Hilltop Holdings Inc. Stock

Hello, everyone. Thank you for joining us, and welcome to Hilltop Holdings Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Matt Dunn, Corporate Development Officer and Head of Investor Relations. Matt, please go ahead.

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 and trends in 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. Please note that certain 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 be turning the presentation over to Jeremy Ford.

Thank you, Matt, and good morning. For the second quarter, Hilltop reported net income of $36.5 million or $0.63 per diluted share. Return on average assets for the period was 1% and return on average equity was 6.9%.

To summarize the lines of business, PlainsCapital Bank produced continued strong loan growth and further expansion in net interest margin while delivering $51 million in pretax income. PrimeLending reported a pretax loss of $2 million as the mortgage market faced a muted start to the summer buying season. And HilltopSecurities delivered a $6 million year-over-year increase in pretax income, primarily due to strong quarters within wealth management and structured finance.

At PlainsCapital Bank, a robust loan pipeline and pull-through rate paired with the continued expansion of the net interest margin to 3.42% helped to produce a 1.3% return on average assets during the second quarter. Favorable results at the bank were supported by a modest decline in the cost of total deposits and an efficiency ratio of 55%, which is in line with both the first quarter of 2026 and the second quarter of 2025.

Deposit balances at the bank remained relatively stable on a quarter-over-quarter basis, and core deposit balances, which excludes the sweep deposits from HilltopSecurities, increased on a year-over-year basis. A portion of our core customer base at PlainsCapital typically experienced seasonal declines in deposit balances during the second quarter of the year, and we expect those deposits to return during the second half of the year.

Results in the quarter included a $1 million provision release. This was largely driven by an improvement in economic conditions as well as a decline in nonperforming assets. Will is going to provide further commentary on credit in his prepared remarks.

While competition in core markets continues to increase from both in-state and out-of-state peers, we believe that PlainsCapital Bank is well positioned to deliver strong organic growth. From a recruiting perspective, we remain active, engaged across our markets to source and sign talented bankers who embody our commitment to relationship-based community banking. We believe the Texas economy will continue to provide a healthy backdrop for our banking operations, and we plan to invest further in the bank's already strong momentum.

Moving to PrimeLending. The company reported a pretax loss of $2 million during the second quarter. An elevated interest rate environment when compared to the first quarter of 2026, alongside the prolonged headwinds of higher property taxes, higher insurance costs and tight inventory levels continue to weigh on overall industry volumes and gain on sale margins. Further evidence of the challenging mortgage market is highlighted by a new all-time low share of homes being sold to first-time homebuyers.

While we continue to fight for mortgage volumes amid an ultra-competitive environment, PrimeLending has been able to successfully lower its fixed cost which are down approximately $10 million annualized when compared to the second quarter of 2025. Until long-term rates show signs of decline and therefore, drive higher industry volumes, we anticipate the market will remain highly contested. We remain focused on achieving internal goals around productivity and operational results for the second half of the year.

During the quarter, HilltopSecurities generated pretax income of $12 million on net revenue of $124 million for a pretax margin of 10%, speaking to the lines of business at HilltopSecurities. Public Finance Services continued to produce healthy top line results, delivering $30 million of net revenue, which is a modest decrease versus the second quarter of 2025. Industry issuance volumes were strong during the quarter, and we expect issuances to remain elevated for the second half of the year. Structured finance realized a 73% increase in net revenue compared to the second quarter of 2025 as buy-side demand for call protected collateral remained robust throughout the quarter. Wealth Management showed continued improvement on a year-over-year basis through an increase in revenue generated by advisory and transaction fees within the retail portion of the business.

Finally, Fixed Income Services delivered a 10% increase in net revenue compared to the second quarter of 2025 as both municipal and taxable products saw an increase in sales and trading revenue. Overall, HilltopSecurities produced an increase in net revenue of 13% and expanded pretax margin when compared to the second quarter of 2025. The firm has delivered a strong second quarter and first half of the year and remains focused on building deep and meaningful client connectivity across its core competencies.

Moving to Page 4. Hilltop maintained strong capital levels with a common equity Tier 1 capital ratio of 18.3%. Additionally, our tangible book value per share increased to $32.36. During the period, we returned $11.6 million to stockholders through dividends and repurchased $47 million in shares. Notably, Hilltop's Board declared a 10% increase to the quarterly cash dividend to $0.22 per share and authorized a $75 million increase to the stock repurchase program. Thank you.

I'll now turn the presentation over to Will to discuss our financials in more detail.

Thank you, Jeremy. I'll start on Page 5. As Jeremy noted, for the second quarter of 2026, Hilltop reported consolidated income attributable to common stockholders of $36.5 million, equating to $0.63 per diluted share. Quarter's results included a 5% year-over-year increase in net interest income, a 4% year-over-year increase in noninterest income and a modest increase in noninterest expenses, which was largely driven by variable compensation. Please note that the prior year period did include a $9.5 million legal recovery recorded in noninterest income.

Further, Hilltop recorded a net reversal in the provision for credit losses of $1 million during the quarter, which I'll review in more detail as I move to Page 6. Hilltop's allowance for credit losses declined during the quarter by $4 million to $85 million. As is noted in the graph, Hilltop recorded net charge-offs of approximately $3.2 million and increased specific reserves by $1.9 million, largely related to the deterioration of one loan in the portfolio.

In addition, modest improvements in the macroeconomic outlook, adjustments to qualitative factors and the quarterly scoring activity in the portfolio resulted in a net reduction to the ACL of $2.9 million. It remains of note that we continue to believe that the ACL could be volatile as it is impacted by changes in the mix and makeup of the credit portfolio, net loan growth, credit migration trends and changes to the macroeconomic outlook over time.

I'm turning to Page 7. Net interest income in the second quarter equated to $116 million, including $800,000 of purchase accounting accretion. Versus the prior year second quarter, net interest income increased by $5 million or 5%, driven primarily by lower interest-bearing deposit costs, coupled with the balance sheet composition shifting from cash into loans held for investment. During the second quarter, net interest margin increased versus the first quarter of 2026 by 8 basis points to 321 basis points.

The improvement in NIM was largely driven by the same items delivering higher net interest income, including lower deposit yields, improved balance sheet composition and the modest increase in net borrowings versus the prior year period. In our current macroeconomic outlook, this scenario includes one rate increase to occur in December of 2026. Based on this rate scenario, we expect that NIM will moderate at current levels, potentially declining modestly during the second half of the year and the net interest income will remain relatively stable at these levels over the coming quarters.

Turning to Page 8. Second quarter average total deposits are approximately $10.4 billion, which reflects a decline of $263 million versus the second quarter of 2025. During the quarter, total deposits were stable versus the first quarter of 2026 levels at $10.5 billion on an ending balance basis, including an increase of $300 million of HilltopSecurities Sweep deposits being moved into the bank. Excluding the impact of the sweep movement in the period, the decline in other customer deposits reflects normal seasonal flows related to tax payments, scheduled distributions from certain of our public fund depositors and business flows and distributions from some large C&I clients.

We do expect the customer deposits will begin growing again in the second half of the year. As a result of our ongoing pricing efforts, interest-bearing deposit costs declined from the first quarter levels to 237 basis points. During this down rate cycle, Capital has been able to achieve a 75% interest-bearing deposit beta. As we've noted in the past, we expect that our beta levels could decline even with no further rate actions as deposit competition in our markets has substantially increased, and we believe that this could result in higher offer rates and a higher level of exception pricing activity. With competitive intensity increasing, we will continue to balance the support of our long-term customer relationships with prudently managing net interest income over time.

Moving to Page 9. Total noninterest income for the second quarter of 2026 equated to $200 million. Versus the same period in the prior year, mortgage revenues declined by $1.8 million, driven primarily by lower valuation marks on the rate lock pipeline. Second quarter origination volumes were consistent with the prior year period levels, while mortgage gain on sale margins for loans sale to third parties declined versus the prior year period to 217 basis points, a decline of 6 basis points.

It remains important to note the ongoing challenges in mortgage banking continue as the combination of the current level of mortgage rates and home affordability concerns have combined to create an environment that remains restrictive and continues to push back a recovery in margins and production volumes across the industry.

Growth in principal transactions, commissions and fees at the broker-dealer were driven by structured finance, which experienced a $170 million increase in lock activity and improved marks on the mortgage lock pipeline. In addition, wealth management has produced solid growth in fees resulting from growth in client wealth assets and productivity enhancements across the brokerage team. The decline in other noninterest income largely relates to the prior year legal recovery recorded in PrimeLending of $9.5 million. As we've noted in the past, revenues from structured finance and fixed income capital markets at the broker-dealer can be volatile from period to period as they're impacted by market volatility, interest rates, market liquidity and production volumes.

I'm turning to Page 10. Noninterest expenses increased from the same period in the prior year by $5.5 million or 2% to $267 million. The increase in expenses versus the prior year second quarter was driven by increases in variable compensation, largely at HilltopSecurities and reflects the impact of higher revenue in structured finance and wealth management. Looking forward, we expect that expenses other than variable compensation will remain relatively stable at current levels as we remain diligently focused on prudent growth of revenue producers while continuing to improve productivity across our middle and back-office functions.

