[PART I — FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for September 30, 2023, show total assets of $16.4 billion, with Q3 net income at $39.3 million and year-to-date net income at $87.0 million, influenced by credit loss provisions and mortgage banking income Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $16,396,858 | $16,259,282 | | Loans held for investment, net | $8,093,230 | $7,997,231 | | Total Deposits | $11,103,097 | $11,315,749 | | Total Liabilities | $14,289,996 | $14,195,753 | | Total Stockholders' Equity | $2,106,862 | $2,063,529 | Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $115,650 | $123,486 | $355,622 | $335,533 | | Provision for (reversal of) credit losses | $(40) | $(780) | $17,127 | $4,671 | | Total Noninterest Income | $196,849 | $206,975 | $549,994 | $662,676 | | Net Income | $39,311 | $33,254 | $87,017 | $92,716 | | Diluted EPS | $0.57 | $0.50 | $1.25 | $1.21 | Consolidated Cash Flow Highlights - Nine Months Ended (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $179,910 | $1,235,811 | | Net cash provided by (used in) investing activities | $42,031 | $(695,808) | | Net cash used in financing activities | $(304,952) | $(1,697,661) | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=45&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's Q3 2023 performance, noting increased net income to $37.0 million driven by broker-dealer strength, while year-to-date net income decreased to $81.0 million due to lower mortgage income and higher credit loss provisions amidst a volatile economic environment - The company's operations have been volatile due to economic headwinds, including tight housing inventories, declining deposit balances, rapid increases in market interest rates, and a volatile economic forecast[264](index=264&type=chunk) - In response to bank failures in early 2023 and increased competition for liquidity, the company increased interest-bearing deposit rates, accessed additional core deposits from its FDIC insured sweep program, and utilized brokered deposits to bolster its liquidity position[266](index=266&type=chunk)[267](index=267&type=chunk) Income (Loss) Before Taxes by Segment (in thousands) | Segment | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Banking | $53,153 | $63,629 | $151,225 | $161,461 | | Broker-Dealer | $21,553 | $17,471 | $53,428 | $17,967 | | Mortgage Origination | $(8,240) | $(23,084) | $(46,853) | $(10,961) | - During the nine months ended September 30, 2023, the company repurchased **144,403 shares** of common stock for **$4.5 million** under its **$75.0 million** stock repurchase program authorized through January 2024[205](index=205&type=chunk)[260](index=260&type=chunk) [Segment Results](index=57&type=section&id=Segment%20Results) The Banking segment's pre-tax income decreased in Q3 2023 due to net interest income compression, while the Broker-Dealer segment saw a significant increase, and the Mortgage Origination segment's losses narrowed despite declining volume Segment Income (Loss) Before Taxes - Q3 2023 vs Q3 2022 (in thousands) | Segment | Q3 2023 | Q3 2022 | Variance | | :--- | :--- | :--- | :--- | | Banking | $53,153 | $63,629 | $(10,476) | | Broker-Dealer | $21,553 | $17,471 | $4,082 | | Mortgage Origination | $(8,240) | $(23,084) | $14,844 | [Financial Condition](index=71&type=section&id=Financial%20Condition) As of September 30, 2023, total assets were $16.4 billion, with the securities portfolio decreasing to $2.9 billion and the loan portfolio growing modestly to $8.2 billion, accompanied by increased allowance for credit losses and slightly decreased deposits - The total securities portfolio decreased to **$2.86 billion** at September 30, 2023, from **$3.29 billion** at year-end 2022[415](index=415&type=chunk) - Net unrealized losses on the available-for-sale portfolio were **$150.1 million**, and on the held-to-maturity portfolio were **$121.7 million** as of September 30, 2023[415](index=415&type=chunk) Loan Portfolio Composition (in thousands) | Loan Type | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Commercial real estate | $3,285,899 | $3,245,873 | | Commercial and industrial | $1,662,737 | $1,639,980 | | Construction and land development | $1,088,701 | $980,896 | | 1-4 family residential | $1,783,259 | $1,767,099 | | Broker-dealer | $357,244 | $431,223 | | **Total Loans Held for Investment** | **$8,204,052** | **$8,092,673** | - The allowance for credit losses increased to **$110.8 million** at Q3 2023 from **$95.4 million** at year-end 2022, driven by a build related to loan portfolio changes and a deteriorating outlook for commercial real estate markets[424](index=424&type=chunk)[444](index=444&type=chunk) [Liquidity and Capital Resources](index=81&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity and capital position, with holding company cash increasing to $198.9 million and the Bank having $7.3 billion in available