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spk00: Good day and welcome to the Origin Bancorp first quarter 2021 earnings conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would like now to turn the conference over to Chris Riegelman, Head of Investor Relations. Please go ahead.
spk06: Good morning, and thank you for joining us today. We issued our earnings press release yesterday afternoon, a copy of which is available on our website, along with a slide presentation that we will refer to during this presentation. Please refer to slide two of our slide presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For those joining by phone, please note the slide presentation is available on our website at www. Please also note that our safe harbor statements are available on page six of our earnings release filed with the SEC yesterday. All comments made during today's call are subject to the safe harbor statements in our slide presentation and earnings release. I'm joined this morning by Origin Bank Corp's Chairman, President, and CEO, Drake Mills, our Chief Financial Officer, Steve Brawley, President and CEO of Origin Bank, Lance Hall, our Chief Risk Officer, Jim Crotwell, and our Chief and Banking Officer, Preston Moore. After the presentation, we will be happy to address any questions you may have. Now, I'll turn the call over to you, Drake.
spk08: Thanks, Chris, and good morning, everyone. To start, I am very pleased with the results of the first quarter of this year, and I'm equally pleased with the process that our teams are going through to elevate the performance of our company. You know, as vaccines are more available throughout our markets and economic activity continues to improve, I am encouraged and optimistic about how Origin is positioned as we move forward in 2021. Looking at the results for the quarter, net income was $25.5 million, up $8 million from the prior quarter. Free tax pre-provision earnings were a record high for origin at $32.9 million for the quarter, compared to $28.3 million for the prior quarter. Net interest income was $3.4 million higher this quarter for a total of $55.2 million, another historic quarterly high. Provision expense came in at $1.4 million, which is the lowest level we've recorded in a quarter since the pandemic began early last year. Diluted EPS for the first quarter was $1.08, up 44% from the prior quarter. Our total assets ended at $7.57 billion, and total loans held for investments were $5.85 billion at March 31st, up $125 million from the previous quarter. I'm not going to continue to go through the strong performance metrics for the quarter, but I'll let Lance, Jim, and Steve provide more detail as they go through our slide presentation. The success we've enjoyed in Q1 is a direct result of the hard work and effort put in by our teams over the past year. As I often say on these calls, we are guided by our strategic plan, which I view as an intentional and methodical process to position us for success. In the past, we have talked about investments we've made in infrastructure and teams throughout our footprint, and our focus and commitment to those investments are paying off in a big way. On slide six, you can see the results of some of the investments we've made with the sets we've had in Houston and DFW. We still see tremendous opportunities for growth in Texas based on our current infrastructure and quality teams of bankers, as well as opportunities that exist based on disruptions in the market that we anticipate capitalizing in. We were highly successful in the first quarter, and I'm looking forward to what our teams will accomplish in 2021. Now, I'll turn it over to Lance.
spk07: Thanks, Drake. We take a great deal of pride in what the numbers on slide seven represent. Our mission from the beginning of the pandemic was to support our customers in a meaningful and dynamic way when they face a tremendous amount of uncertainty. Our loans under COVID forbearance at June 30th of last year were just over a billion dollars. At March 31st, only $5.3 million of loans remained under the COVID-related forbearance. Our support for our customers during this past year has created a tremendous amount of loyalty, allowed us to strategically attract new clients, and strengthen long-term relationships that will continue to pay off in the future. At the bottom of the slide, we provided an update on our PPP metrics. We've originated over $767 million in PPP loans in round one and round two. with almost $200 million in round two alone. In total, we originated nearly 5,000 loans across both rounds of the program. We had over 61% of PPP loan balances that have been applied for forgiveness, with 28% having been fully forgiven at March 31st. We have collected over $24 million in PPP fees, and at March 31st have around $11.5 million in net PPP fees unearned on our balance sheet. We've seen the direct impact of this program with our clients and their employees. I'm proud of our