Turning to Page 11. Second quarter average HFI loans equated to $8.5 billion. On a period ending basis, HFI loans grew versus the first quarter of 2026 by $239 million, driven by $114 million of growth in CRE lending, $54 million of growth in C&I lending, $45 million of growth in loans from our broker-dealer and $28 million of seasonal growth in the mortgage warehouse lending business.

Related to our lending activity, we're pleased with our commercial lending pipelines, which have remained stable throughout the year, and we expect the pipeline will provide support for continued growth for the balance of 2026. As a result, we are increasing our full year expected average loan growth rate to a range of 5% to 7% for 2026. Note this outlook excludes any impacts related to mortgage warehouse lending and any mortgages retained from PrimeLending.

Moving to Page 12. As is shown in the chart on the upper left of the page, classified and special mention loans increased during the second quarter, largely driven by a large single-family credit that deteriorated during the quarter. Overall, we believe credit quality remains sound and the bank team is monitoring the portfolio closely for any signs of deterioration, and we'll continue to move swiftly to protect its exposure for any loans that experience challenges. As is shown in the upper right chart, NPA levels have declined consistently over the last 12 months as we continue to see steady improvement and solid workout in this portfolio. Further, net charge-offs for the second quarter of 2026 equated to $3.2 million or 16 basis points of average loans.

Lastly, as presented on the graph on the bottom right of the page, the allowance for credit loss coverage at the bank ended the second quarter at 103 basis points, including mortgage warehouse lending. The declines in allowance over the last year can largely be attributed to the adoption of the baseline scenario for Moody's during the second quarter of 2025 and the ongoing workout of the auto note portfolio that we've addressed in previous quarters.

Moving to Page 13. As we move into the third quarter of 2026, there continues to be a lot of uncertainty in the market regarding interest rates, the impact of ongoing inflation as well as the resilience of the overall economy. In the face of these uncertainties, we're pleased with the work that our teams are doing each day to support our customers and the communities we serve. We believe that this work is helping us build momentum in the bank and broker-dealer businesses and supporting our focus on returning our mortgage business to profitability. As is noted in the table, our current outlook for 2026 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 Instructions] Our first question comes from the line of Matt Olney with Stephens.

I want to ask more about loan growth. I saw some really good growth in the second quarter, and it sounds like you expect more growth in the back half of the year. I guess I'm curious what you're seeing on the loan yields. It looks like it was pretty flat this quarter, but do you have any color on the new production yields, -- any pressure there? And any more benefits you expect from the back book repricing?

Thanks, Matt. So we have seen solid growth through the first half of the year, which we're excited about. The bank teams are working diligently every day to kind of serve customers. So again, as I noted in my comments, the pipeline has remained stable, and we feel like that supports growth in the back half. As it relates to kind of going on yields, to your point, certainly, we're seeing competition is intense across our footprint and across the markets we serve. And we're seeing kind of going on yields in the 6.5% to 7% range depending on the asset class and the deal in particular.

In terms of repricing, we are seeing some repricing activity, but that's largely occurred certainly as it relates to kind of repricing up as rates moved up over the last couple of years. And so that will be -- we believe that to be pretty modest impact. But again, we're pleased with our closing activity, pleased with the rates and going on position there, and we'll continue to kind of push forward with the market being pretty competitive as we sit here today.

Okay. I appreciate that, Will. And then I guess on the other side, the deposit side, obviously, some softness this quarter. I think that loan-to-deposit ratio is kind of at the higher end of what we've seen more recently. Just remind me of kind of what your kind of internal range preference is and kind of the upper end of that. Curious if we're going to see that continue to move higher.

So we've -- you have seen it tick higher. We had historically and over the last couple of years since the COVID era, if you will, maintained a higher than kind of average cash level. We've seen our cash levels, which are driven by kind of excess deposits track lower. We're at a level now that I think is more consistent with normal operating from a cash perspective.

And so what that yields is, again, that loan-to-deposit ratio has moved higher as you've seen deposits be relatively stable as well as loans growing. So our view is 80% to 90%, probably closer to 85% is a more normalized, I'd say, loan-to-deposit level for the organization over time. But objectively, we're focused on growing core deposits across the portfolio and across the footprint. And then also, as we noted just momentarily ago, growing loans.

Our next question comes from the line of Evan Yee with Raymond James.

So I just wanted to start on the broker-dealer. Could you provide a little bit more color on the puts and takes with your broker-dealer outlook, just given the change in the rate outlook?

As far as the outlook is concerned. Go ahead...

Yes. So our broker-dealer fee guide here is negative 3% to 1%. As it relates to rates, I think as you think about the broker-dealer -- there's a few things that kind of are impacted. Obviously, sweep fees across our wealth management business are impacted. We've talked historically that our public finance business as rates would move higher. Obviously, the appetite for debt issuance and otherwise could be pressured.

And then in fixed income services, it benefits largely from an upward sloping yield curve. If that were to flatten out, obviously, those impacts could be negative to net revenue across the period. As we look out and from a guidance perspective, we think the curve is going to remain upward sloping. As we noted, our guidance all considers kind of one rate increase in the December period.

And so from our perspective, we're constructive on public finance as well as fixed income, wealth management and structured finance. We're pretty constructive on those businesses. Public finance did have a record year last year as issuance in the marketplace was substantial, but we'll continue to kind of monitor it. So we had a solid year from a baseline perspective and our teams continue to execute. But we recognize the volatility in the marketplace, whether it be rates, whether it be inflation, whether it be the macroeconomic backdrop or geopolitical matters have continued to pressure all facets of our business. And so our guidance reflects that as well.

Yes. And I'll just add a little bit more color. I mean, we are seeing national issuance and municipal volumes be very strong. We've had it through the first half of the year, and we continue to expect that in the second half of the year. So I think the public finance business will continue to chug along. And our wealth management business has really shown a lot of improvement over the last several years. And we see a lot of good momentum there, particularly in our retail segment of that. So I echo Will's sentiment that we feel pretty good about the results for 2025 and the momentum that's being carried into 2026.

Okay. Great. And I guess just another question for me. I appreciate the $47 million of repurchases in the second quarter and increase in the program. But kind of how should we think about the cadence of repurchases from here? And I guess more broadly, where does it fall in the priority stack of capital deployment uses?

I guess from my standpoint, we're really happy about what we've just put out with our strong results and our financial position and our outlook. So I think that, that shows in us increasing our authorization by $75 million from the already approved $125 million. So that brings us to $200 million of total authorization for 2026. And as well, I know you saw that we increased our dividend by 10% to $0.22 a share per quarter. So I think that just reflects our confidence in the company.

And so as far as the capital stack is concerned, we are -- if you see our capital ratios are heading down. Our common equity Tier 1 ratio is 18.3%. And we think that's a good direction in that we're seeing part of that come from growth in our loan portfolio and also in our capital deployment. And I think we'll continue to prioritize organic growth first and then capital return second, and we'll be mindful of what's -- how accretive that is to the shareholder. And also, we have ample resources to be able to do M&A.

We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Hilltop Holdings First Quarter 2026 Earnings Conference Call and I would now like to turn the call over to Matt Dunn. Please go ahead.

Thank you. Before we get started, please note that certain statements during today's presentation that are not statements of historical facts, including statements concerning such items as our outlook, business strategy, future plans, financial condition, credit risks and trends in 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. Please note that certain 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 will now turn the call over to Jeremy Ford.

Thank you, Matt, and good morning. For the first quarter, Hilltop reported net income of approximately $38 million or $0.64 per diluted share. Return on average assets for the period was 1% and return on average equity was 7.1%. To summarize the quarter, PlainsCapital Bank reported a continued expansion in net interest margin while generating year-over-year growth in both core loans and core deposits. PrimeLending narrowed its operating loss when compared to the first quarter of 2025 as the mortgage business benefited from higher origination volumes. And HilltopSecurities delivered strong earnings as net revenues across its business lines showed good momentum to start the year.

At PlainsCapital Bank, a favorable 3.38% net interest margin and the continued execution on a robust loan pipeline helped to produce $47 million of pretax income and a 1.2% return on average assets for the quarter. Operating results at the bank were supported by active management of the deposit portfolio and a further remixing of earning assets into core loans. This combination led to an increase in net interest income of $8 million versus the first quarter of 2025. Results in the quarter included a $1.8 million provision expense. This was largely driven by a stressed auto note credit that we have discussed in prior quarters. Will is going to provide further commentary on credit in his prepared remarks. The bank is poised to deliver continued core loan growth as we seek to organically recruit talented bankers to our platform and expand on our existing customer base by offering value-enhancing products and services.

