Preface 2323 Victory Ave, Suite 1400 Dallas, TX 75219 Phone: 214-855-2177 www.hilltop-holdings.com Please Contact: Isabell Novakov Phone: 214-252-4029 Email: inovakov@hilltop-holdings.com FORWARD-LOOKING STATEMENTS This presentation and statements made by representatives of Hilltop Holdings Inc. (“Hilltop” or the “Company”) during the course of this presentation include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements anticipated in such statements. Forward-looking statements speak only as of the date they are made and, except as required by law, we do not assume any duty to update forward-looking statements. Such forward-looking statements include, but are not limited to, statements concerning such things as our business strategy, our financial condition, our efforts to make strategic acquisitions, the costs of integration of the operations acquired in the SWS Merger, our revenue, our liquidity and sources of funding, market trends, operations and business, stock repurchases, dividend payments, expectations concerning mortgage loan origination volume and interest rate compression, expected losses on covered loans and related reimbursements from the Federal Deposit Insurance Corporation (“FDIC”), expected levels of refinancing as a percentage of total loan origination volume, projected losses on mortgage loans originated, loss estimates related to natural disasters, the effects of government regulation applicable to our operations, the appropriateness of our allowance for loan losses and provision for lending losses, the collectability of loans and the outcome of litigation, our other plans, objectives, strategies, expectations and intentions and other statements that are not statements of historical fact, and may be identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “might,” “plan,” “probable,” “projects,” “seeks,” “should,” “target,” “view” or “would” or the negative of these words and phrases or similar words or phrases. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: (i) the credit risks of loan activities, including our ability to estimate loan losses; (ii) the effects of changes in the level of, and trends in, loan delinquencies and write-offs; (iii) changes in general economic, market and business conditions in areas or markets where we compete, including changes in the price of crude oil; (iv) changes in the interest rate environment; (v) risks associated with concentration in real estate related loans; (vi) risks associated with merger and acquisition integration; (vii) severe catastrophic events in Texas and other areas of the southern United States; (viii) effectiveness of our data security controls in the face of cyber attacks; (ix) the effects of our indebtedness on our ability to manage our business successfully, including the restrictions imposed by the indenture governing our indebtedness; (x) cost and availability of capital; (xi) changes in state and federal laws, regulations or policies affecting one or more of the our business segments, including changes in regulatory fees, deposit insurance premiums, capital requirements and the Dodd-Frank Wall Street Reform and Consumer Protection Act; (xii) changes in key management; (xiii) competition in our banking, broker-dealer, mortgage origination and insurance segments from other banks and financial institutions, as well as investment banking and financial advisory firms, mortgage bankers, asset-based non-bank lenders, government agencies and insurance companies; (xiv) our obligations under loss-share agreements with the FDIC, including the possibility that we may be required to make a “true-up” payment to the FDIC; (xv) failure of our insurance segment reinsurers to pay obligations under reinsurance contracts; and (xvi) our ability to use excess capital in an effective manner. For further discussion of such factors, see the risk factors described in our most recent Annual Report on Form 10-K , and subsequent Quarterly Reports on Form 10-Q and other reports, that we have filed with the Securities and Exchange Commission. All forward-looking statements are qualified in their entirety by this cautionary statement. 2 Corporate Headquarters Additional Information
