Hilltop Q3 Earnings Call Highlights

Key Points

• Hilltop reported third-quarter net income of $24.9 million, or $0.44 per diluted share. Stronger banking results were partly offset by approximately $16 million in pre-tax mark-to-market losses tied to interest-rate and volume impacts.
• PlainsCapital Bank delivered solid growth: net interest income rose 9% year over year to $122 million, loans increased 7% to $580 million above the prior-year quarter, and net interest margin improved. Management expects continued loan growth, though deposit competition could pressure margins.
• Rate-sensitive businesses remained under pressure. PrimeLending posted a $10.8 million pre-tax loss as mortgage rates approached 7%, while HilltopSecurities faced weaker trading activity and $6.6 million in mortgage-pipeline valuation losses; management is emphasizing cost control and operational efficiency.

Hilltop NYSE: HTH reported third-quarter 2026 net income attributable to common stockholders of $24.9 million, or $0.44 per diluted share, as growth in its banking operations was partly offset by interest-rate-driven pressure in its mortgage and broker-dealer businesses.

Chairman, President and CEO Jeremy Ford said the company generated a 0.67% return on average assets and a 4.7% return on average equity during the quarter. Hilltop’s diversified model continued to produce “solid foundational results,” Executive Vice President and CFO Will Furr said, though sharp market-rate moves created valuation adjustments in mortgage pipelines and trading assets.

Furr said mark-to-market losses related to rate and volume impacts totaled approximately $16 million on a pre-tax basis during the quarter. Hilltop also reported a negative accumulated other comprehensive income impact of about $21 million, reflecting mark-to-market adjustments in its available-for-sale securities portfolio, net of hedges. Merchant banking portfolio investments produced net valuation gains of $4.6 million.

Banking segment posts loan, deposit and income growth

PlainsCapital Bank reported $44 million in pre-tax income, supported by growth in core loans and deposits, as well as a higher net interest margin. Net interest income for Hilltop totaled $122 million in the third quarter, up $10 million, or 9%, from the year-earlier period.

Furr said the increase reflected commercial loan growth and improved deposit costs. Net interest margin rose 12 basis points from the second quarter to 3.33%, while Ford said the bank’s margin expanded more than 25 basis points year over year to 3.49%. The differing figures reflect the measures cited by the executives in their prepared remarks.

Period-ending held-for-investment loans increased by $134 million from the second quarter, while loans rose $580 million, or 7%, from the third quarter of 2025. Furr said roughly $300 million of the growth came from commercial real estate lending, with the rest coming from commercial and industrial loans.

The company expects full-year average total bank loans to increase 7% to 8% from 2025 levels, excluding mortgage warehouse lending and retained PrimeLending mortgages. Furr said commercial loan pipelines remained robust and that recruiting new bankers has supported growth across Texas markets.

Average total deposits were approximately $10.7 billion during the quarter. Ford said PlainsCapital’s deposit balances grew by $500 million, helped by large-balance customers and new granular depositors. Deposits swept from HilltopSecurities to PlainsCapital increased by $100 million.

Management expects deposit balances to seasonally expand in the fourth quarter, though Furr said interest-bearing deposit yields have likely reached their low point for the cycle and could rise as short-term rates increase. He said the company expects net interest income to move modestly higher, driven mainly by loan growth, while net interest margin could level off or move somewhat lower as deposit competition intensifies.

Credit reserve builds, but management sees no systemic portfolio risk

Hilltop recorded a $10.1 million provision for credit losses at the bank. The allowance for credit losses increased by $9 million to $94 million, representing 1.07% of held-for-investment loans. Furr said the increase included $3.6 million associated with loan growth and approximately $4.4 million from the net effect of risk-rating adjustments.

Nonperforming assets declined by $2 million from the second quarter to $60 million. Net charge-offs totaled $1.2 million, or 6 basis points of the loan portfolio.

Furr said the company continues to monitor risks associated with interest-rate volatility, inflation, economic conditions and other events, but does not anticipate significant systemic risk across the portfolio. He noted, however, that Hilltop could experience idiosyncratic credit events involving individual clients.

Mortgage and securities businesses face rate volatility

PrimeLending posted a pre-tax loss of $10.8 million, as mortgage rates rose sharply during September. Ford said average 30-year mortgage rates increased by nearly 70 basis points during the month, reducing purchase activity and negatively affecting the fair value of loans in the company’s existing pipeline.

Mortgage revenue declined $9 million from the prior-year quarter. Rate-lock volume fell 18% year over year to $2.2 billion, while gain-on-sale margins on loans sold to third parties declined 26 basis points to 200 basis points.

Furr said mortgage rates near 7% and continued affordability constraints are expected to weigh on mortgage sales activity into 2027. PrimeLending is focused on expense management, productivity improvements, selective recruitment of loan officers and pricing optimization, he said.

HilltopSecurities generated $7 million in pre-tax income on $117 million of net revenue, for a 5.9% pre-tax margin. Public Finance Services produced $37 million in net revenue, consistent with the third quarter of 2025, as the company continued to see a robust municipal issuance market.

However, Structured Finance and Fixed Income Services encountered difficult conditions amid volatility in long-duration bonds, according to Ford. Principal transactions, commissions and fees declined on lower municipal, derivatives and mortgage-backed securities trading activity. The quarter included $6.6 million in pre-tax mark-to-market valuation losses tied to the mortgage trading pipeline.

Wealth Management revenue exceeded the prior-year third quarter across its retail and clearing businesses. Ford said Hilltop expects continued strength in Public Finance and Wealth Management, while its more rate-sensitive businesses will continue operating with caution.

Capital returns and expense outlook

Hilltop ended the quarter with a common equity tier 1 capital ratio of 18.3% and tangible book value per share of $32.20, down modestly from the prior quarter. The company returned $33 million to stockholders during the quarter, including $12.6 million in dividends and $20 million in share repurchases.

Furr said Hilltop repurchased less stock than in the prior two quarters because its share price was elevated and rising rates were expected to affect accumulated other comprehensive income. The company had $85 million remaining under its authorization, which expires in January, though Furr said the full remaining amount could not be completed in one quarter.

Non-interest expense declined $7.8 million from the year-earlier period to $264 million, driven primarily by lower variable compensation in the broker-dealer and mortgage businesses. Management said it expects expenses excluding variable compensation to remain relatively stable as it pursues operational efficiencies while investing in revenue-producing personnel.

About Hilltop (NYSE:HTH)

Hilltop Holdings Inc NYSE: HTH is a Dallas-based financial services holding company. Through its operating subsidiaries, the company provides commercial and consumer banking, mortgage lending, and securities brokerage and investment-banking services.

PlainsCapital Bank is Hilltop's banking subsidiary and serves businesses, professionals, and individuals primarily in Texas. Its offerings include commercial and real estate lending, deposit accounts, treasury management, wealth management, and other banking services.

Hilltop also operates PrimeLending, a residential mortgage lender that originates home loans through a network of loan officers and offices across the United States.

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