Additionally, we expect to grow core deposits on a year-over-year basis, but we anticipate modest seasonal volatility in core deposit balances. We believe the backdrop of a healthy Texas economy and a constructive shape to the yield curve will continue to provide a favorable operating environment for PlainsCapital Bank. Moving to PrimeLending, where the company reported a pretax loss of $2 million during the first quarter. The improvement in financial results was primarily driven by year-over-year increases in loan origination volumes and gain on sale margins as well as cost structure enhancements that were implemented in 2025. However, overall profitability within the mortgage business remains under pressure from stubborn headwinds such as affordability and the interest rate lock-in effect.

The spring and summer months historically drive elevated origination volumes at PrimeLending. However, persistent volatility in long-term interest rates creates greater uncertainty around second and third quarter production than in a typical year. Given the structural challenges that homebuyers currently face, we anticipate that overall volumes will be materially impacted by prevailing mortgage rates. We remain focused on achieving internal productivity metrics to best position the business for profitability in this prolonged mortgage cycle.

During the quarter, HilltopSecurities generated pretax income of $15 million on net revenue of $116 million for a pretax margin of 12.7%. Speaking to the business lines at HilltopSecurities. Public finance services continued to produce solid top line results as it delivered $23.6 million of net revenue. which is a modest decline versus last year's robust first quarter. Structured finance showed strength in a volatile interest rate environment as the business line delivered net revenue of $23.6 million benefiting from a material increase in DDA lock volume on a year-over-year basis. In Wealth Management, results further improved versus the prior year's first quarter from higher advisory fees and transaction fees. We continue to see organic growth in the wealth business in the midst of a competitive operating environment.

Finally, fixed income services delivered $14 million of net revenue which was a 58% increase compared to the first quarter of 2025, primarily from strong sales volumes. Despite the highly volatile interest rate environment, HilltopSecurities produced a solid first quarter and improved pretax income by 60% on a year-over-year basis. The firm continues to add scale to our core competencies and deliver value to our clients.

Moving to Page 4. Hilltop maintained strong capital levels with a common equity Tier 1 capital ratio of 19.1%. Additionally, tangible book value per share increased to $31.97. During the period, we returned $11.8 million to stockholders through dividends and repurchased $47.5 million in shares.

Thank you. And I'll now turn the presentation over to Will to discuss our financials in more detail.

Thank you, Jeremy, and I'll start on Page 5. As Jeremy discussed, for the first quarter of 2026, Hilltop reported consolidated income attributable to common stockholders of $37.8 million, equating to $0.64 per diluted share. The quarter's results included 7% growth in net interest income, driven by ongoing efforts to manage deposit levels and costs, coupled with approximately 5% year-over-year average HFI loan growth at PlainsCapital Bank.

In addition, PrimeLending and HilltopSecurities delivered growth in fees driven by improved origination volume and margins in mortgage and improved fixed income trading results during the first quarter of 2026. I would like to remind all call participants that the prior year's first quarter results included $41.8 million of revenue and $28.8 million of net income related to the sale of the merchant banking investment and a legal recovery at Plains Capital Bank.

Turning to Page 6. During the first quarter, Hilltop's allowance for credit losses declined by $2.5 million to $89 million. This decline is largely attributable to a modest improvement in the overall credit quality of the portfolio, including the net impact of positive credit rating migration, payoffs and new loan growth during the quarter. While the economic condition impact during the first quarter was limited, we do believe that the macroeconomic environment, including the geopolitical landscape will continue to provide volatility and uncertainty in future periods. As we've stated since the introduction of CECL, we believe that the allowance for credit losses could be volatile and the 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. As of March 31, allowance for credit losses of $89 million yields an ACL to total loans HFI ratio of 106 basis points.

Turning to Page 7. Net interest income in the first quarter equated to $112 million, including $1.3 million of purchase accounting accretion versus the prior year same period Net interest income increased by $7 million or 6.7%, reflecting our ongoing efforts to prudently lower deposit costs while continuing to focus on growing customer deposits and relationships across the franchise. At this point in the rate cut cycle, the team at Plains Capital Bank has achieved an interest-bearing deposit beta from the first 175 basis points of reductions from the Federal Reserve of 74%. While we're pleased with these results to date, we recognize that competitive intensity and pricing pressures could escalate in the future. Our current expectation for a through-the-cycle interest-bearing deposit beta is 60% to 65%.

In addition to the improved interest-bearing deposit beta outcome, Hilltop's overall asset mix has improved versus the prior year with average excess cash levels declining by approximately $1.1 billion, while average HFI loans have grown by approximately $407 million. We expect that this mix shift will continue to benefit net interest income into the future quarters. Currently, our estimates for future NII and NIM reflect our expectation that the Fed will execute 2 additional rate reductions in 2026.

I'm turning to Page 8. First quarter average total deposits were approximately $10.6 billion and have declined by approximately $82 million or less than 1% versus the fourth quarter of 2025. On an ending balance basis, deposits declined by $347 million to $10.5 billion from the prior quarter ending balance level. The decline in deposit balances reflects the expected outflows during the quarter from certain of our public entity and commercial clients, specifically related to seasonal distributions. Our expectation is that deposits will stabilize and grow throughout the second half of 2026. Looking at the chart on the left of the page, we're very pleased with the stability in our noninterest-bearing deposits as our banking teams continue to focus on growing relationships, including growth in our treasury management suite of products.

During the quarter, total interest-bearing cost declined from the prior quarter by 20 basis points to 249 basis points as of March 31. Given the current market conditions, including a competitive operating environment, we do expect that interest-bearing deposit costs will begin to stabilize at these levels until we see additional movement from the Federal Reserve.

Moving to Page 9. Total noninterest income for the first quarter of 2026 equated to $188 million. First quarter mortgage-related income and fees increased by $5 million versus the first quarter of 2025, reflecting growth in loan origination volumes of 16%. While the mortgage market had begun to stabilize during the fourth quarter of 2025 and the beginning of the first quarter of 2026, the volatility created by concerns over the Iran conflict has impacted markets interest rates and slowed mortgage demand during the latter part of the first quarter. Given the uncertainty regarding the ongoing conflict and its impact on inflation, yields and housing demand, we are maintaining our mortgage production volume expectation at $9 billion to $10 billion for the year.

In addition, we expect the gain on sale margins will remain relatively stable at the current levels given these environmental challenges. Further, revenue from principal transactions, commissions and fees increased by $11.2 million, driven primarily by growth in fixed income services, coupled with growth in wealth management and structured finance. The most significant driver of the decline in revenue recorded in other noninterest income, related to the sale of merchant banking investment during the prior year same period, which as noted on the slide, equated to $41.8 million. It does remain important to recognize that both fixed income services and structured finance businesses, HilltopSecurities can be volatile from period-to-period as they are impacted by interest rates, overall market liquidity and production trends.

Turning to Page 10. Noninterest expenses remained relatively stable from the same period in the prior year, declining by $3 million to $248 million. During the prior year same period, expenses were impacted by $4.8 million, resulting from the net impact of the merchant banking investment sale and the recovery 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.

Turning to Page 11. First quarter average HFI loans equated to $8.3 billion, which grew by $218 million or 2.7% versus the fourth quarter levels. Continuing from 2025 and into the first quarter of 2026, we have continued to see solid activity across our commercial loan pipelines. Growth in the pipeline has been geographically dispersed centered in commercial real estate lending. Further, while the most recent pipeline trends are encouraging, we are monitoring for any negative demand impacts resulting from the current conflict in the Middle East, higher interest rates and higher oil and gas prices. Based on the current business flows, we are expecting full year average HFI loan growth to range between 4% and 6%. As noted in prior quarters, we continue to retain mortgages originated PrimeLending and would expect to continue to do so in the coming quarters. Our expectation is that we will retain between $10 million and $30 million per month.

I'm moving to Page 12. First quarter's results include $4.3 million of net charge-offs. This quarter's net charge-offs largely reflect the write-down of loans within the auto note finance credits that we've discussed over prior quarters. During the first quarter, the net charge-offs in the Auto Note portfolio equated to $3.6 million. As shown in the chart in the upper right of the page, nonperforming assets increased modestly, driven largely by the negative migration of one credit in our commercial real estate portfolio. Regarding credit overall, we've not seen any prevailing trends that cause undue concern in our portfolio. However, we do continue to monitor all aspects of the portfolio very closely as higher interest rates, international conflicts and higher energy prices could have a negative impact on our clients over the coming quarters.

Moving to Page 13. As we move through the second quarter of 2026, there continues to be a lot of uncertainty in the market regarding interest rates, inflation and the overall health of the economy. We are pleased with the current positioning of our balance sheet and the ongoing work that our team is executing each day to move our company forward through what has been an ever-changing operating environment. As is noted in the table, our outlook for 2026 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 Instructions] Your first question comes from the line of Woody Lay from KBW.

This is Hannah Wynn in for Woody Lay. My first question is on the NII range that you gave. I saw it bumped up this quarter from your previous guidance. And I was wondering if you could give a little color into this and where you're seeing loan yields come on and also where you might expect this to change if we don't end up seeing a rate cut this year.

