Hilltop Holdings Inc.

Good morning and welcome to today's Hilltop Holdings second quarter 2022 earnings conference call. My name is Candice and I will be your moderator for today's call. All lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer at the end. If you would like to ask a question, please press start followed by one on your telephone keypad. I would now like to pass the conference over to our host, Eric Yerry, Executive Vice President. You may now begin your presentation.

Great. Thank you, Candice. Before we get started, please note that certain statements during today's presentation that are not statements of historical facts, 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 or 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 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 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 $33 million, or 45 cents per diluted share. Results include non-recurring after-tax expenses of $3.5 million related to the tender offer executed in May. Consolidated return on average assets for the period was 0.8%, and return on average equity was 5.8%. Plains Capital Bank continues to prudently grow while maintaining solid profitability. generating $51 million of pre-tax income with a return on average assets of 1.09% and an efficiency ratio of 50%. We are encouraged by the growth in the bank loan portfolio where average loans were up $146 million in the quarter or 8% annualized from both core commercial loans and retained mortgage balances. Our bankers have steadily built the pipeline of in-progress and approved loans each quarter and their prospect list is at an elevated level. The bank's loan growth remains centered in commercial real estate across all of our markets, with outside strength in Dallas, Fort Worth, and Austin. We also expect additional growth in Houston, given several recent hires in that market. Importantly, we remain committed to our underwriting standards and credit approval process. This is reflected in our prudent loan growth and strong credit quality trends. This past quarter, criticized loans declined to 2.5% of total bank loans, which is a decrease from 2.8% in Q1 2022 and 4.8% in Q2 2021. Additionally, non-performing loans declined by $9 million or 19% from Q1 2022 and 33 million or 48% from Q2 2021. Total average deposits decreased by $435 million, or 3%, quarter over quarter. The reduction in deposit balances was driven by clients moving funds into higher yielding opportunities in reaction to the sharp raise in rates, as well as us utilizing internal Hilltop Holdings deposits for the repurchase of shares. Compared to prior year, average deposits are still higher by $350 million, or 3%, largely due to growth from existing customers. The bank's loan to deposit ratio remains very conservative at 63%, which provides ample liquidity for our company and Will is going to speak about later in the presentation. Moving to prime lending, after almost two years of historically low mortgage rates, mortgage rates have increased by approximately 250 basis points since last December, with just over half of that increase occurring in the second quarter. As a result, mortgage refinance volume has fallen off at a rapid pace. Additionally, record low home inventory and affordability challenges resulting from rising home prices and higher interest rates have negatively impacted the purchase mortgage market. As expected, these trends have had an adverse impact on both loan origination volume and gain on sale margins. Prime lending origination volume has declined by 35% from prior year, with refinancing volume declining from 32% to 12% of total volume. Prime Lending gain on sale of loans sold to third parties declined by 116 basis points from prior year and 61 basis points from prior quarter. Partially offsetting these negative trends were decreases in variable compensation and lower fixed expenses. Prime Lending's management team has been vigilant in this environment and taken actions to adapt by reducing back office and support headcount by 20% and reducing other expenses such as business development and professional fees and occupancy costs. During the quarter, Hilltop Securities generated $9.1 million of pre-tax income on net revenue of $100 million for a pre-tax margin of 9%. This was an improved quarter for the business with structured finance, fixed income services, and wealth management all performing better than prior year. While TBA lock volumes declined 62% from prior year, structured finance revenues improved from favorable pipeline valuation on lower market volatility. Fixed income services revenues increased 2% compared to Q2 2021, as trading activity from municipals and better performance in mortgage products more than offset lower sales related revenues. Wealth management revenues improved 3% compared to Q2 2021, as revenues from sweep balances increase due to Fed funds rate increases. Hilltop Securities continues to focus on growing its retail production and adding quality advisors and expects sweep revenues to continue to grow with further rate hikes. While we feel positive about the momentum of Hilltop Securities, we do believe the trading environment remains volatile and therefore expect to maintain lower levels of trading inventory until the market improves. Moving to page four. During the quarter, Hilltop returned $455 million of capital to shareholders through a tender offer and dividends. The Q2 2022 tender offer was a significant action for us and repurchasing approximately 19% of the company. Over the past 18 months, we have repurchased approximately 29% of outstanding shares for an average price of 1.09 times tangible book value. Even with these actions, we remain very well capitalized and have more excess capital than when we entered the COVID-19 pandemic. Tangible book value per share increased by 1% from Q2 2021 to $27.08, as both the tender offer and a decrease in AOCI had negative impacts that were offset by retained earnings. In summary, the first half of the year has been challenging for our trading and mortgage-centric businesses. So the strength of our bank and diversity of our business lines has been key to delivering strong profitability and demonstrate the durability of our franchise. We do anticipate further interest rate increases in the near term, ongoing market volatility, and inflationary pressures that will have varying impacts to our businesses. I am confident in our ability to navigate this changing economic environment and emerge a stronger company. With that, I will now turn the presentation over to Will to discuss the financials.