Hilltop Holdings Inc (HTH) 2025 Q3 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Hilltop Holdings Third quarter 2025 earnings conference call and webcast (Operator Instruction).

I would now like to turn the conference over to Matt Dunn. Please go ahead.

Thank you. Before we get started, please note that certain statements during today's presentation that are not statements of historical fact, including statements concerning such items as our outlook, business strategy, future plans, financial condition. Credit risks and trends in credit, allowance for credit losses, liquidity and sources of funding costs, dividends, stock repurchases, subsequent events and impacts of interest rate changes, as well as such other items referenced in the preface of our presentation are forward-looking statements.

These statements are based on management's current expectations concerning future events that by their nature are subject to risks and uncertainties.

Our actual results, capital, liquidity, and financial condition may differ materially from these statements due to a variety of factors, including the precautionary statements referenced in the preface of our presentation and those included in our most recent annual and quarterly reports filed with the SEC.

Please note that the information presented is preliminary and based upon data available at this time, except to the extent required by law, we expressly disclaim any obligation to update earlier statements as a result of new information.

Additionally, this presentation includes certain non-GAAP measures including tangible common equity and tangible book value per share. The reconciliation of these measures to the nearest GAAP measure may be found in the appendix to this presentation, which is posted on our website at ir.

Hilltop.com. I will now turn the presentation over to Jeremy Ford.

Thank you, Matt, and good morning.

For the third quarter, Hilltop reported net income of approximately $46 million or $0.74 per diluted share. Return on average assets for the period was 1.2%, and return on average equity was 8.35%. To summarize the quarter, Plains Capital Bank realized a continued expansion in net interest margin while generating strong growth in both core loan and deposit balances.

Prime lending's results reflect a dampened summer home buying market where both volumes and margins remained under pressure, and Hilltop Securities produced a strong pre-tax margin from robust net revenue growth across all four of its business lines.

Speaking to the results of each operating business in the Third quarter.

Plains Capital Bank generated $55 million of pre-tax income on $12.6 billion of average assets, which resulted in a return on average assets of 1.34%. Net interest margin at the bank increased by 7 basis points as we continue to actively manage down the cost of interest-bearing deposits. Loan yields at the bank increased 4 basis points on a lean quarter basis as the portfolio further repriced into a higher rate environment.

Despite the highly competitive market in Texas, the bank produced strong core loan growth and saw a continued expansion within the loan pipeline. We expect competition to remain elevated in the coming quarters as we work to increase our market share and absorb modestly higher anticipated payoffs within the loan portfolio.

Total core deposits within our markets at Plains Capital increased by 6% on a late quarter basis. This growth was partially attributable to seasonal cash inflows from select large balance customers. Further, Plains Capital did return $225 million of broker dealer sweep deposits during the quarter.

Results in the quarter included a $2.6 million dollar reversal of credit losses. This was primarily driven by improvement in asset quality and stronger underlying economic conditions on the collective portfolio.

Will is going to provide further commentary on credit in his prepared remarks.

Overall, the bank showed continued healthy trends in loan growth and pipeline development, core deposit growth and interest expense management, and credit metrics that illustrate the quality of our loan portfolio.

Moving to prime lending, but the company reported a pre-tax loss of $7 million during the quarter. The second quarters subdued mortgage origination volumes persisted into the third quarter as the industry did not experience the increase in home buying activity that typically occurs during the summer months.

Notably, existing home sales across the country reached their lowest level in over 30 years.

While gain on sale margins did increase on a lean quarter basis, this was more than offset by a decline in origination fees.

However, there were positive developments from the quarter as mortgage rates did modestly subside and home inventory saw a further reversion back towards more normalized levels.

Home buyers do continue to face affordability challenges, and we expect heightened competition for mortgage origination volume to keep margins and fee under pressure.

As we enter the seasonally slower fourth and first quarters of the year, we will continue to focus on reducing fixed expenses while recruiting talented mortgage originators in order to restore stand-alone profitability at prime lending.

During the quarter, Hilltop Securities generated pre-tax income of $26.5 million on net revenues of $144.5 million for a pre-tax margin of 18%.

Speaking to the business lines at Hilltop Securities.

Public finance services produced a 28% year over year increase in net revenues as the business continued to realize strong annual increases in both advisory and underwriting fees.

Structured finance net revenues increased by $4 million from the third quarter of 2024, primarily due to a decline in market rates, which increased byside appetite for call protected mortgage products.

