Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2026
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-31987
Hilltop Holdings Inc.
(Exact name of registrant as specified in its charter)
Maryland
84-1477939
(State or other jurisdiction of incorporation or
(I.R.S. Employer Identification No.)
organization)
6565 Hillcrest Avenue
Dallas, TX
75205
(Address of principal executive offices)
(Zip Code)
(214) 855-2177
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
Common Stock, par value $0.01 per share
HTH
New York Stock Exchange
NYSE Texas
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ⌧
Accelerated filer ◻
Non-accelerated filer ◻
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧
The number of shares of the registrant's common stock outstanding at April 23, 2026 was 58,530,197.
HILLTOP HOLDINGS INC.
FOR THE QUARTER ENDED MARCH 31, 2026
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
Item 1.
Financial Statements
3
Consolidated Balance Sheets
Consolidated Statements of Operations
4
Consolidated Statements of Comprehensive Income
5
Consolidated Statements of Stockholders’ Equity
6
Consolidated Statements of Cash Flows
7
Notes to Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
46
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
89
Item 4.
Controls and Procedures
93
PART II — OTHER INFORMATION
Legal Proceedings
94
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Item 5.
Other Information
Item 6.
Exhibits
95
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
HILLTOP HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
March 31,
December 31,
2026
2025
Assets
Cash and due from banks
$
874,194
1,231,944
Federal funds sold
650
Assets segregated for regulatory purposes
17,673
20,211
Securities purchased under agreements to resell
133,088
55,977
Securities:
Trading, at fair value
698,106
617,408
Available for sale, at fair value, net (amortized cost of $1,537,980 and $1,554,096, respectively)
1,469,670
1,491,048
Held to maturity, at amortized cost, net (fair value of $702,496 and $674,890, respectively)
759,628
728,329
Equity, at fair value
238
265
2,927,642
2,837,050
Loans held for sale
807,745
950,142
Loans held for investment, net of unearned income
8,433,673
8,311,952
Allowance for credit losses
(88,997)
(91,537)
Loans held for investment, net
8,344,676
8,220,415
Broker-dealer and clearing organization receivables
1,625,156
1,588,882
Premises and equipment, net
135,551
132,820
Operating lease right-of-use assets
89,845
83,757
Mortgage servicing rights
20,045
17,491
Other assets
452,779
432,603
Goodwill
267,447
Other intangible assets, net
5,365
5,605
Total assets
15,701,856
15,844,994
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing
2,830,008
2,831,919
Interest-bearing
7,701,541
8,046,161
Total deposits
10,531,549
10,878,080
Broker-dealer and clearing organization payables
1,481,998
1,518,503
Short-term borrowings
990,807
676,882
Securities sold, not yet purchased, at fair value
63,346
37,955
Notes payable
148,645
148,587
Operating lease liabilities
106,166
100,155
Other liabilities
205,621
287,226
Total liabilities
13,528,132
13,647,388
Commitments and contingencies (see Notes 13 and 14)
Stockholders' equity:
Hilltop stockholders' equity:
Common stock, $0.01 par value, 125,000,000 shares authorized; 58,530,197 and 59,540,484 shares issued and outstanding at March 31, 2026 and December 31, 2025, respectively
585
595
Additional paid-in capital
953,176
973,072
Accumulated other comprehensive loss
(82,348)
(79,877)
Retained earnings
1,272,618
1,274,611
Total Hilltop stockholders' equity
2,144,031
2,168,401
Noncontrolling interests
29,693
29,205
Total stockholders' equity
2,173,724
2,197,606
Total liabilities and stockholders' equity
See accompanying notes.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended March 31,
Interest income:
Loans, including fees
130,086
124,692
Securities borrowed
14,203
15,809
Taxable
26,919
24,782
Tax-exempt
3,021
2,613
Other
10,061
24,903
Total interest income
184,290
192,799
Interest expense:
Deposits
48,325
60,051
Securities loaned
12,842
14,736
7,587
8,103
2,355
3,653
1,084
1,139
Total interest expense
72,193
87,682
Net interest income
112,097
105,117
Provision for credit losses
1,765
9,338
Net interest income after provision for credit losses
110,332
95,779
Noninterest income:
Net gains from sale of loans and other mortgage production income
50,972
45,281
Mortgage loan origination fees
21,910
22,451
Principal transactions, commissions and fees
66,534
55,313
Investment banking, advisory and administrative fees
36,920
36,628
12,079
53,667
Total noninterest income
188,415
213,340
Noninterest expense:
Employees' compensation and benefits
168,962
176,240
Occupancy and equipment, net
19,829
19,782
Professional services
11,245
4,114
48,267
51,337
Total noninterest expense
248,303
251,473
Income before income taxes
50,444
57,646
Income tax expense
11,425
13,114
Net income
39,019
44,532
Less: Net income attributable to noncontrolling interest
1,183
2,416
Income attributable to Hilltop
37,836
42,116
Earnings per common share:
Basic
0.64
0.65
Diluted
Weighted average share information:
59,124
64,613
59,207
64,615
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Other comprehensive income (loss):
Change in fair value of cash flow and fair value hedges, net taxes of $9 and $(465), respectively
31
(1,581)
Net unrealized gains (losses) on securities available for sale, net taxes of $(1,197) and $3,291, respectively
(4,084)
11,140
Amortization of unrealized losses on securities transferred from available-for-sale to held-to-maturity, net taxes of $469 and $386, respectively
1,582
1,284
Comprehensive income
36,548
55,375
Less: comprehensive income attributable to noncontrolling interest
Comprehensive income applicable to Hilltop
35,365
52,959
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated
Total
Additional
Hilltop
Common Stock
Paid-in
Comprehensive
Retained
Stockholders’
Noncontrolling
Shares
Amount
Capital
Loss
Earnings
Equity
Interest
Balance, December 31, 2024
64,968
1,052,219
(111,497)
1,248,593
2,189,965
28,347
2,218,312
—
Other comprehensive income
10,843
Stock-based compensation expense
3,610
Common stock issued to board members
121
Issuance of common stock related to share-based awards, net
229
(2,015)
(2,013)
Repurchases of common stock
(1,047)
(10)
(16,797)
(16,474)
(33,281)
Dividends on common stock ($0.18 per share)
(11,649)
Net cash distributed to noncontrolling interest
(1,653)
Balance, March 31, 2025
64,154
642
1,037,138
(100,654)
1,262,586
2,199,712
29,110
2,228,822
Balance, December 31, 2025
59,540
Other comprehensive loss
(2,471)
2,616
1
28
227
(2,667)
(2,665)
(1,238)
(12)
(19,873)
(28,015)
(47,900)
Dividends on common stock ($0.20 per share)
(11,814)
(695)
Balance, March 31, 2026
58,530
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion, net
1,794
4,606
Equity in earnings of merchant banking subsidiaries
(241)
(42,705)
Deferred income taxes
4,738
2,400
Other, net
3,083
3,308
Net change in securities purchased under agreements to resell
(77,111)
(10,371)
Net change in trading securities
(80,698)
(96,826)
Net change in broker-dealer and clearing organization receivables
(52,753)
41,784
Net change in other assets
(14,525)
6,327
Net change in broker-dealer and clearing organization payables
(21,336)
112,058
Net change in other liabilities
(91,028)
(79,627)
Net change in securities sold, not yet purchased
25,391
5,937
Change in valuation of mortgage servicing rights asset
(8)
586
Net gains from sales of loans
(50,972)
(45,281)
Loans originated for sale
(2,219,371)
(2,105,473)
Proceeds from loans sold
2,404,980
2,155,244
Net cash provided by (used in) operating activities
(127,273)
5,837
Investing Activities
Proceeds from maturities and principal reductions of securities held to maturity
31,837
17,998
Proceeds from sales, maturities and principal reductions of securities available for sale
73,618
51,148
Purchases of securities held to maturity
(61,376)
(41,120)
Purchases of securities available for sale
(56,585)
(38,522)
Net change in loans held for investment
(108,471)
(63,775)
Purchases of premises and equipment and other assets
(6,625)
(797)
Proceeds from sales and distributions of premises and equipment and other assets
198
48,231
Net cash paid to Federal Home Loan Bank and Federal Reserve Bank stock
(35)
(25)
Net cash used in investing activities
(127,439)
(26,862)
Financing Activities
Net change in deposits
(361,700)
(230,430)
Net change in short-term borrowings
298,932
(141,748)
Proceeds from long-term borrowings
268,530
260,157
Payments on long-term borrowings
(253,492)
(397,079)
Payments to repurchase common stock
(47,541)
Dividends paid on common stock
2,204
(2,158)
Net cash used in financing activities
(105,576)
(557,841)
Net change in cash, cash equivalents and restricted cash
(360,288)
(578,866)
Cash, cash equivalents and restricted cash, beginning of period
1,252,805
2,370,590
Cash, cash equivalents and restricted cash, end of period
892,517
1,791,724
Reconciliation of Cash, Cash Equivalents and Restricted Cash to Consolidated Balance Sheets
1,702,623
88,451
Total cash, cash equivalents and restricted cash
Supplemental Disclosures of Cash Flow Information
Cash paid for interest
70,799
87,763
Cash paid (received) for income taxes, net of refunds
66
(623)
Supplemental Schedule of Non-Cash Activities
Conversion of loans to other real estate owned
1,158
4,842
Additions to mortgage servicing rights
2,546
1,766
Hilltop Holdings Inc. and Subsidiaries
1. Summary of Significant Accounting and Reporting Policies
Nature of Operations
Hilltop Holdings Inc. (“Hilltop” and, collectively with its subsidiaries, the “Company”) is a financial holding company registered under the Bank Holding Company Act of 1956. The Company’s primary line of business is to provide business and consumer banking services from offices located throughout Texas through PlainsCapital Bank (the “Bank”). In addition, the Company provides an array of financial products and services through its broker-dealer and mortgage origination subsidiaries.
The Company, headquartered in Dallas, Texas, provides its products and services through two primary business units, PlainsCapital Corporation (“PCC”) and Hilltop Securities Holdings LLC (“Securities Holdings”). PCC is a financial holding company, that provides, through its subsidiaries, traditional banking, wealth and investment management and treasury management services primarily in Texas and residential mortgage loans throughout the United States. Securities Holdings is a holding company that provides, through its subsidiaries, investment banking and other related financial services, including municipal advisory, sales, trading and underwriting of taxable and tax-exempt fixed income securities, clearing, securities lending, structured finance and retail brokerage services throughout the United States.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), and in conformity with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these financial statements contain all adjustments necessary for a fair statement of the results of the interim periods presented. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 (“2025 Form 10-K”). Results for interim periods are not necessarily indicative of results to be expected for a full year or any future period.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates regarding the allowance for credit losses, the fair values of financial instruments, and the potential impairment of goodwill and identifiable intangible assets are particularly subject to change. The Company has applied its critical accounting policies and estimation methods consistently in all periods presented in these consolidated financial statements. Actual amounts and values as of the balance sheet dates may be materially different than the amounts and values reported due to the inherent uncertainty in the estimation process. Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date.
Hilltop owns 100% of the outstanding stock of PCC. PCC owns 100% of the outstanding stock of the Bank and 100% of the membership interest in Hilltop Opportunity Partners LLC, a merchant bank utilized to facilitate investments in companies engaged in non-financial activities. The Bank owns 100% of the outstanding stock of PrimeLending, a PlainsCapital Company (“PrimeLending”).
PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC (“Ventures Management”), which holds a controlling ownership interest in and is the managing member of certain affiliated business arrangements (“ABAs”).
Hilltop has a 100% membership interest in Securities Holdings, which operates through its wholly owned subsidiaries, Hilltop Securities Inc. (“Hilltop Securities”), Momentum Independent Network Inc. (“Momentum Independent Network” and collectively with Hilltop Securities, the “Hilltop Broker-Dealers”) and Hilltop Securities Asset Management, LLC. Hilltop Securities is a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority, Inc.
Notes to Consolidated Financial Statements (continued)
(“FINRA”) and a member of the New York Stock Exchange (“NYSE”). Momentum Independent Network is an introducing broker-dealer that is also registered with the SEC and FINRA. Hilltop Securities and Momentum Independent Network are both registered with the Commodity Futures Trading Commission as non-guaranteed introducing brokers and as members of the National Futures Association. Additionally, Hilltop Securities, Momentum Independent Network and Hilltop Securities Asset Management, LLC are investment advisers registered with the SEC under the Investment Advisers Act of 1940, as amended.
In addition, Hilltop owns 100% of the membership interest in each of HTH Hillcrest Project LLC and Hilltop Investments I, LLC. Hilltop Investments I, LLC owns 50% of the membership interest in HTH Diamond Hillcrest Land LLC (“Hillcrest Land LLC”) which is consolidated under the requirements of the Variable Interest Entities (“VIE”) Subsections of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). These entities are related to the Hilltop Plaza investment discussed in detail in Note 17 to the consolidated financial statements included in the Company’s 2025 Form 10-K and are collectively referred to as the “Hilltop Plaza Entities.”
The consolidated financial statements include the accounts of the above-named entities. Intercompany transactions and balances have been eliminated. Noncontrolling interests have been recorded for minority ownership in entities that are not wholly owned and are presented in compliance with the provisions of Noncontrolling Interest in Subsidiary Subsections of the ASC.
During the fourth quarter of 2025, certain financial statement line items within the noninterest income section of the consolidated income statement were reclassified to better align disclosures to business activities. Securities commissions and fees was changed to principal transactions, commissions and fees and investment and securities advisory fees and commissions was changed to investment banking, advisory and administrative fees to better describe the underlying activities within these financial statement line items. Additionally, income from principal transactions that was historically presented in other noninterest income was reclassified to principal transactions, commissions and fees. These reclassifications were applied retrospectively to all prior periods presented. Total noninterest income did not change as a result of these reclassifications. Certain other reclassifications have been made to the prior period consolidated financial statements to conform with current period presentation. In preparing these consolidated financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all stockholders and other financial statement users, or filed with the SEC.
Significant accounting policies are detailed in Note 1 to the consolidated financial statements included in the Company’s 2025 Form 10-K.
2. Recently Issued Accounting Standards
Accounting Standards Adopted In 2026
In May 2025, the FASB issued ASU 2025-03, to improve accounting consistency for the acquisition of a variable interest entity that is a business. The amendments are effective in annual periods beginning after December 15, 2026, and interim periods within those years, with early adoption permitted. The Company adopted the provisions of the amendments as of January 1, 2026. The adoption of this amendment did not have a material impact on the Company’s consolidated financial statements.
In July 2025, the FASB issued ASU 2025-05, to address complexities in applying current expected credit losses for current accounts receivable and contract assets. The amendments allow entities to make an accounting policy election to apply a practical expedient when estimating expected credit losses for certain assets, which allows entities to assume that economic conditions at the balance sheet date will remain unchanged for the remaining life of those assets. The Company adopted the provisions of the amendments as of January 1, 2026. The adoption of this amendment did not have a material impact on the Company’s consolidated financial statements.
9
Accounting Standards Issued But Not Yet Adopted
In October 2023, the FASB issued ASU 2023-06 to clarify or improve disclosure and presentation requirements of a variety of topics, which will allow users to more easily compare entities subject to the SEC's existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the FASB accounting standard codification with the SEC's regulations. The amendments will be effective on the date the SEC removes related disclosure requirements from Regulation S-X or Regulation S-K. If by June 30, 2027, the SEC has not removed the applicable disclosure requirements, the pending amendments will not become effective. Early adoption is prohibited. The Company does not expect the future adoption of this amendment to have a material impact on its consolidated financial statements since the Company is currently subject to the SEC’s disclosure and presentation requirements under Regulation S-X and Regulation S-K.
In November 2024, the FASB issued ASU 2024-03, which was further clarified through the issuance of ASU 2025-01 in January 2025, to improve disclosure on an entity’s expenses and provide more detailed information for specific expense categories in the notes to financial statements at interim and annual reporting periods. The amendments are effective in annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated statements.
In September 2025, the FASB issued ASU 2025-06, to modernize current rules associated with the accounting for costs related to internally developed software. The guidance clarifies the threshold to be applied to begin capitalizing costs by eliminating references to project development stages and align with current agile implementation principles. The amendments are effective in annual periods beginning after December 15, 2027, and interim periods within those years, with early adoption permitted. The amendment may be applied on a prospective, retrospective or modified retrospective basis. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated statements.
In November 2025, the FASB issued ASU 2025-08, to eliminate Day 1 credit loss expense on certain purchased seasoned loans which are acquired more than 90 days post origination or acquired in a business combination. The amendments are effective in annual periods beginning after December 15, 2026, and interim periods within those years, with early adoption permitted. The amendment may be applied on a prospective basis. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated statements.
In November 2025, the FASB issued ASU 2025-09, to improve hedge accounting to better align with risk management economics which removes the basis adjustments in fair value hedges from effectiveness assessments in net investment hedges, restoring the viability of dual-hedge strategies. The amendments are effective in annual periods beginning after December 15, 2026, and interim periods within those years, with early adoption permitted. The amendment may be applied on a prospective basis. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated statements.
In December 2025, the FASB issued ASU 2025-11, to add clarity and consistency for disclosure in interim periods around significant events and changes in estimates. The amendments are effective in annual periods beginning after December 15, 2027, and interim periods within those years, with early adoption permitted. The amendment may be applied on a prospective or retrospective basis. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated statements.
In December 2025, the FASB issued ASU 2025-12, to clarify or improve disclosure and presentation requirements of a variety of topics. The amendments are effective in annual periods beginning after December 15, 2026, and interim periods within those years, with early adoption permitted. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated statements.
10
3. Fair Value Measurements
Fair Value Measurements and Disclosures
The Company determines fair values in compliance with The Fair Value Measurements and Disclosures Topic of the ASC (the “Fair Value Topic”). The Fair Value Topic defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. The Fair Value Topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Fair Value Topic assumes that transactions upon which fair value measurements are based occur in the principal market for the asset or liability being measured. Further, fair value measurements made under the Fair Value Topic exclude transaction costs and are not the result of forced transactions.
The Fair Value Topic includes a fair value hierarchy that classifies fair value measurements based upon the inputs used in valuing the assets or liabilities that are the subject of fair value measurements. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs, as indicated below.
Fair Value Option
The Company has elected to measure substantially all of PrimeLending’s mortgage loans held for sale and the retained mortgage servicing rights (“MSR”) asset at fair value, under the provisions of the Fair Value Option Subsections of the ASC (the “Fair Value Option”). The Company elected to apply the provisions of the Fair Value Option to these items so that it would have the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. At March 31, 2026 and December 31, 2025, the aggregate fair value of PrimeLending’s mortgage loans held for sale accounted for under the Fair Value Option was $735.7 million and $886.2 million, respectively, and the unpaid principal balance of those loans was $729.5 million and $870.1 million, respectively. The interest component of loans held for sale is reported as interest income on loans in the accompanying consolidated statements of operations, while the fair value component for changes related to interest rate movements is reported in net gains from sale of loans and other production income within noninterest income in the accompanying consolidated statements of operations.
The Company holds a number of financial instruments that are measured at fair value on a recurring basis, either by the application of the Fair Value Option or other authoritative pronouncements. The fair values of those instruments are determined primarily using Level 2 inputs, as further described in Note 3 to the consolidated financial statements included in the Company’s 2025 Form 10-K. Those inputs include quotes from mortgage loan investors and derivatives dealers and data from independent pricing services. The fair value of loans held for sale is determined using an exit price method.
11
The following tables present information regarding financial assets and liabilities measured at fair value on a recurring basis (in thousands).
Level 1
Level 2
Level 3
March 31, 2026
Inputs
Fair Value
Trading securities
8,870
689,236
Available for sale securities
1,406,657
63,013
Equity securities
694,044
41,660
735,704
Derivative assets
56,360
MSR asset
Equity investments
19,494
Securities sold, not yet purchased
51,183
12,163
Derivative liabilities
22,170
December 31, 2025
8,915
608,493
1,429,056
61,992
847,289
38,866
886,155
45,403
18,774
29,390
8,565
14,005
The following tables include a rollforward for those material financial instruments measured at fair value using Level 3 inputs (in thousands).
Total Gains or Losses
(Realized or Unrealized)
Balance,
Transfers
Included in Other
Beginning of
Purchases/
Sales/
to (from)
Included in
Period
Additions
Reductions
Net Income
Income (Loss)
End of Period
Three Months Ended March 31, 2026
1,698
(677)
8,501
(3,943)
(1,764)
720
137,123
11,047
662
144,212
Three Months Ended March 31, 2025
3,330
637
(3,442)
141
666
29,816
738
30,554
48,657
4,406
(6,734)
(969)
45,360
5,723
(586)
6,903
22,015
(7,448)
6,693
21,260
109,541
6,809
(17,624)
6,017
104,743
All net realized and unrealized gains (losses) in the tables above are reflected in the accompanying consolidated financial statements. The unrealized gains (losses) relate to financial instruments still held at March 31, 2026.
12
For material Level 3 financial instruments measured at fair value on a recurring basis at March 31, 2026 and December 31, 2025, the significant unobservable inputs used in the fair value measurements were as follows.
Financial Instrument
Valuation Technique
Unobservable Inputs
Range (Weighted-Average)
Discounted cash flow
Discount rate
34,113
14.88
-
16.91
%
Recent transaction
28,900
Market comparable
Projected price
78
(
92
%)
Constant prepayment rate
13.59
11.49
Market multiple
3,741
14.25x
11.50
1,965
14.50
Market calibration
Market adjustment
25.00
13,788
33,092
13.25
15.50
90
14.68
11.45
3,802
14.5x
12.50
1,372
13,600
The fair value of certain available for sale securities held by the Company’s merchant bank subsidiary, including those measured at fair value under the provision of the Fair Value Option, are primarily measured using the income approach with Level 3 inputs. The fair value of such financial instruments are based upon estimates of expected cash flows using unobservable inputs, including credit spreads derived from comparable securities and benchmark credit curves, management’s knowledge of underlying collateral and recent transaction pricing.
The fair value of certain loans held for sale that cannot be sold through normal sale channels or are non-performing are measured using Level 3 inputs. The fair value of such loans is generally based upon estimates of expected cash flows using unobservable inputs, including listing prices of comparable assets, uncorroborated expert opinions, and/or management’s knowledge of underlying collateral.
The MSR asset is reported at fair value, under the provisions of the Fair Value Option, using Level 3 inputs. The MSR asset is valued by projecting net servicing cash flows, which are then discounted to estimate the fair value. The fair value of the MSR asset is impacted by a variety of factors. Prepayment and discount rates, the most significant unobservable inputs, are discussed further in Note 7 to the consolidated financial statements.
The Company has elected to measure certain equity investments held by the Company’s merchant bank subsidiary under the provisions of the Fair Value Option using Level 3 inputs to mitigate volatility in reported earnings caused by changes in fair value and better align with merchant bank investment strategy. Equity investments are reported as a component of other assets within the consolidated balance sheets and changes in fair value are reported within other noninterest income in the accompanying consolidated statements of operations.
The Company had no transfers between Levels 1 and 2 during the periods presented. Any transfers are based on changes in the observability and/or significance of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which they occur.
13
The following table presents those changes in fair value of material instruments recognized in the consolidated statements of operations that are accounted for under the Fair Value Option (in thousands).
Net
Gains
Noninterest
Changes in
(Losses) (1)
Income
18
(9,817)
7,142
245
Financial Assets Measured at Fair Value on a Non-Recurring Basis
Real estate acquired through foreclosure (“OREO”) is recorded at the time of each property’s respective acquisition date using management’s estimate of fair value. The Company determines fair value primarily using independent appraisals of OREO properties, less estimated cost to sell. In addition, facts and circumstances may dictate a fair value measurement when there is evidence of impairment. The resulting fair value measurements are classified as Level 2 inputs. At March 31, 2026 and December 31, 2025, the estimated fair value of OREO was $8.5 million and $8.0 million, respectively, and the underlying fair value measurements utilized Level 2 inputs. The amounts are included in other assets within the consolidated balance sheets. During the reported periods, all fair value measurements for OREO subsequent to initial recognition utilized Level 2 inputs. The Company recorded losses of $0.5 million during the three months ended March 31, 2026 and no gains or losses during the three months ended March 31, 2025, which represented a change in fair value subsequent to initial recognition of the asset.
Financial Assets and Liabilities Not Measured at Fair Value on Recurring or Non-Recurring Basis
The Fair Value of Financial Instruments Subsection of the ASC requires disclosure of the fair value of financial assets and liabilities, including the financial assets and liabilities previously discussed. There have been no changes to the methods for determining estimated fair value for financial assets and liabilities as described in detail in Note 3 to the consolidated financial statements included in the Company’s 2025 Form 10-K.
The following tables present the carrying values and estimated fair values of financial instruments not measured at fair value on either a recurring or non-recurring basis (in thousands).
Estimated Fair Value
Carrying
Financial assets:
Cash and cash equivalents
874,844
Held to maturity securities
702,496
72,041
23,823
48,218
361,012
8,848,653
9,209,665
71,137
Financial liabilities:
10,526,130
147,075
8,927
14
1,232,594
674,890
63,987
19,251
46,298
65,549
344,533
8,048,167
8,392,700
70,079
10,871,788
144,323
7,489
The Company held equity investments other than securities of $18.1 million and $18.9 million at March 31, 2026 and December 31, 2025, respectively, which are included within other assets in the consolidated balance sheets. Of the $18.1 million of such equity investments held at March 31, 2026, $1.4 million do not have readily determinable fair values and each is measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The following table presents the adjustments to the carrying value of these investments during the periods presented (in thousands).
