Period Ended September 30, 2023
Filed October 23, 2023
File No. 001-31987
Ladies and Gentlemen:
Hilltop Holdings Inc., a Maryland corporation (the “Company”), hereby files via EDGAR with the United States Securities and Exchange Commission (the “Commission”) the following response to the Staff’s comment in a letter to the Company dated December 19, 2023. For your convenience, we have repeated the comment prior to the response.
Form 10-Q for the Quarterly Period Ended September 30, 2023
Management's Discussion and Analysis of Financial Condition and Results of Operations
Loan Portfolio, page 73
| 1. | We note the tabular disclosure on page 73 detailing the composition of your gross loan portfolio, which includes commercial real estate (“CRE”). Given the significance of CRE in your total loan portfolio, please revise your disclosures, in future filings, to further disaggregate the composition of your CRE loan portfolio by borrower type (e.g., by office, hotel, multifamily, etc.), geographic concentrations and other characteristics (e.g., current weighted average and/or range of loan-to-value ratios, occupancy rates, etc.) material to an investor’s understanding of your CRE loan portfolio. In addition, revise to describe the specific details of any risk management policies, procedures or other actions undertaken by management in response to the current environment. |
Response:
We acknowledge the Staff’s comment. In future filings, we will further disaggregate the composition of our CRE loan portfolio and discuss in more detail our risk management policies, procedures or other actions undertaken by management in response to the current environment. The following are proposed revisions to the Loan Portfolio section (and specifically the Banking Segment subsection) in future filings based on our September 30, 2023 Form 10-Q (additions/revisions to current disclosures are underlined).
United States Securities and Exchange Commission
January 10, 2024
Page 2
[MD&A, page 73]
Loan Portfolio
Consolidated loans held for investment are detailed in the table below, classified by portfolio segment (in thousands).
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Commercial real estate: | ||||||||
| Non-owner occupied | $ | 1,878,163 | $ | 1,870,552 | ||||
| Owner occupied | 1,407,736 | 1,375,321 | ||||||
| Commercial and industrial | 1,662,737 | 1,639,980 | ||||||
| Construction and land development | 1,088,701 | 980,896 | ||||||
| 1-4 family residential | 1,783,259 | 1,767,099 | ||||||
| Consumer | 26,212 | 27,602 | ||||||
| Broker-dealer | 357,244 | 431,223 | ||||||
| Loans held for investment, gross | 8,204,052 | 8,092,673 | ||||||
| Allowance for credit losses | (110,822 | ) | (95,442 | ) | ||||
| Loans held for investment, net of allowance | $ | 8,093,230 | $ | 7,997,231 | ||||
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” set forth in Part II, Item 7 of our 2022 Form 10-K, 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 $8.7 billion and $8.5 billion at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023, the banking segment’s loan portfolio included warehouse lines of credit extended to PrimeLending and its ABAs of $1.6 billion, of which $1.0 billion was drawn. At December 31, 2022, amounts drawn on the available warehouse lines of credit was $0.9 billion. 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.
United States Securities and Exchange Commission
January 10, 2024
Page 3
A significant portion of the banking segment’s loan portfolio at September 30, 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 September 30, 2023 (in thousands).
