Origin Bancorp, Inc. — 2020 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2020. Origin is a Louisiana-based financial holding company operating primarily through Origin Bank, a community bank with 44 banking centers in Texas, Louisiana and Mississippi. It provides commercial and consumer banking, mortgage banking and insurance services.
Financial performance and condition
| Metric | 2020 | 2019 |
|---|---|---|
| Total assets, year-end | $7.63 billion | $5.32 billion |
| Total loans held for investment, year-end | $5.72 billion | $4.14 billion |
| Total deposits, year-end | $5.75 billion | $4.23 billion |
| Net interest income | $191.5 million | $173.7 million |
| Provision for credit losses | $59.9 million | $9.6 million |
| Noninterest income | $64.7 million | $46.5 million |
| Noninterest expense | $151.9 million | $144.1 million |
| Net income | $36.4 million | $53.9 million |
| Diluted earnings per share | $1.55 | $2.28 |
| Net interest margin, fully tax-equivalent | 3.18% | 3.69% |
| Return on average assets | 0.56% | 1.06% |
| Cash and cash equivalents, year-end | $377.2 million | $291.5 million |
| Operating cash flow | $0.9 million | $61.6 million |
Net income for the fourth quarter of 2020 was $17.6 million, compared with $12.8 million in the fourth quarter of 2019. Cash flow from investing activities was negative $2.12 billion, largely reflecting loan growth and securities purchases; financing activities provided $2.20 billion, including deposit growth and subordinated-note proceeds. Cash and cash equivalents increased $85.7 million during the year.
Year-end stockholders’ equity was $647.2 million, up 8.0%. Total FHLB advances and other borrowings were $984.6 million, and subordinated debentures were $157.2 million. The Bank’s year-end regulatory ratios included 10.53% common equity Tier 1, 12.92% total capital and 8.99% leverage; it remained “well capitalized.” Cash and liquid securities were 13.6% of total assets.
Material changes versus 2019
- Assets grew 43.3%, loans held for investment 38.2%, and deposits 36.0%. Loan growth included $546.5 million of PPP loans and an $809.3 million increase in mortgage warehouse lines.
- Net interest income rose 10.3%, as lower deposit funding costs and higher mortgage warehouse income more than offset lower yields on many loans.
- Provision for credit losses rose to $59.9 million amid COVID-19 uncertainty and adoption of CECL. The allowance reached $86.7 million, or 1.51% of loans, versus $37.5 million, or 0.91%, a year earlier.
- Noninterest income increased 39.1%, mainly as mortgage banking revenue rose to $29.6 million from $12.3 million. Noninterest expense increased 5.5%.
- Net income fell 32.5%; return on assets and net interest margin also declined. The efficiency ratio improved to 59.31% from 65.43%.
- Origin issued $70 million of Bank subordinated notes and $80 million of holding-company subordinated notes. Year-end FHLB advances and other borrowings increased to $984.6 million from $417.2 million.
Outlook, risks and unusual items
- Management did not provide numerical earnings or financial guidance, citing uncertainty about the pandemic and its economic effects. It expected mortgage refinance activity to decline in 2021 from 2020’s unusually high levels and mortgage warehouse balances to decline over the following year.
- COVID-19-sensitive sectors—hotel, energy, non-essential retail, restaurant and assisted living—accounted for $538.6 million, or 10.4%, of loans excluding PPP. COVID-related forbearances covered $97.7 million across 49 loans at year-end. Management cautioned that reserves are estimates and could increase.
- Origin reported $26.1 million of nonperforming loans held for investment, down from $31.1 million; nonperforming assets were 0.38% of assets. Net charge-offs increased to $11.1 million from $5.9 million, including $6.6 million tied to two lending relationships.
- The company was asset-sensitive in its interest-rate analysis, but modeled net interest income declines of 9.5% and 19.7% under parallel rate decreases of 100 and 200 basis points, respectively; management said these scenarios were outside policy limits.
- About $2.32 billion of loans were indexed to LIBOR, creating transition, operational and contract risks. The filing also identifies regional economic concentration, commercial real estate and business-credit exposure, cybersecurity, liquidity, and regulatory and capital requirements as material risks.
- CECL adoption reduced retained earnings by $760,000 after tax. No goodwill impairment was recorded. Auditors gave unqualified opinions on the financial statements and internal controls; the allowance for credit losses and goodwill impairment were identified as critical audit matters.
Key facts for investors to verify
- Whether credit quality and the $86.7 million allowance adequately reflect pandemic-related borrower risks, especially in exposed sectors and among loans under forbearance.
- How quickly PPP loans are forgiven and how mortgage warehouse balances and associated funding needs evolve.
- Whether deposit growth remains stable and whether the $650 million short-term FHLB advance that matured January 4, 2021 was renewed, repaid or replaced.
- How the LIBOR transition affects the $2.32 billion of indexed loans and the subordinated notes’ floating-rate terms.
- Whether mortgage banking revenue and servicing-rights valuations normalize as refinancing activity changes, and how the modeled downside in falling rates affects earnings.
- The drivers of very low 2020 operating cash flow relative to net income and the sustainability of earnings after elevated credit provisions.