Balance, beginning of period
1,563
1,979
Impairments and downward adjustments
(175)
(21)
Balance, end of period
1,388
1,958
Merchant Bank Transaction
In January 2025, the Company’s merchant bank subsidiary entered into a definitive agreement to sell all of the capital stock of Moser Acquisition, Inc. to Atlas Energy Solutions Inc. (“Atlas”) for consideration including cash and Atlas common stock. On February 24, 2025, the sale of the operations associated with the Company’s approximate 30% aggregate interest in Moser Holdings, LLC, which owns Moser Acquisition, Inc., was consummated. The Company’s aggregate interest in Moser Holdings, LLC included equity investments that were included, and will continue to be included, within other assets in the consolidated balance sheets until liquidation of Moser Holdings, LLC. An initial pre-tax gain of $30.5 million ($23.6 million net of tax) was recorded during the first quarter of 2025 based on the Company’s aggregate interest in Moser Holdings, LLC and reported primarily as a component of other noninterest income within the consolidated statements of operations. Subsequently, during 2025, the Company recorded additional net adjustments associated with its aggregate interest in Moser Holdings, LLC and the liquidation of Atlas common stock that resulted in an aggregate pre-tax gain during 2025 of $27.8 million ($21.6 million net of tax). The gain is subject to change given customary post-closing adjustments and liquidation of Moser Holdings, LLC.
15
4. Securities
The fair value of trading securities is summarized as follows (in thousands).
U.S. Treasury securities
123
U.S. government agencies:
Bonds
42,055
37,222
Residential mortgage-backed securities
76,355
152,343
Collateralized mortgage obligations
144,065
58,611
Corporate debt securities
70,904
41,136
States and political subdivisions
332,750
295,615
Private-label securitized product
6,304
9,547
25,673
22,811
Totals
In addition to the securities shown above, the Hilltop Broker-Dealers enter into transactions that represent commitments to deliver and purchase securities at prevailing future market prices to facilitate customer transactions and satisfy such commitments. Accordingly, the Hilltop Broker-Dealers’ ultimate obligations may exceed the amount recognized in the financial statements. These securities, which are carried at fair value and reported as securities sold, not yet purchased in the consolidated balance sheets, had a value of $63.3 million and $38.0 million at March 31, 2026 and December 31, 2025, respectively.
The amortized cost and fair value of available for sale and held to maturity securities are summarized as follows (in thousands).
Available for Sale
Amortized
Unrealized
Cost
Losses
4,999
(24)
4,975
83,590
82
(364)
83,308
390,021
723
(22,839)
367,905
Commercial mortgage-backed securities
259,081
635
(4,065)
255,651
703,255
317
(38,727)
664,845
Corporate debt securities (1)
64,363
(1,350)
32,671
29
(2,727)
29,973
1,537,980
1,786
(70,096)
16
4,998
(55)
4,943
81,418
138
(349)
81,207
411,571
1,553
(22,064)
391,060
243,888
830
(4,382)
240,336
716,201
917
(36,593)
680,525
62,683
613
(1,304)
33,337
39
(2,391)
30,985
1,554,096
4,090
(67,138)
Held to Maturity
297,284
290
(19,023)
278,551
116,228
219
(5,749)
110,698
265,162
(27,133)
238,075
80,954
51
(5,833)
75,172
606
(57,738)
265,349
515
(18,308)
247,556
122,636
327
(6,088)
116,875
262,203
223
(25,577)
236,849
78,141
134
(4,665)
73,610
1,199
(54,638)
Additionally, the Company had unrealized net gains of $0.2 million and $0.2 million at March 31, 2026 and December 31, 2025, respectively, from equity securities with fair values of $0.2 million and $0.3 million held at March 31, 2026 and December 31, 2025, respectively. The Company recognized nominal net losses during the three months ended March 31, 2026 and 2025, respectively, due to changes in the fair value of equity securities still held at the balance sheet date. During the three months ended March 31, 2026 and 2025, the Company recorded no sales of equity securities.
17
Information regarding available for sale and held to maturity securities that were in an unrealized loss position is shown in the following tables (dollars in thousands).
Number of
Securities
U.S. treasury securities:
Unrealized loss for less than twelve months
Unrealized loss for twelve months or longer
24
55
Bonds:
30,486
88
2,811
39,033
276
41,004
343
69,519
364
43,815
349
Residential mortgage-backed securities:
36,324
269
11,390
117
239,211
22,570
251,643
22,018
275,535
22,839
118
263,033
22,064
Commercial mortgage-backed securities:
25,392
249
9,893
43
199,361
3,816
198,985
4,339
20
224,753
4,065
19
208,878
4,382
Collateralized mortgage obligations:
77,494
410
21,597
54
125
529,882
38,317
128
550,788
36,539
135
607,376
38,727
131
572,385
36,593
Corporate debt securities:
24,764
962
7,121
829
9,863
388
9,743
475
34,627
1,350
16,864
1,304
States and political subdivisions:
38
22,005
2,727
40
22,742
2,391
Total available for sale:
21
194,460
1,978
52,812
978
313
1,044,330
68,118
318
1,079,848
66,160
334
1,238,790
70,096
326
1,132,660
67,138
49,795
533
11,337
45
208,713
18,490
214,351
18,306
49
258,508
19,023
225,688
18,308
6,318
86
89,842
5,662
102,228
6,088
96,160
5,748
21,123
44
199,739
27,090
206,483
25,577
53
220,862
27,134
8,607
85
500
163
59,078
165
60,563
4,665
169
67,685
5,833
166
61,063
Total held to maturity:
85,843
748
11,837
277
557,372
56,990
281
583,625
54,636
291
643,215
57,738
283
595,462
54,638
Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties. The amortized cost and fair value of securities, excluding trading and equity securities, at March 31, 2026 are shown by contractual maturity below (in thousands).
Due in one year or less
17,360
17,349
407
Due after one year through five years
101,989
100,522
8,481
8,156
Due after five years through ten years
36,641
35,019
59,077
54,754
Due after ten years
29,633
28,379
12,989
11,852
185,623
181,269
The Company recognized net gains of $34.0 million and $29.7 million from principal transactions during the three months ended March 31, 2026 and 2025, respectively. The Company had no other realized gains and losses on securities during the three months ended March 31, 2026 and 2025, respectively. All such realized gains and losses are recorded as a component of principal transactions, commissions and fees within the consolidated statements of operations.
Securities with a carrying amount of $0.9 billion and $1.1 billion (with a fair value of $0.9 billion and $1.0 billion, respectively) at March 31, 2026 and December 31, 2025, respectively, were pledged by the Bank to secure public and trust deposits, federal funds purchased and securities sold under agreements to repurchase, and for other purposes as required or permitted by law. Substantially all of these pledged securities were included in the Company’s available for sale and held to maturity securities portfolios at March 31, 2026 and December 31, 2025.
Mortgage-backed securities and collateralized mortgage obligations consist primarily of Government National Mortgage Association (“GNMA”), Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) pass-through and participation certificates. GNMA securities are guaranteed by the full faith and credit of the United States, while FNMA and FHLMC securities are fully guaranteed by those respective United States government-sponsored agencies, and conditionally guaranteed by the full faith and credit of the United States.
5. Loans Held for Investment
The Bank originates loans to customers primarily in Texas. Although the Bank has diversified loan and leasing portfolios and, generally, holds collateral against amounts advanced to customers, its debtors’ ability to honor their contracts is substantially dependent upon the general economic conditions of the region and of the industries in which its debtors operate, which consist primarily of real estate (including construction and land development) and wholesale/retail trade. The Hilltop Broker-Dealers make loans to customers and correspondents through transactions originated by both employees and independent retail representatives throughout the United States. The Hilltop Broker-Dealers control risk by requiring customers to maintain collateral in compliance with various regulatory and internal guidelines, which may vary based upon market conditions. Securities owned by customers and held as collateral for loans are not included in the consolidated financial statements.
Loans held for investment summarized by portfolio segment are as follows (in thousands).
Commercial real estate:
Non-owner occupied
2,150,000
2,121,087
Owner occupied
1,541,449
1,533,173
Commercial and industrial
1,512,453
1,526,467
Construction and land development
962,626
894,011
1-4 family residential
1,876,028
1,861,654
Consumer
30,105
31,027
Broker-dealer (1)
Total loans held for investment, net of allowance
Past Due Loans and Nonaccrual Loans
An analysis of the aging of the Company’s loan portfolio is shown in the following tables (in thousands).
Accruing Loans
Loans Past Due
Total Past
Current
Past Due
30-59 Days
60-89 Days
90 Days or More
Due Loans
Loans
3,326
2,900
6,226
2,143,774
7,929
3,915
445
12,289
1,529,160
10,034
2,388
12,443
24,865
1,487,588
4,138
5,112
132
9,382
953,244
8,248
2,155
1,879
12,282
1,863,746
99
30,006
Broker-dealer
33,770
16,474
14,899
65,143
8,368,530
1,138
1,635
681
3,454
2,117,633
2,281
4,980
1,518
8,779
1,524,394
1,577
1,106
13,485
16,168
1,510,299
711
1,009
2,220
891,791
5,992
3,425
5,114
14,531
1,847,123
42
205
30,822
11,831
12,200
21,326
45,357
8,266,595
70
In addition to the loans shown in the tables above, PrimeLending had $40.2 million and $33.7 million of loans included in loans held for sale (with an aggregate unpaid principal balance of $40.7 million and $34.3 million, at March 31, 2026 and December 31, 2025, respectively) that were 90 days past due and accruing interest at March 31, 2026 and December 31, 2025, respectively. These loans are guaranteed by U.S. government agencies and include loans that are subject to repurchase, or have been repurchased, by PrimeLending.
The following table provides details associated with non-accrual loans, excluding those classified as held for sale (in thousands).
Non-accrual Loans
Interest Income Recognized
With
With No
Allowance
319
14,969
15,288
1,012
2,861
3,873
26
818
9,400
10,218
906
4,711
5,617
14,376
7,861
22,237
14,877
13,704
28,581
154
107
844
431
579
1,010
184
145
8,064
8,209
732
9,224
9,956
248
15,658
41,138
56,796
17,958
31,079
49,037
737
391
At March 31, 2026 and December 31, 2025, $4.2 million and $4.4 million, respectively, of real estate loans secured by residential properties and classified as held for sale were in non-accrual status.
As shown in the table above, loans accounted for on a non-accrual basis increased from December 31, 2025 to March 31, 2026 by $7.8 million. The change in non-accrual loans was primarily due to increases in commercial real estate non-owner occupied loans of $11.4 million and commercial real estate owner occupied loans of $4.6 million, partially offset by a decrease in commercial and industrial loans of $6.3 million.
For non-accrual loans that are considered to be collateral-dependent, the Company has implemented the practical expedient to measure the allowance using the fair value of the collateral. For non-accrual loans that are not collateral dependent, the Company measures the allowance based on discounted expected cash flows.
Loan Modifications
Loan modifications are typically structured to create affordable payments for the debtor and can be achieved in a variety of ways. The Bank modifies loans by reducing interest rates and/or lengthening loan amortization schedules.
The following tables present the amortized cost basis of the loans held for investment modified for borrowers experiencing financial difficulty grouped by portfolio segment and type of modification granted during the periods presented (in thousands).
Combination
Modifications as a
Interest Rate
Term
Principal
Payment
Term Extension and
% of Portfolio
Reduction
Extension
Forgiveness
Delay
Rate Reduction
Segment
2,421
0.2
17,809
1.2
1,512
4,763
0.3
26,505
2,255
0.1
3,501
865
437
350
0.0
111
7,082
For those loans held for investment modified for borrowers experiencing financial difficulty during the last twelve months, the following tables provide aging and non-accrual details grouped by portfolio segment (in thousands).
Modified Loans Past Due
Total Modified
Modified
Past Due Loans
304
2,071
344
3,612
1,048
1,282
5,942
9,785
726
5,987
8,317
11,159
316
168
370
2,324
15,606
22
172
686
2,644
15,948
The above table that presents aging and non-accrual details at December 31, 2025 excludes $18.7 million of commercial and industrial loans that were modified and subsequently charged-off during 2025.
The following table presents the financial effects of the loans held for investment modified for borrowers experiencing financial difficulty during the periods presented (in thousands).
Weighted-Average
Term Extension
(in months)
1.3
Credit Risk Profile
Management tracks credit quality trends on a quarterly basis related to: (i) past due levels, (ii) non-performing asset levels, (iii) classified loan levels, and (iv) general economic conditions in state and local markets. The Company defines classified loans as loans with a risk rating of substandard, doubtful or loss. There have been no changes to the risk rating internal grades utilized for commercial loans as described in detail in Note 5 to the consolidated financial statements in the Company’s 2025 Form 10-K.
The following table presents loans held for investment grouped by asset class and credit quality indicator, segregated by year of origination or renewal (in thousands).
Amortized Cost Basis by Origination Year
2021 and
Converted to
2024
2023
2022
Prior
Revolving
Term Loans
Commercial real estate: non-owner occupied
Internal Grade 1-3 (Pass low risk)
42,307
15,083
2,198
13,172
89,127
940
162,827
Internal Grade 4-7 (Pass normal risk)
122,993
437,567
243,844
87,076
169,095
235,869
5,593
10,760
1,312,797
Internal Grade 8-11 (Pass high risk and watch)
47,070
177,739
65,156
106,935
82,124
125,288
12,687
620
617,619
Internal Grade 12 (Special mention)
3,772
Internal Grade 13 (Substandard accrual)
1,483
5,070
323
27,542
3,279
37,697
Internal Grade 14 (Substandard non-accrual)
2,176
11,528
1,584
Current period gross charge-offs
Commercial real estate: owner occupied
3,939
39,433
20,106
1,247
2,317
25,791
9,225
10,261
112,319
30,823
211,048
94,277
105,371
94,803
358,761
17,305
12,698
925,086
12,020
121,528
60,344
31,795
96,348
112,888
14,697
495
450,115
1,450
1,230
3,894
6,850
10,131
1,963
17,859
298
36
42,261
342
1,946
7,930
3,484
11,348
29,878
2,788
5,213
3,826
48,416
104,953
63,988
116,183
41,223
9,019
43,574
71,770
245,042
6,081
596,880
28,670
78,270
77,064
27,943
19,028
27,276
229,613
8,604
496,468
159
494
1,500
2,153
3,755
2,752
2,515
4,321
3,496
16,955
4,291
38,085
25
4,437
1,409
3,985
1,778
597
1,497
8,509
133
1,151
1,087
287
148
190
4,300
8,528
1,180
11,094
74,169
307,190
81,192
70,427
12,514
9,251
9,735
564,568
54,187
235,569
57,193
3,218
2,072
4,862
4,566
361,667
5,569
252
77
1,841
384
292
126
137
Construction and land development - individuals
FICO less than 620
FICO between 620 and 720
415
744
2,722
FICO greater than 720
11,044
3,277
14,321
Substandard non-accrual
Other (1)
687
452
590
1,096
15,933
18,899
6,040
45,369
15,267
8,027
11,531
35,964
1,498
486
124,182
50,761
228,277
134,726
88,720
404,254
700,507
3,774
752
1,611,771
(1)
627
7,563
9,805
40,993
30,296
16,205
3,849
3,955
7,696
112,967
74
129
211
23
2020 and
315
534
61
324
1,352
1,545
1,745
550
444
312
2,716
7,357
1,377
5,636
1,205
507
734
2,836
12,438
5,306
817
84
60
520
8,958
58
Total loans with credit quality measures
529,091
2,140,806
988,536
581,058
1,014,262
1,865,787
637,574
63,870
7,820,984
Commercial and industrial (mortgage warehouse lending)
251,677
Broker-dealer (margin loans and correspondent receivables)
Total loans held for investment
(1) Loans classified in this category were assigned a FICO score based on various factors specific to the borrower for credit modeling purposes.
6. Allowance for Credit Losses
Available for Sale Securities and Held to Maturity Securities
The Company has evaluated available for sale debt securities that are in an unrealized loss position and has determined that any decline in value is unrelated to credit loss and related to changes in market interest rates since purchase. None of the available for sale debt securities held were past due at March 31, 2026. In addition, as of March 31, 2026, the Company had not made a decision to sell any of its debt securities held, nor did the Company consider it more likely than not that it would be required to sell such securities before recovery of their amortized cost basis. The Company does not expect to have credit losses associated with the debt securities, and no allowance was recognized on the debt securities portfolio.
Loans Held for Investment
The allowance for credit losses for loans held for investment represents management’s best estimate of all expected credit losses over the expected contractual life of the Company’s existing portfolio. Management’s methodology for determining the allowance for credit losses uses the current expected credit losses (“CECL”) standard. Management considers the level of allowance for credit losses to be a reasonable and supportable estimate of expected credit losses inherent within the loans held for investment portfolio as of March 31, 2026. While the Company believes it has an appropriate allowance for the existing loan portfolio at March 31, 2026, additional provision for losses on existing loans may be necessary in the future. Future changes in the allowance for credit losses are expected to be volatile given dependence upon, among other things, the portfolio composition and quality, as well as changes in macroeconomic forecasts and loan cash flow assumptions. In addition to the allowance for credit losses, the Company maintains a separate allowance for credit losses related to off-balance sheet credit exposures, including unfunded loan commitments, and this amount is included in other liabilities within the consolidated balance sheets. For further information on the policies that govern the estimation of the allowance for credit losses, see Note 1 to the consolidated financial statements in the Company’s 2025 Form 10-K.
One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate credit losses over the reasonable and supportable forecast period. To determine the Company’s best estimate of expected credit losses as of March 31, 2026, the Company utilized a single macroeconomic scenario, the baseline forecast, published by Moody’s Analytics in March 2026 that was updated to reflect the U.S. economic outlook. During our previous macroeconomic assessment as of December 31, 2025, the Company utilized the same single macroeconomic scenario, the baseline forecast, published by Moody’s Analytics in December 2025. The baseline economic scenario expects economic growth to moderate in the near term, as tariffs and higher energy prices weigh on the economy. In this scenario, the unemployment rate is expected to remain stable at 4.5% throughout 2026 as slower growth in the labor force offsets weaker job growth. Significant variables that impact the modeled losses across the Company’s loan portfolios are the U.S. Real Gross Domestic Product, or GDP, growth rates and unemployment rate assumptions. Changes in these assumptions and forecasts of economic conditions could significantly affect the estimate of expected credit losses at the balance sheet date or between reporting periods.
During the three months ended March 31, 2026, the provision for credit losses was primarily driven by a build in the allowance related to specific reserves and net charge-offs, partially offset by changes in the U.S. economic outlook associated with collectively evaluated loans, including changes in loan mix and risk rating grade migration, within the banking segment since the prior quarter. Specific to the Bank, the net impact to the allowance of changes associated with individually evaluated loans during the three months ended March 31, 2026 included a provision for credit losses of $4.0 million, while collectively evaluated loans during the three months ended March 31, 2026 included a reversal of credit losses of $2.3 million. The change in the allowance for credit losses during the noted period was primarily attributable to the Bank and also reflected other factors including, but not limited to, loan mix, and changes in loan balances and qualitative factors from the prior quarter. The change in the allowance during the three months ended March 31, 2026 was also impacted by net charge-offs of $4.3 million.
During the three months ended March 31, 2025, the provision for credit losses was primarily driven by a build in the allowance related to loan portfolio changes and specific reserves, including changes in loan mix and risk rating grade migration, partially offset by net charge-offs and changes in the U.S. economic outlook associated with collectively evaluated loans. Specific to the Bank, the net impact to the allowance of changes associated with collectively and individually evaluated loans during the three months ended March 31, 2025 included a provision for credit losses of $7.7 million and $1.7 million, respectively. The change in the allowance for credit losses during the noted period was primarily attributable to the Bank and also reflected other factors including, but not limited to, loan mix, and changes in loan balances and qualitative factors from the prior quarter. The change in the allowance during the three months ended March 31, 2025 was also impacted by net charge-offs of $4.3 million.
Changes in the allowance for credit losses for loans held for investment, distributed by portfolio segment, are shown below (in thousands).
Provision for
Recoveries on
(Reversal of)
Charged Off
End of
Credit Losses
24,265
(1,962)
22,303
34,035
(155)
33,880
21,280
4,610
(4,300)
21,934
7,398
(919)
(137)
6,342
4,136
175
(211)
56
4,156
397
(92)
35
32
91,537
(4,740)
435
88,997
29,310
6,311
(918)
34,703
33,112
2,250
35,370
25,609
1,052
(3,432)
23,350
7,161
130
7,291
5,327
(347)
4,988
547
(67)
479
50
(34)
101,116
(4,417)
160
106,197
Unfunded Loan Commitments
The Bank uses a process similar to that used in estimating the allowance for credit losses on the funded portion to estimate the allowance for credit loss on unfunded loan commitments. The allowance is based on the estimated exposure at default, multiplied by the lifetime Probability of Default grade and Loss Given Default grade for that particular loan segment. The Bank estimates expected losses by calculating a commitment usage factor based on industry usage factors. The commitment usage factor is applied over the relevant contractual period. Loss factors from the underlying loans to which commitments are related are applied to the results of the usage calculation to estimate any liability for credit losses
related for each loan type. The expected losses on unfunded commitments align with statistically calculated parameters used to calculate the allowance for credit losses on the funded portion. There is no reserve calculated for letters of credit as they are issued primarily as credit enhancements and the likelihood of funding is low.
Changes in the allowance for credit losses for loans with off-balance sheet credit exposures are shown below (in thousands).
9,402
7,918
Other noninterest expense
(1,164)
8,238
7,953
During the three months ended March 31, 2026, the decrease in the reserve for unfunded commitments was primarily due to decreases in commitment balances and expected loss rates. During the three months ended March 31, 2025, the increase in the reserve for unfunded commitments was primarily due to increases in commitment balances.
7. Mortgage Servicing Rights
The following tables present the changes in fair value of the Company’s MSR asset and other information related to the serviced portfolio (dollars in thousands).
Changes in fair value:
Due to changes in model inputs or assumptions (1)
429
(517)
Due to customer payoffs
(421)
(69)
Mortgage loans serviced for others (2)
1,245,169
1,145,063
MSR asset as a percentage of serviced mortgage loans
1.61
1.53
The key assumptions used in measuring the fair value of the Company’s MSR asset were as follows.
Weighted average constant prepayment rate
Weighted average discount rate
Weighted average life (in years)
6.2
5.8
A sensitivity analysis of the fair value of the Company’s MSR asset to certain key assumptions is presented in the following table (in thousands).
Constant prepayment rate:
Impact of 10% adverse change
(999)
(899)
Impact of 20% adverse change
(1,907)
(1,714)
Discount rate:
(783)
(651)
(1,504)
(1,253)
This sensitivity analysis presents the effect of hypothetical changes in key assumptions on the fair value of the MSR asset. The effect of such hypothetical change in assumptions generally cannot be extrapolated because the relationship of the change in one key assumption to the change in the fair value of the MSR asset is not linear. In addition, in the analysis, the impact of an adverse change in one key assumption is calculated independent of any impact on other assumptions. In reality, changes in one assumption may change another assumption.
Contractually specified servicing fees, late fees and ancillary fees earned of $1.6 million and $1.0 million during the three months ended March 31, 2026 and 2025, respectively, were included in net gains from sale of loans and other mortgage production income within the consolidated statements of operations.
8. Deposits
Deposits are summarized as follows (in thousands).
Noninterest-bearing demand
Interest-bearing:
Demand accounts
3,961,364
4,202,031
Brokered - demand
903
3,000
Money market
2,347,801
2,436,713
Brokered - money market
14,410
12,288
Savings
229,988
225,612
Time
1,147,075
1,166,517
At March 31, 2026, time deposits in denominations that exceed the FDIC insurance limit of $250,000 were $573.4 million.
9. Short-term Borrowings
Short-term borrowings are summarized as follows (in thousands).
Federal funds purchased
221,668
153,208
Securities sold under agreements to repurchase
467,738
269,309
Federal Home Loan Bank
Short-term bank loans
32,000
Commercial paper
269,401
254,365
27
Federal Funds Purchased and Securities Sold under Agreements to Repurchase
Federal funds purchased and securities sold under agreements to repurchase generally mature one to ninety days from the transaction date, on demand, or on some other short-term basis. The Bank and the Hilltop Broker-Dealers execute transactions to sell securities under agreements to repurchase with both customers and other broker-dealers. Securities involved in these transactions are held by the Bank, the Hilltop Broker-Dealers or a third-party dealer.
Information concerning federal funds purchased is shown in the following table (dollars in thousands).
Average balance during the period
512,732
560,581
Average interest rate during the period
4.34
4.45
Information concerning securities sold under agreements to repurchase is shown in the following table (dollars in thousands).
Average interest rate at end of period
4.33
4.25
Securities underlying the agreements at end of period:
Contract value of repurchase agreements
467,052
268,805
Fair value of securities pledged as collateral
496,378
292,493
Federal Home Loan Bank (“FHLB”)
FHLB short-term borrowings mature over terms not exceeding 365 days and are collateralized by FHLB Dallas stock, nonspecified real estate loans and certain specific commercial real estate loans. Other information regarding FHLB short-term borrowings is shown in the following table (dollars in thousands).
3.80
4.65
Short-Term Bank Loans
The Hilltop Broker-Dealers use short-term bank loans periodically to finance securities owned, margin loans to customers and correspondents, and underwriting activities. Interest on the borrowings varies with the federal funds rate. At March 31, 2026, Hilltop Securities had credit arrangements with two unaffiliated banks, with maximum aggregate commitments of up to $425.0 million. These credit arrangements are used to finance securities owned, securities held for correspondent accounts, receivables in customer margin accounts and underwriting activities. These credit arrangements are provided on an “as offered” basis and are not committed lines of credit. In addition, Hilltop Securities has committed revolving credit facilities with two unaffiliated banks, with aggregate availability of up to $150.0 million. At March 31, 2026, Hilltop Securities had $32.0 million in outstanding borrowings under its credit arrangements and had no outstanding borrowings under its credit facilities. The weighted average interest rate on its borrowings at March 31, 2026 was 4.78%.
Commercial Paper
Hilltop Securities uses the net proceeds (after deducting related issuance expenses) from the sale of two commercial paper programs for general corporate purposes, including working capital and the funding of a portion of its securities inventories. The commercial paper notes (“CP Notes”) may be issued with maturities of 14 days to 270 days from the date of issuance. The CP Notes are issued under two separate programs, Series 2019-2 CP Notes and Series 2024-1 CP Notes, in maximum aggregate amounts of $200 million and $300 million, respectively. The CP Notes are not redeemable prior to
maturity or subject to voluntary prepayment and do not bear interest, but are sold at a discount to par. The CP Notes are secured by a pledge of collateral owned by Hilltop Securities.
