Q4 2023 Origin Bancorp Inc Earnings Call
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Ladies and gentlemen, thank you for waiting your conference will start shortly.
David: Good morning, and welcome to the origin Bancorp, Inc. Fourth quarter earnings Conference call. My name is David and I will be your ever call moderator.
David: Please note that this event is being recorded.
David: I would now like to turn the conference over to Chris Riggleman Director of Investor Relations. Please go ahead.
Chris Riggleman: 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 call.
Chris Riggleman: Please refer to page two of our slide presentation, which includes our safe Harbor statements regarding forward looking statements and the use of non-GAAP financial measures.
Chris Riggleman: For those joining by phone. Please note. The slide presentation is available on our website at Www Dot IR Dot origin Dot bank.
Chris Riggleman: Please also note that our safe Harbor statements are available on page six of our earnings release filed with the SEC yesterday.
Chris Riggleman: All comments made during today's call are subject to the safe Harbor statements in our slide presentation and earnings release.
Chris Riggleman: I'm joined this morning by origin, Bancorp's, Chairman, President and CEO Drake Mills.
Chris Riggleman: I didn't and CEO of origin Bank Lance Hall our.
Chris Riggleman: Chief Financial Officer, Wally Wallace.
Chris Riggleman: Our chief risk Officer, Jim Crotwell.
Chris Riggleman: Our Chief Accounting Officer, Steve Brolly, and our Chief credit and banking Officer Preston Moore.
Chris Riggleman: After the presentation, we'll be happy to address any questions you may have.
Chris Riggleman: The call is yours.
Chris Riggleman: Chris as I look back on 2023.
Chris Riggleman: Realization that our people successfully navigated one of the most stressful years in my career provides me with confidence that origin has attained infrastructure footprint and deposit franchise to be highly successful in future. You know I've, often said that we don't manage our company quarter to quarter and we've never backed down from capitalizing on the right opportunities and investing for future success.
This quarter was no exception as we.
Chris Riggleman: We're excited about entering our newest markets in South, Alabama, and the Florida Panhandle next summer will lead this new southeast market. He and his team has worked together for more than 15 years building dynamic relationships throughout that region.
Chris Riggleman: South, Alabama, Florida Panhandle offer tremendous opportunity for origin, our culture, our focus on the client experience. Our geographic management model is what has attracted highly talented bankers to origin I believe the combination of this team and our way of doing business will allow us to grow market share and impact communities in a powerful way.
Chris Riggleman: Throughout 2023, we communicated our strategy of staying under $10 billion in assets and we were successful with that strategy, finishing the year at $9 $7 billion. We anticipate crossing this important threshold in 2024, we have invested in technology processes and people in preparation for the new regulatory environment, while there is expense.
Chris Riggleman: With this growth we are committed to building. This company for long term success I continue to be optimistic about where we are as a company. The markets. We serve in Texas, Louisiana, Mississippi had been resilient and the investments, we're making in south, Alabama, and Florida Panhandle create additional opportunity to add meaningful long term shareholder value now I'll turn it over to Lance.
Lance: Thanks, and good morning, as Drake mentioned I'm excited about this team of dynamic bankers that will create the new southeast market with origin offices, playing in mobile, Alabama, and Fort Walton Beach, Florida.
Lance: New geographic market will partner alongside our existing markets of Houston, North, Texas, East, Texas, Louisiana and Mississippi.
Lance: Similar to our organic entries into Houston, and Dallas and Fort worth we have confidence that our south east market will be a driver of profitable growth.
Lance: I'm personally excited about this opportunity for several reasons.
Chris Riggleman: I look forward to introducing the origin brand in the way of doing business to Alabama and Florida.
Chris Riggleman: These are dynamic and complementary growth markets and will allow us to further diversify our client base and loan portfolio.
Chris Riggleman: Secondly, I'm honored that such experienced an exceptional bankers would choose to be a part of origin to growth story.
Chris Riggleman: This is a strong example of how our corporate culture is tangible and valuable.
Chris Riggleman: Origin is attractive to bankers because of our culture because of our franchise dynamics because of our entrepreneurial spirit and because of our geographic management model.
Chris Riggleman: This southeast market team is going to be extremely valuable to origin as we continue to grow.
I firmly believe that our new teammates will be great culture fits great producers and great partners.
Chris Riggleman: Turning to 2023 deposits remain the primary focus of our bankers throughout the year and our results from last quarter reflect that focus.
Chris Riggleman: Excluding broker deposits, which we intentionally reduced as we manage below 10 billion deposits increased one 3% compared to the previous quarter.
