Good morning, everyone, and welcome to the Hilltop Holdings 2015 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note that today’s event is being recorded. At this time, I’d like to turn the conference call over to Ms. Isabell Novakov. Ma’am, please go ahead.

Good morning. Joining me on the call this morning are Jeremy Ford, President and CEO of Hilltop Holdings; Alan White, CEO of PlainsCapital Corporation; Darren Parmenter, Principal Financial Officer of Hilltop Holdings; and John Martin, CFO of PlainsCapital Corporation. Before we get started, please note that this presentation and statements made by representatives of Hilltop Holdings, Inc., 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 result, performance, or achievement 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 integration of the operations acquired in SWS merger; our revenue, our liquidity and sources of funding, marketing trends, operations and business. Expectations concerning mortgage loan origination volume, expected losses on covered loans and related reimbursements from the Federal Deposit Insurance Corporation. Expected levels of refinancing as a percentage of total loan origination volume, projected losses on mortgage loans originated, anticipated changes in our revenues or earnings, the effects of government regulation applicable to our operations, the appropriateness of our allowance per loan losses and provision for loan losses, and the collectability of loans and litigation or other plans, objectives, strategies, expectations and intentions, and other statements that are not statements of historical fact, and maybe identified by words such as anticipate, believe, could, estimate, expect, forecast, goal, intend, may, might, plan, probable, project, seek, should, target, view, or would, or the negative of these words and phrases or similar words or phrases. For further discussion of such factors, see the risk factors described in the Hilltop annual report on Form 10-K for the year ended December 31, 2015 and other reports filed with the Securities and Exchange Commission. All forward-looking statements are qualified in their entirety by this cautionary statement. And now, I would like to hand the presentation over to Jeremy Ford.

Thank you, Isabell, and good morning. For the fourth quarter of 2015, net income was $20.7 million or $0.27 per diluted share. For the fourth quarter of 2015 adjusted net income was $33.4 million or $0.34 per diluted share when excluding the transaction and integration-related cost of SWS merger. In connection with the SWS merger, Hilltop incurred $14.4 million in pretax transaction and integration cost in the quarter consisting of $4.9 million in the broker dealer segment and $9.5 million within corporate. For the fourth quarter of 2014, net income was $31.7 million or $0.35 per diluted share. Our ROAA for the quarter were 68 basis points relative to 1.4% in last year. Our ROAE was 4.7% in the quarter relative 8.6% last year. Hilltop's four operating segments reported $49.8 million in pre-tax income where PlainsCapital Bank contributed $34 million, PrimeLending contributed $4 million, Hilltop Securities contributed $4 million, and National Lloyds contributed $7 million. Our common equity increased to $1.7 billion, up $21 million from last quarter. As well we remained well-capitalized with a 12.65% Tier 1 Leverage Ratio and 18.9% total risk based capital ratio. Despite the large integration cost in the quarter, all Hilltop operating subsidiaries had strong and profitable quarter and our core fundamentals of our operating businesses continue to trend positively, particularly in the banking segment. And importantly, in January 2016 our two broker-dealer subsidiary successfully merged into one entity Hilltop Securities. Moving forward. This slide shows the financial summary particularly for the fourth quarter of 2015 in 2015 full year, and I’ll just touch on the highlights. We have solid year of capital generation with $210 million of net income resulting in a 2.09 EPS and a 17.56 book value per share. Our net interest margin declined in the quarter with 3.73% from 4.2% though Q3 2015 had $16.5 million greater accretion of discount on loans. Our assets declined to an $11.9 billion from $12.4 billion, though our loans increased to $5.6 billion from $5.4 billion, and our deposits increased to $7 billion from $6.8 billion. And our credit quality remains sound with a 21 basis point NPA ratio. I’ll now turn the presentation over to Darren Parmenter.