response and our bankers commitment to delivering for our clients when they needed us most. On slide eight, you can see our continued focus on leveraging technology to deliver a meaningful client experience. We see growth across our platforms that continue to have above industry adoption of mobile banking features within our customer base. Our technology committee has been very active over the past quarter, evaluating our current product offerings and working with our FinTech partners on new opportunities. Our commitment to aligning ourselves with leading FinTech partners and the elevation of our technology experience remains a primary focus and is a central component of our vision statement. On slide nine, you can see an overview of deposit trends. As Drake mentioned at the beginning of the call, our bankers have an intentional and methodical process for success. The deposit growth we have seen over the past year and the relationships we have developed speak to the commitment our bankers have in driving results for our company. Our average deposits for the quarter were $5.9 billion, an increase of $1.5 billion over the first quarter of 2020. Over the same time, our NIBs have increased 55% from an average of $1.1 billion to $1.7 billion. Over the past year, we've improved our deposit mix, as average NIBs have grown from 25.4% to 29.3% of total deposits. This increase in NIBs, along with the focus of our bankers, has reduced our deposit cost to 26 basis points for the quarter. Our cost of time deposits have decreased significantly over the past five quarters, declining 52%, and we still have an opportunity to manage that cost even lower. On slide 10, you can see our loan composition. In the bottom left of the slide, we show the trend of our loan portfolio over the past four quarters. You can see our loans held for investment have grown by approximately $1.4 billion over the past four quarters due primarily to $653 million of growth in our mortgage warehouse portfolio and $584 million of growth in PPP loans. In the current quarter, our loans held for investment excluding PPP and mortgage warehouse grew by 2% or an annualized growth rate close to 8%. Based on recent pipelines, I'm optimistic about our loan growth opportunities in 2021. As we look at our mortgage warehouse line of business, not only have we seen growth in loan and deposit balances over the past four quarters, but our customer base has also grown strategically. This growth is based on the incredible job our warehouse team has done in growing existing relationships and capitalizing on new relationships due to disruption in the broader market. I'm very proud of the commitment and execution of our bankers, and I'm very confident in our ability to drive meaningful growth. Now I'll turn it over to Jim. Thanks Lance. For the past quarter, we have continued to closely monitor our portfolio, particularly in the sectors of hotels, non-essential retail, restaurants, and assisted living. As reflected on slide 11, these sectors total $510 million as of March 31st and represented 9.7% of total loans held for investment, excluding PPP loans. As we have reported throughout the pandemic, we feel very comfortable with the quality of our relationships within these sectors. As mentioned earlier, we are extremely pleased with the reduction in COVID-related modifications for our entire portfolio, and that is true for these targeted sectors as well. with only $1.9 million representing 0.37% of these sectors still under modification. We continue to be pleased with the resiliency and performance of these sectors as evidenced by past dues of only 0.16%, classified loans of only 1.16%, and non-performing loans of only 0.22% for these sectors. Looking at the portfolio as a whole, as reflected on slide 12, We continue to see stable and improving credit trends, perhaps most evidenced by the reduction of classified loans to total loans, excluding PPP, to 1.81% as of the quarter end. Past due levels remain stable at 0.50%, while net charge-offs for the quarter total $2.9 million, or 0.23% annualized, which compares to 0.24% for all of 2020. While we did see an increase in the ratio of non-performing loans to 0.63% as of quarter end, the ratio is still below pre-pandemic levels. As a result of the above portfolio trends, particularly the reduction in classified loans and the improving economic outlook, we reduced our allowance for loan credit losses from 1.51% to 1.46% of loans held for investment from the prior quarter, excluding PPP loans and mortgage warehouse, we reduced our allowance from 2.1% to 2.02% of loans. We will continue to closely monitor the economic outlook, particularly the impact of the ongoing vaccination progress, virus variants, and the recent global increases in COVID cases. With that said, we do anticipate continued improvement in economic conditions throughout the remainder of this year, which should positively impact our required reserve levels. I'll turn it over to Steve.