Chris Riggleman: I'm proud of our team and how they're expanding relationships to provide value to our clients. Despite the challenging interest rate environment.
Chris Riggleman: Looking forward I'm confident that we can grow deposits in the mid single digit range in 2024, which will allow us to fund loans in the mid single digits.
Chris Riggleman: As we've said consistently deposit growth will be a governor to loan growth.
Chris Riggleman: Posit trends demonstrate continued momentum similar to Q4 loan growth could exceed our mid single digit target, especially given the strength within our Texas footprint.
While we continue to invest in our markets and our people. We also feel strongly that investments in technology is what enhances the client experience and drives market share growth.
Chris Riggleman: We currently have implemented a number of new initiatives and are scheduled for more in 2024 and will greatly improve the digital and mobile experience for our clients.
Chris Riggleman: We've also implemented measures on the backend of our business and create efficiencies.
Chris Riggleman: Spoken previously about our continued use of robotics in 2023, we were able to save over 6500 hours through our process automation platform and reduce a substantial amount of risk to the company.
Chris Riggleman: I'm very proud of our teams throughout our markets and their unwavering commitment to the vision and strategy of origin.
Chris Riggleman: As we move into 2024, I'm confident that we will continue to leverage our corporate culture, and geographic management model to profitably grow our markets and business lines.
Chris Riggleman: Now I'll turn it over to Jim.
Jim Crotwell: Thanks Lance.
Jim Crotwell: As reflected on slide 13, I am pleased to report continued solid credit metrics for the quarter.
Jim Crotwell: Past due loans held for investment came in at three 4% at year end up seven basis points from the prior quarter end and continue to be well within acceptable levels.
Jim Crotwell: Classified loans held for investment as a percentage of total loans held for investment came in at 1.05% as of year end up from eight 5% last quarter and matches the level reported as of year end 2022.
Jim Crotwell: Our current level of total classified loans also continues to be well within the acceptable levels.
Jim Crotwell: I am pleased to report this quarter decreases in both nonperforming loans as well as net charge offs non.
Chris Riggleman: Nonperforming loans as a percentage of loans held for investment ended the year at three 9% down from four 2%.
Chris Riggleman: While annualized net charge offs totaled <unk>, one zero percent for Q4 compared to one 4% for the prior quarter.
Chris Riggleman: As we have shared in the past we are relationship driven with credit underwriting focused on primary secondary and tertiary sources of repayment.
Chris Riggleman: This focus, particularly the focus on secondary and tertiary sources of repayment pay dividends in the fourth quarter as evidenced by $1 $9 million in recoveries for the quarter contributing to the reduction in net charge offs.
Chris Riggleman: For the quarter, our allowance for credit losses increased $1 $7 million to $96 $9 million, resulting in no change from the prior quarter of 136% as a percentage of total loans held for investments.
Chris Riggleman: Net of mortgage warehouse, our reserve ratio increased slightly from 130% as of the prior quarter to 131% as of year end.
Chris Riggleman: The stable level of our allowance mirrors, our stable credit metrics.
Chris Riggleman: As to reserve levels and as discussed in previous quarters, we continue to balance our sound credit quality with continued economic headwinds.
Chris Riggleman: On slide 14, we have updated the additional information on our CRA office portfolio, which continues its sound performance.
Chris Riggleman: As of year end this segment of our portfolio totaled $375 $9 million with an average loan size of only $2 2 million.
Chris Riggleman: A sound credit profile of this segment as evidenced by our weighted average debt service coverage of 147 times as well as our weighted average loan to value of 59, 4%.
Chris Riggleman: Past due loans totaled three 2%, while the sector reflected no classifieds, no nonperforming and no charge offs.
Chris Riggleman: In summary, our portfolio continues it sound performance driven by our constant focus on relationship banking.
I'll now turn it over to Wally.
William Jefferson Wallace: Thanks, Jim and good morning, everyone turning to the financial highlights in Q4, we reported diluted earnings per share of 43.
William Jefferson Wallace: On an adjusted basis Q4, EPS were <unk> 60, <unk> after excluding a $1 $8 million write down of our MSR and a $4 $6 million loss on securities sold during the quarter.
William Jefferson Wallace: Starting with deposits total deposits declined one 5% during the quarter. However, as Lance mentioned earlier deposits grew one 3% linked quarter, if you exclude brokered deposits.
Lance: We continue to see a shift of noninterest bearing deposits into interest bearing accounts. So this trend continued to abate and was better than our expectations in Q4.