Thanks, Hannah, for the question. Well, as we noted kind of in the prepared comments, we've seen what we believe to be pretty solid loan growth. We expect that loan growth to continue throughout the year. We're also seeing, as we noted, an improved deposit beta, the 74% through the cycle, while we would expect that likely diminishes if there are additional Fed rate cuts, we're very pleased with kind of where that has positioned us. So that was the basis in large part for the increase in the guide. As it relates to overall loan yields, our going on loan yields during the quarter were about 6.5% overall. So that's -- we view that as pretty favorable.

Okay. Great. And then my other question is on the capital front. I know you guys were active again on buybacks this quarter and wondering where you expect this activity to continue and also where you would put M&A in your capital priorities right now?

This is Jeremy. Yes, we were active. I think we're being more consistent with our repurchases this past quarter. And we have an authorization of $125 million for the year. So we'll be market dependent. We'll be looking for us to be consistent in our share repurchase and M&A is always available to us. We have the resources and the balance sheet. I think that -- so it would be a priority if we have the right strategic fit or if it is also a financially compelling transaction.

Next question comes from the line of Matt Olney from Stephens.

I want to dig more into your mortgage expectations for the remainder of the year. Will, I think you mentioned you're keeping the mortgage volume guidance for the full year unchanged. I guess some of the other -- I think some of the other third parties have moved more cautious if rates have increased in recent months. So anything else you can share about your outlook here? And I see you're assuming some Fed cuts in the NII guidance. I'm curious if you're also assuming lower rates with your mortgage outlook.

Thanks for the question. From a mortgage perspective, what we're kind of asserting here is we don't have clear visibility into the buying season for the second and early part of the third quarter. What we do see, and we noted in our comments was more muted demand in March and certainly directly after the conflict began overseas. And so as a result of that, we likely are moving. We would say we're going to -- we're still within the range. But if we -- historically, we guided -- if you look through our guidance, it's kind of midpoint. And so as we see softness, you could move to the lower end. But that said, it all depends on how temporary kind of the effects are and how the overall market recovers once the conflict is resolved.

So we're kind of cautiously optimistic there. And I know the team at PrimeLending continues to work hard to grow the business and originate mortgages for our customers. So that's the primary view there. As we get more clarity around the impacts and the longevity of the impacts, we'll provide more perspective next quarter.

Okay. Well, what about -- specifically about your rate assumptions. I mean we see the NII assumptions and the rate backdrop there. But what about the broker-dealer, the mortgage piece? Are you assuming any rate changes in other -- is it kind of through the entire enterprise? Just any more color on your rate assumptions.

Yes. So we -- our current assessment is 2 additional rate cuts, and we apply that across all of our businesses consistently. We also apply that to all of our guidance consistently. So that is the basis. I'd tell you, if we got no cuts, and that was all that occurred, which is also a pretty static and sterile analysis. But if that occurred, you could see NII move higher $8 million to $10 million, and then we would see likely a slightly better or improved revenue perspective in HilltopSecurities as well.

Okay. Appreciate that. And then as far as the net interest margin, great margin performance this quarter. It looks like the driver, interest-bearing deposit costs went lower. I was hoping you could speak to any more drivers of the margin performance this quarter? And just how sustainable do you think these levels are?

Yes. So I think from a deposit perspective, we feel good about the work the team has done. The 74% interest-bearing deposit beta through this point in the cycle, we feel very good about and it's higher than we've historically modeled or experienced. That said, there -- and we noted this, there continues to be kind of ongoing competitive intensity. And by virtue of that, we could see the need to increase deposit rates modestly. That said, we're going to be cautious and thoughtful about that because we are focused on growing overall relationships and deposit balances over time. And that's why I noted that our kind of through the cycle, if we get some additional Fed activity in terms of downward rates, we'd expect to see that beta back up to the 60% to 65% level.

And so that's kind of how we're thinking about it. As you look at NIM, we do believe we've kind of gotten to a peak NIM level given a consistent Fed. And so we would guide NIM flat to modestly down from here. And again, we feel good about the guidance we provided on NII as it relates to both interest rates as well as our balance sheet positioning and our overall deposit cost.

Your final question comes from the line of Cole Martin from Raymond James.

I'm on for Mike Rose this morning. Just on expenses, I was hoping you could talk through your nonvariable expenses guide of 0% to 2% and kind of what the puts and takes would be to really get to flat growth this year? And then also how much of that is technology driven?

Yes. So I think the guide really presumes, I'd say, normal inflationary increases in personnel-related expenses as well as our technology service provider costs. Those are in there. We are obviously making thoughtful investments across the franchise to grow our bankers, our client-facing and customer-facing associate groups. And so that's really the basis of what would drive it higher. And we would expect it to be modestly higher on a year-over-year basis, just given those investments that we're making.

Obviously, we continue to make investments in technology, our data platforms, the deployment of AI where practical across our organization certainly is a key focus as well. And those investments are kind of considered in the guidance as well as we look forward. So from an expense perspective, we are very pleased with the work the team has been able to do to drive productivity throughout the organization and keep our expenses other than variable compensation relatively stable over the last couple of years, but we do continue to see inflation, and we also expect to continue to make again, investments in client-facing resources as well as technology to continue to position the organization to be successful into the future.

Great. And then on deposits, I was hoping you could give a little bit of color on how much of an impact deposit competition that's had and kind of where you see the health of the consumer going out through 2026?

Yes. So I think deposit competition remains robust for sure. And what I would say is we've seen largely rational behavior, what we would call largely rational behavior by the competitive set through this portion of the rate cycle. And so we've been able to operate within that. And so when I say rational, we don't see a lot of competitors offering rates that we would call irrationally high, even though there's certainly activity out there to kind of grow clients and teaser rates and the thing and the like. So from that perspective, we feel like the competitive intensity is still there. It's pretty high. But that said, it seems rational at this point.

There are no further questions. That concludes the question-and-answer session and today's call. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to the Hilltop Holdings Fourth Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] This call is being recorded on Friday, January 30, 2026.

And I would now like to turn the conference over to Mr. Matt Dunn. Thank you. Please go ahead.

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 and trends in 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. Please note that certain 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 will now turn the presentation over to Jeremy Ford.

Thank you, Matt, and good morning. Before we review the results for the fourth quarter, I would like to spend time discussing the full year 2025. From a macro perspective, we saw a continued decline in short-term interest rates as the FOMC cut their target rate 3x totaling 75 basis points. The yield curve realized a further steepening through the year as long-term interest rates namely the 10-year treasury note remained range bound between 4% and 4.5%.

Hilltop, akin to many of our banking peers, has benefited from the increased slope of the yield curve by realizing an increase in net interest income and net interest margin. Specifically, at PlainsCapital Bank, a proactive management of deposit costs has helped to increase NIM by 12 basis points when compared to the prior year.

At PrimeLending, the combination of further expense optimization and a tightening in the spread between the going on mortgage rates and the 10-year treasury note helped to shrink the operating losses for the year 2025. However, the material headwinds of challenging affordability, low new home inventory and increased ownership expenses continued to weigh on industry volumes and margins.

Hilltop Securities through strong execution in our core competencies was able to produce a 13.5% pretax margin on net revenue of $501 million. Finally, Hilltop returned $229 million to stockholders through the repurchase of shares and common dividends while delivering $166 million of net income, which represents a 46% increase over the prior year. I would like to thank our colleagues throughout Hilltop for their hard work and dedication in 2025.

Moving to the fourth quarter. Hilltop reported net income of approximately $42 million or $0.69 per diluted share. Return on average assets for the period was 1.1% and return on average equity was 7.6%. To summarize our lines of businesses. PlainsCapital Bank realized a further expansion in net interest margin while continuing to see strong signs of core loan growth from a robust pipeline. PrimeLending continued to optimize the expense base of the franchise while realizing a healthy seasonally adjusted origination volume of $2.4 billion, and HilltopSecurities saw continued positive results from the wealth management, public finance and structured finance lines of business.

Within the quarter, PlainsCapital Bank generated $43.5 million in pretax income and a 1.05% return on average assets. Net interest margin saw continued expansion to 329 basis points, largely due to the previously mentioned active management of deposit costs.

While competition continues to increase within our markets, the bank has successfully increased lender headcount and continues to show a healthy loan pipeline. These metrics signal the great brand reputation at PlainsCapital Bank where we are known for providing excellent service and value to our banking customers.

Total core deposits within our markets showed further increases which allowed the bank to return an additional $225 million of sweep deposits to our broker dealer. That balance stands now at $100 million, which is down 82% relative to year-end 2024. Results in the quarter included a $7.9 million provision expense. This was largely due to the stress of -- excuse me, this is largely driven by 2 stressed auto note credits that we have discussed in prior quarters. Will is going to provide further commentary on credit in his prepared remarks. Overall, the bank continues to show tailwinds from strong loan growth, healthy core funding trends and a positive interest rate environment that supports our expanded net interest margin.