Investor Highlights – Q3 2017 • Growth in non-covered loans (excluding margin loans) of 9% year over year supporting 6% growth in Net Interest Income for Hilltop HilltopSecurities generated 19.5% pre-tax margin during the third quarter with Retail growing net revenues by 14% versus prior year Noninterest Expense down 3% versus prior year driven by variable expenses and business optimization initiatives • • • Year to date capital distributions to shareholders of $44.8 million; including the SWS settlement, capital distributions equate to $91.9 million 12.87% Tier 1 leverage ratio1, 17.66% Common Equity Tier 1 Capital Ratio2 Book Value Per Share3 of $19.88, up 6% versus prior year, and TBVPS3 of $16.85, up 7% versus prior year • • • • • Year to date net charge-offs equate to $2.0 million Non-covered non-performing assets (NPAs) were $45.4 million, or 0.34% of Total Assets Significant storm activity during Q3 2017 – exposures substantially offset through diversification and reinsurance Notes (1) (2) (3) Based on the end of period Tier 1 capital divided by total average assets during the respective quarter, excluding goodwill and other intangible assets Represents estimated common equity Tier 1 (“CET1”) capital and ratio under Basel III capital rules. This number is an estimate based on results ending 9/30/2017 Based on Shares Outstanding as of 9/30/2017, Tangible Book Value per Share see Management’s Explanation of Non-GAAP Financial Measures in Appendix 3 Significant Q3 Items ($ million)Pre-taxNet IncomeEPS – Diluted ($) 1)Q3 Hurricane Impact$(9.8)$(6.4)$(0.07) Managed Risk Value Creation and Capital Optimization Diversified Growth ROAE 6.32% EPS – Diluted $0.31 ROAA 0.90% Net Income $30.2 MM
Business Results – Q3 2017 Q3 2017 Q3 2016 • Modest year-over-year pre-tax decline in Banking largely driven by $8.6 million reduction in purchase accounting impact, core results increased due to strong loan growth. Banking results include a loan loss reserve of $2 million for potential losses related to the third quarter 2017 hurricanes Mortgage pre-tax of $13 million relative to $31 million in Q3 2016 primarily resulted from a 12% decline in mortgage loan originations to $4.0 billion. Current quarter Mortgage results include a $1.5 million indemnification reserve related to the hurricanes Continued strong performance from Broker-Dealer driven by improved results in Retail and Clearing, as well as efficiency enhancements Hurricanes Harvey and Irma, along with seasonally late storm activity during the third quarter 2017 adversely impacted the insurance business. Current quarter gross losses and LAE incurred associated with the Hurricanes was $19.6 million, though the pre-tax impact to Insurance was only $6.1 million due to reinsurance coverage • • • 4 Business Drivers for Q3 2017 Pre-Tax Income vs. Prior Year ($ millions)
Financial Summary – Q3 2017 (46.2) (56.0) (44.8) (39.9) (40.2) (37.1) PAA, FDIC Indemnification and Clawback Impact (12.2) (5.0) (12.3) (8.6) -104 bps -79 bps 8.2% 7.4% -20 bps -54 bps Notes: (1) (2) (3) (4) Pre-provision net revenue is a non-GAAP measure used to assess profitability, it is calculated as the sum of net interest income and noninterest income less noninterest expense (except loss provisions). Purchase Accounting Adjustment Efficiency Ratio is a non-GAAP measure used to assess productivity, it is calculated as noninterest expense divided by the sum of net interest income and noninterest income. Based on the end of period Tier 1 capital divided