Thank you, Jeremy. Turning to page five, Hilltop Holdings net interest income and margin. Our stated net interest margin declined 47 basis points in the fourth quarter to 3.73% compared to 4.2% in the third quarter. The decline was primarily due to the favorable resolutions of significant loan relationships that increased yields in the third quarter. Increased yields and securities lending business drove 45 basis points increase in other earning assets, offset by a 36 basis points increase in notes payable and other borrowings. The cost of our interest bearing deposits remained flat. For the fourth quarter, the tax equivalent net interest margin for Hilltop was 79 basis points greater due to purchase accounting. Accretion on discounted loans was $19.5 million and the amortization of our premium on acquired securities of $800,000. Hilltop’s net interest margin was adversely affected by the broker-dealer’s securities lending business, with our stated taxable equivalent net interest margin being negatively impacted by 74 basis points. The bank’s net interest margin for the fourth quarter declined to 4.92% from 5.79% in the third quarter. However, it increased 4 basis points before purchase accounting to 3.73%. Moving on to our Hilltop’s noninterest income. Our noninterest income for the fourth quarter was $276.9 million, up approximately 30% over prior year. Net gains from the sale of loans, other mortgage production income and mortgage loan origination fees increased $20.9 million. Investment advisory fees and commissions increased $36.9 million or 107.9%, this was primarily due to the SWS merger. Our net insurance premiums earned decreased slightly to $41 million in the quarter. Hilltop Holdings' noninterest expense – our noninterest expense was $338.7 million in the fourth quarter, up 37.3% from prior year. Compensation increased $49 million or 36.8%, this was primarily due to the SWS merger and the increased mortgage…

Thank you, Darren. I have the opportunity here to talk about the fourth operating companies. PlainsCapital Bank in the fourth quarter had a return on assets of 1.07% driven by a strong net interest margin of 4.92%. After you take the accretion it’s 3.73%, we've been able to hold that interest margin in that level for the six quarters, which I think very good. Our non-covered held for investment loans excluding our margin loans grew 22% in the fourth quarter, 9% on an annualized basis for us this year which we felt very good about. And we have a favorable pipeline with $1.7 billion in unused commitments. Our non-interest bearing deposits continue to increase to 32.2% of total deposits in quarter four and that’s compared to 31.9% in quarter three. Our credit quality remains very strong, our NPAs declined to $25.4 million and we’re proud of our credit quality. Our energy exposure declined to 3.6%, down $15 million in quarter four from 4% at quarter three. Energy portfolio declined a $137 million in 2015, right now we have 4.4% reserved on energy portfolio, though only 16.3% of our energy loans are classified. We’re operating 67 branches, continue to divest non-core and non-profitable branches acquired during the FNB transaction while opening new branches at attractive markets. We just opened Houston headquarter branch in December. We’ve hired a new market president which we’re very excited about, [indiscernible] Houston, came from a competing bank and we hope to be able to build our franchise in that market using his contacts and his abilities. So the bank strong net interest margin, it has strong growth, we’ve got strong loan quality and our energy portfolio continues to come down. So we’re positioned well there. PrimeLending had a very profitable quarter, driven by increased volume of…

Thank you, Alan. My comments begin on page 11. As Alan and Jeremy have said, we were very pleased with our fourth quarter results in banking segment where we had pre-tax income of $34 million compared to $41 million in the fourth quarter of 2014. Higher net interest income was offset by lower non-interest income in higher non-interest expense. The increase in net interest income resulted from non-covered loan growth and higher accretion. Noninterest income was down compared to 2014 as a result of claim in ORE income or income we earned on ORE properties we own and lower service charge and fees resulting from the closure of branches in South Texas. The bank’s efficiency ratio was 56$ for 2015. Our total loans at Hilltop were $5.6 billion and roughly 39% of that construction and – excuse me, is commercial and industrial and 47% real estate and 13% construction and development. Deposits at the end of the quarter were $7 billion, 32% of those were non-interest bearing deposits. Going to page 12, we’ll take a look at our energy exposure. At the end of 2015 we had a $180 million in energy loans and that was down $15 million in the quarter. The composition of those loans were exploration in production with 19%, services 44% transportation and distribution 32% and others 5%. Our energy loans represent 3.6% over total loans and we have unimpaired energy reserves of $7.3 million at the end of the quarter. Turning to page 13, we’d look at our credit quality and capital ratios, our credit quality is good as Alan mentioned a moment ago where we have $25 million in non-performing assets and that’s down from the previous quarter. Our capital ratios continue to reflect the excess capital that we hold at the bank, we…

