Hilltop Q1 2025 Earnings Report

Hilltop EPS Results

• Actual EPS: $0.65
• Consensus EPS: $0.28
• Beat/Miss: Beat by +$0.37
• One Year Ago EPS: $0.42

Hilltop Revenue Results

• Actual Revenue: $318.46 million
• Expected Revenue: $290.68 million
• Beat/Miss: Beat by +$27.78 million
• YoY Revenue Growth: N/A

Hilltop Announcement Details

• Quarter: Q1 2025
• Date: 4/24/2025
• Time: After Market Closes
• Conference Call Date: Friday, April 25, 2025
• Conference Call Time: 9:00AM ET

Hilltop (NYSE:HTH) Holdings, Inc. (NYSE: HTH) is a Dallas, Texas–based financial holding company offering commercial banking, mortgage lending and capital markets services through its three primary subsidiaries: PlainsCapital Corporation, PrimeLending and HilltopSecurities. PlainsCapital provides deposit, lending and treasury management solutions to small and mid-sized businesses, professionals and individuals. PrimeLending specializes in home purchase and refinance loans, serving retail, wholesale and correspondent channels. HilltopSecurities delivers fixed-income sales and trading, equity underwriting, municipal advisory and research services to institutional, corporate and municipal clients.

Over the years, Hilltop has pursued strategic acquisitions and organic growth initiatives to expand its geographic reach and service capabilities. Its commercial banking operations are concentrated in Texas and select regional markets, while mortgage production and capital markets activities extend across multiple states. The company’s diversified business model aims to generate stable fee income and mitigate the impact of interest-rate fluctuations through a balance of lending, advisory and trading revenues.

Hilltop’s management team emphasizes disciplined risk management, strong credit quality and customer-focused service. Jeremy B. Ford, serving as President and Chief Executive Officer, leads the company’s strategic vision and oversees execution across all business lines. Under his guidance, Hilltop continues to leverage the complementary strengths of its subsidiaries to drive long-term growth and deliver value to shareholders.

Hilltop Q1 2025 Earnings Call Transcript

Key Takeaways

• For the first quarter, Hilltop reported net income of $42 million (or $0.65 per diluted share), with a 1.1% return on average assets and 7.8% return on average equity, as stable net interest income offset modest asset yield compression.
• PlainsCapital Bank generated $40 million of pretax income, maintained a 2.97% net interest margin while growing core deposits by $300 million year-over-year, and sustained strong loan pipeline activity despite recording a $9 million credit loss provision for risk migration.
• PrimeLending posted an $8 million pretax loss as elevated rates and housing affordability challenges kept origination volumes pressured, drove mortgage origination fees lower by 29 basis points year-over-year, and prompted a 12% reduction in fixed expenses.
• Hilltop Securities saw a 34% increase in public finance revenues and modest wealth management growth but faced a $7 million decline in fixed income net revenues, resulting in a 7% drop in total net revenues and a 51% decrease in pretax income year-over-year.
• Hilltop’s capital and liquidity remained robust with a 21% CET1 ratio and tangible book value rising $0.53 to $30 per share, while returning $45 million to shareholders through dividends and share repurchases.

Presentation

[Operator]

Morning, ladies and gentlemen, and welcome to the Hilltop Holdings First Quarter 2025 Earnings Conference Call and webcast call. At this time, all lines are in listen-only mode, and following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, April 25, 2025. I will now turn the conference call over to Mr. Matt Dunn. Please go ahead.

[Matt Dunn, Corporate Development Officer and Head of Investor Relations at Hilltop Holdings]

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, intrinsic 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.

[Matt Dunn, Corporate Development Officer and Head of Investor Relations at Hilltop Holdings]

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. 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'll now turn the call over to Jeremy Ford.

[Jeremy Ford, President and CEO at Hilltop Holdings]

Thank you, Matt, and good morning. For the first quarter, Hilltop Holdings reported net income of $42 million, or $0.65 per diluted share. Return on average assets for the period was 1.1%, and return on average equity was 7.8%. PlainsCapital Bank demonstrated its ability to maintain core customer balances while repricing interest-bearing deposits during the quarter. This enabled Hilltop Holdings to produce stable net interest income despite modest compression to the overall balance in earning assets. The broker-dealer recognized a strong quarter from the wealth and public finance business units, while weathering a challenging fixed-income market. As will be discussed further, the mortgage origination segment continues to be weighed down by ongoing constraints in the mortgage market that did not show signs of subsiding during the first quarter.