In wealth management, net revenues increased by $7 million to $50 million when compared to the third quarter of 2024. The strong year over year increase is due to higher advisory and transaction fee revenue within the retail segment and an increase in stock loan revenues due to wider spreads.

Finally, the fixed income business showed a 13% increase in net revenues on a year over year basis, as industry volumes remained robust within its municipal product segment.

Overall, Hilltop Securities produced a very strong quarter, for both the breadth and depth of offsprings, but then the broker dealer performed well.

Built To Securities continues to invest in core areas of expertise as we leverage our national brand that is built on trust and a long-term focus on serving our clients. Moving to page four.

Hilltop maintains strong capital levels with a common equity tier one capital ratio of 20%. Additionally, tangible book value per share increased over the prior quarter by $0.67 to $31.23.

During the period, we returned $11 million to stockholders through dividends and repurchased 5 $55 million in shares.

Now I'd like to give a brief update on an important transition of the bank's leadership team.

In November, Plains Capital Bank's Chief Credit Officer, Darrell Adams, plans to retire.

Darrell has been with the bank for over 37 years, and his leadership has created the credit culture that we have today. I want to thank Darrell for his partnership and his friendship, as well as his incredible contribution.

Fortunately, the bank has strong debt, so we promoted Brent Randall to become our new Chief Credit Officer. Brent has been with the bank for over 26 years, formerly serving as the Dallas Region Chairman.

Coinciding with this transition, Thomas Ricks, who has been with the bank for over 22 years, will become the new Dallas region Chairman.

This is an exciting time for Plains Capital Bank as we elevate proven leaders from within.

With a solid team in place, we believe that we are poised for continued growth and success while staying true to the bank's legacy and credit culture.

Thank you. I'll now turn the presentation over to Will to discuss our financials in more detail.

Thank you, Jeremy. I'll start on page 5.

As Jeremy noted, for the third quarter of 2025, Hilltop reported consolidated income attributable common stockholders to $45.8 million equating to $0.74 per diluted share.

Quarter's results, including an increase in net interest income supported by growth in commercial loans and the ongoing work to optimize our deposit cost as the Federal Reserve has continued lowering short-term interest rates. In addition, the quarter includes a $2.5 million dollar reversal provision for credit losses and a $1.3 million dollar reduction in the allowance for unfunded reserves, which is reflected in other non-interest expenses.

To discuss the allowance in more detail, I'm moving to page 6.

To allowance for credit losses declined during the quarter by $2.8 million to $95 million resulting in a coverage ratio of ACL to loans HFI of 1.16%. As is noted in the graph, specific reserves increased in the period by $4.7 million.

This increase was offset by an improvement of $5.2 million in the collective reserves, reflecting ongoing upgrades in our portfolio, and a $2 million dollar improvement in the economic scenario outlook, which reflects Moody's September baseline scenario.

While we recognize there's been a flurry of recent credit news in the marketplace.

We continue to monitor the portfolio closely, focusing on areas that we believe may pose future risks to the bank.

While at any point, we could have an idiosyncratic event with an existing client, we do not anticipate any significant systemic risk across the portfolio at this time.

In addition, we have evaluated our loans to non-depository financial institutions, and those total, $195 million or approximately 2.4% of the outstanding loans HFI, excluding loans in our mortgage warehouse lending business at September 30th.

Lastly, as we've stated over time, the allowance for credit losses estimate can be volatile as the computations and assessment include, but are not limited to the following assumptions related to economic activity, inflation, interest rates, employment levels, and specific credit activities within our portfolio.

All of these can be volatile from period to period.

Turn to page seven.

Net interest income in the third quarter equated to $112 million including approximately $600,000 of purchases accounting accretion.

Versus the prior year third quarter, that interest income increased by $7.4 million or 7%, primarily driven by improving deposit costs resulting from our ability to realize higher deposit data levels than previously estimated, coupled with the growth in new higher yielding commercial loans.

During the third quarter, that interest margin increased versus the second quarter of 2025 by 5 basis points to 306 basis points.

The increase in them was largely driven by stability and deposit costs from period to period and improving loan yields, reflecting the positive impact of new business throughout the first three quarters of 2025 and improving margin lending yields at Hilltop Securities.

Our current internal rate outlook anticipates one additional 25 basis point rate cut in 2025, followed by two additional rate reductions in the first half of 2026.

