ORIGIN BANCORP, INC. Unless the context indicates otherwise, references in this report to "we," "us," "our," "our company," "the Company" or "Origin" refer toOrigin Bancorp, Inc. , aLouisiana corporation, and its consolidated subsidiaries. All references to "Origin Bank " or "the Bank" refer toOrigin Bank , our wholly-owned bank subsidiary. The following discussion and analysis presents our financial condition and results of operations on a consolidated basis. However, we conduct all of our material business operations through our wholly-owned bank subsidiary,Origin Bank , and the discussion and analysis that follows primarily relates to activities conducted at the Bank level. The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related condensed notes contained in Item 1 of this report. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management's expectations. Factors that could cause such differences are discussed in the sections titled "Cautionary Note Regarding Forward-Looking Statements" and "Item 1A. Risk Factors" and in the section titled "Risk Factors" in our 2021 Form 10-K. We assume no obligation to update any of these forward-looking statements.
General
We are a financial holding company headquartered inRuston, Louisiana . Origin's wholly-owned bank subsidiary,Origin Bank , was founded in 1912. Deeply rooted in Origin's history is a culture committed to providing personalized, relationship banking to its clients and communities. Origin provides a broad range of financial services to businesses, municipalities, high net-worth individuals and retail clients. Origin currently operates 45 banking centers located fromDallas/Fort Worth andHouston, Texas , acrossNorth Louisiana and intoMississippi . As a financial holding company operating through one segment, we generate the majority of our revenue from interest earned on loans and investments, service charges and fees on deposit accounts. We incur interest expense on deposits and other borrowed funds and noninterest expense, such as salaries and employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest-earning assets and minimize expense of our liabilities through our net interest margin. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Net interest income is the difference between interest income on interest-earning assets, such as loans, securities and interest-bearing cash, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities. Changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as in the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and stockholders' equity, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. 2022 First Quarter Highlights •Total loans held for investment ("LHFI") were$5.19 billion atMarch 31, 2022 , a decrease of$36.9 million compared toDecember 31, 2021 . Excluding Paycheck Protection Program ("PPP") loans and mortgage warehouse lines of credit, LFHI were$4.66 billion , reflecting a$160.5 million or 14.5% annualized increase, compared toDecember 31, 2021 . •Total deposits grew$196.5 million , or 12.1% annualized, to$6.77 billion atMarch 31, 2022 , compared to$6.57 billion atDecember 31, 2021 . Noninterest-bearing deposits grew$132.2 million , or 24.8% annualized, compared toDecember 31, 2021 , and represented 33.9% of total deposits atMarch 31, 2022 . •Average balances of total securities for the quarter endedMarch 31, 2022 , were$1.66 billion , reflecting a$157.1 million , or 10.4%, increase compared to the quarter endedDecember 31, 2021 . Total securities were$1.92 billion atMarch 31, 2022 , compared to$1.53 billion atDecember 31, 2021 . •Provision for credit losses was a net benefit of$327,000 for the quarter endedMarch 31, 2022 , compared to a provision expense of$1.4 million for the quarter endedMarch 31, 2021 . 45
-------------------------------------------------------------------------------- Table of Contents •Total nonperforming LHFI to total LHFI was 0.41% atMarch 31, 2022 , compared to 0.48% atDecember 31, 2021 , reflecting the lowest total nonperforming LHFI to total LHFI ratio for Origin as a public company. The allowance for loan credit losses to nonperforming LHFI was 293.53% atMarch 31, 2022 , compared to 259.35% and 255.22% atDecember 31, 2021 , andMarch 31, 2021 , respectively. •OnFebruary 23, 2022 , the Company entered into an agreement and plan of merger withBT Holdings, Inc. , ("BTH"), pursuant to which, upon the terms and subject to the conditions set forth in the merger agreement, BTH will merge with and into the Company, withOrigin Bancorp, Inc. as the surviving entity in the merger. Subject to various terms and conditions, the merger is expected to close during the second half of 2022.