[Jeremy Ford, President and CEO at Hilltop Holdings]

However, Hilltop Holdings' robust capital and liquidity position did enable us to further compound tangible book value per share while returning capital to our stockholders. During the quarter, PlainsCapital Bank generated $40 million of pre-tax income on $13 billion of average assets, representing a return on average assets of 0.96%. Average loans at the bank remained relatively stable in the quarter as construction loans and non-owner-occupied CRE loans increased in balance, though this was offset by a decline in C&I lending. The bank continued to see strong development in its loan production pipeline as demand from core customers across our markets remains healthy. Average total deposit balances at the bank decreased during the quarter primarily due to expected seasonal outflows and select large balance customers repositioning their excess liquidity.

[Jeremy Ford, President and CEO at Hilltop Holdings]

However, the trend of strong deposit growth did continue on a year-over-year basis as average core deposits at the bank increased by nearly $300 million. Results in the quarter at the bank included a $9 million provision for credit losses. This expense was primarily due to negative risk rating migration within the portfolio, as was partially offset by an improvement in economic conditions within the quarter. Will is going to provide further commentary on credit in his prepared remarks. The bank realized a one-basis point compression in net interest margin from the fourth quarter to 2.97%. This relatively stable margin was primarily driven by a continued decline in the cost of interest-bearing deposits, alongside the repricing of longer-duration earning assets into today's relatively higher interest rate environment. Results at the bank did include a one-time insurance recovery that reduced non-interest expense by $6.5 million.

[Jeremy Ford, President and CEO at Hilltop Holdings]

Overall, the bank continued to show improvement in deposit pricing and loan pipeline growth, which illustrate the quality relationship-based banking model at PlainsCapital Bank. Moving to PrimeLending, where the company reported a pre-tax loss of $8 million during the first quarter. As interest rates remain elevated and affordability challenges to home buyers persist across the country, origination volumes remain under pressure. PrimeLending did experience a modest increase in origination volume on a year-over-year basis to $1.7 billion during the seasonally slower first quarter home buying period. Gain on sale of loans to third parties, including broker fees, increased by six basis points when compared to the fourth quarter. However, PrimeLending experienced a continued downward trend in mortgage origination fees and other related income, which decreased by five basis points quarter-over-quarter and 29 basis points year-over-year.

[Jeremy Ford, President and CEO at Hilltop Holdings]

Management at PrimeLending continues to actively monitor operating expenses and has reduced the fixed expense base by 12% year-over-year. However, as interest rates remain volatile and the mortgage origination market continues to present headwinds towards increased volumes, we will look to further evaluate the fixed cost structure of PrimeLending to ensure efficient operations that align with the current environment. In the fourth quarter, Hilltop Securities generated pre-tax income of $9 million on net revenue of $109 million for a pre-tax margin of 8%. Speaking to the business lines at Hilltop Securities, public finance services produced a 34% year-over-year increase in net revenues on an increase in offerings of 11%. Structured finance net revenues declined $8 million from the first quarter of last year. This decline was driven by a comparatively strong 2024 that was the result of mortgage-related business activity within a single state's market.

[Jeremy Ford, President and CEO at Hilltop Holdings]

In wealth management, net revenues increased by $1 million compared to last year's first quarter as an increase in retail and wealth production fees more than offset a modest decline in sweep revenue from the firm's FDIC sweep program. Finally, the fixed-income business continued to be under pressure as demand for middle-market buyers remained subdued and demand for municipal bond products was muted during the quarter. The business unit had a decline in net revenue of $7 million when compared to the first quarter of 2024. Overall, Hilltop Securities realized strong results in the quarter from the public finance and wealth management business lines, but experienced a material decline in net revenues with the fixed-income services line of business. While the broker-dealer's net revenues declined 7% year-over-year, pre-tax income declined by 51% due to the mixed shift in net revenues between the business lines.

