Q1 2024 Origin Bancorp Inc Earnings Call
Your line is muted.
David: Ladies and gentlemen, good morning, and welcome to the origin Bancorp, Inc. First quarter earnings Conference call. My name is David and I will be your ever call coordinator.
The format of today's call includes prepared remarks from the company followed by a question and answer session.
David: Please note that this event is being recorded and all participants will be in a listen only mode until the Q&A portion of today's call.
David: I would now like to turn the conference call over to Chris <unk> Director of Investor Relations. Please Chris go ahead.
And thank you for joining US today, we issued our earnings press release yesterday afternoon.
David: Copy of which is available on our website along with the slide presentation that we will refer to during this call.
Chris: Please refer to page two of our slide presentation, which includes our safe Harbor statements regarding forward looking statements and use of non-GAAP financial measures.
Chris: For those of you joining by phone. Please note. The slide presentation is available on our website at Www Dot origin top bank.
Please also note that our safe Harbor statements are available on page five of our earnings release filed with the SEC yesterday.
All comments during todays call are subject to 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, President and CEO of origin Bank Lance Hall, our Chief Financial Officer, Wally Wallace Chief.
<unk> risk officer, Jim Crotwell.
Our Chief Accounting Officer, Steve Brolly.
And our chief credit and banking Officer Preston Moore after the presentation, we will be happy to address any questions you may have.
Nicole is yours.
Thanks, Chris this past quarter, we showed good progress as our teams continued to improve efficiency and performance with a sharp focus on maximizing shareholder value I am very pleased with the production our teams experienced across our footprint as each demonstrated resilience amidst challenging market conditions with good loan and deposit growth a continued organic growth.
<unk> reflects our strategy and progress in building long term relationships with our customers.
We finished the quarter with pre tax pre provision earnings of $31 9 million and diluted EPS of <unk> 73 says tangible book value grew 2% to $29.24 and our TCE ratio was nine 3% at the end of the quarter.
Lance will get into more specifics, but I am optimistic about our deposit growth excluding broker deposits. We saw an increase of $102 million for the quarter. This is a testament to our bankers' understanding our strategy and delivering while loan growth exceeded core deposit growth. This quarter deposit growth remains a top priority and will be the governor to the loan growth for the year.
As we discussed in previous calls.
We continue to make investments and strategic decisions in preparation for crossing the $10 billion asset threshold at the end of the year. We made the decision to write down the value of our MSR asset and explore its potential sale. During the first quarter. We were successful in selling the MSR asset. This will remove volatility from our earnings stream and will reduce regulatory risk as we prepare.
Were to cross $10 billion in assets.
While we are pleased with the results of this quarter. We are strategically focused on improving our profitability. We continue to identify opportunities to drive revenue and better leverage our expense base, whether it's investments in new markets like our recent entry into South, Alabama, and Florida Panhandle, all the steps. We've recently taken to revamp our mortgage business origin is committed to building a more efficient.
And more profitable company now I'll turn it over to Lance.
Thanks, and good morning.
Our bankers have been extremely focused on deposit growth throughout all of our markets and they understand our commitment to fully funding loan growth with customer deposits.
With the efforts of our bankers to drive deposit growth in the first quarter.
And based on these trends I'm seeing across our markets I remain confident we will achieve this goal for the year.
A strategic differentiator, we continue to believe that our geographic management model is the most effective structure to deliver for our clients to build communities and to have empowered leaders and decision makers throughout our organization.
To this point this past quarter, we made the strategic decision to realign our Treasury management model to better serve our geographic strategy.
This will more effectively scale, our dynamic treasury management team for the future.
When there are additional markets built banking teams hard or banks acquired.
While our Treasury management team has been highly successful we believe this will expand our ability to drive additional deposits and fee income growth, while being more efficient.
We also remain strategically committed to our client selection philosophy, we talked often with our bankers about being trusted advisers and building unwavering loyalty with our clients.
This applies to the full relationship and the need to drive deposit and loan growth.
I've talked often about how we're using technology to enhance the client experience and drive efficiencies across our company.
We continue to see positive results, one of which is with our robotic process automation team.
The use of box, we have saved approximately 3100 hours of manual work in the first quarter of 2024.
It's about 50% of what we say for the entire year in 2023.
These efforts not only save time and make us more efficient, but also reduce risk to the company.
As an example.
We have prevented thousands of dollars in fraud loss, while delivering for our clients using our mobile deposit box.
Since we began using the spot we have reduced mobile deposit fraud loss by 84% year over year.
Currently we have approximately 50 automation processes in production with our <unk> team and I'm very optimistic about what they will continue to do as we move forward.
Before I turn it over to Jim I want to acknowledge our employees and their commitment to our culture every.
Every year, we designate March its culture month.
Where as a company we celebrate our culture reflect on our accomplishments and lay out our strategic plan for the year.
Passion and energy that our employees have right now across all of our markets is impressive.
We talk about our culture often.
It has become a competitive differentiator for us in driving employee engagement and attracting best in class bankers we have.
We'll never lose sight of our commitment to our culture and building long term relationships.
Now I will turn it over to Jim.
Thanks, Lance as reflected on slide 13, I am pleased to report continued sound credit metrics for the quarter past due loans held for investment came in at <unk>, 42% at quarter end up eight basis points from the prior quarter and continued to be within historically acceptable levels nonperforming loans increased $10.
<unk> 3 million for the quarter, while coming in at five 1% as a percentage of total loans held for investment up from three 9% at year end, while classified loans increased only $3 $7 million coming in at 1.07% as a percentage of total loans held for investment up only two basis points from the prior quarter.
<unk> and down 10 basis points from Q1, 2023 levels, the $10 $3 million increase in non performing was primarily driven by 12 relationships being placed on nonaccrual during the quarter, including seven C&I borrowers contributing $4 $7 million and five CRE borrowers contributing $3 7 million.
