Hilltop Holdings Inc (HTH) 2025 Q4 法說會逐字稿

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

This call is being recorded on Friday, January 30, 2026. And I would now like to turn the conference over to Mr. Matt Dunn. Thank you. 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, 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 certain 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. A 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. Before we review the results for the fourth quarter, I would like to spend time discussing the full year 2025. From a macro perspective, we saw a continued decline in short-term interest rates as the FOMC cut their target rate 3 times totaling 75 basis points. The yield curve realized a further steepening through the year as long-term interest rates namely the 10-year treasury note remained range bound between 4% and 4.5%.

Hilltop, akin to many of our banking peers, has benefited from the increased slope of the yield curve by realizing an increase in net interest income and net interest margin. Specifically, at PlainsCapital Bank, a proactive management of deposit costs has helped to increase NIM by 12 basis points when compared to the prior year.

At PrimeLending, the combination of further expense optimization and a tightening in the spread between the going on mortgage rates and the 10-year treasury note helped to shrink the operating losses for the year 2025. However, the material headwinds of challenging affordability, low new home inventory and increased ownership expenses continued to weigh on industry volumes and margins.

Hilltop Securities through strong execution in our core competencies was able to produce a 13.5% pretax margin on net revenue of $501 million. Finally, Hilltop returned $229 million to stockholders through the repurchase of shares and common dividends while delivering $166 million of net income, which represents a 46% increase over the prior year. I would like to thank our colleagues throughout Hilltop for their hard work and dedication in 2025.

Moving to the fourth quarter. Hilltop reported net income of approximately $42 million or $0.69 per diluted share. Return on average assets for the period was 1.1% and return on average equity was 7.6%. To summarize our lines of businesses, PlainsCapital Bank realized a further expansion in net interest margin while continuing to see strong signs of core loan growth from a robust pipeline. PrimeLending continued to optimize the expense base of the franchise while realizing a healthy seasonally adjusted origination volume of $2.4 billion, and HilltopSecurities saw continued positive results from the wealth management, public finance and structured finance lines of business.

Within the quarter, PlainsCapital Bank generated $43.5 million in pretax income and a 1.05% return on average assets. Net interest margin saw continued expansion to 329 basis points, largely due to the previously mentioned active management of deposit costs.

While competition continues to increase within our markets, the bank has successfully increased lender headcount and continues to show a healthy loan pipeline. These metrics signal the great brand reputation at PlainsCapital Bank where we are known for providing excellent service and value to our banking customers.

Total core deposits within our markets showed further increases which allowed the bank to return an additional $225 million of sweep deposits to our broker dealer. That balance stands now at $100 million, which is down 82% relative to year-end 2024.

Results in the quarter included a $7.9 million provision expense. This was largely due to the stress of -- excuse me, this is largely driven by two stressed auto note credits that we have discussed in prior quarters. Will is going to provide further commentary on credit in his prepared remarks. Overall, the bank continues to show tailwinds from strong loan growth, healthy core funding trends and a positive interest rate environment that supports our expanded net interest margin.

Moving to PrimeLending, where the company reported a pretax loss of $5 million during the fourth quarter. We realized a seasonally healthy start to the winter months from an origination volume perspective as a decline in going on mortgage rates spurred on a modest rebound relative to the various subdued second and third quarters of this year. However, profitability remains challenged as headwinds within the broader mortgage industry continue to weigh on total volumes and margins.

As is typical, we expect for the first quarter of the year to be a seasonally slow home buying environment which should impact PrimeLending's origination volume. During this prolonged mortgage cycle, we have executed on several operational cost reductions at PrimeLending to optimize the business and create a more efficient platform. We will continue to pursue increased levels of efficiency while investing in ways to organically grow production headcount and total origination volumes in order to expand our operating leverage.

During the quarter, HilltopSecurities generated pretax income of $26 million on net revenues of $138 million for a pretax margin of 18%, speaking to the business lines in HilltopSecurities. Public finance services rounded out a very strong year by producing a 20% year-over-year increase in net revenues as they capitalized on increased industry issuance volumes. Structured finance net revenues increased by $2 million versus the fourth quarter of 2024. A decline in trading revenues was offset by a material increase in lock volumes on a year-over-year basis.