Comparison of Results of Operations for the Three Months Ended
Net Interest Income and Net Interest Margin
Net interest income for the three months endedMarch 31, 2022 , was$52.5 million , a decrease of$2.7 million compared to the three months endedMarch 31, 2021 . The decrease was primarily due to a$4.8 million decrease in interest earned on mortgage warehouse lines of credit and a$3.7 million decrease in interest income and fees earned on PPP loans, partially offset by a$2.9 million and a$1.5 million increase in interest income earned on total real estate-based loans and total investment securities, respectively. The decreases in interest income earned on mortgage warehouse lines of credit and PPP loans were caused primarily by decreases in average loan balances of$538.0 million and$495.2 million , respectively, as the continued normalization and higher interest rates had a negative impact on mortgage warehouse lines of credit and the outstanding balances of PPP loans continued to be forgiven by theSmall Business Administration ("SBA"). The$2.9 million increase in interest income earned on total real estate loans was primarily driven by a$339.1 million increase in average real estate loan balances, partially offset by a decline in yield to 4.04% during the three months endedMarch 31, 2022 , from 4.11% during the three months endedMarch 31, 2021 . The$1.5 million increase in interest income earned on total investment securities was primarily due to a$657.3 million increase in the average balances of investments in taxable securities during the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 . A$2.9 million increase in interest income earned on taxable investment securities was driven by an increase in the average balance of investments in taxable securities, which was offset by a$1.1 million decrease due to a decline in the average yield earned on these securities. The average yield earned on investments in taxable securities was 1.47% for the current period, down from 1.78% for the three months endedMarch 31, 2021 . The primary driver of the increase in average balance of investment securities was higher liquidity due to a decline in PPP loan balances and lower mortgage warehouse loan volume driven by higher interest rates. This excess liquidity was the primary cause of the increase in average balances of lower-yielding investment securities and interest-bearing deposits due from banks. Deposit interest expense decreased to$2.9 million during the three months endedMarch 31, 2022 , compared to$3.8 million during the three months endedMarch 31, 2021 , primarily due to a decline in deposit interest rates between the comparable periods. The average rate paid on total interest-bearing deposits decreased to 0.26% for the three months endedMarch 31, 2022 , down from 0.37% for the three months endedMarch 31, 2021 , providing a decrease of$917,000 in interest expense due to rate alone, partially offset by the increase in average balances. The fully tax-equivalent net interest margin was 2.86% for the three months endedMarch 31, 2022 , a 36 basis point decrease from the three months endedMarch 31, 2021 . The yield earned on interest-earning assets for the three months endedMarch 31, 2022 , was 3.13%, a 45 basis point decrease from 3.58% for the three months endedMarch 31, 2021 . This decrease was partially offset by a nine basis point decrease in interest rates paid on total interest-bearing liabilities. The margin compression we experienced since the quarter endedMarch 31, 2021 , was primarily caused by declining short-term interest rates during early to mid-2021. 46
-------------------------------------------------------------------------------- Table of Contents The following table presents average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the three months endedMarch 31, 2022 and 2021. Three Months Ended March 31, 2022 2021 (Dollars in thousands) Average Income/Expense Yield/Rate Average Income/Expense Yield/Rate Assets Balance(1) Balance(1) Commercial real estate$ 1,718,259 $ 17,039 4.02 %$ 1,421,819 $ 14,593 4.16 % Construction/land/land development 565,347 5,869 4.21 541,782 5,465 4.09 Residential real estate 907,320 8,912 3.98 888,208 8,848 4.04 PPP 70,442 2,403 13.83 565,653 6,138 4.40 Commercial and industrial excl. PPP 1,354,794 12,564 3.76 1,255,436 12,223 3.95 Mortgage warehouse lines of credit 423,795 3,897 3.73 961,808 8,707 3.67 Consumer 16,462 235 5.78 17,649 253 5.81 LHFI 5,056,419 50,919 4.08 5,652,355 56,227 4.03 Loans held for sale 32,710 264 3.27 87,177 583 2.71 Loans receivable 5,089,129 51,183 4.08 5,739,532 56,810 4.01 Investment securities-taxable 1,408,109 5,113 1.47 750,801 3,300 1.78 Investment securities-non-taxable 253,875 1,400 2.24 295,000 1,672 2.30 Non-marketable equity securities held in other financial institutions 45,205 215 1.93 60,326 216 1.45 Interest-bearing deposits in banks 746,057 372 0.20 196,616 129 0.27 Total interest-earning assets 7,542,375 58,283 3.13 7,042,275 62,127 3.58 Noninterest-earning assets(2) 502,871 340,220 Total assets$ 8,045,246 $ 7,382,495 Liabilities and Stockholders' Equity Liabilities Interest-bearing liabilities Savings and interest-bearing transaction accounts$ 3,975,395 $ 2,177 0.22 %$ 3,513,281 $ 2,256 0.26 % Time deposits 535,044 709 0.54 656,255 1,533 0.95 Total interest-bearing deposits 4,510,439 2,886 0.26 4,169,536 3,789 0.37 FHLB advances & other borrowings 265,472 1,094 1.67 557,798 1,269 0.92 Subordinated indebtedness 157,455 1,801 4.64 157,221 1,830 4.72 Total interest-bearing liabilities 4,933,366 5,781 0.48 4,884,555 6,888 0.57 Noninterest-bearing liabilities Noninterest-bearing deposits 2,218,092 1,700,523 Other liabilities(2) 171,284 139,554 Total liabilities 7,322,742 6,724,632 Stockholders' Equity 722,504 657,863 Total liabilities and stockholders' equity$ 8,045,246 $ 7,382,495 Net interest spread 2.65 % 3.01 % Net interest income and margin$ 52,502 2.82$ 55,239 3.18 Net interest income and margin - (tax equivalent)(3)$ 53,178 2.86$ 55,988 3.22 ____________________________ (1)Nonaccrual loans are included in their respective loan category for the purpose of calculating the yield earned. All average balances are daily average balances. (2)Includes Government National Mortgage Association ("GNMA") repurchase average balances of$43.8 million ,$59.0 million for the three months endedMarch 31, 2022 and 2021, respectively. The GNMA repurchase asset and liability are recorded as equal offsetting amounts in the consolidated balance sheets, with the asset included in loans held for sale and the liability included in FHLB advances and other borrowings. For more information on the GNMA repurchase option, see Note 6 - Mortgage Banking in the condensed notes to our consolidated financial statements. (3)In order to present pre-tax income and resulting yields on tax-exempt investments comparable to those on taxable investments, a tax-equivalent adjustment has been computed. This adjustment also includes income tax credits received on Qualified School Construction Bonds and income from tax-exempt investments and tax credits were computed using a federal income tax rate of 21%. 47
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Table of Contents
Rate/Volume Analysis
The following tables present the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and those due to changes in interest rates. The change in
interest attributable to rate changes has been determined by applying the change
in rate between periods to average balances outstanding in the earlier period.
The change in interest due to volume has been determined by applying the rate
from the earlier period to the change in average balances outstanding between
periods. For purposes of this table, changes attributable to both rate and
volume that cannot be segregated, including the difference in day count, have
been allocated to rate.