Lance: Moving forward, we still forecast some continued pressure to our noninterest bearing deposit mix over the next couple of quarters.
Chris Riggleman: Timidly combined with some continued pricing pressures are total deposit beta increased slightly to 50%.
Chris Riggleman: From 47% in Q3, 42% in Q2 and 35% in Q1.
Chris Riggleman: Pricing pressures are easing, but we do expect our beta will increase slightly over the next couple of quarters absent any change in the rate environment.
Chris Riggleman: Importantly actions taken to reposition our securities portfolio late in Q3, and again late in Q4 drove a favorable shift in our earning asset mix and combined with loan pricing discipline to more than offset funding cost pressures, resulting in five basis points of net interest margin expansion during the quarter to $3 one 9%.
Essentially in line with our expectations.
Chris Riggleman: Moving forward, we anticipate Q1, NIM should be relatively flat plus or minus one basis point.
Chris Riggleman: Assuming a flat interest rate environment, we would expect expansion throughout the remainder of 2024 and at an increasing rate in the second half of the year due to elevated volumes of fixed rate loans re pricing.
Chris Riggleman: That said the current fed dot plot cost for 325 basis point cuts during 2024 and the forward curve is pricing in expectation of five to 625 basis point cuts during 2024.
Chris Riggleman: As a reminder, we are asset sensitive.
Chris Riggleman: In our modeling we assume the first two to four cuts will pressure margin more than subsequent cuts as we assumed deposit betas will lag on the way down just as they lagged on the way up.
Chris Riggleman: As such we assumed the first 100 basis points of cuts could result in 15 to 20 basis points of margin pressure in a static environment weighted towards the first 225 basis point cuts, notably the previously mentioned fixed rate commercial loan repricing in the second half of 2024 should act as a relief valve to the.
Chris Riggleman: Aforementioned margin pressure should the fed began cutting rates in an environment, where the fed is easing we still expect we can run our business at a NIM above 3% with a longer term full cycle target over three 5% as.
Chris Riggleman: As <unk> discussed we are very excited about the creation of our new southeast market. This strategic investment positions us well from a growth standpoint, as we continue our evolution into a mid sized bank and was very attractive financially.
Chris Riggleman: We estimate the new southeast market will achieve breakeven within four quarters and payback in less than two and a half years, assuming loans were funded with market deposits and cash on hand based on these metrics. We believe the upfront EPS impact is justifiable lastly, as outlined on slide 15 of today's Investor presentation, We sold securities.
Chris Riggleman: With a book value of $78 $9 million at a realized loss of $4 $6 million during the quarter. We will use the proceeds of this transaction is cash on hand to fund the unfunded loan gap and the new southeast market as well as for loan growth across our other markets. You can see on slide 15, our range of earn back margin and EPS benefit.
Chris Riggleman: For the securities trade, depending on our ability to deploy the proceeds from cash into loans and how long it takes but at the midpoint of expectations. We estimate a payback of one five years, a margin benefit of four basis points and an annual EPS benefit of <unk>.
Chris Riggleman: Shifting to noninterest income, we reported $8 $2 million in Q4, excluding the previously mentioned $1 $8 million write down of our MSR asset and $4 $6 million loss on securities sold during the quarter. Our adjusted noninterest income was $14 $6 million in Q4 down from $15 $2 million in Q.
Jim Crotwell: Three which excluded a $10 $1 million gain on an investment write up and a $7 $2 million loss on sale of securities expected seasonality in our insurance business was the primary driver of this decline during the quarter, we decided to begin exploring the sale of our mortgage servicing business and recognized an impairment of $1 $8 million on the associate.
Jim Crotwell: The MSR to facilitate the planned sale of the asset our noninterest expense increased to $69 million in Q4 from $58 $7 million in Q3.
The quarter was impacted by $1 $5 million in expense not in our expectations. These unexpected costs were related in large part to elevated health care self insurance costs, and our new southeast market entry.
Chris Riggleman: While we remain laser focused on managing our operating expense levels. We also believe we can operate from a position of strength and take advantage of opportunities that fit our long term growth vision like team lift outs as such we believe expense growth in 2024, including the impact of our new South east market will be in the mid single digit range.
Chris Riggleman: Compared to 2023.
Chris Riggleman: Turning to capital we note that our TCE ratio exceeded 9% in Q4, ending at nine 3% as favorable interest rate movement late in the quarter improved the loss position in our securities portfolio combined with organic growth intangible common equity.
