Origin Bancorp, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The interim financial statements are unaudited. Origin is a Louisiana-based financial holding company operating primarily through Origin Bank, with 45 banking centers in Texas, Louisiana and Mississippi.
Financial performance and position
| Metric | Q1 2022 / March 31, 2022 | Comparison |
|---|---|---|
| Net interest income | $52.5 million | Down $2.7 million from Q1 2021 |
| Noninterest income | $15.9 million | Down 7.2% from $17.1 million |
| Net income / diluted EPS | $20.7 million / $0.87 | Net income down 18.9%; diluted EPS was $1.08 in Q1 2021 |
| Net interest margin | 2.82%; 2.86% tax-equivalent | Tax-equivalent margin down 36 basis points year over year |
| Total assets | $8.11 billion | Up 3.2% from December 31, 2021 |
| Loans held for investment | $5.19 billion | Down $36.9 million quarter over quarter; excluding PPP and mortgage warehouse loans, up $160.5 million, or 14.5% annualized |
| Total deposits | $6.77 billion | Up $196.5 million; noninterest-bearing deposits were 33.9% of deposits |
| Cash and cash equivalents | $584.4 million | Down $121.2 million from year-end |
| Borrowings | $305.6 million FHLB advances, repurchase obligations and other borrowings; $157.5 million subordinated debt | FHLB borrowing capacity was approximately $1.02 billion |
| Stockholders’ equity | $676.9 million | Down $53.3 million, primarily due to securities-related other comprehensive loss |
Cash flow for the quarter included $15.1 million provided by operations, $330.5 million used in investing and $194.1 million provided by financing. Cash and cash equivalents decreased by $121.2 million.
Material changes and management commentary
- Net interest income declined as average mortgage warehouse and PPP loan balances contracted. Higher real-estate loan balances and taxable securities income partially offset the decline. Average interest-earning asset yield fell to 3.13% from 3.58%; lower funding costs partly cushioned margin pressure.
- Noninterest expense increased 8.5% to $42.8 million, mainly from compensation and professional services. Compensation reflected insurance acquisitions, raises and increased staffing; professional services included $548,000 of merger transaction costs.
- The provision for credit losses was a $327,000 benefit, versus $1.4 million of expense in Q1 2021. Management attributed the release to improved credit metrics, with no material changes to model assumptions based on economic forecasts.
- Available-for-sale securities increased to $1.91 billion from $1.50 billion. Rising market rates contributed to $72.1 million of after-tax securities-related other comprehensive loss for the quarter; management said the unrealized losses were noncredit-related and it did not intend, and was not more likely than not required, to sell the securities before recovery.
Credit, liquidity, capital and risks
- Nonperforming loans held for investment were $21.2 million, or 0.41% of such loans, versus $24.9 million and 0.48% at year-end. The allowance for loan credit losses was $62.2 million, 1.20% of loans and 293.53% of nonperforming loans. Quarterly net charge-offs were $1.8 million.
- Cash and liquid securities equaled 23.0% of total assets. The Bank had additional FHLB borrowing capacity and no outstanding borrowings on its federal funds lines or Federal Reserve discount-window line at quarter-end.
- The Bank remained “well capitalized.” Its common equity Tier 1, total capital and leverage ratios were 11.91%, 13.95% and 9.26%, respectively. The company reported it met applicable capital requirements.
- Interest-rate sensitivity modeling showed estimated 12-month net interest income up 8.1% under a +100-basis-point shock and down 9.0% under a -100-basis-point shock. Management reported that it was marginally outside policy in most negative-rate scenarios; results depend on assumptions and are not forecasts.
- Key risks identified include inflation, higher rates, labor and supply-chain pressures, geopolitical uncertainty, cybersecurity, deposit retention and funding costs, credit quality and commercial real-estate exposure, and interest-rate and liquidity management. Management said legal proceedings were not expected to have a material adverse effect. Off-balance-sheet commitments totaled $1.79 billion, including $503.4 million of unconditionally cancellable commitments.
Merger and outlook
On February 23, 2022, Origin agreed to acquire BT Holdings, Inc. for an announced 6,828,390 Origin shares, valued at approximately $313.5 million using Origin’s February 23 closing price. The exchange consideration may be reduced if BTH’s adjusted tangible equity at closing is below the agreement threshold. Closing was expected in the second half of 2022, subject to regulatory and shareholder approvals and other conditions. The filing provides no specific earnings or revenue guidance. Management highlighted ongoing economic and market uncertainty; actual results may differ materially from forward-looking statements.
Most important facts for investors to verify
- Merger status, approvals, final exchange consideration and the effect of share issuance on per-share results.
- Deposit retention and repricing, loan growth and mix, and whether net interest margin stabilizes as rates change.
- Changes in available-for-sale securities’ unrealized losses, liquidity and regulatory capital under further rate moves.
- Credit trends and allowance adequacy, particularly in commercial real estate, construction and commercial lending.
- Whether merger-related costs, acquisition contributions and continuing expense growth affect profitability.