Hilltop Holdings Inc.

Good day and welcome to the Hilltop Holdings second quarter 2021 earnings conference call and webcast. All participants will be in a 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. To ask a question, you may press star, then one in your touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Eric Yohe. Please go ahead.

Thank you, Grant. 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, the impact and potential impact of COVID-19, Stock repurchases and dividends, as well as other items referenced in the preface of our presentation, 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 uncertainty. Our actual results, capital, liquidity, and financial conditions 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 report and quarterly report filed with the SEC. Please note that the information presented is preliminary and based upon data available at this time. 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 shares. A reconciliation of these measures to the nearest gap measure may be found in the appendix to this presentation, which is posted on our website at ir.hilltop-holdings.com. With that, I will now turn the presentation over to President and CEO, Jeremy Ford.

Thank you, Eric, and good morning. For the second quarter, Hilltop reported net income of $99 million, or $1.21 per diluted share. Return on average assets for the period was 2.29%, and return on average equity was 16.4%. Despite certain headwinds in each business, our collective business model was able to generate strong earnings and grow capital, while at the same time returning capital to shareholders through dividends and share repurchases. Plains Capital Bank generated pre-tax income of $87 million, compared to a pre-tax loss of $17 million in Q2 2020. Improvements in the economic outlook and positive credit migrations drove a $29 million reversal of provision, compared to a provision expense of $66 million in Q2 2020. Outside of a few pockets of weakness, such as business-focused hotels, our borrowers generally are seeing improved results with the economy reopening and robust activity. Strong deposit growth has continued, with average interest-bearing deposits including broker deposits and Hilltop Security suite deposits, increasing by 26% from Q2 2020. This growth was partially offset by the planned runoff of approximately $858 million in broker deposits and the reduction in Hilltop Security suite deposits of approximately $690 million. As we optimize our liquidity sources and defend our net interest margins, We attribute this core deposit growth primarily to increased liquidity in the market from government stimulus and the work our bankers have done to increase deposits from existing and new clients. Total average bank loans declined modestly by 2% versus Q2 2020, as PPP loans have run off and commercial loan growth remains pressured. Quality loan demand has been muted, as our borrowers are flush with liquidity. leading to paydowns and payoffs or the use of elevated liquidity to fund capital expenditures and other investments before seeking bank debt. However, the Texas markets we are in continue to experience significant activity from business and household migration, which should drive meaningful long-term opportunities for the bank, specifically in higher growth markets such as Austin and Dallas with products like multifamily. Importantly, our business model has allowed us to selectively retain high-quality mortgages from prime lending to support loan balances and provide improved yield opportunities for our elevated liquidity and capital. Prime lending had another solid quarter, generating $49 million in pre-tax income. While the mortgage market has begun to normalize compared with the frenzied activity in 2020, volumes and profitability still remain elevated relative to historical levels. Prime lending originated $5.9 billion in volume with a gain-on-sale margin on loans sold to third parties of 364 basis points. Although average mortgage interest rates declined year-over-year, refinance volumes decreased to 32% of total origination compared to 47% in Q2 2020. A decrease in mortgage interest rates typically leads to an increase in refinancing volume. Significant refinancing activity during 2020 has limited the population of loans eligible for refinance. Importantly, our focus on home purchase mortgage origination should allow us to outperform the broader market. As the third-party market for mortgage servicing has continued to improve, we have reduced our retained servicing to 25% of total mortgage loans sold during the quarter and executed an MSR sale of $32 million reducing our MSR assets to $124 million. In addition to rates, inventory and affordability are the main things we are paying attention to in the mortgage industry. With low inventory continuing to drive home prices higher, the properties that are available are increasingly getting out of reach for buyers. This phenomenon affects both volume as well as gain on sale margins, as certain products are more competitive in this environment. Despite the ever shifting mortgage landscape, Prime Lending continues to execute well on its growth strategy, primarily centered on hiring purchase-oriented loan officers. In the second quarter, Prime Lending had a net gain of 11 loan officers that we believe could add incremental annual volume of nearly $300 million. For Hilltop Securities, They generated $6.9 million of pre-tax income on net revenues of $94 million for a pre-tax margin of 7.3%. This was a challenging quarter for the mortgage-centric and fixed-income businesses. Although these businesses have performed exceptionally over the past year, they are subject to volatility, which illustrates the importance of diversified revenue streams within Hilltop Securities. The structured finance business was adversely impacted by mortgage market volatility in March and April and generated net revenue of $11.5 million, a decline of 75% from Q2 2020. On a positive note, block volumes remain relatively strong compared to pre-2020 historic levels as we continue to add and maintain strong relationships with existing clients. Importantly, our public finance and wealth management businesses generated revenue and income growth. And we are pleased with their positive momentum. Moving to page four. Hilltop maintains strong capital with common equity tier one capital ratio of 20% at quarter end. During the quarter, Hilltop returned $55 million to shareholders through dividends and share repurchases. The $45 million in shares repurchased are part of the $75 million share authorization the Board granted in January. This week, the Hilltop Board authorized an increase to the stock purchase program to $150 million, an increase of $75 million. Factoring in shares repurchased made during the first half of 2021, Hilltop now has approximately $100 million of available capacity through the expiration of the program in January 2022. Even with sizable capital distributions to shareholders over the past two years, including the opportunistic tender offer executed in 2020, our tangible book value per share has grown at a compound annual rate of 21% because of the profitability of our unique business model. We plan to continue to prudently distribute capital to our shareholders through dividends and share repurchases. Hilltop's performance in the quarter highlights the versatility of our franchise and the value of our diversified operating model. Although near-term headwinds and volatility may occur, we believe each of our businesses are well-positioned to take advantage of profitable growth opportunities and that we have the leadership, capital, and strategies in place to build on our franchise. With that, I will now turn the presentation over to Will to discuss the financial results.