Banking
Business Banking. Our business banking customers primarily consist of agribusiness,
energy, health care, institutions of higher education, real estate (including
construction and land development) and wholesale/retail trade companies. We
provide these customers with extensive banking services, such as Internet banking,
business check cards and other add-on services as determined on a customer-by-customer
basis. Our treasury management services, which are designed to reduce the time,
burden and expense of collecting, transferring, disbursing and reporting cash,
are also available to our business customers. We offer these business customers
lines of credit, equipment loans and leases, letters of credit, agricultural
loans, commercial real estate loans and other loan products.
Commercial and industrial loans are primarily made within Texas and are underwritten
on the basis of the borrower’s ability to service the debt from cash flow
from an operating business. In general, commercial and industrial loans involve
more credit risk than residential and commercial mortgage loans and, therefore,
usually yield a higher return. The increased risk in commercial and industrial
loans results primarily from the type of collateral securing these loans, which
typically includes commercial real estate, accounts receivable, equipment and
inventory. Additionally, increased risk arises from the expectation that commercial
and industrial loans generally will be serviced principally from operating cash
flow of the business, and such cash flows are dependent upon successful business
operations. Historical trends have shown these types of loans to have higher
delinquencies than mortgage loans. As a result of the additional risk and complexity
associated with commercial and industrial loans, such loans require more thorough
underwriting and servicing than loans to individuals. To manage these risks,
our policy is to attempt to secure commercial and industrial loans with both
the assets of the borrowing business and other additional collateral and guarantees
that may be available. In addition, depending on the size of the credit, we
actively monitor the financial condition of the borrower by analyzing the borrower’s
financial statements and assessing certain financial measures, including cash
flow, collateral value and other appropriate credit factors. We also have processes
in place to analyze and evaluate on a regular basis our exposure to industries,
products, market changes and economic trends.
Wealth and Investment Management. The Bank’s private banking team personally
assists high net worth individuals and their families with their banking needs,
including depository, credit, asset management, and trust and estate services.
The Bank offers trust and asset management services in order to assist these
customers in managing, and ultimately transferring, their wealth.
The Bank’s wealth management services provide personal trust, investment
management and employee benefit plan administration services, including estate
planning, management and administration, investment portfolio management, employee
benefit accounts and individual retirement accounts.
Broker-Dealer
Our broker-dealer segment’s operations are conducted through Hilltop Securities
and HTS Independent Network. From the date of the SWS Merger until January 22,
2016, when we merged FSC into Hilltop Securities to form a combined firm operating
under the “Hilltop Securities” name, our broker-dealer segment was
operated through FSC, Hilltop Securities and HTS Independent Network as separate
broker-dealers under coordinated leadership. At December 31, 2015, the Hilltop
Broker-Dealers employed approximately 980 people and maintained over 50 locations
in 18 states.
Public Finance. The public finance group assists public bodies nationwide,
including cities, counties, school districts, utility districts, tax increment
zones, special districts, state agencies and other governmental entities, in
originating, syndicating and distributing securities of municipalities and political
subdivisions. In addition, the group provides specialized advisory and investment
banking services for airports, convention centers, healthcare institutions,
institutions of higher education, housing, industrial development agencies,
toll road authorities, and public power and utility providers.
Capital Markets. The capital markets group specializes in trading and underwriting
U.S. government and government agency bonds, corporate bonds, municipal bonds,
mortgage-backed, asset-backed and commercial mortgage-backed securities and
structured products to support sales and other customer activities, and trades
equities and option orders on an agency basis on behalf of its retail and institutional
clients, including corporations, insurance companies, banks, mutual funds, money
managers and other clients. In addition, the capital markets group provides
asset and liability management advisory services to community banks.
Retail. The retail group acts as a securities broker for retail investors in
the purchase and sale of securities, options, commodities and futures contracts
that are traded on various exchanges or in the over-the-counter market through
our employee-registered representatives or independent contractor arrangements.
Through our retail group, we extend margin credit on a secured basis to our
retail customers in order to facilitate securities transactions. Through our
insurance subsidiaries, we hold insurance licenses to facilitate the sale of
insurance and annuity products by HTS Independent Network advisors to retail
clients. We retain no underwriting risk related to these insurance and annuity
products. In addition, through our investment management group, the retail group
provides a number of advisory programs that offer advisors a wide array of products
and services for their advisory businesses. In most cases, we charge commissions
to our clients in accordance with an established commission schedule, subject
to certain discounts based upon the client’s level of business, the trade
size and other relevant factors. Some registered representatives also sell certain
third party insurance products. Hilltop Securities is also a fully disclosed
client of two of the largest futures commission merchants in the United States.
Structured Finance. The structured finance group provides structured asset and
liability services and commodity hedging advisory services to facilitate balance
sheet management primarily to public finance clients. In addition, the structured
finance group participates in programs in which it issues forward purchase commitments
of mortgage-backed securities to certain non-profit housing clients and sells
U.S. Agency to-be-announced (“TBA”) mortgage-backed securities.
Mortgage Origination
PrimeLending handles loan processing, underwriting and closings in-house. Mortgage
loans originated by PrimeLending are funded through a warehouse line of credit
maintained with the Bank. PrimeLending sells substantially all mortgage loans
it originates to various investors in the secondary market, the majority servicing
released. PrimeLending’s determination of whether to retain or release
servicing on mortgage loans it sells is impacted by changes in mortgage interest
rates, and refinancing and market activity. PrimeLending may, from time to time,
manage its mortgage servicing rights (“MSR”) asset through different
strategies, including varying the percentage of mortgage loans sold servicing
released and opportunistically selling MSR assets. As mortgage loans are sold
in the secondary market, PrimeLending pays down its warehouse line of credit
with the Bank. Loans sold are subject to certain standard indemnification provisions
with investors, including the repurchase of loans sold and the repayment of
sales proceeds to investors under certain conditions.
Insurance
The operations of NLC comprise our insurance segment. NLC specializes in providing
fire and limited homeowners insurance for low value dwellings and manufactured
homes primarily in Texas and other areas of the south, southeastern and southwestern
United States through its subsidiaries, NLIC and ASIC. NLC’s product lines
also include enhanced homeowners products offering higher coverage limits with
distribution restricted to select agents. NLC targets underserved markets through
a broad network of independent agents currently operating in 23 states and a
select number of MGAs, which require underwriting expertise that many larger
carriers have been unwilling to develop given the relatively small volume of
premiums produced by local agents.