Under this rate scenario, we expect that NII levels will remain relatively stable over the coming quarters with modest downward pressure during the seasonally weaker mortgage reduction period. It typically occurs in the first quarter of 2026.

Additionally, we anticipate that interest-bearing deposit bettas, which have averaged approximately 70% through the current rate cut cycle, will gradually decline but remain above 60% for the duration of the cycle, assuming rate reductions align with our current projections.

Turn to page eight.

Third quarter, average total deposits are approximately $10.5 billion stable with prior year levels. I would note that while average deposit balances are flat year over year, we have intentionally reduced broker dealer sweet deposits held at the bank as they can be deployed through Hilltop Securities broader Sweep program.

These sweet deposits do remain a valuable source of contingent liquidity for hilltop should the need arise.

Over the last year, we have grown bank customer deposits, principally in the interest-bearing products but focusing on providing consistent and competitive prices.

In addition, very pleased with the retention of our non-interest-bearing deposits over the last year and the work that our Treasury Services team continues to do to serve our customers and support the growth in our customer deposit base each day.

Related to deposit rates, both interest-bearing deposit costs and the cost of total deposits remained relatively stable versus the second quarter, 2025 levels.

We do expect the deposit rates will decline further as the timing of the most recent rate reduction caused the rate movements to be executed late in the third quarter.

I'm moving to page nine.

Total non-interest income for the third quarter of 2025 equated to $218 million versus the same period in the prior year. Mortgage revenues declined by $3.4 million as origination volumes were relatively stable with the prior year and gained on sale margins for those loans sold to third parties improved by 8 basis points to 226 basis points.

But we believe revenues and production from the mortgage segment have begun to stabilize at this lower level. We also feel that it remains important to note the ongoing challenges in mortgage banking provide a combination of higher interest rates, home prices, insurance, and taxes remain constrictive to overall market demand.

That said, even in the face of these challenges, we do believe that the overall mortgage market is slowly improving, and we expect that this improvement could continue into 2026.

To that end, the leadership team at Brian Lending is focused on continuing to optimize cost and productivity across the middle and back office functions, growing our client facing sales team across the country, and optimizing our pricing to support profitable growth in the future.

Securities and investment advisory fees, largely represented hilltop securities, experienced solid growth versus the prior year period, driving the growth was significant improvement in public finance, whereby net revenues increased by $8.3 million and growth in structured finance and wealth management, in which each business grew net revenues by approximately $5 million versus the third quarter of 2024.

Structural finance benefited from improved secondary margins, while wealth management has experienced consistent growth over the last year.

Turn to page 10.

Non-interest expenses increased from the same period in the prior year by $7.6 million to $272 million. The increase in expenses versus the prior year third quarter was driven by increases in variable compensation, largely related to higher non-interest revenue production at the broker dealer.

Looking forward, we expected expenses other than variable compensation will remain relatively stable at current levels as we remain diligently focused on prudent growth of revenue producers are continuing to gain efficiencies across our middle and back office functions.

On page 11.

Third quarter, average HFI loans equated to $8.1 billion. On a period ending basis, HFI loans increased versus the second quarter, 2025 by $166 million driven largely by new origination volume and the funding of prior commitments in commercial real estate.

On an ending balance basis, loans have grown versus the third quarter of 2024 by $248 million or 3.1%. Again, largely driven by growth across our commercial real estate products of 8% or $338 million.

In addition, commercial lending pipelines continue to expand during the 3rd quarter, increasing by over $750 million versus the second quarter of 2025.

All this remains a positive trend. The market for funded loans remains intense with competitive pressures coming from both pricing and structure.

In the face of this competition, our leadership team remains diligent in maintaining our conservative credit culture and adhering to our credit policies.

Based on performance year-to-date, coupled with our current pipeline and expectation for payoffs during the 4th quarter, we expect full year average total loans to increase 0 to 2% from 2024 levels, excluding mortgage warehouse lending and any retained mortgages from prime lending.

Turn to page 12.

Starting in the upper right chart, NPA levels have declined from the second quarter of 2025 by $5.3 million to $76.5 million and continues to reflect generally positive trends in our health for investment loan portfolio.

Moving to the bottom left chart, and that charge-offs for the quarter equated to $282,000 or one basis point of the overall loan portfolio.

As I remarked earlier, we do not anticipate any systemic exposures across our portfolio. We remain vigilant in our assessment of risk and negative credit migration and are focused on early detection and aggressive workout when necessary.