Three
Months Ended
Three Months Ended March 31, 2021
(Dollars in thousands) Increase (Decrease)
Interest-earning assets Due To Change In
Loans: Volume Yield/Rate Total Change
Commercial real estate $ 3,043 $ (597) $ 2,446
Construction/land/land development 238 166 404
Residential real estate 190 (126) 64
PPP (5,373) 1,638 (3,735)
Commercial and industrial excl. PPP 1,382 (1,041) 341
Mortgage warehouse lines of credit (4,871) 61 (4,810)
Consumer (17) (1) (18)
Loans held for sale (364) 45 (319)
Loans receivable (5,772) 145 (5,627)
Investment securities-taxable 2,889 (1,076) 1,813
Investment securities-non-taxable (233) (39) (272)
Non-marketable equity securities held in other financial institutions
(54) 53 (1)
Interest-bearing deposits in banks 360 (117) 243
Total interest-earning assets (2,810) (1,034) (3,844)
Interest-bearing liabilities
Savings and interest-bearing transaction accounts 297 (376) (79)
Time deposits (283) (541) (824)
FHLB advances & other borrowings (665) 490 (175)
Subordinated indebtedness 3 (32) (29)
Total interest-bearing liabilities (648) (459) (1,107)
Net interest income $ (2,162) $ (575) $ (2,737)
Provision for Credit Losses
The provision for credit losses, which includes the provisions for loan losses,
off-balance sheet commitments and security credit losses, is based on
management's assessment of the adequacy of our allowance for credit losses
("ACL") for loans, securities and our reserve for off-balance-sheet lending
commitments. Factors impacting the provision include inherent risk
characteristics in our loan portfolio, the level of nonperforming loans and net
charge-offs, both current and historic, local economic and credit conditions,
the direction of the change in collateral values, reasonable and supportable
forecasts, and the funding probability on unfunded lending commitments. The
provision for credit losses is charged against earnings in order to maintain our
ACL, which reflects management's best estimate of life of loan credit losses
inherent in our loan portfolio at the balance sheet date, and our reserve for
off-balance-sheet lending commitments, which reflects management's best estimate
of losses inherent in our legally binding lending-related commitments. The
allowance is increased by the provision for loan credit losses and decreased by
charge-offs, net of recoveries.
48
-------------------------------------------------------------------------------- Table of Contents We recorded a provision for credit loss benefit of$327,000 for the quarter endedMarch 31, 2022 , a decrease of$1.7 million from provision expense of$1.4 million for the three months endedMarch 31, 2021 . The release of credit loss provision reflects improved credit loss metrics with no material adjustments to model assumptions based upon economic forecasts. As it pertains to economic forecasts, uncertainty remains due to risks related to rising inflation, market interest rate increases, labor pressures, continued global supply-chain disruptions, as well as increased geopolitical risks. Net charge-offs were$1.8 million during the quarter endedMarch 31, 2022 , compared to$2.9 million during the three months endedMarch 31, 2021 , while the allowance for loan credit losses to nonperforming LHFI was 293.53% atMarch 31, 2022 , compared to 255.22% atMarch 31, 2021 . Noninterest Income
Our primary sources of recurring noninterest income are service charges on deposit accounts, mortgage banking revenue, insurance commission and fee income, and other fee income.
The table below presents the various components of and changes in our noninterest income for the periods indicated.
(Dollars in thousands) Three Months Ended March 31, Noninterest income: 2022 2021 $ Change % Change Service charges and fees $ 3,998$ 3,343 $ 655 19.6 % Mortgage banking revenue 4,096 4,577 (481) (10.5) Insurance commission and fee income 6,456 3,771 2,685 71.2 Gains on sales of securities, net - 1,668 (1,668) (100.0) Loss on sales and disposals of other assets, net - (38) 38 100.0 Limited partnership investment (loss) income (363) 1,772 (2,135) (120.5) Swap fee income 139 348 (209) (60.1) Other fee income 598 771 (173) (22.4) Other income 982 919 63 6.9 Total noninterest income$ 15,906 $ 17,131 $ (1,225) (7.2) Noninterest income for the three months endedMarch 31, 2022 , decreased by$1.2 million , or 7.2%, to$15.9 million , compared to$17.1 million for the three months endedMarch 31, 2021 . The decrease was largely driven by a$2.1 million and$1.7 million decrease in limited partnership investment income and gain on sales of securities, net, respectively, which was partially offset by an increase of$2.7 million in insurance commission and fee income.