| Brownsville- | ||||||||||||||||||||||||||||||||||||
| Dallas- | Harlingen- | Other | ||||||||||||||||||||||||||||||||||
| Commercial Real Estate | Fort Worth | Austin | Houston | McAllen | San Antonio | Lubbock | Texas | Outside Texas | Total | |||||||||||||||||||||||||||
| Non-owner occupied: | ||||||||||||||||||||||||||||||||||||
| Office | $ | 149,640 | $ | 182,655 | $ | 54,292 | $ | 17,592 | $ | 25,542 | $ | 7,967 | $ | 64,700 | $ | 333 | $ | 502,721 | ||||||||||||||||||
| Retail | 147,082 | 73,107 | 26,842 | 19,929 | 9,196 | 12,969 | 38,921 | 8,963 | 337,009 | |||||||||||||||||||||||||||
| Hotel/Motel | 51,164 | 25,220 | 73,638 | 21,132 | 381 | 18,885 | 41,759 | 13,942 | 246,121 | |||||||||||||||||||||||||||
| Multifamily | 11,523 | 11,143 | 47,095 | 54,615 | - | 16,825 | 57,465 | 10,578 | 209,244 | |||||||||||||||||||||||||||
| Industrial | 115,354 | 52,218 | 11,403 | 5,448 | 3,159 | 720 | 22,709 | 434 | 211,445 | |||||||||||||||||||||||||||
| All other | 107,654 | 60,491 | 27,013 | 16,168 | 21,192 | 52,830 | 51,394 | 34,881 | 371,623 | |||||||||||||||||||||||||||
| 582,417 | 404,834 | 240,283 | 134,884 | 59,470 | 110,196 | 276,948 | 69,131 | 1,878,163 | ||||||||||||||||||||||||||||
| Owner occupied: | ||||||||||||||||||||||||||||||||||||
| Office | $ | 126,231 | $ | 73,007 | $ | 24,454 | $ | 14,861 | $ | 35,643 | $ | 9,358 | $ | 10,679 | $ | 4,035 | $ | 298,268 | ||||||||||||||||||
| Retail | 12,373 | 15,750 | 3,384 | 1,131 | 197 | 179 | 4,050 | 1,017 | 38,081 | |||||||||||||||||||||||||||
| Industrial | 173,255 | 37,697 | 34,346 | 8,666 | 13,241 | 6,813 | 33,346 | 21,052 | 328,416 | |||||||||||||||||||||||||||
| All other | 339,457 | 60,929 | 88,620 | 22,324 | 49,356 | 15,000 | 155,700 | 11,585 | 742,971 | |||||||||||||||||||||||||||
| 651,316 | 187,383 | 150,804 | 46,982 | 98,437 | 31,350 | 203,775 | 37,689 | 1,407,736 | ||||||||||||||||||||||||||||
| Total commercial real estate loans | $ | 1,233,733 | $ | 592,217 | $ | 391,087 | $ | 181,866 | $ | 157,907 | $ | 141,546 | $ | 480,723 | $ | 106,820 | $ | 3,285,899 | ||||||||||||||||||
At September 30, 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 land development loans, which represented 41.9%, 22.8% and 13.9%, respectively, of the banking segment’s total loans held for investment at September 30, 2023. The banking segment’s loan concentrations were within regulatory guidelines at September 30, 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 September 30, 2023, the Bank’s energy loan exposure was approximately $53 million of loans held for investment with unfunded commitment balances of approximately $12 million. The allowance for credit losses on the Bank’s energy portfolio was $0.1 million, or 0.3% of loans held for investment at September 30, 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).
| September 30, 2023 | ||||||||||||||||||||
| Due Within | Due From One | Due from Five | Due After | |||||||||||||||||
| One Year | To Five Years | To Fifteen Years | Fifteen Years | Total | ||||||||||||||||
| Commercial real estate | $ | 828,253 | $ | 1,438,622 | $ | 956,910 | $ | 62,114 | $ | 3,285,899 | ||||||||||
| Commercial and industrial | 2,190,430 | 311,231 | 144,789 | — | 2,646,450 | |||||||||||||||
| Construction and land development | 879,115 | 167,897 | 40,658 | 1,031 | 1,088,701 | |||||||||||||||
| 1-4 family residential | 128,782 | 421,775 | 446,128 | 786,574 | 1,783,259 | |||||||||||||||
| Consumer | 13,607 | 12,231 | 360 | 14 | 26,212 | |||||||||||||||
| Total | $ | 4,040,187 | $ | 2,351,756 | $ | 1,588,845 | $ | 849,733 | $ | 8,830,521 | ||||||||||
| Fixed rate loans | $ | 1,754,624 | $ | 1,702,763 | $ | 1,330,703 | $ | 849,733 | $ | 5,637,823 | ||||||||||
| Floating rate loans | 2,285,563 | 648,993 | 258,142 | — | 3,192,698 | |||||||||||||||
| Total | $ | 4,040,187 | $ | 2,351,756 | $ | 1,588,845 | $ | 849,733 | $ | 8,830,521 | ||||||||||
United States Securities and Exchange Commission
January 10, 2024
Page 4
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 September 30, 2023, floating rate loans totaling $761 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.
If any members of the Commission have any questions concerning the response above or desire further information or clarification in connection therewith, he or she should contact the undersigned at (214) 855-2171.
| Very truly yours, | |
| /s/ WILLIAM B. FURR | |
| William B. Furr | |
| Chief Financial Officer |
CGP:cp
| cc: | Jee Yeon Ahn |
| Lory Empie | |
| U.S. Securities and Exchange Commission |