liquidity, while regulatory capital ratios remain well above 'well capitalized' thresholds - At the holding company level, cash and cash equivalents increased to **$198.9 million** at September 30, 2023, from **$172.5 million** at year-end 2022[486](index=486&type=chunk) Bank Segment Available Liquidity (in millions) | Source | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | FHLB capacity | $4,387 | $4,139 | | Investment portfolio (available) | $1,588 | $1,606 | | Fed deposits (excess) | $1,326 | $1,332 | | **Total** | **$7,301** | **$7,077** | Regulatory Capital Ratios (September 30, 2023) | Ratio | Hilltop | PlainsCapital | Minimum Requirement (incl. buffer) | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 | 18.60% | 15.31% | 7.0% | | Tier 1 Capital | 18.60% | 15.31% | 8.5% | | Total Capital | 21.54% | 16.45% | 10.5% | | Tier 1 Leverage | 11.92% | 10.62% | 4.0% | [Quantitative and Qualitative Disclosures About Market Risk](index=87&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate sensitivity, impacting net interest income across segments, with the banking segment being asset sensitive and the mortgage segment hedging its interest rate lock commitments and mortgage servicing rights - The company's primary market risk is sensitivity to changes in interest rates, which significantly impacts net interest income[523](index=523&type=chunk)[524](index=524&type=chunk) Banking Segment - Estimated Impact of Interest Rate Changes (as of Sep 30, 2023) | Change in Rates (bps) | Change in Net Interest Income (12-month, Millions) | Change in Economic Value of Equity (Millions) | | :--- | :--- | :--- | | +200 | +$33.6 | +$132.8 | | +100 | +$18.1 | +$87.4 | | -100 | -$19.0 | -$144.7 | - The mortgage origination segment's principal market exposure is interest rate risk on its mortgage loans held for sale, IRLCs, and MSR portfolio, which it mitigates using forward commitments and other derivatives[543](index=543&type=chunk)[544](index=544&type=chunk)[545](index=545&type=chunk) [Controls and Procedures](index=91&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the third quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[553](index=553&type=chunk) - No changes in internal control over financial reporting occurred during the third fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[554](index=554&type=chunk) [PART II — OTHER INFORMATION](index=92&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Legal Proceedings](index=92&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, including a **$13.0 million** FINRA claim against Hilltop Securities and an ongoing investigative inquiry into PrimeLending's float down option - Hilltop Securities is defending a FINRA claim from WR Investments, LP, which alleges a **$13.0 million** loss related to the sale of subordinated bonds. Hilltop Securities believes the claims are without merit[166](index=166&type=chunk) - PrimeLending received an investigative inquiry from the U.S. Attorney for the Western District of Virginia regarding its float down option and is cooperating with requests for information[167](index=167&type=chunk) [Risk Factors](index=92&type=section&id=Item%201A.%20Risk%20Factors) The company highlights material changes to its risk factors, including potential adverse effects from financial industry instability and increasing cybersecurity risks, exemplified by a recent data breach involving a third-party vendor - A new risk factor addresses the potential adverse effects from financial industry instability, such as the bank failures in early 2023, which could lead to deposit outflows, increased costs, and reputational risk[559](index=559&type=chunk)[560](index=560&type=chunk) - The company disclosed a cybersecurity incident involving a third-party vendor's use of the MOVEit Transfer Application, which likely resulted in an unauthorized party obtaining data on substantially all of the Bank's customers, including social security and account numbers[563](index=563&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=94&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any common stock during Q3 2023, with **$70.5 million** remaining available under its stock repurchase program authorized through January 2024 - No shares of common stock were repurchased during the third quarter of 2023[568](index=568&type=chunk) - As of September 30, 2023, **$70.5 million** remained available under the company's stock repurchase program, which is authorized through January 2024[569](index=569&type=chunk) [Other Information](index=94&type=section&id=Item%205.%20Other%20Information) No directors or executive officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the third quarter of 2023 - No directors or executive officers adopted, terminated, or modified a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended September 30, 2023[570](index=570&type=chunk) [Exhibits](index=94&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including required certifications from the Principal Executive Officer and Principal Financial Officer, and XBRL data files