[Jeremy Ford, President and CEO at Hilltop Holdings]

During the quarter, Hilltop Holdings recognized two non-recurring items that impacted consolidated results. First, we announced in January, our merchant bank realized a preliminary gain on the sale from its investment in Moser Energy Solutions. This resulted in a positive impact in net income of $23.6 million, or $0.37 per diluted share. Our merchant bank team has worked hard over the past eight years, cultivating a portfolio of attractive investments and building a strong track record. This business is institutional to Hilltop Holdings, and we plan to continue to invest in the platform. Second, as I previously discussed when overviewing the bank results for the quarter, the bank recognized an insurance recovery that resulted in a positive impact in net income of $5 million, or $0.08 per diluted share. Moving to page four, Hilltop Holdings maintains strong capital levels with a Common Equity Tier 1 capital ratio of 21%.

[Jeremy Ford, President and CEO at Hilltop Holdings]

Additionally, our tangible book value per share increased from year-end 2024 by $0.53 to $30 a share. During the period, we returned $12 million to stockholders through dividends and repurchased $33 million in shares. Thank you. I will now turn the presentation over to Will to discuss our financials in more detail.

[Will Furr, CFO at Hilltop Holdings]

Thank you, Jeremy. I'll start on page five. As Jeremy discussed, for the first quarter of 2025, Hilltop Holdings reported consolidated income attributable to common stockholders of $42.1 million, equating to $0.65 per diluted share. Related to the transaction that we referenced in our fourth quarter call, Hilltop's merchant banking group did close on the sale of its ownership stake in the operations of Moser Acquisition Inc. on February 24th of 2025. As a result of this transaction, Hilltop Holdings recorded a preliminary gain during the first quarter of $23.6 million, equating to $0.37 per diluted share. This gain is preliminary as Hilltop Holdings continues to own equity shares from the purchaser, and those shares were not divested during the first quarter. In addition, we do expect that there will be customary closing and final settlement-related items to be recorded during future quarters.

[Will Furr, CFO at Hilltop Holdings]

Further, during the first quarter, Hilltop Holdings did receive an insurance recovery that equated to $6.5 million. This recovery was reported in professional services, non-interest expense, and impacted the quarter's results by $5 million, equating to $0.08 per diluted share. Lastly, while not a first-quarter item, Hilltop Holdings received a $9.5 million settlement related to prior legal matters in early April. This will be recorded in the second quarter's results and will be disclosed as a subsequent event in the first quarter's Form 10-Q filing. I'm turning to page six. During the first quarter, Hilltop Holdings increased allowance for credit losses by $5 million to $106 million. This increase is largely attributable to the negative migration of certain credit relationships in the portfolio.

[Will Furr, CFO at Hilltop Holdings]

The most significant downgrade related to an office property that experienced a significant drop in occupancy as one of its key tenants was acquired, and the acquiring company did not renew its prior lease in the subject property. In addition, the increase reflects more modest increases in allowance across a number of credits, which are not concentrated in a particular industry or geography. Somewhat offsetting the impact of downgrades in the portfolio, the economic conditions forecasted in Moody's S5 slower trend growth scenario, which Hilltop Holdings continued to utilize in CECL modeling during the quarter, offer a modest improvement versus the 12/31 scenario. As a result of this change in the economic outlook, the allowance for credit losses related to economic conditions declined by $1.1 million. As of March 31, allowance for credit losses of $106 million yields an ACL to total loan HFI ratio of 1.33%.

[Will Furr, CFO at Hilltop Holdings]

As we've stated since the introduction of CECL, we continue to believe that the allowance for credit losses could be volatile, and that future changes in the allowance will be driven by net loan growth in the portfolio, credit migration trends, and changes to the macroeconomic outlook over time. Given the current uncertainties regarding inflation, tariffs, and potential reciprocal tariffs, interest rates, the future outlook for GDP growth and unemployment rates, volatility could be heightened over the coming quarters. Moving to page seven, net interest income in the first quarter equated to $105 million, including $1 million purchase accounting accretion. Versus the prior year period, net interest income increased by $1.5 million, or 1.4%, driven by our efforts to lower deposit costs as short-term market rates have declined.

[Will Furr, CFO at Hilltop Holdings]

While our focus on growing deposits remains paramount to our go-to-market approach, our team at the bank was able to achieve an interest-bearing deposit beta from the current 100 basis points of reduction by the Federal Reserve of 64%. While we are pleased with this outcome, we recognize that the competitive intensity and pricing pressures could escalate in the future, and as such, we're not changing our model through the cycle deposit beta outlook of 55%. In addition to the improved interest-bearing deposit beta outcome, yield curve has steepened since last year, and that benefited NII during the quarter, specifically versus the prior year period as higher yields on retained mortgages, certain MBS securities, and mortgage loans held for sale remained somewhat elevated while shorter-term rates declined. Our estimates for future NII and NIM currently reflect our expectation that the Federal Reserve will execute two additional rate reductions in 2025.

