Hilltop Holdings Inc. Q2 FY2025 earnings call

• PlainsCapital Bank benefited from actively managing deposit costs and expanding lending activity. Net interest margin increased due to lower deposit costs and higher loan yields. Core deposits continued strong year-over-year growth. - PrimeLending's results impacted by industry headwinds, but fixed expenses reduced year-over-year. - HilltopSecurities saw strong growth in public finance services, but structured finance net revenues declined. - Credit loss reversal driven by improvement in asset quality and change in CECL modeling assumptions. - Hilltop returned over $46 million to stockholders through dividends and share repurchases.

PlainsCapital Bank: Reported net income of approximately $36 million. Realized a meaningful increase in net interest margin, grew loan pipeline. Generated $55 million of pretax income on $12.7 billion of average assets, return on average assets 1.35%. Net interest margin increased by 19 basis points. Core deposits ended the period approximately $275 million higher. $7.3 million reversal of credit losses. PrimeLending: Reported a pretax gain of $3 million, including a $9.5 million nonrecurring legal settlement. Industry-wide headwinds of elevated home prices, high interest rates, and affordability challenges impacted results. Fixed expenses reduced by 11% year-over-year. HilltopSecurities: Generated pretax income of $6 million on net revenues of $110 million, pretax margin 6%. Public Finance Services net revenues up 36% year-over-year. Structured finance net revenues declined by $1 million. Wealth Management net revenues increased.

• Expect NIM levels to moderate at current levels and net interest income to likely stabilize a few million dollars per quarter lower than the second quarter. - Adjusted expected full year average loan growth rate to 0% to 2% for 2025. - Nonvariable expense growth outlook influenced by inflation in personnel, healthcare, software, and computing-related expenses.

• Stiff competition within markets may dampen near-term loan growth. - Industry-wide headwinds in mortgage origination market (elevated home prices, high interest rates, affordability challenges) continue to pressure margins. - Interest rate volatility and market changes can impact NIM and financial results. - Deposit outflows (seasonal) and credit portfolio volatility can affect allowance for credit losses.

Q: Talk about loan growth commentary and competition impact?

A: Pipelines are strong, but competition in loan markets, especially on structure and other terms, is affecting deal wins. Loan growth outlook 0%-2% for 2025 as it takes time to fund and reflect on the balance sheet.

Q: Walk through NII and margin puts and takes?

A: NII expected to trend a few million lower per quarter. Largest driver is non-recurring improvement in stock loan business. Deposit beta assumption and rate cuts impact NII. Asset sensitivity and deposit cost sensitivity also play roles.

Q: Appetite for share repurchases and M&A?

A: Board authorized increasing share repurchase by $35 million, total $135M for 2025. Anticipate continuing repurchases. Active M&A expected, looking for cash-type deals as stock trades at a discount to tangible book value.

Q: What drove improvement in classified loans?

A: Paydowns and refinances out were the largest drivers of reduction in classified loans.

Q: Will deposit outflows continue?

A: Seasonal in nature, related to public fund customers and C&I client operational flows. Expected to rebuild in third and fourth quarters.