Okay, thank you very much, John and I’ll discuss Hilltop Securities. I’d like to remind you that fourth quarter 2015 includes the operations of SWS, so prior year only includes First Southwest. Hilltop Securities of pretax income was $3.7 million in the quarter, which showed continued improvement in profitability since the SWS merger. In the quarter included $4.9 million of SWS integration related costs. After adjusting for such costs, the pretax income was $8.6 million for Hilltop Securities. Our public finance was very strong with investment banking and advisory fees increasing 4% over prior year to $28 million. And our public housing business was very strong and had fair value changes on derivatives that provided a net gain of $13 million for the quarter. On our non-interest expense, excuse me, was $96 million and in that included to $4.5 million litigation reserve on one specific case for legacy SWS. And our broker-dealer segment provided the banking segment with a $145 million core deposit, which represents 38% of the total FDIC insured sweet balances. Moving forward to National Lloyd. National Lloyds have pretax income of $7 million a quarter relative to $12 million in the prior year. And our written premium policies and force as continue to decline and we remain focused on profitability in our core products. Notably there was severe weather in North Texas in late December that drove our loss ratio to 52.8% compared to 43.7% in the prior year. And that concludes our prepared remarks.

Ladies and gentlemen, at this time we’ll begin that question-and-answer session. [Operator Instructions] And our first question comes from Brady Gailey from KBW. Please go ahead with your question.

Hey good morning guys.

Great.

So if you look at the mortgage group their expenses there are a little higher than I would have thought relative to the revenue. The efficiency ratio was higher than last quarter. Was there anything notable in the mortgage expense line?

Brady, we actually increased the expense back in the third quarter because of volumes and we knew that volumes can drop off in the fourth quarter but we didn’t feel like that we are to go and carry bunch of bodies out there, because we knew it hit back up and you just don’t want to run them in and run them out. So our volumes were down in the fourth quarter and our expenses were up, so, and it should pay off in the first quarter.

Okay. And then the $4.5 million litigation charge, is that something that you all consider one time or do you think that that could possibly be a recurring expense throughout 2016?

That $4.5 million is a onetime item. It involves a case that’s then with legacy SWS for several years and so we continue to fund it regulatory, we don’t think that has merit. It involves their retail brokerage segment.

Okay, all right great. And then any update on M&A in Texas on the bank side, it’s seems like a lot of the smaller community banks in Texas are stocks you’re really trading down, you guys still have a decent amount of excess capital. Are you interested in printing a deal in the near term or do you think that you have to wait and let this cycle play out a little bit longer before you seriously look at announcing of acquisition in Texas?

Well I think it’s the same thing as we said last quarter, we’re actively pursuing opportunities as always and we look situational opportunities. And so I don’t think there is anything that or preclude us from doing anything at this time.

All right. And then lastly, you guys are not a big energy lender but you are in Texas. Can you give us just an update on kind of economic health that you’re seeing in the state, are you seeing any signs of real weakness or does it still generally feel pretty good?

You’ve seen weakness in Houston and obviously in the energy sector in Houston. When we look at our portfolio, our overall portfolio and we watch it and we watch in the trends, we have not seen any trends downward, and we had not seen any softening at this point. It’s not to say that there won’t be or not, we watching it but the Houston market is the only that we see right now that has had some negative impact that’s trickled on beyond oil and gas but our other markets are strong and we do not – we’ve had not experienced that.

All right, thanks guys.

Thank you.

Our next question comes from Matthew Olney from Stephens, Inc. Please go ahead with your question.

Hi, thanks good morning guys.

Hi Matt.

What else can you tell us about the updated Houston strategy now that you’ve hired a new market president, and also remind us of your loan exposure within Houston, what is this consist of, is it marked or covered from the previous acquisition? Thanks.

