Hilltop Holdings Inc.

Good morning. Welcome to the Hilltop Holdings Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Eric Yowie. Executive Vice President of Corporate Development. Please go ahead.

Thank you. Before we get started, please note that certain statements during today's presentation that are not statements of historical fact, including statements concerning such items as our outlook, business strategy, future plans, financial condition, allowance for credit losses, and the impact and potential impacts of COVID-19 are forward-looking statements. These statements are based on management's current expectations concerning future events that by their nature are subject to risk and uncertainties. Our actual results, capital, liquidity, and financial condition may differ materially from these statements due to a variety of factors, including the precautionary statements referenced in our presentation and those included in our most recent annual reports and quarterly report filed with the SEC. Except to the extent required by law, we expressly disclaim any obligation to update earlier statements as a result of new information. Additionally, this presentation includes certain non-GAAP measures, including tangible common equity and tangible book value per share. A reconciliation of these measures to the nearest GAAP measure may be found in the appendix to this presentation, which is posted on our website at ir.hilltop-holdings.com. With that, I would like to turn the presentation over to President and CEO, Jeremy Ford.

Thank you, Eric, and good morning. Despite the ongoing pandemic and most of our team working from home, Hilltop had an unbelievable quarter with record-breaking mortgage earnings that more than offset a sizable and judicious reserve bill at the bank. Before getting into the results of the quarter, I would like to start on slide three and provide an update on our response to the COVID-19 pandemic. From an operations standpoint, we are very fortunate to have realigned Hilltop over the past three years by building a robust holding company and integrating the functional departments of our operating company. For this has enabled us to ensure business continuity while prioritizing the health and safety of our employees. We continue to operate with the majority of our employees working remotely so that essential staff can work safely from our offices. We are tracking all COVID-19 cases to ensure the quarantine of affected employees and to ensure impacted offices are cleansed so that they can get back open as soon as possible. We are also providing frequent and open communication so that everyone adheres to safety protocols and feels connected. While we did see an increase in employee cases this past quarter, the overall number remains low and has not had a material impact on our businesses. Since the start of the pandemic, we have been in constant contact with our clients to continue to serve their needs and, in particular, provide relief and support where required. By partnering with our borrowers that have been impacted by COVID-19, the bank has provided deferrals on $1 billion of loans, of which $619 million were principal only and $349 million were principal and interest for the more severely impacted borrowers. As the initial 90-day deferrals are starting to come due, the bank has already received requests for approximately $120 million of second-round modifications. We will be reviewing each of these requests on a case-by-case basis to ensure they are needs-based and assess their viability. Certain industries, including hotel and restaurants, have been more severely impacted, so we anticipate a large portion of those credits will be requesting second deferrals. As well, the bank booked over 2,800 PPP loans, totaling $672 million. This was a huge effort by our bankers, who were able to help many customers in need. As the pandemic persists, we will continue to provide personal banking assistance, including the waiving of fees, increased daily spending limits, and the suspension of residential foreclosure activities. Moving to slide four. For the second quarter 2020, Hilltop reported net income of $128.5 million, or $1.42 per diluted share, resulting in a 3.3% return on average assets and a 23% return on average equity. Net income from continuing operations was $97.7 million. As noted at the bottom of the page, the results for National Lloyds this period and the gain on its sale are included in discontinued operations. This quarter illustrates the strength of our businesses and the importance of diversification, with the mortgage and broker-dealer businesses both delivering strong growth from fee income that alleviated the impact of the provision at the bank. Favorable market conditions aided our results. but I am most proud of our team for working closely together and executing on the opportunities that arose. On June 30th, the National Lloyds sales to Align Financial closed for total cash proceeds of $154 million, resulting in a net gain on sale of $32 million, which was non-taxable. This was a great outcome for both parties, and I thank the Hilltop team that worked so hard on National Lloyds for many years before and during the transactions. Hilltop also had an important strategic accomplishment in the quarter, with the successful issuance of $200 million of subordinated debt, which further bolsters our liquidity and capital to persevere the current recession and to enhance our position to take advantage of future opportunities. As for managing risk, net charge-offs for the period were $16.4 million, which included $12.5 million There was an oil and gas credit that was reserved for in Q1 2020. The allowance for credit losses increased by $49.6 million this quarter as Hilltop built its loan reserves to reflect the deteriorated economic outlook from Q1 2020. We also continued to enhance our liquidity position and ended the period with $6.6 billion of cash, securities, and secured borrowing capacity. Moving to slide five. Place Capital Bank recorded a pre-tax loss of $17.5 million, largely due to our sizable CISL provision of $66 million that was partially offset by stable net interest income and lower operating expenses. The bank's pre-provision net revenue increased 5% from the second quarter of 2019. Notably, Jerry and the bank team did a great job growing PPNR while working tirelessly to process PPP loans, and borrower referral requests. Prime Lending had an outstanding quarter and generated pre-tax income of $138 million, an increase of $116.5 million from Q2 2019. That was driven by a 54% increase in origination volume and a 35 basis point increase in gain on sale margin. Steve Thompson and the entire Prime Lending team worked overtime to process the overwhelming volume and It took advantage of the industry's oversupply by raising prices and retaining servicing. Hilltop Securities increased pre-tax by $6 million to $28 million, driven by profitable growth in the fixed income services and structured finance businesses. Brad Winges and the Hilltop Securities team are well underway in raising the caliber and profile of the firm to become the preeminent municipal-focused investment bank. Additionally, they completed the major system conversion for Hilltop Securities in the quarter. Moving to slide six. Hilltop has a synergistic and durable business model. That is something we have been building towards throughout the life of our company. Through acquisitions, we initially integrated our companies for capital and funding purposes. Over the past three years, we have largely implemented our Platform for Growth and Efficiency initiatives by integrating the shared services departments and executing on efficiency projects to build a scalable platform. And now, with the sale of National Lloyds, we have solidified our business model, which is a franchise anchored by Plains Capital Bank and augmented with powerful fee income businesses in prime lending and hilltop securities. We have made significant investments in talented professionals and systems and believe we are in a solid position to grow these core businesses. With that, I now turn the presentation over to Will to talk further about the financial.