Origin Bancorp, Inc. — 2019 Form 10-K
Business context and period. Annual report for the fiscal year ended December 31, 2019, filed February 28, 2020. Origin is a Louisiana-based financial holding company operating primarily through Origin Bank, a community bank serving Texas, Louisiana and Mississippi through 43 banking centers.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Total assets, year-end | $5.32 billion | $4.82 billion |
| Loans held for investment, year-end | $4.14 billion | $3.79 billion |
| Total deposits, year-end | $4.23 billion | $3.78 billion |
| Net interest income | $173.7 million | $153.5 million |
| Provision for credit losses | $9.6 million | $1.0 million |
| Noninterest income | $46.5 million | $41.2 million |
| Noninterest expense | $144.1 million | $131.2 million |
| Net income | $53.9 million | $51.6 million |
| Diluted earnings per share | $2.28 | $2.20 |
- Net income increased 4.4%; net interest income rose 13.2%, primarily from loan growth, while the credit-loss provision increased substantially.
- Fully tax-equivalent net interest margin was 3.69%, down from 3.75%; the efficiency ratio improved to 65.43% from 67.41%.
- Net cash provided by operating activities was $61.6 million; investing activities used $291.2 million and financing activities provided $404.5 million. Year-end cash and cash equivalents were $291.5 million, versus $116.7 million.
- Year-end stockholders’ equity was $599.3 million. Origin Bank was classified as well capitalized; its common equity Tier 1 ratio was 11.55% and total capital ratio was 12.38%.
- Year-end FHLB advances and other borrowings were $417.2 million; junior subordinated debentures were $9.7 million. The Bank also had $855.1 million of Federal Reserve discount-window borrowing capacity, with no balance outstanding.
- Core deposits were 88.8% of deposits; noninterest-bearing deposits were 25.5%. The average cost of total deposits was 1.12%, compared with 0.81% in 2018.
- Nonperforming assets were $36.8 million, or 0.69% of assets, versus $36.3 million, or 0.75%, in 2018. Net charge-offs rose to $5.9 million from $4.5 million; the allowance was $37.5 million, or 0.91% of loans held for investment.
Fourth-quarter results
For Q4 2019, net interest income was $44.1 million, provision for credit losses $2.4 million, net income $12.8 million and diluted EPS $0.55. Q4 2018 net income was $13.2 million and diluted EPS was $0.55. Quarterly figures are unaudited.
Changes, outlook and risks
- Loans grew 9.3% year over year, led by construction/land development and commercial and industrial lending. Deposits grew 11.8%; brokered deposits declined 54.1% as the Company emphasized relationship-based funding.
- Noninterest income growth reflected higher mortgage banking, insurance and swap fee income. Expenses rose 9.8%, led by compensation, new banking centers and loan-related costs. Two bankruptcy-related loan workouts contributed to increased legal expenses.
- The 2019 provision increase reflected portfolio growth and credit costs; commercial and industrial loan charge-offs were $8.2 million, partly offset by recoveries. Management said the overall credit profile had stabilized, but this remains a key area to monitor.
- The Company reported an asset-sensitive balance sheet. Its model estimated net interest income would change +6.7% with a 100-basis-point rate increase and -11.0% with a 100-basis-point decrease; management disclosed that certain modeled rate scenarios were outside internal policy limits.
- CECL took effect January 1, 2020. The estimated transition adjustment was a $760,000 after-tax reduction to retained earnings, increasing the credit-loss allowance by about $1.3 million and reducing the off-balance-sheet reserve by $382,000.
- After year-end, the Bank issued $70 million of 4.25% fixed-to-floating subordinated notes, intended to qualify as Tier 2 capital. No quantified earnings or growth guidance was provided.
- Principal disclosed risks include credit and real-estate concentration, regional economic exposure, interest-rate changes, deposit competition and funding costs, LIBOR transition (about $1.42 billion of LIBOR-indexed loans), cybersecurity, regulatory requirements and natural disasters. The filing also identified the emerging coronavirus outbreak as a potential economic and operational risk.
- Management did not expect ordinary-course legal proceedings to materially affect consolidated financial position or results. The auditor issued unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.
Most important facts for investors to verify
- Whether the higher 2019 provision and commercial and industrial charge-offs signal further deterioration; review subsequent credit trends, criticized loans and collateral values.
- How the loan portfolio’s growth and real-estate exposure affect loss reserves, particularly after CECL adoption.
- Whether the deposit mix can be sustained while controlling funding costs, and how the Bank uses its borrowing capacity and new subordinated-note proceeds.
- Whether actual results under changing rates align with the disclosed asset-sensitivity model and its policy-limit exceptions.
- Progress on replacing LIBOR references in loans, derivatives and debt, including contract fallback provisions and potential transition costs.
- Execution and cost effects of growth initiatives, including new branches, banker recruitment and insurance and mortgage businesses.