Origin Bancorp Q2 Earnings Call Highlights

Key Points

• Origin Bancorp delivered its strongest quarterly earnings since late 2021, with diluted EPS of $1.09 and net income of $33.8 million. Management said its “Optimize Origin” initiative is driving better profitability, disciplined growth and improved client acquisition.
• Loan and deposit trends remained solid, led by Texas and Southeast markets. Loans grew 2.7% sequentially, noninterest-bearing deposits rose to 26% of total deposits, and management said deposit account openings surged as the bank won more primary relationships.
• Margins, credit quality and capital returns all improved. Net interest margin expanded to 3.92%, credit metrics reached five-quarter highs for quality, and Origin continued buybacks and dividend growth while raising its share repurchase authorization.

Origin Bancorp NYSE: OBK reported stronger second-quarter earnings as management said its “Optimize Origin” initiative is translating into improved profitability, disciplined growth and stronger client acquisition across its footprint.

The company reported diluted earnings per share of $1.09 and net income of $33.8 million for the second quarter. Chief Financial Officer Wally Wallace said the result represented Origin’s strongest quarterly earnings performance since the fourth quarter of 2021. Return on average assets was 1.35%, above the company’s near-term run-rate objective of 1.15%, while pre-tax, pre-provision return on average assets was 1.73%.

Chairman, President and Chief Executive Officer Drake Mills said the quarter reflected progress from work begun about 18 months ago under Optimize Origin, which he described as a strategy focused on stronger financial performance, capital allocation, technology investment, talent recruitment and client service.

“What encourages me most is the consistency of our performance,” Mills said. “Optimize Origin has become the way we operate.”

Loan Growth Led by Texas and Southeast Markets

President and CEO of Origin Bank Lance Hall said the company continued to benefit from what management described as disruption across its markets, particularly in banker and client acquisition. Since April 1, Origin added 12 experienced bankers, following 15 additions in the first quarter. The company also expanded into Birmingham, Alabama, with a local team of experienced bankers and added production talent in North Texas, Houston, East Texas and Mississippi.

Hall said year-to-date growth included $196 million in commercial and industrial and owner-occupied commercial real estate loans, $167 million in other commercial real estate categories and $61 million in mortgage warehouse lending. Through the first half of the year, Texas and Southeast markets generated $323 million of loan growth, including about $250 million from Texas on approximately $860 million of new loan production.

Wallace said total loans grew 2.7% sequentially in the quarter and 1.9% excluding mortgage warehouse loans. Management said it continues to target loan and deposit growth in the mid- to high-single-digit range for the year, while tracking toward the higher end of that range.

During the question-and-answer session, Hall said the primary drivers of loan growth were Texas and the Southeast, though all markets contributed. He said more than 50% of year-to-date loan growth has come from C&I lending, and that the company’s average loan size remains about $590,000. Hall said new loans in the most recent month were coming in at about 6.4%.

Hall also said the company is seeing pricing and term pressure from competitors, including more frequent offers of non-recourse structures, but said Origin intends to remain conservative in its credit approach.

Deposit Mix Improves as Noninterest-Bearing Balances Rise

Origin’s total deposits declined 0.6% during the quarter, which Wallace said was consistent with seasonal trends. However, noninterest-bearing deposits increased 9.6% sequentially and 5.2% on an average basis, ending the quarter at 26% of total deposits, or 25% on an average basis.

Hall said noninterest-bearing deposit growth was evidence that Origin’s bankers are winning primary banking relationships. Deposit account openings increased more than 36% year over year in the first half of the year, and June account openings were up 82% year over year. In response to an analyst question, Hall said the company opened more than 1,800 new deposit accounts in June, compared with just under 1,000 a year earlier.

Hall attributed the growth to a combination of lift-outs, market disruption and dissatisfaction among clients of some competitors. He said new deposit costs were about 2.7%.

Margin Expands, Net Interest Income Outlook Raised

Wallace said net interest margin expanded 21 basis points during the quarter to 3.92%, exceeding the company’s expectations. Net interest income rose 5.7% sequentially to $92.2 million, despite a 1% decline in average earning assets. The margin improvement was driven by stronger loan yields, slightly lower deposit costs and the runoff of excess liquidity tied to normal seasonality.

Wallace said Origin removed any Federal Reserve rate actions from its forecast for the remainder of the year and expects margin to remain relatively flat. Combined with balance sheet growth expectations, the company now anticipates net interest income growth in the high-single digits for both the full year and fourth-quarter-over-fourth-quarter basis.

In response to a question from Raymond James analyst Michael Rose, Wallace said the quarter included about three basis points of benefit from interest reversals or recoveries on nonaccrual loans. He also noted that approximately $250 million of fixed-rate loans are expected to reprice or pay off in the back half of the year, with the company picking up about 160 to 170 basis points based on current pricing.

Credit Metrics Improve

Chief Risk Officer Jim Crotwell said Origin experienced “sound and improving credit metrics” during the quarter. Total past dues 30 to 89 days and accruing declined to 0.06%, the lowest level in the past five quarters. Net charge-offs totaled $454,000, benefiting from $2 million in recoveries, and annualized net charge-offs were 0.02% for the quarter and 0.08% year to date.

Nonperforming assets declined $9 million to 0.98% of loans, also the lowest level in the past five quarters. Classified assets decreased to 1.79% from 1.97% in the prior quarter. Origin’s allowance for credit losses declined $827,000 to $98.2 million, or 1.30% of total loans net of mortgage warehouse, down from 1.34%.

Crotwell said the company continues to have capacity to grow acquisition, development and construction, and commercial real estate lending, with ADC loans at 51% of total risk-based capital and CRE at 237%.

Capital Return and Outlook

Wallace said tangible book value increased sequentially to $36.37, marking the 15th consecutive quarter of growth. The tangible common equity ratio ended the quarter at 11.1%. Origin repurchased 217,034 shares during the quarter at an average price of $46.60, and its board increased the share repurchase authorization by $100 million, leaving $121.6 million remaining.

The company also continued returning capital through its recently increased quarterly dividend. Wallace said Origin’s balance sheet, earnings profile and capital position give it flexibility to invest in growth and return capital to shareholders.

Management also addressed the company’s crossing of the $10 billion asset threshold. Hall said Origin has “completely crossed it” and that the Durbin Amendment impact is expected to begin mid-year next year, with an estimated effect of $4 million to $4.5 million. He said the company is working to offset that impact and has most of the related cost behind it.

Mills said Origin remains focused on becoming a top-quartile performer over the next three years, while continuing to invest in talent, technology, automation and artificial intelligence. He said the company will pursue growth opportunities but not at the expense of the return targets it is attempting to achieve.

“The results we’re discussing today aren’t the destination,” Mills said. “It’s evidence that the transformation is working.”

About Origin Bancorp (NYSE:OBK)

Origin Bancorp, Inc NYSE: OBK is a bank holding company based in Atlanta, Georgia, and is the parent of Origin Bank, a full-service commercial banking franchise. The company provides a broad range of financial products and services to individuals, small and middle-market businesses, and institutional clients across the southeastern United States.

Through Origin Bank, the company offers a variety of deposit products, including checking and savings accounts, money market accounts, and certificates of deposit.

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