Hilltop Earnings Call Highlights Strong Growth, Resilience

Hilltop ((HTH)) has held its Q4 earnings call. Read on for the main highlights of the call.

Hilltop Delivers Robust Earnings Growth Despite Pockets of Credit and Mortgage Stress

Hilltop’s latest earnings call struck a broadly upbeat tone, as management highlighted a 46% jump in full-year net income, healthy revenue growth, expanding net interest margins, and strong capital levels. The company underscored continued momentum at PlainsCapital Bank and Hilltop Securities, combined with meaningful capital returns to shareholders. While challenges in the mortgage business and a couple of stressed auto credits weighed on fourth-quarter results, executives framed these issues as manageable against a backdrop of solid profitability and balance sheet strength.

Strong Full-Year Earnings Growth

Hilltop posted consolidated income attributable to common stockholders of $165.6 million for 2025, translating to diluted EPS of $2.64, a 46% increase from the prior year. Management attributed the earnings surge to disciplined balance sheet management, improved spreads, and solid performance across core banking and securities businesses. This step-up in profitability signals that Hilltop is emerging from a more difficult rate and credit environment with stronger, more diversified earnings power.

Improved Revenue and Operating Leverage

Total revenues rose 8% to roughly $1.3 billion in 2025, while expenses grew just 2%, delivering a healthy 6% of positive operating leverage for the year. This gap between revenue and expense growth indicates that Hilltop is scaling its businesses efficiently, converting incremental revenue into earnings rather than cost. Management pointed to disciplined cost control alongside revenue expansion as a key driver of the company’s improved earnings trajectory.

Return of Capital to Shareholders

Capital return featured prominently on the call. Hilltop returned $229 million to stockholders in 2025 through a mix of share repurchases and dividends. In the fourth quarter alone, the company distributed $11 million in dividends and bought back $61 million of stock. With capital ratios remaining robust even after these actions, management signaled continued willingness and capacity to return capital, reinforcing Hilltop’s shareholder-friendly stance.

Net Interest Income and Margin Expansion

Net interest income increased 7% year over year, supported by an expanding net interest margin. The consolidated NIM improved by 30 basis points to 3.02% versus 2024, while PlainsCapital Bank’s margin climbed to 3.29%, up 12 basis points. These gains reflect a more favorable asset mix and improving funding costs, even in a complex rate environment. Management emphasized that this margin expansion was a key earnings lever and positions the bank well heading into 2026.

Hilltop Securities’ Strong Performance

Hilltop Securities delivered standout results, generating $501 million in net revenues and a 13.5% pretax margin for the year. In the fourth quarter, the segment produced $26 million of pretax income on $138 million in revenue, a robust 18% pretax margin. Public finance net revenues rose 20% year over year, while wealth management net revenues grew 16% to $53 million. These trends highlight the strength of fee-based businesses within Hilltop’s portfolio and their role in diversifying away from pure spread income.

Mortgage Business Shows Signs of Stabilization

PrimeLending, Hilltop’s mortgage platform, remains under pressure but is showing early signs of stabilization. Seasonally adjusted fourth-quarter origination volume came in at $2.4 billion, with refinance volumes up $168 million, a 49% year-over-year increase. Gain-on-sale margins improved by 19 basis points in 2025, a positive indicator for profitability once volumes recover more broadly. Management cautioned, however, that the mortgage environment remains challenging and highly rate-sensitive.

Solid Capital and Tangible Book Value

Hilltop’s capital position remains a core strength. The company reported a Common Equity Tier 1 (CET1) ratio of 19.7%, well above typical regulatory minimums and peer averages. Tangible book value per share increased by $0.60 from the prior quarter to $31.83, reflecting retained earnings growth and disciplined capital management. This strong capital base underpins both resilience in a tougher credit environment and flexibility for ongoing buybacks and dividends.

Loan Growth and a Healthy Pipeline

Average held-for-investment loans reached $8.2 billion in the fourth quarter, up 1.8% from the prior quarter and $361 million higher than a year ago. Hilltop enters 2026 with a loan pipeline of about $2.6 billion, and management expects full-year average bank loan growth of 4% to 6% (excluding certain PrimeLending-related loans). The pipeline and targeted growth range suggest the bank is still finding attractive opportunities to deploy capital despite heightened credit scrutiny and macro uncertainty.

Deposit Cost Improvements and Funding Trends

On the funding side, Hilltop is benefiting from easing deposit costs. Average interest-bearing deposit costs declined to 2.69%, down 21 basis points from the third quarter and 44 basis points from a year earlier. Ending deposits were roughly $200 million higher year over year, even after the company deliberately returned certain sweep deposits. The combination of modest deposit growth and lower funding costs is helping to support net interest margin and earnings.