Financial Data and Key Metrics Changes - Hilltop reported net income of $37 million or $0.57 per diluted share for Q3 2023, with a return on average assets of 0.9% and return on average equity of 7.1% [14][30] - Net interest income decreased by $7.8 million or 6% year-over-year to $116 million, primarily due to higher yields on deposits [7][30] - The allowance for credit losses increased by $1.5 million to $110.8 million, resulting in an allowance for credit losses to total loans held for investment ratio of 1.35% [31][30] Business Line Data and Key Metrics Changes - PlainsCapital Bank generated $53 million of pre-tax income on $13.3 billion of assets, with a return on average assets of 1.2% [16] - Prime lending originated $2.2 billion in volume, a decline of 26% from the same period last year, with gain on sale margin decreasing from 218 basis points to 198 basis points year-over-year [22][23] - Hilltop Securities generated pre-tax income of $22 million on net revenues of $119 million, with improved margins due to higher contribution from higher margin businesses [25] Market Data and Key Metrics Changes - Total non-interest income for Q3 2023 was $197 million, with mortgage-related income and fees decreasing by $9 million year-over-year due to challenges in mortgage banking [37] - Purchase mortgage volumes decreased by $741 million or 26% year-over-year, while refinance volumes decreased by $159 million or 28% [38] - Average total deposits were approximately $11.2 billion, remaining stable, but interest-bearing deposit costs rose to 323 basis points, an increase of 39 basis points from the prior quarter [35][36] Company Strategy and Development Direction - The company is focused on managing margins, maintaining credit quality, and reducing expenses to navigate the challenging environment [19][24] - Strategic initiatives include optimizing operations, reevaluating staffing levels, and enhancing the sales force to improve profitability in the mortgage market [21][24] - The company aims to prioritize balance sheet strength and long-term stockholder value while adapting to market changes [28][48] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing uncertainty regarding interest rates, inflation, and economic health, but expressed confidence in the company's resilience and adaptability [48] - The outlook reflects expectations of further declines in net interest income and net interest margin due to competitive pressures and rising deposit costs [8][73] - Management highlighted that while credit quality remains stable, they are closely monitoring potential risks in the commercial real estate sector [45][47] Other Important Information - Hilltop maintains a common equity Tier 1 capital ratio of 18.6%, with tangible book value per share increasing to $27.67 [27] - The company has approximately $7.3 billion in available liquidity sources as of September 30, 2023 [9] Q&A Session Summary Question: Insights on C&I contraction - The decline was primarily driven by a decrease in mortgage warehouse lending, which accounted for over $90 million of the contraction [55] Question: Expectations for Q4 performance in broker-dealer - Management is optimistic about the public finance business building throughout the year, expecting a solid fourth quarter [57] Question: Appetite for stock buybacks given current trading near tangible book value - Management indicated a cautious approach to buybacks in the current environment, focusing on capital deployment through M&A opportunities [60][63] Question: Increase in special mention loans - A few credits moved into special mention due to cash flow challenges, with management actively monitoring these clients [67] Question: Trends in non-interest bearing deposits - A consistent trend of decline in non-interest bearing deposits is expected as customers shift to interest-bearing products [70][71] Question: Future expectations for NII and NIM - Management expects both NII and NIM to continue trending lower, with NIM projected to be between 2.90% and 3% [73]

Q2 2023Earnings Presentation Preface 6565 Hillcrest Ave Dallas, TX 75205 Phone: 214-855-2177 www.hilltop-holdings.com FORWARD-LOOKING STATEMENTS The information contained herein is preliminary and based on Company data available at the time of the earnings presentation. It speaks only as of the particular date or dates included in the accompanying slides. Hilltop Holdings does not undertake an obligation to, and disclaims any duty to, update any of the information herein. Q2 2023 • Average bank loans HFI1in ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-31987 Hilltop Holdings Inc. (Exact name of registrant as specified in its charter) Maryland 84-1477939 (State or other jurisdiction of incorporation or (I.R.S. Em ...