In Wealth Management, net revenues increased by 16% to $53 million when compared to the fourth quarter of 2024. The continued healthy results in 2025 are due in part to the growth from our advisory fees on higher managed balances and improved transaction revenues. Further, strength in revenues generated by suite deposits continues to bolster our results. Finally, Fixed Income Services showed a modest increase in net revenues versus the prior year as both sales and trading revenues improved year-over-year.

Overall, Hilltop Securities delivered another strong quarter to round out a favorable year for the firm. We continue to focus on executing on our strategic initiatives as we aim to be a full solution provider to our clients.

Moving to page 4. Hilltop maintained solid capital levels with a common equity Tier 1 capital ratio of 19.7%. Additionally, our tangible book value per share increased over the prior quarter by $0.60 to $31.83. During the period, we returned $11 million to stockholders through dividends and repurchased $61 million in shares.

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 discussed, for the fourth quarter of 2025, Hilltop reported consolidated income attributable to common stockholders, $41.6 million, equating to $0.69 per diluted share. The fourth quarter results include $7.8 million provision for credit loss, which reflects the combined impacts of net charge-offs during the period and a modest deterioration in the economic condition outlook.

Even with higher provision expense versus the prior year, we are pleased with solid growth in net interest income, which grew 7% versus the prior year. Noninterest income, which grew 11% versus the prior year, both of which contributed to a 26% improvement in Hilltop's diluted EPS.

Turning to page 6. For the full year of 2025, Hilltop reported consolidated income attributable to common stockholders of $165.6 million, equating to $2.64 per diluted share, representing growth of 46% and 52% versus the prior year's results, respectively. During the year, total revenues, including both net interest income and noninterest income, increased by 8% to approximately $1.3 billion, while expenses grew by 2%, resulting in positive operating leverage of 6% for the year-end 2025.

I'm moving to page 7. Hilltop's allowance for credit losses decreased during the quarter by $3.6 million to $91.5 million. During the quarter, Hilltop recorded net charge-offs of $11.5 million. Included in these net charge-offs were write-downs of $9.5 million related to 2 large auto note credits that have been referenced on prior calls.

During the fourth quarter, the expected cash flows from the 2 loan portfolios that support these credits declined substantially from prior period estimates. As a result, management decided to mark these assets to the updated fair value thereby recognizing the charge-offs versus building and carrying an outsized allowance against these loans.

Of the net charge-off amount for these auto credits, approximately $5.7 million had been previously reserved. In addition, the allowance for credit losses increased modestly for portfolio migration and some deterioration in the macroeconomic outlook.

At year-end, allowance for credit losses of $91.5 million yields an ACL to total loans HFI ratio of 1.1%. As we've seen over time, ACL can be volatile as it's impacted by economic assumptions as well as changes in the mix and makeup of the credit portfolio. We continue to believe that future changes in the allowance for credit losses will be driven by net loan growth in the portfolio, credit migration trends and changes to the macroeconomic outlook over time.

Turning to page 8. Net interest income in the fourth quarter equated to $112.5 million, which included $1 million of purchase accounting accretion remaining stable -- relatively stable with the prior quarter and increasing by $7 million versus the prior year.

Net interest margin increased versus the fourth quarter of 2024 by 30 basis points to 302 basis points. The improvement in NIM and net interest income continues to be driven by the solid work our bank team is doing on managing deposit costs and growing lower-cost deposits within the bank. Through this portion of the cycle, we've maintained a 68% interest-bearing deposit beta, which has substantially improved versus our previous ALM model results of 50% to 55%.

While the team continues to focus on creating value for our clients, while managing our overall net interest income, we do expect that the interest-bearing deposit beta will fall for 60% to 65% if the Federal Reserve reduces rates, an additional 2 to 3 times during this portion of the rate cycle.