As of March 31, 2026, the weighted average maturity of the CP Notes was 157 days at a rate of 4.97%, with a weighted average remaining life of 73 days. At March 31, 2026, the aggregate amount outstanding under these secured arrangements was $269.4 million, which was collateralized by securities held for Hilltop Securities accounts valued at $295.3 million.
10. Notes Payable
Notes payable consisted of the following (in thousands).
Subordinated Notes due May 2035, net of discount of $1,355 and $1,413, respectively
11. Leases
Supplemental balance sheet information related to finance leases is as follows (in thousands).
Finance leases:
Premises and equipment
5,379
4,780
Accumulated depreciation
(50)
(4,377)
5,329
403
The components of lease costs, including short-term lease costs, are as follows (in thousands).
Operating lease cost
7,751
8,235
Less operating lease and sublease income
(297)
(452)
Net operating lease cost
7,454
7,783
Finance lease cost:
Amortization of ROU assets
105
Interest on lease liabilities
59
76
Total finance lease cost
164
Supplemental cash flow information related to leases is as follows (in thousands).
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
7,798
8,760
Operating cash flows from finance leases
Financing cash flows from finance leases
110
144
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
11,793
9,059
Finance leases
5,032
Information regarding the lease terms and discount rates of the Company’s leases is as follows.
Weighted Average
Remaining Lease
Lease Classification
Term (Years)
Discount Rate
Operating
5.1
5.57
4.9
5.87
Finance
9.1
4.26
1.9
4.99
Future minimum lease payments under lease agreements as of March 31, 2026, are presented below (in thousands).
Operating Leases
Finance Leases
21,704
2027
26,339
751
2028
21,161
779
2029
18,069
798
2030
15,236
806
Thereafter
20,114
3,471
Total minimum lease payments
122,623
7,247
Less amount representing interest
(16,457)
(1,249)
Lease liabilities
5,998
As of March 31, 2026, the Company had no additional operating leases that have not yet commenced.
12. Income Taxes
The Company applies an estimated annual effective rate to interim period pre-tax income to calculate the income tax provision for the quarter in accordance with the principal method prescribed by the accounting guidance established for computing income taxes in interim periods. The Company’s effective tax rates were 22.6% and 22.7% for the three months ended March 31, 2026 and 2025, respectively. During each of the three months ended March 31, 2026 and 2025, the effective tax rate was higher than the applicable statutory rate primarily due to the impact of nondeductible expenses, nondeductible compensation expense and other permanent adjustments, partially offset by investments in tax-exempt instruments.
On July 4, 2025, legislation referred to as “H.R. 1: One Big Beautiful Bill Act” (“OBBBA”) was signed into law which, among other changes, permanently disallowed certain business expenses, modified the tax year in which certain business deductions, primarily depreciation of capital asset additions, are allowed and thereby modified the time within which income tax payments will be made.
13. Commitments and Contingencies
Legal Matters
The Company is subject to loss contingencies related to litigation, claims, investigations and legal and administrative cases and proceedings arising in the ordinary course of business. The Company evaluates these contingencies based on information currently available, including advice of counsel. The Company establishes accruals for those matters when a loss contingency is considered probable and the related amount is reasonably estimable. Any accruals are periodically reviewed and may be adjusted as circumstances change. A portion of the Company’s exposure with respect to loss contingencies may be offset by applicable insurance coverage. In determining the amounts of any accruals or estimates of possible loss contingencies, the Company does not take into account the availability of insurance coverage. When it is practicable, the Company estimates loss contingencies for possible litigation and claims, whether or not there is an accrued probable loss. When the Company is able to estimate such probable losses, and when it estimates that it is reasonably possible it could incur losses in excess of amounts accrued, the Company is required to make a disclosure of the aggregate estimation. As available information changes, however, the matters for which the Company is able to estimate, as well as the estimates themselves, will be adjusted accordingly.
30
Assessments of litigation and claims exposures are difficult due to many factors that involve inherent unpredictability. Those factors include the following: the varying stages of the proceedings, particularly in the early stages; unspecified, unsupported, or uncertain damages; damages other than compensatory, such as punitive damages; a matter presenting meaningful legal uncertainties, including novel issues of law; multiple defendants and jurisdictions; whether discovery has begun or is complete; whether meaningful settlement discussions have commenced; and whether the claim involves a class action and if so, how the class is defined. As a result of some of these factors, the Company may be unable to estimate reasonably possible losses with respect to some or all of the pending and threatened litigation and claims asserted against the Company.
The Company is involved in information-gathering requests and investigations (both formal and informal), as well as reviews, examinations and proceedings (collectively, “Inquiries”) by various governmental regulatory agencies, law enforcement authorities and self-regulatory bodies regarding certain of its businesses, business practices and policies, as well as the conduct of persons with whom it does business. Additional Inquiries will arise from time to time. In connection with those Inquiries, the Company receives document requests, subpoenas and other requests for information. The Inquiries could develop into administrative, civil or criminal proceedings or enforcement actions that could result in consequences that have a material effect on the Company’s consolidated financial position, results of operations or cash flows as a whole. Such consequences could include adverse judgments, findings, settlements, penalties, fines, orders, injunctions, restitution, or alterations in the Company’s business practices, and could result in additional expenses and collateral costs, including reputational damage.
In September 2020, PrimeLending received an investigative inquiry from the United States Attorney for the Western District of Virginia regarding PrimeLending’s float down option. The United States Attorney issued grand jury subpoenas to PrimeLending and PlainsCapital Bank for additional materials regarding this matter. PrimeLending and PlainsCapital Bank are continuing to cooperate with requests for information with respect to this matter.
While the final outcome of litigation and claims exposures or of any Inquiries is inherently unpredictable, management is currently of the opinion that the outcome of pending and threatened litigation and Inquiries will not, except related to specific matters disclosed above, have a material effect on the Company’s business, consolidated financial position, results of operations or cash flows as a whole. However, in the event of unexpected future developments, it is reasonably possible that an adverse outcome in any matter, including the matters discussed above, could be material to the Company’s business, consolidated financial position, results of operations or cash flows for any particular reporting period of occurrence.
Indemnification Liability Reserve
The mortgage origination segment may be responsible to agencies, investors, or other parties for errors or omissions relating to its representations and warranties that each loan sold meets certain requirements, including representations as to underwriting standards and the validity of certain borrower representations in connection with the loan. If determined to be at fault, the mortgage origination segment either repurchases the affected loan from or indemnifies the claimant against loss. The mortgage origination segment has established an indemnification liability reserve for such probable losses.
Generally, the mortgage origination segment first becomes aware that an agency, investor, or other party believes a loss has been incurred on a sold loan when it receives a written request from the claimant to repurchase the loan or reimburse the claimant’s losses. Upon completing its review of the claimant’s request, the mortgage origination segment establishes a specific claims reserve for the loan if it concludes its obligation to the claimant is both probable and reasonably estimable.
An additional reserve has been established for probable agency, investor or other party losses that may have been incurred, but not yet reported to the mortgage origination segment based upon a reasonable estimate of such losses. Factors considered in the calculation of this reserve include, but are not limited to, the total volume of loans sold exclusive of specific claimant requests, actual claim Inquiries, claim settlements and the severity of estimated losses resulting from future claims, and the mortgage origination segment’s history of successfully curing defects identified in claim requests.
While the mortgage origination segment’s sales contracts typically include borrower early payment default repurchase provisions, these provisions have not been a primary driver of claims to date, and therefore, are not a primary factor considered in the calculation of this reserve.
At March 31, 2026 and December 31, 2025, the mortgage origination segment’s indemnification liability reserve totaled $6.6 million and $6.9 million, respectively. The provision for indemnification losses was $0.8 million and $0.7 million during the three months ended March 31, 2026 and 2025, respectively.
The following tables provide for a rollforward of claims activity for loans put-back to the mortgage origination segment based upon an alleged breach of a representation or warranty with respect to a loan sold and related indemnification liability reserve activity (in thousands).
Representation and Warranty Specific Claims
Activity - Origination Loan Balance
25,341
21,593
Claims made
5,220
11,034
Claims resolved with no payment
(3,053)
(4,519)
Repurchases
(3,592)
(4,260)
Indemnification payments
(627)
(154)
23,289
23,694
Indemnification Liability Reserve Activity
6,875
8,111
Additions for new sales
775
652
(620)
(520)
Early payment defaults
(227)
(176)
(174)
(113)
6,629
7,954
Reserve for Indemnification Liability:
Specific claims
1,121
1,575
Incurred but not reported claims
5,508
5,300
Although management considers the total indemnification liability reserve to be appropriate, there may be changes in the reserve over time to address incurred losses due to unanticipated adverse changes in the economy and historical loss patterns, discrete events adversely affecting specific borrowers or industries, and/or actions taken by institutions or investors. The impact of such matters is considered in the reserving process when probable and estimable.
14. Financial Instruments with Off-Balance Sheet Risk
Banking
The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit that involve varying degrees of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. Such financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received. The contract amounts of those instruments reflect the extent of involvement (and therefore the exposure to credit loss) the Bank has in particular classes of financial instruments.
Commitments to extend credit are agreements to lend to a customer provided that the terms established in the contract are met. Commitments generally have fixed expiration dates and may require payment of fees. Because some commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third-party. These letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.
In the aggregate, the Bank had outstanding unused commitments to extend credit of $2.2 billion at March 31, 2026 and outstanding financial and performance standby letters of credit of $144.3 million at March 31, 2026.
The Bank uses the same credit policies in making commitments and standby letters of credit as it does for loans held for investment. The amount of collateral obtained, if deemed necessary, in these transactions is based on management’s credit evaluation of the borrower. Collateral held varies but may include real estate, accounts receivable, marketable securities, interest-bearing deposit accounts, inventory, and property, plant and equipment.
Broker-Dealer
In the normal course of business, the Hilltop Broker-Dealers execute, settle, and finance various securities transactions that may expose the Hilltop Broker-Dealers to off-balance sheet risk in the event that a customer or counterparty does not fulfill its contractual obligations. Examples of such transactions include the sale of securities not yet purchased by customers or for the accounts of the Hilltop Broker-Dealers, use of derivatives to support certain non-profit housing organization clients and to hedge changes in the fair value of certain securities, clearing agreements between the Hilltop Broker-Dealers and various clearinghouses and broker-dealers, secured financing arrangements that involve pledged securities, and when-issued underwriting and purchase commitments.
33
15. Stock-Based Compensation
During the three months ended March 31, 2026 and 2025, Hilltop granted 787 and 3,929 shares of common stock, respectively, pursuant to the Hilltop Holdings Inc. 2020 Equity Incentive Plan (the “2020 Equity Plan”) to certain non-employee members of the Company’s board of directors for services rendered to the Company.
Restricted Stock Units
The following table summarizes information about stock-based incentive awards issued pursuant to the 2020 Equity Plan and nonvested restricted stock unit (“RSU”) activity for the three months ended March 31, 2026 (shares in thousands).
RSUs
Weighted
Average
Grant Date
Outstanding
1,197
32.74
Granted
38.85
Vested/Released
(294)
34.41
Forfeited
(111)
32.79
1,115
34.07
Vested/Released RSUs include an aggregate of 67,025 shares withheld to satisfy employee statutory tax obligations during the three months ended March 31, 2026.
During the three months ended March 31, 2026, the Compensation Committee of the board of directors of the Company awarded certain executives and key employees an aggregate of 322,691 RSUs pursuant to the 2020 Equity Plan. Of the RSUs granted during the three months ended March 31, 2026, 238,366 that were outstanding at March 31, 2026, are subject to time-based vesting conditions and generally cliff vest on the third anniversary of the grant date. Of the RSUs granted during the three months ended March 31, 2026, 84,325 that were outstanding at March 31, 2026, provide for cliff vesting based upon the achievement of certain performance goals over a three-year period.
At March 31, 2026, in the aggregate, 832,337 of the outstanding RSUs are subject to time-based vesting conditions and generally cliff vest on the third anniversary of the grant date, and 282,171 outstanding RSUs cliff vest based upon the achievement of certain performance goals over a three-year period. At March 31, 2026, unrecognized compensation expense related to outstanding RSUs of $25.0 million is expected to be recognized over a weighted average period of 1.81 years.
16. Regulatory Matters
Banking and Hilltop
PlainsCapital, which includes the Bank and PrimeLending, and Hilltop are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a direct, material effect on the consolidated financial statements. The regulations require PlainsCapital and Hilltop to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company performs reviews of the classification and calculation of risk-weighted assets to ensure accuracy and compliance with the Basel III regulatory capital requirements as implemented by the Board of Governors of the Federal Reserve System. The capital classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the companies to maintain minimum amounts and ratios (set forth in the following table) of Tier 1 capital (as defined in the regulations) to total average assets (as defined), and minimum ratios of common equity Tier 1, Tier 1 and total capital (as defined) to risk-weighted assets (as defined).
34
In order to avoid limitations on capital distributions, including dividend payments, stock repurchases and certain discretionary bonus payments to executive officers, Basel III requires banking organizations to maintain a capital conservation buffer above minimum risk-based capital requirements measured relative to risk-weighted assets.
The following table shows PlainsCapital’s and Hilltop’s actual capital amounts and ratios in accordance with Basel III compared to the regulatory minimum capital requirements including the conservation buffer ratio in effect at the end of the period (dollars in thousands). Based on actual capital amounts and ratios shown in the following table, PlainsCapital’s ratios place it in the “well capitalized” (as defined) capital category under regulatory requirements.
Minimum
Requirements
Including
Conservation
To Be Well
Buffer
Capitalized
Ratio
Tier 1 capital (to average assets):
PlainsCapital
1,169,969
9.54
1,320,094
10.60
4.0
5.0
1,954,818
12.82
1,975,226
12.78
N/A
Common equity Tier 1 capital (to risk-weighted assets):
12.71
14.49
7.0
6.5
19.08
19.70
Tier 1 capital (to risk-weighted assets):
8.5
8.0
Total capital (to risk-weighted assets):
1,267,171
13.77
1,421,007
15.60
10.5
10.0
2,202,053
21.50
2,226,165
22.20
Pursuant to the net capital requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Hilltop Securities has elected to determine its net capital requirements using the alternative method. Accordingly, Hilltop Securities is required to maintain minimum net capital, as defined in Rule 15c3-1 promulgated under the Exchange Act, equal to the greater of $1,000,000 or 2% of aggregate debit balances, as defined in Rule 15c3-3 promulgated under the Exchange Act. Additionally, the net capital rule of the NYSE provides that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than 5% of the aggregate debit items. Momentum Independent Network follows the primary (aggregate indebtedness) method, as defined in Rule 15c3-1 promulgated under the Exchange Act, which requires the maintenance of the larger of $250,000 or 6-2/3% of aggregate indebtedness.
At March 31, 2026, the net capital position of each of the Hilltop Broker-Dealers was as follows (in thousands).
Momentum
Independent
Network
Net capital
227,742
6,199
Less: required net capital
6,596
393
Excess net capital
221,146
5,806
Net capital as a percentage of aggregate debit items
69.1
Net capital in excess of 5% aggregate debit items
211,252
Under certain conditions, Hilltop Securities may be required to segregate cash and securities in a special reserve account for the benefit of customers under Rule 15c3-3 promulgated under the Exchange Act. Assets segregated for regulatory purposes under the provisions of the Exchange Act are restricted and not available for general corporate purposes. At
March 31, 2026 and December 31, 2025, the Hilltop Broker-Dealers held cash of $17.7 million and $20.2 million, respectively, segregated in special reserve bank accounts for the benefit of customers. The Hilltop Broker-Dealers were not required to segregate cash and securities in special reserve accounts for the benefit of proprietary accounts of introducing broker-dealers at March 31, 2026.
Mortgage Origination
As a mortgage originator, PrimeLending and its subsidiaries are subject to minimum capital, leverage, net worth and liquidity requirements established by the Department of Housing and Urban Development (“HUD”) and GNMA, as applicable. On an annual basis, PrimeLending and its subsidiaries submit audited financial statements to HUD and GNMA documenting their respective compliance with minimum requirements. On a quarterly basis, PrimeLending reviews these requirements and timely reports any exceptions to HUD and GNMA, as applicable. If any exceptions to these requirements occur, certain additional financial reporting submissions are required. As of March 31, 2026, PrimeLending and its subsidiaries’ minimum capital, leverage, net worth and liquidity exceeded the amounts required by both HUD and GNMA, as applicable.
17. Stockholders’ Equity
Dividends
During the three months ended March 31, 2026 and 2025, the Company declared and paid cash dividends of $0.20 and $0.18 per common share, or an aggregate of $11.8 million and $11.6 million, respectively.
On April 23, 2026, Hilltop’s board of directors declared a quarterly cash dividend of $0.20 per common share, payable on May 22, 2026, to all common stockholders of record as of the close of business on May 8, 2026.
Stock Repurchases
In January 2026, the Hilltop board of directors authorized a new stock repurchase program through January 2027, pursuant to which the Company is authorized to repurchase, in the aggregate, up to $125.0 million of the Company’s outstanding common stock, inclusive of repurchases to offset dilution related to grants of stock-based compensation. During the three months ended March 31, 2026, Hilltop paid $47.5 million to repurchase an aggregate of 1,238,216 shares of the Company’s common stock at an average price of $38.40 per share pursuant to the stock repurchase program.
The Company's share repurchases in excess of issuances may be subject to a nondeductible 1% excise tax enacted by the Inflation Reduction Act of 2022, subject to certain limitations. During the three months ended March 31, 2026, an excise tax of $0.4 million on net share repurchases was accrued and recorded to additional paid-in capital on the consolidated balance sheets.
The Company’s stock repurchase program, prior year repurchases, and related accounting policy are discussed in detail in Note 1 and Note 22 to the consolidated financial statements included in the Company’s 2025 Form 10-K.
18. Noninterest Income and Expense
The following table shows the components of noninterest income and expense (in thousands).
Net gains from sale of loans and other mortgage production income (1)
Principal transactions, commissions and fees:
Principal transactions (1)
33,971
29,708
Commissions
12,284
9,364
Money market and bank-insured fund fees
12,652
8,819
Other fees
7,627
7,422
Investment banking, advisory and administrative fees:
Advisory services
19,807
21,359
Managed money
12,088
10,492
Underwriting
3,866
3,825
1,159
952
Other:
Merchant banking investments (1)
628
42,705
Service charges on depositor accounts
4,917
4,724
Trust fees
3,184
3,350
3,054
Software and information technology
16,968
17,341
Brokerage commissions and fees
8,944
9,050
Travel, meals and entertainment
3,302
3,287
Business development
3,616
4,583
Unreimbursed loan closing costs
1,669
2,500
Mortgage origination and servicing
2,679
2,268
Funding fees
801
768
Office supplies
508
449
Amortization of intangible assets
240
257
9,540
10,834
Certain activities involving the recognition of revenue primarily within the Company’s banking and broker-dealer segments are subject to the provisions of ASC 606. The policies that govern such revenue from contracts with customers are further described in Note 1 and Note 23 to the consolidated financial statements included in the Company’s 2025 Form 10-K.
37
19. Derivative Financial Instruments
The Company uses various derivative financial instruments to mitigate interest rate risk. The Bank’s interest rate risk management strategy involves effectively managing the re-pricing characteristics of certain assets and liabilities to mitigate potential adverse impacts from changes in interest rates on the Bank’s net interest margin. Additionally, the Bank manages variability of cash flows associated with its variable rate debt in interest-related cash outflows with interest rate swap contracts. PrimeLending has interest rate risk relative to interest rate lock commitments (“IRLCs”) and its inventory of mortgage loans held for sale. PrimeLending is exposed to such interest rate risk from the time an IRLC is made to an applicant to the time the related mortgage loan is sold. To mitigate interest rate risk, PrimeLending executes forward commitments to sell mortgage-backed securities (“MBSs”) and futures contracts. Additionally, PrimeLending has interest rate risk relative to its MSR asset and uses derivative instruments, including U.S. Treasury bond futures and options to hedge this risk. The Hilltop Broker-Dealers use forward commitments to both purchase and sell MBSs to facilitate customer transactions and as a means to hedge related exposure to interest rate risk in certain inventory positions. Additionally, Hilltop Securities uses various derivative instruments, including U.S. Treasury bond futures and options, futures contracts, credit default swaps and municipal market data rate locks, to hedge changes in the fair value of its securities.
Non-Hedging Derivative Instruments and the Fair Value Option
As discussed in Note 3 to the consolidated financial statements, the Company has elected to measure substantially all mortgage loans held for sale at fair value under the provisions of the Fair Value Option. The election provides the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without applying hedge accounting provisions. The fair values of PrimeLending’s IRLCs and forward commitments are recorded in other assets or other liabilities, as appropriate, and changes in the fair values of these derivative instruments are recorded as a component of net gains from sale of loans and other mortgage production income. These changes in fair value are attributable to changes in the volume of IRLCs, mortgage loans held for sale, commitments to purchase and sell MBSs and MSR assets, and changes in market interest rates. Changes in market interest rates also conversely affect the value of PrimeLending’s mortgage loans held for sale and its MSR asset, which are measured at fair value under the Fair Value Option. The effect of the change in market interest rates on PrimeLending’s loans held for sale and MSR asset is discussed in Note 7 to the consolidated financial statements. The fair values of the Hilltop Broker-Dealers’ and the Bank’s derivative instruments are recorded in other assets or other liabilities, as appropriate, and changes in the fair value of these derivatives are recorded as a component of principal transactions, commissions and fees within the consolidated statements of operations.
Changes in the fair value of derivatives are presented in the following table (in thousands).
Increase (decrease) in fair value of derivatives during period:
PrimeLending
9,293
989
Hilltop Broker-Dealers
(7,950)
4,251
Bank
(23)
Hedging Derivative Instruments
The Company has entered into interest rate swap contracts to manage the exposure to changes in fair value associated with certain available for sale fixed rate collateralized mortgage-backed securities and fixed rate loans held for investment attributable to changes in the designated benchmark interest rate. Certain of these fair value hedges have been designated as a portfolio layer, which provides the Company the ability to execute a fair value hedge of the interest rate risk associated with a portfolio of similar prepayable assets whereby the last dollar amount estimated to remain in the portfolio of assets is identified as the hedged item. Additionally, the Company has outstanding interest rate swap contracts designated as cash flow hedges and utilized to manage the variability of cash flows associated with its variable rate borrowings.
Under each of its interest rate swap contracts designated as cash flow hedges, the Company receives a floating rate and pays a fixed rate on the outstanding notional amount. The Company assesses the hedge effectiveness both at the onset of
the hedge and at regular intervals throughout the life of the derivative. To the extent that the derivative instruments are highly effective in offsetting the variability of the hedged cash flows or fair value, changes in the fair value of the derivatives designated as hedges of cash flows are included as a component of accumulated other comprehensive income or loss on the Company’s consolidated balance sheets, and changes in the fair value of the derivatives designated as hedges of fair value are included in current earnings. Although the Company has determined at the onset of the hedges that the derivative instruments will be highly effective hedges throughout the term of the contract, any portion of derivative instruments subsequently determined to be ineffective will be recognized in earnings.
Derivative positions are presented in the following table (in thousands).
Notional
Estimated
Derivative instruments (not designated as hedges):
IRLCs
629,457
7,163
456,734
5,997
Commitments to purchase MBSs
1,845,114
(3,903)
1,586,198
7,311
Commitments to sell MBSs
2,712,499
4,062
2,383,043
(6,344)
Interest rate swaps
43,000
1,143
53,470
(666)
Interest rate swaps back-to-back (asset) (1)
116,449
785
110,437
1,495
Interest rate swaps back-to-back (liability) (1)
(834)
(1,551)
U.S. Treasury bond futures and options (2)
229,700
217,220
Interest rate and other futures (2)
7,800
9,250
Credit default swaps
40,000
Derivative instruments (designated as hedges):
Interest rate swaps designated as cash flow hedges
135,000
1,331
137,000
1,291
Interest rate swaps designated as fair value hedges (3)
317,170
24,443
317,335
23,858
The Bank and PrimeLending held cash collateral advances of $36.1 million and $25.0 million to offset net asset derivative positions on derivative instruments designated as hedges at March 31, 2026 and December 31, 2025, respectively. PrimeLending had advanced cash collateral totaling $4.1 million to offset net liability positions on its commitments to sell MBSs at December 31, 2025. In addition, PrimeLending and the Hilltop Broker-Dealers had advanced cash collateral totaling $5.6 million and $6.5 million on various derivative instruments at March 31, 2026 and December 31, 2025, respectively. These cash collateral amounts are included in either other assets or other liabilities within the consolidated balance sheets.
Derivatives on Behalf of Customers
The Bank offers derivative contracts to certain customers in connection with their risk management needs. These derivatives include back-to-back interest rate swaps. The Bank manages the risk associated with these contracts by entering into an equal and offsetting derivative with a third-party dealer bank. These derivatives generally work together as an economic interest rate hedge, but the Bank does not designate them for hedge accounting treatment. Consequently, changes in fair value of the corresponding derivative financial asset or liability were recorded as either a charge or credit to current earnings during the period in which the changes in fair value occurred, typically resulting in no net earnings impact.
20. Balance Sheet Offsetting
Certain financial instruments, including resale and repurchase agreements, securities lending arrangements and derivatives, may be eligible for offset in the consolidated balance sheets and/or subject to master netting arrangements or similar agreements. The Company’s accounting policy is to present required disclosures related to collateral and derivative positions on a gross basis.
The following tables present the assets and liabilities subject to enforceable master netting arrangements, repurchase agreements, or similar agreements with offsetting rights (in thousands).