[Will Furr, CFO at Hilltop Holdings]

Turning to page eight, first quarter average total deposits were approximately $10.9 billion and have declined by approximately $89 million, or 1%, versus the fourth quarter of 2024. On an ending balance basis, deposits declined $233 million, to $10.8 billion, from the prior quarter ending balance level. The decline in deposit balances reflects the impact of Hilltop Holdings' payoff of $150 million of maturing senior debt during the first quarter, coupled with the movement of certain customer funds from deposits into treasury and other investment products in our private banking group. During the quarter, total interest-bearing deposit costs declined, with the blended rate equating to 297 basis points as of March 31, down from 327 basis points at December 31. Moving to page nine, total non-interest income for the first quarter of 2025 equated to $213.3 million.

[Will Furr, CFO at Hilltop Holdings]

This reflects approximately $42 million related to the previously mentioned Moser Energy Solutions transaction.

[Will Furr, CFO at Hilltop Holdings]

First quarter mortgage-related income and fees increased by $1 million versus the first quarter of 2024, reflecting stable year-over-year origination volumes. While the mortgage market had begun to somewhat stabilize during the fourth quarter and the beginning of the first quarter, the volatility created by concerns over tariffs and variability in overall market rates has impacted demand in the later part of the first quarter. As a result of the demand trends we've seen during recent weeks, we have reduced our mortgage production volume expectation to $8 billion-$9.5 billion for the full year of 2025. In addition, we expect the gain on sale margins will remain relatively stable at the current levels given the environmental challenges. In addition, securities and investment advisory revenues increased by $10 million versus the prior year, period driven primarily by improved activity in public finance and wealth management.

[Will Furr, CFO at Hilltop Holdings]

The growth seen in these business segments was somewhat offset by ongoing challenges in fixed-income trading. Growth in other non-interest income equated to $21 million was largely driven by the sale of Moser Energy Solutions. However, the impact of this transaction was somewhat offset by lower revenues in the structured finance business at Hilltop Securities. It remains important to recognize that both the fixed-income services and structured finance businesses at Hilltop Securities could be volatile from period to period as they're impacted by interest rates, overall market liquidity, production trends, which may include any additional subsidies provided by states to support their down payment assistance programs. Turning to page 10, non-interest expenses remained relatively stable from the same period in the prior year.

[Will Furr, CFO at Hilltop Holdings]

As is noted next to the table in the upper right of the page, the Moser Energy Solutions sale impacted non-interest expenses by $11.3 million, which was somewhat offset by the impact of the legal recovery, which equated to $6.5 million and was recorded in professional services. Looking forward, we expect expenses other than variable compensation will remain relatively stable as the ongoing focused efforts related 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 11, first quarter average HFI loans equated to $7.9 billion, which was stable with fourth quarter levels.

[Will Furr, CFO at Hilltop Holdings]

During the fourth quarter and carrying into the first quarter of 2025, we've seen improving activity across our commercial loan pipelines. Growth in the pipeline has been geographically dispersed but centered in commercial real estate lending.

[Will Furr, CFO at Hilltop Holdings]

Further, while the most recent pipeline trends have been encouraging, we do expect that the volatility resulting from tariffs and the potential for reciprocal tariffs could cause clients to pause and reevaluate projects over the coming months and quarters. This expectation is captured in our current loan guidance, representing growth of 0%-3% for full-year average loans. As noted in prior quarters, we continue to retain mortgages originated at PrimeLending, and we expect to continue to do so in the coming quarters. Our current expectation is that we'll retain between $10 million and $30 million per month. Turning to page 12, the first quarter's results include $4.3 million in net charge-offs, which did reduce non-performing assets modestly from the year-end 2024 levels. Net charge-offs in the quarter represented a set of credits across multiple industries, including auto-note financing, single-family construction, and non-owner-occupied real estate.