Chris Riggleman: Furthermore, as shown on slide 23 of our Investor presentation, all of our regulatory capital levels at both the bank and holding company remained above levels considered well capitalized even if we were to include our Aoc I loss in the calculations as such we remain confident that we have the capital flexibility to take advantage of any potential future capital deployment.
Chris Riggleman: <unk> opportunities to drive value for our shareholders with that I'll now turn it back to Drake. Thanks.
Drake Mills: Thanks, Wally I'm passionate and excited about what we have built as a company and more importantly, where we're going I think about how we are positioned in the strategic investments, we've made and will continue to make to grow our balance sheet and create scale.
Drake Mills: Team doesn't think about just being a $10 billion bank, but a 20 $30 billion beyond our investment in people is what gives us so much confidence high quality leaders like Wally Wallace as CFO to work alongside the borrowing. The addition of Derek Magee as Chief legal counsel and his network throughout Texas and the rest of the industry. The addition of our new compliance officer, Brandy, Greg and <unk>.
Drake Mills: New Treasurer will lankford as well as Blair Diamond, our new regulatory liaison. These additions are to an already impressive team who have worked together for decades as we are proving through investment in people technology lift outs acquisition and culture. Our strategic plan is purposeful and focused on building long term growth in <unk>.
Drake Mills: The ability the moves we made in 2023 and initiatives that we continue to prioritize our all aimed at long term profitable growth.
Jim Crotwell: We continue to build an incredibly talented team who operate in what we believe are some of the best if not the best markets in the United States and we invest in best of class technology to provide an unmatched customer experience. This is a business model built to last and more importantly, one that is scalable as we look to continue our growth trajectory origins in a great position and we.
Jim Crotwell: We're on the offensive now we will open the call for questions.
Jim Crotwell: Thank you team, ladies and gentlemen at this time, we will conduct the question and answer session.
Jim Crotwell: If you would like to ask a question. Please press star one on your telephone keypad in order to enter the queue or if you've joined via web. Please press the raise hand icon on the right side of your deal Roadshow screen.
Jim Crotwell: Once more that'll be star one on your telephone keypad or the raise hand icon on the right side of your deal Roadshow screen will pause briefly to allow questions to generate.
Matt: Our first question comes from Matt from Stephens, Inc. Your.
Matt: Your line is open.
Matt: Hi, Thanks, good morning, everybody.
Matt Stephens: Good morning, Matt.
Matt Stephens: Well I'd love to hear more about this expansion in.
Matt Stephens: In the southeast markets.
Matt Stephens: And the team that you hired I think you mentioned two L. P. O's eight lenders right now and support personnel.
Matt Stephens: Any more color on just how big of an opportunity this could be and not just over the next year or two but just longer term what this looks like.
Chris Riggleman: And then within this team what types of customers are they going to be focused on and specifically do you expect loan growth to lead deposit growth for this team or will it move in tandem.
Matt Stephens: Thanks, Matt and good morning.
Matt Stephens: For us we've the last.
Matt: I guess a couple of years, we've talked about longer term growth opportunities and we.
Matt: Quietly have looked around from the standpoint of.
M&A opportunity in that market because obviously it's.
Matt: A little bit quicker path that way, but.
Matt: Fortunately we were introduced to this.
Matt: This team and they've come out of several different institutions and I really categorize them as.
Matt: A very successful.
<unk> BVA team, if if I look at it that way.
Matt: Yes.
Matt: As we continue to be C&I focused as we continue to stay.
Matt: Kind of positioned as to keep our portfolio mix to go into the same direction. These people fit our culture, our plans our strategy perfectly we werent necessarily.
Matt: Ready to do something like this but it reminds me that.
Matt: Tough times bring opportunities and that's why we have when we have to take advantage of them. So we hope that this is a springboard to other opportunities in these markets, but right now we're going to focus on getting these people up going into profitability, which is going to be key I've, often said anything we do outside of.
Matt: Leveraging our current infrastructure is going to take away from efficiency of we understand the impact to this decision, but ultimately when you look at the footprint map.
Matt: This this is right in line with what our longer term expectations and strategies for so I'm very pleased and I will kind of turn it over to Lance to talk a little bit about you know their strategy their type of customer and how they're focused lance was able to spend what I think is it.
Lance: A tremendous amount of time with them, creating relationships down the road lands yeah. Thanks, sure I can hi, thanks, Matt Good morning.
Lance: Incredibly excited about this opportunity as we think about the future of this gives us opportunities to diversify to grow and specifically to do what we like to do which is focus on C&I operating companies.
Lance: The.
Lance: The honor to get connected to Nate summer get to build a relationship with him.