Limited partnership investment income. The
Gain on sale of securities, net. The$1.7 million decrease in gain on sale of securities, net during the three months endedMarch 31, 2022 , as compared to the three months endedMarch 31, 2021 , was the result of the movement out of positions in lower yielding securities during the 2021 quarter. We used the funds generated from the sale of the securities during the three months endedMarch 31, 2021 , to prepay relatively high-cost FHLB advances. Insurance commission and fee income. The$2.7 million increase in the insurance commission and fee income during the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 , was primarily due to the insurance acquisitions that occurred onDecember 31, 2021 . The acquisition contributed$1.5 million to insurance commissions and fee income during the current quarter. 49
-------------------------------------------------------------------------------- Table of Contents Noninterest Expense
The following table presents the significant components of noninterest expense for the periods indicated:
(Dollars in thousands) Three Months Ended March 31, Noninterest expense: 2022 2021 $ Change % Change Salaries and employee benefits$ 26,488 $ 22,325 $ 4,163 18.6 % Occupancy and equipment, net 4,427 4,339 88 2.0 Data processing 2,486 2,173 313 14.4 Electronic banking 917 961 (44) (4.6) Communications 281 415 (134) (32.3) Advertising and marketing 871 680 191 28.1 Professional services 1,631 973 658 67.6 Regulatory assessments 626 1,170 (544) (46.5) Loan-related expenses 1,305 1,705 (400) (23.5) Office and operations 1,560 1,454 106 7.3 Intangible asset amortization 537 234 303 129.5 Franchise tax expense 770 619 151 24.4 Other expenses 875 2,388 (1,513) (63.4) Total noninterest expense$ 42,774 $ 39,436 $ 3,338 8.5 Noninterest expense for the three months endedMarch 31, 2022 , increased by$3.3 million , or 8.5%, to$42.8 million , compared to the noninterest expense for the three months endedMarch 31, 2021 , primarily due to increases of$4.2 million and$658,000 in salaries and employee benefits expenses and professional services expense, respectively. The increases were partially offset by decreases of$1.5 million and$544,000 in other noninterest expenses and regulatory assessments expense, respectively. Salaries and employee benefits. The$4.2 million increase in salaries and employee benefits expenses was primarily due to the insurance agency acquisitions that occurred onDecember 31, 2021 , which accounted for$1.2 million of the increase. Additionally, bank salaries and benefits were higher due to annual raises and a cost of living adjustment that occurred during the quarter endedMarch 31, 2022 , and an increase in bank full time equivalent employees to 690 atMarch 31, 2022 , from 666 atMarch 31, 2021 . Other expenses. The$1.5 million decrease in other noninterest expense was primarily due to$1.6 million in long-term FHLB advance prepayment penalties during the three months endedMarch 31, 2021 , related to the prepayment of relatively high FHLB advances, with no similar transaction occurring during the current quarter. Professional services. The$658,000 increase in professional service expense was primarily due to$548,000 in transaction costs in the current quarter directly related to the pending merger withBTH Holdings . Regulatory assessments. The$544,000 decrease in regulatory assessments expense was primarily due to a reduction in theFederal Deposit Insurance Corporation ("FDIC") assessment multiplier during the three months endedMarch 31, 2022 .
Income Tax Expense
For the three months endedMarch 31, 2022 , we recognized income tax expense of$5.3 million , compared to$6.0 million for the three months endedMarch 31, 2021 . The effective tax rate for the quarter endedMarch 31, 2022 , was negatively impacted by the transaction costs associated with the BTH merger. The effective tax rate for the three months endedMarch 31, 2022 , was 20.4%, compared to 19.1% for the three months endedMarch 31, 2021 . Our quarterly provision for income taxes has historically been calculated using the estimated annual effective tax rate ("EATR") method, which applies an estimated annual effective tax rate to pre-tax income or loss. However, we recorded our interim income tax provision using the actual effective tax rate as ofJanuary 1, 2020 , and throughout fiscal years 2020 and 2021, as allowed under ASC 740-270, Accounting for Income Taxes - Interim Reporting. As ofJanuary 1, 2022 , we reverted back to using the EATR method for calculating and recording our interim provision for income taxes. 50
-------------------------------------------------------------------------------- Table of Contents Our effective income tax rates have differed from the applicableU.S. statutory rates of 21% atMarch 31, 2022 and 2021, due to the effect of tax-exempt income from securities, low-income housing and qualified school construction bond tax credits, tax-exempt income from life insurance policies and income tax effects associated with stock-based compensation, partially offset by merger-related costs in the current quarter. These tax-exempt items can have a larger than proportional effect on the effective income tax rate as net income decreases. Any increases to the statutory tax rate would increase income taxes in the future.
Comparison of Financial Condition at
General
Total assets increased by$251.0 million , or 3.2%, to$8.11 billion atMarch 31, 2022 , from$7.86 billion atDecember 31, 2021 . The increase was primarily attributable to an increase of$382.6 million in total securities, partially offset by a$121.2 million decrease in cash and cash equivalents for the comparable periods.
Loan Portfolio
Our loan portfolio is our largest category of interest-earning assets and interest income earned on our loan portfolio is our primary source of income. AtMarch 31, 2022 , 81.9% of the loan portfolio held for investment was comprised of commercial and industrial loans, including PPP loans, mortgage warehouse lines of credit, commercial real estate and construction/land/land development loans, which were primarily originated within our market areas ofTexas ,North Louisiana , andMississippi .
The following table presents the ending balance of our loan portfolio held for investment at the dates indicated.