spk05: Thanks, Jim. On slide 13, I will cover a couple of points on our asset yields and cost of funds. As Lance discussed previously, our cost of deposits continue to decline. The five basis points decreased during the quarter, which is a 16% decline from the prior quarter and is 73% lower than the first quarter of 2020. Loan yields ticked up during the first quarter to 3.99%, up 10 basis points from the prior quarter. Excluding PPP, our loan yields had a slight decrease of three basis points. Our fixed floating profile has remained relatively unchanged from prior quarters, and we continue to remain asset sensitive. On slide 14, our quarterly net interest income hit another historic high, both including PPP and excluding PPP. Total net interest income was $55.2 million, including $6.1 million of PPP interest and fee income. The PPP interest and fee income was elevated during the quarter from acceleration of fees as a result of loans paid off in the forgiveness process. Our NIM fully tax equivalent for the quarter was 3.22%, up 15 basis points from the prior quarter. When excluding the impact of PPP, our tax equivalent NIM was down two basis points from the first quarter. Slide 15 shows our net revenue distribution and the breakdown of non-interest income In Q1, our non-interest revenue was 24% of net revenue. During the quarter, we saw an increase in insurance commission and fees, which were in line with the first quarter of 2020 and expected due to the cyclical nature of the insurance revenue stream. Other income sources were $2.7 million higher in the prior quarter, as you can see in the graph on the right of the slide. This included increases of $1.4 million in gains on sales of securities and $1.4 million in limited partnership investment income. Mortgage banking revenue declined during the quarter, but remained 65% higher in quarter one 2020, which is more comparative quarter due to the seasonal nature of the mortgage business. The length quarter decline was primarily driven by a decrease in our mortgage pipeline, the impact of the winter storm, and the rise in the five and 10-year U.S. Treasury rates. The next slide has some trending information about our non-interest expense. For the quarter, non-interest expense was $39.4 million, which is $552,000 higher than Q4 2020. During the quarter, we terminated some federal home loan bank advances and incurred a prepayment penalty of $1.6 million, which is shown in part of the other category in the chart on the left of the page. Salaries and benefits continue to remain stable, declining $150,000 on a length quarter basis. The cost controls and efficiency measures continue to improve our operating leverage, as you can see in the bottom right, with our efficiency ratio for the quarter at 54.49%. With that, I'll turn it over to Drake.
spk08: Thanks, Steve. On slide 17, you see our capital trends for both the bank and the bank holding company. In the bottom right, and show the changes in our total capital ratio at the Holden Company. Strong earnings for the quarter supported our growth while increasing capital levels, enhancing our position to take advantage of market opportunity. After raising $150 million in sub debt in 2020, we are well positioned from a capital standpoint. As you've heard throughout a call today, we had an impressive quarter and are prepared to perform at a high level throughout 2021. From a strategic perspective, Origin is in a strong position. We have plenty of runway in our current infrastructure. Our teams of talented bankers have the capacity to continue to drive strong organic growth. We have a corporate culture that has and will continue to attract best-in-class bankers and teams. Our liquidity and capital level put us in a position to deploy capital in ways that will be beneficial to our shareholders and drive long-term value. I am proud of our team and what they do every day to serve our customers, communities, and shareholders. My optimism for this company and what I know we can accomplish is extremely high and is reflected in our 30% increase in our dividends this quarter. Thank you, and we'll now open the call up for questions.
spk00: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question will come from Matt Olney with Stevens. Please go ahead. Great.
spk02: Thanks.
spk00: Good morning, everybody.
spk08: Good morning, Matt.
spk02: I want to start on the organic loan growth, ex-warehouse, ex-PPP. Would love to hear more about the investments you've been making in recent years. new teams, individuals, where they're located, and what types of lending they're most focused on. And then what's the pipeline look like for new hires, new investments this year? Can you compare the pipeline today to previous years? I think some of your peers, especially in the Texas markets, have talked about lots of M&A disruption that's creating opportunities for new hires. I'm curious if you're seeing those opportunities in your markets in Texas or Louisiana, Mississippi. Thanks.
