Hilltop Holdings Inc. Q4 FY2025 earnings call

Macro Perspective: Continued decline in short-term interest rates, FOMC cut target rate 3 times totaling 75 basis points, yield curve steepened with long-term rates range-bound 4-4.5%, Hilltop benefited from yield curve slope increase. ### Full Year 2025: Net income $165.6 million, 46% increase y-o-y, total revenues up 8% to ~$1.3 billion, expenses up 2%, positive operating leverage 6%. ### Q4 2025: Net income ~$42 million, $0.69 per diluted share, return on average assets 1.1%, return on average equity 7.6%. PlainsCapital Bank: Net interest margin expansion, core loan growth, deposit cost management. PrimeLending: Expense optimization, seasonally adjusted origination volume. Hilltop Securities: Strong results in core competencies.

PlainsCapital Bank: Net interest margin expanded, core loan growth strong, net interest income increased; pretax income $43.5 million, return on average assets 1.05%, net interest margin 329 basis points, core deposits increased, provision expense $7.9 million due to stressed auto note credits. PrimeLending: Pretax loss $5 million in Q4, seasonally healthy origination volume start in winter months but profitability challenged, operational cost reductions pursued. Hilltop Securities: Pretax income $26 million in Q4, net revenues $138 million, pretax margin 18%; public finance net revenues up 20% y-o-y, structured finance net revenues up $2 million, wealth management net revenues up 16%, fixed income services net revenues modestly increased.

2026 Outlook: Expect full-year average bank loan growth 4% to 6% excluding certain loans. ### Interest Rates: Uncertainty in market regarding interest rates, inflation, economy. ### Hilltop Securities Business Lines: Public finance expected reasonably strong, fixed income services moderating, wealth management expected to improve (market dependent), structured finance robust for first-time homebuyers but state support impactful. ### NII Sensitivity: Objective to reduce asset sensitivity, modeled asset sensitivity ~4% on instantaneous parallel basis, every 25 basis points annual NII impact ~$4-5 million.

Credit Risks: Charge-offs related to two auto note credits, allowance for credit losses impacted by economic assumptions, credit portfolio mix/makeup. ### Market Risks: Uncertainty in interest rates, inflation, economy affecting business lines like broker-dealer fees, sweep income. ### Mortgage Industry Risks: Challenging affordability, low new home inventory, increased ownership expenses weighing on industry volumes and margins.

Q: Hey, 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. Hoping you could speak to a few of the business lines and expectations for 2026. 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?

A: So, thanks for the question. You know, I think as we look into 2026, we feel very good about the franchise that is Hilltop Securities 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 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, to continue to improve over time, but it is market dependent based on how the overall markets perform. And in structured finances, as we've always said, 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, you know, 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, I'm really pleased with Hilltop Securities, the year they had this year and last, and the great management team, great businesses. And our public finance business, we're celebrating our eightieth anniversary this year. For it. So that just, I think it's 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.

Q: Okay. Appreciate the color there. And then I guess the guidance, I believe, also assumes three 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, you know, on the low end of that one cut or even two cuts? Help us appreciate kind of what that would look like for NII and then the broker fee income.

A: Yeah. 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, you know, certain things would improve if rates move lower, certain things will, you know, sweep income, for example, could be pressured. But that would be, you know, I'd say single-digit millions of dollars from an NII perspective, you know, we've noted there was an objective of ours to reduce overall asset sensitivity. We continued to do that. As you can see in the deck, we've got kind of modeled asset sensitivity on an instantaneous parallel basis of just over 4%. And so every 25 basis points, in that environment on an annual basis, is about four and a $5 million of NII.

Q: Okay. That's great. I'll step back. Thank you.

Q: Hey, 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 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?

A: Yeah. Thanks, Michael. No. I think, you know, 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 authorize. It's the beginning of the year. And then it'll 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. You know, I guess the forefront, yes, we are and continue to evaluate acquisition opportunities. At the same time, you know, we're also trying to make sure that we continue to focus on our own organic growth and, you know, try to take advantage of some of the dislocation that this may cause.

Q: 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, we just love to know, kind of discuss the potential possibility to maybe partner with a larger institution. You know, have you had any, you know, kind of informal or formal, you're probably not going to answer this, but any reach out from any larger banks at this point?

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

Q: Okay. Helpful. Maybe one just final one for me. Just the NII guide. I think it implies some further core margin 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.

A: 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 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, seen solid loan growth across the bank. So all those things we think are constructive. View that as reasonably constructive for the first quarter from our perspective.

Q: Hey, good morning, guys. Maybe turning on loan growth. It's a nice quarter on that front. Could you just talk about the loan pipeline entering 2026? Maybe also talk about just the loan pricing competition that you're seeing in your markets.

A: Sure. Yeah. Our loan pipeline going into '26 is about $2.6 billion, which is on the high side for us. It built up higher, and then 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. You know, on the pricing side, clearly, with rates coming down, we're, you know, our, I think, going on yield came down about 35 basis points in the quarter. So we are seeing that, you know, just with the rate environment.

Q: Yep. 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?

A: Yeah. I, where we, as we look forward, you know, 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, 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 going to see a steady improvement in the overall mortgage market, not a hockey stick change. As a result, we'd expect kind of aggregate revenues, gross revenues to be stable.