(Dollars in thousands) March 31, 2022 December 31, 2021 2022 vs. 2021 Real estate: Amount Percent Amount Percent $ Change % Change Commercial real estate$ 1,801,382 34.7 %$ 1,693,512 32.4 %$ 107,870 6.4 % Construction/land/land development 593,350 11.4 530,083 10.1 63,267 11.9 Residential real estate 922,054 17.8 909,739 17.4 12,315 1.4 Total real estate 3,316,786 63.9 3,133,334 59.9 183,452 5.9 PPP 32,154 0.6 105,761 2.0 (73,607) (69.6) Commercial and industrial 1,326,443 25.5 1,348,474 25.8 (22,031) (1.6) Mortgage warehouse lines of credit 503,249 9.7 627,078 12.0 (123,829) (19.7) Consumer 15,774 0.3 16,684 0.3 (910) (5.5) Total LHFI$ 5,194,406 100.0 %$ 5,231,331 100.0 %$ (36,925) (0.7) % AtMarch 31, 2022 , total LHFI were$5.19 billion , a decrease of$36.9 million , or 0.7%, compared to$5.23 billion atDecember 31, 2021 . The decrease primarily reflected declines of$123.8 million in mortgage warehouse lines of credit and$73.6 million in PPP loans, primarily due to the increase in market interest rates which drove the decrease in mortgage warehouse lines of credit and PPP loan forgiveness from theSmall Business Administration ("SBA"), respectively. Total LHFI atMarch 31, 2022 , excluding PPP and mortgage warehouse lines of credit, were$4.66 billion , reflecting an increase of$160.5 million , or 14.5% annualized increase, compared toDecember 31, 2021 . Our lending focus is on operating companies, including commercial loans and lines of credit, as well as owner-occupied commercial real estate loans. We currently do not plan to significantly alter the real estate concentrations within our loan portfolio. Under the CARES Act,Congress allocated funds to the PPP, which was designed to provide short-term loans to certain qualifying businesses that retained employees during the COVID-19 pandemic. These loans, totaling$32.2 million with$736,000 in unearned net deferred loan fees for the Company atMarch 31, 2022 , have a maximum maturity of five years, bear a fixed rate of interest at one percent for the entire term, and as ofMarch 31, 2022 , approximately 95.8% of our total PPP loans granted have been forgiven under this program. 51
-------------------------------------------------------------------------------- Table of Contents Loan Portfolio Maturity Analysis
The table below presents the maturity distribution of our LHFI at
March 31, 2022
After One After Five
Year Years
One Year Through Five Through After Fifteen
(Dollars in thousands) or Less Years Fifteen Years Years Total
Real estate:
Commercial real estate $ 251,584 $
1,116,338
146,490 361,762 70,634 14,464 593,350
Residential real estate loans 83,180 354,890 62,344 421,640 922,054 Total real estate 481,254 1,832,990 547,721 454,821 3,316,786 Commercial and industrial loans 451,482 809,064 97,901 150
1,358,597
Mortgage warehouse lines of credit 503,249 - - - 503,249 Consumer loans 4,197 10,385 547 645 15,774 Total LHFI$ 1,440,182 $ 2,652,439 $ 646,169 $ 455,616 $ 5,194,406 Amounts with fixed rates$ 334,897 $
1,505,707
1,105,285 1,146,732 217,532 403,078 2,872,627
Total $ 1,440,182 $ 2,652,439 $ 646,169 $ 455,616 $ 5,194,406
Nonperforming Assets
Nonperforming assets consist of nonperforming loans and property acquired through foreclosures or repossession, as well as bank-owned property not currently in use and listed for sale.
Loans are placed on nonaccrual status when management believes that the
borrower's financial condition, after giving consideration to economic and
business conditions, and collection efforts, is such that collection of interest
is doubtful, or generally when loans are 90 days or more past due. Loans may be
placed on nonaccrual status even if the contractual payments are not past due if
information becomes available that causes substantial doubt about the borrower's
ability to meet the contractual obligations of the loan. When accrual of
interest is discontinued, all unpaid accrued interest is reversed. Past due
status is based on contractual terms of the loan. Interest income on nonaccrual
loans may be recognized to the extent cash payments are received, but payments
received are usually applied to principal. Nonaccrual loans are generally
returned to accrual status when contractual payments are less than 90 days past
due, the customer has made required payments for at least six months, and the
Company reasonably expects to collect all principal and interest. If a loan is
determined by management to be uncollectible, regardless of size, the portion of
the loan determined to be uncollectible is then charged to the allowance for
loan credit losses.
We manage the quality of our lending portfolio in part through a disciplined
underwriting policy and through continual monitoring of loan performance and
borrowers' financial condition. There can be no assurance, however, that our
loan portfolio will not become subject to losses due to declines in economic
conditions or deterioration in the financial condition of our borrowers.
While economic forecasts have improved, uncertainty remains due to risks related
to rising inflation, market interest rate increases, labor pressures, continued
global supply-chain disruptions, as well as increased geopolitical risks.
52
-------------------------------------------------------------------------------- Table of Contents The following table shows our nonperforming loans and nonperforming assets at the dates indicated: (Dollars in thousands) March 31, December 31, Nonperforming LHFI: 2022 2021 Commercial real estate $ 233 $ 512 Construction/land/land development 256 338 Residential real estate 11,609 11,647 Commercial and industrial 8,987 12,306 Consumer 96 100 Total nonperforming LHFI 21,181 24,903 Nonperforming loans held for sale 2,698 1,754 Total nonperforming loans 23,879 26,657 Other real estate owned: Commercial real estate, construction/land/land development 1,280 1,279 Residential real estate 180 180 Total other real estate owned 1,460 1,459 Other repossessed assets owned 243 401 Total repossessed assets owned 1,703 1,860 Total nonperforming assets$ 25,582 $ 28,517 Troubled debt restructuring loans - nonaccrual$ 3,709 $ 4,064 Troubled debt restructuring loans - accruing 3,338 2,763 Total LHFI 5,194,406 5,231,331 Ratio of nonperforming LHFI to total LHFI 0.41 % 0.48 % Ratio of nonperforming assets to total assets 0.32 0.36 AtMarch 31, 2022 , total nonperforming LHFI decreased by$3.7 million , or 14.9%, fromDecember 31, 2021 , primarily due to reductions in all nonperforming LHFI loan categories. Please see Note 4 - Loans to our consolidated financial statements contained in Item 8 of this report for more information on nonperforming loans. 53
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Table of Contents
Potential Problem Loans
From a credit risk standpoint, we classify loans using risk grades which fall into one of five categories: pass, special mention, substandard, doubtful or loss. The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. We review the ratings on loans and adjust them to reflect the degree of risk and loss that is felt to be inherent or expected in each loan. The methodology is structured so that reserve allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss). Loans rated special mention reflect borrowers who exhibit credit weaknesses or downward trends deserving close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the bank's credit position at some future date. While potentially weak, no loss of principal or interest is envisioned, and these borrowers currently do not pose sufficient risk to warrant adverse classification. Loans rated substandard are those borrowers with deteriorating trends and well-defined weaknesses that jeopardize the orderly liquidation of debt. A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any, and where normal repayment from the borrower might be in jeopardy. Loans rated as doubtful have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full questionable, and there is a high probability of loss based on currently existing facts, conditions and values. Loans classified as loss are charged-off, and we have no expectation of the recovery of any payments with respect to loans rated as loss. Information regarding the internal risk ratings of our loans atMarch 31, 2022 , is included in Note 4 - Loans to our consolidated financial statements contained in Item 1 of this report.