Gross Amounts Not Offset in
Net Amounts
the Balance Sheet
Gross Amounts
of Assets
Cash
of Recognized
Offset in the
Presented in the
Financial
Collateral
Balance Sheet
Instruments
Pledged
Securities borrowed:
Institutional counterparties
1,451,564
(1,449,186)
2,378
Interest rate swaps:
27,933
(25,340)
2,593
Reverse repurchase agreements:
(132,556)
532
Forward MBS derivatives:
15,973
(493)
15,480
1,628,558
(1,582,235)
20,983
1,501,548
(1,425,084)
76,464
27,370
(24,380)
2,990
Credit default swaps:
(55,601)
376
7,852
(253)
7,599
1,592,754
(1,480,938)
87,436
of Liabilities
Liabilities
Securities loaned:
1,435,409
(1,435,409)
1,065
Repurchase agreements:
(467,052)
15,814
15,321
1,919,340
(1,902,954)
16,386
1,495,133
(1,418,288)
76,845
2,943
(268,805)
6,885
(1,795)
4,837
1,773,766
(1,687,346)
84,625
Secured Borrowing Arrangements
Secured Borrowings (Repurchase Agreements) — The Company participates in transactions involving securities sold under repurchase agreements, which are secured borrowings and generally mature one to ninety days from the transaction date or involve arrangements with no definite termination date. Securities sold under repurchase agreements are reflected at the amount of cash received in connection with the transactions. The Company may be required to provide additional collateral based on the fair value of the underlying securities, which is monitored on a daily basis.
Securities Lending Activities — The Company’s securities lending activities include lending securities for other broker-dealers, lending institutions and its own clearing and retail operations. These activities involve lending securities to other broker-dealers to cover short sales, to complete transactions in which there has been a failure to deliver securities by the required settlement date and as a conduit for financing activities.
When lending securities, the Company receives cash or similar collateral and generally pays interest (based on the amount of cash deposited) to the other party to the transaction. Securities lending transactions are executed pursuant to written agreements with counterparties that generally require securities loaned to be marked-to-market on a daily basis. The Company receives collateral in the form of cash in an amount generally in excess of the fair value of securities loaned. The Company monitors the fair value of securities loaned on a daily basis, with additional collateral obtained or refunded, as necessary. Collateral adjustments are made on a daily basis through the facilities of various clearinghouses. The Company is a principal in these securities lending transactions and is liable for losses in the event of a failure of any other party to honor its contractual obligation. Management sets credit limits with each counterparty and reviews these limits regularly to monitor the risk level with each counterparty. The Company is subject to credit risk through its securities lending activities if securities prices decline rapidly because the value of the Company’s collateral could fall below the amount of the indebtedness it secures. In rapidly appreciating markets, credit risk increases due to short positions. The Company’s securities lending business subjects the Company to credit risk if a counterparty fails to perform or if collateral securing its obligations is insufficient. In securities transactions, the Company is subject to credit risk during the period between the execution of a trade and the settlement by the customer.
41
The following tables present the remaining contractual maturities of repurchase agreement and securities lending transactions accounted for as secured borrowings (in thousands). The Company had no repurchase-to-maturity transactions outstanding at both March 31, 2026 and December 31, 2025.
Remaining Contractual Maturities
Overnight and
Greater Than
Continuous
Up to 30 Days
30-90 Days
90 Days
Repurchase agreement transactions:
Asset-backed securities
126,172
325,498
451,670
15,382
Securities lending transactions:
Corporate securities
52
1,435,357
1,576,963
1,902,461
Gross amount of recognized liabilities for repurchase agreement and securities lending transactions in offsetting disclosure above
Amount related to agreements not included in offsetting disclosure above
61,704
204,993
266,697
2,108
1,495,081
1,558,945
1,763,938
21. Broker-Dealer and Clearing Organization Receivables and Payables
Broker-dealer and clearing organization receivables and payables consisted of the following (in thousands).
Receivables:
Securities failed to deliver
5,969
5,899
Trades in process of settlement
152,198
63,811
15,425
17,624
Payables:
Correspondents
16,216
14,091
Securities failed to receive
25,320
3,517
5,053
5,762
22. Segment and Related Information
The Company has two primary business units, PCC (banking and mortgage origination) and Securities Holdings (broker-dealer). Under GAAP, the Company’s business units are comprised of three reportable business segments organized primarily by the core products offered to the segments’ respective customers: banking, broker-dealer and mortgage origination. These segments reflect the manner in which operations are managed and the criteria used by the chief operating decision maker (“CODM”), the Company’s President and Chief Executive Officer. For each reportable business segment, the CODM primarily uses income (loss) before taxes to evaluate segment performance, develop strategy and allocate resources. The CODM also uses net revenues, comprised of net interest income and noninterest income, which provides comparability of financial performance trends for the reportable business segments.
The banking segment includes the operations of the Bank. The broker-dealer segment includes the operations of Securities Holdings, and the mortgage origination segment is composed of PrimeLending.
Corporate includes certain activities not allocated to specific business segments. These activities include holding company financing and investing activities, merchant banking investment opportunities and management and administrative services to support the overall operations of the Company.
Balance sheet amounts not discussed previously and the elimination of intercompany transactions are included in “All Other and Eliminations.” Transactions between segments consist primarily of borrowed funds and FDIC sweep investments. Interest is paid by the mortgage origination and broker-dealer segments for use of the warehouse lines of credit maintained by the banking segment and for a note payable maintained with the corporate segment, respectively. Additionally, the broker-dealer segment receives fee income for the FDIC sweep investments placed with the banking segment.
The following tables present certain information about reportable business segment revenues, operating results, goodwill and assets (in thousands).
Corporate
All Other and Eliminations
Hilltop Consolidated
Interest income
150,202
33,313
12,501
3,812
(15,538)
Interest expense (1)
51,478
21,421
13,428
2,383
(16,517)
Net interest income (expense)
98,724
11,892
(927)
1,429
979
Noninterest income
11,081
104,175
72,969
(1,239)
Net revenue
109,805
116,067
72,042
2,858
(260)
300,512
Provision for (reversal of) credit losses
1,759
Non-variable compensation and benefits
35,744
34,803
26,364
6,859
103,770
Variable compensation (2)
36,469
28,723
65,192
9,660
4,139
4,197
1,999
(166)
2,275
4,733
3,378
859
Other segment expense items (3)
13,305
21,141
11,739
(94)
60,984
101,285
74,401
11,893
Income (loss) before taxes
47,062
14,776
(2,359)
(9,035)
158,545
34,823
11,230
2,815
(14,614)
67,995
23,255
12,627
3,684
(19,879)
90,550
11,568
(1,397)
(869)
5,265
10,810
96,937
67,775
43,379
(5,561)
101,360
108,505
66,378
42,510
(296)
318,457
9,372
34,102
34,781
28,507
9,420
106,810
33,283
24,832
11,315
69,430
8,489
4,851
4,775
1,834
(167)
(4,157)
4,456
3,152
755
13,496
21,952
13,394
2,567
(72)
51,930
99,323
74,660
25,891
(331)
40,058
9,216
(8,282)
16,619
Banking segment – primarily comprised of deposit interest expense.
Broker-dealer segment – primarily comprised of securities loaned and short-term borrowings interest expense.
Mortgage origination segment – primarily comprised of interest incurred on warehouse lines of credit held with the Bank.
development expense.
Mortgage
All Other and
Origination
Eliminations
Consolidated
247,368
7,008
13,071
12,451,921
3,107,780
973,682
2,354,540
(3,186,067)
12,743,756
2,929,088
1,091,437
2,370,468
(3,289,755)
23. Earnings per Common Share
The following table presents the computation of basic and diluted earnings per common share (in thousands, except per share data).
Basic earnings per share:
Weighted average shares outstanding - basic
Basic earnings per common share:
Diluted earnings per share:
Effect of potentially dilutive securities
83
Weighted average shares outstanding - diluted
Diluted earnings per common share:
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the consolidated historical financial statements and notes appearing elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”) and the financial information set forth in the tables herein.
Unless the context otherwise indicates, all references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, to the “Company,” “we,” “us,” “our” or “ours” or similar words are to Hilltop Holdings Inc. and its direct and indirect wholly owned subsidiaries, references to “Hilltop” refer solely to Hilltop Holdings Inc., references to “PCC” refer to PlainsCapital Corporation (a wholly owned subsidiary of Hilltop), references to “Securities Holdings” refer to Hilltop Securities Holdings LLC (a wholly owned subsidiary of Hilltop), references to “Hilltop Securities” refer to Hilltop Securities Inc. (a wholly owned subsidiary of Securities Holdings), references to “Momentum Independent Network” refer to Momentum Independent Network Inc. (a wholly owned subsidiary of Securities Holdings, Hilltop Securities and Momentum Independent Network are collectively referred to as the “Hilltop Broker-Dealers”), references to the “Bank” refer to PlainsCapital Bank (a wholly owned subsidiary of PCC), references to “FNB” refer to First National Bank, references to “SWS” refer to the former SWS Group, Inc., references to “PrimeLending” refer to PrimeLending, a PlainsCapital Company (a wholly owned subsidiary of the Bank) and its subsidiaries as a whole.
FORWARD-LOOKING STATEMENTS
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as amended by the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, included in this Quarterly Report that address results or developments that we expect or anticipate will or may occur in the future, and statements that are preceded by, followed by or include, words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “might,” “plan,” “probable,” “projects,” “seeks,” “should,” “target,” “view” or “would” or the negative of these words and phrases or similar words or phrases, including statements related to our objectives and business strategy, expectations concerning our financial condition, our revenue, the sufficiency of our liquidity and sources of funding, assumptions with relating to market trends, operations and business, taxes, information technology expenses, the impact of cybersecurity incidents, capital levels, mortgage servicing rights (“MSR”) assets, stock repurchases, dividend payments, expectations concerning mortgage loan origination volume, servicer advances and interest rate compression, expected levels of refinancing as a percentage of total loan origination volume, projected losses on mortgage loans originated, total expenses, the effects of government regulation applicable to our operations, the impact of macroeconomic conditions, the appropriateness of, and changes in, our allowance for credit losses and provision for (reversal of) credit losses, expected future benchmark rates, anticipated investment yields, our expectations regarding accretion of discount on loans in future periods, the collectability of loans, and the outcome of litigation are forward-looking statements.
These forward-looking statements are based on our beliefs, assumptions and expectations of our future performance taking into account all information currently available to us at the time of this Quarterly Report. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If any of these events or risks or uncertainties occur, our business, business plan, financial condition, liquidity and results of operations may vary materially from those results expressed in our forward-looking statements. Certain factors that could cause actual results to differ include, among others:
For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ materially from those anticipated in these forward-looking statements, see “Risk Factors” in Part I, Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2025 (“2025 Form 10-K”), which was filed with the Securities and Exchange Commission (“SEC”) on February 13, 2026, this Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other filings we have made with the SEC. We caution that the foregoing list of factors is not exhaustive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. All subsequent written and oral forward-looking statements concerning our business attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements above. We do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Quarterly Report except to the extent required by federal securities laws.
47
OVERVIEW
We are a financial holding company registered under the Bank Holding Company Act of 1956. Our primary line of business is to provide business and consumer banking services from offices located throughout Texas through the Bank. We also provide an array of financial products and services through our broker-dealer and mortgage origination segments. The following includes additional details regarding the financial products and services provided by each of our primary business units.
PCC. PCC is a financial holding company that provides, through its subsidiaries, traditional banking and wealth, investment and treasury management services primarily in Texas and residential mortgage loans throughout the United States.
Securities Holdings. Securities Holdings is a holding company that provides, through its subsidiaries, investment banking and other related financial services, including municipal advisory, sales, trading and underwriting of taxable and tax-exempt fixed income securities, clearing, securities lending, structured finance and retail brokerage services throughout the United States.
The following historical consolidated data for the periods indicated has been derived from our historical consolidated financial statements included elsewhere in this Quarterly Report (dollars and shares in thousands, except per share data).
Statement of Operations Data:
Per Share Data:
Diluted earnings per common share
Diluted weighted average shares outstanding
Cash dividends declared per common share
0.20
0.18
Dividend payout ratio (1)
31.25
27.62
Book value per common share (end of period)
36.63
34.29
Tangible book value per common share (2) (end of period)
31.97
30.02
Balance Sheet Data:
Capital Ratios:
Common equity to assets ratio
13.65
13.69
Tangible common equity to tangible assets (2)
12.13
12.17
(1) Dividend payout ratio is defined as cash dividends declared per common share divided by basic earnings per common share.
(2) For a reconciliation to the nearest accounting principles generally accepted in the United States (“GAAP”) measure, see “—Reconciliation and Management’s Explanation of Non-GAAP Financial Measures.”
48
Consolidated income before income taxes during the three months ended March 31, 2026 included the following contributions from our reportable business segments.
During the three months ended March 31, 2026, we declared and paid total common dividends of $11.8 million.
On April 23, 2026, our board of directors declared a quarterly cash dividend of $0.20 per common share, payable on May 22, 2026 to all common stockholders of record as of the close of business on May 8, 2026.
On January 29, 2026, our board of directors authorized a new stock repurchase program through January 2027, pursuant to which we are authorized to repurchase, in the aggregate, up to $125.0 million of our outstanding common stock, inclusive of repurchases to offset dilution related to grants of stock-based compensation. During the three months ended March 31, 2026, we paid $47.5 million to repurchase an aggregate of 1,238,216 shares of our common stock at an average price of $38.40 per share pursuant to the stock repurchase program.
Reconciliation and Management’s Explanation of Non-GAAP Financial Measures
We present certain measures in our selected financial data that are not measures of financial performance recognized by GAAP. “Tangible book value per common share” is defined as our total stockholders’ equity reduced by goodwill and other intangible assets, divided by total common shares outstanding. “Tangible common equity to tangible assets” is defined as our total stockholders’ equity reduced by goodwill and other intangible assets, divided by total assets reduced by goodwill and other intangible assets. These measures are used by management, investors and analysts to assess the use of equity. For companies such as ours that have engaged in business combinations, purchase accounting can result in the recording of significant amounts of goodwill and other intangible assets related to those transactions. You should not view this disclosure as a substitute for results determined in accordance with GAAP, and our disclosure is not necessarily comparable to that of other companies that use non-GAAP measures. The following table reconciles these non-GAAP financial measures to the most comparable GAAP financial measures, “book value per common share” and “equity to total assets” (dollars in thousands, except per share data).
Book value per common share
Effect of goodwill and intangible assets per share
(4.66)
(4.27)
Tangible book value per common share
Hilltop stockholders’ equity
Less: goodwill and intangible assets, net
272,812
273,052
Tangible common equity
1,871,219
1,895,349
Tangible assets
15,429,044
15,571,942
Equity to assets
Tangible common equity to tangible assets
Recent Developments
Economic Environment
Our balance sheet, operating results and certain metrics during 2025 and the first quarter of 2026 reflected uncertainty around general economic, market and business conditions that we expect will remain uncertain for the remainder of 2026. The extent of the impacts of uncertain economic conditions on our financial performance during the remainder of 2026 will depend in part on developments outside of our control, including, among others, changes in political environment, the impact of tariffs and reciprocal tariffs, the timing and significance of further changes in U.S. Treasury yields and mortgage interest rates, and a volatile economic forecast. These conditions, coupled with exposure to changes in funding costs, inflationary pressures, and international armed conflicts and their impact on supply chains within our business segments during the first quarter of 2026 have had, and are expected to continue to have, an adverse impact on our operating results during the remainder of 2026.
Uncertainty of general economic, market and business conditions impacts our ability to estimate credit losses and the allowance for credit losses, as well as the effects of changes in the level of, and trends in, loan delinquencies and write-offs. Significant judgment is required to estimate the severity and duration of the current economic uncertainties, as well as its potential impact on borrower cash flow. While all industries could experience volatility and adverse impacts, certain of our loan portfolio industry sectors and subsectors, including office buildings, retail and auto note financing, have an increased level of risk given business and consumer sensitivity to interest rates and the size and permanence of tariffs. Refer to the discussions in the “Financial Condition – Loan Portfolio” and “Financial Condition – Allowance for Credit Losses” sections that follow for more details regarding the Bank’s loan portfolio and significant assumptions and estimates involved in estimating credit losses.
Historically, high-profile banking failures periodically increase market uncertainty and concerns associated with banking sector liquidity positions, increase regulatory scrutiny and underscore the importance of maintaining access to diverse sources of funding. In light of these events, we have continued our efforts to monitor deposit flows and balance sheet trends to ensure that our liquidity needs and financial flexibility are maintained. During 2025, deposit costs remained elevated despite actions we took to reduce the interest paid on our interest-bearing deposits. Our cost of deposits decreased during the three months ended March 31, 2026, compared to the same period of 2025, as a result of the rate reductions since September 2025. Additionally, at March 31, 2026, we continued to access core deposits from our Hilltop Securities Federal Deposit Insurance Corporation (“FDIC”) insured sweep program, while the Bank was not utilizing any of its Federal Home Loan Bank (“FHLB”) borrowing capacity.
We expect that overall deposit funding costs will continue to be influenced by various factors, including, but not limited to competitive pressures, broader economic conditions, future changes in the target range for the federal funds rate, customer behavior and our liquidity position at that time. An unexpected influx of withdrawals of deposits could adversely impact our ability to rely on organic deposits to primarily fund our operations, potentially requiring greater reliance on secondary sources of liquidity to meet withdrawals of deposits or to fund continuing operations. These sources may include proceeds from FHLB advances, sales of investment securities and loans, federal fund lines of credit with correspondent banks, securities sold under agreements to repurchase, brokered time deposits, borrowings from the Federal Reserve and borrowings under lines of credit with other financial institutions. Refer to the discussions in the “Segment Results – Banking Segment” and “Liquidity and Capital Resources – Banking Segment” sections that follow for more details regarding the Bank’s deposits, available liquidity and borrowing capacity at March 31, 2026.
We expect uncertainties related to economic headwinds discussed above, the impact of interest rate movements on the shape and inversions of the yield curve and the continued active management of deposits and related funding costs that persisted through 2025 and into the first quarter of 2026, to continue during the remainder of 2026.
Asset Valuation
As discussed in more detail within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2025 Form 10-K, at each reporting date between annual impairment tests, we consider potential indicators of impairment including the condition of the economy and financial services industry; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting unit; performance of our stock and other relevant events.
Continuing macroeconomic challenges related to mortgage loan origination volumes, customer sensitivity to interest rates and resulting demand for certain products have resulted in a challenging environment associated with the mortgage origination segment’s short- and long-term financial condition, resulting in variability in their operating results.
Given the potential impacts of the operating performance of our reporting segments and overall economic conditions, actual results may differ materially from our current estimates as the scope of such impacts evolves or if the duration of business disruptions are longer than currently anticipated. We continue to monitor developments regarding overall economic conditions, market capitalization, and any other triggering events or circumstances that may indicate an impairment in the future.
To the extent future operating performance of our reporting segments remain challenged and below forecasted projections, significant assumptions such as expected future cash flows or the risk-adjusted discount rate used to estimate fair value are adversely impacted, or upon the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform impairment tests on our goodwill and other intangible assets, an impairment charge may be recorded for that period. In the event that we conclude that all or a portion of our goodwill and other intangible assets are impaired, a non-cash charge for the respective amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.
Factors Affecting Results of Operations
As a financial institution providing products and services through our banking, broker-dealer and mortgage origination segments, we are directly affected by general economic and market conditions, many of which are beyond our control and unpredictable. A key factor impacting our results of operations is changes in the level of interest rates in addition to twists in the shape of the yield curve with the magnitude and direction of the impact varying across the different lines of business. Other factors impacting our results of operations include, but are not limited to, fluctuations in volume and price levels of securities, inflation, political events, investor confidence, investor participation levels, legal, regulatory, and compliance requirements and competition. All of these factors have the potential to impact our financial position, operating results and liquidity. In addition, the recent economic and political environment has led to legislative and regulatory initiatives, both enacted and proposed, that could substantially change the regulation of the financial services industry and may significantly impact us.
Segment Information
The Company has two primary business units, PCC (banking and mortgage origination) and Securities Holdings (broker-dealer). Under GAAP, the Company’s units are comprised of three reportable business segments organized primarily by the core products offered to the segments’ respective customers: banking, broker-dealer and mortgage origination. Consistent with our historical segment operating results, we anticipate that future revenues will be driven primarily from the banking segment, with the remainder being generated by our broker-dealer and mortgage origination segments. Operating results for the mortgage origination segment have historically been more volatile than operating results for the banking and broker-dealer segments.
The banking segment includes the operations of the Bank. The banking segment primarily provides business and consumer banking services from offices located throughout Texas and generates revenue from its portfolio of earning assets. The Bank’s results of operations are primarily dependent on net interest income. The Bank also derives revenue from other sources, including service charges on customer deposit accounts and trust fees.
The broker-dealer segment includes the operations of Securities Holdings, which operates through its wholly owned subsidiaries Hilltop Securities, Momentum Independent Network and Hilltop Securities Asset Management, LLC. The broker-dealer segment generates a majority of its revenues from fees and commissions earned from investment advisory and securities brokerage services. Hilltop Securities is a broker-dealer registered with the SEC and the Financial Industry Regulatory Authority, Inc. (“FINRA”) and a member of the New York Stock Exchange (“NYSE”). Momentum Independent Network is an introducing broker-dealer that is also registered with the SEC and FINRA. Hilltop Securities and Momentum Independent Network are both registered with the Commodity Futures Trading Commission as non-guaranteed introducing brokers and as members of the National Futures Association. Additionally, Hilltop Securities, Momentum Independent Network and Hilltop Securities Asset Management, LLC are investment advisers registered with the SEC under the Investment Advisers Act of 1940, as amended.
The mortgage origination segment includes the operations of PrimeLending, which offers a variety of loan products and generates revenue predominantly from fees charged on the origination and servicing of loans and from selling these loans in the secondary market.
Corporate includes certain activities not allocated to specific business segments. These activities include holding company financing and investing activities, merchant banking investment opportunities, and management and administrative services to support the overall operations of the Company.
The eliminations of intercompany transactions are included in “All Other and Eliminations.” Additional information concerning our reportable business segments is presented in Note 22, “Segment and Related Information,” in the notes to our consolidated financial statements.
The following table presents certain information about the results of our reportable business segments (in thousands). This table serves as a basis for the discussion and analysis in the segment operating results sections that follow.
Variance 2026 vs 2025
Percent
Net interest income (expense):
8,174
470
2,298
264
All Other and Eliminations (1)
(4,286)
(81)
6,980
Provision for (reversal of) credit losses:
(7,613)
(7,573)
271
7,238
5,194
(41,950)
(97)
4,322
(24,925)
9,054
1,962
(259)
(0)
(13,998)
(54)
71
(3,170)
Income (loss) before taxes:
7,004
5,560
5,923
72
(25,654)
(100)
(7,202)
Key Performance Indicators
We utilize several key indicators of financial condition and operating performance to evaluate the various aspects of our business. In addition to traditional financial metrics, such as revenue and growth trends, we monitor several other financial measures and non-financial operating metrics to help us evaluate growth trends, measure the adequacy of our capital based on regulatory reporting requirements, measure the effectiveness of our operations and assess operational efficiencies. These indicators change from time to time as the opportunities and challenges in our businesses change.
Performance ratios and asset quality ratios are typically used for measuring the performance of banking and financial institutions. We consider return on average stockholders’ equity, return on average assets and net interest margin to be important supplemental measures of operating performance that are commonly used by securities analysts, investors and other parties interested in the banking and financial industry. The net recoveries (charge-offs) to average loans outstanding ratio is also considered a key measure for our banking segment as it indicates the performance of our loan portfolio.
In addition, we consider regulatory capital ratios to be key measures that are used by us, as well as banking regulators, investors and analysts, to assess our regulatory capital position and to compare our regulatory capital to that of other financial services companies. We monitor our capital strength in terms of both leverage ratio and risk-based capital ratios based on capital requirements administered by the federal banking agencies. The risk-based capital ratios are minimum supervisory ratios generally applicable to banking organizations, but banking organizations are widely expected to operate with capital positions well above the minimum ratios. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that, if undertaken, could have a material effect on our financial condition or results of operations.
How We Generate Revenue
We generate revenue from net interest income and from noninterest income. Net interest income represents the difference between the income earned on our assets, including our loans and investment securities, and our cost of funds, including the interest paid on the deposits and borrowings that are used to support our assets. Net interest income is a significant contributor to our operating results. Fluctuations in interest rates, as well as the amounts and types of interest-earning assets and interest-bearing liabilities we hold, affect net interest income. We generated $112.1 million in net interest income during the three months ended March 31, 2026, compared with net interest income of $105.1 million during the three months ended March 31, 2025. The change in reportable business segment net interest income during the three months ended March 31, 2026, compared with the same period in 2025, primarily reflected improvements within the banking segment and corporate.
The other component of our revenue is noninterest income, which is primarily comprised of the following:
In the aggregate, we generated $188.4 million and $213.3 million in noninterest income during the three months ended March 31, 2026 and 2025, respectively. The decrease in noninterest income during the three months ended March 31, 2026, compared to the same period in 2025, was predominantly attributable, as noted in the segment results table previously presented, primarily due to a decrease in pre-tax gains associated with merchant bank equity investment activity within corporate, partially offset by increased noninterest income within our broker-dealer segment from principal transactions, commissions and fees and within our mortgage origination segment from net gains from sale of loans.
We also incur noninterest expenses in the operation of our businesses. Our businesses engage in labor intensive activities and, consequently, employees’ compensation and benefits represent the majority of our noninterest expenses.
Consolidated Operating Results
Income applicable to common stockholders during the three months ended March 31, 2026 was $37.8 million, or $0.64 per diluted share, compared to $42.1 million, or $0.65 per diluted share, during the three months ended March 31, 2025. Hilltop’s financial results during the three months ended March 31, 2026, compared with three months ended March 31, 2025, are discussed in more detail below and within the respective “Banking Segment,” “Broker-Dealer Segment,” “Mortgage Origination Segment” and “Corporate” segment results sections that follow.
Certain items included in net income for the three months ended March 31, 2026 and 2025 resulted from purchase accounting associated with the merger of PlainsCapital Corporation with and into a wholly owned subsidiary of Hilltop on November 30, 2012, the FDIC-assisted transaction whereby the Bank acquired certain assets and assumed certain liabilities of FNB, the acquisition of SWS Group, Inc. in a stock and cash transaction, and the acquisition of The Bank of River Oaks in an all-cash transaction (collectively, the “Bank Transactions”). Income before income taxes during the three months ended March 31, 2026 and 2025 included net accretion on earning assets and liabilities of $1.3 million and $1.1 million, respectively, and amortization of identifiable intangibles of $0.2 million and $0.3 million, respectively, related to the Bank Transactions.