Matt: Maybe in our next regions employee knowing the strength encompass had in Alabama, we have a lot of compass BBVA employees in Texas.
Nate Summer: That always spoke incredibly highly of the old compass, Bbva's, South, Alabama team and so getting to kind of understand and its sort of rebuild some of that old team. We think he is going to be exciting for us.
Drake Mills: You kind of give you a frame of reference around what we think potential is in the long run.
Drake Mills: This team at Compass, BBVA had $1 billion in loans and $1 billion in deposits. So from a long term perspective, where we're really excited about that opportunity there.
Drake Mills: The vast vast majority C&I, which fits our profile perfectly.
Matt Stephens: We like the demographic moves.
Matt Stephens: Most COVID-19 and work from home you've seen.
Matt Stephens: Tremendous growth in Baldwin County, and some of these counties that they represent.
Matt Stephens: And so as we were.
Matt Stephens: Work to build this out I think it's going to be a dynamic opportunity for us to scale and create new relationships.
Speaker Change: Okay. Thanks for that Lance Greg color.
Lance Greg: And then on the on the loan growth side, I think youre, pointing us towards that that mid single digit number but it sounds like that could be partially impacted by the success you have on the deposit growth front.
Lance Greg: Just help us appreciate that that mid single digit loan growth outlook and how much of that is from the well.
Nate Summer: Legacy origin side, and then the new team coming on.
Lance Greg: How much is how much has that influenced the mid single digit loan growth guidance you provided.
Lance Greg: Yeah.
Lance Greg: Yes.
Lance Greg: So for US right as we've been saying this consistently the last three or four quarters loan growth for us is completely governed by deposit growth.
Lance Greg: I feel more optimistic today than I have the last couple of quarters because of what we saw in Q4.
Lance Greg: We've shrunk.
Nate Summer: Broker deposits purposely in Q4, so that we could make sure that we stay at under 10 B.
Nate Summer: But with that we had actually had core deposit growth in Q4 so.
Nate Summer: Conservatively, we're kind of thinking 4% to 7% on the deposit side, which would then therefore align what we're going to do on the loan side, but if we're able to kind of continue the trend from Q4, we know we have loan growth upside because of the dynamic markets in Texas.
Nate Summer: You know at this point the vast majority of sort of what we're budgeting and thinking through is sort of our legacy business.
Nate Summer: He's a mandate to our southeast partners is to self fund.
Nate Summer: And so you know there are initial push is going to be.
Nate Summer: To help really grow grow deposits with loans to follow.
Lance Greg: Okay I appreciate that Lance and then also wanted to ask.
Wally I think I appreciate the guidance you gave around the margin more near term a flattish it sounds like there is potential for expansion a little bit of expansion beyond that.
William Jefferson Wallace: Due to that fixed rate loan repricing.
William Jefferson Wallace: I assume that was assuming flat rates.
William Jefferson Wallace: Because I guess the caveat there you put out was that that desk that there'd be some some some pressure so did I that capture the upside scenario that back half of the year on margin would be a flat rate scenario.
William Jefferson Wallace: Yeah.
William Jefferson Wallace: Okay.
Speaker Change: Tina Please ensure your line is not muted.
Speaker Change: Okay.
Speaker Change: We had a backup as a backup.
Okay.
Speaker Change: Are you there operator.
We hear you Jim.
Speaker Change: Okay.
Speaker Change: Oh, sorry, we had a power surge through a storm is coming through so if we could get mad only back I appreciate it.
John: Hey, John.
Matt Stephens: Yes, we can that I apologize, Matt we had a power surge, we gotta storm moving through.
Matt: Oh understood.
Matt:
Matt Stephens: As to your question about the margin.
Matt Stephens: <unk> just got the front part of it.
Matt Stephens: Okay no problem.
Chris Riggleman: He was asking about the commentary you made on the prepared remarks about the margin trajectory for the rest of the year.
Chris Riggleman: Kind of flattish more near term I got that part of it but I think you mentioned the back half of the year the margin could have some upward upward.
Chris Riggleman: Support driven by the fixed rate loan pricing I assume that was in a flat rate scenario given your comments about if the fed does cut you'd be asset sensitive, but there'd be some pressure I just want make sure I appreciate that the puts and takes around that.
Matt Stephens: Yes, Thanks, Matt.
Matt Stephens: Your assumption is correct.
So so the way, we kind of think about what might happen if the fed cuts.
Matt: In the prepared remarks, we kind of assume deposit betas will lag.
Matt: So if you if you look at the repricing potential we have in the portfolio against the pressures that we would expect from a bad.
