Hilltop signals stable NII outlook with $0.74 EPS and leadership transition as competition intensifies

Earnings Call Insights: Hilltop Holdings Inc. (HTH) Q3 2025

MANAGEMENT VIEW

* Jeremy Ford, President, CEO & Chairman, stated that "For the third quarter, Hilltop reported net income of approximately $46 million or $0.74 per diluted share. Return on average assets for the period was 1.2% and return on average equity was 8.35%." Ford highlighted continued expansion in net interest margin at PlainsCapital Bank, strong growth in core loan and deposit balances, and robust net revenue growth at HilltopSecurities across all four business lines.
* Ford noted that PlainsCapital Bank produced strong core loan growth despite competitive Texas markets and saw core deposits increase by 6% on a linked-quarter basis. The quarter included a $2.6 million reversal of credit losses driven by improved asset quality. He also discussed PrimeLending's $7 million pretax loss due to subdued mortgage origination volumes, mentioning, "existing home sales across the country reached their lowest level in over 30 years."
* HilltopSecurities delivered pretax income of $26.5 million on net revenues of $144.5 million, with public finance net revenues up 28% year-over-year and Wealth Management revenues increasing by $7 million compared to the third quarter of 2024.
* Ford announced key management changes: "In November, PlainsCapital Bank's Chief Credit Officer, Darrell Adams, plans to retire," with Brent Raindl promoted to Chief Credit Officer and Thomas Ricks as the new Dallas Region Chairman.
* William Furr, Executive VP & CFO, stated, "for the third quarter of 2025, Hilltop reported consolidated income attributable to common stockholders of $45.8 million, equating to $0.74 per diluted share." Furr highlighted net interest income of $112 million, a $2.5 million reversal of provision for credit losses, and a $1.3 million reduction in the allowance for unfunded reserves. He noted, "Hilltop's allowance for credit losses declined during the quarter by $2.8 million to $95 million, resulting in a coverage ratio of ACL to loans HFI of 1.16%."

OUTLOOK

* Furr provided that the internal rate outlook anticipates one additional 25 basis point rate cut in 2025, followed by two more in the first half of 2026. Under this scenario, "we expect that NII levels will remain relatively stable over the coming quarters with modest downward pressure during the seasonally weaker mortgage production period that typically occurs in the first quarter of 2026." He also expects interest-bearing deposit betas, which averaged approximately 70% through the current rate cut cycle, will gradually decline but remain above 60%.
* The company expects full year average total loans to increase 0% to 2% from 2024 levels, excluding mortgage warehouse lending and any retained mortgages from PrimeLending.

FINANCIAL RESULTS

* Hilltop reported net interest income of $112 million for the third quarter, up $7.4 million or 7% from the prior year, driven by improving deposit costs and growth in higher-yielding commercial loans. Net interest margin increased by 5 basis points from the second quarter to 306 basis points.
* Total noninterest income for the quarter was $218 million. Mortgage revenues declined by $3.4 million year-over-year as origination volumes stabilized but remained at lower levels. Gain on sale margins improved by 8 basis points to 226 basis points.
* Noninterest expenses increased by $7.6 million from the prior year to $272 million, primarily due to higher variable compensation linked to broker-dealer revenue production.
* Average HFI loans were $8.1 billion, with period ending loans growing by $166 million from Q2 2025, mainly due to new commercial real estate originations. Commercial lending pipelines expanded by over $750 million versus Q2.
* NPA levels declined by $5.3 million from Q2 to $76.5 million. Net charge-offs for the quarter were $282,000.

Q&A

* Michael Rose, Raymond James: Asked about the NII guide and margin trajectory. Furr explained, "We are and remain asset sensitive on the balance sheet...we do have an additional rate cut in the fourth quarter expected." He added that immediate step-down impacts from rate reductions affect NII, but new commercial loans are being booked at about 690 basis points.
* Rose followed up on share repurchase strategy and M&A outlook. Ford responded, "we are trying to be more consistent with our share repurchases...why we've asked for the increase in authorization." On M&A, Ford noted the influx of out-of-market entrants into Texas and Hilltop's focus on opportunities arising from market dislocations.
* Rose asked about auto portfolio exposures. Furr said, "we've been working our way through that portfolio" and have no direct exposure to a publicized entity in the sector.
* Wood Lay, KBW: Inquired about subprime auto exposure. Furr acknowledged "certainly some subprime exposure there," but said the exposure is "appropriately reserved and appropriately being managed."
* Lay asked about broker-dealer fee income and efficiency ratio. Furr highlighted strong public finance activity and acknowledged some episodic items contributed to the quarter's strength. He expects pretax margins to revert to low teens. Ford emphasized the positive performance in public finance and Wealth Management.
* Jordan Ghent, Stephens: Asked about potential government shutdown impacts. Ford and Furr stated no primary effects for the broker-dealer, with only minor processing impacts in SBA and mortgage due to agency staffing.

SENTIMENT ANALYSIS

* Analysts questioned sustainability of NII and fee income, and probed for risk in the auto loan portfolio and broker-dealer business, with a slightly cautious tone.
* Management maintained a neutral-to-confident tone in prepared remarks, but responses in Q&A were more measured, especially around NII guidance and margin pressures, using phrases like "we are and remain asset sensitive" and "we feel like we've got it appropriately reserved."
* Compared to the previous quarter, management's confidence in prepared remarks remained steady, but Q&A responses reflected heightened caution regarding margin compression and loan growth challenges. Analyst tone shifted from neutral to slightly more pressing, especially on recurring revenue and risk management topics.

QUARTER-OVER-QUARTER COMPARISON

* Net income rose from $36 million in Q2 to $46 million in Q3, with EPS up from $0.57 to $0.74 per diluted share. Return on average equity improved to 8.35% from 6.6%.
* Net interest income increased from $110.7 million to $112 million, while net interest margin expanded by 5 basis points compared to Q2. Noninterest income increased, driven by stronger HilltopSecurities results.
* PrimeLending swung from a $3 million pretax gain in Q2 (benefiting from a nonrecurring legal settlement) to a $7 million pretax loss in Q3 amid continued mortgage market weakness.
* HilltopSecurities' pretax margin improved significantly quarter-over-quarter, with all business lines performing strongly.
* Average HFI loans and commercial lending pipelines both showed sequential growth, while NPA and net charge-off levels improved.
* Management announced a leadership succession at PlainsCapital Bank, a development not seen in the previous quarter.
* Both quarters reiterated a cautious outlook on loan growth and expense discipline, but Q3 guidance emphasized stability in NII and deposit betas amid anticipated further rate cuts.

RISKS AND CONCERNS

* Management cited ongoing margin pressure from heightened competition in Texas and continued challenges in mortgage origination due to low home sales and affordability.
* Furr noted, "there's been a flurry of recent credit news in the marketplace," but stated, "we do not anticipate any significant systemic risk across the portfolio at this time."
* Subprime auto exposure was acknowledged but described as actively managed and reserved.
* Broker-dealer fee income included some episodic items not expected to recur every quarter, and management expects a normalization of pretax margins.
* Uncertainty around interest rates, inflation, and broader economic health continues to be a focus.

FINAL TAKEAWAY

The third quarter saw Hilltop Holdings deliver higher net income and EPS, supported by strong results at PlainsCapital Bank and a standout performance at HilltopSecurities. While the company expects net interest income to remain stable in the near term, management is closely monitoring competitive pressures, credit quality, and the evolving rate environment. Strategic leadership transitions and an active capital return program underscore Hilltop's commitment to maintaining financial strength and pursuing growth opportunities amid persistent industry headwinds.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/hth/earnings/transcripts]

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