The information shown in the table below includes certain key performance indicators on a consolidated basis.
Return on average stockholders' equity (1)
7.12
7.82
Return on average assets (2)
1.02
1.13
Net interest margin (3) (4)
3.13
2.84
Leverage ratio (5) (end of period)
12.86
Common equity Tier 1 risk-based capital ratio (6) (end of period)
21.29
We present net interest margin and net interest income below on a taxable-equivalent basis. Net interest margin (taxable equivalent), a non-GAAP measure, is defined as taxable equivalent net interest income divided by average interest-earning assets. Taxable equivalent adjustments are based on the applicable corporate federal income tax rate of 21% for all periods presented. The Company performs periodic reviews of the classification and categorization of the components impacting the calculation of net interest margin. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest margins for all earning assets, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments.
During the three months ended March 31, 2026 and 2025, purchase accounting contributed 4 and 4 basis points, respectively, to our consolidated taxable equivalent net interest margin of 3.15% and 2.86%, respectively. The purchase accounting activity was primarily related to the accretion of discount of loans which totaled $1.3 million and $1.1 million during the three months ended March 31, 2026 and 2025, respectively, associated with the Bank Transactions.
The table below provides additional details regarding our consolidated net interest income (dollars in thousands).
Annualized
Earned
Yield or
Balance
or Paid
Rate
Interest-earning assets
845,782
12,353
5.84
709,094
11,438
6.45
Loans held for investment, gross (1)
8,297,552
117,733
5.75
7,890,745
113,254
5.82
Investment securities - taxable
2,529,893
2,455,590
4.04
Investment securities - non-taxable (2)
356,410
3,797
321,128
3,253
4.05
Federal funds sold and securities purchased under agreements to resell
87,371
963
4.47
100,691
1,820
7.33
Interest-bearing deposits in other financial institutions
857,761
7,541
3.57
2,037,462
21,192
4.22
1,435,543
3.96
1,390,797
4.55
119,239
1,557
5.30
117,155
1,891
6.55
Interest-earning assets, gross (2)
14,529,551
185,066
5.17
15,022,662
193,439
5.22
(91,822)
(100,704)
Interest-earning assets, net
14,437,729
14,921,958
Noninterest-earning assets
1,003,519
1,012,700
15,441,248
15,934,658
Interest-bearing liabilities
Interest-bearing deposits
7,881,301
2.49
8,186,423
2.97
1,420,058
3.67
1,381,819
Notes payable and other borrowings
959,120
11,026
4.66
1,065,835
12,895
4.91
Total interest-bearing liabilities
10,260,479
2.85
10,634,077
3.34
Noninterest-bearing liabilities
Noninterest-bearing deposits
2,728,216
2,696,247
267,998
391,617
13,256,693
13,721,941
Stockholders’ equity
2,155,173
2,184,937
Noncontrolling interest
29,382
27,780
Net interest income (2)
112,873
105,757
Net interest spread (2)
2.32
1.88
Net interest margin (2)
3.15
2.86
The banking segment’s net interest margin exceeds our consolidated net interest margin shown above. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our banking segment and reduces our consolidated net interest margin, such as the borrowing costs of Hilltop and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities, such as securities borrowed in the broker-dealer segment and securities loaned in the broker-dealer segment, including items related to securities financing operations that particularly decrease net interest margin. In addition, yields and costs on certain interest-earning assets, such as lines of credit extended to other operating segments by the banking segment, are eliminated from the consolidated financial statements.
On a consolidated basis, the change in net interest income during the three months ended March 31, 2026, compared with the same period in 2025, was primarily due to decreased costs of deposits from rate decreases, partially offset by decreased loans held for investment yield and interest-bearing deposits in other institutions yields from rate decreases. Refer to the discussion in the “Banking Segment” section that follows for more details on the changes in net interest income, including the component changes in the volume of average interest-earning assets and interest-bearing liabilities and changes in the rates earned or paid on those items.
The provision for (reversal of) credit losses is determined by management as the amount necessary to maintain the allowance for credit losses at the amount of expected credit losses inherent within the loans held for investment portfolio. The amount of expense and the corresponding level of allowance for credit losses for loans are based on our evaluation of the collectability of the loan portfolio based on historical loss experience, reasonable and supportable forecasts, and other significant qualitative and quantitative factors. Substantially all of our consolidated provision for (reversal of) credit losses is related to the banking segment. During the three months ended March 31, 2026, the provision for credit losses was primarily driven by a build in the allowance related to specific reserves and net charge-offs, partially offset by changes in the U.S. economic outlook associated with collectively evaluated loans and loan portfolio changes, including
changes in loan mix and risk rating grade migration, within the banking segment since the prior quarter. Refer to the discussion under the heading “Financial Condition – Allowance for Credit Losses on Loans” for more details regarding the significant assumptions and estimates involved in estimating credit losses.
Noninterest income decreased during the three months ended March 31, 2026, compared with the same period in 2025, primarily due to the recognition within corporate of a pre-tax gain of $27.8 million associated with the sale of operations by a merchant bank equity investment in the first quarter of 2025, partially offset by net increases within the broker-dealer segment’s fixed income services, wealth management and structured finance business lines and an increase in net gains from sale of loans within our mortgage origination segment.
Noninterest expense decreased during the three months ended March 31, 2026, compared with the same period in 2025, primarily due to a net decrease in employees’ compensation and benefits within corporate associated with the sale of a merchant bank equity investment in the first quarter of 2025, partially offset by an increase within our broker-dealer segment associated with increases in employees’ compensation and benefits. During 2025 and through the first quarter of 2026, we continued to experience increases in certain noninterest expenses, compared with respective prior periods, including compensation, occupancy, and software costs, due to inflationary pressures. We expect such inflationary headwinds to continue during the remainder of 2026.
Effective income tax rates during the three months ended March 31, 2026 and 2025 were 22.6% and 22.7%, respectively. During each of the three months ended March 31, 2026 and 2025, the effective tax rate was higher than the applicable statutory rate primarily due to the impact of nondeductible expenses, nondeductible compensation expense and other permanent adjustments, partially offset by investments in tax-exempt instruments.
Segment Results
Banking Segment
The following table presents certain information about the operating results of our banking segment (in thousands).
Variance
2026 vs 2025
Noninterest expense
The increase in income before income taxes during the three months ended March 31, 2026, compared with the same period in 2025, was primarily due to an increase in net interest income and a decrease in the provision for credit losses, partially offset by an increase in noninterest expense. Changes to net interest income related to the component changes in the volume of average interest-earning assets and interest-bearing liabilities and changes in the rates earned or paid on those items are discussed in more detail below.
As discussed in more detail below, the banking segment's overall deposit costs decreased during the first quarter of 2026, primarily due to lower rates on interest-bearing deposits on certain products and product tiers in conjunction with rate reductions by the Federal Reserve to lower the effective funds rate towards the end of 2025. We are continuing to actively manage our overall deposit costs and will continue to seek opportunities to further lower interest-bearing deposit rates if they present themselves. Future decisions on the costs of deposits will be influenced by various factors, including, but not limited to competitive pressures, broader economic conditions, future changes in the target range for the federal funds rate, customer behavior and our liquidity position at that time.
The information shown in the table below includes certain key indicators of the performance and asset quality of our banking segment.
Efficiency ratio (1)
55.54
51.23
1.17
0.96
Net interest margin (3)
3.38
Net recoveries (charge-offs) to average loans outstanding (4)
(0.22)
(0.23)
The banking segment presents net interest margin and net interest income in the following discussion and table below on a taxable equivalent basis. Net interest margin (taxable equivalent), a non-GAAP measure, is defined as taxable equivalent net interest income divided by average interest-earning assets. Taxable equivalent adjustments are based on the applicable corporate federal income tax rate of 21% for all periods presented. The banking segment performs periodic reviews of the classification and categorization of the components impacting the calculation of net interest margin. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of net interest margins for all earning assets, we use net interest income on a taxable equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments.
During the three months ended March 31, 2026 and 2025, purchase accounting contributed 5 and 3 basis points, respectively, to the banking segment’s taxable equivalent net interest margin of 3.39% and 2.97%, respectively. These purchase accounting items are primarily related to accretion of discount of loans associated with the Bank Transactions presented in the Consolidated Operating Results section.
57
The table below provides additional details regarding our banking segment’s net interest income (dollars in thousands).
16,639
396
9.52
7,987,132
112,222
5.70
7,586,154
107,809
5.76
Subsidiary warehouse lines of credit
833,009
13,000
6.24
704,040
12,297
6.99
2,059,329
16,166
3.14
2,016,842
16,036
3.18
107,830
969
3.60
107,232
921
3.44
72,953
717
3.99
46,782
537
748,835
6,932
3.75
1,850,400
20,301
39,237
377
3.89
39,100
399
4.14
11,848,325
150,383
5.15
12,367,189
158,696
5.20
(91,730)
(100,640)
11,756,595
12,266,549
743,214
750,476
12,499,809
13,017,025
Liabilities and Stockholders’ Equity
7,971,190
50,249
2.56
8,157,118
65,585
3.26
192,826
1,229
2.58
373,408
2,410
2.62
8,164,016
8,530,526
3.23
2,855,015
2,903,705
89,441
96,281
11,108,472
11,530,512
1,391,337
1,486,513
Total liabilities and stockholders’ equity
98,905
90,701
2.59
1.97
3.39
The banking segment’s net interest margin exceeds our consolidated net interest margin. Our consolidated net interest margin includes certain items that are not reflected in the calculation of our net interest margin within our banking segment and reduce our consolidated net interest margin, such as the borrowing costs of Hilltop and the yields and costs associated with certain items within interest-earning assets and interest-bearing liabilities, such as securities borrowed in the broker-dealer segment and securities loaned in the broker-dealer segment, including items related to securities financing operations that particularly decrease net interest margin. In addition, yields and costs on certain interest-earning assets, such as lines of credit extended to other operating segments by the banking segment, are eliminated from the consolidated financial statements.
The following table summarizes the changes in the banking segment’s net interest income for the periods indicated below, including the component changes in the volume of average interest-earning assets and interest-bearing liabilities and changes in the rates earned or paid on those items (in thousands).
2026 vs. 2025
Change Due To (1)
Volume
Yield/Rate
Change
(391)
(5)
(396)
Loans held for investment, gross (2)
5,695
(1,282)
4,413
Subsidiary warehouse lines of credit (3)
2,223
(1,520)
703
333
(203)
Investment securities - non-taxable (4)
300
(120)
180
(12,087)
(13,369)
(22)
Total interest income (4)
(3,921)
(4,392)
(8,313)
Interest expense
(1,495)
(13,841)
(15,336)
(1,167)
(14)
(1,181)
(2,662)
(13,855)
Net interest income (4)
(1,259)
9,463
8,204
With regard to net interest income, as of March 31, 2026, the banking segment maintained an asset sensitive rate risk position, meaning the amount of its interest-earning assets maturing or repricing within a given period exceeds the amount of its interest-bearing liabilities also maturing or repricing within that time period. During a period of declining interest rates, being asset sensitive tends to result in a decrease in net interest income, but during a period of rising interest rates, being asset sensitive tends to result in an increase in net interest income. Given projected impacts on net interest income associated with the expected transition into the next phase of the interest rate cycle, we continue to evaluate our current GAP position, which may result in a repositioning of the banking segment towards a more neutral or liability sensitive balance sheet.
The increase in net interest income during the three months ended March 31, 2026, compared to the same period in 2025, as noted in the table above, was driven by decreased funding costs on our deposit products from rate decreases. This decrease was partially offset by lower earnings on interest‑earning assets due to reduced balances and lower yields and by increased interest income from loans held for investment reflecting higher loan volumes. The average rate paid on interest-bearing liabilities decreased 67 basis points from 3.23% for the three months ended March 31, 2025 to 2.56% for the three months ended March 31, 2026, while the average yield on interest-earning assets decreased 5 basis points from 5.20% for the three months ended March 31, 2025 to 5.15% for the three months ended March 31, 2026.
Our portfolio includes loans that periodically reprice or mature prior to the end of an amortized term. The extent and timing of this impact on interest income will ultimately be driven by the timing, magnitude and frequency of interest rate and yield curve movements, as well as changes in market conditions and timing of management strategies. At March 31, 2026, approximately $501 million of our floating rate loans held for investment remained at or below their applicable rate floor, exclusive of our mortgage warehouse lending program, of which approximately 18% are not scheduled to reprice for more than one year based upon agreed-upon terms. If interest rates were to continue to fall, the impact on our interest income for certain variable-rate loans would be limited by these rate floors. If interest rates rise, yields on the portion of our loan portfolio that remain at applicable rate floors would rise more slowly than increases in market interest rates, unless such loans are refinanced or repaid. Competition for loan growth could also continue to put pressure on new loan origination rates.
Additionally, within our banking segment, the composition of the deposit base and ultimate cost of funds on deposits and net interest income are affected by the level of market interest rates, the interest rates and products offered by competitors, the volatility of equity markets and other factors. Deposit products and pricing structures relative to the market are regularly evaluated to maintain competitiveness over time. As discussed above, our cost of deposits decreased during the three months ended March 31, 2026, compared to the same period of 2025. We expect such costs during the remainder of 2026 will continue to be influenced by various factors, including, but not limited to competitive pressures, broader economic conditions, future changes in the target range for the federal funds rate, customer behavior and our liquidity position at that time. The Bank’s deposit base primarily includes a combination of commercial, wealth and public funds deposits, without a high level of industry concentration. At March 31, 2026, total estimated uninsured deposits were $5.9 billion, or approximately 56% of total deposits, while estimated uninsured deposits, excluding collateralized deposits of $640.8 million and internal accounts of $448.2 million, were $4.8 billion, or approximately 46% of total deposits.
Refer to the discussion in the “Liquidity and Capital Resources – Banking Segment” section that follows for more detail regarding the Bank’s activities regarding deposits, available liquidity and borrowing capacity.
To help mitigate net interest income spread volatility between our assets and liabilities, management maintains derivative trades, as either cash flow hedges or fair value hedges, that better align repricing characteristics. Despite having these hedges in place, changes in interest rates across the term structure may continue to impact net interest income and net interest margin. The impact of rate movements will change with the shape of the yield curve, including any changes in steepness or flatness and inversions at any points on the yield curve.
The banking segment retained approximately $54.9 million and $62.5 million in mortgage loans originated by the mortgage origination segment during the three months ended March 31, 2026 and 2025, respectively. These loans are purchased by the banking segment at par. For origination services provided, the banking segment reimburses the mortgage origination segment for direct origination costs associated with these mortgage loans, in addition to payment of a correspondent fee. The correspondent fees are eliminated in consolidation. The determination of mortgage loan retention levels by the banking segment will be impacted by, among other things, an ongoing review of the prevailing mortgage rates, balance sheet positioning at Hilltop and the banking segment’s outlook for commercial loan growth.
The banking segment’s provision for (reversal of) credit losses has been subject to significant year-over-year and quarterly changes primarily attributable to the effects of changes in economic outlook, macroeconomic forecast assumptions and the resulting impact on reserves. During the three months ended March 31, 2026, the provision for credit losses was primarily driven by a build in the allowance related to specific reserves and net charge-offs, partially offset by changes in the U.S. economic outlook associated with collectively evaluated loans and loan portfolio changes, including changes in loan mix and risk rating grade migration, within the banking segment since the prior quarter. The net impact to the allowance of changes associated with individually evaluated loans during the three months ended March 31, 2026 included a provision for credit losses of $4.0 million, while collectively evaluated loans during the three months ended March 31, 2026 included a reversal of credit losses of $2.3 million. The change in the allowance for credit losses during the noted period also reflected other factors including, but not limited to, loan mix, and changes in loan balances and qualitative factors from the prior quarter. The change in the allowance for credit losses during the three months ended March 31, 2026 was also impacted by net charge-offs of $4.3 million. Refer to the discussion in the “Financial Condition – Allowance for Credit Losses on Loans” section that follows for more details regarding the significant assumptions and estimates involved in estimating credit losses.
During the three months ended March 31, 2025, the increase in the provision for credit losses was primarily driven by a build in the allowance related to loan portfolio changes and specific reserves, including changes in loan mix and risk rating grade migration, partially offset by net charge-offs and changes in the U.S. economic outlook associated with collectively evaluated loans within the banking segment since the prior quarter. The net impact to the allowance of changes associated with collectively and individually evaluated loans during the three months ended March 31, 2025 included a provision for credit losses of $7.7 million and $1.7 million, respectively. The change in the allowance for credit losses during the noted period also reflected other factors including, but not limited to, loan growth, loan mix and changes in risk grades and qualitative factors from the prior quarter. The change in the allowance for credit losses during the three months ended March 31, 2025 was also impacted by net charge-offs of $4.3 million.
The banking segment’s noninterest income increased slightly during the three months ended March 31, 2026, compared to the same period in 2025.
The banking segment’s noninterest expense increased during the three months ended March 31, 2026, compared to the same period in 2025, primarily due to increases in professional fees, employees’ compensation and benefits and occupancy and equipment expenses. The increase in professional fees during 2026, compared to the same period in 2025, was driven by the settlement and receipt of $6.5 million during the first quarter of 2025 that reimbursed the Bank for legal fees previously incurred.
Broker-Dealer Segment
The following table provides additional details regarding our broker-dealer segment operating results (in thousands).
Net interest income:
Wealth management:
Securities lending
1,361
1,073
288
Clearing services
2,306
2,545
(239)
Structured finance
2,731
2,662
69
Fixed income services
136
(168)
5,358
5,456
(98)
Total net interest income
Principal transactions, commissions and fees by business line (1) (2):
Fixed income services (3)
13,432
8,842
4,590
Retail
24,212
22,454
1,758
8,836
9,043
(207)
Structured finance (3)
20,257
18,978
1,279
468
879
(411)
67,205
60,196
7,009
Investment banking, advisory and administrative fees by business line (1):
Public finance services
23,597
25,389
(1,792)
457
96
361
11,448
9,998
714
538
176
603
(6)
97
36,721
199
Other (1):
Net revenue (4)
7,562
Variable compensation (5)
3,186
Segment operating costs (6)
30,019
31,225
(1,206)
101,291
99,289
2,002
The increases in net revenue and income before income taxes for the three months ended March 31, 2026, compared with the same period in 2025, were primarily due to improved revenues within the fixed income services, wealth management
and structured finance business lines. These increases were offset by a decrease in the public finance services business line. The increase in the fixed income business line’s net revenues was due primarily to improved revenue earned from sales activities in both taxable and municipal capital markets divisions. The increase in the wealth management business line’s net revenue was driven by an increase in asset management fees revenues generated from customer assets under management and earnings on over-the-counter securities transactions. The increase in the structured finance business line’s net revenues was primarily due to an increase in commissions earned on the sale of agricultural insurance products and commodities transactions offset by a decrease in housing revenue period over period. The decrease in the public finance services business lines was due to a decrease in advisory fees. Income before income taxes for the three months ended March 31, 2026 was impacted by the increases in net revenue as described above and a net increase in noninterest expense.
The broker-dealer segment is subject to interest rate risk as a consequence of maintaining inventory positions, trading in interest rate sensitive financial instruments and maintaining a matched stock loan book. Changes in interest rates are likely to have a meaningful impact on our overall financial performance. Our broker-dealer segment has historically earned a significant portion of its revenues from advisory fees upon the successful completion of client transactions, which could be adversely impacted by interest rate volatility. Rapid or significant changes in interest rates could adversely affect the broker-dealer segment’s bond trading, sales, underwriting activities and other interest spread-sensitive activities. The broker-dealer segment also receives administrative fees for providing money market and FDIC investment alternatives to clients, which tend to be sensitive to short-term interest rates. In addition, the profitability of the broker-dealer segment depends, to an extent, on the spread between revenues earned on customer loans and excess customer cash balances, and the interest expense paid on customer cash balances, as well as the interest revenue earned on trading securities, net of financing costs. The broker-dealer segment is also exposed to interest rate risk through its structured finance business line, which is dependent on mortgage loan production that tends to be adversely impacted by interest rate volatility that may result in valuation-related adjustments.
In the broker-dealer segment, interest is earned from securities lending activities, interest charged on customer margin loan balances and interest earned on trading securities used to support sales, underwriting and other customer activities.
Noninterest income increased during the three months ended March 31, 2026, compared with the same period in 2025, primarily due to increases in principal transactions, commissions and fees and investment banking, advisory and administrative fees.
Principal transactions, commissions and fees increased during the three months ended March 31, 2026, compared with the same period in 2025, primarily due to increases in commodities and over-the-counter sales commissions. This increase was offset by the overall decrease in revenue from trading activities within our fixed income services business line due to a volatile market.
Investment banking advisory and administrative fees increased during the three and three months ended March 31, 2026, compared with the same period in 2025, primarily due to increases in fees earned from managed assets offset by a decrease in fees earned from public finance advisory services.
The increase in noninterest expense during the three months ended March 31, 2026, compared with the same period in 2025, was primarily due to increases in commissions, which was in line with the increase in commissions revenue earned period over period. The increase in variable compensation expense was partially offset by decreases in occupancy and general operating expenses.
62
Selected information concerning the broker-dealer segment, including key performance indicators, follows (dollars in thousands).
Total compensation as a % of net revenue (1)
61.4
62.7
Pre-tax margin (2)
12.7
FDIC insured program balances at the Bank (end of period)
100,403
571,730
Other FDIC insured program balances (end of period)
1,696,080
1,270,734
Customer funds on deposit, including short credits (end of period)
207,264
221,519
Public finance services:
Number of issues (3)
188
Aggregate amount of offerings (3)
16,361,191
13,927,701
Structured finance:
Lock production/TBA volume
1,473,358
811,901
Fixed income services:
Total volumes
36,725,707
47,450,311
Net inventory (end of period)
634,730
583,275
Wealth management (Retail and Clearing services groups):
Retail employee representatives (end of period)
91
Independent registered representatives (end of period)
Correspondents (end of period)
Correspondent receivables (end of period)
108,688
103,515
Customer margin balances (end of period)
248,489
219,965
Wealth management (Securities lending group):
Interest-earning assets - stock borrowed (end of period)
1,419,089
Interest-bearing liabilities - stock loaned (end of period)
1,401,595
Mortgage Origination Segment
The following table presents certain information regarding the operating results of our mortgage origination segment (in thousands).
Net interest expense
Loss before income taxes
The mortgage lending business is subject to variables that can impact loan origination volume, including seasonal transaction volumes and interest rate fluctuations. Historically, the mortgage origination segment has experienced increased loan origination volume from home purchases during the spring and summer months to varying degrees, when more people tend to move and buy or sell homes. A decrease in mortgage interest rates tends to result in increased loan origination volume from refinancings, while an increase in mortgage interest rates tends to result in decreased loan origination volume from refinancings. While changes in mortgage interest rates have historically had a lesser impact on home purchases volume than on refinancing volume, an increase in average mortgage rates since 2022 have negatively impacted home purchase volume through the first quarter of 2026. The effect of this trend was compounded by periods of broader economic uncertainty during that time. See details regarding loan origination volume in the table below.
Recent trends, as well as typical historical patterns in loan origination volume from home purchases and refinancings because of movements in mortgage interest rates, may not be indicative of future loan origination volumes. During 2025 and through the first quarter of 2026, certain events initially triggered as early as 2022 have continued to challenge total mortgage market origination volumes because of their effect on the broader economy. These factors include higher
63
average interest rates during this period when compared to the average of the three years prior to 2023, actions and communications by the Federal Reserve and ongoing geopolitical events. Specifically, actions taken by the United States government during the first half of 2025 to increase tariffs on foreign imports and reciprocal tariffs imposed by multiple foreign trading partners on United States exports, the enactment of comprehensive tax and spending bill and international armed conflicts have compounded economic uncertainty. These events have adversely impacted the willingness and ability of some mortgage origination segment’s customers to conduct mortgage transactions. While prolonged shortages of home inventories have shown some improvement during 2025 and the first quarter of 2026, affordability challenges, in addition to uncertainties about the economy, continue to negatively impact customers’ abilities to purchase homes. During the first quarter of 2026, average mortgage interest rates decreased compared to the first quarter of 2025. Between September 2025 and December 2025, the Federal Reserve reduced the target range for the federal funds rate by a cumulative 75 basis points to 3.5% - 3.75%. Following these rate reductions, mortgage interest rates declined slightly, which had a modest positive impact on loan origination volumes during the first quarter of 2026. We expect loan production during the second quarter of 2026 to improve primarily due to seasonally higher home purchase activity.
PrimeLending continues to evaluate its cost structure to address the current mortgage environment and we believe that ongoing cost-saving initiatives are critical to improving PrimeLending’s short- and long-term financial condition and operating results. Due to conditions and challenges discussed in detail within this section of segment results, the mortgage origination segment experienced operating losses during the three months ended March 31, 2026 and 2025. In light of current macroeconomic challenges in the mortgage industry, the fair value of the mortgage origination reporting unit may decline, and we may be required to record a goodwill impairment charge. These conditions will continue to be considered during future impairment evaluations of goodwill.
As a Government National Mortgage Association (“GNMA”) approved lender, we are subject to minimum capital, leverage, net worth and liquidity requirements established by the Department of Housing and Urban Development (“HUD”) and GNMA, including timely reporting if a quarter’s operating loss exceeds more than 20% of its previous quarter or year-end net worth (the “operating loss ratio”) and/or if a quarter’s leverage ratio is below 6% (the “GNMA leverage ratio”). If this occurs, certain additional financial reporting submissions are required. During the first, third and fourth quarters of 2025, the operating loss ratios were below the 20% threshold, while during the second quarter of 2025, PrimeLending reported a HUD operating gain. During the first quarter of 2026, the operating loss ratio was below the 20% threshold at 3.3%. During 2025, PrimeLending received capital infusions from its parent company, PlainsCapital Bank, totaling $25 million and the GNMA leverage ratios remained above the required 6% during each quarter of 2025. During the first quarter of 2026, the GNMA leverage ratio remained above the required 6% at 7.3%. Any trends requiring notification to GNMA and HUD are formally reported to those entities. While no capital infusions were received during the first quarter of 2026, capital infusions are possible in future periods, including those in the near-term, based on various factors including PrimeLending’s financial performance.
