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, our revenue, our liquidity and sources of funding, market trends, operations and business, capital levels, mortgage servicing rights (“MSR”) assets, 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”), anticipated amortization of our FDIC indemnification asset, expected levels of refinancing as a percentage of total loan origination volume, projected losses on mortgage loans originated, loss estimates related to natural disasters, anticipated changes in our revenue, earnings, or taxes, the effects of government regulation applicable to our operations, the appropriateness of our allowance for loan losses and provision for loan losses, anticipated yields, expected accretion of discount on loans, 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 lending 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) legal and regulatory proceedings (xv) 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; (xvi) 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 – Q4 2017 Reported Excluding Tax Legislation1 Net Income Diluted - EPS ROAA ROAE • • Growth in bank non-covered HFI loans2 of 7% and deposit growth of 13% versus prior year HilltopSecurities generated 17% pre-tax margin during the fourth quarter with net revenue growing by 7% versus prior year Mortgage purchase volume represented 80% of total origination volume in the fourth quarter compared to 71% in the fourth quarter 2016 • • Year to date capital distributions to stockholders of $50.5 million; including the SWS settlement, capital distributions equate to $97.6 million 12.94% Tier 1 leverage ratio3, 17.69% Common Equity Tier 1 Capital Ratio4 Book Value Per Share of $19.92, up 5% versus prior year and Tangible Book Value Per Share5 of $16.92, up 6% versus prior year • • • 2017 bank non-covered HFI net charge-offs equated to $4.6 million, or 8 bps on average bank non-covered HFI loans Non-covered non-performing assets (NPAs) were $44.7 million, or 0.33% of total assets Insurance Loss and LAE ratio of 24.1%, a decrease of 12.5% versus prior year same period • • Notes (1) ‘Tax Legislation” refers to the impact of the enactment of the Tax Cuts and Jobs Act of 2017. Net income, earnings per share (diluted), return on average assets and return on average equity excluding tax legislation are non-GAAP measures used to assess our performance. See appendix for non-GAAP reconciliations. Non-covered bank loans HFI exclude broker-dealer margin loans and FDIC covered loans 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 as of 12/31/2017. Based on shares outstanding as of 12/31/2017. For a reconciliation of Tangible Book Value per Share see Management’s Explanation of Non-GAAP Financial Measures in Appendix. (2) (3) (4) (5) 3 Significant Q4 ItemsNet IncomeEPS – Diluted 1)Tax Cuts and Jobs Act of 2017 “Tax Legislation”1$28.4 MM $0.30 Managed Risk Value Creation and Capital Optimization Diversified Growth 2.78% 8.65% $0.14 $0.44 0.41% 1.25% $13.4 MM $41.8 MM
Business Results – Q4 2017 • Modest year over year pre-tax decline in Banking largely driven by $5.3 million reduction in purchase accounting impact. Franchise results continue to improve driven by bank non-covered HFI loan growth of 7% and strong NIM of 4.23% (taxable equivalent NIM of 4.24%) Mortgage pre-tax income of $8 million relative to $9 million in Q4 2016 primarily resulted from a 34% decline in refinance volume, partially offset by growth in home purchase volume Broker-Dealer pre-tax income of $19 million resulted from a rebound in the quarter