Origin Bancorp, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are with December 31, 2020. Origin Bancorp is a Louisiana-based financial holding company operating through Origin Bank, with 44 banking centers in Texas, Louisiana and Mississippi. Its principal business is community banking.
Financial performance and condition
- Profitability: Net income was $25.5 million, or $1.08 diluted EPS, compared with $753,000, or $0.03 diluted EPS, in Q1 2020. Pre-tax, pre-provision earnings, a non-GAAP measure, were $32.9 million versus $18.9 million.
- Interest income and margin: Net interest income rose to $55.2 million from $42.8 million. Fully tax-equivalent net interest margin declined to 3.22% from 3.44%; interest-earning asset yield fell 79 basis points to 3.58%, while the rate paid on interest-bearing liabilities fell 80 basis points to 0.57%.
- Other revenue and expenses: Noninterest income increased 41.1% to $17.1 million, including higher mortgage banking revenue, limited partnership investment income and securities-sale gains. Noninterest expense rose 9.3% to $39.4 million, including $1.6 million of FHLB prepayment fees. Income tax expense was $6.0 million, versus a $427,000 benefit in Q1 2020.
- Credit costs: Provision for credit losses was $1.4 million, down from $18.5 million. Net charge-offs increased to $2.9 million from $1.1 million, including $2.8 million of write-downs on six commercial and industrial loans. The loan allowance was $85.1 million, or 1.46% of loans held for investment, versus $86.7 million, or 1.51%, at year-end.
- Loans and asset quality: Loans held for investment rose 2.2% to $5.85 billion; excluding PPP loans, growth was 1.7%. PPP loans outstanding were $584.1 million. Nonperforming loans held for investment rose to $33.4 million from $26.1 million, and nonperforming assets rose to $38.2 million from $28.8 million.
- Deposits, borrowings and liquidity: Deposits increased 10.3% to $6.35 billion. FHLB advances and other borrowings declined to $325.8 million from $984.6 million, chiefly as deposit growth funded repayment of short-term advances. Cash and cash equivalents were $264.9 million, down from $377.2 million. Management reported $3.69 billion of contingent liquidity sources and $1.05 billion of additional FHLB borrowing availability.
- Capital: Origin Bancorp’s common equity Tier 1 ratio was 10.17% and total capital ratio was 13.92%; Origin Bank’s respective ratios were 10.74% and 13.08%. The Bank exceeded applicable “well capitalized” thresholds. Stockholders’ equity was $656.4 million.
- Cash flow: Operating activities provided $71.1 million; investing activities used $109.2 million and financing activities used $74.2 million. Cash and cash equivalents declined by $112.3 million during the quarter.
Material changes and notable items
- Compared with Q1 2020, earnings improved substantially as provision expense fell and net interest income and noninterest income increased. Management attributed lower provision expense primarily to improved economic forecasts relative to the early-pandemic outlook a year earlier.
- Growth in mortgage warehouse and PPP lending supported interest income, while lower market rates reduced yields on other loans and compressed margin. Management said PPP fee accretion contributed to improved 2021 quarterly results.
- The company sold lower-yielding securities and used proceeds to prepay higher-cost FHLB advances. Securities-sale gains were $1.7 million; related advance prepayment fees were $1.6 million. Available-for-sale securities’ unrealized losses reduced other comprehensive income by $13.8 million, after tax.
- COVID-19-related forbearance covered 24 loans totaling $5.3 million at quarter-end, down from 49 loans totaling $97.7 million at year-end. Exposure to identified higher-impact sectors—including hotels, non-essential retail, restaurants and assisted living—was $510.5 million, excluding PPP loans.
Outlook, risks and contingencies
- No specific earnings or financial guidance was provided. Management expected mortgage refinance activity to decline from historically high 2020 levels, potentially reducing mortgage banking revenue, and anticipated mortgage warehouse balances could decline over the next year.
- Management cautioned that low interest rates could continue to pressure margins as assets mature or reprice. Its interest-rate model showed estimated 12-month net interest income declines of 9.4% for a 100-basis-point rate decrease and 16.8% for a 200-basis-point decrease; both scenarios were outside internal policy limits.
- COVID-19’s duration and economic effects remained uncertain. Management noted potential for renewed restrictions and future deterioration in credit quality, particularly in affected sectors. It said further changes to economic forecasts could increase the allowance for credit losses.
- Other stated risks include borrower and collateral performance, commercial real estate and commercial lending concentrations, deposit and liquidity risks, cybersecurity and operational events, inflation, competition, regulation and the transition away from LIBOR.
- Commitments to extend credit totaled $1.39 billion and standby letters of credit totaled $49.0 million. Management did not expect ordinary-course legal proceedings to have a material adverse effect on financial position or liquidity.
Important facts for investors to verify
- Whether the increase in nonperforming loans—especially commercial and industrial and residential real estate loans—signals broader credit deterioration, and how charge-offs compare with future provisions.
- How quickly PPP balances and fees run off, and whether core loan growth offsets their decline and any reduction in mortgage warehouse activity.
- Whether deposit growth is sustainable and how deposit mix, brokered funding and borrowing costs affect liquidity and net interest margin.
- Whether mortgage banking revenue and limited partnership investment income remain resilient as refinancing activity and investment valuations change.
- The sensitivity of earnings and capital to rate declines, credit stress and further valuation changes in available-for-sale securities.