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2018 Annual Report, Notice of 2019 Annual Meeting & Proxy Statement

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2018 Annual Report, Notice of 2019 Annual Meeting & Proxy Statement 2018 Annual Report, Notice of 2019 Annual Meeting & Proxy Statement To Our Stockholders, Customers and Employees: 2018 was a pivotal year for Hilltop, as we took large strides to position our franchise for the future, while facing certain industry headwinds. Demonstrating our long-term commitment, we made significant investments in our company and launched multiple, coordinated initiatives that we believe will make us more competitive and efficient. As well, we consummated a strategic acquisition that provides the bank with critical scale in all major Texas markets. Our financial results declined due to challenging conditions in our mortgage and broker-dealer businesses. The bank, our cornerstone business, however, had a solid year that enabled Hilltop to generate consolidated net income of $126 million in 2018 and illustrates the strength of our diversified business model. Because of the profitability generated by each of our operating companies, Hilltop was able to return $86 million of earnings to stockholders via dividends and share repurchases in 2018. This was in addition to the capital deployed through the $85 million acquisition of The Bank of River Oaks. We remain focused on maintaining an enduring balance sheet, while preserving excess capital to deploy via bank acquisitions. In concert with our stated goal of acquisitive growth, Hilltop also launched Hilltop Opportunity Partners in 2018. This merchant banking platform provides Hilltop the ability to identify and execute on non-bank investments through an in-house team with requisite expertise. Our prudent, long-term oriented capital management will allow us to continue to seek out attractive opportunities for both organic and acquisitive growth alongside our dividend and share repurchase programs. To expand on The Bank of River Oaks transaction, this past year we announced and completed our all-cash acquisition of the high quality institution. The combination was franchise enhancing, as it more than doubled our banking presence in Houston, a key Texas market where PlainsCapital Bank lacked sufficient scale. Further, The Bank of River Oaks provides a healthy foundation for growth from its experienced management team and strong commercial relationships. We have worked hard to accomplish a seamless integration of both operations and cultures. Although the transaction recently closed in August, results have thus far exceeded expectations and put us on a projected growth trajectory in the Houston market. We welcome The Bank of River Oaks employees and clients to our Hilltop family. Operating Companies: PlainsCapital Bank had a prosperous year and delivered pre-tax income of $152.4 million, driven by loan and deposit growth, net interest margin expansion and sound credit quality. The bank offers commercial banking, personal banking and wealth management products and services throughout Texas and ended the year with $10.0 billion of assets, $8.2 billion of deposits and 64 branches. PlainsCapital continues to focus on providing best in class service to our middle market business customers and individual retail customers. The credit quality at the bank evidences a measured approach to profitable growth and a long-term focus on relationship-based lending. The bank takes pride in its Texas roots and serves clients with integrity and respect, and will continue to do so for many years to come. During 2018, the bank grew loans by 8%, delivered a net interest margin of 4.23% and reported net charge-offs of only 0.14%. PrimeLending is a nationwide mortgage originator operating 300 retail locations in 44 states. The mortgage industry, as a whole, faced materially increased pressure on both volume and margin in 2018. PrimeLending’s commitment to purchase mortgage originations, however, again proved to be a resilient strategy as the company outperformed many of its peers. Additionally, PrimeLending quickly adapted to the challenged marketplace and sustained profitability by maintaining pricing discipline, generating additional fee income and reducing its expense base. In 2018, PrimeLending originated $13.7 billion mortgage loans, 86% of which were home purchase loans, and contributed pre-tax income of $12.9 million. HilltopSecurities provides a broad range of investment banking and related financial services to corporate clients, individual and institutional investors, broker-dealers, government entities and financial intermediaries. In the third year of integrated operations as one company, our institutional businesses were adversely impacted by a decline in nationwide municipal issuances, tighter fixed income spreads and intense competition. Our retail and clearing businesses, however, benefited from the rise in short- term rates. Despite these challenges, HilltopSecurities delivered meaningful pre-tax income of $32.6 million in 2018 on net revenue of $352.6 million. Importantly, we recently announced the hiring of Brad Winges as the new President and