Origin Bancorp, Inc. — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022; filed February 22, 2023. Origin is a Louisiana-based financial holding company operating community banking, mortgage and insurance businesses in Texas, Louisiana and Mississippi. It had 59 banking centers and completed its all-stock acquisition of BT Holdings, Inc. (BTH) on August 1, 2022.
Key financial results and position
| Metric | FY 2022 / Dec. 31, 2022 | Prior comparable period |
|---|---|---|
| Net income | $87.7 million | $108.5 million in 2021 |
| Diluted earnings per share | $3.28 | $4.60 in 2021 |
| Net interest income | $275.3 million | $216.3 million in 2021 |
| Net interest margin | 3.42% tax-equivalent; 3.39% GAAP | 3.10% tax-equivalent; 3.06% GAAP |
| Provision for credit losses | $24.7 million expense | $10.8 million net benefit in 2021 |
| Total assets | $9.69 billion | $7.86 billion |
| Loans held for investment | $7.09 billion | $5.23 billion |
| Total deposits | $7.78 billion | $6.57 billion |
| Stockholders’ equity | $949.9 million | $730.2 million |
| Cash and cash equivalents | $359.0 million | $705.6 million |
Total interest income rose to $326.6 million from $241.7 million, while interest expense increased to $51.3 million from $25.4 million. Noninterest income declined 7.9% to $57.3 million; noninterest expense rose 27.8% to $200.4 million. Return on average assets was 1.01% (1.45% in 2021), and return on average equity was 10.81% (15.79%).
Net cash from operating activities was $145.6 million, versus $171.5 million in 2021. Investing activities used $456.0 million and financing activities used $36.3 million. Cash and cash equivalents decreased by $346.6 million during the year.
Material changes and notable items
- BTH added approximately $1.85 billion of assets, $1.23 billion of net loans and $1.57 billion of deposits at acquisition; Origin issued 6.79 million shares. The transaction generated $94.5 million of goodwill and $6.2 million of merger-related expense in 2022.
- Loans grew 35.5%, including acquired balances and organic growth. Real estate-backed loans were 66.7% of LHFI. Commercial real estate and construction/land development loans increased notably; mortgage warehouse balances fell 54.6% year over year.
- Reported deposits increased 18.3%, but excluding acquired BTH deposits, balances decreased by $361.5 million, or 5.5%. Noninterest-bearing deposits were 32.0% of year-end deposits; the average cost of total deposits rose to 0.47% from 0.22%.
- Credit metrics improved: nonperforming LHFI fell to $9.9 million from $24.9 million, and net charge-offs were $4.6 million versus $11.3 million. The allowance for loan credit losses was $87.2 million, or 1.23% of LHFI.
- Available-for-sale securities had a $204.5 million pre-tax net unrealized loss at year-end, contributing to a $165.6 million after-tax other comprehensive loss. The company reported $949.9 million in total equity.
Liquidity, debt and capital
Year-end borrowings included $639.2 million of FHLB advances, repurchase obligations and other borrowings, plus $201.8 million of subordinated indebtedness. Origin had $550 million of short-term FHLB advances. Cash and liquid securities were 12.1% of assets, down from 23.2% a year earlier. The company reported estimated uninsured deposits of $4.19 billion.
Available liquidity sources included $1.29 billion of net FHLB borrowing capacity under pledged collateral and $1.23 billion of Federal Reserve discount-window capacity; no discount-window borrowings were outstanding. Origin Bancorp and Origin Bank exceeded applicable well-capitalized standards. At year-end, consolidated CET1, total risk-based capital and leverage ratios were 10.93%, 14.23% and 9.66%; the Bank’s respective ratios were 11.50%, 13.39% and 9.94%.
Outlook, risks and contingencies
- The filing provides no formal earnings or growth guidance. Management stated it expected the company and Bank to continue exceeding well-capitalized requirements in 2023, based on current estimates.
- Management’s rate-sensitivity model estimated that a 100- or 200-basis-point increase would lift next-12-month net interest income by 3.6% or 7.1%, while equivalent decreases would reduce it by 2.3% or 6.7%. These are model estimates, not forecasts, and depend on stated assumptions.
- Management cited persistent inflation, rapid rate increases, recession concerns, labor and supply-chain pressures, and geopolitical uncertainty. Key exposures include deposit competition and funding costs, interest-rate sensitivity, securities valuation, borrower credit quality, and concentrations in real estate and regional markets.
- Transition from LIBOR remained a risk: approximately $1.07 billion of loans were LIBOR-indexed at year-end. The filing describes the planned transition to SOFR or other replacement benchmarks.
- The company was close to the $10 billion asset threshold that would trigger additional regulatory requirements; year-end assets were $9.69 billion. Crossing the threshold could affect compliance costs and debit interchange income.
- Origin disclosed pending class actions alleging improper overdraft fees and, in a January 2023 complaint, improper NSF fees on re-presented items. Management said it was defending the cases; the filing does not quantify potential exposure. Management did not expect ordinary-course legal matters, individually or collectively, to materially affect consolidated financial position or results.
- Origin recognized a $2.0 million impairment on its GNMA mortgage servicing rights portfolio in 2022. The sale was completed in February 2023 for approximately $1.8 million, with no significant additional gain or loss; the related $24.6 million repurchase asset and liability were derecognized.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The BTH business, representing 14.35% of year-end consolidated assets per the auditor, was excluded from the internal-control audit scope.
Important facts for investors to verify
- Separate BTH’s contribution from organic performance, particularly for loan and deposit growth, expenses, earnings and integration costs.
- Track deposit outflows excluding acquired balances, uninsured deposit levels, deposit pricing and reliance on short-term FHLB funding.
- Assess securities unrealized losses, available liquidity and capital sensitivity if market conditions require securities sales.
- Monitor credit quality and concentrations in commercial real estate, construction and commercial lending, as well as the allowance and charge-off trends.
- Review progress on LIBOR-linked contracts, the $10 billion asset threshold, and the outcomes or potential costs of the overdraft and NSF litigation.