Allowance for Loan Credit Losses
The allowance for loan credit losses represents the estimated losses for loans accounted for on an amortized cost basis. Expected losses are calculated using relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company evaluates LHFI on a pool basis with pools of loans characterized by loan type, collateral, industry, internal credit risk rating and FICO score. The Company applied a probability of default, loss given default loss methodology, to the loan pools atMarch 31, 2022 . Historical loss rates for each pool are calculated based on charge-off and recovery data beginning with the second quarter of 2012. These loss rates are adjusted for the effects of certain economic variables forecast over a one-year period, particularly for differences between current period conditions and the conditions existing during the historical loss period. Subsequent to the forecast effects, historical loss rates are used to estimate losses over the estimated remaining lives of the loans. The estimated remaining lives consist of the contractual lives, adjusted for estimated prepayments. Loans that exhibit characteristics different from their pool characteristics are evaluated on an individual basis. Certain of these loans are considered to be collateral dependent, with the borrower experiencing financial difficulty. For these loans, the fair value of collateral practical expedient is elected whereby the allowance is calculated as the amount by which the amortized cost exceeds the fair value of collateral, less costs to sell (if applicable). Those individual loans that are not collateral dependent are evaluated based on a discounted cash flow methodology. The amount of the allowance for loan credit losses is affected by loan charge-offs, which decrease the allowance, recoveries on loans previously charged off, which increase the allowance, as well as the provision for loan credit losses charged to income, which increases the allowance. In determining the provision for loan credit losses, management monitors fluctuations in the allowance resulting from actual charge-offs and recoveries and periodically reviews the size and composition of the loan portfolio in light of current and forecasted economic conditions. If actual losses exceed the amount of the allowance for loan credit losses, it would materially and adversely affect our earnings. As a general rule, when it becomes evident that the full principal and accrued interest of a loan may not be collected, or at 90 days past due, we will reflect that loan as nonperforming. It will remain nonperforming until it performs in a manner that it is reasonable to expect that we will collect principal and accrued interest in full. When the amount or likelihood of a loss on a loan has been confirmed, a charge-off will be taken in the period it is determined. We establish general allocations for each major loan category and credit quality. The general allocation is based, in part, on historical charge-off experience and loss given default methodology, derived from our internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data. We give consideration to trends, changes in loan mix, delinquencies, prior losses, reasonable and supportable forecasts and other related information. 54
-------------------------------------------------------------------------------- Table of Contents In connection with the review of our loan portfolio, we consider risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements we consider include: •for commercial real estate loans, the debt service coverage ratio, operating results of the owner in the case of owner-occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type; •for construction, land and land development loans, the perceived feasibility of the project, including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio; •for residential mortgage loans, the borrower's ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan-to-value ratio, and the age, condition and marketability of the collateral; and •for commercial and industrial loans, the debt service coverage ratio (income from the business in excess of operating expenses compared to loan repayment requirements), the operating results of the commercial, industrial or professional enterprise, the borrower's business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral. Overall credit metrics improved atMarch 31, 2022 , compared toDecember 31, 2021 . The allowance for loan credit losses to nonperforming LHFI increased to 293.53% atMarch 31, 2022 , compared to 259.35% atDecember 31, 2021 . The Company's nonperforming LHFI and quarterly net charge-offs improved to$21.2 million and$7.1 million (annualized), respectively, compared to$24.9 million and$10.7 million (annualized), respectively, atDecember 31, 2021 . 55
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The following table presents an analysis of the allowance for credit losses and
other related data at the periods indicated.
Year Ended
(Dollars in thousands) Three Months Ended March 31, December 31,
Allowance for loan credit losses 2022 2021 2021
Balance at beginning of period $ 64,586 $ 86,670 $ 86,670
Provision for loan credit losses (659) 1,360 (10,798)
Charge-offs:
Commercial real estate 166 28 170
Residential real estate 75 - 78
Commercial and industrial 2,146 2,955 11,923
Consumer 15 44 63
Total charge-offs 2,402 3,027 12,234
Recoveries:
Commercial real estate 2 3 65
Residential real estate 6 9 117
Commercial and industrial 635 108 717
Consumer 5 13 49
Total recoveries 648 133 948
Net charge-offs 1,754 2,894 11,286
Balance at end of period $ 62,173 $ 85,136 $ 64,586
Ratio of allowance for loan credit losses to:
Nonperforming LHFI 293.53 % 255.22 % 259.53 %
LHFI 1.20 1.46 1.23
Net charge-offs as a percentage of:
Provision for loan credit losses N/M 863.00 N/M
Allowance for loan credit losses 11.44 13.79 17.47
Average LHFI 0.14 0.21 0.21
N/M = Not meaningful.
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Securities
Our securities portfolio totaled$1.92 billion atMarch 31, 2022 , representing an increase of$382.6 million , or 24.9%, from$1.53 billion atDecember 31, 2021 . The overall increase in securities reflects a shift in balance sheet composition as liquidity surged primarily due to increases in deposits, and declines in PPP loan balances due to the SBA's forgiveness process, and declines in mortgage warehouse line of credit loan balances driven by the increase in market interest rates. For additional information regarding our securities portfolio, please see Note 3 - Securities in the condensed notes to our consolidated financial statements contained in Part I, Item 1 of this report.
