Origin Bancorp, Inc. — Q2 2021 Form 10-Q
Business context and reporting period. Origin Bancorp is a Louisiana-based financial holding company operating through Origin Bank, with 44 banking centers in Texas, Louisiana and Mississippi. It reported unaudited results for the quarter and six months ended June 30, 2021; balance-sheet comparisons are to December 31, 2020.
Financial performance and position
| Metric | Q2 / June 30, 2021 | Comparison |
|---|---|---|
| Net income | $27.7 million; diluted EPS $1.17 | Q2 2020: $5.0 million; diluted EPS $0.21 |
| Six-month net income | $53.2 million; diluted EPS $2.26 | First half 2020: $5.7 million; diluted EPS $0.24 |
| Net interest income | Q2: $54.3 million; first half: $109.5 million | Q2 2020: $46.3 million; first half 2020: $89.1 million |
| Net interest margin | Q2: 3.08% GAAP; 3.12% tax-equivalent. First half: 3.13% GAAP; 3.17% tax-equivalent | Tax-equivalent margin was 3.09% in Q2 2020 and 3.25% in first half 2020 |
| Credit-loss provision | Q2: $5.6 million benefit; first half: $4.2 million benefit | Q2 2020: $21.4 million expense; first half 2020: $39.9 million expense |
| Total assets | $7.27 billion | Down 4.7% from $7.63 billion at year-end 2020 |
| Loans held for investment | $5.40 billion; allowance $77.1 million, or 1.43% of loans | Loans down 5.7% and allowance down from $86.7 million at year-end |
| Deposits and cash | Deposits $6.03 billion; cash and cash equivalents $444.7 million | Deposits up 4.8%; cash up from $377.2 million at year-end |
| Borrowings and equity | FHLB advances and other borrowings $314.1 million; subordinated debentures $157.3 million; equity $688.2 million | FHLB advances and other borrowings down from $984.6 million at year-end; equity up from $647.2 million |
| Cash flows, first half | Operating +$107.9 million; investing +$357.2 million; financing −$397.6 million; cash increased $67.5 million | Cash and cash equivalents ended at $444.7 million |
Material changes and management commentary
- Quarterly earnings rose substantially year over year, supported by higher net interest income and a credit-loss provision benefit. Management attributed improved credit-loss estimates to better economic forecasts, while noting specific loan reserves partially offset reserve releases.
- Net interest income increased as deposit costs fell and mortgage warehouse and PPP income rose. Lower loan yields weighed on margin; tax-equivalent margin declined year over year for the first half.
- Q2 noninterest income fell 34.8% to $12.4 million, mainly on lower mortgage banking revenue and swap fees. First-half noninterest income decreased 5.3% to $29.6 million. Mortgage revenue included fair-value and servicing-rights effects.
- Noninterest expense was $37.8 million in Q2, down 1.0%; first-half expense rose 4.0% to $77.3 million. First-half expense included $1.6 million of FHLB prepayment fees; management said current loan-related legal expenses were expected to continue through the rest of 2021.
- Loans held for investment declined 5.7% from year-end, principally from lower mortgage warehouse balances and PPP forgiveness. Commercial real estate and residential real estate balances increased. PPP loans outstanding were $369.9 million at quarter-end.
- Nonperforming assets increased to $36.8 million from $28.8 million at year-end; nonperforming loans held for investment were 0.57% of loans, versus 0.46%. Net charge-offs were $5.7 million in the first half.
- Liquidity measures included cash and liquid securities at 15.8% of assets and $872.1 million of additional FHLB borrowing capacity. Total deposits increased, including growth in noninterest-bearing and money-market accounts.
- At June 30, the Bank’s capital ratios exceeded well-capitalized thresholds: CET1 11.55%, total risk-based capital 13.89%, and leverage 9.15%. The company reported compliance with applicable capital requirements.
Outlook, risks and unusual items
- No quantified earnings or financial guidance was provided. Management expected mortgage refinancing activity and mortgage warehouse balances to decline, potentially reducing mortgage banking revenue and warehouse lending.
- Management cited uncertainty from COVID-19, possible renewed restrictions, inflation and labor pressures, and supply-chain disruption; these could affect borrowers, asset quality and future credit-loss estimates.
- Interest-rate exposure is significant. The company reported that its model was outside internal policy in down-100 and down-200-basis-point scenarios; modeled 12-month net interest income fell 9.3% and 16.1%, respectively.
- Other risks include commercial real estate, construction and commercial lending concentrations; deposit retention and funding costs; cybersecurity and operational risks; regulatory capital and liquidity requirements; and the transition away from LIBOR.
- First-half unusual items included $1.673 million of net securities gains, partly associated with selling lower-yielding securities to prepay higher-cost FHLB advances, and $1.6 million of related prepayment fees. The filing says legal proceedings were not expected to materially adversely affect financial position or liquidity.
Important facts for investors to verify
- Reconcile the filing’s PPP forgiveness disclosures: one note reports $416.6 million forgiven, while MD&A reports approximately $390.6 million of Origin Bank-originated PPP loans forgiven.
- Track whether credit-loss benefits continue and whether nonperforming loans, charge-offs or specific loan reserves rise as forecasts and borrower conditions change.
- Assess sustainability of earnings excluding PPP fee acceleration, mortgage fair-value movements, securities gains and other variable items.
- Monitor net interest margin, deposit pricing and the effects of falling or rising rates, including the disclosed downside interest-rate sensitivity.
- Review liquidity, deposit mix, remaining FHLB capacity, large commercial credit commitments and continued compliance with capital requirements.