by total average assets during the respective quarter, excluding goodwill and other intangible assets. Ratios are estimated as of 9/30/2017 5 13 bps -14 bps -692 bps -509 bps (0.32)(0.22) 0.13.6 (32.3)(21.7) (4.6)(2.7) (12.4)(10.3) vs. PQ vs. PY (11.0)5.8 $ in Millions, except per share data Q3 2017 Q2 2017 Q3 2016 Income Statement Net interest income $105.0 $116.0$99.2 Noninterest income $298.5 $344.7$354.5 Noninterest expense $353.8 $366.2$364.1 PPNR1 $49.6 $94.4$89.5 Provision for loan losses $1.3 $5.9$4.0 Pre-tax income $48.4 $88.6$85.5 Net income applicable to common shareholders $30.2 $62.5$51.9 2 Revenue $10.2 $22.4$15.2 Expenses $7.4 $7.3$3.8 Pre-tax income impact $2.8 $15.1$11.4 Key Metrics EPS - Diluted $0.31 $0.63$0.53 ROAA 0.90% 1.94%1.69% ROAE 6.32% 13.24%11.41% 3 Efficiency Ratio 88% 80%80% Common Equity Tier 1 Capital Ratio 17.66% 17.53%17.80% Tier 1 Leverage Ratio 4 12.87% 13.07%13.41%
Hilltop Holdings – Net Interest Income & Margin ($ in billions) • Net interest income of $105 million increased $6 million from third quarter 2016 Commercial loan yields, excluding loans HFS and margin loans, continue to improve versus prior year Trailing twelve month Deposit Betas, excluding brokered deposits, are approximately 20% Increase in investment net interest income contribution driven by higher investment yields and balances across HTH Bank NIM in Q3 2017 was 4.03% relative to 4.50% in Q3 2016 • • • • • Bank taxable equivalent NIM in Q3 2017 was 4.05% (3.54% before PAA) relative to 4.53% (3.63% before PAA) in Q3 2016 Note: (1) See appendix for reconciliation of NIM to Pre-PAA taxable equivalent NIM, as presented 6 Net Interest Income Highlights Earning Assets and NIM1 Trends
Hilltop Holdings – Noninterest Income ($ in millions) Mortgage Production Income (38.5) Net Insurance Premiums Earned (1.9) • Noninterest income of $299 million declined $56 million compared to third quarter 2016 due to a reduction in mortgage volume, lower revenue from Structured Finance and Capital Markets Mortgage refinance volume decline of 51%, coupled with increased competition, have pressured gain on sale margins versus 2016 Insurance revenues negatively impacted by a reduction in premiums earned, as well as reinsurance reinstatement premiums of $1.5 million • • Note: (1) Fee Income ratio is a non-GAAP measure calculated as noninterest income divided by the sum of net interest income and noninterest income 7 Noninterest Income Highlights Q3 2017 $298.5 Other(3.5) Securities Related Fees(12.1) Year over Year Noninterest Income ($MM) Q3 2016 $354.5 Noninterest Income & Fee Income Ratio 1 Noninterest Income Drivers
Hilltop Holdings – Noninterest Expenses ($ in millions) Compensation (15.4) Insurance Loss & LAE 15.0 • Total noninterest expense of $354 million declined $10 million from third quarter 2016, driven by a reduction in variable compensation, lower operating costs at the mortgage business, and efficiency initiatives Hurricane impact on expenses: • $6.0 million and +1.5% to efficiency ratio FDIC Indemnification amortization and clawback expenses increased $4.1 million compared to third quarter 2016 • • Note: (1) Efficiency Ratio is a non-GAAP measure calculated as noninterest expense divided by the sum of net interest income and noninterest income. 8 Expense Highlights Other Expenses(11.5) Q3 2017 $353.8 Occupancy & Equipment1.6 Year over Year Noninterest Expense ($MM) Q3 2016 $364.1 Noninterest Expenses and Efficiency Ratio 1 Expense Drivers
Hilltop Holdings - Loans Loans, Gross Annualized Yield1 $6.3 $6.3 $6.1 $6.0 $6.0 Non-Covered Loan Growth: Linked Quarter: Notes: Non-covered loans excludes broker-dealer margin loans The sum of the period amounts may not equal the total amounts due to rounding (1) Loans, Gross Annualized Yield contains purchased loan portfolio 9 5.8% -0.4% 2.7% 4.7% 0.7% Non-Covered Bank Loan Growth h9% vs. PY Total Loan Growth h6% vs. PY Yield and Loan Mix
