Hilltop Holdings Inc. (HTH) stock intrinsic value fair value estimate & owner earnings analysis

Hilltop Holdings is a Dallas-based financial holding company with three businesses. PlainsCapital Bank, a Texas commercial bank operating from 58 locations throughout Texas, is the main earnings engine: it earned $193 million before tax in 2025, $182 million in 2024 and $199 million in 2023. HilltopSecurities is a broker-dealer whose main lines are public finance, structured finance, fixed income and wealth management, operating from 39 locations in 16 states (76% of its public finance revenue came from Texas entities in 2025); it earned $68 million before tax in 2025, $64 million in 2024 and $74 million in 2023. PrimeLending is a mortgage lender with more than 170 offices in 46 states; in 2025, 30.2% of its loans by dollar volume were on Texas properties and 7.8% on California properties. It earned large profits during the 2020-2021 refinancing boom but has lost money since mortgage volumes collapsed: a $62.8 million pre-tax loss in 2023, $33.7 million in 2024 and $17.5 million in 2025. Hilltop sold its National Lloyds insurance business in 2020, so we judge the business from 2020 onward. How we measured earnings. Reported operating cash flow is dominated by the roughly $10 billion of mortgages PrimeLending makes and sells each year and by broker-dealer customer balances, so it swings between large negative and large positive numbers that say nothing about earning power. We strip those balance-sheet flows out, which leaves net income plus non-cash items. Stock compensation stays deducted as a real cost. For loan losses we deduct the losses the bank actually realized (loans charged off, less recoveries) rather than the accounting provision, which is an estimate that swings with reserve building and releasing. That matters most in 2020, when Hilltop set aside $96.5 million, largely for expected pandemic losses, while actual net charge-offs that year were $21 million, and in 2021, when it released $58 million of reserves; neither the build nor the release is counted. We also remove non-cash income from acquired loans and the undistributed portion of merchant-banking investment gains ($46.7 million in 2025), and deduct only maintenance capital spending. On that basis owner earnings per share were $5.53 in 2020 and $3.81 in 2021 (mortgage boom years), $2.10 in 2022, $2.07 in 2023, $1.34 in 2024 and $1.84 in 2025. We start from the 2020-2025 median, about $2.08 per share, or roughly $121 million on today's 58 million diluted shares, because that window covers both the mortgage boom and the bust. That is close to what 2025 earnings of $115 million would be on today's share count ($1.99). Owner earnings rose about 37% per share in 2025; every case assumes far less than that from here. Growth needs capital. A bank cannot grow its loans without adding equity alongside them. PlainsCapital Bank's core capital ratio (common equity Tier 1) was 14.5% at the end of 2025, so in every case we set aside 14.5 cents of earnings for each dollar of new loans before counting anything as available to shareholders. Hilltop's return on equity was 7.6% in 2025, so growth adds value only slowly. Hilltop as a whole holds more capital than the bank needs (a 19.7% ratio at the holding company, against a 7% regulatory minimum including buffers), and it has been returning that surplus through buybacks: $184 million in 2025 and $95 million in the first half of 2026, taking diluted shares from about 99 million in 2016 to 58 million. We count each dollar of earnings once, whether it is paid as a dividend or used for buybacks, and we do not add the surplus capital on top of the earnings stream. Because Hilltop's earnings continue and its debt can be rolled over, no case subtracts debt or adds cash. Base case, about $37 per share: owner earnings start at about $121 million and grow 2% a year for ten years, in line with loan growth since 2019 (loans held for investment rose from $7.38 billion at the end of 2019 to $8.31 billion at the end of 2025). The capital set aside for that growth is about $24 million a year, so roughly $99 million is available to shareholders in the first year. The mortgage business stays where the median years left it. After year 10 earnings hold flat with no further growth, which needs no new capital; what keeps them going is the Texas deposit franchise and bank charter, which produced $182-199 million of pre-tax banking profit in each of the last three years. Bear case, about $23 per share: owner earnings stay at the 2024 low of $87 million ($1.50 per share today) for good, which assumes the bank's net interest margin stays near the 2.81% of 2024 and mortgage losses continue at the 2024 pace. Loans grow 1% a year, close to the pace since 2021, and still require capital. We add one credit downturn: two years in which net charge-offs run at 0.57% of loans, the rate of 2016, the worst loss year of the past decade, when a single $24.5 million loan was written off. On today's loan book that is about $47 million a year against $11-17 million in 2024-2025, or roughly $28 million a year more than normal after tax. With leverage ratios of 12.8% at Hilltop and 10.6% at the bank, a downturn of that size dents earnings but does not threaten the capital base. Bull case, about $44 per share: owner earnings start at 2025's $115 million plus PrimeLending reaching break-even, continuing the narrowing of its losses from $62.8 million in 2023 to $17.5 million in 2025, for about $129 million ($2.23 per share). Loans and earnings grow 4% a year for ten years, matching loan growth from 2016 to 2025, with about $48 million a year of capital set aside in the early years to support it. Earnings then hold flat. We do not assume the mortgage business returns to boom-era profits, because that depends on interest rates, not on anything Hilltop controls. Our earlier estimate of about $50 per share deducted the full loan-loss provision, did not set aside capital for loan growth, and counted buybacks both as earnings paid out and as a source of per-share growth. This version fixes all three, which lowers the estimate. The bull case sits only modestly above the base because, at a 7.6% return on equity, faster loan growth consumes most of the extra earnings it produces. The margin-of-safety price is $23, close to the bear case and about 38% below the base case. That discount reflects cyclical mortgage and securities earnings, the unpredictable timing of bank credit losses, and a return on equity that leaves little room for error. Early 2026 is consistent with the starting point: first-half net income was $74 million against $78 million a year earlier, while net charge-offs rose to $7.5 million from $5.2 million. What would make this estimate wrong: a Texas credit downturn much worse than the 2016 loss year; the bank's net interest margin (2.98% in 2025) falling well below its recent range; or management spending surplus capital on an overpriced acquisition instead of returning it. Upside not included in our numbers: the holding company's surplus capital, further merchant-banking gains like 2025's, and any return of the mortgage business to pre-2022 profitability.