In addition, as a Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) approved lender, we are subject to certain minimum capital, net worth and liquidity requirements established by FNMA and FHLMC, including maintaining a minimum capital ratio of 6% (the “FNMA/FHLMC capital ratio”). During each quarter of 2025 and the first quarter of 2026, the capital ratio, including the 2025 capital infusions previously noted, exceeded the required 6%. FNMA and FHLMC may also monitor additional financial performance trends at their discretion, including risk-based analyses focused on loans that the mortgage origination segment is currently responsible for representations and warranties that agency loans sold meet certain requirements, including representations as to underwriting standards and the validity of certain borrower representations in connection with the loan. One FNMA discretionary performance trend monitors the change in adjusted net worth during the prior twelve months. FNMA’s acceptable threshold for this performance trend is less than minus 30%, but is only considered if a company has four consecutive quarterly losses. As of March 31, 2026, PrimeLending was not subject to this performance threshold since the Company reported an operating gain during the second quarter of 2025. Any trends requiring notification to FNMA and FHLMC are formally reported to those entities.
The loss before income taxes decreased during the three months ended March 31, 2026, compared with the same period in 2025. The decrease was primarily the result of an increase in noninterest income.
Average interest rates during the first quarter of 2026 experienced a decline from the 2025 annual average rates. Although we anticipate a slightly higher percentage of refinancing volume relative to total loan origination volume during 2026, as compared to 2025, an even higher refinance percentage could be driven by a slowing of purchase
64
volume due to the negative impact on new and existing home sales resulting from existing home inventory shortages and affordability challenges related to new home construction, and/or an increase in all-cash buyers.
The mortgage origination segment primarily originates its mortgage loans through a retail channel, with limited lending through its affiliated business arrangements (“ABAs”). For the three months ended March 31, 2026, funded volume through ABAs was approximately 9% of the mortgage origination segment’s total loan volume. Currently, PrimeLending owns a greater than 50% membership interest in two ABAs. We expect total production within the ABA channel to increase to approximately 12% of loan volume of the mortgage origination segment during the remainder of 2026.
The following table provides further details regarding our mortgage loan originations and sales for the periods indicated below (dollars in thousands). Loan volumes associated with mortgage loan transactions facilitated between PrimeLending and third-party mortgage lenders when requested products are not offered by PrimeLending are included in mortgage loan origination units and volume and are not included in mortgage loan sales volume below.
% of
Mortgage Loan Originations - units
5,889
5,373
516
Mortgage Loan Originations - volume:
Conventional
1,133,424
55.87
965,203
55.40
168,221
Government
439,988
21.69
401,187
23.03
38,801
Jumbo
156,656
7.72
118,092
6.78
38,564
298,658
14.72
257,859
14.79
40,799
2,028,726
100.00
1,742,341
286,385
Home purchases
1,428,157
70.40
1,528,560
87.73
(100,403)
Refinancings
600,569
29.60
213,781
12.27
386,788
Texas
516,495
25.46
548,610
31.49
(32,115)
California
173,588
8.56
136,394
7.83
37,194
South Carolina
139,148
6.86
96,877
5.56
42,271
Arizona
88,021
59,758
3.43
28,263
Missouri
87,213
4.30
65,180
3.74
22,033
Florida
84,488
4.16
73,348
4.21
Ohio
74,294
3.66
56,050
3.22
18,244
New York
73,562
3.63
66,602
3.82
6,960
Washington
67,816
47,147
2.71
20,669
Massachusetts
55,987
2.76
24,047
1.38
31,940
All other states
668,114
32.93
568,328
32.61
99,786
Mortgage Loan Sales - volume:
Third parties
1,966,074
97.28
1,682,048
96.42
284,026
Banking segment
54,944
2.72
62,507
3.58
(7,563)
2,021,018
1,744,555
276,463
We consider the mortgage origination segment’s total loan origination volume to be a key performance measure. Loan origination volume is central to the segment’s ability to generate income by originating and selling mortgage loans, resulting in net gains from the sale of loans, mortgage loan origination fees, and other mortgage production income. Total loan origination volume is a measure utilized by management, our investors, and analysts in assessing market share and growth of the mortgage origination segment.
The mortgage origination segment’s total loan origination volume increased 16.4% during the three months ended March 31, 2026, compared to the same period in 2025, while the loss before income taxes decreased 71.5% during the same period. The decrease in loss before income taxes during the three months ended March 31, 2026, compared to the same period in 2025, was primarily due to an increase in net gains from sale of loans and a decrease in non-variable compensation and benefits. These positive changes were partially offset by an unfavorable change in the net fair value and related derivative activity associated with interest rate lock commitments, loans held for sale and an increase in variable compensation.
65
The information shown in the table below includes certain additional key performance indicators for the mortgage origination segment.
Net gains from mortgage loan sales (basis points):
Loans sold to third parties (1)
222
Broker fee income (2)
Impact of loans retained by banking segment
(7)
As reported
254
224
Variable compensation as a percentage of total compensation
52.1
46.6
Mortgage servicing rights asset ($000's) (end of period) (3)
Net interest expense was comprised of interest income earned on loans held for sale offset by interest incurred on warehouse lines of credit with the Bank, and related intercompany financing costs. Net interest expense decreased during the three months ended March 31, 2026, as compared to the same period in 2025, primarily due to a decline in the negative net interest margin.
Noninterest income was comprised of the items set forth in the table below (in thousands).
Net gains from sale of loans
51,319
38,996
12,323
Mortgage loan origination fees and other related income
21,915
(536)
Other mortgage production income:
Change in net fair value and related derivative activity:
IRLCs and loans held for sale
(1,044)
5,616
(6,660)
Mortgage servicing rights asset
(824)
(258)
(566)
Servicing fees
1,603
970
633
Net gains from sale of loans increased 31.6%, while total loans sales volume increased 15.8% during the three months ended March 31, 2026, compared with the same period in 2025. During the three months ended March 31, 2026, the increase in net gains from sales of loans was the result of a higher average loan sale volume in addition to the increase in the mortgage loan sale volume.
Mortgage loan origination fees decreased 2.4% during the three months ended March 31, 2026, compared with the same period in 2025. The decrease in average mortgage loan origination fees was almost entirely offset by an increase in loan origination volume during the three months ended March 31, 2026, compared to the same period in 2025.
Fluctuations in mortgage loan origination fees and net gains on sale of loans are not always aligned with fluctuations in loan origination and loan sale volumes, respectively, since customers may opt to pay PrimeLending discount fees on their mortgage loans, which are included in mortgage loan origination fees, in exchange for a lower interest rate, which decreases the value of a loan in the secondary market.
We consider the mortgage origination segment’s net gains from sale of loans margin, in basis points, to be a key performance measure. Net gains from mortgage loan sales margin is defined as net gains from sale of loans divided by mortgage loan sales volume. The net gains from sale of loans is central to the segment’s generation of income and may include loans sold to third parties and loans sold to and retained by the banking segment. For origination services provided, the mortgage origination segment was reimbursed direct origination costs associated with loans retained by the banking segment, in addition to payment of a correspondent fee. The reimbursed origination costs and correspondent fees are included in the mortgage origination segment operating results, and the correspondent fees are eliminated in consolidation. Loan volumes to be originated on behalf of and retained by the banking segment are evaluated each quarter. Loans sold to and retained by the banking segment during the three months ended March 31, 2026 and 2025 were $54.9 million and $62.5 million, respectively. Loan volumes to be originated on behalf of and retained by the
banking segment are expected to be impacted by, among other things, an ongoing review of the prevailing mortgage rates, balance sheet positioning at Hilltop and the banking segment’s outlook for commercial loan growth.
Noninterest income included changes in the net fair value of the mortgage origination segment’s interest rate lock commitments (“IRLCs”) and loans held for sale and the related activity associated with forward commitments used by the mortgage origination segment to mitigate interest rate risk associated with its IRLCs and mortgage loans held for sale (“net fair value of IRLCs and loans held for sale”). The decrease in net fair value of IRLCs and loans held for sale during the three months ended March 31, 2026, was primarily the result of a decrease in the average value of individual IRLCs and loans held for sale during the period. This decrease was partially offset by a $0.8 million positive fair value adjustment to approximately $20 million of loans held for sale that cannot be sold through normal sale channels or are non-performing. The sale of these loans is expected to close during the second quarter of 2026.
The mortgage origination segment sells substantially all mortgage loans it originates to various investors in the secondary market. In addition, the mortgage origination segment originates loans on behalf of the Bank. The mortgage origination segment’s determination of whether to retain or release servicing on mortgage loans it sells is impacted by, among other things, changes in mortgage interest rates, refinancing and market activity, and balance sheet positioning at Hilltop. During the three months ended March 31, 2026, PrimeLending retained servicing on approximately 7% of loans sold, compared with approximately 6% of loans sold during the same period in 2025. A reduction in third-party mortgage servicers purchasing mortgage servicing rights, even if modest, may result in PrimeLending increasing the rate of retained servicing on mortgage loans sold at any time. The mortgage origination segment may, from time to time, manage its MSR asset through different strategies, including varying the percentage of mortgage loans sold, servicing released and opportunistically selling MSR assets. The mortgage origination segment has also retained servicing on certain loans sold to and retained by the banking segment. Gains and losses associated with such sales to the banking segment and the related MSR asset are eliminated in consolidation.
The mortgage origination segment uses derivative financial instruments, including U.S. Treasury bond futures and options and MBS commitments, to mitigate interest rate risk associated with its MSR asset. Changes in the net fair value of the MSR asset and the related derivatives are associated with normal customer payments, changes in discount rates, prepayment speed assumptions and customer payoffs. During the three months ended March 31, 2026 and 2025, changes in the net fair value of the MSR asset and the related derivatives resulted in net losses of $0.8 million and $0.3 million, respectively.
During the three months ended March 31, 2025, the mortgage origination segment expensed $0.8 million for amounts paid to the purchasers of MSR assets for loans included in a 2024 sale which prepaid within a defined period of time outlined in the sale agreements. At March 31, 2025, the mortgage origination segment serviced approximately $477 million of loan volume, valued at $6.9 million. As of March 31, 2026, the mortgage origination segment serviced approximately $1.3 billion of loan volume, valued at $20.2 million. PrimeLending does not currently expect the level of MSR assets to be significant in the short-term.
Noninterest expenses were comprised of the items set forth in the table below (in thousands).
Variable compensation
3,891
(2,143)
Segment operating costs
16,900
17,868
(968)
Lender paid closing costs
(831)
Servicing expense
745
953
(208)
Total employees’ compensation and benefits accounted for the majority of noninterest expenses incurred during all periods presented. Historically, variable compensation comprises the majority of total employees’ compensation and benefits expenses. Variable compensation, which is primarily driven by loan origination volume, tends to fluctuate to a greater degree than loan origination volume, because mortgage loan originator and fulfillment employees incentive compensation plans are structured to pay at increasing rates as higher monthly volume tiers are achieved. However, certain other incentive compensation plans driven by non-mortgage production criteria may alter this trend.
While total loan origination volume increased 16.4% during the three months ended March 31, 2026, compared to the same period in 2025, the aggregate non-variable compensation and benefits of the mortgage origination segment
67
decreased 7.5% during the same period. The decrease in non-variable compensation during the three months ended March 31, 2026, compared to the same period in 2025, was primarily due to a decrease in salaries associated with reduction in underwriting and loan fulfillment, operations and corporate headcount during 2025 as PrimeLending continued to evaluate its cost structure to address the current mortgage environment. In addition, during the three months ended March 31, 2026, compared to the same period in 2025, segment operating costs decreased slightly.
In exchange for a higher interest rate, customers may opt to have PrimeLending pay certain costs associated with the origination of their mortgage loans (“lender paid closing costs”). Fluctuations in lender paid closing costs are not always aligned with fluctuations in loan origination volume. Other loan pricing conditions, including the mortgage loan interest rate, loan origination fees paid by the customer, and a customer’s willingness to pay closing costs, may influence fluctuations in lender paid closing costs.
Between January 1, 2017 and March 31, 2026, the mortgage origination segment sold mortgage loans totaling $128.2 billion. These loans were sold under sales contracts that generally include provisions that hold the mortgage origination segment responsible for errors or omissions relating to its representations and warranties that loans sold meet certain requirements, including representations as to underwriting standards and the validity of certain borrower representations in connection with the loan. In addition, the sales contracts typically require the refund of purchased servicing rights plus certain investor servicing costs if a loan experiences an early payment default. While the mortgage origination segment sold loans prior to 2017, it does not anticipate experiencing significant losses in the future on loans originated prior to 2017 as a result of investor claims under these provisions of its sales contracts.
When a claim for indemnification of a loan sold is made by an agency, investor, or other party, the mortgage origination segment evaluates the claim and determines if the claim can be satisfied through additional documentation or other deliverables. If the claim is valid and cannot be satisfied in that manner, the mortgage origination segment negotiates with the claimant to reach a settlement of the claim. Settlements typically result in either the repurchase of a loan or reimbursement to the claimant for losses incurred on the loan.
The following is a summary of the mortgage origination segment’s claims resolution activity relating to loans sold between January 1, 2017 and March 31, 2026 (dollars in thousands).
Original Loan Balance
Loss Recognized
Loans Sold
255,594
Claims resolved because of a loan repurchase or payment to an investor for losses incurred (1)
238,337
0.19
28,030
0.02
493,931
0.39
For each loan, when the mortgage origination segment concludes its obligation to a claimant is both probable and reasonably estimable, the mortgage origination segment has established a specific claims indemnification liability reserve.
An additional indemnification liability reserve has been established for probable agency, investor or other party losses that may have been incurred, but not yet reported to the mortgage origination segment based upon a reasonable estimate of such losses. Factors considered in the calculation of this reserve include, but are not limited to, the total volume of loans sold exclusive of specific claimant requests, actual claim inquiries, claim settlements and the severity of estimated losses resulting from future claims, and the mortgage origination segment’s history of successfully curing defects identified in claim requests.
Although management considers the total indemnification liability reserve to be appropriate, there may be changes in the reserve over time to address incurred losses due to unanticipated adverse changes in the economy and historical loss patterns, discrete events adversely affecting specific borrowers or industries, and/or actions taken by institutions or investors. The impact of such matters is considered in the reserving process when probable and estimable. During the first quarter of 2026 and 2025, there were no adjustments made to the indemnification liability reserve. PrimeLending will continue to monitor agency claim inquiry trends and assess its potential impact on the indemnification liability reserve.
68
At March 31, 2026 and December 31, 2025, the mortgage origination segment’s total indemnification liability reserve totaled $6.6 million and $6.9 million, respectively. The related provision for indemnification losses was $0.8 million and $0.7 million during the three months ended March 31, 2026 and 2025, respectively.
The following table presents certain financial information regarding the operating results of corporate (in thousands).
Income (loss) before income taxes
Corporate includes certain activities not allocated to specific business segments. These activities include holding company financing and investing activities, merchant banking investment opportunities and management and administrative services to support the overall operations of the Company. Hilltop’s merchant banking investment activities include the identification of attractive opportunities for capital deployment in companies engaged in non-financial activities through its merchant bank subsidiary, Hilltop Opportunity Partners LLC. These merchant banking activities currently include investments within various industries, including power generation, youth sports and entertainment, dental health, industrial equipment manufacturing, industrial and mechanical construction, and aerospace and defense manufacturing, with an aggregate carrying value of approximately $90 million at March 31, 2026.
As a holding company, Hilltop’s primary investment objectives are to support capital deployment for organic growth and to preserve capital to be deployed through acquisitions, dividend payments and potential stock repurchases. Investment and interest income earned during the three months ended March 31, 2026 was primarily comprised of dividend income from merchant banking investment activities, in addition to interest income earned on intercompany notes.
Interest expense during each of the three months ended March 31, 2026 and 2025 included recurring quarterly interest expense of $2.4 million on our $150 million aggregate principal amount of subordinated notes due 2035 (“2035 Subordinated Notes”). Interest expense during the three months ended March 31, 2025 also included interest expense of $0.6 million and $0.7 million on our outstanding senior notes due 2025 that were redeemed on January 15, 2025 and on our outstanding $50 million aggregate principle amount of subordinated notes due 2030 that were redeemed on May 15, 2025, respectively. Interest expense during the three months ended March 31, 2026 and 2025 was $2.4 million and $3.7 million, respectively.
Noninterest income during each period included activity related to our investment in a real estate development in Dallas’ University Park, which also serves as headquarters for both Hilltop and the Bank, and net noninterest income associated with activities within our merchant bank subsidiary. During the three months ended March 31, 2025, noninterest income was significantly comprised of a pre-tax gain associated with the Company’s aggregate interest in Moser Holdings, LLC and reported primarily as a component of other noninterest income within the consolidated statements of operations.
Noninterest expenses were primarily comprised of employees’ compensation and benefits, occupancy expenses and professional fees, including corporate governance, legal and transaction costs. During the three months ended March 31, 2026, compared to the same period in 2025, the decrease in noninterest expenses was primarily driven by variable compensation associated with the sale of a merchant bank equity investment during the first quarter of 2025 and other changes associated with employees’ compensation and benefits.
Financial Condition
The following discussion contains a more detailed analysis of our financial condition at March 31, 2026, as compared with December 31, 2025.
Securities Portfolio
At March 31, 2026, investment securities consisted of securities of the U.S. Treasury, U.S. government and its agencies, obligations of municipalities and other political subdivisions, primarily in the State of Texas, as well as mortgage-backed, corporate debt, and equity securities. We may categorize investments as trading, available for sale, held to maturity and equity securities.
Trading securities are bought and held principally for the purpose of selling them in the near term and are carried at fair value, marked to market through operations and held at the Bank and the Hilltop Broker-Dealers. Securities classified as available for sale may, from time to time, be bought and sold in response to changes in market interest rates, changes in securities’ prepayment risk, increases in loan demand, general liquidity needs and to take advantage of market conditions that create more economically attractive returns. Such securities are carried at estimated fair value, with unrealized gains and losses recorded in accumulated other comprehensive income (loss). Equity investments are carried at fair value, with all changes in fair value recognized in net income. Securities are classified as held to maturity based on the intent and ability of our management, at the time of purchase, to hold such securities to maturity. These securities are carried at amortized cost.
The table below summarizes our securities portfolio (in thousands).
Trading securities, at fair value
Securities available for sale, at fair value
Securities held to maturity, at amortized cost
Equity securities, at fair value
Total securities portfolio
We had net unrealized losses of $68.3 million and $63.0 million at March 31, 2026 and December 31, 2025, respectively, related to the available for sale investment portfolio, and net unrealized losses of $57.1 million and $53.4 million at March 31, 2026 and December 31, 2025, respectively, associated with the securities held to maturity portfolio.
Equity securities included net unrealized gains of $0.2 million and $0.2 million at March 31, 2026 and December 31, 2025, respectively. In future periods, we expect changes in prevailing market interest rates, coupled with changes in the aggregate size of the investment portfolio, to be significant drivers of changes in the unrealized losses or gains in these portfolios, and therefore accumulated other comprehensive income (loss).
The banking segment’s securities portfolio plays a role in the management of our interest rate sensitivity and generates additional interest income. In addition, the securities portfolio is used to meet collateral requirements for public and trust deposits, securities sold under agreements to repurchase and other purposes. The available for sale and equity securities portfolios serve as a source of liquidity. Historically, the Bank’s policy has been to invest primarily in securities of the U.S. government and its agencies, obligations of municipalities in the State of Texas and other high grade fixed income securities to minimize credit risk. At March 31, 2026, the banking segment’s securities portfolio of $2.2 billion was comprised of trading securities of $30 thousand, available for sale securities of $1.4 billion, held to maturity securities of $759.6 million and equity securities of $0.2 million, in addition to $10.7 million of other investments included in other assets within the consolidated balance sheets.
The broker-dealer segment holds securities to support sales, underwriting and other customer activities. The interest rate risk inherent in holding these securities is managed by setting and monitoring limits on the size and duration of positions and on the length of time the securities can be held. The Hilltop Broker-Dealers are required to carry their securities at fair value and record changes in the fair value of the portfolio to the statement of operations. Accordingly, the securities portfolio of the Hilltop Broker-Dealers included trading securities of $698.1 million at March 31, 2026. In addition, the Hilltop Broker-Dealers enter into transactions that represent commitments to purchase and deliver securities at prevailing future market prices to facilitate customer transactions and satisfy such commitments. Accordingly, the Hilltop Broker-Dealers’ ultimate obligation may exceed the amount recognized in the financial statements. These securities, which are carried at fair value and reported as securities sold, not yet purchased in the consolidated balance sheets, had a value of $63.3 million at March 31, 2026.
At March 31, 2026, the corporate portfolio included other investments, including those associated with merchant banking, of available for sale securities of $63.0 million and other assets of $7.5 million within the consolidated balance sheet.
Allowance for Credit Losses for Available for Sale Securities and Held to Maturity Securities
We have evaluated available for sale debt securities that are in an unrealized loss position and have determined that any declines in value are unrelated to credit loss and related to changes in market interest rates since purchase. None of the available for sale debt securities held were past due at March 31, 2026. In addition, as of March 31, 2026, we evaluated our held to maturity debt securities, considering the current credit ratings and recognized losses, and determined the potential credit loss to be minimal. With respect to these securities, we considered the risk of credit loss to be negligible, and therefore, no allowance was recognized on the debt securities portfolio at March 31, 2026.
Loan Portfolio
Consolidated loans held for investment are detailed in the table below, classified by portfolio segment (in thousands).
Loans held for investment, gross
Loans held for investment, net of allowance
The loan portfolio constitutes the primary earning asset of the banking segment and typically offers the best alternative for obtaining the maximum interest spread above the banking segment’s cost of funds. The overall economic strength of the banking segment generally parallels the quality and yield of its loan portfolio.
As discussed in more detail within the section captioned “Financial Condition – Allowance for Credit Losses on Loans” set forth in Part II, Item 7 of our 2025 Form 10-K and further within the section captioned “Financial Condition – Allowance for Credit Losses on Loans” below, the banking segment’s credit policies emphasize strong underwriting and governance standards and early detection of potential problem credits in order to develop and implement action plans on a timely basis to mitigate potential losses.
To manage the credit risks associated with its loan portfolio, management may, depending upon current or anticipated economic conditions and related exposures, apply enhanced risk management measures to loans through analysis of a specific borrower’s financial condition, including cash flow, collateral values, and guarantees, among other credit factors.
The banking segment’s total loans held for investment, net of the allowance for credit losses, were $8.8 billion and $8.8 billion at March 31, 2026 and December 31, 2025, respectively. At March 31, 2026, the banking segment’s loan portfolio included warehouse lines of credit extended to PrimeLending and its ABAs of $1.3 billion, of which $782.7 million was drawn. At December 31, 2025, amounts drawn on the available warehouse lines of credit was $0.9 billion. Amounts advanced against the warehouse lines of credit are eliminated from net loans held for investment on our consolidated balance sheets. The banking segment does not generally participate in syndicated loan transactions and has no foreign loans in its portfolio.
A significant portion of the banking segment’s loan portfolio at March 31, 2026, consisted of commercial real estate loans secured by properties. Such loans can involve high principal loan amounts, and the repayment of these loans is dependent, in large part, on a borrower’s ongoing business operations or on income generated from the properties that are leased to third parties.
The table below sets forth the banking segment’s commercial real estate loan portfolio, by portfolio industry sector and collateral location as of March 31, 2026 (in thousands). There have not been changes in the real estate loan portfolio since December 31, 2025 that would significantly impact the banking segment’s geographic loan concentration risk.
Brownsville-
Dallas-
Harlingen-
San
Outside
Commercial Real Estate
Fort Worth
Austin
Houston
McAllen
Antonio
Lubbock
Non-owner occupied:
Office
181,993
216,702
13,794
14,730
29,625
7,365
67,789
5,663
537,661
157,386
94,717
21,458
17,885
11,029
34,522
11,180
382,880
Hotel/Motel
57,092
12,165
27,897
16,497
14,204
13,312
141,244
Multifamily
146,623
5,977
37,579
44,632
503
1,527
93,789
23,640
354,270
Industrial
216,481
66,896
6,639
4,449
7,654
2,896
15,577
325,535
All other
122,461
66,451
26,877
8,114
31,239
55,519
79,883
17,866
408,410
882,036
462,908
134,244
123,125
86,983
78,336
305,764
76,604
Owner occupied:
150,531
81,315
29,461
15,861
29,282
11,158
20,713
2,648
340,969
18,422
14,492
1,714
950
1,499
1,069
5,293
886
44,325
216,827
47,811
40,703
11,978
20,755
6,918
33,128
67,809
445,929
335,268
105,809
62,804
15,607
45,343
24,822
99,232
21,341
710,226
721,048
249,427
134,682
44,396
96,879
43,967
158,366
92,684
Total commercial real estate loans
1,603,084
712,335
268,926
167,521
183,862
122,303
464,130
169,288
3,691,449
At March 31, 2026, the banking segment had loan concentrations (loans to borrowers engaged in similar activities) that exceeded 10% of total loans in its real estate portfolio. The areas of concentration within our real estate portfolio were non-construction commercial real estate loans, non-construction residential real estate loans, and construction and land development loans, which represented 45.7%, 23.2% and 11.9%, respectively, of the banking segment’s total loans held for investment at March 31, 2026. The banking segment’s loan concentrations were within regulatory guidelines at March 31, 2026.
In addition, the Bank’s loan portfolio includes collateralized loans extended to businesses that depend on the energy industry, including those within the exploration and production, field services, pipeline construction and transportation sectors. Crude oil prices remain uncertain given future supply and demand for oil are influenced by international armed conflicts, return to business travel, new energy policies and government regulation, and the pace of transition towards renewable energy resources. At March 31, 2026, the Bank’s energy loan exposure was approximately $119 million of loans held for investment with unfunded commitment balances of approximately $30 million. The allowance for credit losses on the Bank’s energy portfolio was $1.3 million, or 1.1% of loans held for investment at March 31, 2026.