[Will Furr, CFO at Hilltop Holdings]

Special Mention loans depicted in the upper left chart on the page did increase during the quarter, largely driven by the downgraded credits I discussed earlier in my comments. Regarding credit overall, we do not see any prevailing trends that cause undue concern in our portfolio. However, we continue to monitor all aspects of the portfolio very closely as higher interest rates, potentially lower utilization rates in certain segments of commercial real estate, and an expected slowdown in economic activity have had and may continue to have a negative impact on our clients and our portfolio. Moving to page 13, as we move through the second 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.

[Will Furr, CFO at Hilltop Holdings]

We're pleased with the current positioning of our balance sheet and the ongoing work that our team is executing each day to push our company forward through what has been a challenging operating environment. As is noted in the table, our 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 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]

Thank you. Ladies and gentlemen, we'll now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You'll then hear a prompt that your hand has been raised.

[Operator]

Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Woody Lay from KBW. Please go ahead.

[Woody Lay, VP at KBW]

Hey, good morning, guys.

[Will Furr, CFO at Hilltop Holdings]

Morning.

[Jeremy Ford, President and CEO at Hilltop Holdings]

Morning.

[Woody Lay, VP at KBW]

Wanted to start on criticized loans. Just a couple of follow-ups there. How big was the office credit that was downgraded in the quarter? It also looks like classifieds improved some quarter-over-quarter. What drove the improvement there?

[Will Furr, CFO at Hilltop Holdings]

Yeah. The office credit we referenced was about $18 million, an $18 million credit. Some of the positive migration in classifieds was just a series of kind of smaller credits that migrated. Nothing of consequence there.

[Woody Lay, VP at KBW]

Got it. Appreciate that. Maybe shifting over to deposit costs.

[Woody Lay, VP at KBW]

I mean, it was a really strong quarter with deposit costs moving lower. Do you think there's capacity to move that lower? And correspondingly, do you think the NIM can see some improvement?

[Will Furr, CFO at Hilltop Holdings]

I think the work we've done to this point has been very good, and I feel like we've taken advantage of the 100 basis points reduction that we've seen from the Federal Reserve. We're certainly looking across the portfolio at every opportunity to minimize overall deposit costs. Again, that is being balanced with the focus on continuing to grow customer deposits, continuing to expand our relationship. We're doing both. Obviously, if the Fed were to move additionally from here, we'd expect to see deposit rates go lower. I would expect them to trend modestly lower from an interest-bearing deposit rate perspective from here.

[Will Furr, CFO at Hilltop Holdings]

Again, the largest portion of the work from the first 100 basis points has been completed. As that relates to NIM, I think NIM and NII, we've been very pleased that NII has remained reasonably stable over the last 12 months. That reflects the strong work the team has done from a deposit beta perspective, but it also reflects the fact that the yield curve has kind of a naturally upward-sloping shape today, and it did not have that for a long window of time. That upward-sloping curve does give us some confidence that NII has stabilized at these levels, albeit that is somewhat market-dependent, and we will continue to watch that. We do feel comfortable today with a view that says NII has stabilized at these levels.

[Woody Lay, VP at KBW]

Yep.

[Woody Lay, VP at KBW]

Your NII guide of up 0%-2%, do you have the deposit beta assumption you're using for that guide?

[Will Furr, CFO at Hilltop Holdings]

25%.

[Woody Lay, VP at KBW]

All right. Thanks for taking my questions.

[Will Furr, CFO at Hilltop Holdings]

Yes, sir.

[Operator]

Thank you. Your next question comes from Andrew Gorczyca from Piper Sandler. Please go ahead.

[Andrew Gorczyca, Research Analyst at Piper Sandler]

Hey, good morning, everybody.

[Will Furr, CFO at Hilltop Holdings]

Good morning.

[Jeremy Ford, President and CEO at Hilltop Holdings]

Good morning.

[Andrew Gorczyca, Research Analyst at Piper Sandler]

You noted seasonal commercial outflows of deposits in 1Q 2025. Should we expect any reversal of that in 2Q 2025?

[Will Furr, CFO at Hilltop Holdings]

This is Will. A few things. One, we always expect a seasonal outflow, as you noted in Q1, just based on kind of activity and customer activity we see in the fourth quarter. That said, we do also see a seasonal impact related to tax season at April 15th, so that carries into the second quarter.