CEO of HilltopSecurities. Brad succeeds Hill Feinberg, who remains with the company. We are extremely grateful for the momentous contribution Hill has made to build HilltopSecurities into the quality organization it is today, as well as for the contribution Hill will be making to support its continued growth. Likewise, we are very excited to have Brad join the Hilltop family, as he is a high caliber leader with deep expertise in our core businesses. We look forward to working with Brad and the HilltopSecurities team to advance the capabilities of our firm. National Lloyds is a niche property and casualty underwriter offering primarily fire and limited homeowners insurance for low value dwellings and manufactured homes in Texas, Arizona and other southern states. In 2018, we relocated National Lloyds’ headquarters from Waco to Dallas, which enabled us to enhance talent, modernize our platform and focus on revenue growth in our core states. Despite facing high storm frequency and severity in Texas and Arizona, in addition to the devastation brought by Hurricane Michael in Georgia, National Lloyds delivered pre-tax income of $5.7 million in 2018. We are extremely grateful for the execution by our devoted employees during this transitional year. As introduced in 2018, we are currently executing on a broad set of initiatives to enhance our platform and streamline operations with the goals of lowering operating costs and building a foundation for future organic and acquisitive growth. At multiple businesses, we are investing in core systems to enhance customer experience, increase the effectiveness of our sales teams and better manage risk. We also are implementing integrated procurement and travel platforms to better leverage our collective scale with third-party vendors. As well, we are instituting a shared services model of our functional departments across the organization to better pool and utilize our talent and resources. Ultimately, we believe the long-term benefit of these initiatives will drive positive operating leverage through a combination of expense reduction and revenue augmentation. Substantial progress has already been made, and we feel confident in the roadmap ahead. Finally, I would like to give a heartfelt thank you to our former Vice Chairman and Co-CEO Alan White for his outstanding leadership over the past 31 years. Alan retired on April 1st and leaves behind a lasting legacy of building relationships and a commitment to our distinct culture. In 1988, Alan founded PlainsCapital Bank with one branch in Lubbock, Texas and $160 million in assets. Because of his steadfast commitment, Hilltop had $13.5 billion in assets with four complementary businesses and 5,100 dedicated employees at March 31, 2019. Alan has been a great partner, dear friend and mentor to me and so many others in our organization. We wish him well in his retirement. I am extremely proud of our organization and believe we are well positioned for the future. We have a solid holding company with leadership capable of executing our platform for efficiency and growth initiatives. As well, we have established businesses with quality producers that can continue to provide growth across our franchise. On behalf of the Hilltop family, I’d like to thank our clients for their trust in us to deliver best in class service, our regulators for their guidance, our Board of Directors for their stewardship, and our stockholders for their continued support. 2018 was a foundation building year for Hilltop, and we look forward to executing on our strategic plans in 2019 and beyond. Sincerely, Jeremy B. Ford President & Chief Executive Officer Hilltop Holdings Inc. May 30, 2019 (This page has been left blank intentionally.) Hilltop Holdings Inc. 2323 Victory Avenue, Suite 1400 Dallas, Texas 75219 Tel: 214.855.2177 Fax: 214.855.2173 www.hilltop-holdings.com NYSE: HTH NOTICE OF 2019 ANNUAL MEETING AND PROXY STATEMENT April 30, 2019 You are cordially invited to attend our 2019 Annual Meeting of Stockholders at 10:00 a.m., Dallas, Texas, local time, on July 25, 2019. The meeting will be held at the offices of Haynes and Boone, LLP at 2323 Victory Avenue, 7th Floor, Dallas, Texas 75219. This booklet includes the formal notice of the meeting and our Proxy Statement. The Proxy Statement tells you about the matters to be addressed, and the procedures for voting, at the meeting. YOUR VOTE IS VERY IMPORTANT. Even if you only have a few shares, we want your shares to be represented. If your shares are held in a brokerage account, your broker does not have discretion to vote on your behalf with respect to electing directors or certain other non-routine matters. Accordingly, you must provide specific voting instructions to your broker in order to vote. Please vote promptly in order to ensure that your shares are represented at the meeting. The Notice of Internet Availability of Proxy Materials or this Proxy Statement and the accompanying proxy card, as applicable, Notice of 2019 Annual Meeting of Stockholders and annual report for the year ended December 31, 2018 will be provided to stockholders of record on or about June 13, 2019.
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