Financial Data and Key Metrics Changes - Hilltop reported net income of $18 million or $0.28 per diluted share for Q2 2023, with a return on average assets of 0.5% and return on average equity of 3.5% [14][29] - The allowance for credit losses increased by $12 million to $109 million, resulting in an allowance to total loans ratio of 1.31% as of June 30, 2023 [30][31] - Net interest income for the second quarter was $118 million, a year-over-year increase of $6 million or 6%, primarily due to higher yields on loans and securities [37][29] Business Line Data and Key Metrics Changes - The wealth management business saw revenue improvement due to higher short-term interest rates, despite weaker transactional production [8] - PrimeLending originated $2.5 million in volume, a decline of 36% from the same period last year, with only 6% of this volume being refinanced [11][9] - Hilltop Securities realized pretax income of $19 million on net revenues of $113 million, with a 13% increase in net revenues compared to the previous year [24] Market Data and Key Metrics Changes - Average loans at PlainsCapital Bank increased by $172 million in the quarter, approximately 9% annualized, but loan growth is expected to slow due to declining pipelines [16][17] - Total average deposits were approximately $11.3 billion, an increase of about $300 million or 3% from the previous quarter [43] - Non-interest income for Q2 2023 was $191 million, with mortgage-related income decreasing by $50 million due to challenges in the mortgage banking sector [47] Company Strategy and Development Direction - The company continues to prioritize balance sheet strength and capital preservation, focusing on long-term growth opportunities despite current macroeconomic challenges [15][27] - PrimeLending is resizing its business and reducing its expense base, including headcount reductions and branch consolidations, to adapt to the challenging mortgage market [22][23] - Hilltop maintains a competitive position in deposit pricing and plans to pass through future rate increases to clients [70][78] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the macroeconomic environment, including inflation and interest rates, which could lead to further credit migration [52][59] - The company expects interest rates to remain elevated, and it will continue to adopt a conservative approach in its operations [27][29] - Management noted that while credit quality remains solid, ongoing cash flow challenges could impact clients and the portfolio [59][60] Other Important Information - Hilltop maintains strong capital levels with a common equity Tier 1 capital ratio of 17.6% and tangible book value per share increased to $27.45 [26] - The company has approximately $7 billion in available liquidity sources as of June 30, 2023, with a revision of cash targets to between $750 million and $1.5 billion [40][41] Q&A Session Summary Question: Interest-bearing deposit beta expectations - Management indicated that the marginal interest-bearing deposit beta expectations are for 75% to 100% on any additional federal fund increases, reflecting a competitive market [66][70] Question: Broker deposits rate and term - Broker deposits added during the quarter ranged from 5% to 510 basis points with terms of 90 to 180 days [71] Question: Outlook for broker-dealer business - Management noted strength in sweep revenues and expects a stronger second half due to investments in fixed income and public finance services [78] Question: Margin compression expectations - Management anticipates potential NIM decline of 7 to 10 basis points for each incremental 25 basis point increase in rates [84] Question: Reserve increase mechanics - The reserve increase was primarily driven by a deterioration in the macroeconomic outlook, with over half of the build related to macroeconomic factors [89] Question: Deposit cost commentary - Management stated that most rate increases occurred in April and May, driven by customer demand for higher yields [97] Question: Exposure in office portfolio - The office portfolio exposure is primarily in larger metro areas like Dallas and Austin, with a focus on mid and low-rise buildings [100][101] Question: Buyback outlook - Management indicated that buybacks are not compelling at the moment due to the macroeconomic environment, but would consider if valuations dip significantly [102] Question: Competitive environment for deposit pricing - Management noted that the competitive landscape has stabilized, with no significant irrational behaviors observed among competitors [108]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-31987 Hilltop Holdings Inc. (Exact name of registrant as specified in its charter) Maryland 84-1477939 (State or other jurisdiction of incorporation or (I.R.S. E ...