Deposits
Deposits are the primary funding source used to fund our loans, investments and operating needs. We offer a variety of products designed to attract and retain both consumer and commercial deposit customers. These products consist of noninterest and interest-bearing checking accounts, savings deposits, money market accounts and time deposits. Deposits are primarily gathered from individuals, partnerships and corporations in our market areas. We also obtain deposits from local municipalities and state agencies. Increases of$132.2 million and$82.1 million in noninterest-bearing and interest-bearing demand, respectively, drove the increase in total deposits compared toDecember 31, 2021 .
The following table presents our deposit mix at the dates indicated:
March 31, 2022 December 31, 2021
(Dollars in thousands) Balance % of Total Balance % of Total $ Change % Change
Noninterest-bearing demand $ 2,295,682 33.9 % $ 2,163,507 32.9 % $ 132,175 6.1 %
Interest-bearing demand 1,494,201 22.1 1,412,089 21.5 82,112 5.8
Money market 2,191,735 32.4 2,204,109 33.5 (12,374) (0.6)
Time deposits 523,783 7.7 543,128 8.3 (19,345) (3.6)
Savings 261,778 3.9 247,860 3.8 13,918 5.6
Total deposits $ 6,767,179 100.0 % $ 6,570,693 100.0 % $ 196,486 3.0 %
We manage our interest expense on deposits through specific deposit product
pricing that is based on competitive pricing, economic conditions and current
and anticipated funding needs. We may use interest rates as a mechanism to
attract or deter additional deposits based on our anticipated funding needs and
liquidity position. We also consider potential interest rate risk caused by
extended maturities of time deposits when setting the interest rates in periods
of future economic uncertainty.
The following table reflects the classification of our average deposits and the average rate paid on each deposit category for the periods indicated:
Three Months Ended March 31,
2022 2021
Average Interest Average Average Interest Average
(Dollars in thousands) Balance Expense Rate Paid Balance Expense Rate Paid
Interest-bearing demand $ 1,496,041 $ 698 0.19 % $ 1,477,298 $ 731 0.20 %
Money market 2,225,356 1,439 0.26 1,821,093 1,487 0.33
Time deposits 535,044 709 0.54 656,255 1,533 0.95
Savings 253,998 40 0.06 214,890 38 0.07
Total interest-bearing 4,510,439 2,886 0.26 4,169,536 3,789 0.37
Noninterest-bearing demand 2,218,092 1,700,523
Total average deposits $ 6,728,531 $ 2,886 0.17 % $ 5,870,059 $ 3,789 0.26 %
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-------------------------------------------------------------------------------- Table of Contents Our average deposit balance was$6.73 billion for the three months endedMarch 31, 2022 , an increase of$858.5 million , or 14.6%, from$5.87 billion for the three months endedMarch 31, 2021 . The average annualized rate paid on our interest-bearing deposits for the three months endedMarch 31, 2022 , was 0.26%, compared to 0.37% for the three months endedMarch 31, 2021 . The decrease in the average cost of our deposits was primarily the result of the low interest rate environment. TheFederal Reserve lowered the federal funds target rate twice duringMarch 2020 , resulting in an aggregate 150 basis point decrease in the target rate, which did not change during the intervening period until the most recent increase of 25 basis points in March of 2022. Average noninterest-bearing deposits atMarch 31, 2022 , were$2.22 billion , compared to$1.70 billion atMarch 31, 2021 , an increase of$517.6 million , or 30.4%, and represented 33.0% and 29.0% of average total deposits for the three months endedMarch 31, 2022 and 2021, respectively.
Borrowings
The table below shows FHLB advances by maturity and weighted average rate atMarch 31, 2022 : (Dollars in thousands) Balance Weighted Average Rate Three to five years$ 1,214 4.42 % After five years 255,721 1.69 Total$ 256,935 1.70 %
At
Liquidity and Capital Resources
Overview
Management oversees our liquidity position to ensure adequate cash and liquid assets are available to support our operations and satisfy current and future financial obligations, including demand for loan funding and deposit withdrawals. Management continually monitors, forecasts and tests our liquidity and non-core dependency ratios to ensure compliance with targets established by our Asset-Liability Management Committee and approved by our board of directors.
Management measures our liquidity position by giving consideration to both on-balance sheet and off-balance sheet sources of, and demands for, funds on a daily and weekly basis.
The Company, which is a separate legal entity apart from the Bank, must provide for its own liquidity, including payment of any dividends that may be declared for its common stockholders and interest and principal on any outstanding debt or trust preferred securities incurred by the Company. The cash held at the holding Company is available for general corporate purposes described above, as well as providing capital support to the Bank. In addition, the Company has a line of credit under the terms of which the loan amount shall not exceed an aggregate principal balance of$100 million , consisting of an initial$50 million extension of credit and any one or more potential incremental revolving loan amounts that the lender may make in its sole discretion, up to an aggregate principal of$50 million , upon the request of the Company.
