Mortgage Restructuring And Deposits Will Drive Operational Efficiency

Key Takeaways

• Strategic initiatives, including optimizing operations and restructuring the mortgage business, aim to enhance efficiency, profitability, and improve net margins.
  
• Focus on deposit growth and optimizing the loan portfolio is intended to drive revenue and improve credit quality and returns.
  
• Macroeconomic uncertainty and potential regulatory challenges threaten loan growth, credit risk management, and net interest margins, potentially impacting overall earnings.

Catalysts

Operates as a bank holding company for Origin Bank that provides banking and financial services to small and medium-sized businesses, municipalities, and retail clients in Texas, Louisiana, and Mississippi.

• Origin Bancorp's Optimize Origin initiative is expected to improve annual pretax earnings by approximately $1.5 million starting in the second half of the year, which could enhance net margins and earnings.
  
• The restructuring of the mortgage business is anticipated to create efficiencies and reduce noninterest expenses, contributing to improved net margins and profitability.
  
• The company's focus on strong deposit growth and mid
• to high single-digit loan growth by 2025 positions it well to drive revenue growth from increased lending activities.
  
• The optimization of the loan portfolio, including strategic exits from non-fit relationships, is aimed at improving credit quality and risk-adjusted returns, positively impacting net margins and earnings.
  
• With an increase in tangible book value and strong capital flexibility, Origin Bancorp is positioned to capitalize on potential future capital deployment opportunities, potentially enhancing shareholder value and earnings per share.

Origin Bancorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Origin Bancorp's revenue will grow by 10.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.7% today to 30.2% in 3 years time.
• Analysts expect earnings to reach $142.4 million (and earnings per share of $4.51) by about May 2028, up from $76.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.5x on those 2028 earnings, down from 13.1x today. This future PE is lower than the current PE for the US Banks industry at 11.0x.
• Analysts expect the number of shares outstanding to grow by 0.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Origin Bancorp Future Earnings Per Share Growth

Risks

• Macroeconomic uncertainty, including potential tariff impacts and industry-specific challenges, could limit loan growth, impacting future revenue streams.
  
• Increasing classified and nonperforming loans indicate potential credit risk, which may require higher loss provisions and affect net margins.
  
• Changes in the mortgage business could lead to reduced noninterest income by $400,000 to $500,000 quarterly, impacting overall earnings.
  
• Rising deposit competition, particularly with high CD specials in the market, may pressure net interest margins if deposit costs rise disproportionately.
  
• Potential regulatory and operational challenges related to crossing the $10 billion threshold may result in increased compliance costs, affecting net earnings.

Valuation

• The analysts have a consensus price target of $40.2 for Origin Bancorp based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $471.3 million, earnings will come to $142.4 million, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $31.93, the analyst price target of $40.2 is 20.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.