Hilltop Holdings Inc.

Ladies and gentlemen, welcome to the Hilltop Holdings first quarter 2023 earnings conference call and webcast. My name is Glen, and I will be the moderator for today's call. If you would like to ask a question during the presentation, you may do so by pressing star 1 on the telephone keypad. I will now hand you over to your host, Eric Yohei, Executive Vice President of Hilltop Holdings. Eric, please go ahead.

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, liquidity, and sources of funding, the impact and potential impacts of inflation, 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 expectation 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. 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 first quarter, Hilltop reported net income of $26 million, or 40 cents per diluted share. Return on average assets for the period was 0.7%, and return on average equity was 5.1%. Although there was a considerable amount of volatility in the banking industry this past quarter, we entered the year with a strong balance sheet and feel very good about the position we are in. We have always managed our capital, funding, and liquidity for the long term and through various potential rate environments, so we can continue to support our customers during times like this. Specifically, we have over $7 billion in available liquidity, a common equity Tier 1 risk-based capital ratio of 18%, and a diversified and granular deposit base. We will continue to prioritize the health and soundness of our balance sheet and believe this will create opportunities for us over time. Plains Capital Bank generated $58 million of pre-tax income on $13.7 billion of assets, generating a return on average assets of 1.4%. Average loans at Plains Capital Bank increased $133 million in the quarter, or 8% annualized, as both core bank commercial loans and retained mortgage balances increased. While the growth was strong, we are starting to see a slowdown in our pipeline as clients react to higher interest rates. Average bank deposits remained relatively stable, despite the turmoil in the banking industry. Our total deposits declined 3% for the quarter, but importantly, our core bank customer deposits only declined by approximately 1% from levels immediately prior to the bank failures until the week after. Though deposit declines has occurred as customers deploy their cash into projects or seek higher yielding often government alternatives, we have not seen any notable customer attrition directly related to the after effects of the recent bank failures. Out of an abundance of caution though, We drew down FHLB advances, which our bank previously had not utilized at all, in March, and we moved an additional $300 million from Hilltop Security's sweep deposit program into the bank. These moves were purely offensive, as we did not need the liquidity from an operational standpoint. We have not utilized the new Fed bank term funding program, and we do not foresee a need in the immediate future. As a result of our actions and the strong liquidity position our bank entered the year with, we ended the quarter with over $1.7 billion in cash at the Fed. Credit quality remained strong during the quarter with non-performing loans declining by $3 million or 10% from the fourth quarter and a net charge-off ratio to average bank loans of two basis points. Overall, our bank produced strong results from net interest margin expansion minimal credit costs, and a meaningful expense discipline. Moving to prime lending. Loan volume and profitability remain under pressure because of the impact to consumers from persistent low housing inventory, high mortgage rates, and high home prices. As well, continued excess industry capacity is driving a hyper-competitive pricing environment as too many lenders contend for too few origination opportunities. Until relief of some or across all of these factors occurs, meaningful expansion of production volume, gain on sale margins, and overall profitability will remain challenged. In response to these circumstances and the approximate 60% reduction in industry volume since pandemic-induced record highs, Prime Lending has taken substantial measures to resize the business and correspondingly reduce its expense base. Headcount reductions, consolidation of unprofitable branches, and targeted fixed cost adjustments were executed during the quarter. Prime lending originated $1.7 billion in volume with a gain on sale margin of loans sold to third parties of 193 basis points. Origination volume declined by 54% from the prior year, roughly in line with overall industry volume projections of 52%. We expect pressure on the mortgage business to continue as interest rates remain elevated and low inventories persist. Our team at Prime Lending has done an excellent job of reducing fixed costs by taking difficult, necessary actions to resize the business for what we believe will be a smaller mortgage market for the foreseeable future. Hilltop Securities realized pre-tax income of $13 million on net revenues of $105 million during the quarter. Pre-tax profit improved compared to last year's first quarter due to a 45% increase in net revenues. The revenue improvement was primarily driven by a $26 million increase in trading profits from both structured financed and fixed income services, and a $13 million increase in suite deposit revenues from our wealth management business. The growth in revenue in these areas helped offset a slower quarter for municipal issuance. as volumes were down across the industry. Moving to page four. As I stated earlier, Hilltop maintains strong capital levels with a common equity tier one capital ratio of 18% at quarter end. And our tangible book value per share increased from Q4 2022 by 18 cents to $27.36. The improvement in tangible book value per share was driven by both net income and a decline of $8 million in our accumulated other comprehensive loss during the quarter. Though tangible book value per share declined year over year, it is important to note that was substantially driven by unrealized declines in our AOCI as well as the substantial tender offer we completed in 2022. Although the tender was slightly diluted to tangible book value, we believe the size and pricing of that capital deployment drove significant value for our shareholders. Additionally, we repurchased $4.5 million of shares and declared our dividend of 16 cents during the quarter, which is an increase from the same period in the prior year. Overall, the start to the year at the bank and Hilltop Securities were very positive. We grew core bank loans while continuing to improve overall asset quality. We did see deposit declines, which was expected, but anticipate the actions we have taken will slow the pace of declines and enable us to build them back once rates stabilize. Our balance sheet is in a strong position with robust capital and liquidity levels. The health and soundness of our balance sheet are paramount to the organization at this time, and I am grateful for the collective efforts our team has put into fortifying it. Moving forward, we remain confident in the value of our diversified business model the strength of our employee base, and our ability to adapt and succeed in an ever-changing environment. With that, I will now turn the presentation over to Will to walk through the financials.