FBR - We Think 3Q16 Macro Trends Work to IBKC's Benefit: Raising PT to $73 and Reiterating OP

FULL REPORT
 

As 3Q16 unfolds, we are raising our price target for IBKC to $73 from $70 and reiterating our Outperform rating. We believe broader macro trends are shaping up to provide a proverbial tailwind to IBKC’s earnings in the second half of 2016. More specifically, we think crude oil prices above $40/bbl are a positive for the energy provision outlook, we view strong nationwide mortgage loan origination volumes as a positive for mortgage banking income in 3Q16, and we do not think IBKC’s commercial real estate (CRE) exposure is likely to become a disproportionate overhang to its share price valuations relative to peers. Further, given that it is highly asset sensitive, we think IBKC’s share price is likely to benefit from any increased market anticipation of a rate rise by the Fed in 2H16.

Mortgage Market Continues to Shine; Raising our Origination Forecasts for 2016 to $1.9T; Setting 2017 at $1.75T

FULL REPORT

With continued strength in the purchase mortgage market and a healthy boost to refis in light of the low interest rate environment throughout the year, we are raising our estimate for 2016 total mortgage industry originations to $1.9 trillion from $1.65 trillion. For some time now, we have articulated our belief that the normalized origination market in the U.S. shakes out at around $1.7 trillion with the purchase market representing somewhere in the range of $900 billion to $1 trillion and the refi market accounting for the delta. With that in mind, we think that the tailwinds from lower interest rates will boost production through that level in FY16, hence our $1.9 trillion estimate. Additionally, we are introducing our 2017 estimate of $1.75 trillion, which assumes continued positive momentum in the purchase market but a decline in refi volumes from 2016.