Moving to page 9. Fourth quarter average total deposits are approximately $10.7 billion, declining versus the fourth quarter of 2024 by $233 million. The decline in average deposits was driven by management's decision to return on average $397 million of HTH sweep deposits back to Hilltop securities to be deployed into their FDIC-insured sweep deposit program.

On an ending balance basis, deposits increased by approximately $200 million from the third quarter of 2025, net of the return of sweep deposits of $225 million. The growth in customer deposits was driven by expanded commercial relationships, coupled with positive seasonal deposit trends from our public sector clients at the bank.

As a result of our ongoing pricing efforts, average interest-bearing deposit cost declined to 269 basis points, a decrease of 21 basis points versus third quarter of 2025 levels, which supports a decline in total deposit cost of 2% which were down 44 basis points from the prior year period. Currently, we expect that interest-bearing deposit costs will move somewhat lower over the coming quarters and then stabilize until we see any additional movement by the Federal Reserve on short-term rates.

Moving to page 10. Total noninterest income for the fourth quarter of 2025 equated to $217 million. Fourth quarter mortgage-related income and fees increased by $2.5 million versus the fourth quarter of 2024, driven by improvement in both lock and originated volumes versus the same period in the prior year. While signs of improvement in our mortgage business are emerging, some of the significant macro challenges persist, whereby the combination of higher interest rates, home price inflation, insurance and elevated tax costs continue to pressure volumes and margins versus the same period prior year, purchase mortgage volumes were relatively stable at $1.9 billion and refinance volumes increased by $168 million or 49% versus the prior year period.

During the fourth quarter of 2025, gain on sale margins improved by 19 basis points for loans sold to third parties versus the prior year period. Largely offsetting the higher gain on sale margins were lower mortgage loan origination fees, which declined by 25 basis points versus the prior year, demonstrating that as mortgage interest rates have declined throughout 2025, our customers' desire to buy down their mortgage rate has also diminished.

During the fourth quarter, public finance, wealth management and structured finance business lines within Hilltop Securities all generated higher fee income versus the prior year period. Public finance benefited from higher market debt offerings across our customer base and wealth benefited from the performance in the equity markets, coupled with continued efforts to grow our producer and client base. Structured finance results reflect higher lock volumes from first-time homebuyers across the state housing agencies we support.

Other noninterest income grew by $4.6 million versus the prior year period, largely driven by valuation adjustments and return on certain investments within our merchant banking investment portfolio. As we've noted in the past, it is important to recognize that both the fixed income services and structured finance businesses at HilltopSecurities can be volatile from period to period as they are impacted by interest rates, overall market liquidity and production trends.

I'm turning to page 11. Noninterest expenses increased from the same period in the prior year by $6 million to $269 million. Driving the increase in noninterest expense were higher variable compensation expenses, principally within the mortgage and securities businesses. In addition, compensation expenses were elevated during the fourth quarter of 2025 by $2.4 million of severance-related costs as well as an increase in overall health care cost. Looking forward, we expect expenses other than variable compensation to remain relatively stable between $180 million and $190 million per quarter as our ongoing focused efforts relating to streamlining our operations and improving productivity continue to support lower headcount and improved throughput across our franchise, helping to offset the ongoing inflationary pressures that persist in the market.

Moving to page 12. Fourth quarter average HFI loans equated to $8.2 billion and grew by 1.8% versus the prior quarter. On a period ending basis, HFI loans increased versus the fourth quarter of 2024 by $361 million, driven by growth in commercial real estate lending. While the economy in Texas remains resilient, we do expect the competition for funded loans will remain very intense. As we look forward to 2026, we are expecting the full year average bank loan growth of 4% to 6%, excluding the impact of loans retained from PrimeLending and mortgage warehouse lending.

I'm moving to page 13. As is shown in the chart on the bottom left of the page, net charge-offs for the fourth quarter related to $11.5 million. As noted earlier, the most significant charge-offs in the period related to the 2 auto note finance credits that we've discussed on prior calls, which accounted for $9.5 million of net charge-offs during the quarter.