spk08: Yeah, Matt, absolutely. I mean, you know, our model is based on lift outs and success of that. And certainly I feel this institution is positioned better than ever to take advantage of, as we've said for the last couple of years, we're going to put ourselves in a position to take advantage of dislocation. We're starting to see that a lot of activity happening. um and but what we're seeing is um opportunity throughout our entire footprint when it comes to um lift out opportunities loan growth pipeline growth a number of different things i'm actually going to ask lance for at the tail end of this comment to give you some some color around pipeline growth and what we're expecting but you know our our driver we're a strong organic growth story we are going to continue to focus on the infrastructure we've built as we continue to communicate i i've i've actually never felt better about the position this company's in than i do right now because not only dislocation and the opportunity for us to continue the lift out strategy which by the way a lot of conversations are going on again across footprint not just in texas i'm really pleased with what's going on our texas markets though But when you look at the capacity that we currently have within our current teams, we have a lot of runway there to continue organically to grow. Our infrastructure and the scalability of that infrastructure is phenomenal. I think we're in a really good place. Rob is going to add a couple pieces here. But in doing that, I think we're going to, for the most part, keep the expense structure flat. But I think the strong part of this story is the fact that where we are positioned as interest rates potentially move forward. And you got to think that with the things going on and the inflationary pressures we're having, that certainly is in our future. We are just so well positioned to take advantage of the disruption to market, lift out the teams, get these relationships on board. We continue to see significant growth in relationships on even mortgage warehouse that I thought maybe would slow down. So just overall, Matt, I think we're in an awesome position. And we are going to continue to focus on the organic growth story and be successful through that. And other opportunities are just going to add ice into the cake. So Lance, if you would, let's go through just a little bit of pipeline color to answer Matt's question.
spk07: Yeah, thanks, Drake. Good morning, Matt. Drake's 100% right. The reality is we never slowed down from our strategy of continuing to add on dynamic RMs and producers. We were very fortunate that we added one in our Houston market in the last few months. The pipeline that she has already built, kind of moving clients over from the bank that she came from, has been tremendous. One in North Texas, Mississippi. This strategy of sort of developing the corporate culture and attracting talent continues to pay dividends for us. Drake is right. We still have tremendous capacity from the lift outs that we've delivered over the last five years, and we think specifically in Texas, but also in Mississippi, it has been a big win for us. As you saw in the first quarter, we had 2% loan growth, not including PPP or warehouse. We feel incredibly confident that we can kind of continue on that path. As I'm sitting here looking at pipeline reports now, our North Texas and Houston markets specifically are showing very strong know in residential real estate and multi-family um construction draws that we know are coming owner occupied real estate um you know we've we've been able to grow despite having pullbacks in our revolving lines as i'm sure everybody does um if you look back a year ago we were 56 utilization on our revolving lines uh today we're at 44 that's a 200 million dollar reduction And yet we've achieved growth even on top of that. Of the $200 million in reduction, 50 of that was energy that we were sort of pushing out. Then obviously the rest is the liquidity in the marketplace. And so incredibly optimistic. And as we built this company, this loan growth engine, I think is about to pay real dividends for us.
spk02: Okay, that's great commentary, Lance and Drake. Thank you for that. And then just one more, just shifting over towards credit quality. It sounds like that you're feeling better about credit and maybe the ultimate loss content in the portfolio isn't what we thought it was six months ago or even three months ago. So I'd love to hear more about how the team is thinking about net charge-offs in 2021. And it seems like last year the bank cleaned up a few lingering credits that have been out there for a while. We'd love to hear more about 2021 charge-offs. Thanks.
spk08: For 2021, I think we're going to continue to feel that we can drive, and I'm going to say this, where we had some cleanup in 20, we still have a couple pieces that we're still cleaning up in 21 that's going to impact our charge-off levels somewhat higher than what traditionally you would see from this company. We still believe that that 25 basis points is a number that we can achieve throughout the year. But I'll say this, outside of those lingering issues that are credits that we've dealt with for a number of years, I am bullish and feel very strong about the quality of the portfolio. But as I've talked about in the fourth quarter, 2021 for us was a year that we were going to drive loan growth down somewhat, focusing on loan yields, and quality client selection. And these are the two elements from an incentive concept or incentive pay concept that we're utilizing that I think is going to drive rewards. The surprise to this was the strong pipelines that we're seeing and what we think where we were kind of leading towards 5% or 6% growth. I think this 8% growth is sustainable for us through the year and comes equally through the rest of the three quarters for 21. So I think our credit quality is stronger than it's ever been. And I think moving forward, what we bring on the books and put on the books is going to have sustainability around credit quality.
spk02: Okay, perfect. That's all from me. Thank you, guys.
spk08: Matt, thank you.
spk00: Our next question will come from Brad Millsaps with Piper Sandler. Please go ahead.
spk03: Hey, good morning, guys.
spk08: Brad, good morning.