Matt: Regime to changes to be more hawkish.
Matt: The expansion opportunities that we have in the second half.
Matt: We assume an model would offset about four rate cuts. So if the fed cuts four times, we think our margin could be flattish to where it is right now the cadence would be it'd be down a little bit if they cut if they started cutting early but if they start cutting later in the year.
Matt: We've got so much so many loans repricing in the second half, we think that that would offset the pressures from us.
Matt: Does that help.
Matt: That that's that's helpful Wally and I am sure embedded within <unk>.
Matt: Some of your assumption is something around deposit betas and.
Jim Crotwell: I hear your point as far as the lagging initially.
William Jefferson Wallace: From the from the first cut but maybe beyond that any any preliminary thoughts about deposit betas on the on the way down in this upcoming cycle.
William Jefferson Wallace: Yes, we think the lag in our model, we actually modeled a beta of zero for the first cut and then a.
William Jefferson Wallace: Lately slightly better beta in the second and we kind of went through our historical beta is the last time, we saw fed cuts and model that when we get over 100 and cuts in that environment, We would actually expect to see some margin recovery.
William Jefferson Wallace: But overall, if you look at one to two basis points of pressure.
Chris Riggleman: And after the first tundra.
Chris Riggleman: When we get kind of to what we would expect with our cycle maintenance if you will.
Chris Riggleman: Yep Okay.
Chris Riggleman: I'll step back in the queue. Thanks, guys.
Matt: Thank you Matt.
Matt: Thank you Matt.
Brady: Our next question comes from Brady from K B W.
Brady: Your line is open.
Brady: Hey, Thanks, good morning, guys.
Brian: Good morning, Brian.
But I know with you guys crossing 10 billion. This year in the past we've talked about Durbin.
Brian: In a roughly $5 million pre tax number.
Brian: That a number you're still feel good about.
Brian: With the recent.
Brian: Changes that we saw.
Brian: It probably ramps up to about five and a half million, maybe Max six and that will start impacting this midpoint 25.
Brian: Alright, and then I know, it's probably embedded in your expense guide.
Brian: Guidance of mid single digit growth, but.
Brian: You feel like most of the expenses have been already incurred to get you guys ready for this 10 billion crossed or are there. Other expenses that you feel like are upcoming as you guys think about this cross.
Brian: Yeah.
Brian: You know obviously, we spent a lot of time with everything from gap analysis to talking to other institutions that have gone over 10 billion in.
Brian: I kind of.
Given analogy I'm, driving 100 miles an hour and a range to warm and Wi prayers aren't quite keeping up to understand exactly what additional expenses are.
I've got this gut feeling and there's nothing that's going to tell you that but you know 60, 70% of our expense of crossing.
Brian: We somewhat have behind us, but you know we are ramping up.
Brian: Positions around compliance around audit.
Brian: Especially around risk management, we understand working.
With.
Brian: Some of our fed examiners or regulators that that some of the expectations are going to be around enterprise risk management and the pieces and parts I think we have a little bit to go but I also realize that day. One we don't have to have those expenses in place I look at this as an opportunity over the next 18 to 24 months to.
Brian: To feather those in so I would say more than half of the expense of crossing in my World and this isn't anything that I can sit and look at data because there's going to be some unexpected is going be some on those but I feel pretty good that we're half halfway plus there.
Brian: Okay.
Brian: Alright, and then.
Drake Mills: <unk> you guys have a pretty attractive insurance business and you know you've been growing it organically you've been growing it through acquisitions, there's been a lot of banks recently that have been.
Drake Mills: Selling their insurance was given the valuations and using that game to go off and do something else and it feels like you guys are still in building mode, but maybe just updated thoughts on how you think about the insurance business in Oregon.
Drake Mills: Yeah.
Drake Mills: Pretty passionate about the insurance business are the teams we have the ability.
Drake Mills: To expand footprint. The reason we have not been as active as we have in the past is is where youre looking at a hard market is driving increased revenues, but yet we see a.
Drake Mills: A multiple or that's been generated that is higher than I would like to play and so we're waiting for some of that to to relieve itself, but we see as we build noninterest income opportunities insurance being a significant part of enhancing and growing that we also like.
Drake Mills: And recently because of the sales that have gone out and started to prepare and look at the the the benefits outside of just revenue created not what I mean by that is the relationships that we have on the bank side because of the age agency book of business and we see that continuing to enhance the referral process is very.