by Public Finance with the year-end tax bill driving up national issuances. Additionally, the Capital Markets and Retail businesses improved significantly compared to prior year Insurance had a combined ratio of 65.1%, which drove pre-tax income of $14 million compared to $13 million in Q4 2016. Fourth quarter earnings are typically the strongest due to a lower seasonal frequency and severity of storms • • • 4 Business Drivers for Q4 2017 Pre-Tax Income vs. Prior Year ($ millions) Q4 2016Q4 2017$65 $13 ($9)($12) Banking MortgageBroker-Dealer InsuranceCorporate/ OtherHilltop Holdings $53 $40 $36 $19 $14 $9 $8 ($0)
Hilltop Holdings – Financial Summary Noninterest income 290.5 298.5 309.1 1,205.1 1,287.0 PPNR1 $70.5 $49.7 $57.4 $257.6 $271.9 Pre-tax income $65.0 $48.4 $53.1 $243.3 $231.4 Revenue 12.0 10.2 17.4 56.1 64.9 Pre-tax income impact $6.4 $2.8 $11.7 $29.1 $46.7 ROAA 0.41% 0.90% 1.13% 1.03% 1.21% Efficiency Ratio3 82.34% 87.70% 86.09% 84.17% 83.85% Tier 1 Leverage Ratio 12.94% 12.87% 13.51% 12.94% 13.51% Notes: (1) (2) (3) (4) Pre-provision net revenue is calculated as the sum of net interest income and noninterest income less noninterest expense (except loss provisions). Includes impact of Purchase Accounting, FDIC Indemnification and True-up accrual (clawback). Efficiency Ratio 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. 5 Common Equity Tier 1 Capital Ratio417.69% 17.66% 18.30%17.69%18.30% ROAE2.78%6.32%7.56%7.00%8.13% Key Metrics EPS - Diluted$0.14$0.31$0.36 $1.36$1.48 Expenses5.67.45.727.018.2 Purchase Accounting Impact2 Net income applicable to common shareholders $13.4 $30.2 $35.3 $132.5 $145.9 Provision for loan losses5.51.3 4.314.340.6 Noninterest expense328.7353.8355.81,369.31,412.5 $ in Millions, except per share data Q4 2017 Q3 2017 Q4 2016 FY 2017 FY 2016 Income Statement Net interest income108.7105.0104.1421.7397.5
Hilltop Holdings – Net Interest Income & Margin ($ in billions) • Net interest income of $109 million increased $5 million or 4% from fourth quarter 2016 Commercial loan yields, excluding loans HFS and margin loans, continue to increase with higher short-term rates • With the December Fed Funds increase, substantially all of the Bank’s adjustable rate loans are eligible to reset at rates above the floor levels, upon the borrower’s next contractual reset date Year over year earning asset growth driven by commercial loan growth and higher securities balances at the Bank and HilltopSecurities • • Note: (1) See appendix for reconciliation of NIM to Pre-PAA taxable equivalent NIM, as presented. 6 Net Interest Income Highlights Earning Assets and NIM1 Trends
Hilltop Holdings – Noninterest Income ($ in millions) Mortgage Production Income (16.8) $344.7 Securities Related Fees & Commissions Net Insurance Premiums Earned 6.3 (2.7) Other (5.5) • Noninterest income of $291 million declined by $19 million compared to the fourth quarter 2016 primarily due to a reduction in mortgage production related income and a decrease in net premiums earned Decline in mortgage refinance activity resulted in an origination volume decline of 7%, and increased competition has pressured gain on sale margins versus 2016 Fee Income Ratio trended down due to net interest income growth and lower mortgage revenues throughout 2017 • • Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Fee Income Ratio Noninterest Income Note: (1) Fee Income ratio is calculated as noninterest income divided by the sum of net interest income and noninterest income. 7 Noninterest Income Highlights Q4 2017 $290.5 $309.1 74.8% $298.5 $290.5 74.8% $271.4 74.0% 72.8% 74.7% Q4 2016 $309.1 Noninterest Income & Fee Income Ratio 1 Year over Year Noninterest Income ($MM)
