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spk01: Good morning, everyone, and welcome to the Origin Bank Corp Inc's fourth 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. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Chris Riggleman. head of investor relations. Sir, please go ahead.
spk03: 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 of you joining by phone, please note the slide presentation is available on our website at www.origin.bank. Please also note our Safe Harbor statements are available on page six of our earnings press release that we 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 Bancorp's Chairman, President, and CEO, Drake Mills, Chief Financial Officer, Steve Brawley, President and CEO of Origin Bank, Lance Hall, our Chief Risk Officer, Jim Crockwell, and our Chief Credit and Banking Officer, Preston Moore. After the presentation, we'll be happy to address any questions you may have. Now I'll turn the call over to you, Drake.
spk02: Thank you, Chris, and good morning. Looking back on the past quarter and the full year, I am pleased with our results and what we have accomplished as a company. Moving into 2022, we are deliberate and purposeful in how we execute through our planning process that is focused on creating sustainable long-term value. Our success places us in a position of strength as we take advantage of positive operating leverage. You can see that we had an impressive fourth quarter and a full year 2021. We ended December with $7.9 billion in total assets, $5.2 billion in loans, and $6.6 billion in deposits. Lance will provide more detail regarding our loan deposit growth, but I want to steal a little thunder of his and mention that we showed 5.7% growth in loans, excluding PPP and mortgage warehouse quarter over quarter, which is 23% annualized. As it began 2021, we felt confident in our ability to deliver high single digit loan growth. And that's exactly what our bank has delivered. Again, backing out PPP and mortgage warehouse, we saw an increase of $404 million or 9.9% year over year. I'll save the deposit growth for Lance, but I'm pleased with how our bankers continue to deliver strong growth through core organic relationships. Looking at our income statement, I'm proud of our results for the quarter and the year. We finished the quarter with record net income of $28.3 million, or $1.20 diluted earnings per share. Our net interest margin was 3.06% on a tax-equivalent basis, and our efficiency ratio was 56.92%. For the full year, we had record net income of $108.5 million or $4.60 diluted earnings per share. Our pre-tax, pre-provision earnings was $122 million for 2021, up 17% year over year. Our efficiency ratio improved in 2021, even with slight increases in non-interest expense, which Steve will go through later in the presentation. A primary strategy that continues to be front and center for our management team is the efficiency of this company. As we focus on expense management, we will always be mindful of the investments in people and infrastructure that produce stronger revenue streams. This has been evident in our investment in the Texas market, which you can see on slide nine. Our Texas bankers grew loans $373 million and grew deposits $558 million in 2021. When you look at the last five years, we've grown loans and deposits at a compound annual growth rate of over 21% and 28% respectively. We have had incredible success in DFW Houston with the way our teams produce. This applies to our legacy bankers, as well as our lift out teams. We will continue to leverage our infrastructure and aggressively pursue the most talented bankers in our market. Now turn it over to Lance.
spk05: Thanks Drake. We had another strong quarter of growth and I'm proud of the meaningful results our bankers have produced. Origins always had the philosophy that our success comes directly from having the right people. We certainly have high-quality bankers who have attracted high-quality relationships throughout all of our markets. We've been purposeful and strategic with client selection. This has been and will continue to pay off for us as we continue to focus on the client experience and be entrusted advisors. On slide 10, you can see dynamic organic loan growth of over 50% and a compound annual growth rate of 10.8% in our loan portfolio, excluding PPP and mortgage warehouse, over the last five years. As you dissect the core of our loan business, excluding PPP, and look specifically at C&I, owner-occupied CRE, and owner-occupied C&D, we show five-year growth of 37% with a compound annual growth rate of 8.2%. Greg appropriately bragged on our bankers' production in the fourth quarter as loans held for investment, excluding PPP and warehouse, grew $241.5 million, or 5.7%, compared to the linked quarter, which is 23% on an annualized basis. I'm also pleased that we delivered 9.9% loan growth for the year. In prior quarters, we've spoken in detail as to how we were able to use the PPP program to deliver for our clients in a time of need during the initial impact of the pandemic. At the end of 2021, we have $105.8 million of PPP loans outstanding, with $3 million of net deferred fees remaining. we expect to recognize the balance of those fees in the first half of 2022. On slide 12, you can see an overview of our deposit trends. We have and will continue to place a high level of focus on growing non-interest bearing deposits. In the fourth quarter, average non-interest bearing deposits increased $145 million compared to the linked quarter and now represent over 33% of total average deposits. Year over year, we saw an increase of average non-interest bearing deposits The $425 million are 25.2%. Core deposits remain at the center of how we truly value a loyal relationship. Regardless of the environment, Origin clearly understands the significance of a core deposit relationship and will continue to emphasize that philosophy with our bankers. In 2021, our