Origin Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2018. Origin Bancorp is a Louisiana-based financial holding company operating primarily as a community bank through 41 banking centers in Louisiana, Texas and Mississippi.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Net interest income | $39.5 million | $33.9 million | $111.4 million | $96.1 million |
| Provision (benefit) for credit losses | $0.5 million | $3.3 million | $(0.7) million | $8.1 million |
| Noninterest income | $10.2 million | $5.0 million | $30.7 million | $20.5 million |
| Noninterest expense | $34.3 million | $40.4 million | $96.2 million | $98.9 million |
| Net income (loss) | $12.3 million | $(2.2) million | $38.4 million | $8.9 million |
| Diluted EPS | $0.52 | $(0.17) | $1.64 | $0.27 |
- Q3 net interest margin was 3.70% (3.76% tax-equivalent), up 17 basis points year over year. Nine-month margin was 3.67% (3.73% tax-equivalent), up 28 basis points.
- Q3 loan yield was 5.00%, versus 4.48% a year earlier; the average rate paid on interest-bearing deposits rose to 1.16% from 0.77%.
- Q3 noninterest income benefited from no repeat of the prior-year $5.4 million energy-loan sale impairment and from higher insurance commissions. Mortgage banking revenue declined 32.7% year over year.
- Noninterest expense fell year over year largely because Q3 2017 included a $10.0 million ResCap litigation settlement. Excluding that charge, expense increased, including higher personnel, marketing and electronic banking costs.
Financial position, cash flow and capital
- At September 30, 2018, total assets were $4.67 billion, loans held for investment were $3.60 billion, deposits were $3.73 billion, and stockholders’ equity was $531.9 million. Compared with December 31, 2017, assets increased 12.4%, loans 11.1%, deposits 6.1%, and equity 26.5%.
- Cash and cash equivalents were $140.4 million, down from $187.2 million at year-end 2017. Management reported cash and liquid securities at 7.7% of assets, versus 5.7% at year-end.
- For the first nine months, operating cash flow was $64.1 million, investing cash use was $584.6 million, and financing cash flow was $473.8 million. Investing outflows included loan growth and securities purchases; financing inflows included deposit growth, borrowings and IPO proceeds.
- FHLB advances and other borrowings totaled $358.5 million, up from $144.4 million at year-end. This included a $250 million FHLB advance obtained in Q3, with a final maturity in 2033 and quarterly call rights beginning in Q3 2019.
- The bank remained “well capitalized.” At September 30, the bank’s CET1, total risk-based capital and leverage ratios were 11.63%, 12.51% and 10.98%, respectively.
Material changes, outlook and risks
- Loan growth was driven by organic production and lender additions in expansion markets. Loans held for investment were up $372.1 million year over year; the increase from December 31, 2017 was $360.1 million.
- The May 2018 IPO issued 3.05 million company shares and generated approximately $94.7 million in net proceeds. Proceeds helped fund the $49.1 million redemption of Series SBLF preferred stock; all Series D preferred shares were converted to common stock in Q2.
- Origin acquired Louisiana insurance agency Reeves, Coon & Funderburg on July 1, 2018, for $9.5 million in cash and stock. The acquisition added $4.5 million of goodwill and $4.9 million of identifiable intangible assets.
- Credit indicators were mixed: the allowance for loan losses was $35.7 million, or 0.99% of loans held for investment, down from 1.05% at year-end. Nonperforming loans held for investment increased to $26.6 million from $23.8 million; management attributed much of the increase to a $7.5 million healthcare-facility loan placed on nonaccrual after lower-than-expected occupancy. Total nonperforming assets were $31.3 million, or 0.67% of assets.
- Management gave no specific earnings or revenue guidance. It cited growth initiatives and improving credit quality, while noting exposure to economic conditions, borrower and collateral performance, deposit retention, competition, interest rates and regulatory requirements. Management stated that ordinary-course legal contingencies were not expected to materially affect financial position or liquidity.
- Interest-rate simulation estimated that a 200-basis-point rate increase would raise one-year net interest income 13.4%, while a 200-basis-point decline would reduce it 17.5%; modeled results depend on uncertain assumptions. Adoption of the expected-credit-loss standard was anticipated to change credit-loss estimation materially, but the amount of any transition adjustment was not yet determinable. Lease adoption was preliminarily expected to add $19–$21 million of right-of-use assets and lease liabilities.
Important facts for investors to verify
- Whether credit quality and allowance levels remain adequate as loan balances grow, particularly given higher nonperforming loans and commercial real estate exposure.
- How the $250 million FHLB borrowing, deposit pricing and rising funding costs affect net interest margin and liquidity.
- Whether mortgage banking revenue stabilizes and whether the RCF acquisition delivers expected contribution relative to added expenses and intangible amortization.
- The assumptions behind interest-rate sensitivity estimates and the eventual impact and transition adjustment from the expected-credit-loss standard.
- The effects of IPO-related share issuance and preferred-stock redemption on per-share earnings, capital and future distributions.