[Will Furr, CFO at Hilltop Holdings]

After that, once the April 15th window has passed, we generally start to see core customer deposits start to build and rebuild through the balance of the year. While the first quarter clearly has a normal seasonal flow that carries into, I would say, tax season, from there, we expect to see, again, growth from a customer deposit perspective as both you get some rebuilding, but you also get client acquisition and expansion that goes on through the balance of the year.

[Andrew Gorczyca, Research Analyst at Piper Sandler]

Got it. That makes sense. Appreciate that. With TBA lock volumes up quarter-over-quarter, are you seeing any early signs that could support a rebound in structured finance this quarter?

[Will Furr, CFO at Hilltop Holdings]

I think with TBA, what has been a key factor in that has been some support that certain states have provided to their down payment assistance program over time.

[Will Furr, CFO at Hilltop Holdings]

We generally hear about that incremental support as the state budgets start to be deployed generally in the middle of the year. Right now, that would be the most significant driver of incremental activity. Otherwise, the team continues to work to support customers every day with their down payment assistance programs. Again, the most significant driver of uptick would be additional support, which we will wait and see how those states put forth their budgets for 2025-2026.

[Andrew Gorczyca, Research Analyst at Piper Sandler]

Got it. Thank you for taking my questions and congrats on the quarter.

[Woody Lay, VP at KBW]

Thank you.

[Operator]

Thank you. Your next question comes from Tim Mitchell from Raymond James. Please go ahead.

[Tim Mitchell, Senior Equity Research Associate at Raymond James]

Hey, good morning, everyone.

[Jeremy Ford, President and CEO at Hilltop Holdings]

Morning.

[Will Furr, CFO at Hilltop Holdings]

Morning. Good morning.

[Tim Mitchell, Senior Equity Research Associate at Raymond James]

Two questions kind of on fees. First, just a follow-up on Hilltop Securities.

[Tim Mitchell, Senior Equity Research Associate at Raymond James]

Just given the volatility we've seen in the bond markets recently, just how your businesses were impacted by that, and if we continue to see ongoing volatility, what are your expectations? Secondly, just some of your comments around the mortgage business and rightsizing that to the environment. We've also just seen some other banks in your markets leaning more into mortgage. I was just curious kind of the way you think about that, kind of as we look ahead and if rates do come down and the market starts to improve, just your thoughts on positioning and whatnot.

[Will Furr, CFO at Hilltop Holdings]

This is Will. I'll take that in the order you provided it there. From a volatility perspective, certainly on the day of the tariff announcements, the market started to move pretty aggressively. Rates started to adjust.

[Will Furr, CFO at Hilltop Holdings]

I'd say most impacted was our municipal portfolio, which was, I'd say, reasonably well documented by a number of market participants publicly, whether that be public journals or otherwise. We've managed through that. It certainly had an impact in the April trading period, and we're continuing to work our way back from an overall trading perspective there. That volatility and valuation impact certainly impacted the trading results in the first part of the second quarter. A challenging environment in the first quarter persisted from a fixed income, but related to the overall variability and volatility created from tariffs, that really took place in the first couple of weeks of April. As it relates to mortgage, I'll start there.

[Will Furr, CFO at Hilltop Holdings]

Again, what we've continued to say is we have seen a slow and steadying improvement in the overall business over time that seems to have taken, based on what we're seeing in the last couple of weeks of March and the first couple of weeks of April, a little bit of a step back, I think also related to some of the variability coming from tariff announcements and the like, as well as interest rates that moved around the 10-year rallied under 4 and then moved back to 4.50. There was a lot of activity there for customers to digest. Our view is that mortgage will continue to heal at a slow pace on a go-forward basis while variability here in the short run has been apparent and impacted activity. We do believe it's generally on a trajectory of modest but slow improvement.

[Will Furr, CFO at Hilltop Holdings]

To the comments we've made, it's our objective to make sure we continue to work to rightsize the business for what we think the next 12-18 months will bring in that business. The last thing I'll say is we are aggressively pursuing growing our loan officer pool or those folks that are out originating loans. We are on offense in that regard, trying to attract new talent to our platform, but we're also being cautious around how those expenses are incurred to ensure that, again, we rightsize the business for what we believe the market to be.

[Tim Mitchell, Senior Equity Research Associate at Raymond James]

Got it. Thanks for the color. On the loan growth outlook, which has reduced, and that makes sense given all the uncertainty and whatnot, could you talk a little bit more about your pipelines and what you're hearing from customers?

