Origin Bancorp, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; financial statements are unaudited. Origin is a Louisiana-based community bank holding company operating through Origin Bank, with 60 banking centers across parts of Texas, Louisiana and Mississippi. Comparisons below are with Q1 2022 for operating results and December 31, 2022 for balance-sheet figures.
Key financial metrics
| Metric | Q1 2023 / March 31, 2023 | Comparison |
|---|---|---|
| Net interest income | $77.1 million | Up 46.9% from $52.5 million |
| Net interest margin | 3.41%; fully tax-equivalent 3.44% | FTE margin was 2.86% in Q1 2022 |
| Net income | $24.3 million | Up 17.5% from $20.7 million |
| Diluted earnings per share | $0.79 | $0.87 in Q1 2022 |
| Total assets | $10.36 billion | Up 6.9% from year-end 2022 |
| Loans held for investment | $7.38 billion | Up $285.8 million, or 4.0%, from year-end |
| Total deposits | $8.17 billion | Up $398.6 million, or 5.1%, from year-end |
| Cash and cash equivalents | $825.1 million | Up from $359.0 million at year-end |
| Borrowings and subordinated debt | $875.5 million and $201.8 million, respectively | Borrowings were $639.2 million at year-end |
| Stockholders’ equity | $992.6 million | Book value per share was $32.25, up 4.4% from year-end |
Interest and dividend income was $120.1 million, versus $58.3 million in Q1 2022; interest expense rose to $43.0 million from $5.8 million. The credit-loss provision was $6.2 million, compared with a $0.3 million benefit a year earlier. Operating cash flow was $27.6 million; investing cash flow was negative $216.6 million and financing cash flow was positive $655.2 million. Cash and cash equivalents increased by $466.1 million during the quarter.
Material changes and operating trends
- Net interest income increased $24.6 million year over year, reflecting higher asset yields and loan growth, partly offset by sharply higher funding costs. FTE net interest margin rose year over year but management reported margin pressure as liability costs rose faster than asset yields during the quarter.
- Interest-bearing deposit costs averaged 2.49%, versus 0.26% a year earlier; the average rate on total deposits was 1.75%, versus 0.17%. The filing states deposit pricing had not yet fully absorbed market-rate increases.
- Noninterest income was $16.4 million, up 3.0%. Mortgage banking revenue fell 56.5% to $1.8 million, attributed primarily to lower loan origination and sale volumes and lower sales margins.
- Noninterest expense increased 32.7% to $56.8 million, primarily reflecting the August 2022 BTH merger, higher staffing and occupancy costs, and amortization of the acquired core deposit intangible. Q1 2023 merger-related expense was zero, compared with $0.6 million in Q1 2022.
- Loan growth was concentrated in real estate: total real estate loans rose $194.7 million from year-end. Commercial real estate was 32.3% of loans held for investment, construction/land development 12.9%, and commercial and industrial 28.4%; mortgage warehouse lines were an additional 4.6%.
- Nonperforming loans held for investment rose to $17.1 million from $9.9 million at year-end; the ratio to loans increased to 0.23% from 0.14%. Allowance coverage of nonperforming loans was 538.75%, down from 876.87%. Net charge-offs were $1.3 million, or 0.07% of average loans on an annualized basis.
- Available-for-sale securities totaled $1.59 billion, with gross unrealized losses of $177.1 million at quarter-end. Accumulated other comprehensive loss improved to $138.5 million from $159.9 million at year-end, primarily reflecting a quarterly after-tax gain on securities.
Liquidity, capital and management commentary
In response to banking-industry volatility and liquidity concerns, Origin said it proactively contacted clients and increased contingency funding. It borrowed approximately $700 million and held excess cash for most of March; this liquidity carried a weighted-average rate of 5.03%, added $1.9 million to quarterly interest expense and reduced FTE margin by six basis points. Management described liquidity and capital as strong. Cash and liquid securities were 14.3% of assets, versus 12.1% at year-end; estimated uninsured/uncollateralized deposits were $3.09 billion, or 37.8% of deposits, down from $3.43 billion, or 44.1%.
Reported available funding included $1.47 billion of additional FHLB borrowing capacity, $1.76 billion of Federal Reserve discount-window capacity (with $1.52 billion of loans pledged), and $384.8 million of securities eligible for the Bank Term Funding Program. Total primary and secondary liquidity sources were $4.99 billion. The Bank exceeded regulatory “well capitalized” thresholds: its common equity Tier 1 ratio was 11.70% and total capital ratio was 13.61%; the corresponding consolidated ratios were 11.08% and 14.30%.
The filing provides no specific earnings or operating guidance. Management highlighted rising rates, deposit competition and costs, possible recessionary conditions, and borrower stress as risks. Interest-rate sensitivity modeling estimated that a parallel +400 basis-point shock would increase one-year net interest income by 14.0% and reduce fair value of equity by 5.1%; these are model estimates, not forecasts. Management cautioned that actual outcomes may differ.
Risks, contingencies and unusual items
- Management identified recent bank failures and reduced confidence in regional banks as a material risk, potentially increasing deposit competition, funding costs, liquidity pressure and regulatory scrutiny. A required securities sale could crystallize losses; any capital raise could be on unfavorable terms. The impact of a potential special FDIC assessment was not yet known and was expected to weigh on results.
- The loan portfolio has material commercial real estate, construction and commercial lending exposure. Nonperforming loans increased, including six loan relationships, five acquired through BTH, identified as the primary cause of the quarterly increase.
- The $1.59 billion available-for-sale securities portfolio had $177.1 million of gross unrealized losses. Management attributed losses to noncredit factors, stated it did not intend to sell the securities, and expected recovery as securities approach maturity or if market yields decline.
- The completed sale of the GNMA mortgage servicing rights portfolio resulted in $1.8 million of MSRs sold and removal of a related $24.6 million repurchase asset and liability; no significant additional gain or loss was recorded.
- Management did not expect legal proceedings, individually or collectively, to have a material adverse effect on consolidated financial position or liquidity. Off-balance-sheet commitments totaled $2.74 billion, including $2.65 billion of commitments to extend credit and $95.1 million of standby letters of credit; these amounts do not necessarily represent future funding needs.
- Disclosure controls were assessed as effective, and management reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether deposit growth and the decline in uninsured/uncollateralized deposits persist, and how brokered and other rate-sensitive funding affect deposit costs and liquidity.
- Whether net interest margin stabilizes as deposit pricing catches up with market rates, and how any continued contingency borrowing affects earnings.
- Trends in nonperforming loans, classified credits, commercial real estate and construction exposure, net charge-offs, and adequacy of the allowance for credit losses.
- The potential effect of embedded securities losses, any need to sell securities, and the timing or amount of any FDIC special assessment.
- Post-BTH expense levels, loan growth and credit performance, as well as the sustainability of earnings per share given higher net income but lower reported EPS year over year.