Q4 Provision and Auto-Note Charge-offs

Credit quality was not without issues, particularly in the auto note portfolio. The fourth quarter included a $7.8 million provision for credit losses and $11.5 million in net charge-offs. Notably, $9.5 million of those charge-offs came from just two stressed auto credits, and only $5.7 million had previously been reserved. Management framed these as concentrated, asset-specific problems rather than a systemic deterioration, but investors will likely watch this portfolio closely for any further signs of stress.

PrimeLending Profitability Pressure

Despite some stabilization indicators, PrimeLending remained a drag on consolidated results. The mortgage unit posted a $5 million pretax loss in the fourth quarter, with management citing industry-wide headwinds, including affordability pressures, limited new home inventory, and higher ownership costs. These factors continue to weigh on volumes and margins, and the company warned that seasonal weakness could produce a soft first quarter for the mortgage segment.

Allowance Coverage and ACL Volatility

Hilltop’s allowance for credit losses ended the quarter at $91.5 million, down $3.6 million from the prior period, equating to an ACL-to-total loans (held for investment) ratio of around 1.1%. Management emphasized that the allowance is subject to volatility driven by changing economic forecasts and portfolio mix, especially in sensitive segments like auto. While coverage remains reasonable relative to loss experience, the company’s comments underscored the importance of macro assumptions in determining reserve levels.

Net Charge-offs and Full-Year Loss Experience

For the full year, net charge-offs totaled $16.9 million, or approximately 21 basis points of average held-for-investment loans. This rate is elevated versus benign credit years but still manageable, with the bulk of pressure tied to the auto note portfolio rather than broad-based deterioration across the book. Management portrayed the charge-off experience as a reminder that certain consumer and specialty exposures carry higher risk, but not as an indicator of systemic credit weakness.

Rising Noninterest Expenses

Noninterest expense in the quarter rose $6 million year over year to $269 million. The increase was driven by higher variable compensation tied to better performance in mortgage and securities businesses, $2.4 million in severance, and higher healthcare costs. While the uptick in variable compensation is a byproduct of stronger revenue, investors will watch whether management can keep underlying fixed expenses in check to preserve operating leverage.

Sweep Deposit Adjustments and Deposit Mix

Management also discussed strategic changes to sweep deposits. Hilltop returned $225 million of sweep deposits back to the broker-dealer program, reducing the remaining sweep balance to about $100 million, an 82% decline from year-end 2024. As a result, average total deposits fell roughly $233 million versus 2024, primarily due to this decision rather than core deposit attrition. The move reflects an effort to optimize funding mix and economics while accepting some headline decline in reported averages.

Sensitivity to Interest Rate Moves

The company remains notably exposed to shifts in interest rates. Management’s outlook assumed roughly three Federal Reserve cuts in 2026 and highlighted that a 25-basis-point parallel move in rates changes net interest income by about $4 million to $5 million. They also cautioned that rate changes can affect certain broker-dealer and sweep revenue streams. This rate sensitivity will be a key factor in Hilltop’s earnings path as monetary policy evolves.

Forward-Looking Guidance and 2026 Outlook

Looking to 2026, Hilltop’s guidance is anchored in a scenario with several Fed cuts and moderate growth. Management is targeting full-year average bank loan growth of 4% to 6% (excluding certain PrimeLending loans) and expects the interest-bearing deposit beta, currently around 68%, to trend down toward 60%–65% with 2–3 rate cuts. Modeled asset sensitivity is just over 4%, implying a $4–5 million net interest income shift for each 25-basis-point parallel rate move. Hilltop Securities is expected to produce pretax margins in the low double digits to low teens (roughly 10%–14%). Quarterly noninterest expenses, excluding variable compensation, are forecast at about $180–$190 million, and mortgage gross revenue yields are projected to remain fairly stable around 350–360 basis points. Management anticipates further declines in interest-bearing deposit costs from the latest 2.69% level and highlighted that the company enters 2026 with strong capital, a sizable buyback authorization, and capacity for continued capital returns, while acknowledging seasonal softness in Q1 mortgage results and ongoing sensitivity of broker-dealer fees and net interest income to the rate path.

In closing, Hilltop’s earnings call painted a picture of a company with strengthening core profitability, improving margins, and robust capital, offset by isolated credit issues and persistent weakness in mortgage. For investors, the key takeaways are solid earnings momentum, disciplined operating leverage, and meaningful capital return potential, alongside risk factors tied to rates, auto credit, and the housing market. Overall, management’s confident tone and detailed guidance suggest Hilltop is well-positioned to navigate 2026, provided credit issues remain contained and the interest-rate backdrop evolves roughly in line with expectations.