Hilltop Holdings – Noninterest Expenses ($ in millions) $366.2 Compensation and Benefits Occupancy and Equipment Professional Services Insurance Loss and LAE Other Expenses (3.1) 2.5 (18.8) (5.4) (2.3) • Noninterest expense of $329 million declined $27 million from the fourth quarter 2016, driven by improved Loss & LAE, a decrease in variable compensation and a reduction in professional services fees across Hilltop Professional services included a $16 million legal reserve in Q4 2016 • Q4 2016 Q1 2017 Q2 2017 Noninterest Expense Q3 2017 Q4 2017 Efficiency Ratio Note: (1) Efficiency Ratio is calculated as noninterest expense divided by the sum of net interest income and noninterest income. 8 Noninterest Expense Highlights Q4 2017 $328.7 $355.8 79.5% $353.8 86.1% $320.5 87.7% $328.7 82.3% 88.2% Q4 2016 $355.8 Noninterest Expenses and Efficiency Ratio1 Year over Year Noninterest Expense ($MM)
Hilltop Holdings – Loans 5.81% ($ in billions) 5.32% 5.28% Annualized Gross Loan Yield1: 5.08% 5.01% $6.5 $6.3 $6.3 $6.0 $6.1 Loan Growth Q4 2016 Non-Covered Loans Q1 2017 Q2 2017 Q3 2017 Q4 2017 Annualized Gross Loan Yield Covered Loans B/D Margin Loans Vs. Prior Quarter: (Non-Covered Loans) 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) Annualized Gross Loan Yield contains purchased loan portfolio and loans HFS. 9 0.6% 5.8% -0.4% 2.7% 0.7% Bank Non-Covered K7% vs. PY $0.5 $0.5 $5.6 $5.7 $5.7 $5.3 $5.3 $0.5 $0.5 $0.6 Total Loan Growth K6% vs. PY Loan Mix and Yield
Hilltop Holdings – Deposits 0.39% ($ in billions) 0.36% 0.30% 0.27% 0.22% Cost of Deposits: $8.0 Q4 2016 Q1 2017 Q2 2017 Q3 2017 B/D Sweep Deposits Q4 2017 Cost of Deposits (%) Noninterest bearing Interest bearing Vs. Prior Quarter: (Total Deposits) 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 4.1% 3.3% 3.8% 0.5% 1.2% $7.3 $7.6 $7.7 $7.1 $1.3 $3.9 $4.0 $4.0 $4.1 $2.2 $2.3 $2.3 $2.3 $1.3 $1.0 $1.1 $1.3 $4.3 $2.4 Deposit Growth K13% vs. PY Deposit Mix and Cost
PlainsCapital Bank – Q4 2017 Highlights Net Interest Income Provision for Loan Losses Noninterest Income Noninterest Expense 94.4 4.4 13.6 63.7 93.0 5.2 10.6 62.3 363.1 40.7 52.6 244.7 366.6 14.1 59.9 248.4 ROAA Efficiency Ratio1 Fee Income Ratio2 Net Interest Margin – TE Assets ($bn) 1.09% 59.0% 12.6% 4.59% $9.5 (0.08%) 60.2% 10.2% 4.24% $9.6 0.94% 58.9% 12.7% 4.68% $9.5 0.85% 58.2% 14.1% 4.33% $9.6 0.34% • Non-covered HFI loan growth equates to 7%, growth focused in commercial real estate • Strongest loan markets are Dallas, Fort Worth, and Austin Deposit growth of 13% • FDIC insured balances increased approximately $300MM, impacting year on year growth by 2% Purchase accounting income down $5.3MM in Q4 2017 compared to Q4 2016 Additional income tax expense of $25.7MM related to Tax Legislation 0.33% 0.28% $45.4 $44.7 0.26% • • • Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Non-Covered NPAs Non-Covered NPAs / Total HTH Assets Note: (1) Efficiency Ratio is calculated as noninterest expense divided by the sum of net interest income and noninterest income. (2) Fee Income ratio is calculated as noninterest income divided by the sum of net interest income and noninterest income. 11 0.24% $34.0 $34.8 $30.1 Q4 2017 Highlights Credit Quality Income Before Taxes $39.9 $36.1 $130.3 $164.0 Key Highlights Q4 2016 Q4 2017 FY 2016 FY 2017 Summary Results ($ in millions) Q4 2016 Q4 2017 FY 2016 FY 2017
