Origin Bancorp, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Interim financial statements are unaudited. Origin is a Louisiana-based community bank holding company operating primarily in Texas, North Louisiana and Mississippi.
Business context and major transaction
- Origin completed its acquisition of BT Holdings, Inc. (BTH) on August 1, 2022, issuing 6.79 million shares; stated consideration was approximately $307.8 million. BTH added 13 banking locations and approximately $1.24 billion of loans and $1.57 billion of deposits, net of purchase accounting adjustments.
- The preliminary allocation recorded $102.6 million of goodwill and $38.4 million of core deposit intangibles. Purchase-price allocation and certain fair values remained subject to review. Origin merged BTH Bank into Origin Bank on October 7, 2022, after quarter-end.
Financial results and position
| Metric | Q3 2022 / September 30, 2022 | Comparable period / change |
|---|---|---|
| Net interest income | $78.5 million | Up 49.5% from $52.5 million in Q3 2021 |
| Net interest margin | 3.64%; 3.68% fully tax-equivalent | FTE margin increased 66 basis points year over year |
| Net income and diluted EPS | $16.2 million; $0.57 | $27.0 million; $1.14 in Q3 2021 |
| Provision for credit losses | $16.9 million expense | $3.9 million benefit in Q3 2021 |
| Noninterest income / expense | $13.7 million / $56.2 million | Income down 13.8%; expense up 43.6% year over year |
| Total assets | $9.46 billion | Up 20.4% from December 31, 2021 |
| Loans held for investment | $6.88 billion | Up 31.6% from December 31, 2021 |
| Deposits | $7.78 billion | Up 18.4% from December 31, 2021 |
| Cash and cash equivalents | $300.5 million | Down $405.1 million from December 31, 2021 |
| Stockholders’ equity | $907.0 million | Includes $175.2 million accumulated other comprehensive loss |
- For the first nine months, net interest income was $190.5 million versus $162.1 million; net income was $58.2 million versus $80.2 million, and diluted EPS was $2.30 versus $3.40.
- Quarterly FTE net interest margin benefited from rising rates and about seven basis points of acquisition-related purchase accounting accretion. The average yield on interest-earning assets was 4.23%; the average rate paid on total deposits was 0.41%.
- Nine-month operating cash flow was $93.8 million; investing cash outflow was $276.7 million and financing cash outflow was $222.3 million. Cash and cash equivalents declined by $405.1 million over the period.
- At September 30, borrowings included $450.5 million of FHLB advances and other borrowings and $201.7 million of subordinated indebtedness. Origin reported $1.39 billion of additional FHLB borrowing capacity. Origin Bank’s total risk-based capital ratio was 12.81%; its leverage ratio was 9.15%.
Changes, outlook and notable items
- Net income declined year over year as higher credit-loss provision, acquisition costs and operating expenses more than offset higher net interest income. The merger generated a $14.9 million day-one CECL provision on non-PCD acquired loans; Q3 merger-related expense was $3.6 million, with $5.0 million recorded year to date. Management’s highlights cite $19.9 million of total merger-related costs including the CECL provision.
- Mortgage banking recorded a $0.9 million Q3 loss versus $2.7 million of revenue a year earlier. The quarter included a $2.0 million impairment on the held-for-sale GNMA mortgage servicing rights portfolio; mortgage origination and sale volumes also fell. Insurance commission income increased, partly reflecting insurance acquisitions completed in December 2021.
- Available-for-sale securities had $223.5 million of gross unrealized losses at September 30. Management attributed the losses to interest rates and market conditions, reported no intent to sell the securities, and recorded no related credit impairment. The after-tax securities and hedge impact contributed to $181.0 million of nine-month other comprehensive loss.
- Credit indicators were comparatively favorable: nonperforming loans held for investment were $14.0 million, or 0.20% of such loans, versus 0.48% at December 31, 2021. The allowance was $83.4 million, equal to 1.21% of loans held for investment and 594.11% of nonperforming loans. Management cautioned that inflation, higher rates, recession concerns, labor pressures, geopolitical risks and supply-chain disruptions could affect borrowers and credit quality.
- Management expected quarterly net interest margin to continue expanding in Q4 2022; the filing provides no numerical earnings or full-year guidance. It also noted that deposit pricing had not yet fully absorbed market rate increases.
- Market-risk simulations estimated net interest income would rise 10.0% under an instantaneous +400-basis-point shock and fall 13.6% under a -200-basis-point shock. These are model estimates, depend on assumptions and are not forecasts.
- Off-balance-sheet commitments to extend credit and standby letters of credit totaled $2.89 billion; $567.9 million of commitments were unconditionally cancellable. Management did not expect pending ordinary-course legal matters to materially adversely affect financial position or liquidity. A new share repurchase authorization permits up to $50 million of purchases; none occurred in Q3.
Key facts for investors to verify
- Track BTH integration, realization of anticipated synergies, and completion of the preliminary purchase accounting and fair-value estimates.
- Assess whether margin expansion persists as deposit costs reprice, and monitor deposit trends, cash balances, borrowing use and liquidity capacity.
- Review loan growth and concentration, acquired-loan performance, nonperforming and classified loans, charge-offs, and the adequacy of credit-loss allowances as economic conditions change.
- Monitor securities-related unrealized losses and their effects on equity and regulatory capital, as well as the assumptions underlying interest-rate sensitivity models.
- Verify the sustainability of noninterest income and expense trends, including mortgage banking, acquisition-related costs, and ongoing intangible amortization.