Origin Bancorp, Inc. annual report, FY2021

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Origin Bancorp, Inc. — 2021 Form 10-K

Business context and reporting period

Annual report for the fiscal year ended December 31, 2021; figures compare full-year 2021 with 2020 unless noted. Origin is a Louisiana-based financial holding company operating Origin Bank and related insurance businesses, with 44 banking centers across Texas, Louisiana and Mississippi. It reported one operating segment: community banking.

Financial performance and condition

  • Profit: Net income was $108.5 million, up from $36.4 million; diluted EPS was $4.60 versus $1.55. Return on average assets was 1.45% versus 0.56%, and return on average equity was 15.79% versus 5.82%.
  • Revenue and margin: Net interest income rose to $216.3 million from $191.5 million. Fully tax-equivalent net interest margin declined to 3.10% from 3.18%. Noninterest income was $62.2 million, down 3.8%, while noninterest expense increased 3.2% to $156.8 million.
  • Credit costs and asset quality: The company recorded a $10.8 million provision benefit, compared with $59.9 million of provision expense in 2020. Net charge-offs were $11.3 million, broadly similar to $11.1 million. Nonperforming assets were $28.5 million, or 0.36% of assets; the allowance for loan credit losses was $64.6 million, or 1.23% of loans held for investment.
  • Balance sheet: Total assets were $7.86 billion, up 3.1%; loans held for investment were $5.23 billion, down 8.6%; deposits were $6.57 billion, up $819.4 million. Excluding PPP and mortgage warehouse loans, loans held for investment increased 9.9% to $4.50 billion.
  • Liquidity and debt: Cash and cash equivalents were $705.6 million, and cash plus liquid securities equaled 23.2% of assets, versus 13.6% a year earlier. Operating cash flow was $171.5 million. FHLB advances and other borrowings fell to $309.8 million from $984.6 million; subordinated indebtedness was $157.4 million. Estimated uninsured deposits were $3.79 billion.
  • Capital and shareholder returns: Stockholders’ equity was $730.2 million. The Bank’s common equity Tier 1 ratio was 11.97%, and it was classified as well capitalized. The company declared dividends of $0.49 per share and repurchased $1.3 million of stock during the year.

Material changes versus 2020

  • Higher earnings primarily reflected lower deposit interest expense and a substantial reduction in credit-loss provision, partly offset by lower loan yields and weaker mortgage banking revenue.
  • Mortgage banking revenue fell 56.3% to $12.9 million, associated with lower loan-sale volume and margins and less favorable fair-value and hedge effects. Insurance commission and fee income increased modestly to $13.1 million.
  • PPP and mortgage warehouse balances declined as PPP loans were forgiven and warehouse activity normalized; meanwhile, real estate lending increased. Total securities rose 45.6% to $1.53 billion as excess liquidity was redeployed.
  • In December, Origin acquired the remaining 62% of Lincoln Agency and acquired Pulley-White. The Lincoln step acquisition generated a $5.2 million remeasurement gain; the transactions added $7.6 million of goodwill and $14.1 million of identifiable intangible assets.

Outlook, commentary, risks and unusual items

  • The filing provides no quantified earnings or revenue guidance. Management said forecasting remained difficult amid COVID-19 uncertainty, inflation and labor pressures, and supply-chain disruptions.
  • Management cited improved economic forecasts as the main reason for the provision benefit, but warned that renewed pandemic effects, inflation, labor constraints and supply-chain disruption could increase future credit costs.
  • Key exposures include commercial real estate and business lending, geographic concentration in Texas, Louisiana and Mississippi, large borrower relationships, cybersecurity and operational risks, and potential deposit or funding pressure. Real estate-backed loans were 59.9% of loans held for investment.
  • At year-end, approximately $1.80 billion of loans were indexed to LIBOR. Origin stopped using LIBOR for new and renewed contracts after December 31, 2021; transition, contract fallback terms and potential effects on loan yields remain risks.
  • Interest-rate simulations estimated net interest income would rise 9.1% under an instantaneous +100 basis-point shock and fall 9.0% under a −100 basis-point shock. The company said it modeled marginally outside policy in most negative-rate scenarios.
  • Unrealized securities losses reduced 2021 other comprehensive income by $19.9 million, lowering accumulated other comprehensive income to $5.7 million. Management attributed available-for-sale securities’ unrealized losses primarily to non-credit market factors.
  • The auditor issued an unqualified opinion on the financial statements and internal controls; the allowance for credit losses was identified as a critical audit matter because it relies on significant estimates and judgment. Management reported effective disclosure controls and internal control over financial reporting.

Important facts for investors to verify

  • How much of the earnings increase is sustainable versus attributable to the provision benefit and the $5.2 million acquisition remeasurement gain.
  • Whether credit quality and reserve adequacy remain sound, particularly for commercial and industrial loans, residential real estate loans and concentrated borrower exposures.
  • How deposit balances, uninsured deposits and liquidity evolve as excess market liquidity changes and lending grows.
  • Progress in replacing LIBOR-linked contracts and the effects of rate changes on net interest income, mortgage servicing rights and securities values.
  • Final acquisition purchase-price allocations, contingent earnout obligations and the contribution of the insurance acquisitions to future results.