Moving to PrimeLending, where the company reported a pretax loss of $5 million during the fourth quarter. We realized a seasonally healthy start to the winter months from an origination volume perspective as a decline in going on mortgage rates spurred on a modest rebound relative to the various subdued second and third quarters of this year. However, profitability remains challenged as headwinds within the broader mortgage industry continue to weigh on total volumes and margins. As is typical, we expect for the first quarter of the year to be a seasonally slow home buying environment which should impact PrimeLending's origination volume.

During this prolonged mortgage cycle, we have executed on several operational cost reductions at PrimeLending to optimize the business and create a more efficient platform. We will continue to pursue increased levels of efficiency while investing in ways to organically grow production headcount and total origination volumes in order to expand our operating leverage.

During the quarter, HilltopSecurities generated pretax income of $26 million on net revenues of $138 million for a pretax margin of 18%, speaking to the business lines in HilltopSecurities. Public finance services rounded out a very strong year by producing a 20% year-over-year increase in net revenues as they capitalized on increased industry issuance volumes.

Structured finance net revenues increased by $2 million versus the fourth quarter of 2024. A decline in trading revenues was offset by a material increase in lock volumes on a year-over-year basis. In Wealth Management, net revenues increased by 16% to $53 million when compared to the fourth quarter of 2024. The continued healthy results in 2025 are due in part to the growth from our advisory fees on higher managed balances and improved transaction revenues. Further, strength in revenues generated by suite deposits continues to bolster our results.

Finally, Fixed Income Services showed a modest increase in net revenues versus the prior year as both sales and trading revenues improved year-over-year. Overall, Hilltop Securities delivered another strong quarter to round out a favorable year for the firm. We continue to focus on executing on our strategic initiatives as we aim to be a full solution provider to our clients.

Moving to Page 4. Hilltop maintained solid capital levels with a common equity Tier 1 capital ratio of 19.7%. Additionally, our tangible book value per share increased over the prior quarter by $0.60 to $31.83. During the period, we returned $11 million to stockholders through dividends and repurchased $61 million in shares.

Thank you. I'll now turn the presentation over to Will to discuss our financials in more detail.

Thank you, Jeremy. I'll start on Page 5. As Jeremy discussed, for the fourth quarter of 2025, Hilltop reported consolidated income attributable to common stockholders, $41.6 million, equating to $0.69 per diluted share. The fourth quarter results include $7.8 million provision for credit loss, which reflects the combined impacts of net charge-offs during the period and a modest deterioration in the economic condition outlook. Even with higher provision expense versus the prior year, we are pleased with solid growth in net interest income, which grew 7% versus the prior year. Noninterest income, which grew 11% versus the prior year, both of which contributed to a 26% improvement in Hilltop's diluted EPS.

Turning to Page 6. For the full year of 2025, Hilltop reported consolidated income attributable to common stockholders of $165.6 million, equating to $2.64 per diluted share, representing growth of 46% and 52% versus the prior year's results, respectively. During the year, total revenues, including both net interest income and noninterest income, increased by 8% to approximately $1.3 billion, while expenses grew by 2%, resulting in positive operating leverage of 6% for the year-end 2025.

I'm moving to Page 7. Hilltop's allowance for credit losses decreased during the quarter by $3.6 million to $91.5 million. During the quarter, Hilltop recorded net charge-offs of $11.5 million. Included in these net charge-offs were write-downs of $9.5 million related to 2 large auto note credits that have been referenced on prior calls. During the fourth quarter, the expected cash flows from the 2 loan portfolios that support these credits declined substantially from prior period estimates. As a result, management decided to mark these assets to the updated fair value thereby recognizing the charge-offs versus building and carrying an outsized allowance against these loans.

Of the net charge-off amount for these auto credits, approximately $5.7 million had been previously reserved. In addition, the allowance for credit losses increased modestly for portfolio migration and some deterioration in the macroeconomic outlook. At year-end, allowance for credit losses of $91.5 million yields an ACL to total loans HFI ratio of 1.1%. As we've seen over time, ACL can be volatile as it's impacted by economic assumptions as well as changes in the mix and makeup of the credit portfolio. We continue to believe that future changes in the allowance for credit losses will be driven by net loan growth in the portfolio, credit migration trends and changes to the macroeconomic outlook over time.

Turning to Page 8. Net interest income in the fourth quarter equated to $112.5 million, which included $1 million of purchase accounting accretion remaining stable -- relatively stable with the prior quarter and increasing by $7 million versus the prior year.

Net interest margin increased versus the fourth quarter of 2024 by 30 basis points to 302 basis points. The improvement in NIM and net interest income continues to be driven by the solid work our bank team is doing on managing deposit costs and growing lower-cost deposits within the bank. Through this portion of the cycle, we've maintained a 68% interest-bearing deposit beta, which has substantially improved versus our previous ALM model results of 50% to 55%.

While the team continues to focus on creating value for our clients, while managing our overall net interest income, we do expect that the interest-bearing deposit beta will fall for 60% to 65% if the Federal Reserve reduces rates, an additional 2 to 3x during this portion of the rate cycle.

Moving to Page 9. Fourth quarter average total deposits are approximately $10.7 billion, declining versus the fourth quarter of 2024 by $233 million. The decline in average deposits was driven by management's decision to return on average $397 million of HTH sweep deposits back to Hilltop securities to be deployed into their FDIC-insured sweep deposit program. On an ending balance basis, deposits increased by approximately $200 million from the third quarter of 2025, net of the return of sweep deposits of $225 million. The growth in customer deposits was driven by expanded commercial relationships, coupled with positive seasonal deposit trends from our public sector clients at the bank.

As a result of our ongoing pricing efforts, average interest-bearing deposit cost declined to 269 basis points, a decrease of 21 basis points versus third quarter of 2025 levels, which supports a decline in total deposit cost of 2% which were down 44 basis points from the prior year period. Currently, we expect that interest-bearing deposit costs will move somewhat lower over the coming quarters and then stabilize until we see any additional movement by the Federal Reserve on short-term rates.

Moving to Page 10. Total noninterest income for the fourth quarter of 2025 equated to $217 million. Fourth quarter mortgage-related income and fees increased by $2.5 million versus the fourth quarter of 2024, driven by improvement in both lock and originated volumes versus the same period in the prior year. While signs of improvement in our mortgage business are emerging, some of the significant macro challenges persist, whereby the combination of higher interest rates, home price inflation, insurance and elevated tax costs continue to pressure volumes and margins versus the same period prior year, purchase mortgage volumes were relatively stable at $1.9 billion and refinance volumes increased by $168 million or 49% versus the prior year period.

During the fourth quarter of 2025, gain on sale margins improved by 19 basis points for loans sold to third parties versus the prior year period. Largely offsetting the higher gain on sale margins were lower mortgage loan origination fees, which declined by 25 basis points versus the prior year, demonstrating that as mortgage interest rates have declined throughout 2025, our customers' desire to buy down their mortgage rate has also diminished.

During the fourth quarter, public finance, wealth management and structured finance business lines within Hilltop Securities all generated higher fee income versus the prior year period. Public finance benefited from higher market debt offerings across our customer base and wealth benefited from the performance in the equity markets, coupled with continued efforts to grow our producer and client base. Structured finance results reflect higher lock volumes from first-time homebuyers across the state housing agencies we support.

Other noninterest income grew by $4.6 million versus the prior year period, largely driven by valuation adjustments and return on certain investments within our merchant banking investment portfolio. As we've noted in the past, it is important to recognize that both the fixed income services and structured finance businesses at HilltopSecurities can be volatile from period to period as they are impacted by interest rates, overall market liquidity and production trends.

I'm turning to Page 11. Noninterest expenses increased from the same period in the prior year by $6 million to $269 million. Driving the increase in noninterest expense were higher variable compensation expenses, principally within the mortgage and securities businesses. In addition, compensation expenses were elevated during the fourth quarter of 2025 by $2.4 million of severance-related costs as well as an increase in overall health care cost.

Looking forward, we expect expenses other than variable compensation to remain relatively stable between $180 million and $190 million per quarter as our ongoing focused efforts relating 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 12. Fourth quarter average HFI loans equated to $8.2 billion and grew by 1.8% versus the prior quarter. On a period ending basis, HFI loans increased versus the fourth quarter of 2024 by $361 million, driven by growth in commercial real estate lending. While the economy in Texas remains resilient, we do expect the competition for funded loans will remain very intense. As we look forward to 2026, we are expecting the full year average bank loan growth of 4% to 6%, excluding the impact of loans retained from PrimeLending and mortgage warehouse lending.

I'm moving to Page 13. As is shown in the chart on the bottom left of the page, net charge-offs for the fourth quarter related to $11.5 million. As noted earlier, the most significant charge-offs in the period related to the 2 auto note finance credits that we've discussed on prior calls, which accounted for $9.5 million of net charge-offs during the quarter. We previously reserved $5.7 million for these credits. And as a result, the full $9.5 million did not impact provision expense in the period. For the full year of 2025, net charge-offs equated to $16.9 million or 21 basis points of full year average HFI loans.