Financial Data and Key Metrics Changes - Hilltop reported net income of $26 million or $0.40 per diluted share for Q1 2023, with a return on average assets of 0.7% and return on average equity of 5.1% [4] - The common equity Tier 1 risk-based capital ratio stood at 18%, and tangible book value per share increased by $0.18 to $27.36 from Q4 2022 [8] - Total deposits declined by 3% for the quarter, while core bank customer deposits only declined by approximately 1% [5][9] Business Line Data and Key Metrics Changes - PrimeLending originated $1.7 billion in volume, with a gain on sale margin of 193 basis points, reflecting a 54% decline in origination volume from the prior year [7] - PlainsCapital Bank generated $58 million of pretax income on $13.7 billion of assets, with average loans increasing by $133 million or 8% annualized [26] - Non-interest expenses decreased by $36 million to $250 million, primarily due to a decrease in variable compensation at PrimeLending [40] Market Data and Key Metrics Changes - Mortgage-related income and fees decreased by $74 million versus Q1 2022, driven by high interest rates and limited housing supply [59] - The gain-on-sale margin for loans sold to third parties declined by 18 basis points to 193 basis points [39] - Average total deposits were approximately $11 billion, declining by $350 million or 3% compared to Q4 2022 [37] Company Strategy and Development Direction - The company is focused on maintaining a strong balance sheet and capital levels while adapting to market conditions [10][31] - Hilltop plans to reduce one to four family mortgage retention levels significantly for the remainder of 2023 due to current market conditions [20] - The company remains interested in M&A opportunities, particularly in Texas, and is looking for strategic fits in potential targets [71][93] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's liquidity position and ability to support customers despite industry volatility [4][6] - The outlook for the mortgage business remains challenging due to high interest rates and low housing inventory [28] - Management anticipates continued pressure on gain-on-sale margins and overall profitability in the mortgage sector [18][28] Other Important Information - The allowance for credit losses increased to $97.4 million, yielding an ACL to total loans HFI ratio of 1.19% [12] - The company repurchased $4.5 million of shares and declared a dividend of $0.16 during the quarter, an increase from the same period last year [9] - The company expects deposit competition to remain intense, impacting net interest income and margins [35] Q&A Session Summary Question: What actions are being taken to improve the mortgage business profitability? - Management acknowledged the challenges in the mortgage business and highlighted efforts to reduce fixed costs and right-size the business for a smaller market [68] Question: What is the expected effective tax rate for the remainder of the year? - The effective tax rate for the first quarter was low due to discrete items, with expectations of 24% to 26% for the remaining quarters [70] Question: Is M&A still a possibility in the current environment? - Management confirmed interest in M&A opportunities, particularly those that are strategic fits, and emphasized a strong balance sheet to support potential transactions [71][79]

Provision Expense / (Reversal) • Full year provision/ total loans HFI: 10 – 25 basis points Effective Tax Rate (GAAP) • 22 – 24% full year basis 14 Appendix HilltopHoldings True 15 PlainsCapital Bank – Q1 2023Highlights | --- | --- | --- | --- | --- | --- | |--------------------------------------------------------------------------|---------|--------------|-------------------------------------|---------|---------| | Summary Results ($ in millions) | Q1 2022 | Q1 2023 | Key Highlights | Q1 2022 | Q1 2023 | | ...

Interest Rate Sensitivity - The banking segment's net interest income is significantly influenced by interest rate changes, with a positive GAP indicating potential increases in income as rates rise [606]. - As of December 31, 2022, the banking segment's total interest-sensitive assets amounted to $12.74 billion, while total interest-sensitive liabilities were $7.59 billion, resulting in an interest sensitivity gap of $5.15 billion [608]. - A 300 basis point increase in interest rates is projected to increase net interest income by $40.07 million, representing an 8.80% increase [610]. - The banking segment is currently asset sensitive, with a large percentage of loans adjusting to the Wall Street Journal Prime rate, which contributes to its overall sensitivity [607]. - The projected changes in net interest income are influenced by the heightened level of cash balances, which represent a significant portion of the bank's sensitivity [612]. Interest Rate Risk Management - The broker-dealer segment is exposed to market risk due to fluctuations in interest rates, market prices, and changes in credit ratings, impacting its role as a financial intermediary [614]. - Interest rate risk in the broker-dealer segment is managed by setting limits on the size and duration of positions, as well as monitoring the length of time securities can be held [616]. - The broker-dealer segment's funding sources include customer cash balances and bank borrowings, which expose it to interest rate risk from short-term rate movements [615]. - The company employs various derivative instruments to manage interest rate risk and hedge specific assets and liabilities [605]. Impact of Interest Rate Changes on Net Interest Income - The estimated impact of a 300 basis point increase in interest rates would result in a $99,932 thousand (17.56%) increase in net interest income [629]. - A 200 basis point increase in interest rates would lead to a $64,953 thousand (11.41%) increase in net interest income [629]. - A 100 basis point increase would result in a $33,327 thousand (5.86%) increase in net interest income [629]. - Conversely, a 50 basis point decrease in interest rates would decrease net interest income by $17,260 thousand (3.03%) [629]. - A 100 basis point decrease would lead to a $35,646 thousand (6.26%) decrease in net interest income [629]. - A 200 basis point decrease would result in a $75,696 thousand (13.30%) decrease in net interest income [629]. Mortgage Operations and Risk - The company has expanded its residential mortgage servicing operations, increasing its portfolio of retained mortgage servicing rights (MSR) [623]. - The mortgage origination segment is exposed to interest rate risk, which could materially affect the volume of mortgage loan originations [621]. - The company employs derivative financial instruments to mitigate market risk associated with MSR assets [623].

