Origin Bancorp, Inc. — Q3 2021 Form 10-Q
Business context and period. Origin Bancorp is a Louisiana-based financial holding company operating Origin Bank, with 44 banking centers in Texas, Louisiana and Mississippi. It reports one community-banking segment. This unaudited 10-Q covers the quarter and nine months ended September 30, 2021; balance-sheet comparisons are against December 31, 2020.
Financial performance and position
| Metric | Q3 2021 | Comparable period / balance-sheet change |
|---|---|---|
| Net interest income | $52.5 million | Up $1.9 million year over year |
| Net interest margin | 3.02% fully tax-equivalent | Down 16 basis points year over year |
| Provision for credit losses | $3.9 million benefit | $13.6 million expense in Q3 2020 |
| Noninterest income | $15.9 million | Down $2.1 million year over year |
| Noninterest expense | $39.2 million | Up $0.4 million year over year |
| Net income / diluted EPS | $27.0 million / $1.14 | $13.1 million / $0.56 in Q3 2020 |
For the first nine months, net interest income was $162.1 million versus $139.7 million; net income was $80.2 million versus $18.8 million; and diluted EPS was $3.40 versus $0.80. Noninterest income declined to $45.5 million from $49.3 million, while noninterest expense increased to $116.4 million from $113.1 million. Nine-month fully tax-equivalent margin was 3.12%, down 10 basis points.
- Assets and loans: Total assets were $7.47 billion, down 2.1% from year-end. Total loans held for investment (LHFI) were $5.19 billion, down 9.4%; excluding PPP and mortgage warehouse loans, LHFI increased 4.0% to $4.26 billion. Commercial real estate LHFI rose 14.6% to $1.59 billion. PPP loans fell to $217.0 million, with $558.7 million forgiven to date; mortgage warehouse lines declined to $713.3 million.
- Deposits and funding: Deposits grew 7.1% to $6.16 billion. Noninterest-bearing deposits rose 23.2% to $1.98 billion and represented 32.2% of deposits. FHLB advances and other borrowings declined to $309.2 million from $984.6 million, including no short-term FHLB advances at September 30. Subordinated debentures were $157.4 million.
- Credit quality: Allowance for loan losses was $69.9 million, or 1.35% of LHFI, versus $86.7 million, or 1.51%, at year-end. Nine-month net charge-offs were $8.6 million. Nonperforming LHFI were $24.6 million (0.47% of LHFI); total nonperforming assets were $31.2 million, up from $28.8 million at year-end, largely reflecting higher repossessed assets. The allowance was 284.86% of nonperforming LHFI.
- Liquidity, cash flow and capital: Cash and cash equivalents were $352.0 million. Cash and liquid securities were 20.6% of assets versus 13.6% at year-end; available FHLB borrowing capacity was $837.7 million. For the first nine months, operating cash flow was $144.7 million, investing cash flow was $99.1 million, and financing cash flow was a $269.0 million use; cash declined $25.2 million. Origin Bancorp’s CET1, total risk-based capital and leverage ratios were 11.23%, 14.90% and 9.18%, respectively; Origin Bank’s were 11.79%, 14.01% and 9.48%. The Bank remained well-capitalized.
Material changes and management commentary
- Lower deposit costs and higher PPP and mortgage warehouse interest income supported nine-month net interest income. In Q3, lower deposit expense was partly offset by lower loan income and higher subordinated-debenture expense. Management attributed margin compression to lower loan yields and excess liquidity shifting into lower-yielding securities and bank deposits.
- The credit-loss benefit reflected improved economic forecasts and credit metrics versus 2020; management said uncertainty remained around COVID-19, inflation, labor pressures and supply-chain disruption.
- Q3 mortgage banking revenue fell 71.4% to $2.7 million as production, sale volume and gain-on-sale margins normalized from unusually high 2020 levels. Nine-month limited-partnership investment income increased to $5.7 million, principally from fund valuation gains.
- Nine-month expenses included $1.6 million of FHLB prepayment fees associated with early repayment of higher-cost advances; gains on securities sales partly offset those fees. Loan-related legal fees also increased, and management expected the current level to continue through the rest of 2021.
- Available-for-sale securities increased to $1.49 billion. Unrealized securities losses reduced AOCI by $14.1 million, net of tax, during the first nine months; management attributed losses to non-credit market factors and stated it did not intend or expect to need to sell affected securities before recovery.
Outlook, risks and contingencies
The filing provides no specific earnings or balance-sheet guidance. Management cautioned that low rates could pressure margins as assets reprice, and its rate-sensitivity model was outside internal policy in the down-100 and down-200-basis-point scenarios. Other identified risks include credit deterioration, real estate and collateral values, deposit retention and funding costs, inflation, COVID-19, supply-chain disruption, cybersecurity, regulatory and capital requirements, and the transition away from LIBOR. Commitments to extend credit were $1.57 billion and standby letters of credit were $54.7 million; a substantial portion of commitments was unconditionally cancellable. Management did not expect existing legal proceedings to materially adversely affect financial position or liquidity.
Subsequent events: On October 29, 2021, the Company amended its NexBank facility, with potential capacity up to $100 million subject to lender discretion, at Term SOFR plus 3.35%, expiring October 28, 2022, with extension options. It also agreed to acquire the remaining 62% of Lincoln Agency for $5.3 million in cash and stock, plus possible performance-based payments; closing was expected around December 31, 2021, and the transaction was not expected to be material.
Important facts for investors to verify
- Whether the credit-loss release and reduced allowance remain appropriate as economic forecasts and borrower performance evolve.
- Whether deposit growth, deposit mix and lower funding costs persist, and how asset repricing affects net interest margin.
- Trends in mortgage banking revenue, mortgage servicing rights valuations and related hedge results following the exceptional 2020 mortgage market.
- Commercial real estate and C&I portfolio concentrations, nonperforming assets, repossessed property and net charge-offs.
- Regulatory capital and distribution capacity, including the scheduled CECL capital transition beginning in 2022, and terms or use of the amended NexBank facility.
- Execution, consideration and contingent payments for the Lincoln Agency acquisition, as well as liquidity and valuation risks in limited-partnership investments and securities.