HilltopSecurities – Q4 2017 Highlights Net Interest Income Provision for Loan Losses 8.9 (0.0) 12.7 0.3 31.2 (0.1) 43.7 0.2 Compensation/Net Revenue (%) FDIC Insured Balances at PCB 58.6% $1,000 61.4% $1,301 60.6% $1,000 60.8% $1,301 Noninterest Income Noninterest Expense 98.5 107.4 101.6 94.9 385.8 377.5 368.4 347.3 Other FDIC Insured Balances Public Finance Offerings TBA Volume $1,517 $16,912 $1,552 $1,093 $23,256 $1,185 $1,517 $82,562 $6,088 $1,093 $83,907 $5,939 • Pre-tax income of $19.1 million in Q4 2017 versus a pre-tax loss of ($0.02) million in Q4 2016 Q4 2016 included $16.0 million legal impact from Rhode Island matter Net Revenue increased $7.0 million to $114.3 million in Q4 2017 compared to $107.3 million in Q4 2016 Public Finance recorded a strong quarter as the Tax Legislation drove higher national issuance in December The broker-dealer segment provided the banking segment with $1.3 billion of core deposits at Q4 2017 HilltopSecurities was ranked as the #1 municipal financial advisor in the nation and in Texas for 20171 Public Finance Capital Markets Retail Structured Finance Clearing Securities Lending Other 26.1 14.3 23.8 22.7 7.3 1.9 11.2 29.5 20.7 24.3 19.7 9.9 2.4 8.0 90.8 81.8 90.0 90.1 28.6 7.0 28.6 86.1 72.1 97.5 81.6 37.4 8.7 28.8 • • • • • Note: The sum of the period amounts may not equal the total amounts due to rounding. (1) Source: Ipreo MuniAnalytics. Ranking is based on number of issuances as of 12/31/2017. 12 Net Revenues $107.3 $114.3 $416.9 $412.2 ($ in millions) Q4 2016 Q4 2017 FY 2016 FY 2017 Net Revenues by Business Line Q4 2017 Highlights Income Before Taxes ($0.0) $19.1 $39.5 $64.6 Key Highlights ($ in millions) Q4 2016 Q4 2017 FY 2016 FY 2017 Summary Results ($ in millions) Q4 2016 Q4 2017 FY 2016 FY 2017
PrimeLending – Q4 2017 Highlights Net Interest Income Noninterest Income Noninterest Expense (3.7) 162.3 149.3 (0.1) 145.3 137.6 (11.6) 704.1 614.7 (0.9) 632.4 581.9 Origination Volume ($mm) % Purchase Sales Volume ($mm) Servicing Assets ($mm) $3,888 71% $3,724 $62 $3,603 80% $3,792 $55 $15,460 73% $15,155 $62 $14,458 83% $14,454 $55 • Origination volume of $3.6 billion in Q4 2017 was lower than prior year by $285 million, or 7% • Purchase volume increased $99 million vs. Q4 2016, or 4%, to $2.9 billion, despite total industry volume1 increasing only 2% during same period • FY 2017 total origination volume was down 7% relative to a total industry decline of 17%1 Noninterest income decreased $17 million, or 10%, vs. prior year primarily due to a decline in loan production volume and lower gain on sale margin $1.4 million was released in Q4 2017 of the $1.5 million Q3 2017 Hurricane indemnification reserve 388 380 375 365 362 $4.1 $4.0 $3.9 • • Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Gain on Sale (bps) 2 Mortgage Originations ($bn) Notes: 1)Source: Mortgage Bankers Association as of Dec 20, 2017. 2) Gain on Sale calculated as net gains from sale of loans divided by sales volume. 13 $3.6 $2.8 Q4 2017 Highlights Mortgage Originations and Gain on Sale Income Before Taxes $9.4 $7.6 $77.8 $49.6 Key Highlights Q4 2016 Q4 2017 FY 2016 FY 2017 Summary Results ($ in millions) Q4 2016 Q4 2017 FY 2016 FY 2017