We previously reserved $5.7 million for these credits. And as a result, the full $9.5 million did not impact provision expense in the period. For the full year of 2025, net charge-offs equated to $16.9 million or 21 basis points of full year average HFI loans.

While we are disappointed by the charge-offs related to the auto credits, we believe that credit quality remains stable across the portfolio and do not currently see any large systemic areas of concern. As is shown on the graph at the bottom right of the page, the allowance for credit loss coverage at the bank ended the fourth quarter at 1.15%, including mortgage warehouse lending.

I'm moving to page 14. As we moved into 2026, there continues to be a lot of uncertainty in the market regarding interest rates, inflation and the overall health of the economy. That said, we provided our current outlook metrics for the coming year. As we've noted in the past, we're pleased with the work that our team has delivered to position our company for long-term success.

Our outlook for 2026 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'll 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 Instructions) Matt Olney, Stephens.

Thanks. Good morning, guys. I'll start on the broker dealer. It looks like those broker-dealer fees were good in the quarter and guidance calls for those to be relatively stable in 2026. I was hoping you could speak to a few of the business lines and expectations for '26? And then, I guess, kind of part two of that, that pretax margin, I think it's been 13.5% over the last two years. Is that a good baseline to assume for 2026? Thanks.

So thanks for the question. I think as we look into 2026, we feel very good about the franchise that is HilltopSecurities and the four primary business lines there. We go through them, public finance had really saw record originations, both in the industry as well as here. And we expect that to remain reasonably strong going into the year 2026, notwithstanding kind of market changes. But our current view is that public finance that business is set up to do well and the investments we've made there continue to bear fruit.

We continue to work diligently on our fixed income services. We've noted over the last couple of quarters and maybe years, that's been a challenging business. It seems to be moderating and producing solid results, again, relative to the investments we've made and expectations. So fixed income services, we're optimistic about.

Wealth Management, as we noted, has benefited from both the overall improved equity market conditions and the continuation of that this year. But we expect that business given again, investments we've made in people, our ability to attract and retain customers as well as some of the technology investments we've made there, that business to continue to improve over time. But it is market dependent based on kind of how the overall markets perform.

And then structured finance, as we've always said, has a -- is directly correlated to first-time homebuyers across the housing agencies we support. We believe there's going to continue to be a robust market for that going forward. But as we've noted in the past, we have seen certain states that have provided support. And that's certainly been helpful for overall origination volume, and we'll see if they continue to provide that support in the future.

And I would just add, we're really pleased with the HilltopSecurities, the year they had this year and last and the great management team, great businesses. And our public finance business, we're celebrating our 80th anniversary this year for it. So that just, I think, is a good indication of what a dominant public finance business we've had for a long time.

And your question on pretax margin, it has been consistently 13.5% for the last couple of years. We've historically guided that's going to be low double digits to low teens, so 10% to 13%, 14%. So we feel like this is an appropriate range, what we've seen and certainly look forward to having a solid year in '26.

Okay. Appreciate the color there. And then I guess, the guidance, I believe, also assumes 3 Fed cuts during '26. I assume that impacts both NII and the broker-dealer fees. Just big picture, any color on the sensitivity of that if we were to get just on the low end of that, 1 cut or even 2 cuts. Help us appreciate kind of what that would look like for NII and then the broker fee income?

Yes. I think broker fee income is going to be a little more difficult because there are clearly puts and takes there as it relates to certain things would improve if rates move lower, certain things will sweep income, for example, could be pressured. But that would be, I'd say, single-digit millions of dollars.

From an NII perspective, we've noted it was an objective of ours to reduce overall asset sensitivity. We've continued to do that. As you can see in the deck, we've got kind of modeled asset sensitivity on instantaneous and parallel basis of just over 4%. And so every 25 basis points in that environment on an annual basis is about $4.5 million of NII.

Michael Rose, Raymond James.

Good morning, guys. Thanks for taking my questions. Just wanted to discuss capital. Obviously, nice to see the dividend increase, but I think the buyback authorization was down from last year and maybe a little bit less than at least what I was looking for. Can you just kind of discuss kind of capital priorities?