Hilltop Holdings - Deposits Annualized Cost of Deposits $7.6 $7.7 $7.3 $7.1 $7.0 Deposit Growth: Linked Quarter: Notes: Noninterest-bearing deposits excludes broker-dealer sweep deposits. The sum of the period amounts may not equal the total amounts due to rounding 10 3.3% 3.8% 0.5% -1.4% 1.2% Deposit Growth h9% vs. PY Deposit Mix
PlainsCapital Bank – Q3 2017 Highlights Efficiency Ratio (%) Fee Income Ratio (%) 60% 12% 62% 11% • Non-covered loan growth equates to 9%, growth focused in commercial real estate • Strongest loan markets are Dallas, Fort Worth, and Austin $2.0 billion in total unused commitments Favorable loan pipeline trends in growth markets • • • Non-covered net charge-offs remain low at $0.9MM for third quarter 2017 Non-covered non-performing assets increased by $10.6 million driven by a single Oil and Gas client previously classified • Note: (1) Efficiency Ratio is a non-GAAP measure calculated as noninterest expense divided by the sum of net interest income and noninterest income. (2) Fee Income ratio is a non-GAAP measure calculated as noninterest income divided by the sum of net interest income and noninterest income. 11 Q3 2017 Highlights Credit Quality Key Highlights Q3 2016 Q3 2017 ROAA (%) 1.09% 0.94% 1 2 Net Interest Margin (%) 4.50% 4.03% Assets ($bn) 9.2 9.7 Summary Results ($000) Q3 2016 Q3 2017 Net Interest Income Provision for Loan Losses Noninterest Income Noninterest Expense Income Before Taxes 90,549 89,322 4,179 1,665 12,711 11,414 61,536 62,750 37,545 36,321
PrimeLending – Q3 2017 Highlights MSR Income ($mm) ($.05) $0.21 • Origination volume of $4.0 billion in Q3 2017 was lower than prior year by $520 million, or 12% • Purchase volume increased $141 million, or 4%, to $3.3 billion, despite low housing inventory Refinance volume decreased $661 million, or 51%, which approximates the overall industry decrease in refinance volume, to $640 million Year-to-date origination volume is down 6% relative to a total industry decline of 24%3; YTD purchase origination volume is up 7% relative to a purchase industry decline of 2%3 • • • Noninterest income decreased $38.8 million, or 19%, vs. prior year primarily due to a decline in loan production volume and a slight decrease in average gain on sale Noninterest expense decreased $17.2 million, or 10%, vs. prior year primarily due to a decrease in variable compensation and loan-related expenses • Notes: (bps) 1) 2) 3) Noninterest income generated at the mortgage origination segment. MSR Income is calculated as the change in net fair value of mortgage servicing rights asset plus servicing fees less any servicing expenses Source: Mortgage Bankers Association as of Oct 24, 2017 12 Q3 2017 Highlights Mortgage Originations and Gain on Sale Key Highlights Q3 2016 Q3 2017 Origination Volume ($mm) $4,493 $3,973 % Purchase 71% 84% Sales Volume ($mm) $4,350 $4,002 Servicing Asset ($mm)1 $44 $48 2 Summary Results ($000) Q3 2016 Q3 2017 Net Interest Income Noninterest Income Noninterest Expense Income Before Taxes (3,076) 94 202,560 163,758 168,303 151,056 31,181 12,796
HilltopSecurities – Q3 2017 Highlights • Pre-tax income of $20.2 million in Q3 2017 versus pre-tax income of $17.4 million in Q3 2016 Net revenue decreased $7.7 million to $103.6 million in Q3 2017 compared to $111.3 million in Q3 2016 Short-term interest rate hikes provided highly accretive revenue growth The broker-dealer segment provided the banking segment with $1.3 billion of core deposits at Q3 2017 Net Revenue • Public Banking Capital Markets Structured Finance Retail Clearing Securities Lending Other Net Revenue (4.7) (4.5) (5.2) 4.3 0.5 0.5 1.5 24.6 21.8 27.0 23.5 10.3 2.5 1.6 19.9 17.2 21.8 27.8 10.8 3.0 3.1 • • 111.3 103.6 (7.7) Note: The sum of the period amounts may not equal the total amounts due to rounding 13 Actual Actual ($ million) Q3 2016 Q3 2017 Y/Y Net Revenues by Business Q3 2017 Highlights Key Highlights Q3 2016 Q3 2017 Compensation / Net Revenue (%) 61.1 58.2 FDIC Insured Balances at PCB ($mm) $951 $1,301 Other FDIC Insured Balances ($mm) $1,420 $1,135 Public Finance Offerings ($mm) $22,664 $20,813 TBA Volume ($mm) $1,664 $1,293 Summary Results ($000) Q3 2016 Q3 2017 Net Interest Income Provision for Loan Losses Noninterest Income Noninterest Expense Income Before Taxes 7,823 12,215 (189) (405) 103,511 91,418 94,094 83,836 17,429 20,202