spk03: Drake or Lance, just wanted to start to follow up on the loan growth, maybe on the warehouse side of the equation. I know, I think Blanche mentioned you continue to pick up customers. Just curious if you added any more in the first quarter and sort of what your crystal ball shows for kind of how you guys can maintain that. You guys sort of bucked the trend this quarter and showed a link quarter increase in the average warehouse where a lot of banks were down. So Just any additional color there would be helpful.
spk08: Yeah. Brad, disruption is still providing quality opportunities for us. And again, I'm going to go back to the client selection because we are going to make sure that the acquisition of these customers that we bring on are going to be, that's going to add quality overall. We did increase from 41 clients and mortgage warehouse to 45. We have, um, I think a couple in the pipeline now that are high quality, but we're just seeing significant opportunity. And it's really given management the opportunity to look at what mortgage warehouse ends up being as a percentage of outstanding for us. And we're still working through that. But I will say what I've talked about in the fourth quarter that I saw mortgage warehouse from an outstanding perspective, I think is going to be somewhat higher than that. And I think that that seven to 800 million range is achievable and sustainable for us with quality acquisition of these clients. So, uh, it's certainly producing strong fee income. It's producing non-interest bearing deposits that are, that are very, uh, good for us at this point. So I'm, I'm bullish on that. And I, I'm, I'm going to try not to say the word bullish again, but it's, it's, uh, it's, it's, it feels good. And, and mortgage warehouse is a good business for us.
spk03: Great. And then, and then just to follow up, can, um, Can you guys comment on kind of what you're seeing in terms of new loan yields coming on the books? You guys are obviously seeing great growth, but I'm sure it's coming at a little bit dilutive to the current book yield. Just kind of curious kind of where those new loans are coming on the books.
spk08: Well, as I opened up and talked about our client selection in loan yields and trying to push loan yields more peer-like, even though we do have a short portfolio in CNI, heavy, uh, it, it is a focus and we're seeing, um, you know, in the low end on high quality deals, the three 25s where we're, we're pushing to see the three 75s and the tech Texas market where in the core markets were more in that, that, you know, three 75 to four range. So where we are seeing pressure, uh, I do think our client selection and passing on deals, uh, just from pricing, And Lance, I want Lance to talk a little bit about the type of pressure we're seeing in the marketplace and what's going on and how we're fending it off. Lance?
spk07: Yeah. You know, we talk periodically in these calls about what are we seeing from a competition perspective, both on covenants, on risk when it comes to pricing. So we've had some pretty strong examples here recently on competition that's been lacks in all of those. We saw one the other day. It was a good C&I opportunity where competition came in with no covenants and then really, really, really loose. And so we let that go. We also had a very interesting, one of the big national banks came into North Louisiana and one of our markets made a call on to one of our really good C&I clients, offered them 1.8% fix for two years to move their business. They ended up staying with us because of the relationship, the loyalty, the relationship with Drake personally and other things. So we were able to fend that off. But it clearly goes to show you what some of the bigger banks think of what the rate environment is going to be the next two years. So as Drake said, we're clearly feeling pressure across our markets. I think we saw a couple of basis points compression. We're doing everything in our power to fend that off with deposit reductions. I think we've done a good job getting cost deposits down to 26 BIPs. Here across North Louisiana, it's even less than that. So we are fighting the good fight on loan yield. At this point, we have 68% of our floating rate loans have floors, and we're at the floor of 52% of that. Obviously, we think when rates go up, we have a real advantage, but it clearly is a fight right now on yields.
spk08: And to add to that, I don't think we have a lot of gap in those floors to feel the rate, the increased rate impact. So we're in a good position there. I will say that we are reminding these long-term clients of some of these big bank strategies around coming in and just don't have nothing more but low rates. And then as industries start feeling some stress, they pull out and leave them hanging. So we're doing everything we can. I hate to use a competitor's but I'm pulling a little Johnny Allison on them here and there about remember when and how that counts. So I think we're in good shape.
spk03: Thanks for the call. It's certainly better than a bond for sure. Nice quarter, guys. Thank you. Thank you.
spk00: Our next question will come from Woody Lay with KBW. Please go ahead.
spk01: Hey, good morning, guys. Good morning, Woody. Good morning. So on the credit front, just wanted to touch on during the quarter, we saw a tick up in MPAs, but it declined in criticized loans. Could you just give some color on what drove the changes in those two buckets?