bankers responded by growing average core deposits by $1.37 billion, or 30.3%. This growth took place while our cost of total deposits decreased 12 basis points year over year. At Origin, we place a high level of focus on leveraging technology to drive value for our company. During the past year, along with other initiatives, we launched a new website, increased our partnerships with fintechs, and integrated robotics into many of our processes. This focus on technology is a major component of our vision statement and what we believe is critical to enhancing the client experience and creating long-term sustainability. Now, I'll turn it over to Jim to go through our credit quality metrics. Thanks, Lance. As you can see on slide 14, our overall credit quality continues to improve as evidenced by our continued reduction in classified loans. Classified loans held for investment as a percentage of total loans held for investment net of PPP loans reduced to 1.35% as of year-end, reflecting a 35% reduction from the level a year ago. Past due loans held for investment to total loans held for investment net of PPP loans into the quarter at 0.50%, which is consistent with the levels reported throughout the year. Non-performing loans held for investment to loans held for investments net of PPP also remained stable at 0.49%. Lastly, annualized net charge-offs for the quarter to average loans held for investment came in at 0.22%, down two basis points from Q3, and has also been stable throughout 2021. Based on these metrics, as well as our ongoing review of our portfolio, we continue to be extremely pleased with the stability and resiliency of our portfolio, which continues to be driven by our focus on relationship banking. We decreased our allowance for credit losses to 64.6 million, a $5.4 million reduction from quarter end Q3. As of year end 2021, our reserve represented 1.23% of loans held for investment and 1.43% of loans held for investment, net of PPP, and mortgage warehouse loans. The decrease in the reserve was driven by the improvement of credit quality as well as continued improving economic forecasts. With that said, we continue to keep a close eye on the Omicron variant and its potential impact on economic conditions as well as inflationary pressures, continued supply chain disruptions, and labor shortages and their potential impact. All in all, we are very pleased with the overall performance and stability of our portfolio. I'll now turn it over to Steve.
spk06: Thanks, Jim. I'll start on slide 15. Our total yields on loans held for investment increased six basis points in Q4, which includes the impact of PPP loan forgiveness. Excluding the impact of PPP loans, our yield on loans held for investment decreased four basis points in the quarter. Top right graph shows the continued decrease in our cost of funds as our total cost of deposits was 19 basis points for the quarter, representing a 39% decrease from the fourth quarter 2020. On the bottom right graph, you'll see our fixed and variable loan composition. As an asset sensitive bank with approximately 60% of our loans floating, increased interest rates will be beneficial for Origin. We expect to generate an approximate incremental $20 million or 9.1% in net interest income from 100 basis point parallel shift in interest rates. At December 31st, 2021, 51% of our prime and one month LIBOR index loans have a note interest rate below their floor interest rate. With an increase of 50 basis points, only 20% of our prime and one month LIBOR index loans will have a note interest rate below their floor interest rate. With a total of 100 basis point increase, That percentage decreased to 7.2%. Slide 16 shows our recent net interest income and NIM trends. The graph on the left shows our five-quarter trends of income and NIM. Our net interest income increased $1.6 million, representing a 3% quarter-over-quarter increase. Excluding PPP and mortgage warehouse, our net interest income increased from $42.9 million to $45 million, or 5% quarter-over-quarter. We believe that our net interest income will continue to improve in 2022. The graph on the top right shows the change in net interest income excluding PPP and mortgage warehouse loans of $2.2 million from the third to the fourth quarter. Every balance sheet component improved compared to the prior quarter with interest from investment securities increasing $1.2 million in real estate and C&I loan income contributing $673,000. The bottom graph shows our NIM quarterly changes with lower yielding securities contributing to a largest negative impact due to the fourth quarter having a full quarter impact on the investment securities purchase that was made in the latter part of the third quarter. Slide 17 is our net revenue distribution. The top left shows our net revenue growth since our IPO and the 4Q21 over 3Q21 increase of $2.4 million. The bottom left graph details are non-interest income lines. Mortgage banking revenues increased 5% from the third quarter to the fourth quarter. Insurance commission and fee income, which is a seasonal revenue producer, increased 3.5% compared to the fourth quarter of 2020. We added a new table this quarter to give clarity to the components of other non-interest income, which is on the top right. During the 4th quarter, we completed the acquisition of the remaining 62% of the Lincoln Insurance Agency. The accounting rules require us to fair value our original 38% investment, and that produced a $5.2 million fair value gain. Slide 18, our non-interest expense analysis, we reported total non-interest expense of $40.4 million, an increase of $1.2 million compared to the 3rd quarter. The main driver of this increase was an additional $900,000 incentive accrual, primarily due to the growth in loan production. We continue to focus on efficiencies to support our growth, and the bottom graph represents our quarterly operating leverage and efficiency ratio trends. Now I'll turn it over to Drake.