We have a $134 million of loans in Houston. Approximately half of those are amortizing real estate notes of which part of that is from the acquisition supported from what we made. The rest of that will be construction or C&I type lending and we’ve been experiencing problems. We’ve hired a gentlemen that’s come with really the [indiscernible] January, he was the head [indiscernible] for a major banking in the Houston market, he has grown up in the Houston market. He has substantial experience within that market, he knows lots of people and we’re excited to having that. We know that you’ve got to be careful but we think it’s a perfect opportunity and time to go in there because there is going to be people they’re going to be balanced around. The customers are going to be balanced around and there is going to be loan officers and executives that we might be able to grab up because they might not want to be part of it. Since we’re not fighting rocks and getting them off or lagging because of the energy loans, we think that might be a good opportunity for us. So we think it’s a good time to enter, we think we were forcing that when we down there and, because we didn’t do a good job when we went down there but I think god was looking over us, so we didn’t make a bunch of bad loans, and we don’t have a lot of loans. So now is a good time for us to start and we think this gentlemen is the right guy for us to lead our chart.

Okay, thanks Alan. And it sounds like it was strategically slow – strategic to slow the securities lending business in the fourth quarter. What else can you tell us about why this was the strategy and what’s the long-term strategy in that business?

Sorry, can you…

Yeah, can you speak up Matt, we can’t hear you very well.

I’m sorry. I think you said on the call that you intentionally slowed securities lending business in the fourth quarter.

Well okay, yeah. If you see the broker-dealer and clearing odd receivables declined by I think around $750 million. And part of that, and so we reduced the balances on that and those are on the easy to borrow stocks which have low margin. And a lot of that was to ensure we had ample liquidity when we were merging the two broker dealers in January and moving balances over. So, a lot of that was related to that and I think in the future this is probably on the low side of where we’re – of where that balance would be but I don’t know if we would take it back up to $2 billion plus where it was.

Okay. And then John, on the purchase accounting accretion, I believe you’ve been saying $15 million to $20 million per quarter has been the outlook. Any change to that outlook near term?

I would say it’d stay around the lower end of that range during the year.

Okay. And then lastly as far as mortgage volumes in the first quarter thus far seems some lower mortgage rates, any benefit you’re seeing so far from PrimeLending versus what you expected a few months ago?

Yeah. Yeah a lot, you don’t expect the first quarter to be good. The team here once said you can only imagine everybody refinancing again, so it’s been favorable.

So strong refi, has it also been reflected in the purchase volumes as well Alan?

Well, purchase volumes first quarter are not strong, they don’t really start with the second quarter. And at the end of the first quarter, second quarter what’s really strong right now is refi, and that’s what we’re seeing. Mostly [indiscernible] gets going but right now the strong part of it is refi.

Okay, thank you.

Thank you.

Our next question comes from Michael Young from SunTrust. Please go ahead with your question.

Hi good morning guys.

Hi Michael.

Jeremy, I had a specific question on the broker-dealer segment, you already kind of hit the 8% pretax margin contribution that you targeted for fourth quarter of 2016. I know the public finance volumes were strong but can you just give us an outlook on how you expect that to trend throughout the year and any update on kind of your target where we get to 10% earlier that sort of thing?

Well, I think that what you saw in the fourth quarter and typically the public finance business is pretty strong in the fourth quarter, but they had an exceptionally strong quarter as well as our structure finance group. And I think the reason why if you breakout – back out the integration cost the reason why the pretax margin was higher because we had annualized net revenue, where we had a $100 million of net revenue which annualized to $400 million and our prior discussions are around $350 million, so that’s just kind of getting the leverage to the bottom line. I’d still be cautious and kind of go back to what I said in the last quarter which is we expect around and hopefully more than $350 million in net revenue and that we will phase in about $20 million of cost base and get to high single digit 8% plus pretax margin by the fourth quarter.

Okay, great. And Alan, switching gears a little bit just in the quarter it looked like the PrimeLending market share was down a little bit based on the NBA forecast. Anything related to trade or geographic product mix that kind of drove that?

That all has to do with the volume and markets, but volumes are down in the quarter that’s how we dropped down to $117 million, but it’ll come back up we’re confident to that. So we do very good about it, I think we had a better fourth quarter than what we thought. As far as trade we have not had any issues or problems, I can’t say that for a lot of other people but we have not having problems, we deal with it properly and our people has done a great job. A lot of the smaller mortgage companies are still struggling, we do mortgage parts of the business too and a lot of the people we do business with are struggling with trade, but our people did a great job and we’ve had no problem.