spk08: Yeah. Jim Crotwell, our chief risk officer, is here to respond to that. I've got a stick about to hit him in the head.
spk07: Good morning, Woody. Yes. On the increase in the non-performing loans, that was just a couple of I would refer to as legacy credits that were previously classified and reserved for. So unfortunately, they did shift over into the non-performing levels. I would point out when we look at the, you know, that's an area of focus on that we've really over the last year and before, and we've worked at that level of non-performing down. So where we find ourselves, even with the increased quarter to quarter, we look back, we're still at a level that's very comparable and actually lower than pre-pandemic levels. So we'll continue to manage that. As it relates to overall classified reductions, very pleased. And I think that's really an indication of what Drake was speaking to as the overall quality of our portfolio and continued improvement. You know, when we looked at that, we had, you know, we had several credits that actually paid down in reducing that level. And we also had upgrades, you know, you know, in the category of classifieds that drove the overall levels down. So, you know, when we look as a portfolio as a whole, look at levels of past dues as an early indicator, you know, we just really feel good. And we continued our deep dives through the course of the, you know, over the last year. When we do, we see resilience within our entire portfolio. So really pleased with where we are from a credit metric perspective.
spk01: That's great, Corey. Thanks for that. And then I wanted to touch on the FHLD prepayment. What rate did those long-term advances have, and when exactly in the quarter did you repay them?
spk05: Sure, Woody. They would have 5.2%, and we pay them about the very end of February. So they were sitting, we had them on for two months, basically, and one month off for the quarter.
spk01: All right, got it. So I guess with that in mind, I think earlier on the call you mentioned excluding PPP, the NIM was down two basis points. How do you sort of see that going forward here the next couple quarters, especially with the pressure on loan yields a little bit just from competition?
spk05: Well, the pressure on loan yields we're definitely managing. The hardest part we're going to have is with all the liquidity adding to cash and investments and bonds, You'd rather have it in loans where you have a higher yielding. So we still think it's going to be tough. Maybe it's going to be very hard to keep it flat with liquidity, but we think it's going to be about the same, maybe one to two basis point decrease next quarter. But it really depends on how fast the cash comes in and what can we do with it.
spk01: All right, great.
spk05: That's all for me. Thanks, guys.
spk08: Thank you, Woody.
spk00: Our next question will come from William Wallace with Raymond James. Please go ahead.
spk09: Thanks, guys. Greg, you endorsed a kind of 8% growth level in loans for the quarter, but Lance, when I was listening to your commentary about the pipelines, reading between the lines, it sounds like the pipelines are actually growing pretty meaningfully. Is that a fair read-through, or am I getting too optimistic?
spk07: Well, you know, I think the 8% number sort of feels good for us right now. We are seeing pipelines build. I'll say they're better today than they were three months ago and six months ago. Kind of working through some timings and some closings and some deals in North Louisiana. So, yeah, you heard me. I'm very optimistic, but I feel like the 8% number is sort of the right guidance.
spk09: Okay. And then, Drake, When you're discussing the opportunities for potential lift-outs, did I hear you say that you would consider lift-outs, but your goal would be to keep expenses flat? Or are you saying you're hiring opportunistically and trying to manage expenses, but lift-outs would be hard to keep expenses flat?
spk08: Yeah, no. With our team, I think we're driving to keep expenses flat less than or added any lift outs that we have. And that's one of the points I wanted to make sure everybody was clear on because we're going to continue to do the things that we built this company on and feel like where we're leveraging and our efficiency and the direction we're going, that we have some runway to be able to do that, but yet still, uh, you know, managed core expenses flat.
spk09: Okay. And then if I look at the first quarter, that 37.8, um, after backing out the prepay penalty, um, Is that the right run rate, or was there some deferred comp, related to PPP, et cetera, that would come back in? Just help us think about where we should be kind of a starting point.
spk08: Yeah, I'm going to make this simple for everyone. I'm going to look at a 39 run rate for the balance of the year, and that puts us right at where we thought we'd be, about 1.9% increase in expenses. Okay. Okay.