National Lloyds Corporation – Q4 2017 Highlights Net Interest Income Noninterest Income Noninterest Expense 0.9 40.5 28.1 0.9 37.8 24.9 3.2 164.8 146.6 2.9 151.4 158.4 Direct Premiums Written Net Premiums Earned 33.0 38.3 29.6 35.6 153.0 155.5 137.1 142.3 • Pre-tax income of $13.8 million in Q4 2017 versus pre-tax income of $13.3 million in Q4 2016 Decline in net premiums earned continues as a result of previous risk reduction strategies and increasingly competitive markets in core states (TX, AZ) Combined Ratio down compared with prior year period as Loss and LAE improved 140.0% 131.8% 131.0% • 120.0% 100.0% • 80.0% 60.0% 40.0% 20.0% 0.0% Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Loss & LAE Ratio Expense Ratio 14 98.4% 39.7% 40.4% 65.1% 69.8% 38.4% 92.1% 90.6% 33.2% 41.0% 60.0% 36.6% 24.1% Combined Ratio Q4 2017 Highlights Income Before Taxes $13.3 $13.8 $21.4 ($4.1) Key Highlights ($ in millions) Q4 2016 Q4 2017 FY 2016 FY 2017 Summary Results ($ in millions) Q4 2016 Q4 2017 FY 2016 FY 2017
Questions? 15
Appendix 16
Hilltop Holdings – Balance Sheet Summary 487,382 1,852,094 1,715,357 354,969 1,809,984 1,939,321 690,764 1,215,372 1,795,463 Cash & Federal Funds Securities Loans Held for Sale 6,273,669 (60,957) 6,212,712 6,148,813 (58,779) 6,090,034 5,843,499 (54,186) 5,789,313 Non-Covered Loans HFI, Gross Allowance Non-Covered Loans HFI, Net Covered Loans, Net of Allowance Covered OREO Broker-Dealer & Clearing Receivables FDIC Indemnification Asset Goodwill & Other Intangibles Other Assets Total Assets 179,400 36,744 1,464,378 29,340 288,240 1,107,375 188,269 40,343 1,672,123 33,143 290,248 1,114,367 255,714 51,642 1,497,741 71,313 296,503 1,074,237 13,373,022 13,532,800 12,738,062 Liabilities and Stockholders' Equity Non-Int. Bearing Deposits Int. Bearing Deposits Total Deposits 2,411,849 5,566,270 2,279,633 5,383,814 2,199,483 4,864,328 7,978,119 7,663,447 7,063,811 1,287,563 1,206,424 216,045 67,012 703,052 1,517,698 1,477,201 300,196 67,012 597,890 1,347,128 1,417,289 317,912 67,012 650,390 Broker-Dealer & Clearing Payables Short Term Borrowings Notes Payable Junior Subordinated Debentures Other Liabilities Total Liabilities 11,458,215 11,623,444 10,863,542 1,912,081 2,726 1,906,185 3,171 1,870,509 4,011 Total Stockholder Equity Noncontrolling Interest Total Liabilities & Equity 13,373,022 13,532,800 12,738,062 17 5,896 41,572 (445) (1,285) (159,778)634,960 132,216212,366 182,456 701,942 314,672914,308 (230,135) (59,565) (270,777) (210,865) (84,151)(101,867) 0 0 105,16252,662 (165,229) 594,673 132,413(203,382) 42,110636,722 (223,964) (80,106) 124,856 430,170 (2,178)(6,771) 122,678423,399 (8,869) (76,314) (3,599) (14,898) (207,745) (33,363) (3,803) (41,973) (2,008) (8,263) (6,992) 33,138 (159,778)634,960 vs. PQ vs. PY $ in Thousands Q4 2017 Q3 2017 Q4 2016 Assets
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 up $4.2 million • • • Note: (1) Total loans equal to HTH consolidated gross covered and non-covered loans HFI less margin loans held at the broker-dealer. 18 Energy Portfolio BreakdownQ4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Exploration and Production Field Services Pipeline Construction Services Distribution Transportation Midstream Wholesalers Equipment Rentals Equipment Wholesalers Other 11%13%14% 14% 13% 22%24%22%23%22% 21%22%22%22%26% 43% 46% 44% 45% 48% 30%18% 16% 16% 16% 9%10%9%9%8% 39% 28% 25% 25% 24% 1%1%1%1%<1% 0%0%0%0%0% 6%12%16% 15%15% 7%13%17%16% 15% Total 100% 100% 100% 100% 100% Select Energy Statistics Q4 2016Q1 2017Q2 2017 Q3 2017 Q4 2017 Outstanding Energy Balance ($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) 166.5149.1 158.2151.3151.3 121.4 130.4121.9137.9 126.2 3.0 2.72.72.62.6 0.0 0.0 0.0 0.0 0.0 23.522.523.611.616.1 5.24.0 3.312.812.5 28.7 26.5 26.9 24.4 28.6 10.610.611.3 12.012.0 6.57.17.1 7.97.9 1.50.0 0.0 0.0 0.0