National Lloyds Corporation – Q3 2017 Highlights • Lower pre-tax income due to Hurricane Harvey as well as elevated frequency and severity of weather related losses that exceeded historical average levels Decline in net premiums earned continues as a result of previous risk reduction strategies and an increasingly competitive market in core states (TX, AZ) Elevated expense ratio driven by lower premium levels and by higher operating expenses due to weather related losses and investments in system enhancements 131.8% 131.0% • 98.4% • 75.0% 69.8% 14 Combined Ratio Q3 2017 Highlights Key Highlights ($'000) Q3 2016 Q3 2017 Direct Premiums Written 38,200 33,909 Net Premiums Earned 38,747 34,493 Summary Results ($000) Q3 2016 Q3 2017 Net Interest Income Noninterest Income Noninterest Expense Income Before Taxes 716 864 41,170 36,839 30,415 47,015 11,471 (9,312)
Questions? 15
Appendix 16
Balance Sheet Summary 16,046 257 60,497 (509) (1) Includes Federal Funds Sold 17 244,2271,109,524 (51,369) 215,446 (214,369) 478,226 (60,936) 266,252 30,602 474,158 429 (6,154) 31,031 (17,608) (1,961) 468,004 (103,762) (21,645) 119,598 331,506 (7,161) (2,076) 19,263 (40,208) (8,672) (45,808) 244,227 1,109,524 28,425 60,400 46,820 586,042 88,825 632,862 122,384 265,859 (37,868) 212,179 (87) 0 54,670 (13,117) 0 (48,247) 227,924 1,049,536 16,046 60,497 vs. PQ vs. PY $ in Thousands Q3 2017 Q2 2017 Q3 2016 Assets Cash & Due From Banks 1 Securities 354,569 1,809,984 405,938568,938 1,594,5381,331,758 Loans Held for Sale 1,939,321 2,000,2571,673,069 Non-Covered Loans HFI, Gross 6,148,813 6,118,2115,674,655 Allowance for Non-Covered Loan Losses Non-Covered Loans HFI, Net Covered Loans, Net of Allowance Covered OREO (58,779) (59,208)(52,625) 6,090,034 188,269 40,343 6,059,0035,622,030 205,877292,031 42,30461,988 Broker-Dealer & Clearing Receivables 1,672,123 1,552,5251,340,617 FDIC Indemnification Asset Goodwill & Other Intangibles Other Assets 33,143 290,248 1,114,766 40,30473,351 292,324298,920 1,095,5031,160,574 Total Assets 13,532,800 13,288,57312,423,276 Liabilities and Stockholders’ Equity Non-Int. Bearing Deposits Int. Bearing Deposits 2,279,633 5,383,814 2,251,2082,232,813 5,323,4144,797,772 Total Deposits 7,663,447 7,574,6227,030,585 Broker-Dealer & Clearing Payables 1,517,698 1,395,3141,251,839 Short Term Borrowings 1,477,201 1,515,0691,265,022 Notes Payable Junior Subordinated Debentures Other Liabilities Total Liabilities 300,196 67,012 597,890 300,283313,313 67,01267,012 543,220646,137 11,623,444 11,395,52010,573,908 Common Equity 1,906,185 1,890,1391,845,688 Total Hilltop Equity Minority Interest Total Liabilities & Equity 1,906,185 3,171 1,890,1391,845,688 2,9143,680 13,532,800 13,288,57312,423,276
PlainsCapital Bank – Energy Exposure • No energy SNC’s in PCB loan portfolio Unfunded energy commitments are subject to borrowing bases and credit review before draw-downs Total exposure remains consistent with historical trends Classifieds for the quarter were down $2.5 million • • • Note: (1) Total loans equal to HTH consolidated gross covered and non-covered loans HFI less margin loans held at the broker-dealer. 