Origin Bancorp, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. Origin is a Louisiana-based financial holding company operating primarily as a community bank through Origin Bank, with more than 60 locations in Louisiana, Texas and Mississippi. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Financial results and position
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior year-end |
|---|---|---|
| Net interest income | $73.3 million | $77.1 million in Q1 2023 |
| Net interest margin | 3.17%; 3.19% fully tax-equivalent (FTE) | 3.41%; 3.44% FTE in Q1 2023 |
| Net income / diluted EPS | $22.6 million / $0.73 | $24.3 million / $0.79 in Q1 2023 |
| Provision for credit losses | $3.0 million | $6.2 million in Q1 2023 |
| Noninterest income / expense | $17.3 million / $58.7 million | $16.4 million / $56.8 million in Q1 2023 |
| Total assets | $9.89 billion | $9.72 billion |
| Loans held for investment (LHFI) | $7.90 billion | $7.66 billion |
| Total deposits | $8.51 billion | $8.25 billion |
| Total borrowings and subordinated debt | $173.8 million | $277.9 million |
| Stockholders’ equity | $1.08 billion | $1.06 billion |
- Interest income, funding costs and margins: Interest income increased $18.6 million year over year, but interest expense rose $22.4 million, mainly from higher deposit rates. The average rate paid on interest-bearing deposits increased to 3.85% from 2.49%. Management said sequential FTE margin compression had recently stabilized.
- Cash flow: Operating activities provided $27.1 million, versus $27.6 million in Q1 2023. Investing activities used $161.7 million, while financing activities provided $145.6 million. Cash and cash equivalents ended the quarter at $291.5 million.
- Liquidity and funding: Deposits grew 3.1% from year-end; deposits excluding brokered deposits rose 1.3%. Brokered time deposits increased $152.1 million. Noninterest-bearing deposits were 22.2% of period-end deposits, down from 23.3% at year-end. The company reported $2.09 billion of additional FHLB borrowing capacity and $1.49 billion of available Federal Reserve discount-window capacity; neither source had outstanding borrowings at quarter-end.
- Capital: Company CET1, Tier 1 leverage and total capital ratios were 11.97%, 10.66% and 14.98%, respectively. Origin Bank exceeded the regulatory thresholds for “well capitalized.”
Changes, credit quality and notable items
- LHFI increased $239.1 million, or 3.1%, from year-end; excluding mortgage warehouse lines, growth was $168.1 million, or 2.3%. Construction and land-development, commercial and industrial, and mortgage warehouse balances drove much of the increase.
- Nonperforming LHFI rose to $40.4 million from $30.1 million at year-end; the ratio to LHFI increased to 0.51% from 0.39%. Management attributed the increase principally to 12 relationships placed on nonaccrual during the quarter. Net charge-offs were $2.6 million, compared with $1.3 million in Q1 2023; the annualized net charge-off ratio rose to 0.13% from 0.07%.
- The allowance for loan credit losses was $98.4 million, or 1.25% of LHFI. Allowance coverage of nonperforming LHFI declined to 243.27% from 321.66% at year-end.
- Net interest margin pressure reflected the faster increase in funding costs than asset yields. Net income fell 6.9% year over year despite higher loan interest income and higher noninterest income.
- Origin sold substantially all its mortgage servicing rights (MSRs), recording a $410,000 gain; the MSR balance was zero at quarter-end. It also redeemed all but $1.1 million of acquired BTH subordinated notes, contributing to lower debt.
- The company sold available-for-sale securities and recognized a $403,000 net loss. Available-for-sale securities had $159.5 million of gross unrealized losses at quarter-end; management attributed these to interest rates and other market conditions, and said it did not expect to sell the affected securities before recovery.
- Quarterly dividends declared were $0.15 per share. No shares were repurchased during the quarter. Shareholders approved a new incentive plan in April 2024, authorizing an additional 675,000 shares for issuance.
Outlook, risks and contingencies
- The filing provides no numerical earnings, loan-growth or margin guidance. Management said it would continue pricing deposits competitively, monitor economic conditions and Federal Reserve rate expectations, and manage growth with the aim of remaining well capitalized.
- Interest-rate simulation estimated that an instantaneous +100 basis-point shock would increase one-year net interest income 1.9%, while a -100 basis-point shock would reduce it 5.6%. The filing cautions that model assumptions are uncertain and actual results may differ.
- Key risks include deposit competition and funding costs, liquidity and customer confidence, interest-rate and securities valuation changes, economic weakness and inflation, and credit exposure to commercial real estate, construction and land-development, and commercial borrowers. Non-owner-occupied CRE included $377.8 million in office loans.
- Off-balance-sheet commitments totaled $2.34 billion, including $2.16 billion of commitments to extend credit and $185.9 million of standby letters of credit. A substantial portion of credit commitments was unconditionally cancellable.
- Management said ordinary-course legal proceedings were not expected to have a material adverse effect on consolidated financial position or liquidity. The filing reported no material changes to previously disclosed risk factors; disclosure controls were deemed effective.
Important facts for investors to verify
- Whether deposit pricing, brokered-deposit use and the decline in noninterest-bearing deposits continue to pressure net interest margin.
- Whether the increase in nonperforming loans, especially commercial and industrial and real estate exposures, persists or leads to higher charge-offs and provisions.
- How loan growth and portfolio concentrations—including office CRE and construction/land development—perform under current economic and interest-rate conditions.
- Whether the securities portfolio’s unrealized losses recover as management expects, and the effects of any securities sales on earnings, liquidity and capital.
- Whether liquidity capacity, regulatory capital and deposit trends remain adequate as loans grow and customer funding preferences change.