Business Overview and History
Origin Bancorp, Inc. (NYSE: OBK) is a financial holding company headquartered in Ruston, Louisiana, with a rich history dating back to 1912. The company's wholly-owned subsidiary, Origin Bank, has been deeply rooted in a culture committed to providing personalized relationship banking to businesses, municipalities, and personal clients across its expansive footprint in the southern United States.
Origin Bancorp was founded in 1912 in Choudrant, Louisiana, as a community bank focused on serving the needs of local residents and businesses. For decades, the bank concentrated on providing personalized relationship banking to its local communities. In the early 2000s, Origin began expanding its geographic footprint, opening new branches in neighboring regions of Texas, North Louisiana, Mississippi, and Alabama. This strategic expansion allowed the bank to serve a wider customer base while maintaining its commitment to personalized service.
During the 2008 financial crisis, Origin faced challenges like many banks but was able to navigate the economic downturn and emerge in a strong competitive position. Over the past decade, Origin has continued to grow organically and through selective acquisitions, expanding its presence in Texas and entering new markets in South Alabama and the Florida Panhandle. The company has built an award-winning culture that attracts talented banking professionals, allowing Origin to provide high-quality service to an expanding customer base.
Today, Origin Bank operates more than 60 locations across Texas, Louisiana, Mississippi, Alabama, and the Florida Panhandle, catering to a diverse client base that includes commercial entities, municipalities, and individual customers. The bank's product offerings span traditional banking services, such as deposits, loans, and treasury management, as well as specialized solutions in areas like mortgage banking, insurance, and wealth management.
Financial Performance and Ratios
In the most recent fiscal year, Origin Bancorp reported annual net income of $83.8 million and annual revenue of $352.4 million. The company's operating cash flow for the year was $129.9 million, while its free cash flow stood at $103.1 million. These financial metrics showcase Origin Bancorp's ability to generate consistent earnings and maintain a healthy cash flow profile.
The company's balance sheet remains well-capitalized, with a total debt-to-equity ratio of 0.25 and a Tier 1 capital ratio of 12.01% as of the latest reporting period. Origin Bancorp's return on assets (ROA) and return on equity (ROE) stood at 0.86% and 7.91%, respectively, indicating the company's ability to efficiently utilize its assets and generate solid returns for shareholders.
Financials
Origin Bancorp's financial performance demonstrates its ability to generate consistent earnings and maintain a healthy cash flow profile. The company's annual net income of $83.8 million and revenue of $352.4 million in the most recent fiscal year highlight its strong financial position. The operating cash flow of $129.9 million and free cash flow of $103.1 million further underscore the company's financial stability and ability to generate cash.
For the most recent quarter (Q3 2024), Origin Bancorp reported revenue of $90.04 million and net income of $18.60 million. However, the company saw decreases in operating and free cash flow for the quarter, with operating cash flow at -$77.39 million and free cash flow at -$68.77 million.
Liquidity
Origin Bancorp maintains a strong liquidity position, as evidenced by its well-capitalized balance sheet. The company's total debt-to-equity ratio of 0.18 as of December 31, 2023, indicates a conservative approach to leverage. As of September 30, 2023, the company had cash and cash equivalents of $321.19 million. Origin Bancorp also has access to a $100 million line of credit, with an initial $50 million extension and up to an additional $50 million in incremental revolving loan amounts.
The company's current ratio and quick ratio both stood at 0.12 as of September 30, 2023, reflecting its ability to meet short-term obligations. These metrics demonstrate Origin Bancorp's ability to maintain financial flexibility in various market conditions.
Navigating Challenges and Charting a Path to Profitability
While Origin Bancorp has demonstrated resilience and adaptability over its long history, the company has faced some headwinds in recent quarters that have impacted its profitability. The prevailing interest rate environment, combined with the costs associated with strategic investments in technology and talent, have put pressure on the company's net interest margin and overall financial performance.