While we are disappointed by the charge-offs related to the auto credits, we believe that credit quality remains stable across the portfolio and do not currently see any large systemic areas of concern. As is shown on the graph at the bottom right of the page, the allowance for credit loss coverage at the bank ended the fourth quarter at 1.15%, including mortgage warehouse lending.

I'm moving to Page 14. As we moved into 2026, there continues to be a lot of uncertainty in the market regarding interest rates, inflation and the overall health of the economy. That said, we provided our current outlook metrics for the coming year. As we've noted in the past, we're pleased with the work that our team has delivered to position our company for long-term success.

Our outlook for 2026 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'll provide updates to our outlook on our 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 Instructions] And your first question comes from the line of Matt Olney from Stephens.

I'll start on the broker dealer. It looks like those broker-dealer fees were good in the quarter and guidance calls for those to be relatively stable in 2026. I was hoping you could speak to a few of the business lines and expectations for '26? And then, I guess, kind of part 2 of that, that pretax margin, I think it's been 13.5% over the last 2 years. Is that a good baseline to assume for 2026?

So thanks for the question. I think as we look into 2026, we feel very good about the franchise that is HilltopSecurities and the 4 primary business lines there. We go through them, Public finance had really saw record originations, both in the industry as well as here. And we expect that to remain reasonably strong going into the year 2026, notwithstanding kind of market changes. But our current view is that public finance that business is set up to do well and the investments we've made there continue to bear fruit.

We continue to work diligently on our fixed income services. We've noted over the last couple of quarters and maybe years, that's been a challenging business. It seems to be moderating and producing solid results, again, relative to the investments we've made and expectations. So fixed income services, we're optimistic about. Wealth Management, as we noted, has benefited from both the overall improved equity market conditions and the continuation of that this year.

But we expect that business given again, investments we've made in people, our ability to attract and retain customers as well as some of the technology investments we've made there, that business to continue to improve over time. But it is market dependent based on kind of how the overall markets perform.

And then structured finance, as we've always said, has a -- is directly correlated to first-time homebuyers across the housing agencies we support. We believe there's going to continue to be a robust market for that going forward. But as we've noted in the past, we have seen certain states that have provided support. And that's certainly been helpful for overall origination volume, and we'll see if they continue to provide that support in the future.

Yes. And I would just add, we're really pleased with the HilltopSecurities, the year they had this year and last and the great management team, great businesses. And our public finance business, we're celebrating our 80th anniversary this year for it. So that just, I think, is a good indication of what a dominant public finance business we've had for a long time.

And your question on pretax margin, it has been consistently 13.5% for the last couple of years. We've historically guided that's going to be low double digits to low teens, so 10% to 13%, 14%. So we feel like this is an appropriate range, what we've seen and certainly look forward to having a solid year in '26.

Okay. Appreciate the color there. And then I guess, the guidance, I believe, also assumes 3 Fed cuts during '26. I assume that impacts both NII and the broker-dealer fees. Just big picture, any color on the sensitivity of that if we were to get just on the low end of that, 1 cut or even 2 cuts. Help us appreciate kind of what that would look like for NII and then the broker fee income?

Yes. I think broker fee income is going to be a little more difficult because there are clearly puts and takes there as it relates to certain things would improve if rates move lower, certain things will -- sweep income, for example, could be pressured. But that would be, I'd say, single-digit millions of dollars. From an NII perspective, we've noted it was an objective of ours to reduce overall asset sensitivity. We've continued to do that. As you can see in the deck, we've got kind of modeled asset sensitivity on instantaneous and parallel basis of just over 4%. And so every 25 basis points in that environment on an annual basis is about $4.5 million of NII.

And your next question comes from the line of Michael Rose from Raymond James.

Just wanted to discuss capital. Obviously, nice to see the dividend increase, but I think the buyback authorization was down from last year and maybe a little bit less than at least what I was looking for. Can you just kind of discuss kind of capital priorities? And clearly, we've seen a lot of M&A in and around your markets. I know you guys are kind of always in the hunt for deals. Just wanted to see if there's kind of any update from your perspective. I know you're a little bit hindered by the currency at this point. But has the opportunity set improved from here?

Thanks, Michael. No I think we're really pleased with the capital we deployed and the way we're able to do it in 2025. I think it's a strong message that we've increased our dividend by 11%. And so that should be well received. And our share repurchase authorization of $125 million, I think, is about pretty standard for what we authorized at the beginning of the year.

And then it will just be something that we monitor throughout the year as far as the deployment of that. So that's kind of on the capital priorities. On the M&A, I mean, clearly, it's been an extremely active year in Texas and a lot of deals being announced. I guess, at the forefront, yes, we are continuing to evaluate acquisition opportunities. But at the same time, we're also trying to make sure that we continue to focus on our own organic growth and try to take advantage of some of the dislocation that this may cause.

Perfect. Maybe just to ask the flip side of the question on the M&A conversation. I mean there's not a lot of properties left in the state of size. You guys are clearly one of them. I know there's decent insider ownership here, but I would just love to kind of discuss the potential possibility to maybe partner with a larger institution. And have you had any kind of informal or formal -- you're probably not going to answer this, but any reach out from any larger banks at this point?

No, for what we can disclose or discuss, obviously, we're going to remain open to that and do what's in the best interest of the shareholders. I think that our business model is different than a lot of the other more pure-play banks, which is limited universe of people that -- or bigger banks that have been -- would be attractive to it.

Okay. Helpful. Maybe one just final one for me. Just the NII guide, I think it implies some further core margin impression or compression. Well, if you can just maybe at least for the first quarter, just kind of talk about the expectation. I understand Matt's question as well, but it would seem like there'd be a little bit more core margin pressure as we move into the first couple of quarters of the year?

Well, I think what we've seen is pretty solid action and activity on our deposit cost side. So we feel like that's sustainable at this point. Again, we don't -- we obviously don't control what the Fed does. So we'll play along as they make their updates and changes. We are and have seen, as noted on an ending balance basis, seeing pretty solid loan growth across the bank. So all those things we think are constructive to net interest income.

But again, we do maintain an asset-sensitive balance sheet. And as a result, if the Fed does continue reducing rates will be impacted by that. But given they didn't take action in January, again, view that as reasonably constructive for the first quarter from our perspective.

And your next question comes from the line of Wood Lay from KBW.

Maybe starting on loan growth. It was a nice quarter on that front. Could you just talk about the loan pipeline entering 2026? And maybe also talk about just the loan pricing competition that you're seeing in your markets?

Sure. Yes. Our loan pipeline going into '26 is about $2.6 billion, which is on the high side for us. It built up higher and we had a lot of pull through. But we're feeling really good about the organic loan growth that we're experiencing in our markets. And just the expanding client reach that we've had. So I feel really good about the loan portfolio building.

On the pricing side, clearly, with rates coming down, we -- our, I think, going on yield down about 35 basis points in the quarter. So we are seeing that just with the rate environment.

Yes. That makes sense. And then maybe just last for me, shifting over to mortgage. I appreciate the origination volume expectation provided in the outlook. But just any thoughts on gain on sale margins over the coming year?

I think where we -- as we look forward, I think we expect total revenue between both gain on sale margin and mortgage origination fees really to be stable. If you look in our chart, if you kind of add those 2 bars together, you'll see they've been very stable. The mix changes as rates change and customers' preferences to buy down their rate or otherwise changes. But overall, revenue around that 350 to 360 basis point range is kind of our expectation into the future. That's obviously down from what you would see in a more robust market.

But again, our view has been and continues to be, we're going to see a steady improvement in the overall mortgage market, not a hockey stick change. And as a result, we'd expect kind of aggregate revenues, gross revenues to be stable.

That ends our answer question-and-answer session. Ladies and gentlemen, this concludes today's call. Thank you for participating. You may all disconnect.

Good morning, ladies and gentlemen, and welcome to the Hilltop Holdings Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that this call is being recorded today, Friday, October 24, 2025.

I would now like to turn the conference over to Matt Dunn. Please go ahead.

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 and trends in 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 purpose 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 preference of our presentation and those included in our most recent annual and quarterly reports filed with the SEC. 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 will now turn the presentation over to Jeremy Ford.

Thank you, Matt, and good morning.

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%.

To summarize the quarter, PlainsCapital Bank realized a continued expansion in net interest margin, while generating strong growth in both core loan and deposit balances. PrimeLending's results reflect a dampened summer home buying markets, where both volumes and margins remained under pressure, and HilltopSecurities produced a strong pretax margin from robust net revenue growth across all 4 of its business lines.

Speaking to the results of each operating business in the third quarter. PlainsCapital Bank generated $55 million of pretax income on $12.6 billion of average assets, which resulted in a return on average assets of 1.34%. Net interest margin at the bank increased by 7 basis points as we continue to actively manage down the cost of interest-bearing deposits. Loan yields at the bank increased 4 basis points on a linked-quarter basis as the portfolio further repriced into a higher rate environment.

Despite the highly competitive market in Texas, the bank produced strong core loan growth and saw a continued expansion within the loan pipeline. We expect competition to remain elevated in the coming quarters as we work to increase our market share and absorb modestly higher anticipated payoffs within the loan portfolio.