As is shown in the graph at the bottom right of the page, the allowance for credit loss coverage at the bank ended the third quarter at 1.2%, including mortgage warehouse lending.

I'm moving to page 13.

As we move into the 4th quarter of 2025, there continues to be a lot of uncertainty in the market regarding interest rates, inflation, and the overall health of the economy.

Given these uncertainties, we remain focused on controlling what we can to produce quality outcomes for our clients, associates, and the communities we serve.

As is noted in the table, our current outlook for 2025 reflects our current assessment of the economy and the markets where we participate.

Further, as the market changes and we adjust our business to respond, we will provide updates to our Outlook on our future quarterly calls.

Operator, that concludes our prepared comments and we'll turn the call back to you for the Q&A section of the call.

(Operator Instruction) Michael Rose, Raymond James.

Hey, good morning, guys. Thanks for taking my questions. Well, just wanted to start on the NII guide. I was a little surprised to see that it wasn't increased, because it would imply, I think, a pretty decent step down in margin in the 4th quarter and maybe some earning asset contraction, maybe if you can just kind of discuss the near term puts and takes and you know if I'm missing anything, thanks.

Thanks for the question. A few things going on. We are and remain, asset sensitive, on the balance sheet certainly from an NII perspective. And as we noted, we do have additional, an additional rate cut in the 4th quarter expected. Also, we are, we've kind of gone through our balance outlook and we didn't increase our Our overall loan growth profile either, largely based on again what we're seeing in terms of production but also what we're expecting in terms of pay down. So that's part of it. The other part that kind of comes into play there is when we do get a a Federal Reserve rate reduction, we have the immediate step-down impact of both our cash level balances which will remain well over a billion dollars as well as the adjustable rate. Loan portfolio. So that step occurs almost immediately while again the deposit data of activity and reductions blend yourself in over time just as we saw here during the third quarter. So those are all the factors that we have in place. We also, we're currently in an interesting spot from a from a loan yield perspective where we've got a pool of loans that are resetting higher. We've got from, that were originated at different points earlier. Years earlier we also have loans that are that, as I just noted, would reset lower from a variable rate comp perspective, given a rate reduction and then we've got new business going on. Our new business, our commercial loans going on the books right now are at about 690 basis points overall total loans and so we continue to feel good about that. But again, the guide really reflects a confluence of a series of, inputs as we evaluate the portfolio going into the balance of the year.

Okay, that's helpful. I appreciate that color, and then maybe just as a follow-up, you guys bought back more stock, this quarter I think we've really seen outside of, some of the accelerator programs you guys have some of the tender offers you guys have done, in the past, and I know you raised the buyback potential. Are you trying to signal that, buybacks are going to be more. Leaned into a little bit more here. I mean, it would make sense given where the stock is trading and how much capital you have, and then, separately, Jeremy, if you can just discuss kind of the M&A outlook, for you guys, we've seen a couple of deals, here in Texas as of late. I know you guys look at a lot of things, so we just love an update on both those areas. Thanks.

Okay, thanks. So yeah, I think that's correct, as from where we're trading right now, and given our excess capital position, we are trying to be, more, consistent with our share repurchases, and so that's why we, have done what we've done this year, which we're happy about and also why we've asked for the increase in authorization.

On the M&A front, we've really seen, as everybody knows, a lot of out of market entrants into Texas, which seems to be, a targeted growth state for a lot of banks.

And, certainly we're familiar with most of the targets. I would say that we're viewing this as where can we find the opportunity in this dislocation. Both in clients and in bankers, and how do we, use this as a means for us to be able to grow.

Okay helpful maybe just one last one for me.

I know your your auto portfolio is in in rundown mode but we have seen.

Some issues in that sector so I just wanted to address that and I believe you guys, recently showed up in in a credit that was, publicized, as well as having some exposure so we just love any thoughts or color there thanks.

Yeah, I think your point is appropriate for the auto financing.

We ended we ended the year 21 at about $290 million of commitments. That's down to $77 million. So to your point, we've been working our way through that portfolio, as we've noted really almost 18 months ago we did have two autonote clients that we moved into non-accrual, and we've been aggressively working with those customers. To kind of recoup and repay over over time and again continue to continue that workout effort to the day. So we feel like we saw some of the implications early and we were able to kind of get on top of those and so nothing else to reporting kind of any additional incremental exposure there as it relates to the one.

