Hilltop Holdings (HTH) and Texas Capital Bancshares (TCBI) obtain a large part of their revenue through their sizable mortgage operations in commercial warehouses, and these Texas banks are expected to grow and remain profitable, says Brett Rabatin, Managing Director of Equity Research at Sterne, Agee & Leach.
“Mortgage is a high percentage of [Hilltop Holdings‘] pretax income currently. I think people are a little overly concerned about where mortgage might normalize, but I think as they become more well-known and it becomes obvious that their profitability is going to continue to be pretty strong, that that’s a name that should benefit from both valuation improvement as well as a better knowledge by investors and the Street,” Rabatin said.
Texas Capital also has a sizable mortgage operation through its commercial warehouse exposure, which has seen meaningful growth in the past two years. Rabatin says TCBI has the potential for increased profitability and should continue to grow their commercial operations in the Lone Star State, and he says the pullback the stock recently suffered was overdone.
“I think people are concerned that their mortgage earnings will create some sort of a shortfall over the next year, but I’m actually pretty bullish on that name, given the potential for profitability to stay pretty elevated and for them to continue to grow their commercial operation in Texas. So I think the pullback in the stock, given some mortgage-related fears, is overdone. That name should do well, especially from the low $40s,” Rabatin said.
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