And clearly, we've seen a lot of M&A in and around your markets. I know you guys are kind of always in the hunt for deals. Just wanted to see if there's kind of any update from your perspective. I know you're a little bit hindered by the currency at this point. But has the opportunity set improved from here? Thanks.

Thanks, Michael. No, I think we're really pleased with the capital we deployed and the way we're able to do it in 2025. I think it's a strong message that we've increased our dividend by 11%. And so that should be well received. And you know, our share repurchase authorization of $125 million, I think, is about pretty standard for what we authorized at the beginning of the year. And then it will just be something that we monitor throughout the year as far as the deployment of that. So that's kind of on the capital priorities.

On the M&A, I mean, clearly, it's been an extremely active year in Texas and a lot of deals being announced. I guess, at the forefront, yes, we are continuing to evaluate acquisition opportunities. But at the same time, we're also trying to make sure that we continue to focus on our own organic growth and try to take advantage of some of the dislocation that this may cause.

Perfect. Maybe just to ask the flip side of the question on the M&A conversation. I mean, there's not a lot of properties left in the state of size. You guys are clearly one of them. I know there's decent insider ownership here, but you know, I would just love to kind of discuss the potential possibility to maybe partner with a larger institution. And have you had any kind of informal or formal -- you're probably not going to answer this, but any reach out from any larger banks at this point?

No, for what we can disclose or discuss, obviously, we're going to remain open to that and do what's in the best interest of the shareholders. I think that our business model is different than a lot of the other more pure-play banks, which is limited universe of people that -- or bigger banks that have been -- would be attractive to it.

Okay. Helpful. Maybe one just final one for me. Just the NII guide, I think it implies some further core margin impression or compression. Well, if you can just maybe at least for the first quarter, just kind of talk about the expectation. I understand Matt's question as well, but it would seem like there'd be a little bit more core margin pressure as we move into the first couple of quarters of the year?

Well, I think what we've seen is pretty solid action and activity on our deposit cost side. So we feel like that's sustainable at this point. Again, we don't -- we obviously don't control what the Fed does. So we'll play along as they make their updates and changes. We are and have seen, as noted on an ending balance basis, seeing pretty solid loan growth across the bank. So all those things we think are constructive to net interest income.

But again, we do maintain an asset-sensitive balance sheet. And as a result, if the Fed does continue reducing rates will be impacted by that. But given they didn't take action in January, again, view that as reasonably constructive for the first quarter from our perspective.

Wood Lay, KBW.

Good morning, guys. Maybe starting on loan growth. It was a nice quarter on that front. Could you just talk about the loan pipeline entering 2026? And maybe also talk about just the loan pricing competition that you're seeing in your markets?

Sure. Our loan pipeline going into '26 is about $2.6 billion, which is on the high side for us. It built up higher and we had a lot of pull through. But we're feeling really good about the organic loan growth that we're experiencing in our markets. And just the expanding client reach that we've had. So I feel really good about the loan portfolio building. On the pricing side, clearly, with rates coming down, we -- our, I think, going on yield down about 35 basis points in the quarter. So we are seeing that just with the rate environment.

Yeah, that makes sense. And then maybe just last for me, shifting over to mortgage. I appreciate the origination volume expectation provided in the outlook. But just any thoughts on gain on sale margins over the coming year?

I think where we -- as we look forward, I think we expect total revenue between both gain on sale margin and mortgage origination fees really to be stable. If you look in our chart, if you kind of add those two bars together, you'll see they've been very stable. The mix changes as rates change and customers' preferences to buy down their rate or otherwise changes. But overall, revenue around that 350 to 360 basis point range is kind of our expectation into the future.

That's obviously down from what you would see in a more robust market. But again, our view has been and continues to be, we're going to see a steady improvement in the overall mortgage market, not a hockey stick change. And as a result, we'd expect kind of aggregate revenues, gross revenues to be stable.

Thank you. That ends our answer question-and-answer session. Ladies and gentlemen, this concludes today's call. Thank you for participating. You may all disconnect.