spk02: Thanks, Steve. Our capital position has supported our strong organic growth while allowing us to continue building valuable partnerships. I mentioned on our last call that we would close two in-market insurance acquisitions in the fourth quarter. Those partnerships were successfully finalized in December, having a slight impact on capital. We are in a strong position and, as I have consistently stated, we will continue to take an opportunistic and disciplined approach in deploying our capital in ways that we believe will be beneficial to our shareholders and drive long-term value. You know, 2021 was a great year for our company. We executed on our strategic plan and delivered on what we told the market we would do. We produced strong organic growth, took advantage of dislocation in the market, attracted highly talented bankers, effectively managed our expense structure, maintained strong credit quality and significantly grew our Texas franchise. I am proud of the employees of Origin and what they accomplished in 2021. They remain committed to our culture, which is unique and separates us from others in our market and continues to be a competitive advantage. This was reinforced this year by being recognized by American Banker Magazine as the third best bank to work for in America. The origin vision is to combine the power of trusted advisors with innovative technology to build unwavering loyalty by connecting people to their dreams. Our vision is clearly in focus. We are strategic and intentional about following the vision to drive us to attract highly talented bankers who want to be a part of an award-winning culture and continue to build a best-in-class growth story. Thank you for being on the call today, and we'll open it up for questions.
spk01: Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touchtone telephone. To withdraw your questions, you may press star and two. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Matt Olney from Stevens. Please go ahead with your question.
spk00: Thanks. Good morning, everybody.
spk02: Good morning, Matt.
spk00: I want to start with the loan growth, and it's great to see the robust loan growth when I take out PPP and mortgage warehouse. Any more colors on the driver of the long growth in the fourth quarter? And if you could speak to utilization rates or paydowns or anything else that you think is more notable as far as the driver. And then as you look into 2022, what type of growth do you expect ex-PPP and mortgage warehouse?
spk05: Yeah. Hey, Matt. Good morning. This is Lance. You know, we started last year I was very confident that we were going to get high single-digit loan growth, so I was really pleased in the third and fourth quarter to see that come to fruition. We felt very confident all year in our pipelines, in the conversations with our presidents, and we kind of walked into Q4 with about a $300 million pipeline at the time, and that came out great. Texas continues to be the huge driver for us. Almost 100% of the loan growth came in the Texas markets. those investments in dallas and fort worth and houston continue to pay off um you know on a going forward basis we just feel like we're an organization that's built to grow from our geographic management model to the way that we incent to the culture that we've built that allows us to lift out teams um so if you look at slides nine and ten of of the slide deck you know we're traditionally growing about twenty percent in texas which is equating to double-digit loan growth for the company.
spk04: And we think that's going to continue next year.
spk00: So Lance, if I layer in that 20% plus growth in Texas along with the other markets, do we get back to the high single-digit level on a combined basis? Is that a fair way to look at it?
spk05: Yeah, Matt, I'll tell you from a budget perspective, we're budgeting 10% loan growth. We think we can drive double-digit loan growth. It was also great to see in Q4 our line utilization get back to historic levels. We went from 42% to 48% in utilization, which equated about $113 million in CNI growth in that area. The fact that the vast majority of this was CNI, which is where we like to drive this business, it was overall just a really, really good quarter for us, and we see that continuing into next year.
spk00: Okay. Okay. That's great, Lance. And then on the deposit side, also some really strong growth in the fourth quarter. Would love to hear your thoughts on how sticky that deposit growth is. Just trying to appreciate if anything –
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