The following table provides information regarding the maturities of the banking segment’s gross loans held for investment, net of unearned income (in thousands). The commercial and industrial portfolio segment includes amounts advanced against the warehouse lines of credit extended to PrimeLending.
Due Within
Due From One
Due from Five
Due After
One Year
To Five Years
To Fifteen Years
Fifteen Years
1,161,821
776,951
211,228
473,887
719,840
339,676
8,046
1,945,329
284,605
72,060
2,301,994
828,277
116,756
16,849
257,833
772,933
196,537
648,725
19,721
10,144
4,686,868
2,681,229
836,590
657,515
8,862,202
73
The following table provides information regarding the interest rate composition, based on contractual terms, of the banking segment's loans held for investment, net of unearned income (in thousands).
Loans maturing after one year
Fixed Interest
Floating Interest
589,965
398,214
988,179
704,043
363,519
1,067,562
245,347
111,318
356,665
50,281
84,068
134,349
838,582
779,613
1,618,195
9,687
697
10,384
2,437,905
1,737,429
4,175,334
In the table above, floating interest rate loans totaling $89.9 million as of March 31, 2026 had reached their applicable rate floor and are expected to reprice, subject to their scheduled repricing timing and frequency terms. The majority of floating rate loans carry an interest rate tied to a SOFR rate or The Wall Street Journal Prime Rate, as published in The Wall Street Journal.
The loan portfolio of the broker-dealer segment consists primarily of margin loans to customers and correspondents that are due within one year. The interest rate on margin accounts is computed on the settled margin balance at a fixed rate established by management. These loans are collateralized by the securities purchased or by other securities owned by the clients and, because of collateral coverage ratios, are believed to present minimal collectability exposure. Additionally, these loans are subject to a number of regulatory requirements as well as the Hilltop Broker-Dealers’ internal policies. The broker-dealer segment’s total loans held for investment, net of the allowance for credit losses, were $361.0 million and $344.5 million at March 31, 2026 and December 31, 2025, respectively. This increase from December 31, 2025 to March 31, 2026 was primarily attributable to an increase of $15.1 million, or 6%, in receivables from customer margin accounts.
The loan portfolio of the mortgage origination segment consists of loans held for sale, primarily single-family residential mortgages funded through PrimeLending, and IRLCs with customers pursuant to which we agree to originate a mortgage loan on a future date at an agreed-upon interest rate. The components of the mortgage origination segment’s loans held for sale and IRLCs are as follows (in thousands).
Loans held for sale:
Unpaid principal balance
729,495
870,130
Fair value adjustment
6,208
16,025
735,703
IRLCs:
636,620
462,731
The mortgage origination segment uses forward commitments to mitigate interest rate risk associated with its loans held for sale and IRLCs. The notional amounts of these forward commitments at March 31, 2026 and December 31, 2025 were $1.0 billion and $1.0 billion, respectively, while the related estimated fair values were $6.3 million and ($1.9) million, respectively.
Allowance for Credit Losses on Loans
For additional information regarding the allowance for credit losses, refer to the section captioned “Critical Accounting Estimates” set forth in Part II, Item 7 of our 2025 Form 10-K.
The Bank has lending policies in place with the goal of establishing an asset portfolio that will provide a return on stockholders’ equity sufficient to maintain capital to assets ratios that meet or exceed established regulations. Loans are underwritten with careful consideration of the borrower’s financial condition, the specific purpose of the loan, the primary sources of repayment and any collateral pledged to secure the loan. As discussed in more detail within the section captioned “Financial Condition – Allowance for Credit Losses on Loans” set forth in Part II, Item 7 of our 2025 Form 10-K, the Bank’s underwriting procedures address financial components based on the size and complexity of the credit, while the Bank’s loan policy provides specific underwriting guidelines by portfolio segment, including commercial and industrial, real estate, construction and land development, and consumer loans.
The allowance for credit losses for loans held for investment represents management’s best estimate of all expected credit losses over the expected contractual life of our existing portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. Such future changes in the allowance for credit losses are expected to be volatile given dependence upon, among other things, the portfolio composition and quality, as well as the impact of significant drivers, including prepayment assumptions and macroeconomic conditions and forecasts.
Significant judgment is required to estimate the severity and duration of the current economic uncertainties, as well as its potential impact on borrower defaults and loss severity. In particular, macroeconomic conditions and forecasts are rapidly changing and remain highly uncertain.
One of the most significant judgments involved in estimating our allowance for credit losses relates to the macroeconomic forecasts used to estimate credit losses over the reasonable and supportable forecast period. To determine the allowance for credit losses as of March 31, 2026, we utilized a single macroeconomic scenario, the baseline forecast, published by Moody’s Analytics in March 2026. During our previous quarterly macroeconomic assessment as of December 31, 2025, we utilized the same single macroeconomic scenario, the baseline forecast, published by Moody’s Analytics in December 2025. Management determined it appropriate to utilize the baseline macroeconomic scenario as of March 31, 2026 given the ongoing resilience of the U.S. economy despite the weakening of the job market and the potential impact of international armed conflicts and tariffs best align with our internal economic outlook.
75
The following table and paragraphs summarize the U.S. Real Gross Domestic Product (“GDP”) growth rates and unemployment rate assumptions used in our economic forecast and based on the single macroeconomic scenario selected for respective period, to determine our best estimate of expected credit losses.
As of
September 30,
June 30,
GDP growth rates:
Q1 2025
1.2%
Q2 2025
1.9%
1.1%
Q3 2025
1.8%
0.6%
Q4 2025
0.3%
0.8%
1.4%
Q1 2026
3.4%
2.5%
1.5%
Q2 2026
2.7%
2.2%
1.6%
Q3 2026
2.1%
2.0%
Q4 2026
1.7%
Q1 2027
Q2 2027
Q3 2027
Unemployment rates:
4.1%
4.2%
4.4%
4.3%
4.6%
5.0%
4.5%
5.3%
4.7%
5.5%
4.8%
5.4%
Since December 31, 2025, we updated our U.S. economic outlook to reflect our expectations of a period of moderate economic growth as tariffs and higher energy prices weigh on the economy. Economic activity rebounded in the first quarter following a weak fourth quarter during 2025. Job growth remained slow, while the unemployment rate remained relatively stable at 4.3% in the first quarter of 2026. The Federal Reserve has paused rate cuts as inflation remains above target.
As of March 31, 2026, our U.S. economic forecast assumes the economic impact of international armed conflicts are not expected to have a prolonged effect on U.S. economic conditions. The changes in real GDP on an annual average basis are 2.8% in 2026 and 1.8% in 2027. The unemployment rate is expected to remain stable at 4.5% throughout 2026 as slower growth in the labor force offsets weaker job growth. Monetary policy eases, and the Federal Reserve lowers the federal funds rate to 3.1% by year end 2026. International armed conflicts and trade policy changes add uncertainty to the outlook.
During the three months ended March 31, 2026, the provision for credit losses was primarily driven by a build in the allowance related to specific reserves and net charge-offs, partially offset by changes in the U.S. economic outlook associated with collectively evaluated and loan portfolio changes, including changes in loan mix and risk rating grade migration, within the banking segment since the prior quarter. Specific to the Bank, the net impact to the allowance of changes associated with individually evaluated loans during the three months ended March 31, 2026 included a provision for credit losses of $4.0 million, while collectively evaluated loans during the three months ended March 31, 2026 included a reversal of credit losses of $2.3 million. The change in the allowance for credit losses during the noted period was primarily attributable to the Bank and also reflected other factors including, but not limited to, loan mix, and changes in loan balances and qualitative factors from the prior quarter. The change in the allowance during the three months ended March 31, 2026 was also impacted by net charge-offs of $4.3 million.
As noted above, the combined net impact to the allowance of changes associated with individually and collectively evaluated loans have resulted in a net decrease in the allowance at March 31, 2026, compared to December 31, 2025. The resulting allowance for credit losses as a percentage of our total loan portfolio, excluding margin loans in the broker-
dealer segment and banking segment mortgage warehouse lending programs, was 1.14% and 1.19% as of March 31, 2026 and December 31, 2025, respectively. While changes in the U.S. economic outlook have been reflected in our current allowance at March 31, 2026, uncertainties that include, among others, the uncertain timing, duration and significance of further changes in market interest rates and an uncertain macroeconomic forecast could adversely impact borrower cash flows and result in increases in the allowance during future periods. While all industries could experience adverse impacts, certain of our loan portfolio industry sectors and subsectors have an increased level of risk, including real estate collateralized by office buildings, retail and auto note financing.
The respective distribution of the allowance for credit losses as a percentage of our total loan portfolio, excluding margin loans in the broker-dealer segment and banking segment mortgage warehouse lending programs, are presented in the following table (dollars in thousands).
cv
Allowance For
as a % of
Total Loans
Loans Held
for Credit
Held For
For Investment
Investment
Non-owner occupied (1)
1.04
Owner occupied (2)
2.20
Commercial and industrial (3)
1,260,776
21,807
1.73
Construction and land development (4)
0.66
Total commercial loans
5,914,851
84,332
1.43
0.22
1.16
Total retail loans
1,906,133
4,506
0.24
Total commercial and retail loans
88,838
1.14
0.01
Mortgage warehouse lending
127
0.05
1.06
Allowance Model Sensitivity
Our allowance model was designed to capture the historical relationship between economic and portfolio changes. As such, evaluating shifts in individual portfolio attributes or macroeconomic variables in isolation may not be indicative of past or future performance. It is difficult to estimate how potential changes in any one factor or input might affect the overall allowance for credit losses because we consider a wide variety of factors and inputs in the allowance for credit losses estimate. Changes in the factors and inputs considered may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others.
However, to consider the sensitivity of credit loss estimates to alternative macroeconomic forecasts, we compared the Company’s allowance for credit loss estimates as of March 31, 2026, excluding margin loans in the broker-dealer segment, and the banking segment mortgage warehouse programs, with modeled results using both upside (“S1”) and downside (“S3”) economic scenario forecasts published by Moody’s Analytics.
Compared to our economic forecast, the upside scenario assumes the economic impacts of tariffs on the economy will be less than expected and the economic impact from international armed conflicts recede faster than expected. Business sentiment and consumer confidence rise significantly. Real GDP is expected to grow to 4.6% in the second quarter of 2026, 3.2% in the third quarter of 2026, 3.0% in the fourth quarter of 2026, and 3.1% in the first quarter of 2027. Average unemployment rates are expected to decline to 4.0% by the second quarter of 2026 and to 3.5% by the first quarter of 2027 before reverting to historical data. Rates remain higher than in the baseline forecast due to stronger growth and slightly higher inflation, and the federal funds rate is lowered to 3.2% by the fourth quarter of 2026.
Compared to our economic forecast, the downside scenario assumes the economic impact of tariffs and international armed conflicts is worse than expected. The combination of rising oil prices, tariffs and rising inflation causes the economy to fall into recession in the second quarter of 2026. Real GDP is expected to decrease to 3.5% in the second quarter of 2026, 3.1% in the third quarter of 2026, and 3.9% in the fourth quarter of 2026. Average unemployment rates are expected to increase to 8.0% by the fourth quarter of 2026 and to 8.5% by the second quarter of 2027 and then revert back to historical average rates over time. The Federal Reserve reduces the federal funds rate to support the economy to a 2.5% target by the fourth quarter of 2026.
The impact of applying all of the assumptions of the upside economic scenario during the reasonable and supportable forecast period would have resulted in a decrease in the allowance for credit losses of approximately $11 million or a weighted average expected loss rate of 1.0% as a percentage of our total loan portfolio, excluding margin loans in the broker-dealer segment and the banking segment mortgage warehouse lending programs.
The impact of applying all of the assumptions of the downside economic scenario during the reasonable and supportable forecast period would have resulted in an increase in the allowance for credit losses of approximately $59 million or a weighted average expected loss rate of 1.9% as a percentage of our total loan portfolio, excluding margin loans in the broker-dealer segment and the banking segment mortgage warehouse lending programs.
This analysis relates only to the modeled credit loss estimates and is not intended to estimate changes in the overall allowance for credit losses as they do not reflect any potential changes in the adjustment to the quantitative calculation, which would also be influenced by the judgment management applies to the modeled lifetime loss estimates to reflect the uncertainty and imprecision of these modeled lifetime loss estimates based on then-current circumstances and conditions.
Our allowance for credit losses reflects our best estimate of current expected credit losses, which is highly dependent on several assumptions, including the macroeconomic outlook, inflationary pressures and labor market conditions, international armed conflicts and their impact on supply chains, the U.S elections and other various fiscal and monetary policy decisions. The sensitivities of many of these assumptions are often correlated and nonlinear so these results should not be simply extrapolated to estimate the allowance for credit losses accurately for more severe changes in economic scenarios. Future allowance for credit losses may vary considerably for these reasons.
Allowance Activity
The following table presents the activity in our allowance for credit losses and selected credit metrics within our loan portfolio for the periods presented (in thousands). Substantially all of the activity shown within the allowance for credit losses below occurred within the banking segment.
Loans Held for Investment:
Recoveries of loans previously charged off:
Total recoveries
Loans charged off:
918
3,432
Total charge-offs
4,740
4,417
Net charge-offs
(4,305)
(4,257)
Average loans held for investment for the period
Total loans held for investment (end of period)
7,966,777
Loans Held for Sale:
Average loans held for sale for the period
Total loans held for sale (end of period)
818,328
Selected Credit Metrics:
Net charge-offs to average total loans held for investment (1)
(0.21)
Non-accrual loans:
Loans held for investment (end of period)
77,014
Loans held for sale (end of period)
4,210
4,463
Non-accrual loans to total loans (end of period)
0.93
Allowance for credit losses on loans held for investment to:
Total loans (end of period)
1.21
1.33
Total non-accrual loans (end of period)
145.88
130.34
Non-accrual loans held for investment (end of period)
156.70
137.89
Total non-accrual loans classified as loans held for investment increased by $7.8 million from December 31, 2025 to March 31, 2026. This increase was primarily due to increases in commercial real estate non-owner occupied loans and commercial real estate owner occupied loans, partially offset by a decrease in commercial industrial loans.
79
The following tables present additional details regarding our net charge-offs to average total loans held for investment ratios by loan portfolio segment for the periods presented (in thousands). Substantially all of the activity shown below occurred within the banking segment.
Recoveries
(Charge-Offs)
for Investment
Average Loans
2,120,641
1,541,147
(3,956)
1,488,317
(1.08)
942,586
(0.06)
1-4 Family Residential
1,865,372
(0.03)
(57)
28,890
(0.80)
310,599
1,944,242
(0.19)
1,443,166
0.00
(3,311)
1,465,173
(0.91)
884,952
1,824,180
(44)
24,194
(0.73)
304,838
As previously discussed in detail within this section, the allowance for credit losses has fluctuated from period to period, which impacted the resulting ratios noted in the table above. For the periods presented, the changes in the allowance for credit losses primarily reflected loan portfolio changes, net charge-offs activity, and changes in the U.S. economic outlook. The distribution of the allowance for credit losses among loan types and the percentage of the loans for that type to gross loans, excluding unearned income, within our loan portfolio are presented in the table below (dollars in thousands).
Allocation of the Allowance for Credit Losses
Reserve
Gross Loans
25.49
25.52
18.28
18.44
17.93
18.36
11.41
10.76
22.25
22.40
0.36
0.37
4.28
4.15
80
The following table summarizes historical levels of the allowance for credit losses on loans held for investment, distributed by portfolio segment (in thousands).
28,716
27,837
30,576
34,154
22,752
23,015
7,356
7,341
5,201
5,057
438
95,168
97,961
In order to estimate the allowance for credit losses on unfunded loan commitments, the Bank uses a process similar to that used in estimating the allowance for credit losses on the funded portion. The allowance is based on the estimated exposure at default, multiplied by the lifetime probability of default grade and loss given default grade for that particular loan segment. The Bank estimates expected losses by calculating a commitment usage factor based on industry usage factors. The commitment usage factor is applied over the relevant contractual period. Loss factors from the underlying loans to which commitments are related are applied to the results of the usage calculation to estimate any liability for credit losses related for each loan type. Letters of credit are not currently reserved because they are issued primarily as credit enhancements and the likelihood of funding is low.
Potential Problem Loans
Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of an obligor to continue to comply with repayment terms because of the obligor’s potential operating or financial difficulties or whether repayment may depend on collateral or other risk mitigation. Management monitors these loans and reviews their performance on a regular basis. Potential problem loans contain potential weaknesses that could improve, persist or further deteriorate. If such potential weaknesses persist without improving, the loan is subject to downgrade, typically to substandard, in three to six months. Potential problem loans include those loans assigned a grade of special mention and substandard accrual within our risk grading matrix. Potential problem loans do not include purchased credit deteriorated (“PCD”) loans because PCD loans exhibited evidence of more than insignificant credit deterioration at acquisition that made it probable that all contractually required principal payments would not be collected.
At March 31, 2026, we had $146.8 million of potential problem loans, compared to $124.9 million at December 31, 2025. Our potential problem loans designated as substandard accrual at March 31, 2026 and December 31, 2025, totaled $133.8 million and $124.9 million, respectively. The increase from December 31, 2025 to March 31, 2026 was primarily attributable to increases in commercial real estate non-owner occupied loans and commercial and industrial loans, partially offset by a decrease in construction and land development loans. Of the $133.8 million of potential problem loans designated as substandard accrual at March 31, 2026, $42.3 million, $38.1 million and $37.7 million were associated with commercial real estate owner occupied loans, commercial and industrial loans and commercial real
81
estate non-owner occupied loans, respectively, compared to $42.2 million, $32.9 million and $32.1 million, respectively, at December 31, 2025.
Potential problem loans designated as special mention comprised of five credit relationships totaling $12.9 million at March 31, 2026, while at December 31, 2025 there were no potential problem loans designated as special mention.
Non-Performing Assets
The following table presents components of our non-performing assets (dollars in thousands).
Loans accounted for on a non-accrual basis:
11,415
4,601
12,419
14,367
(1,948)
Non-accrual loans
61,006
53,448
7,558
Non-accrual loans as a percentage of total loans
0.58
0.08
Other real estate owned
8,473
8,020
453
Other repossessed assets
Non-performing assets
69,479
61,468
8,011
Non-performing assets as a percentage of total assets
0.44
Loans past due 90 days or more and still accruing
40,155
33,811
6,344
At March 31, 2026, non-accrual loans included 27 commercial and industrial relationships with loans secured by notes receivable, accounts receivable, inventory and equipment. Commercial and industrial non-accrual loans decreased by $6.3 million from December 31, 2025 to March 31, 2026. Non-accrual loans at March 31, 2026 also included $4.2 million of loans secured by residential real estate which were classified as loans held for sale. At December 31, 2025, non-accrual loans included 29 commercial and industrial relationships with loans secured primarily by notes receivable, accounts receivable and inventory. Non-accrual loans at December 31, 2025 also included $4.4 million of loans secured by residential real estate which were classified as loans held for sale.
Other real estate owned (“OREO”) increased from December 31, 2025 to March 31, 2026, primarily due to additions totaling $1.2 million, partially offset by disposals and valuation adjustments totaling $0.7 million. At both March 31, 2026 and December 31, 2025, OREO was primarily comprised of commercial properties.
The banking segment’s major source of funds and liquidity is its deposit base. Deposits provide funding for its investments in loans and securities. Interest paid for deposits must be managed carefully to control the level of interest expense and overall net interest margin. The composition of the deposit base (time deposits versus interest-bearing demand deposits and savings), as discussed in more detail within the section titled “Liquidity and Capital Resources — Banking Segment” below, is constantly changing due to the banking segment’s needs and market conditions. Consistent with the consolidated trend in average rates paid on interest-bearing deposits noted in the table below, the banking segment’s average rate paid on interest-bearing deposits during the three months ended March 31, 2026 was 2.56%, compared to 2.80% during the three months ended December 31, 2025 and 3.26% during the three months ended March 31, 2025.
Given the cumulative 175-basis point decrease in interest rates since September 2024 and current deposit levels, the Bank’s cumulative interest-bearing deposit pricing beta, excluding deposits from the Hilltop Securities FDIC-insured
sweep program and brokered deposits, has approximated 74%. The deposit pricing beta represents the change in interest-bearing deposit pricing in response to a change in market interest rates. The historical interest-bearing deposit pricing beta for the Bank, excluding deposits from our Hilltop Securities FDIC-insured sweep program and brokered deposits, has approximated 58%. We expect that the Bank’s cost related to interest-bearing deposits during 2026 to continue to be driven by various factors, including, but not limited to competitive pressures, broader economic conditions, future changes in the target range for the federal funds rate, customer behavior and our liquidity position at that time.
The table below presents the average balance of, and rate paid on, consolidated deposits (dollars in thousands).
Rate Paid
Noninterest-bearing demand deposits
Interest-bearing deposits:
Demand
6,504,653
2.40
6,717,906
225,803
0.89
229,378
1.00
1,150,845
3.31
1,239,139
3.94
10,609,517
1.85
10,882,670
2.24
The table above includes interest-bearing brokered deposits with balances of approximately $15 million at March 31, 2026, compared with approximately $15 million at December 31, 2025. The variability in the level of brokered deposits has been, and will continue to be, managed through asset/liability strategy and policies that address diversification of funding sources and market conditions, including demand by customers and other investors for those deposits, and the cost of funds available from alternative sources at the time.
At March 31, 2026, total estimated uninsured deposits were $5.9 billion, or approximately 56% of total deposits, while estimated uninsured deposits, excluding collateralized deposits of $640.8 million and internal accounts of $448.2 million, were $4.8 billion, or approximately 46% of total deposits. Total estimated uninsured deposits were $5.9 billion, or approximately 54% of total deposits, as of December 31, 2025.
The following table presents the scheduled maturities of the portion of our time deposits that are in excess of the FDIC insurance limit of $250,000 as of March 31, 2026 (in thousands).
Months to maturity:
3 months or less
142,798
3 months to 6 months
75,149
6 months to 12 months
66,899
Over 12 months
53,762
338,608
Borrowings
Our consolidated borrowings are shown in the table below (dollars in thousands).
3.95
6.43
6.68
1,139,452
825,469
4.63
Short-term borrowings consisted of federal funds purchased, securities sold under agreements to repurchase, borrowings at the FHLB, short-term bank loans and commercial paper. The increase in short-term borrowings at March 31, 2026, compared with December 31, 2025, primarily reflected increases in securities sold under agreements to repurchase, short-term bank loans and commercial paper by the broker-dealer segment and federal funds purchased by the banking segment. Notes payable at March 31, 2026 and December 31, 2025 was comprised of the 2035 Subordinated Notes, net of origination fees.
Liquidity and Capital Resources
Hilltop is a financial holding company whose assets primarily consist of the stock of its subsidiaries and invested assets. Hilltop’s primary investment objectives, as a holding company, are to support capital deployment for organic growth and to preserve capital to be deployed through acquisitions, dividend payments and stock repurchases. At March 31, 2026, Hilltop had $322.0 million in cash and cash equivalents, an increase of $109.3 million from $212.7 million at December 31, 2025. This increase in cash and cash equivalents was primarily due to the receipt of $192.0 million of dividends from subsidiaries, partially offset by cash outflows from $47.5 million in stock repurchases, $11.8 million in cash dividends declared and other general corporate expenses. Subject to regulatory restrictions, Hilltop has received, and may also continue to receive, dividends from its subsidiaries. If necessary or appropriate, we may also finance acquisitions with the proceeds from equity or debt issuances. We believe that Hilltop’s liquidity is sufficient for the foreseeable future, with current short-term liquidity needs including operating expenses, redemption of debt obligations, interest on debt obligations, dividend payments to stockholders and potential stock repurchases.
As previously discussed, operational and financial headwinds during 2025 and the first quarter of 2026 have had, and are expected to continue to have, an adverse impact on our operating results during the remainder of 2026. The extent of the impact of uncertain economic conditions on our financial performance during the remainder of 2026, will depend in part on developments outside of our control, including, among others, changes in the political environment, the impact of tariffs and reciprocal tariffs, the timing and significance of further changes in U.S. treasury yields and mortgage interest rates, and a volatile economic forecast. These conditions, coupled with exposure to changes in funding costs, inflationary pressures, and international armed conflicts and their impact on supply chains have had and are expected to continue to have, an adverse impact on our operating results during the remainder of 2026. We will continue to monitor the economic environment and evaluate appropriate actions to enhance our financial flexibility, protect capital, minimize losses and ensure target liquidity levels.
Dividend Declaration
Future dividends on our common stock are subject to the determination by the board of directors based on an evaluation of our earnings and financial condition, liquidity and capital resources, the general economic and regulatory climate, our ability to service any equity or debt obligations senior to our common stock and other factors.
In January 2026, our board of directors authorized a new stock repurchase program through January 2027, pursuant to which we are authorized to repurchase, in the aggregate, up to $125.0 million of our outstanding common stock, which is inclusive of repurchases to offset dilution related to grants of stock-based compensation. During the three months ended March 31, 2026, Hilltop paid $47.5 million to repurchase an aggregate of 1,238,216 shares of our common stock at an average price of $38.40 per share pursuant to the stock repurchase program.
Our share repurchases in excess of issuance may be subject to a nondeductible 1% excise tax enacted by the Inflation Reduction Act of 2022, subject to certain limitations. During 2026, an excise tax of $0.4 million on net share repurchases was accrued and recorded to additional paid-in capital on the consolidated balance sheets. While we may complete transactions subject to the excise tax, we do not expect the tax to have a material impact to our financial condition or results of operations.
Subordinated Notes due 2035
On May 7, 2020, we completed a public offering of $150 million aggregate principal amount of 2035 Subordinated Notes with a scheduled maturity on May 15, 2035, respectively. The price to the public for the 2035 Subordinated Notes was 100% of the principal amount of the 2035 Subordinated Notes. The net proceeds from the offering, after deducting underwriting discounts and fees and expenses of $2.5 million, were $147.5 million.