Lance Greg: Good so it's kind of hand in glove from growing this footprint and building what I think is recognizable and very valuable non interest income. So we could certainly look at it we've looked at sales what it would generate what opportunities do we have with those funds at this point, we had a 10% growth in revenue last year, we saw that type of growth.
Drake Mills: Profitability, so even with interest rates, where they are I still see this as a bigger win for for investors. If we continue this business and stay focused on what the next several years.
Matt Stephens: Yeah that makes sense, thanks for the color guys.
Brian: Thank you Brian.
Brian: Thank you Brady. Our next question comes from Graham from Piper Sandler Your line is open.
Brian: Yeah.
Brian: Graham Please ensure your line is not muted.
Graham: Hey, guys can you hear me okay.
Graham: Good morning.
Graham: Sorry about that morning.
Graham: I just wanted to start with the southeast market you guys expanded into you. Obviously I know you said you're focused on profitability right now and making sure that team is fully integrated.
Graham: But as you look at this market longer term, how does how does M&A play into the car T or is this sort of your new area of focus when it comes to building relationships with other banks that that might want to partner up with you down the line.
Graham: Or do you think Youll just continue to sort of build out around these teams and just see where it goes from there.
Graham: With current conditions.
Graham: About.
Chris Riggleman: When I think about M&A strategy I think about the regulatory front I think about interest rate marks I think about a OCR and the difficulty of the current valuation expectations from these partners and where we currently are we've got to create an opportunity to have a better currency, we do to get successful. So we've kind of gone back to the playbook.
Chris Riggleman: Look on views and team and building off of teams.
Chris Riggleman: And in my in my previous World I've had more success, let's say from from our growing through team acquisitions and not necessarily have an M&A and I'm not excluding bta's from that but.
Chris Riggleman: You know as we as we look at what partnerships or what opportunities we have.
Chris Riggleman: The majority of that right now is in Texas.
Chris Riggleman: We have.
Chris Riggleman: Had some conversations in the southeast and we will continue to build those relationships, but I do think for the next and I'm going to say three to four quarters, we're going to focus on this team's strategy versus our see benefit from train team strategy. Then we are going to see from M&A.
Matt Stephens: Okay. That's helpful. And then I guess, just just going back to the NIM and more specifically the deposit beta I know you guys are a traditionally you know asset sensitive name, but obviously I think it's I think it's fair to say that deposit costs, maybe exceeded where we thought they would go this cycle just given what you guys had done in prior cycles.
Chris Riggleman: So I'm wondering why as you as you look at the NIM next year won.
Chris Riggleman: Historical deposit betas that around 30%.
And then I guess also to do you think you might be able to outperform that similar to I guess the incremental pressure that you saw on the way up which is closer to 50% now.
Graham: Thanks, Graham I appreciate the question.
Graham Smith: I think that we're trying to take a prudent approach to how we think about deposit betas. Historically when you look at what happened in prior cycles, we didn't have Texas and Texas is a much more of a C&I market for us and a lot of those deposits well flowed in our in our indexed.
Graham Smith: But they also come with more noninterest bearing deposits. So I agree with your statement that the deposit beta was higher than we thought on the way up but we are not going to assume that it will.
Graham Smith: The higher than than we would expect on the way down we're taking a much more conservative approach in our own modeling in and if you harvested the math, we're actually modeling.
Graham Smith: For the first cut or two.
Graham Smith: And then our hour.
Graham Smith: Our modeling on the way down would suggest that the deposit in prior cycles. The betas were a little bit lower than they were on the way out.
Graham Smith: Okay. Thanks for that and then I guess, you mentioned that there but on index deposits do you guys have like a number of.
Graham Smith: Total index deposits to the bank that would move immediately with any change in rates.
Graham Smith:
Graham Smith: So I don't have the dollar amount for you, but you can look at our public funds and assume that the majority of those are index and the majority of what's remaining itself.
Graham Smith: Okay got it alright I appreciate it guys. Thank you.
Graham Smith: Okay.
Greg: Thank you Greg.
Graham Smith: Thank you Graham once again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad or the raise hand icon on the right side of your deal Roadshow screen.
Graham Smith: Once more that will be star one on your telephone keypad or the raise hand icon on your deal Roadshow screen.
Tim <unk>: Our next question comes from Tim <unk> from Raymond James.
Tim <unk>: Tim Your line is open.
Speaker Change: Tim Please hey, guys. Your line is not me.
Tim: Good morning, Tim.
Tim: Hey, what's going on so I just wanted to start kind of on the bond sale and using that those proceeds to fund loan growth and the new South Alabama Panhandle market kind of how quickly do you think you can deploy that capital and how sensitive would your kind of EPS NII outlook that you lined out the slide b to kind of.
