Hilltop Holdings Inc.

Hello, everybody, and thank you for your patience. The Hilltop Holdings First Quarter 2022 Earnings Conference call-on webcast is due to begin shortly. Hello everyone and a warm welcome to the Hilltop Holdings first quarter 2022 earnings conference call on webcast. My name is Bethany and I'll be your operator today. If you would like to ask a question after the speaker's prepared remarks, you may do so by pressing star one on your telephone keypad. I will now pass the floor over to Eric Yohe, Executive Vice President at Hilltop Holdings. Eric, over to you.

Thank you, operator. 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 impacts of COVID-19, or disruptions in the global or national supply chains, stock repurchases and dividends, and impacts of interest rate changes, as well as such 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 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 and quarterly reports 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 share. 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'll now turn the presentation over to President and CEO Jeremy Ford.

Thank you, Eric, and good morning. For the first quarter, Hilltop reported net income of $22 million, or $0.28 per diluted share. Return on average assets for the period was 53 basis points. and return on average equity was 3.6%. The strength and stability of Plains Capital Bank carried this quarter's results, as earnings pressures at Prime Lending and Hilltop Securities resulted from a challenging mortgage market and an escalating interest rate environment. Plains Capital Bank generated $47 million of pre-tax income on 14.9 billion of average assets, resulting in a return on average assets of 1%. Average loans at the bank increased $130 million in the quarter, or 8% annualized, as both core commercial loans and retained mortgage balances increased. Our pipeline continues to build and we expect core loan growth, primarily in commercial real estate, to continue across all of our markets. In particular, we saw outside strength in Dallas, Fort Worth, and Austin markets. Competition is elevated, though, as banks seek to deploy excess liquidity from the industry-wide growth in deposits. So we remain focused on adhering to our long-held underwriting standards that we believe have allowed Plains Capital Bank to prosper through numerous credit cycles. As such, credit quality improved, with non-performing loans declining by $7 million, or 13%, from the fourth quarter. and the net charge-off ratio to average bank loans was only two basis points. Total average deposits increased by $340 million, or 3% quarter over quarter, and by $1.4 billion, or 12% year over year, largely due to growth from existing customers. Average deposit balances remain elevated compared to pre-pandemic levels, up 56% from year-end 2019, but slightly lower than during the peak of 2021. A slight decline in period-end deposit balances primarily resulted from select customers deploying excess liquidity outside of the bank, as well as a decline in CD balances. Moving to prime lending. This quarter, we experienced a swift transition in the mortgage market, stemming from a rapid rise in mortgage rates, record low housing inventory, and affordability challenges from mounting home price appreciations. The heightened interest rates have dramatically reduced refinance volumes and sparked significant pricing margin compression as lenders seek to optimize fulfillment capacity that was built up to accommodate the record volumes in 2020 and 2021. While origination mortgage volumes were down, revenues were further challenged relative to similar historical periods due to the quick and substantial decline in gain on sale margins. Prime lending originated $3.8 billion in volume, with a gain on sale margin of loans sold to third parties of 321 basis points. Prime lending origination volume declined 39% from the prior year, which is in line with the industry volume projections of 37%. Over the same period, refinancing volume as a percent of total volume declined from 53% to 27%. We expect pressure on the mortgage business to persist. as interest rates rise and the market remains fiercely competitive for volume. Therefore, our team continues to recruit strong purchase-oriented loan originators while remaining laser focused on our fixed expense base. In the coming months, we will closely monitor industry trends and adjust for excess capacity from lower business activity. It has been a challenging start to the year for Hilltop Securities, particularly in our structured finance and fixed income businesses. With the expectation of higher interest rates in the near term, municipal and mortgage capital markets volumes were at historic lows and were responsible for almost the entire $26 million shortfall in income compared to prior year. Given the current volatile trading environment, Hilltop Securities is carrying lower inventory levels and we expect to maintain this prudent approach until the markets recover. Despite the challenging trading environment, The firm has seen positive momentum from the public finance services and the retail wealth management businesses as we continue to recruit top talent and grow our customer base. We also expect sweep deposit revenue from our clearing and retail businesses to benefit from the rising rate environment. Moving to page four. Hilltop maintains strong capital levels with a common equity tier one capital ratio of 21.3% at period end. and our tangible book value per share increased by 6% from prior year to 27.47. Compared to prior quarter, our tangible book value per share did decline by 90 cents, or 3%, as a result of $120 million pre-tax increase in net unrealized losses within our available for sale investment portfolio. That was caused by increases in interest rates since securities were purchased. Excluding the impact of the change in AOCI, our tangible book value per share would have been relatively flat quarter over quarter. During the quarter, Hilltop paid dividends to shareholders of $11.8 million. In summary, the start of the year for the bank was very positive. We grew core bank loans while improving asset quality. However, our fee income businesses were depressed during the quarter from the sharp spike in interest rates and fixed income market volatility. We expect market volatility to persist with the uncertain anticipation of significant interest rate increases in the short term, which will have varying impacts to our businesses. We believe our fixed income capital markets business will improve with a more stabilized interest rate outlook. The expected interest rate increases should be accretive to our bank, but punitive to our mortgage-centric platforms. Moving forward, we remain confident in the value of our diversified business model, the strength of our employee base, our ability to endure industry cycles and compete with our established businesses. With that, I will now turn the presentation over to Will to discuss the financials.