Hilltop Holdings Inc.

welcome to the hilltop holdings fourth quarter 2023 earnings call and webcast at this time all lines are in this 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 january 26 2024. I would now like to turn the conference over to Eric Yohi, Executive Vice President at Hilltop Holdings.

Please go ahead. Thank you, Mark, and good morning. 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, credit risk and trends in credit, 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. 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 would now like to turn the presentation over to President and CEO Jeremy Ford.

Thank you, Eric, and good morning. Before we go through our fourth quarter results, I'd like to take a moment to reflect on 2023 and outline our priorities for the upcoming year. Despite Hilltop's profitability for the year being hampered by a historically challenging mortgage market, the outstanding performance of our employees combined with our diversified business model allowed the company to improve across a variety of areas. In 2023, we grew our earnings per share, dividends per share, and book value per share, while also strengthening our liquidity and funding positions. Additionally, We enhanced our future earnings potential by improving our cost structure and taking advantage of hiring opportunities given dislocation across the financial services industry. From a balances standpoint, we generated average loan growth of 1% despite muted customer demand, the decline in funding, deposit funding, and tightening of credit standards. This growth is a testament to our long-term relationship banking approach and our ability to identify and capitalize on viable lending opportunities as competitors with strained balance sheets have pulled back. Conversely, our average deposit balances experienced a 7% decline. This trend was initially spurred by the bank failures that occurred in the first half of the year and was further exacerbated by the intense competition around deposits that persisted throughout the remainder of the year. Our conservative approach to growth allowed us to withstand the decline in deposits without having to significantly rely on expensive wholesale funding options, which resulted in improved net interest income year over year. From an expense standpoint, our strategic focus on managing fixed costs, particularly in our mortgage operations, along with an enterprise-wide lens on cost management, resulted in a meaningful reduction in non-interest expenses year over year. From a credit standpoint, this year we proactively increased our allowance for loan losses to reflect broader industry challenges and credit migration in certain portfolios, particularly CRE office. Our ongoing monitoring in this area remains a priority. As we enter 2024, our primary focus as a bank remains on prudent risk management and maintaining strong capital and liquidity in order to navigate the fluctuating economic landscape and take advantage of organic and inorganic growth opportunities. Concurrently, we are committed to steering our mortgage business in a trajectory towards profitability, recognizing the mortgage cycle has endured for a longer than anticipated. Additionally, we are strategically positioning our business at Hilltop Securities to capitalize on growth opportunities and adapt to a potentially lower rate environment. anticipated in the latter half of the year. Moving to the fourth quarter, Hilltop reported net income of $29 million or $0.44 per diluted share. Return on average assets for the period was 75 basis points and return on average equity was 5.5%. During the quarter, Plains Capital Bank generated $48 million of pre-tax income on $13.3 billion of assets, representing a return on average assets of 1.1%. Average loans at the bank declined slightly from the third quarter as normal seasonality occurred in national warehouse lending and balances in our single-family residential portfolio declined. The pipeline for CRE lending remains challenged, and we expect that to continue into the new year as clients hold off on projects due to elevated rates and higher equity requirements. Our average balances Our average deposit balance of $11.1 billion declined 1% during the period, primarily due to management of excess liquidity and the ability to run off more expensive broker deposits. In the quarter, we returned $200 million of suite deposits back to Hilltop Securities and had $200 million of broker deposits run off. In the fourth quarter, the bank did experience some negative migration in asset quality, primarily from a single credit. Non-performing loans increased to 0.8% as a result of a $33 million Texas hotel loan being placed on non-accrual. Overall, asset quality continues to be stable outside of this one notable credit, as criticized loans were flat and net charge-offs were less than $1 million in the quarter. Moving to prime lending. The fourth quarter of 2023 was significantly impacted by continued low inventory, seasonality, escalating home prices, and notably higher interest rates, which collectively resulted in the lowest affordability for home buyers in over two decades and a stark year-over-year decrease in refinance activity. In response to these ongoing challenges, Prime Lending continued to take proactive measures to streamline its operations and lower fixed and variable expenses. These measures include reducing non-sales headcount and underperforming loan originators, as well as closing unprofitable locations. As a result, Prime Lending's pre-tax loss for the fourth quarter of 2023 shrank relative to the prior year period. Despite the exceptionally tough business environment, Prime Lending maintained its industry-leading customer satisfaction rating and continued to be recognized as one of the top places to work. These achievements speak volumes about our team's resilience and commitment. Looking forward, We believe the measures already taken to reduce our cost base combined with improved pricing, utilization of technology to reduce headcount dependency, and our success in hiring skilled loan originators from peers with less stability place Prime Lending in a strong position for the eventual recovery of the housing and mortgage markets. In the fourth quarter, Hilltop Securities realized pre-tax income of $20 million on net revenues of $120 million. marking a 12% increase over the prior year. This growth was driven mainly by the mortgage trading business and sweet products within wealth management. Speaking to the business lines at Hilltop Securities, public finance services experienced a 5% decrease in net revenues compared to a strong fourth quarter last year. Municipal advisory fee revenues declined while underwriting revenues increased slightly. Revenues from the public finance spoke products also improved due to increased fees on our cash pool products. We remain optimistic about our public finance business, particularly with the anticipated need for increased infrastructure spending and our recent opportunistic hiring from large banks that have decided to exit the municipal business. Our structured finance net revenues experienced a significant rise, mainly due to our mortgage-related businesses. While this business remains volatile, our dominant position in the taxable housing space and successful activity in key markets like Florida contributed meaningfully in the fourth quarter. In wealth management, net revenues improved modestly compared to last year's fourth quarter. The Federal Reserve rate hikes positively impacted our FDIC sweep revenues. We continue to focus on recruiting quality advisors and enhancing our product offerings in both the firm and independent brokerage channels. Finally, for Hilltop Securities, our fixed income business, while facing some challenges, showed resilience, and we're enthusiastic about the growth prospects of the overall group as rates stabilize and our new small business loan effort takes off. As we move into 2024, Our goal is to further enhance our sales distribution capabilities while upholding our strong culture and risk management practices. Moving to page four. Hilltop maintains robust capital levels with a common equity tier one capital ratio of 19.3% and our tangible book value per share increased from year end 2022 by $1.17 to $28.35. Over the past five years, Our tangible book value per share has compounded at 10% annually, while our dividend per share has compounded at 19% annually. Before I pass the presentation over to Will to discuss our financial results, I'd like to take a moment to discuss some important changes happening at the bank that we disclosed in the fourth quarter. Jerry Schaffner, the President and CEO of Plains Capital Bank, will be retiring on May 1st. Jerry has been a cornerstone of our success since Plains Capital's founding in 1988, and his retirement marks the end of an era. His leadership and dedication over a stellar 42-year career have been nothing short of transformative. I'd like to thank him for his incredible contributions to our company. You are a great partner and a dear friend. In line with this transition, I am honored to take on the role of CEO at Plains Capital Bank. in addition to my current responsibilities at Hilltop. This step is part of a carefully crafted succession plan, ensuring continuity and stability for our organization. Further, this step is made possible due to the existing depth and strength of our bank leadership team. Notably, in the fourth quarter, Brian Heflin was promoted to President of Plains Capital Bank, and Pete Villarreal was promoted to Chief Operating Officer of Plains Capital Bank. Their experience and proven leadership are invaluable assets to our bank. We are excited about this new chapter and the opportunities it brings. With a solid team in place, we are poised for continued growth and success. And we remain committed to our mission of serving our customers, employees, communities, and shareholders with unwavering dedication and a long-term focus. Thank you. And now I will turn it over to Will to discuss our financial results in more detail.