Origin Bancorp, Inc. — Second Quarter 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Origin is a Louisiana-based financial holding company operating primarily through Origin Bank, with 45 banking centers in Texas, Louisiana and Mississippi. Amounts below are in millions unless noted. Interim financial statements are unaudited.
Financial performance and position
| Metric | Q2 2022 / June 30, 2022 | Comparable period / date |
|---|---|---|
| Net interest income | $59.5 | $54.3 in Q2 2021; up 9.6% |
| Net interest margin | 3.23% fully tax-equivalent | 3.12% in Q2 2021 |
| Net income | $21.3; diluted EPS $0.90 | $27.7 and $1.17 in Q2 2021 |
| Provision for credit losses | $3.5 expense | $5.6 benefit in Q2 2021 |
| Noninterest income / expense | $14.2 / $44.2 | $12.4 / $37.8 in Q2 2021 |
| Total assets | $8,111.5 | $7,861.3 at Dec. 31, 2021 |
| Loans held for investment | $5,528.1 gross; $5,465.0 net of allowance | $5,231.3 gross at Dec. 31, 2021 |
| Total deposits | $6,303.2 | $6,570.7 at Dec. 31, 2021 |
| Borrowings | $894.6 FHLB advances, repurchase obligations and other borrowings; plus $157.5 subordinated debt | $309.8 and $157.4, respectively, at Dec. 31, 2021 |
| Stockholders’ equity | $646.4 | $730.2 at Dec. 31, 2021 |
- For the six months, net income was $42.0 versus $53.2 in 2021; diluted EPS was $1.77 versus $2.26. Net interest income was $112.0 versus $109.5, while fully tax-equivalent NIM was 3.04% versus 3.17%.
- Six-month operating cash flow was $54.7; investing cash use was $759.8 and financing cash provided was $323.5. Cash and cash equivalents decreased $381.7 to $323.9.
- Period-end deposits declined 4.1% from December 2021, largely reflecting lower money-market balances and the release of higher-rate, non-relationship deposits. Separately, deposits were up 4.56% year over year, according to management; noninterest-bearing deposits were 35.2% of period-end deposits.
- Loans excluding PPP and mortgage warehouse balances grew strongly: management reported $5.00 billion at June 30, up 20.0% year over year. Total securities rose $280.3 from December to $1.82 billion.
- The allowance for loan losses was $63.1, or 1.14% of loans held for investment. Nonperforming LHFI were $14.1, or 0.25% of LHFI, versus $24.9 and 0.48% at December 2021. Six-month net charge-offs were $3.3.
- Regulatory capital remained above applicable minimums. At June 30, the company’s CET1 and total capital ratios were 10.81% and 14.08%; the bank’s were 11.43% and 13.39%. These ratios were lower than at December 2021.
Material changes and notable items
- Q2 net income fell about 23% year over year despite higher net interest income. The provision shifted from a benefit to an expense, and noninterest expense rose 16.7%, led by salaries and employee benefits.
- Growth in real estate lending and taxable securities supported quarterly interest income. PPP and mortgage warehouse loan balances, and related income, declined. For the first half, margin compression reflected lower PPP and warehouse balances and a shift of liquidity into lower-yielding securities; second-quarter fully tax-equivalent margin improved year over year.
- Insurance commission income increased following the December 2021 insurance acquisitions. First-half mortgage banking revenue declined 12.1%, and limited partnership investment income shifted to a loss.
- Unrealized losses on available-for-sale securities were $148.8 before tax at June 30. Accumulated other comprehensive loss reached $116.0 after tax, contributing to the decline in book equity; management said this did not affect regulatory capital and attributed the securities losses to market-rate changes, not credit impairment.
- Origin completed its acquisition of BT Holdings on August 1, 2022, after quarter-end. Consideration was valued at approximately $302.9 based on the July 29 share price, with up to 6.83 million Origin shares to be issued. The banks were to remain separate pending an expected bank merger and data conversion early in Q4; pro forma financial statements were not provided.
- The prior $40 million repurchase authorization expired in June after $28 million of purchases. In July, the board authorized a new program of up to $50 million; it does not require the company to repurchase shares.
Outlook, risks and contingencies
- The filing provides no quantified earnings, margin, growth or credit-loss guidance. Management noted continued uncertainty from inflation, rising interest rates, labor pressures, supply-chain disruptions, geopolitical risks and recession concerns.
- Interest-rate simulations estimated a 5.0% increase in 12-month net interest income for an instantaneous +100 basis-point shock, but a 9.1% decrease for -100 basis points and a 20.3% decrease for -200 basis points. Management disclosed that results were outside policy in most negative-rate scenarios. Model results depend on uncertain assumptions and are not forecasts.
- Management identified commercial real estate, construction and land development, and commercial lending as material credit exposures. It also cited borrower performance, collateral values, deposit retention and funding costs, liquidity, cybersecurity, regulatory requirements, and the LIBOR transition as risks.
- Off-balance-sheet commitments totaled $1,979.7, including $1,928.9 of commitments to extend credit and $50.7 of standby letters of credit. The credit commitments include $520.1 that are unconditionally cancellable. The reserve for lending-related commitments was $2.8.
- Management stated that ordinary-course legal proceedings were not expected to have a material adverse effect on financial position or liquidity. The filing also describes contingent insurance-acquisition consideration subject to revenue-growth objectives.
Key facts for investors to verify
- How rising rates affect deposit pricing, funding costs and NIM, especially given the disclosed downside sensitivity and negative-rate policy exceptions.
- Whether core loan growth and asset quality remain strong as the portfolio expands, and how commercial real estate and construction exposures perform.
- How deposit trends, cash balances and increased FHLB borrowing affect liquidity and funding concentration.
- Whether available-for-sale securities losses, including their effect on book equity, change materially as market rates move or securities are sold.
- The completed BTH acquisition’s final integration costs, share issuance, synergies, and bank-merger and data-conversion progress.
- The timing and extent of any purchases under the new $50 million repurchase authorization, alongside capital needs and dividends.