Total core deposits within our markets at PlainsCapital increased by 6% on a linked-quarter basis. This growth was partially attributable to seasonal cash inflows from select large balance customers. Further, PlainsCapital did return $225 million of broker-dealer suite deposits during the quarter.

Results in the quarter included a $2.6 million reversal of credit losses. This was primarily driven by improvement in asset quality and stronger underlying economic conditions on the collective portfolio. Will is going to provide further commentary on credit in his prepared remarks. Overall, the bank showed continued healthy trends in loan growth and pipeline development, core deposit growth and interest expense management and credit metrics that illustrate the quality of our loan portfolio.

Moving to PrimeLending, where the company reported a pretax loss of $7 million during the quarter. The second quarter's subdued mortgage origination volumes persisted into the third quarter as the industry did not experience the increase in home buying activity that typically occurs during the summer months. Notably, existing home sales across the country reached their lowest level in over 30 years.

While gain on sale margins did increase on a linked quarter basis, this was more than offset by a decline in origination fees. However, there were positive developments from the quarter as mortgage rates did modestly subside and home inventory saw a further reversion back towards more normalized levels. Homebuyers do continue to face affordability challenges, and we expect heightened competition for mortgage origination volume to keep margins and fee under pressure. As we enter the seasonally slower fourth and first quarters of the year, we will continue to focus on reducing fixed expenses, while recruiting talented mortgage originators in order to restore stand-alone profitability at PrimeLending.

During the quarter, HilltopSecurities generated pretax income of $26.5 million on net revenues of $144.5 million or a pretax margin of 18%. Speaking to the business lines at HilltopSecurities. Public Finance Services produced a 28% year-over-year increase in net revenues as the business continued to realize strong annual increases in both advisory and underwriting fees.

Structured Finance net revenues increased by $4 million from the third quarter of 2024, primarily due to a decline in market rates, which increased buy-side appetite for call-protected mortgage product. In Wealth Management, net revenues increased by $7 million to $50 million, when compared to the third quarter of 2024. The strong year-over-year increase is due to higher advisory and transaction fee revenue within the Retail segment, and an increase in stock loan revenues due to wider spreads.

Finally, the fixed income business showed a 13% increase in net revenues on a year-over-year basis as industry volumes remained robust within its Municipal Products segment. Overall, HilltopSecurities produced a very strong quarter for both the breadth and depth of offerings within the broker-dealer performed well. HilltopSecurities continues to invest in core areas of expertise as we leverage our national brand that is built on trust and a long-term focus on serving our clients.

Moving to Page 4. Hilltop maintained strong capital levels with a common equity Tier 1 capital ratio of 20%. Additionally, tangible book value per share increased over the prior quarter by $0.67 to $31.23. During the period, we returned $11 million to stockholders through dividends and repurchased $55 million in shares.

Now I'd like to give a brief update on an important transition of the bank's leadership team. In November, PlainsCapital Bank's Chief Credit Officer, Darrell Adams, plans to retire. Darrell has been with the bank for over 37 years and his leadership has created the credit culture that we have today. I want to thank Darrell for his partnership and his friendship as well his incredible contribution.

Fortunately, the bank has strong depth, so we promoted Brent Raindl to become our new Chief Credit Officer. Brent has been with the bank for over 26 years, formerly serving as the Dallas Region Chairman. Coinciding with this transition, Thomas Ricks, who has been with the bank for over 22 years, will become the new Dallas Region Chairman. This is an exciting time for PlainsCapital Bank as we elevate proven leaders from within. With a solid team in place, we believe that we are poised for continued growth and success, while staying true to the bank's legacy and credit culture.

Thank you. I'll now turn the presentation over to Will to discuss our financials in more detail.

Thank you, Jeremy.

I'll start on Page 5. As Jeremy noted, 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. The quarter's results included an increase in net interest income, supported by growth in commercial loans and the ongoing work to optimize our deposit cost as the Federal Reserve has continued lowering short-term interest rates. In addition, the quarter includes a $2.5 million reversal of provision for credit losses and a $1.3 million reduction in the allowance for unfunded reserves, which is reflected in other noninterest expenses.

To discuss the allowance in more detail, I'm moving to Page 6. 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%. As is noted in the graph, specific reserves increased in the period by $4.7 million. This increase was offset by an improvement of $5.2 million in the collective reserves, reflecting ongoing upgrades in our portfolio and a $2 million improvement in the economic scenario outlook, which reflects Moody's September baseline scenario.

While we recognize, there's been a flurry of recent credit news in the marketplace, we continue to monitor the portfolio closely, focusing on areas that we believe may pose future risk to the bank. While at any point, we could have an idiosyncratic event with an existing client, we do not anticipate any significant systemic risk across the portfolio at this time. In addition, we have evaluated our loans to nondepository financial institutions, and those totaled $195 million or approximately 2.4% of the outstanding loans HFI, excluding loans in our mortgage warehouse lending business at September 30.

Lastly, as we've stated over time, the allowance for credit losses estimate can be volatile as the computations and assessment include, but are not limited to the following: assumptions related to economic activity, inflation, interest rates, employment levels and specific credit activities within our portfolio. All of these can be volatile from period-to-period.

Turning to Page 7. Net interest income in the third quarter equated to $112 million, including approximately $600,000 of purchase accounting accretion. Versus the prior year third quarter, net interest income increased by $7.4 million or 7%, primarily driven by improving deposit costs resulting from our ability to realize higher deposit beta levels than previously estimated, coupled with the growth in new higher-yielding commercial loans.

During the third quarter, net interest margin increased versus the second quarter of 2025 by 5 basis points to 306 basis points. The increase in NIM was largely driven by stability in deposit costs from period-to-period and improving loan yields, reflecting the positive impact of new business booked throughout the first 3 quarters of 2025 and improving margin lending yields at HilltopSecurities.

Our current internal rate outlook anticipates 1 additional 25 basis point rate cut in 2025, followed by 2 additional rate reductions in the first half of 2026. Under this rate 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.

Additionally, we anticipate that interest-bearing deposit betas, which have averaged approximately 70% through the current rate cut cycle will gradually decline, but remain above 60% for the duration of the cycle, assuming rate reductions align with our current projections.

Turning to Page 8. Third quarter average total deposits are approximately $10.5 billion, stable with prior year levels. I would note that while average deposit balances are flat year-over-year, we have intentionally reduced broker-dealer sweep deposits held at the bank as they can be deployed through HilltopSecurities broader sweep program. These sweep deposits do remain a valuable source of continued liquidity for Hilltop should the need arise.

Over the last year, we have grown bank customer deposits, principally in the interest-bearing products by focusing on providing consistent and competitive prices. In addition, we're very pleased with the retention of our noninterest-bearing deposits over the last year and the work that our treasury services team continues to do to serve our customers and support the growth in our customer deposit base each day.

Related to deposit rates, both interest-bearing deposit costs and the cost of total deposits remained relatively stable versus the second quarter 2025 levels. We do expect the deposit rates will decline further as the timing of the most recent rate reduction caused the rate movements to be executed late in the third quarter.

I'm moving to Page 9. Total noninterest income for the third quarter of 2025 equated to $218 million. Versus the same period in the prior year, mortgage revenues declined by $3.4 million as origination volumes were relatively stable with the prior year and gain on sale margins for those loans sold to third parties improved by 8 basis points to 226 basis points.

While we believe revenues and production from the Mortgage segment have begun to stabilize at this lower level, we also feel that it remains important to note the ongoing challenges in mortgage banking provide a combination of higher interest rates, home prices, insurance and taxes remain constrictive to overall market demand. That said, even in the face of these challenges, we do believe that the overall mortgage market is slowly improving, and we expect that this improvement could continue into 2026.

To that end, the leadership team at PrimeLending is focused on continuing to optimize cost and productivity across the middle and back-office functions, growing our client-facing sales team across the country and optimizing our pricing to support profitable growth in the future.

Securities and Investment Advisory Fees, largely represented HilltopSecurities experienced solid growth versus the prior year period, driving the growth was significant improvement in public finance, whereby net revenues increased by $8.3 million and growth in Structured Finance and Wealth Management in which each business grew net revenues by approximately $5 million versus the third quarter of 2024. Structured Finance benefited from improved secondary margins, while Wealth Management has experienced consistent AUM growth over the last year.

Turning to Page 10. Noninterest expenses increased from the same period in the prior year by $7.6 million to $272 million. The increase in expenses versus the prior year third quarter was driven by increases in variable compensation, largely related to higher noninterest revenue production at the broker-dealer. Looking forward, we expect that expenses other than variable compensation will remain relatively stable at current levels as we remain diligently focused on prudent growth of revenue producers, while continuing to gain efficiencies across our middle and back-office functions.

Turning to Page 11. Third quarter average HFI loans equated to $8.1 billion. On a period ending basis, HFI loans increased versus the second quarter 2025 by $166 million, driven largely by new origination volume and the funding of prior commitments in commercial real estate. On an ending balance basis, loans have grown versus the third quarter of 2024 by $248 million or 3.1%, again, largely driven by growth across our commercial real estate products of 8% or $338 million.

