Hilltop Holdings Inc. (HTH) Earnings

Management highlights

### Consolidated Financial Overview - Hilltop reported Q2 2026 net income attributable to common stockholders of $36.5 million, equal to 63 cents per diluted share. - Return on average assets was 1%, return on average equity was 6.9%. - Net interest income rose 5% year-over-year, non-interest income rose 4% year-over-year; non-interest expenses saw a modest 2% increase driven largely by variable compensation. - The company maintains a strong capital position, with a common equity tier one capital ratio of 18.3%, and tangible book value per share increased to $32.36. Capital Return Actions - Returned $11.6 million to shareholders via dividends, and repurchased $47 million in shares during Q2. - The board approved a 10% increase in the quarterly cash dividend to 22 cents per share, and authorized a $75 million increase to the stock repurchase program, bringing 2026 total repurchase authorization to $200 million. Plains Capital Bank Operating Highlights - Delivered strong loan growth and expanding net interest margin, supported by a modest decline in total deposit costs. - Core deposit balances (excluding Hilltop Securities sweep deposits) increased year-over-year; Q2 deposit declines were seasonal, and management expects deposits to rebound in the second half of 2026. - Recorded a $1 million provision release for credit losses, driven by improving economic conditions and declining non-performing assets. - Management is actively recruiting relationship-based community bankers to support organic growth, and views the Texas economy as a healthy long-term backdrop for banking operations. Prime Lending Operating Highlights - Continued to face industry headwinds from elevated interest rates, high property taxes and insurance costs, and tight housing inventory that depressed mortgage volumes and margins, with first-time homebuyer market share hitting an all-time low. - Successfully cut annualized fixed costs by approximately $10 million compared to Q2 2025, and remains focused on meeting internal productivity and operational targets for the second half. Hilltop Securities Operating Highlights - Broad-based growth across most core sub-segments, with expanded pre-tax margins year-over-year. - Public finance industry issuance volumes were strong in Q2, and management expects elevated issuance to continue through the second half of 2026. - Management remains focused on deepening client relationships across the segment's core business lines. Credit Quality Highlights - Allowance for credit losses declined by $4 million to $85 million in Q2, with net charge-offs of $3.2 million (16 basis points of average loans). - Non-performing assets have declined consistently over the past 12 months, driven by steady portfolio improvement and successful workout activities. A small increase in classified loans stemmed from deterioration in a single large credit, but overall credit quality remains sound.

Guidance

- Full-year 2026 expected average loan growth (excluding mortgage warehouse lending and retained mortgages from Prime Lending) was revised upward to a range of 5% to 7%, from prior lower estimates. - Management expects net interest margin to remain near current levels, with a potential modest decline in the second half of 2026, while net interest income will stay relatively stable through upcoming quarters, based on a base scenario of one interest rate increase in December 2026. - Customer deposits are expected to return to growth in the second half of 2026, following seasonal Q2 declines. - Public finance issuance volumes are expected to remain elevated in the second half of 2026. - Non-interest expenses (excluding variable compensation) are expected to remain stable at current levels, as management maintains a focus on prudent productivity improvements and controlled growth. - The firm's normalized target loan-to-deposit ratio range is 80% to 90%, with management targeting a long-run average closer to 85%.

Segment performance

1. Plains Capital Bank: Pre-tax income of $51 million. It reported a net interest margin of 3.42%, a 1.3% return on average assets, an efficiency ratio of 55%, and total average deposits of approximately $10.4 billion. Ending HFI (held for investment) loans grew by $239 million quarter-over-quarter, ending at over $8.5 billion. This segment contributed the majority of Hilltop's pre-tax profits for the quarter. 2. Prime Lending: Reported a pre-tax loss of $2 million. Origination volumes stayed consistent with year-ago levels, while gain on sale margins fell 6 basis points year-over-year to 217 basis points. This segment accounts for a minor negative pre-tax contribution to consolidated results, amid ongoing industry-wide mortgage headwinds. 3. Hilltop Securities: Pre-tax income of $12 million, a $6 million year-over-year increase, on net revenue of $124 million for a 10% pre-tax margin, a 13% year-over-year increase in net revenue. By sub-segment: - Public Finance Services: $30 million net revenue, a modest year-over-year decrease; - Structured Finance: 73% net revenue year-over-year increase on robust buy-side demand; - Wealth Management: Year-over-year revenue improvement from higher advisory and transaction fees in the retail segment; - Fixed Income Services: 10% net revenue year-over-year increase from higher sales and trading revenue for both municipal and taxable products. This segment contributed 25% of total consolidated net revenue for the quarter.

Risks & headwinds

- Forward-looking statements about future performance are inherently uncertain, and actual results may differ materially due to market factors, changes in the macroeconomic outlook, and other unforeseen risks. - Intensifying deposit competition from in-state and out-of-state peers may lead to higher offer rates and more exception pricing, which could pressure net interest income over time. - Allowance for credit losses is volatile, and will fluctuate with changes to credit portfolio composition, loan growth, credit migration trends, and updates to the macroeconomic outlook. - Mortgage banking continues to face sustained industry headwinds from elevated interest rates and low housing affordability, which are delaying a recovery in volumes and margins. - Revenues for Hilltop Securities' structured finance and fixed income capital markets businesses are volatile quarter-to-quarter, driven by changes in market volatility, interest rates, liquidity, and issuance volumes. - Broad macroeconomic uncertainty around interest rates, inflation, and overall economic resilience creates headwinds across all business segments. - Credit quality can be impacted by unexpected deterioration in individual large credits, even when overall portfolio metrics remain healthy.

Analyst Q&A

• Q: With solid Q2 loan growth and expected further growth in H2 2026, what is the current range of new production loan yields, is there pricing pressure, and what additional repricing benefits can be expected from the existing back book? /

  A: New originations currently carry yields between 6.5% and 7%, varying by asset class and specific deal, in a highly competitive lending market. Most repricing of the back book to higher rates already occurred as rates rose over the past two years, so any future additional repricing will have only a modest impact on net interest income. Management remains satisfied with current closing activity and yield levels despite competition.

• Q: Deposit levels were soft in Q2, and the loan-to-deposit ratio is at recent highs. What is Hilltop's internal target range for this ratio, and can it continue to move higher? /

  A: After elevated cash levels from the post-COVID era, cash has trended lower as excess deposits fell, bringing the loan-to-deposit ratio up to a more normalized operating level. Management sees 80% to 90% as a normal long-term range for the firm, with a target closer to 85%. The firm remains focused on growing core deposits alongside continued loan growth.

• Q: What are the key upside and downside risks for the broker-dealer business under the current changing interest rate outlook? /

  A: Higher rates could pressure public finance debt issuance appetite, flattening yield curve would hurt fixed income services results, and lower rates reduce sweep fee income for wealth management. The base guidance assumes one December 2026 rate increase and expects the yield curve to remain upward sloping. Management remains constructive on all core broker-dealer segments: public finance is seeing strong national issuance that should continue in H2, and wealth management has built solid momentum over several years.

• Q: After the Q2 repurchases and expanded repurchase authorization, what is the cadence of future repurchases, and how does share repurchasing rank in Hilltop's capital deployment priorities? /

  A: The increased dividend and expanded repurchase authorization reflect management's confidence in the firm's performance and outlook, bringing total 2026 repurchase authorization to $200 million. Organic growth of the existing business is the top capital priority, followed by capital return to shareholders, and the firm retains ample capacity for opportunistic M&A. Repurchases will be pursued when they are accretive to shareholders.