Tim: At that timeframe.
Tim: So thanks, Tim and good morning.
Tim: We are.
Tim: That those proceeds are going to fund loan growth and the new market as well as <unk>.
Tim: Our other markets, obviously, Texas markets are fast growing markets. We think we can get it deployed it doesn't take that long to deploy it because any new loan. That's made we can use those proceeds to fund we don't have to pull any borrowings or a pull any.
Broker deposits. So so we actually think that it will be weighted more towards the more positive outcome in this scenario outlined one in the slide deck.
Tim: And I thought that.
Tim: Part of your question.
Tim: Oh no.
Tim: That's perfect.
Tim: And then just kind of wanted to get your general update on credit if any areas of concern have emerged over the quarter and just kind of quarter that youre seeing.
Tim: Across Europe.
Tim: Let me I'm going to turn it over to Jim Crotwell. He is doing an awesome job with I guess positioning us we've had a very aggressive approach to credit and I'm very pleased with where the credit metrics ended 23 and the outlook for 'twenty four so Jim Tam.
Jim Crotwell: Tim Good morning.
Jim Crotwell: I feel really good about where we are continue from a credit perspective, we're seeing.
Jim Crotwell: <unk> through our credit metrics one of the things you know we did have a slight increase in our level of classifieds, but when you look a little bit deeper I was pleased that our actual non accrual levels decreased.
Jim Crotwell: And that drove when we went through our reserve analysis basically held that flat as a percentage.
Jim Crotwell: Two to total loans so.
Again going back to the overall levels of we're just seeing some good stabilization within our top portfolio not seeing any particular.
Jim Crotwell: Level of concentration or areas of concern.
Jim Crotwell: Within the portfolio so.
Jim Crotwell: And Tim I'll throw in here, you know credit schools.
Jim Crotwell: Some areas of concerns, but as I've always been concerned we're not seeing it but.
Jim Crotwell: Being concerned about our office and retail, but still those areas are holding up extremely well for us.
Jim Crotwell: Yes that makes sense.
And then just one last one for me you guys had talked in the past about kind of taking a more meaningful stake in argot.
Jim Crotwell: Try to get that equity method.
Jim Crotwell: Okay.
Jim Crotwell: You had any updated thoughts on that front.
Lance Greg: Yeah, Hey, good morning. This is lance yeah.
Yes, its still our strategy.
Lance Greg: <unk>.
Lance Greg: Had a large acquisition in the last half of last year continued to grow profitability grow EBITDA, we're very bullish on that business. The partnership that we have right getting to connect that more to our markets. It's still our intention to increase our investment and we hope the timing of that works out this year.
Lance Greg: Perfect. Thanks for taking my questions guys.
Lance Greg: Thank you Tim.
Lance Greg: Okay.
Lance Greg: Okay.
Tim: Thank you Tim.
Tim: It appears there are currently no further questions.
Tim: Handing it back to the origin team for any additional remarks.
Tim: Thank each one of you for spending time with this morning I was recently asked why I seem to be as optimistic as I am and you know My response took me back to think about and consider that during my career. We've explained we've experienced our strongest periods of growth coming out of downturns our industry stress.
Tim: We positioned ourselves during each one of those to have strong credit metrics. Good liquidity in the teams ready to go we are in that exact position today and I and it's hard to sit here and say we're on the offensive we realize and recognize we have to be concerned about expenses, we've got too big.
Graham Smith: Build revenues and do things to get through this interest rate environment, but we are only offensive we have opportunities that include our geography. The teams that we have deployed ready to go that have significant experience.
Graham Smith: And our focus our credit profile coming into this.
Graham Smith: At a time as is as good as we can consider it be is excellent. Our deposit base continues to show that we have opportunities for growth and then when you look at current opportunities in our footprint. It just put puts together a very optimistic opportunity for us to stay focused do the things that we know how to do.
Graham Smith: We have made several decisions this year that has impacted net earnings or earnings as a whole.
Matt Stephens: And each one of those was to put us in a better position to be able to deploy capital put these teams to work and really take advantage of these opportunities. So as you can tell a passionate I'm optimistic and it's really nice to be sitting here today only offensive I. Appreciate your time appreciate your interest in origin Bank and origin.
Bank Corp.: Bank Corp.
Chris Riggleman: Thank you for your investment hoped to see each one of you soon.
Chris Riggleman: This concludes today's call.
And have a great day.
Speaker Change: The House has ended this call goodbye.