Okay, great. Right, and I guess last one from me, just on the Durbin impact and interchange revenue, do you have any sort of feel for how much that might impact your business?

Yeah, right now we’re thinking that 2016 would be about $1.5 million.

Okay, is that a – that’s full year 2016?

Yes.

Okay.

Well that’s full year because it’s going to come in with huge, so that was for the year.

Okay, thank you. That’s all from me.

And our final question today comes from Brett Rabatin from Piper Jaffray. Please go ahead with your question.

Hi, good morning everyone. Wanted to go back to insurance and just make sure, will there be any spillover effect from the storm activity late in the 4Q, does any of that affect the first quarter results?

I don’t think so. I mean what you do and what we’ve done is we’ve tried to capture a reserve for the storm both on the case in IBNR basis. IBRN is essentially brought the estimate of development on the storm. And so we put that storm at about $6.8 million and we haven’t seen a lot of [indiscernible] on its sense. So we have seen a lot of development, so I think that should be contained in the fourth quarter.

Okay. And then just wanted to go back to the broker-dealer and for your comments Jeremy about expectations for 2016 versus the fourth quarter of 2015, and it sounds like you’re somewhat cautious on expecting the revenue to really ramp from here and I know fourth quarter is usually a little bit strong, but is there anything else that you’re seeing from a market activity perspective that is giving you some hesitancy to expect the fourth quarter to continue?

Well first just…

And then within…

Yeah, no the seasonality of the public finance business is very heavy in the fourth quarter. Although the fourth quarter that Hilltop Securities had this year was exceptional. So I just, it’s more Brett of being cautious and I think that’s now that we’ve got these broker-dealers, the merger down, we got a great management team. I think we – the focuses on revenue growth and that’s been a goal.

Okay, all right. I think you mentioned $63 million of expenses with that business, just if you try and give an update on what that runs down to in your guy’s view?

I’m sorry?

I think you mentioned $63 million of expenses.

Oh, in Hilltop Securities?

Right.

Are you talking about the percent or I don’t – I’m not recognizing $63 million.

I guess I’m just trying to – you talked about the revenue, I guess I’m just trying to make sure I understand what the expense opportunity might be for continued improvement on that front.

Okay. Well I was just trying to be consistent with the prior quarter where I said was with the run rate of around $350 million of net revenue and year-to-date through the third quarter had a pretax margin of around 2% and we’re expecting it to get to 8%, but 6% on $350 million, $20 million is the cost savings opportunity that we’re trying to realize, and that’s all, we’ve had the expense [indiscernible] but kind of getting there.

Okay. And then just back on M&A, can you talk maybe about – what’s seem to me that Hilltop would be uniquely positioned to distressed M&A in Texas. Can you maybe talk about that, are you seeing any of that in Houston and what would that be the primary market you’re looking at?

I think Texas is where we want to target and Houston is certainly an area that we like to grow. And it’s just – I think it’s kind of a question of there have been ask and expectations. I think that there is public markets have really sold off but I don’t think that there has been a lot of real charge-off paying that’s gone through the system yet.

Okay, and then just one last one, the loan pipeline, $1.7 billion I guess Alan, can you talk maybe about expectations for loan growth this year, is it double digit, can you maybe give a little color on that?

I think what we’re projecting is 8% to 10% organic growth in 2016, we were about 9% in 2015 and of course we had a big quarter in the fourth quarter which carried over. So, I’m going to say 8% to 10%.

Okay, great, fair enough. Thanks for the color.

Thanks, Brett.

And we do have an additional question from Michael Young from SunTrust.

Hey guys, just wanted to take the capital question from the other angle and just if you’re not seeing a lot of potential conversations yet, is there any interest in deploying some of the excess capital in the interim given the sale off in the public markets buyback or even just increasing the dividend? Thanks.

We don’t have a dividend so that’s…

I’m sorry, yeah.

But, I think that we are certainly aware of that and we are evaluating it and we don’t have anything now at this time but it’s definitely very much on our mind.

Okay, thanks.

And ladies and gentlemen, with that we’ll close today’s conference call. We do thank you for attending today’s presentation. You may now disconnect your telephone lines.