The name you're referring to there where it showed up in a press release there, I think, we would say we've got no direct exposure, lending exposure to that entity.

Okay great thanks for taking my questions guys.

(Operator Instruction) Wood Lay, KBW.

Hey, good morning, guys.

Morning.

Just as a quick follow-up on the auto and maybe specifically those those two relationships on non accrual, is there any exposure to subprime auto there?

I mean they are, yes, in in the regard of of kind of the nature of some of the notes that, our our loans backed by for certain there's certainly some subprime exposure there, but again, through our workout program and through our.

Oversight we're we're kind of monitoring that very closely so we feel like we've got it appropriately reserved and appropriately being managed on a daily basis.

Got it.

Okay, then maybe shifting over to the broker dealer was was a really good fee income quarter there. I think if you look at the broker dealer guidance that implies those fees sort of taking a step back to the to the first quarter, second quarter level, so could maybe you just go into a little more detail on what drove those fees higher in the 3rd quarter and maybe not, maybe what was sort of a. A, one quarter, benefit.

Yeah, I mean, I think we saw very solid activity in our public finance space year on year and have continued to see that. And we also are seeing some improvement in structured finance as well as wealth management. So there's, I'd say there is some recurring nature, but also some episodic items in there that, we wouldn't expect necessarily to to continue in addition with the rate reductions we're seeing, we've talked about this in the past. We are expecting to see. Over time, overall sweep revenues, from those excess sweep deposits to kind of come down. So we're modeling that and monitoring that as well as the pipelines and just business activity we're seeing in the portfolio. So nothing systemic there to say it's going to, meaningfully decline, but the third quarter was a very strong quarter across really all portions of the of the broker dealer which as you've seen and as investors have seen over time, generally you have one or two of the business units there perform well and others maybe not quite as strong, but third quarter really reflected the strength of kind of the business hitting on all cylinders.

Yeah, and then it looks like in that business the efficiency ratio was lower than what it has been in the past couple of quarters. There are any of those expenses getting pushed out of the 4th quarter or was it just lower efficiency businesses driving some of that fee growth?

Yeah, largely mixed. So the pre-tax margin was was 18.3% in the quarter.

That's, up from 13.7% in the prior year. And again, the mix of where some of the business gets done and certainly hilltop Securities can meaningfully impact a pre-tax margin on a quarterly basis and so. Again, all the businesses really had had strong performance, but we can, we can see and expect to see, a reversion back to, I think we've talked about low 10s, 12% to 13% kind of pre-tax margins is a more normal level for that business to operate.

And I agree with Will. I would just say, the efficiency also is coming through with just higher revenue, so our non-com expense was relatively flat, a little bit better, I feel really positive about our public finance business. That's the mainstay of of Hilltop securities. And a lot of work, great team. They've had a really strong year in our municipal advisory business, which has been strong, and we think it will be strong into 2026. And we have a really comprehensive approach in public finance because they have a really strong underwriting team that did have a really good quarter, and then we have a lot of spoke products including asset management that was additive. So everything really came together there. Another point I'd make, and it's kind of been, consistent is our wealth management business is much improved, over several years, and really the increase year over year is due to fees and advisory fees and the work we've done, an advisory level and not just related to the sweep revenue. So we feel positive about that.

Alright, that's really helpful cover, that's it for me thanks for taking my question.

Thanks, Wood, thank you.

(Operator Instruction) (Inaudible).

Hey, good morning, I just had one question, kind of about the broker dealer. Could you maybe remind us about the, primary and secondary effects from the government shutdown that it might have on the broker dealer and all the business line items?

I think like as far as the broker dealers concerned, we haven't had any primary effects of the government shutdown, and Anything of that nature, we, as far as government shutdowns just across the board, we were concerned about some of the SPA processing, but other than that, really, I don't know of anything else that's risen to our attention.

I think that's right. I mean, we've got also in the mortgage space USDA and some of the other agencies there, government agencies that are being impacted, whether it be lower staffing or no staffing at the point, so. That's just a processing implication, in slowing down of processing as it relates to kind of mortgages, the SBA and some of those other groups. But to be clear, our public finance group really focuses on local municipalities and not kind of the federal government in that regard.

Got it.

Thank you.

There are no further questions, ladies and gentlemen. This concludes today's conference call.

Thank you for your participation. You may now disconnect.