We may redeem the 2035 Subordinated Notes, in whole or in part, from time to time, subject to obtaining Federal Reserve approval, beginning with the interest payment date of May 15, 2030 for the 2035 Subordinated Notes at a redemption price equal to 100% of the principal amount of the 2035 Subordinated Notes being redeemed plus accrued and unpaid interest to but excluding the date of redemption.
The 2035 Subordinated Notes bear interest at a rate of 6.125% per year, payable semi-annually in arrears commencing on November 15, 2020. The interest rate for the 2035 Subordinated Notes will reset quarterly beginning May 15, 2030 to an interest rate, per year, equal to the then-current benchmark rate, which is expected to be three-month term SOFR rate plus 5.80%, payable quarterly in arrears. At March 31, 2026, $150.0 million of our 2035 Subordinated Notes was outstanding.
Regulatory Capital
We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements may prompt certain actions by regulators that, if undertaken, could have a direct material adverse effect on our financial condition and results of operations. Under capital adequacy and regulatory requirements, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
The following table shows PlainsCapital’s and Hilltop’s actual capital amounts and ratios in accordance with Basel III compared to the regulatory minimum capital requirements including the conservation buffer ratio in effect at March 31, 2026 (dollars in thousands). Based on actual capital amounts and ratios shown in the following table, PlainsCapital’s ratios place it in the “well capitalized” (as defined) capital category under regulatory requirements.
Minimum Capital
Requirements Including
Conservation Buffer
We discuss regulatory capital requirements in more detail in Note 16 to our consolidated financial statements, as well as under the caption “Government Supervision and Regulation — Corporate — Capital Adequacy Requirements and BASEL III” set forth in Part I, Item 1, of our 2025 Form 10-K.
Within our banking segment, our primary uses of cash are for customer withdrawals and extensions of credit as well as our borrowing costs and other operating expenses. Historically, high-profile bank failures have periodically increased market uncertainty and concerns associated with banking sector liquidity positions, increased regulatory scrutiny and underscored the importance of maintaining access to diverse sources of funding. Our corporate treasury group is responsible for continuously monitoring our liquidity position to ensure that our assets and liabilities are managed in a manner that will meet our short-term and long-term cash requirements. Our goal is to manage our liquidity position in a manner such that we can meet our customers’ short-term and long-term deposit withdrawals and anticipated and unanticipated increases in loan demand without penalizing earnings. Funds invested in short-term marketable instruments, the continuous maturing of other interest-earning assets, cash flows from self-liquidating investments such as mortgage-backed securities and collateralized mortgage obligations, the possible sale of available for sale securities and the ability to securitize certain types of loans provide sources of liquidity from an asset perspective. The liability base provides sources of liquidity through deposits and the maturity structure of short-term borrowed funds. For short-term liquidity needs, we utilize federal fund lines of credit with correspondent banks, securities sold under agreements to repurchase, borrowings from the Federal Reserve and borrowings under lines of credit with other financial institutions. For intermediate liquidity needs, we utilize advances from the FHLB. To supply liquidity over the longer term, we have access to brokered time deposits, term loans at the FHLB and borrowings under lines of credit with other financial institutions.
The above sources of liquidity allow the banking segment to meet increased liquidity demands without adversely affecting daily operations. The Bank’s borrowing capacity through access to secured funding sources is summarized in the following table (in millions). Available liquidity noted below does not include borrowing capacity available through the discount window at the Federal Reserve.
FHLB capacity
4,384
4,352
Investment portfolio (available)
1,162
1,003
Fed deposits (excess daily requirements)
1,013
6,232
6,368
During the first quarter of 2026, our overall deposit costs decreased, primarily due to lower rates on interest-bearing deposits on certain products and product tiers in conjunction with rate reductions by the Federal Reserve to lower the effective funds rate towards the end of 2025. We are continuing to actively manage our overall deposit costs and will continue to seek opportunities to further lower interest-bearing deposit rates as they present themselves. Future decisions on the cost of deposits will continue to be influenced by various factors including, but not limited to competitive pressures, broader economic conditions, future changes in the target range for the federal funds rate, customer behavior and our liquidity position at that time. At March 31, 2026, the Bank also accessed and included approximately $100 million of core deposits on its balance sheet from our Hilltop Securities FDIC-insured sweep program, while the Bank is not utilizing any of its FHLB borrowing capacity noted above through the use of short-term borrowings.
Within our banking segment, deposit flows are affected by the level of market interest rates, the interest rates and products offered by competitors, the volatility of equity markets and other factors. An economic recovery and improved commercial real estate investment outlook may result in an outflow of deposits at an accelerated pace as customers utilize such available funds for expanded operations and investment opportunities. The Bank regularly evaluates its deposit products and pricing structures relative to the market to maintain competitiveness over time. Currently, the Bank is facing continued competition from bank and non-bank competitors for its deposit base and expects that its interest expense on certain deposits will continue to be driven by various factors, including competition as well as economic and market area factors.
The Bank’s 15 largest depositors, excluding Hilltop, Hilltop Securities and PrimeLending, collectively accounted for 16.48% of the Bank’s total deposits, and the Bank’s five largest depositors, excluding Hilltop and PrimeLending, collectively accounted for 10.04% of the Bank’s total deposits at March 31, 2026. The loss of one or more of our largest Bank customers, or a significant decline in our deposit balances due to ordinary course fluctuations related to these customers’ businesses, could adversely affect our liquidity and might require us to raise deposit rates to attract new deposits, purchase federal funds or borrow funds on a short-term basis to replace such deposits.
The Hilltop Broker-Dealers finance their assets and operations primarily from their equity capital, short-term bank borrowings, interest-bearing and noninterest-bearing client credit balances, correspondent deposits, securities lending arrangements, repurchase agreement financing, commercial paper issuances and other payables, subject to their respective compliance with broker-dealer net capital and customer protection rules. At March 31, 2026, Hilltop Securities had credit arrangements with two unaffiliated banks, with maximum aggregate commitments of up to $425.0 million. These credit arrangements are used to finance securities owned, securities held for correspondent accounts, receivables in customer margin accounts and underwriting activities. These credit arrangements are provided on an “as offered” basis and are not committed lines of credit. In addition, Hilltop Securities has committed revolving credit facilities with two unaffiliated banks, with aggregate availability of up to $150.0 million. At March 31, 2026, Hilltop Securities had $32.0 million in outstanding borrowings under its credit arrangements and had no outstanding borrowings under its credit facilities. The weighted average interest rate on its borrowings at March 31, 2026 was 4.78%.
Hilltop Securities uses the net proceeds (after deducting related issuance expenses) from the sale of two commercial paper programs for general corporate purposes, including working capital and the funding of a portion of its securities inventories. The commercial paper notes (“CP Notes”) may be issued with maturities of 14 days to 270 days from the date of issuance. The CP Notes are issued under two separate programs, Series 2019-2 CP Notes and Series 2024-1 CP Notes, in maximum aggregate amounts of $200 million and $300 million, respectively. The CP Notes are not redeemable prior to maturity or subject to voluntary prepayment and do not bear interest, but are sold at a discount to par. The CP Notes are secured by a pledge of collateral owned by Hilltop Securities.
As of March 31, 2026, the weighted average maturity of the CP Notes was 157 days at a rate of 4.97% with a weighted average remaining life of 73 days. At March 31, 2026, the aggregate amount outstanding under these secured arrangements was $269.4 million, which was collateralized by securities held for Hilltop Securities accounts valued at $295.3 million.
PrimeLending funds the mortgage loans it originates through a warehouse line of credit maintained with the Bank, which had a total commitment of $1.2 billion, of which $748.5 million was drawn at March 31, 2026. PrimeLending sells substantially all mortgage loans it originates to various investors in the secondary market, historically with the majority with servicing released. As these mortgage loans are sold in the secondary market, PrimeLending pays down its warehouse line of credit with the Bank. In addition, PrimeLending has an available line of credit with an unaffiliated bank of up to $1.0 million, of which no borrowings were drawn at March 31, 2026.
PrimeLending owns a 100% membership interest in PrimeLending Ventures Management, LLC (“Ventures Management”), which holds a controlling ownership interest in and is the managing member of certain ABAs. At March 31, 2026, these ABAs had combined available lines of credit totaling $65.0 million, all of which was with the Bank, with outstanding borrowings of $34.2 million.
Other Material Contractual Obligations, Off-Balance Sheet Arrangements, Commitments and Guarantees
Since December 31, 2025, there have been no material changes in other material contractual obligations disclosed within the section captioned “Other Material Contractual Obligations, Off-Balance Sheet Arrangements, Commitments and Guarantees” set forth in Part II, Item 7 of our 2025 Form 10-K.
Additionally, in the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets.
87
We enter into contractual loan commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of our commitments to extend credit are contingent upon customers maintaining specific credit standards until the time of loan funding. We minimize our exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. We assess the credit risk associated with certain commitments to extend credit and have recorded a liability related to such credit risk in our consolidated financial statements.
Standby letters of credit are written conditional commitments issued by us to guarantee the performance of a customer to a third-party. In the event the customer does not perform in accordance with the terms of the agreement with the third-party, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek recovery from the customer. Our policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.
The Hilltop Broker-Dealers execute, settle and finance various securities transactions that may expose the Hilltop Broker-Dealers to off-balance sheet risk in the event that a customer or counterparty does not fulfill its contractual obligations. Examples of such transactions include the sale of securities not yet purchased by customers or for the account of the Hilltop Broker-Dealers, use of derivatives to support certain non-profit housing organization clients, clearing agreements between the Hilltop Broker-Dealers and various clearinghouses and broker-dealers, secured financing arrangements that involve pledged securities, and when-issued underwriting and purchase commitments.
Impact of Inflation and Changing Prices
Our consolidated financial statements included herein have been prepared in accordance with GAAP, which presently require us to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on our operations is reflected in increased operating costs. Historically, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. Inflationary pressures have moderated in recent periods with the inflation rate coming down from its peak with the expectation that there will be continued moderation of inflation during the remainder of 2026. However, the impact and timing of tariffs and changes in trade policy add uncertainty to the inflation outlook. Furthermore, a prolonged period of inflation has, and could continue to cause our costs, including compensation, occupancy and software costs, to increase, which could adversely affect our results of operations and financial condition.
While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond our control, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of the U.S. government, its agencies and various other governmental regulatory authorities.
Critical Accounting Estimates
We have identified certain accounting estimates which involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our accounting policies are more fully described in Note 1 to the consolidated financial statements. Actual amounts and values as of the balance sheet dates may be materially different than the amounts and values reported due to the inherent uncertainty in the estimation process. Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date. The critical accounting estimates which we believe to be the most critical in preparing our consolidated financial statements relate to allowance for credit losses and goodwill and identifiable intangible assets. Since December 31, 2025, there have been no changes in critical accounting estimates as further described under “Critical Accounting Estimates” in our 2025 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our assessment of market risk as of March 31, 2026 indicates there are no material changes in the quantitative and qualitative disclosures from those previously reported in our 2025 Form 10-K, except as discussed below.
The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. Market risk represents the risk of loss that may result from changes in value of a financial instrument as a result of changes in interest rates, market prices and the credit perception of an issuer. The disclosure is not meant to be a precise indicator of expected future losses, but rather an indicator of reasonably possible losses, and therefore our actual results may differ from any of the following projections. This forward-looking information provides an indicator of how we view and manage our ongoing market risk exposures.
The banking segment is engaged primarily in the business of investing funds obtained from deposits and borrowings in interest-earning loans and investments, and our primary component of market risk is sensitivity to changes in interest rates. Consequently, our earnings depend to a significant extent on our net interest income, which is the difference between interest income on loans and investments and our interest expense on deposits and borrowings. To the extent that our interest-bearing liabilities do not reprice or mature at the same time as our interest-bearing assets, we are subject to interest rate risk and corresponding fluctuations in net interest income.
There are several common sources of interest rate risk that must be effectively managed if there is to be minimal impact on our earnings and capital. Repricing risk arises largely from timing differences in the pricing of assets and liabilities. Reinvestment risk refers to the reinvestment of cash flows from interest payments and maturing assets at lower or higher rates. Basis risk exists when different yield curves or pricing indices do not change at precisely the same time or in the same magnitude such that assets and liabilities with the same maturity are not all affected equally. Yield curve risk refers to unequal movements in interest rates across a full range of maturities.
We have employed asset/liability management policies that attempt to manage our interest-earning assets and interest-bearing liabilities, thereby attempting to control the volatility of net interest income, without having to incur unacceptable levels of risk. We employ procedures which include interest rate shock analysis, repricing gap analysis and balance sheet decomposition techniques to help mitigate interest rate risk in the ordinary course of business. In addition, the asset/liability management policies permit the use of various derivative instruments to manage interest rate risk or hedge specified assets and liabilities. To help mitigate net interest income spread compression between our assets and liabilities, management maintains derivative trades, as either cash flow hedges or fair value hedges, that better align repricing characteristics. Any changes in interest rates across the term structure may continue to impact net interest income and net interest margin. The impact of rate movements will change with the shape of the yield curve, including any changes in steepness or flatness and inversions at any points on the yield curve.
An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market interest rates. The management of interest rate risk is performed by analyzing the maturity and repricing relationships between interest-earning assets and interest-bearing liabilities at specific points in time (“GAP”) and by analyzing the effects of interest rate changes on net interest income over specific periods of time by projecting the performance of the mix of assets and liabilities in varied interest rate environments. Interest rate sensitivity reflects the potential effect on net interest income resulting from a movement in interest rates. A company is considered to be asset sensitive, or have a positive GAP, when the amount of its interest-earning assets maturing or repricing within a given period exceeds the amount of its interest-bearing liabilities also maturing or repricing within that time period. Conversely, a company is considered to be liability sensitive, or have a negative GAP, when the amount of its interest-bearing liabilities maturing or repricing within a given period exceeds the amount of its interest-earning assets also maturing or repricing within that time period. During a period of falling interest rates, a negative GAP would tend to result in an increase in net interest income, while a positive GAP would tend to affect net interest income adversely. During a period of rising interest rates, a negative GAP would tend to affect net interest income adversely, while a positive GAP would tend to result in an increase in net interest income.
As illustrated in the table below, the banking segment is currently asset sensitive overall. Loans that adjust daily or monthly to the Wall Street Journal Prime rate comprise a large percentage of interest sensitive assets and are the primary cause of the banking segment’s asset sensitivity. To help neutralize interest rate sensitivity, the banking segment has kept the terms of most of its borrowings under one year as shown in the following table (dollars in thousands).
3 Months or
> 3 Months to
> 1 Year to
> 3 Years to
Less
1 Year
3 Years
5 Years
> 5 Years
Interest sensitive assets:
4,716,409
1,460,865
1,592,559
658,074
419,233
8,847,140
366,018
217,712
503,336
385,293
826,334
2,298,693
722,017
Other interest sensitive assets
14,397
29,929
44,326
Total interest sensitive assets
5,818,841
1,678,577
2,095,895
1,043,367
1,275,496
11,912,176
Interest sensitive liabilities:
Interest bearing checking
6,420,665
Time deposits
575,402
465,132
94,426
12,037
325,047
147
529
812
4,467
331,002
Total interest sensitive liabilities
7,551,102
465,279
94,955
12,849
4,545
8,128,730
Interest sensitivity gap
(1,732,261)
1,213,298
2,000,940
1,030,518
1,270,951
3,783,446
Cumulative interest sensitivity gap
(518,963)
1,481,977
2,512,495
Percentage of cumulative gap to total interest sensitive assets
(14.54)
(4.36)
12.44
21.09
31.76
The positive GAP in the interest rate analysis indicates that banking segment net interest income would generally rise if rates increase. Because of inherent limitations in interest rate GAP analysis, the banking segment uses multiple interest rate risk measurement techniques. Simulation analysis is used to subject the current repricing conditions to rising and falling interest rates in increments and decrements of 50 to 100 basis points to determine the effect on net interest income changes for the next twelve months. The banking segment also measures the effects of changes in interest rates on economic value of equity by discounting projected cash flows of deposits and loans. Economic value changes in the investment portfolio are estimated by discounting future cash flows and using duration analysis. Investment security prepayments are estimated using current market information. We believe the simulation analysis presents a more accurate picture than the GAP analysis. Simulation analysis recognizes that deposit products may not react to changes in interest rates as quickly or with the same magnitude as earning assets contractually tied to a market rate index. The sensitivity to changes in market rates varies across deposit products. Also, unlike GAP analysis, simulation analysis takes into account the effect of embedded options in the securities and loan portfolios as well as any off-balance sheet derivatives.
The table below shows the estimated impact of a range of changes in interest rates on net interest income and on economic value of equity for the banking segment (dollars in thousands).
Change in
Interest Rates
Net Interest Income
Economic Value of Equity
(basis points)
+200
22,196
5.13
168,004
9.74
+100
11,160
93,763
5.44
-50
(1,937)
(0.45)
(61,031)
(3.54)
-100
(1,059)
(0.24)
(139,611)
(8.10)
-200
5,489
1.27
(348,371)
(20.20)
30,469
6.90
166,983
8.96
15,371
3.48
93,199
5.00
(4,202)
(0.95)
(71,006)
(3.81)
(5,876)
(1.33)
(159,611)
(8.56)
(1,513)
(0.34)
(391,594)
(21.01)
The projected changes in the table above were in compliance with established internal policy guidelines and are based on numerous assumptions. The timing and magnitude of future interest rate movements, along with changes to the balance
sheet composition, may impact projected changes in net interest income, but may not necessarily reflect the manner in which actual cash flows, yields and costs respond to changes in market interest rates. We continue to evaluate the interest rate risk position and may reposition the banking segment’s balance sheet in the future to better align with management’s target rate risk position.
Our portfolio includes loans that periodically reprice or mature prior to the end of an amortized term. Some of our variable-rate loans remain at applicable rate floors, which may delay and/or limit changes in interest income during a period of changing rates. If interest rates were to fall, the impact on our interest income would be limited by these rate floors. In addition, declining interest rates may negatively affect our cost of funds on deposits. The extent of this impact will ultimately be driven by the timing, magnitude and frequency of interest rate and yield curve movements, as well as changes in market conditions and timing of management strategies. If interest rates were to rise, yields on the portion of our portfolio that remain at applicable rate floors would rise more slowly than increases in market interest rates. Any changes in interest rates across the term structure will continue to impact net interest income and net interest margin. The impact of rate movements will change with the shape of the yield curve, including any changes in steepness or flatness and inversions at any points on the yield curve. Since the assumptions used relative to changes in interest rates are uncertain, the simulation analysis may not be indicative of actual results, particularly in times of stress and uncertainty. In addition, this analysis does not consider actions that management might employ in the future in response to changes in interest rates, as well as changes in earning asset and costing liability balances.
Our broker-dealer segment is exposed to market risk primarily due to its role as a financial intermediary in customer transactions, which may include purchases and sales of securities, use of derivatives and securities lending activities, and in our trading activities, which are used to support sales, underwriting and other customer activities. We are subject to the risk of loss that may result from the potential change in value of a financial instrument as a result of fluctuations in interest rates, market prices, investor expectations and changes in credit ratings of the issuer.
Our broker-dealer segment is exposed to interest rate risk as a result of maintaining inventories of interest rate sensitive financial instruments and other interest-earning assets including customer and correspondent margin loans and receivables and securities borrowing activities. Our funding sources, which include customer and correspondent cash balances, bank borrowings, repurchase agreements and securities lending activities, also expose the broker-dealer to interest rate risk. Movement in short-term interest rates could reduce the positive spread between the broker-dealer segment’s interest income and interest expense.
With respect to securities held, our interest rate risk is managed by setting and monitoring limits on the size and duration of positions and on the length of time securities can be held. Much of the interest rates on customer and correspondent margin loans and receivables are indexed and can vary daily. Our funding sources are generally short-term with interest rates that can vary daily.
The following table categorizes the broker-dealer segment’s net trading securities, which are subject to interest rate and market price risk (dollars in thousands).
> 1 Year
or Less
to 5 Years
to 10 Years
> 10 Years
Municipal obligations
35,293
56,790
230,827
332,645
U.S. government and government agency obligations
7,366
(4,453)
1,225
203,175
207,313
Corporate obligations
37,144
16,917
3,513
12,025
69,599
Total debt securities
54,245
47,757
61,528
446,027
609,557
Corporate equity securities
25,154
79,418
Weighted average yield
4.11
4.01
3.62
4.86
4.54
3.30
3.87
4.43
6.33
5.66
1.59
6.61
5.47
3.77
Derivatives are used to support certain customer programs and hedge our related exposure to interest rate risks.
Our broker-dealer segment is engaged in various brokerage and trading activities that expose us to credit risk arising from potential non-performance from counterparties, customers or issuers of securities. This risk is managed by setting and monitoring position limits for each counterparty, conducting periodic credit reviews of counterparties, reviewing concentrations of securities and conducting business through central clearing organizations.
Collateral underlying margin loans to customers and correspondents and with respect to securities lending activities is marked to market daily and additional collateral is required, as necessary.
Within our mortgage origination segment, our principal market exposure is to interest rate risk due to the impact on our mortgage-related assets and commitments, including mortgage loans held for sale, IRLCs and MSR. Changes in interest rates could also materially and adversely affect our volume of mortgage loan originations.
IRLCs represent an agreement to extend credit to a mortgage loan applicant, whereby the interest rate on the loan is set prior to funding. Our mortgage loans held for sale, which we hold in inventory while awaiting sale into the secondary market, and our IRLCs are subject to the effects of changes in mortgage interest rates from the date of the commitment through the sale of the loan into the secondary market. As a result, we are exposed to interest rate risk and related price risk during the period from the date of the lock commitment until (i) the lock commitment cancellation or expiration date or (ii) the date of sale into the secondary mortgage market. Loan commitments generally range from 20 to 60 days, and our average holding period of the mortgage loan from funding to sale is approximately 30 days. An integral component of our interest rate risk management strategy is our execution of forward commitments to sell MBSs to minimize the impact on earnings resulting from significant fluctuations in the fair value of mortgage loans held for sale and IRLCs caused by changes in interest rates.
As a result of our mortgage servicing business, we have a portfolio of retained MSR. One of the principal risks associated with MSR is that in a declining interest rate environment, they will likely lose a substantial portion of their value as a result of higher than anticipated prepayments. Moreover, if prepayments are greater than expected, the cash we receive over the life of the mortgage loans would be reduced. The mortgage origination segment uses derivative financial instruments, including U.S. Treasury bond futures and options, and MBS commitments, as a means to mitigate market risk associated with MSR assets. No hedging strategy can protect us completely, and hedging strategies may fail because they are improperly designed, improperly executed and documented or based on inaccurate assumptions and, as a result, could actually increase our risks and losses. The MSR portfolio exposes us to interest rate risk and, correspondingly, the volatility of our earnings, especially if we cannot adequately hedge the interest rate risk relating to our MSR.
The goal of our interest rate risk management strategy within our mortgage origination segment is not to eliminate interest rate risk, but to manage it within appropriate limits. To mitigate the risk of loss, we have established policies and procedures, which include guidelines on the amount of exposure to interest rate changes we are willing to accept.
At March 31, 2026, total debt obligations on our consolidated balance sheet, excluding short-term borrowings and unamortized debt issuance costs and premiums, were $150 million, and was all subject to fixed interest rates. If interest rates were to increase by one eighth of one percent (0.125%), the increase in interest expense on the variable rate debt would not have a significant impact on our future consolidated earnings or cash flows.
As noted above within the discussion for each business segment, on a consolidated basis, our primary component of market risk is sensitivity to changes in interest rates. Consequently, and in large part due to the significance of our banking segment, our consolidated earnings depend to a significant extent on our net interest income. Refer to the discussion in the “Banking Segment” section above that provides more details regarding sources of interest rate risk and asset/liability management policies and procedures employed to manage our interest-earning assets and interest-bearing liabilities, and potential future repositioning of our GAP position, thereby attempting to control the volatility of net interest income, without having to incur unacceptable levels of risk.
The table below shows the estimated impact of a range of changes in interest rates on net interest income on a consolidated basis (dollars in thousands).
30,815
6.73
15,441
3.37
(5,788)
(1.26)
(10,772)
(2.35)
(15,297)
(3.34)
39,702
8.45
19,958
(8,485)
(1.81)
(16,910)
(3.60)
(25,981)
(5.53)
The projected changes in the table above were in compliance with established internal policy guidelines. These projected changes are based on numerous assumptions of growth and changes in the mix of assets or liabilities. The projected changes in net interest income are being impacted by the heightened level of cash balances, which represent a significant portion of our asset sensitivity given simulation analysis assumptions/limitations, and may not necessarily reflect the manner in which actual cash flows, yields and costs respond to changes in market interest rates. As a result, the timing and magnitude of future changes in interest rates including runoff of deposits, and related decline in cash, may impact projected changes in net interest income as noted in the table above.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the supervision and participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2026, the end of the period covered by this report.
Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to the Company’s management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
For a description of material pending legal proceedings, see the discussion set forth under the heading “Legal Matters” in Note 13 to our Consolidated Financial Statements, which is incorporated by reference herein.
Item 1A. Risk Factors.
There have been no material changes to the risk factors disclosed under “Item 1A. Risk Factors” of our 2025 Form 10-K. For additional information concerning our risk factors, please refer to “Item 1A. Risk Factors” of our 2025 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table details our repurchases of shares of common stock during the three months ended March 31, 2026.
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
January 1 - January 31, 2026
125,000,000
February 1 - February 28, 2026
776,944
38.82
94,842,776
March 1 - March 31, 2026
461,272
37.63
77,482,835
1,238,216
38.38
Item 5. Other Information
None of our directors or executive officers adopted, terminated or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (each as defined in Item 408(a) of Regulation S-K) during the three months ended March 31, 2026.
Item 6. Exhibits.
ExhibitNumber
Description of Exhibit
31.1*
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1**
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*
Inline XBRL Taxonomy Extension Schema
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase
104
Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith.
** Furnished herewith.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or
other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should
not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or
other documents were made solely within the specific context of the relevant agreement or document and may not
describe the actual state of affairs as of the date they were made or at any other time.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: April 24, 2026
By:
/s/ William B. Furr
William B. Furr
Chief Financial Officer
(Principal Financial Officer and duly authorized officer)