The table below shows the liquidity measures for the Company at the dates indicated:
(Dollars in thousands) March 31, 2022 December 31, 2021 Available cash balances at the holding company (unconsolidated)$ 28,566 $ 28,904 Cash and liquid securities as a percentage of total assets 23.0 % 23.2 % There are regulatory restrictions on the ability of the Bank to pay dividends under federal and state laws, regulations and policies, please see Note 10 - Capital and Regulatory Matters in the condensed notes to our consolidated financial statements for more information on the availability of Bank dividends. 58
-------------------------------------------------------------------------------- Table of Contents Liquidity Sources In addition to cash generated from operations, we utilize a number of funding sources to manage our liquidity, including core deposits, investment securities, cash and cash equivalents, loan repayments, federal funds lines of credit available from other financial institutions, as well as advances from the FHLB. We may also use the discount window at theFederal Reserve Bank ("FRB") as a source of short-term funding. Core deposits, which are total deposits excluding time deposits greater than$250,000 and brokered deposits, are a major source of funds used to meet our cash flow needs. Maintaining the ability to acquire these funds as needed in a variety of markets is the key to assuring our liquidity. Our investment portfolio is another source for meeting our liquidity needs. Monthly payments on mortgage-backed securities are used for short-term liquidity, and our investments are generally traded in active markets that offer a readily available source of cash liquidity through sales, if needed. Securities in our investment portfolio are also used to secure certain deposit types, such as deposits from state and local municipalities, and can be pledged as collateral for other borrowing sources. Other sources available for meeting liquidity needs include long- and short-term advances from the FHLB, and unsecured federal funds lines of credit. Long-term funds obtained from the FHLB are primarily used as an alternative source to fund long-term growth of the balance sheet by supporting growth in loans and other long-term interest-earning assets. We typically rely on such funding when the cost of such borrowings compares favorably to the rates that we would be required to pay for other funding sources, including certain deposits. We also had unsecured federal funds lines of credit available to us, with no amounts outstanding at eitherMarch 31, 2022 , orDecember 31, 2021 . These lines of credit primarily provide short-term liquidity and, in order to ensure the availability of these funds, we test these lines of credit at least annually. Interest is charged at the prevailing market rate on federal funds purchased and FHLB advances.
Additionally, we had the ability to borrow at the discount window of the FRB
using our commercial and industrial loans as collateral. There were no
borrowings against this line at
In the normal course of business as a financial services provider, we enter into financial instruments, such as certain contractual obligations and commitments to extend credit and letters of credit, to meet the financing needs of our customers. These commitments involve elements of credit risk, interest rate risk and liquidity risk. Some instruments may not be reflected in our consolidated financial statements until they are funded, and a significant portion of commitments to extend credit may expire without being drawn, although they expose us to varying degrees of credit risk and interest rate risk in much the same way as funded loans. Stockholders' Equity
Stockholders' equity provides a source of permanent funding, allows for future growth and provides a degree of protection to withstand unforeseen adverse developments. Changes in stockholders' equity is reflected below:
Total
(Dollars in thousands) Stockholders' Equity
Balance atJanuary 1, 2022 $
730,211
Net income
20,683
Other comprehensive income, net of tax
(71,619)
Dividends declared - common stock ($0.13 per share)
(3,096)
Other
686
Balance atMarch 31, 2022 $
676,865
A decline of$71.6 million in accumulated other comprehensive (loss) income negatively impacted total stockholders' equity primarily due to the steepening of the short end of the yield curve during the first quarter and its impact on our investment portfolio, however, it did not impact regulatory capital.
Please see Part II, Item 2. "Unregistered Sales of
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Regulatory Capital Requirements
Together with the Bank, we are subject to various regulatory capital requirements administered by federal banking agencies. For further information, these requirements are discussed in greater detail in "Item 1. Business - Regulation and Supervision" included in our 2021 Form 10-K, filed with theSEC . Failure to meet minimum capital requirements may result in certain actions by regulators that, if enforced, could have a direct material effect on our financial statements. AtMarch 31, 2022 , andDecember 31, 2021 , we and the Bank were in compliance with all applicable regulatory capital requirements, and the Bank was classified as "well capitalized" for purposes of the prompt corrective action regulations of theFederal Reserve . As we deploy capital and continue to grow operations, regulatory capital levels may decrease depending on the level of earnings. However, we expect to monitor and control growth in order to remain "well capitalized" under applicable regulatory guidelines and in compliance with all applicable regulatory capital standards. While we are currently classified as "well capitalized," an extended economic recession could adversely impact our reported and regulatory capital ratios.
The following table presents our regulatory capital ratios, as well as those of the Bank, at the dates indicated:
(Dollars in thousands) March 31, 2022 December 31, 2021 Origin Bancorp, Inc. Amount Ratio Amount Ratio Common equity Tier 1 capital (to risk-weighted assets)$ 699,538 11.20 %$ 681,039 11.20 % Tier 1 capital (to risk-weighted assets) 708,955 11.35 690,448 11.36 Total capital (to risk-weighted assets) 914,619 14.64 897,503 14.77 Tier 1 capital (to average total consolidated assets) 708,955 8.84 690,448 9.20 Origin Bank Common equity Tier 1 capital (to risk-weighted assets)$ 740,991 11.91 %$ 724,440 11.97 % Tier 1 capital (to risk-weighted assets) 740,991 11.91 724,440 11.97 Total capital (to risk-weighted assets) 867,955 13.95 852,825 14.09 Tier 1 capital (to average total consolidated assets) 740,991 9.26 724,440 9.66
Critical Accounting Policies and Estimates
SEC guidance requires disclosure of "critical accounting estimates." TheSEC defines "critical accounting estimates" as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. Our accounting policies are fundamental to understanding our management's discussion and analysis of our results of operations and financial condition. We have identified certain significant accounting policies which involve a higher degree of judgment and complexity in making certain estimates and assumptions that affect amounts reported in our consolidated financial statements. See Note 1 - Significant Accounting Policies in the condensed notes to our consolidated financial statements for more information about our critical accounting policies and use of estimates. SinceDecember 31, 2021 , there have been no changes to our critical accounting policies. 60
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