In response to these challenges, Origin Bancorp has implemented a strategic initiative aimed at restoring its profitability to peer-competitive levels by the end of 2025. This multi-faceted plan involves a deep dive into the company's operations, with a focus on optimizing revenue streams, enhancing efficiencies, and managing expenses more effectively.
As part of this initiative, Origin Bancorp has engaged a third-party consulting firm to benchmark the company's performance against its peers, identifying specific areas for improvement. The management team has also outlined concrete steps to drive revenue growth, including strengthening its deposit franchise, expanding lending activities in high-potential markets, and exploring new avenues for fee-based income.
On the expense management front, Origin Bancorp is committed to streamlining its operations, leveraging technology and process automation to improve efficiency, and rightsizing its workforce where necessary. The company has already made strides in this direction, with its Robotic Process Automation (RPA) team delivering significant time and cost savings through the automation of manual tasks. In fact, the RPA platform has saved 9,600 hours of manual work year-to-date, equivalent to over 7 full-time employees.
Importantly, Origin Bancorp's Board of Directors and executive leadership team remain steadfast in their dedication to increasing shareholder value. The company has a proven track record of prudent capital allocation, including the return of capital to shareholders through a quarterly cash dividend program. Origin Bancorp's current dividend yield of 1.75% provides an attractive income stream for investors.
Outlook and Risks
As Origin Bancorp navigates the current operating environment, the company has maintained a cautiously optimistic outlook. While the near-term path to profitability may be challenging, the strategic initiatives underway are expected to yield tangible results in the coming quarters and position the bank for long-term success.
The company expects a brief period of net interest margin (NIM) compression of around 10 basis points in Q4 2024 due to the impact of recent and anticipated Federal Reserve rate cuts. However, they still anticipate NIM expansion in line with their previous expectations, assuming the Fed slows or stops easing.
For Q4 2024, Origin Bancorp expects non-interest income to be similar to Q4 2023, with normal seasonal pressures in their mortgage and insurance businesses. Non-interest expenses are expected to remain at levels similar to Q2 2024, including expectations for legal and accounting-related professional services expenses. For the full year 2024, the company still expects non-interest expense growth, excluding notable items, to be in the mid-single digits.
Nonetheless, Origin Bancorp faces several key risks that warrant close monitoring. The continued volatility in interest rates, heightened competition in its core markets, and the potential for asset quality deterioration are all factors that could impact the company's financial performance. Additionally, the successful execution of the profitability initiative and the company's ability to adapt to the evolving regulatory landscape will be critical to its future growth and stability.
Conclusion
Origin Bancorp's rich history, diversified business model, and strategic focus on profitability enhancement position the company well for the future. Despite the near-term headwinds, the company's management team has demonstrated a willingness to make the necessary adjustments to drive long-term shareholder value. The company's focus on expanding its presence in Texas and the Southeast, along with investments in people, processes, and technology to prepare for crossing the $10 billion in assets threshold, underscores its commitment to growth and operational excellence.
Origin Bancorp operates as a traditional community bank, focusing on commercial and retail banking services within its regional footprint. The company's main sources of revenue and income are interest earned on loans and investments, as well as service charges and fees on deposit accounts. As of September 30, 2024, loans held for investment (LHFI) totaled $7.96 billion, an increase of 3.9% compared to December 31, 2023, while total deposits were $8.49 billion, an increase of 2.9% compared to the prior year end.
The company's net interest income for the nine months ended September 30, 2024, was $222.0 million, a decrease of 2.0% compared to the same period in 2023. This decrease was primarily due to an increase in interest expense on deposits, partially offset by higher interest income on loans. The company's net interest margin (NIM) was 3.18% for the nine months ended September 30, 2024, a decrease of 6 basis points from the prior year period.
As Origin Bancorp continues to navigate the dynamic banking landscape, investors would be wise to closely monitor the company's progress in implementing its profitability initiative and delivering on its growth objectives. The company plans to provide detailed metrics around this initiative when reporting their full-year 2024 results in January, which will offer valuable insights into the effectiveness of their strategic efforts and their path towards peer-like profitability by the end of 2025.