[Tim Mitchell, Senior Equity Research Associate at Raymond James]

I think, obviously, the monthly mortgage retention is higher this year versus last year. Just if loan growth is needed, just how you think maybe lower versus higher end of that $10 million-$30 million range as we go through the year?

[Jeremy Ford, President and CEO at Hilltop Holdings]

I mean, I think that as far as just pipeline and customer activity, we've still seen that be relatively strong. We've had a couple of quarters of good funding. So feel good about our clients and what we're doing. At the same time, we see our pull-through rates are challenged, and it's a very competitive environment. We're really committed to trying to restore balanced growth at the bank. Will, you can speak to the interplay with the prime purchases.

[Will Furr, CFO at Hilltop Holdings]

Yeah. So mortgage retention, we've got a $10 million-$30 million.

[Will Furr, CFO at Hilltop Holdings]

Just as a perspective, we have about $10 million of runoff per month. If we retain $10 million, the balance would stay reasonably flat. Our expectation is we'll retain closer to the higher end of that, $20 million-$30 million per month. You will see some modest growth in that 1-4 family portfolio, certainly for the next couple of quarters. That's our expectation.

[Tim Mitchell, Senior Equity Research Associate at Raymond James]

Great. I guess I need one last one in on the buyback, which you guys leaned into this quarter, obviously. Assuming we don't see a significant rebound in the market, is it fair to assume that you'll continue repurchasing stock?

[Jeremy Ford, President and CEO at Hilltop Holdings]

I mean, I think we have a $100 million authorization. We bought back $33 million, so we have $67 million available, and we're certainly evaluating where we trade and value. It's certainly something that we're considering.

[Tim Mitchell, Senior Equity Research Associate at Raymond James]

Got it. All right.

[Tim Mitchell, Senior Equity Research Associate at Raymond James]

Thanks for taking my questions.

[Operator]

Thank you. Your last question comes from Jordan Ghent from Stephens. Please go ahead.

[Jordan Ghent, Equity Research Associate at Stephens]

Hey, good morning, guys.

[Jeremy Ford, President and CEO at Hilltop Holdings]

Good morning.

[Jordan Ghent, Equity Research Associate at Stephens]

I just had a question on expenses. It looks like 1Q, you had the benefit from the insurance recovery. Now guidance improved a bit, going flat to 2% growth. How much of that improvement was from the insurance recovery?

[Will Furr, CFO at Hilltop Holdings]

Actually, not a lot. I mean, obviously, that certainly benefits. Practically speaking, I think if you look at our presentation, you can see that our expenses, excluding kind of variable compensation or other than variable compensation, have been reasonably stable. Team has done a lot of hard work from an optimization perspective and an efficiency perspective, both at our mortgage company but across the organization to keep expenses stable. That continues to be our objective, and our guidance reflects that.

[Will Furr, CFO at Hilltop Holdings]

It is a lot of work across the organization to continue to kind of offset what we have seen in inflation and otherwise operating expense growth.

[Jordan Ghent, Equity Research Associate at Stephens]

Got it. Just kind of following up on that, I know you said that you expect expenses to be stable. Is there kind of a run rate you could give for the fixed side of it?

[Will Furr, CFO at Hilltop Holdings]

I think, yeah, I think if you look at page 10 of our chart, you can see there we have been in the $185 million-$190 million range for the better part of four quarters. If you adjust the Q1 number there for the tax or, excuse me, for the legal benefit, you will see that as well. That would give you a reasonable perspective of kind of where we expect to operate going forward.

[Jordan Ghent, Equity Research Associate at Stephens]

Got it. Thanks for taking my questions.

[Will Furr, CFO at Hilltop Holdings]

Sure.

[Operator]

Thank you.

[Operator]

Ladies and gentlemen, this does conclude your conference call for today. I thank you very much for your participation. You may disconnect.

Participants

Executives

• Matt Dunn, Corporate Development Officer and Head of Investor Relations
• Will Furr, CFO
• Jeremy Ford, President and CEO

Analysts

• Woody Lay, VP at KBW
• Andrew Gorczyca, Research Analyst at Piper Sandler
• Jordan Ghent, Equity Research Associate at Stephens
• Tim Mitchell, Senior Equity Research Associate at Raymond James