Hilltop Holdings Inc.

Good morning, ladies and gentlemen, and welcome to the Hilltop Holdings third quarter 2023 earnings conference call and webcast. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, October 20th, 2023. I would now like to turn the conference over to Eric Yerby with Hilltop Holdings. 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 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. The 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 third quarter, Hilltop reported net income of $37 million, or $0.57 per diluted share. Return on average assets for the period was 0.9% and return on average equity was 7.1%. This was a favorable quarter for the organization, despite escalating interest rates and market pressures within each business. Hilltop produced solid consolidated profitability and continue to grow its book value with our conservative liquidity management. The dedication and adaptability of our teams in this uncertain environment has been commendable. I believe our proactive measures, strategic initiatives, and the strength of our franchise position Hilltop for resiliency in this challenging environment and sustained growth over the long term. For the quarter, Plains Capital Bank generated $53 million of pre-tax income on $13.3 billion of assets. representing a return on average assets of 1.2%. Average loans at the bank were relatively stable from the second quarter as slower client activity, particularly in commercial real estate, was partially offset by reduced paydowns. Higher borrowing costs and increased equity requirements needed to borrow have impacted the pipeline, and we expect this trend to continue until rates stabilize, whereby pricing can normalize and transaction volumes should pick up. Credit quality remains paramount to our bank, and we will continue to approach credit risk in the same judicious manner. Although we saw a minor amount of negative credit migration, the bank had a decline in non-performing assets and realized a net recovery in the quarter. Average bank deposits remained relatively stable during the quarter at $11.3 billion. So, we continue to see a migration from non-interest-bearing deposits into money market and CD accounts. which contributed to a 31 basis point increase in deposit costs. This increase is in line with expectations given the mixed shift in prior deposit data guidance. Overall, our bank continues to perform well despite NIM compression and softness in the loan pipeline. While we do expect the balance sheet to contract for a period, the business remains focused on bottom line profitability by managing margins where possible, being thoughtful about appropriate credit risk, and tightening down on expenses. Moving to prime lending. The residential mortgage industry remains under pressure given the increase in the 10-year rate and the resulting highest mortgage rates in over two decades. Additionally, other negative industry factors include a persistently low supply of retail housing, elevated home prices, and surplus capacity within the mortgage origination sector. These dynamics have collectively exerted substantial pressures on lender loan volumes home buyer confidence, and secondary margins. To weather these challenges, Prime Lending has taken several strategic and tactical measures to ensure resiliency and sustainability. These include a focus on optimizing operations and corporate staffing levels, a judicious approach to variable expenses, and a re-evaluation of brick-and-mortar utilization. We have begun to see the benefits of these initiatives in our expenses and in our margins. evident by the lower prepax loss in the business year over year, despite lower origination volumes and gain on sale margins. Prime lending originated $2.2 billion in volume, a decline of 26% from the same period prior year. Gain on sale margin during the period was relatively stable to the second quarter at 198 basis points, though down from 218 basis points in the third quarter of 2022. While the gain on sale margin is still lower than the same period prior year, origination fees have increased from 131 basis points to 185 basis points as more borrowers are choosing to buy down the higher mortgage rates. There was a positive trend in fixed costs during the period as they declined by $16 million or 21% from prior year. This is directly related to the resizing efforts previously mentioned. Notwithstanding the cost reductions, Prime Lending continues to focus on enhancing its sales force by recruiting quality loan originators that can bring on profitable volume in this difficult mortgage market. In addition to helping us navigate through near-term challenges, we believe that the strategic changes and improvements undertaken will position Prime Lending for higher margins and increased profitability when the industry recovers. We have confidence in our leadership team and are encouraged by the current favorable expense trends in the business. Hilltop Securities generated pre-tax income of $22 million on net revenues of $119 million during the quarter. Pre-tax profit and margins improved compared to last year's third quarter due to an increase in contribution to revenue from higher margin businesses. primarily associated with our sweep income that has benefited from higher short-term rates. Additionally, our structured finance business reaped the benefits of more volume from certain state housing programs, most notably in Florida. This highlights the quality of our team and the relationships they have fostered with different state housing agencies. Hilltop Securities has performed exceptionally well this year. which is a testament to the talented leadership and producers across its businesses. Moving to page four. Hilltop maintains robust capital levels with a common equity tier one capital ratio of 18.6% and our tangible book value per share increased from Q3 2022 by 54 cents to $27.67. Our capital ratios and tangible book value have grown as a result of our conservative securities management declining balance sheet, and durable profitability. In summary, while industry headwinds are adversely impacting our bank and mortgage businesses, this quarter's improved results again illustrate the strength of Hilltop's franchise and the hard work by our team. We will continue to prioritize the strength of our balance sheet to best serve our clients and best position Hilltop. With that, I will now turn the presentation over to Will to discuss the financials. Thank you, Jeremy.