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”). You should not view these disclosures as a substitute for results determined in accordance with GAAP, and these disclosures are 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”. 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”). Note: (1) Annualized taxable equivalent adjustments are based on a 35% federal income tax rate. 19 Reconciliation of Non-GAAP Pre-PAA Q4 FY Q3 Q4 FY Taxable Equivalent NIM (%) 2016 2016 2017 2017 2017 NIM Add: Taxable Equivalent Adjustment1 Non-GAAP Taxable Equivalent NIM Less: Purchase Accounting Adjustment Non-GAAP Pre-PAA Taxable Equivalent NIM 4.57 0.02 4.65 0.03 4.03 4.23 0.02 0.01 4.31 0.02 4.59 (0.96) 4.68 (0.93) 4.05 4.24 (0.51) (0.60) 4.33 (0.72) 3.63 3.75 3.54 3.64 3.61 Reconciliation of Non-GAAP Pre-Q4 FY Q1Q2 Q3 Q4 FY PAA Taxable Equivalent NIM (%) 2016 2016 2017 2017 2017 2017 2017 NIM Add: Taxable Equivalent Adjustment1 Non-GAAP Taxable Equivalent NIM Less: Purchase Accounting Adjustment Non-GAAP Pre-PAA Taxable Equivalent NIM 3.80 0.02 3.74 0.02 3.52 4.04 3.50 3.63 0.02 0.01 0.02 0.02 3.67 0.02 3.82 (0.71) 3.76 (0.67) 3.54 4.05 3.52 3.65 (0.49) (0.82) (0.37) (0.44) 3.69 (0.53) 3.11 3.09 3.05 3.23 3.15 3.21 3.16 •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, net 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) 1,870,509 1,906,185 1,912,081 0 0 0 1,870,509 1,906,185 1,912,081 251,808 44,695 251,808 38,440 251,808 36,432 1,574,006 98,544 1,615,937 95,904 1,623,841 95,982 $18.98 $19.88 $19.92 $15.97 $16.85 $16.92 20 Reconciliation of Tangible Common Equity and Tangible Book Value Per Share Q4 Q3 Q4 ($ '000) 2016 2017 2017 •Hilltop Consolidated
Non-GAAP to GAAP Reconciliation and Management’s Explanation of Non-GAAP Financial Measures (Continued) On December 22, 2017, the Tax Cuts & Jobs Act (“Tax Legislation”) was signed into law. The fourth quarter of 2017 and full-year 2017 results reflect the estimated impact of the enactment of the Tax Legislation, which resulted in a $28.4 million decrease in net income. Net income, income applicable to Hilltop common stockholders, diluted earnings per common share, average assets, return on average assets, average equity and return on stockholders’ equity and return on average assets excluding the impact of the Tax Legislation are non-GAAP financial measures. Management believes these measures help investors and analysts to assess performance and understand the effects of the Tax Legislation on reported results. Income before income taxes Income tax expense Net Income Add: Impact of Tax Legislation Non-GAAP Adjusted Net Income $65.0 51.4 $243.3 110.1 $13.7 $133.1 28.4 28.4 $42.0 $161.5 Net Income Less: Net Income attributable to noncontrolling interest Income applicable to Hilltop common stockholders Add: Impact of Tax Legislation Non-GAAP Adjusted Income applicable to Hilltop common stockholders $13.7 $133.1 0.2 0.6 $13.4 $132.5 28.4 28.4 $41.8 $160.9 Weighted average shares outstanding - diluted 96.1 97.4 Diluted earnings per common share Add: Impact of Tax Legislation Non-GAAP Adjusted Diluted earnings per common share $0.14 $1.36 $0.30 $0.29 $0.44 $1.65 Average Assets Add: Impact of Tax Legislation Non-GAAP Adjusted Average Assets 13,325.4 12,955.9 0.9 0.2 13,326.4 12,956.1 Return on Average Assets - Reported Non-GAAP Return on Average Assets - Adjusted 0.41% 1.25% 1.03% 1.25% Average equity Add: Impact of Tax Legislation Non-GAAP Adjusted Average Equity 1,915.2 1,894.0 0.9 0.2 1,916.1 1,894.2 Return on Average Equity - Reported Non-GAAP Return on Average Equity - Adjusted 2.78% 8.65% 7.00% 8.53% 21 Reconciliation of Tax Legislation Impact ($ in millions)Q4 2017 FY 2017 •Hilltop Consolidated