spk09: Um, and then, you know, you guys have, have done a good job talking about the investments in, in technology that you've made. And, um, if I look at one of the slides that you show some of the partners that you've made, it seems like a lot of that is, uh, really to kind of help the customer experience. And then I know, obviously there's some investments you've made to help streamline the production, um, processes, et cetera. Are there technology, continued technology opportunities that would really help you streamline on the back office, on the customer acquisition front, just kind of across the platform that could severely change or dramatically change the the way you think about the branch network. You guys are not a branch-heavy bank, but you do seem to be forward-thinking on technology, so I'd love to know your thoughts on how technology could change the branch system at your bank and perhaps at others.
spk07: Yeah, thanks, Wyatt. This is Lance. You're exactly right. This is something that we're focused on all the time now. We've created a technology committee inside of the organization that includes Our operation partners, we have a dedicated robotics automation person working with our accounting groups. So internal automation is kind of the key for us right now, as well as what we're doing on the client experience. What I am finding, and I think other banks would probably agree, is the ability to accomplish both. We're finding the right fintech partners that are going to deliver a more meaningful experience, but they're also coming at a cheaper price. than what we're getting from our traditional core providers. So we're able to enhance at the same time, create some efficiency on the cost side. You know, there is a lot of interesting technology coming around. We had an ongoing conversation right now with a direct payment provider that's using blockchain that's going to be pretty fascinating to work through. We've kind of been vetting some ideas around how to use more virtual environment in drive-thrus. And so just a lot of conversations going around about how do we continue to drive automation, reduce expenses, but enhance the experience. And I think it's an exciting time.
spk09: Okay.
spk00: Thanks for that color and commentary. I appreciate it. I'll step out. Our next question will come from Kevin Fitzsimmons with DA Davidson. Please go ahead.
spk04: Hey, good morning, everyone.
spk08: Good morning, Kevin.
spk04: Hey, Drake, I wanted to ask about M&A because it seems like in the past you guys have put that out there as something you were really looking closely for, an opportunity. But now, you know, understandably, the tone, you know, you've used the word a number of times, bullishness on organic growth, on the opportunity to get – Take advantage of disruption from other competitors' deals. You feel better about mortgage warehouse, lift out potential. On the other side, you have a much better multiple today than when we've talked in past quarters. So I'm wondering how you net those two in terms of M&A opportunities. Are you less on the hunt for those, even though you've got a better multiple, just because of all the organic opportunity you have in front of you? Or is it still a high priority?
spk08: Well, I'm going to go back to who we are and who we sold ourselves as. We're an organic growth story. And I feel so much better right now than I did the last couple of years about our opportunity with this and this location marketplace. And what we're going to see as that continues, we are in a better position, I think, today to take advantage of that and keep the bones of the company alive. as strong as they are today, which I think is important. And I would say that as you look at capital deployment and the opportunity to make mistakes, I now feel that we could do nothing and continue to do what we do consistently and very well and be highly successful. Now, it also puts us in a position to continue to have these conversations as we are, because there are some opportunities to partner and fill in some gaps in our footprints that make a tremendous amount of sense. but it's not going to be at the mistake of applying capital to a deal that doesn't make sense for us. So we're being more selective, I would say. And we're optimistic about every, you know, the lift out opportunities with this dislocation and also put our currency to give us some conversations to find true partners. And I think for us, M&A is all about our geographic structure and how we account and how we manage. That's an attractive, partnership for some of these companies that we're having some conversation with. So we're still in the ballgame. It's not something that I feel we have to be successful with, but I think eventually will be.
spk04: Okay, great. And is it fair to say the whole issue of being more selective that, you know, maybe opportunities might be more likely in Louisiana and Mississippi where you can get cheap deposits as opposed to paying up for opportunities in Texas where you already have this opportunity for organic growth. Is that a fair statement or is that off base?
spk08: Well, actually, the opportunities that we are visiting with are in each of the three states in our marketplace. But I'll tell you, a couple of these less metropolitan Texas opportunities have just as low cost deposits as some of the things that we're seeing in our Mississippi opportunities, Louisiana opportunities, because they're very good banks in those markets, and they're in good markets that have some quality franchise on the pot side. So I've been pleased with what we've seen from overall cost of deposits in some of the Texas plays.