Financial Data and Key Metrics Changes - Hilltop reported consolidated income attributable to common stockholders of approximately $113 million or $1.60 per diluted share for the full year 2022, with a return on average assets of 0.6% and return on average equity of 5% [25][29] - Net interest income for the fourth quarter was $123 million, reflecting an increase of $19 million or 18% compared to the prior year, driven by higher yields on loans and securities [59] - The allowance for credit losses increased to $95 million, yielding an ACL to total loans HFI ratio of 1.18% as of year-end 2022 [9][78] Business Line Data and Key Metrics Changes - PlainsCapital Bank generated $58 million in pretax income with a return on average assets of 1.3%, although pretax income was down year-over-year due to changes in provision expense [75] - HilltopSecurities generated pre-tax income of $19.8 million on net revenues of $107 million, an increase of 13% compared to Q4 2021, primarily driven by fixed income services [76] - PrimeLending experienced a loss before taxes of approximately $26 million on $2 billion of originated volume, driven by a 59% decline in volume and a 151 basis point reduction in gain on sale margin [55] Market Data and Key Metrics Changes - Average total deposits decreased by approximately $1 billion or 8% year-over-year, with a decline in average deposits of $270 million or 2% quarter-over-quarter [33][54] - Purchase mortgage volumes decreased by $1.7 billion or 47%, and refinanced volumes decreased by $1.3 billion or 90% compared to the prior year [31] - The competitive environment for liquidity is expected to drive deposit rates higher throughout 2023, impacting net interest income [13][26] Company Strategy and Development Direction - The company is focused on enhancing productivity and expense efficiency across all business lines, particularly in mortgage operations, to align with current market conditions [7] - Hilltop aims to maintain a solid financial foundation with a strong balance sheet and ample liquidity, allowing for investment in business and resilience through economic cycles [77] - The company plans to continue evaluating its business on a weekly and quarterly basis to adapt to production trends and market conditions [85] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2023, citing a solid foundation and strong leadership across Texas, despite acknowledging challenges in the mortgage market [5][57] - The management anticipates continued pressure on the mortgage segment due to rising interest rates and inflation, but expects to reach breakeven or profitability in the second half of the year [86] - The company is closely monitoring credit quality, with no significant signs of deterioration currently, but remains cautious due to economic uncertainties [5][9] Other Important Information - Hilltop returned $485 million to shareholders through dividends and share repurchase efforts, repurchasing approximately 19% of the shares outstanding [56] - The company declared a quarterly cash dividend of $0.16 per common share, a 7% increase from the prior quarter, and authorized a new stock repurchase program of $75 million [56] Q&A Session Summary Question: Steps taken to reduce the cost base in the Mortgage segment - Management indicated ongoing vigilance around cost management and rightsizing the business to drive profitability, with significant reductions in non-originator headcount [14][16] Question: Trajectory for margin trends - Management expects modest improvements in net interest income and net interest margin through the first half of 2023, with potential moderation in the second half due to competitive pressures [38][68] Question: Credit metrics and loan segments under review - Management is closely monitoring the entire loan portfolio, particularly floating rate loans and segments like office and hotel portfolios, due to the impact of rising interest rates [93][94] Question: Deposit guidance and balance sheet size - Management anticipates average deposits to decline by 4% to 8% for the year, with expectations that the overall size of the balance sheet will remain similar year-on-year [95]