In addition, commercial lending pipelines continue to expand during the third quarter, increasing by over $750 million versus the second quarter of 2025. While this remains a positive trend, the market for funded loans remains intense with competitive pressures coming from both pricing and structure. In the face of this competition, our leadership team remains diligent in maintaining our conservative credit culture and adhering to our credit policies.

Based on performance year-to-date, coupled with our current pipeline and expectation for payoffs during the fourth quarter, we expect full year average total loans to increase 0% to 2% from 2024 levels, excluding mortgage warehouse lending and any retained mortgages from PrimeLending.

Turning to Page 12. Starting in the upper right chart, NPA levels have declined from the second quarter of 2025 by $5.3 million to $76.5 million and continues to reflect generally positive trends in our held-for-investment loan portfolio.

Moving to the bottom left chart, net charge-offs for the quarter equated to $282,000 or 1 basis point of the overall loan portfolio. As I remarked earlier, we do not anticipate any systemic exposures across our portfolio. We remain vigilant in our assessment of risk and negative credit migration and are focused on early detection and aggressive workout when necessary. As is shown in the graph at the bottom right of the page, the allowance for credit loss coverage at the bank ended the third quarter at 1.2%, including mortgage warehouse lending.

I'm moving to Page 13. As we move into the fourth 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. Given these uncertainties, we remain focused on controlling what we can to produce quality outcomes for our clients, associates and the communities we serve.

As is noted in the table, our current 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 our 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 Instructions] Our first question is from Michael Rose, Raymond James.

Well, I just wanted to start on the NII guide. I was a little surprised to see that it wasn't increased because it would imply, I think, a pretty decent step down in margin in the fourth quarter and maybe some earning asset contraction. Maybe if you can just kind of discuss the near-term puts and takes and if I'm missing anything.

Thanks for the question. A few things going on. We are and remain asset sensitive on the balance sheet, certainly from an NII perspective. And as we noted, we do have an additional rate cut in the fourth quarter expected. Also, we are -- we've kind of gone through our balance outlook, and we didn't increase our overall loan growth profile either largely based on, again, what we're seeing in terms of production, but also what we're expecting in terms of paydowns. So that's part of it.

The other part that kind of comes into play there is when we do get a Federal Reserve rate reduction, we have the immediate step-down impact of both our cash level balances, which will remain well over $1 billion as well as the adjustable-rate loan portfolio. So that step occurs almost immediately while, again, the deposit beta activity and reductions blend their self in over time, just as we saw here during the third quarter. So those are all the factors that we have in place.

We also -- we're currently in an interesting spot from a loan yield perspective where we've got a pool of loans that are resetting higher. We've got from -- that were originated at different points earlier years earlier. We also have loans that, as I just noted, would reset lower from a variable rate comp perspective given a rate reduction. And then we've got new business going on. Our new business, our commercial loans going on the books right now are at about 690 basis points overall total loans. And so we continue to feel good about that. But again, the guide really reflects a confluence of a series of inputs as we evaluate the portfolio going into the balance of the year.

Okay. That's helpful. I appreciate that color. And then maybe just as a follow-up. You guys bought back more stock this quarter than I think we've really seen outside of some of the accelerated programs you guys have -- some of the tender offers you guys have done in the past, and I know you raised the buyback potential. Are you trying to signal that buybacks are going to be more leaned into a little bit more here? I mean, it would make sense given where the stock is trading and how much capital you have.

And then separately, Jeremy, if you can just discuss kind of the M&A outlook for you guys. We've seen a couple of deals here in Texas as of late. I know you guys look at a lot of things. So would just love an update on both those areas.

Okay. Thanks. So yes, I think that's correct. From where we're trading right now and given our excess capital position, we are trying to be more consistent with our share repurchases. And so that's why we have done -- what we've done this year, which we're happy about and also why we've asked for the increase in authorization.

On the M&A front, we've really seen, as everybody knows, a lot of out-of-market entrants into Texas, which seems to be a targeted growth state for a lot of banks. And certainly, we're familiar with most of the targets. I would say that we're viewing this is where can we find the opportunity in this dislocation, both in clients and in bankers and how do we use this as a means for us to be able to grow.

Okay. Helpful. Maybe just one last one for me. I know your auto portfolio is in rundown mode, but we have seen some issues in that sector. So I just wanted to address that. And I believe you guys recently showed up in a credit that was publicized as well as having some exposure. So would just love any thoughts or color there.

Yes. I think your point is appropriate for the auto note financing. We ended the year '21 at about $290 million of commitments. That's down to $77 million. So to your point, we've been working our way through that portfolio. As we've noted really almost 18 months ago, we did have 2 auto note clients that we moved into nonaccrual, and we've been aggressively working with those customers to kind of recoup and repay over time and again, continue that workout effort to today.

So we feel like we saw some of the implications early, and we were able to kind of get on top of those. And so nothing else to report in kind of any additional incremental exposure there as it relates to the one -- the name you're referring to there where it showed up in a press release there. I think we would say we've got no direct exposure or lending exposure to that entity.

Okay. Great.

Thank you.

Thank you.

Our next question comes from Woody Lay, KBW.

Just as a quick follow-up on the auto and maybe specifically those 2 relationships on nonaccrual. Is there any exposure to subprime auto there?

I mean they are -- yes, in the regard of kind of the nature of some of the notes that our loans backed by for certain, there's certainly some subprime exposure there. But again, through our workout program and through our oversight, we're kind of monitoring that very closely. So we feel like we've got it appropriately reserved and appropriately being managed on a daily basis.

Got it. Okay. And then maybe shifting over to the broker-dealer. It was a really good fee income quarter there. I think if you look at the broker-dealer guidance, it implies those fees sort of taking a step back to the first quarter, second quarter level. So could maybe you just go into a little more detail on what drove those fees higher in the third quarter and maybe not -- maybe what was sort of a 1 quarter benefit?

Yes. I mean I think we saw very solid activity in our public finance space year-on-year and have continued to see that. And we also are seeing some improvement in Structured Finance as well as Wealth Management. So there's -- I'd say there is some recurring nature, but also some episodic items in there that we wouldn't expect necessarily to continue.

In addition, with the rate reductions we're seeing, we've talked about this in the past. We are expecting to see over time, overall sweep revenues from those excess sweep deposits to kind of come down. So we're modeling that and monitoring that as well as well as the pipelines and just business activity we're seeing in the portfolio.

So nothing systemic there to say it's going to meaningfully decline, but the third quarter was a very strong quarter across really all portions of the broker-dealer, which as you've seen and as investors have seen over time, generally, you have 1 or 2 of the business units there perform well and then others maybe not quite as strong, but third quarter really reflected the strength of kind of the business hitting on all cylinders.

Yes. And then it looks like in that business, the efficiency ratio was lower than what it has been in the past couple of quarters. Are any of those expenses getting pushed out to the fourth quarter, or was it just lower efficiency businesses driving some of that fee growth?

Yes, largely mix. So the pretax margin was 18.3% in the quarter. That's up from 13.7% in the prior year. And again, the mix of where some of the business gets done and certainly at HilltopSecurities can meaningfully impact pretax margin on a quarterly basis. And so again, all the businesses really had strong performance, but we can see and expect to see a reversion back to, I think we've talked about low teens 12% to 13% kind of pretax margins is a more normal level for that business to operate.

And I agree with Will. I would just say the efficiency also is coming through with just higher revenue. So our non-comp expense was relatively flat, a little bit better. But I feel really positive about our public finance business. That's the mainstay of HilltopSecurities and a lot of work, great team. They've had a really strong year in our municipal advisory business, which has been strong, and we think it will be strong into 2026.

And we have a really comprehensive approach in public finance because we have a really strong underwriting team that did have a really good quarter. And then we have a lot of spoke products, including asset management that was additive. So everything really came together there.

Another point I'd make, and it's kind of been consistent is our Wealth Management business has much improved over several years. And really, the increase year-over-year is due to fees and advisory fees and the work we've done on an advisory level and not just related to the sweep revenue. So we feel positive about that.

All right. That's really helpful color.

Our next question comes from Jordan Ghent, Stephens.

I just had one question kind of about the broker-dealer. Could you maybe remind us about the primary and secondary effects from the government shutdown that it might have on the broker-dealer and all the business line items?

Yes.

Well, I think like as far as the broker-dealer is concerned, we haven't had any primary effects of the government shutdown. And anything of that nature. As far as government shutdowns, it's across the board. We were concerned about some of the SBA processing. But other than that, really, I don't know of anything else that's risen to our attention.

I think that's right. I mean we've got also in the mortgage space, USDA and some of the other agencies there, government agencies that are being impacted, whether it be lower staffing or no staffing at the point. So that's just a processing implication and slowing down of processing as it relates to kind of mortgages and SBA and some of those other groups. But to be clear, our public finance group really focuses on local municipalities, not kind of the federal government in that regard.

There are no further questions. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.