18 Energy Portfolio BreakdownQ3 2016Q4 2016Q1 2017Q2 2017Q3 2017 Exploration and Production Field Services Pipeline Construction Services Distribution Transportation Midstream Wholesalers Equipment Rentals Equipment Wholesalers Other 13%11%13%14%14% 26%22%24%22%23% 21%21%22%22%22% 47%43%46%44%45% 21%30%18%16%16% 11%9%10%9%9% 32%39%28%25%25% 1%1%1%1%1% 0%0%0%0%0% 7%6%12%16%15% 8%7%13%17%16% Total100%100%100%100%100% Select Energy StatisticsQ3 2016Q4 2016Q1 2017Q2 2017Q3 2017 Outstanding Energy Balance ($MM) Energy Unfunded Commitments ($MM) Energy Loans / Total Loans1 (%) Criticized Energy Loans ($MM) Performing Classified Energy Loans ($MM) Non-Performing Classified Energy Loans ($MM) Classified and Criticized Energy Loans ($MM) Unimpaired Energy Reserves ($MM) Energy Reserves / Energy Loans (%) Energy NCOs ($MM) 168.8166.5149.1158.2151.3 120.7121.4130.4121.9137.9 3.13.02.72.72.6 1.80.00.00.00.0 24.223.522.523.611.6 13.45.24.03.312.8 39.428.726.526.924.4 10.010.610.611.312.0 6.76.57.17.17.9 1.01.50.00.00.0
Non-GAAP to GAAP Reconciliation and Management’s Explanation of Non-GAAP Financial Measures Hilltop presents measures in this presentation that are not measures of financial performance recognized by generally accepted accounting principles in the United States (“GAAP”). These measures are important to investors interested in changes from period to period in net interest margin. For companies, such as Hilltop, business combinations can also result in purchase accounting adjustments (“PAA”). You should not view this disclosure as a substitute for results determined in accordance with GAAP, and this disclosure is not necessarily comparable to that of other companies that use non-GAAP measures. The following tables reconcile these non-GAAP financial measures to the most comparable GAAP financial measure, “net interest margin”. NIM 3.65 4.04 3.50 NIM 4.50 4.80 4.03 Add: Add: Taxable Equivalent Adjustment1 0.02 0.01 0.02 Taxable Equivalent Adjustment1 0.03 0.01 0.02 Non-GAAP Taxable Equivalent NIM 3.67 4.05 3.52 Non-GAAP Taxable Equivalent NIM 4.53 4.81 4.05 Less: Less: Purchase Accounting Adjustment (0.64) (0.82) (0.37) Purchase Accounting Adjustment (0.90) (1.12) (0.51) 3.03 3.23 3.15 3.63 3.69 3.54 Non-GAAP Pre-PAA Taxable Equivalent NIM Non-GAAP Pre-PAA Taxable Equivalent NIM Note: (1) Annualized taxable equivalent adjustments are based on a 35% federal income tax rate. 19 Reconciliation of Non-GAAP Pre-PAAQ3Q2Q3 Taxable Equivalent NIM (%)201620172017 Reconciliation of Non-GAAP Pre-PAAQ3Q2Q3 Taxable Equivalent NIM (%)201620172017 •PlainsCapital Bank •Hilltop Consolidated
Non-GAAP to GAAP Reconciliation and Management’s Explanation of Non-GAAP Financial Measures (Continued) Tangible Common Equity (“TCE”), is a non-GAAP financial measure. Tangible common equity to tangible assets is defined as our total stockholders’ equity, excluding preferred stock, reduced by goodwill and other intangible assets divided by total assets reduced by goodwill and other intangible assets. This is a measure used by management, investors and analysts to assess use of equity. Tangible book value per share (“TBVPS”), is a non-GAAP financial measure. TBVPS represents the Firm’s tangible common equity at period-end divided by common shares outstanding at period-end. This is a measure used by management, investors and analysts to assess use of equity. Total Stockholder's Equity Less: Preferred Stock Common Stockholder's Equity Less: Goodwill Other Intangible Assets Tangible Common Equity Shares Outstanding as of period end Book Value Per Share (Common Stockholder's Equity / Shares Outstanding) Tangible Book Value Per Share (Tangible Common Equity / Shares Outstanding) 1,845,688 1,890,139 1,906,185 0 0 0 1,845,688 1,890,139 1,906,185 251,808 47,112 251,808 40,516 251,808 38,440 1,546,768 98,541 1,597,815 96,333 1,615,937 95,904 $18.73 $19.62 $19.88 $15.70 $16.59 $16.85 20 Reconciliation of Tangible Common Equity and Tangible Book Value Per ShareQ3Q2Q3 ($ '000)201620172017 •Hilltop Consolidated