spk04: Okay, great. And just as a follow-up on the whole topic of – deploying excess capital so you did buy back shares this quarter but you you also made a big statement with with a big increase in the dividend which which makes a statement about how you feel going forward just given where the stocks trading is it more likely now that buybacks probably fall off and in terms of priority level in terms of deploying capital well the the buyback
spk08: program that we built and the guardrails around that pretty much have us out of the market at this point based on what we built and what it allows us to do. Now, I hope we don't have this conversation that we have to change those guardrails because we see a pullback in economy and other things that put us back in the market. But for now, that's well down on the list of opportunities to deploy capital.
spk04: Okay, great. Thanks very much.
spk08: Thank you.
spk00: Again, if you have a question, please press star then one to be joined into the queue. Our next question is a follow-up from Matt Olney with Stevens. Please go ahead.
spk02: Yeah, thanks. Just a follow-up on the topic of mortgage. I think for all banks this quarter, we're trying to understand mortgage trends and figure out where it's going to land at the end of the year. Is the refi volume slow when we get to the other side of this mortgage surge. So for Origin, it seems like it's twofold. It's on the warehouse and on the traditional gain on sale or margin on the fee side. On the warehouse, I think Drake kind of addressed this already, trying to keep that mortgage warehouse balance in that $700, $800 million range when the surge, you know, the other side of that. What about on the gain on sale, on the fee side? I think it was $4.5 million in the first quarter. Any color or any kind of data points you can provide that would help us appreciate where this could land over the next few quarters and towards the end of the year? Thanks.
spk08: Yeah, Matt, before Steve answers that question, I do want to, you know, our mortgage volume certainly decreases. We saw some other institutions have some upticks there. And I would say that not only the interest rate environment on the refinance side, but the storms that we experienced that actually slowed down those pipelines have been an influencer, but What we're seeing now, and not as impactful on a mortgage warehouse because we have a footprint that's more regional, that's not as regional as, say, our mortgage footprint. We're just seeing inventories and lack of inventories as a significant hurdle point to get those volumes up. And hopefully, there's not an answer for that, but we're just seeing some crazy, crazy deals around trying to purchase homes in this market. We've got a lot of applicants that can't get pull the trigger because of value. So that's going to continue to be a problem. Steve?
spk05: Sure. We had a $4.5 million total, excuse me, 4.6 for total mortgage banking revenue for the quarter. We think next quarter is going to be definitely higher than that. We definitely have a little bit more origination. The gain on sales still continue to come down, but we think it's going to be more driven by volume. So we think the number will be probably 10% to 15% higher to start with a five, but it will be in a low five for the next quarter. The third quarter is generally a very good quarter also, but then historically the fourth quarter will decrease.
spk02: Okay. Thanks for that, Steve. And then just as a follow-up on the warehouse, I'm curious what the funding strategy of the warehouse is today with all the liquidity in the system? Are you funding it differently today than a few years ago?
spk05: Yes. Right now, we're funding it mostly with low-cost deposits. When you compare Federal Home Loan Bank advances today, they're about 8%, but there's so much liquidity out there, you could get brokered deposits for 1%. I'm sorry, 8 basis points. Yes, 8 basis points and then 1 basis points for brokered. So, When you look at our non-core dependency, funding dependency, it's the lowest it's been. And so we are funding it mostly with deposits. And every once in a while, we'll go out and borrow some either home loan bank at eight basis points or broker deposits at one basis point.
spk02: Okay. Thanks for that. And, Steve, one more follow-up. I apologize for taking up the time here. You paid down some of the FHLB this quarter. Are there any more similar opportunities in the future of paying down higher-cost deposits?
spk05: We're just talking about that today. We're going to run the numbers and take a look at it. What we have on the balance sheet right now is we have a $250 million, and that's at $165 million, and then the other amount is long-term also. So, We definitely have a chance for the $7 million, the $250 million. We're going to have to run the numbers and really take a look at it.
spk02: Okay. Thank you, guys.
spk08: Thank you, Matt.
spk00: This concludes our question and answer session. I would like to turn the conference back over to Drake Mills for any closing remarks.
spk08: Thank each and every one of you for participating today, and I just want to reiterate that This company and the position that we're in today is very positive. I've used the word bullish. I'm going to continue to. Our opportunity for organic growth and to take advantage of market opportunities has never been better. And I just appreciate our investors and the questions. And hopefully, if any of you have any additional questions, most of you have my cell phone number. And I'd look forward to hearing from each and every one of you. But thank you for your support.
spk00: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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