The current levels of both nonperforming and classified loans also continue to be within historically acceptable levels net charge offs totaled one 3% per quarter compared to a 0.10% for the prior quarter and benefited from $4 $1 million in recoveries. During Q1 of note as part of.
And agreed upon workout plan for one relationship we applied to $8 million of recoveries from one loan against another loan and the same relationship as such.
Such adjusted charge offs, and recoveries would be $3 $8 million and $1 $2 million, respectively with no impact to net charge offs for the quarter our level of charge offs continues to be in line with our expectations for the quarter, our allowance for credit losses increased $1 5 million to $98 4 million.
Resulting in a slight percentage change from the prior quarter to $1 two 5% from $1 two 6% as a percentage of total loans held for investments net of mortgage warehouse. Our reserve ratio also reflected a slight percentage change from the prior quarter to 130% from 131%. The dollar increase in the reserve for the <unk>.
<unk> was driven by loan growth as well as the required reserve attributed to the increase in nonperforming loans the stable level of our allowance mirrors the balancing of our continued sound credit metrics with the ongoing economic headwinds.
Slide 14, we have updated the additional information on our CRE office portfolio as of quarter end. This segment of our portfolio totaled 377 $8 million with an average loan size of only two 3 million weighted.
Weighted average debt service coverage was 134 times, while weighted average loan to value was 59, 5%. We had no past dues no classifieds no nonperforming and no charge offs. This sector continues its strong financial performance in summary, while we are experiencing normalization in our credit metrics are.
Our portfolio continues its overall sound performance driven by our constant focus on relationship banking.
I'll now turn it over to Wally.
Thanks, Jim and good morning, everyone.
Turning to the financial highlights in Q1, we reported diluted earnings per share of <unk> 73.
On an adjusted basis Q1, EPS were also 73 after excluding a $410000 gain on sale of our MSR and a $403000 loss on securities sold during the quarter.
Starting with deposits total deposits grew three 1% during the quarter, excluding brokered deposits grew one 3%, which is in line with last quarters, one 3% growth. We continue to see a shift of noninterest bearing deposits into interest bearing accounts that we believe this trend is stabilizing we still forecast.
Some continued pressure to our noninterest bearing deposit mix over the next couple of quarters, but we currently forecast it to remain above 20%, notably while pricing pressures still exist. They are easing, which we expect will remain a stabilizing factor in our net interest margin forecast.
Gross loans held for investment grew three 1% during the quarter, excluding mortgage warehouse loans grew two 3%.
This growth was above our expectations, but was driven in large part by construction projects funding, which should abate as the year progresses, while loan growth was greater than deposit growth ex brokered. We continue to expect loan growth in the mid single digits for the year with deposit growth essentially matching.
Net interest margin was flat for the quarter at $3, one 9% in line with our guidance of plus or minus one basis point moving forward. We anticipate net interest margin should be flat to up slightly with momentum for margin expansion building as the year progresses due to asset repricing benefits. We believe these benefits are.
To offset two to $3 25 basis point fed rate cuts, even assuming a zero deposit beta on our non indexed interest bearing deposits as a reminder, in an environment, where the fed is easing we still expect we can run our business at a net interest margin above 3% with a longer term full cycle target over three five.
5%.
Shifting to noninterest income, we reported $17 $3 million in Q1, excluding the previously mentioned $410000 gain on sale of our MSR and $403000 loss on Securities sold our adjusted noninterest income was $17 $2 million in Q1 up from 14.
$6 million in Q4, which excluded a $1 $8 million write down of our MSR and a $4 $6 million loss on securities sold seasonal strength in our insurance business and increased production in our mortgage segment were the primary drivers of this increase.
Noninterest expense decreased to $58 $7 million in Q1 from $60 9 million in Q4, the quarter benefited by a net of roughly $1 $1 million and items that while normal in the course of business are nonrecurring in nature as such while we remain laser focused on managing our operating.
Fence levels, we continue to expect expense growth in the mid single digit range in 2024 compared to 2023.
Turning to capital we note that our TCE ratio remained above 9% in Q1, ending flat to Q4 at nine 3%. Furthermore, as shown on slide 24 of our Investor presentation, all of our regulatory capital levels at both the bank and holding company level remain above levels considered well capitalized.
If we were to include our OCI loss in the calculations as such we remain confident that we have the capital flexibility to take advantage of any potential future capital deployment opportunities to drive value for our shareholders with that I will now turn it back to Drake.
Thanks, Wally I like the energy and momentum our company is building our efforts are pointed towards our goal of being a high performing financial institution, whose culture and client experience. Our unmatched we remain focused on our plan of achieving that goal we acknowledge the challenges within our industry, but also acknowledged that we have the production teams and management to overcome any challenges we may face.
<unk> and have built a company that our employees customers community and shareholders can be proud of thank you for being on the call. We will open it up for questions.
Thank you team ladies.
Ladies and gentlemen at this time, we will conduct the question and answer session.
If you would like to ask a question. Please press either star one on your telephone keypad or if you've joined via web cast the raise hand icon on the right side of your Drs screen.
Once again that'll be star one on your telephone keypad to enter the queue.
Or the raise hand icon on the right side of your deal Roadshow screen.
We'll pause briefly to allow any questions to generate.
Our first question comes from Matt from Stephens.
Your line is open.
Hey, Thanks, good morning, everybody.
Good morning, Matt.
I wanted to make sure I understand the impact of the MSR sale.
I assume within that mortgage line item. It will now just include the income from.
The sale of mortgage loans and origination fees.
Right and any color on what that's looked like over the last few quarters, just trying to get a better idea of.
What the mortgage line can look like now without that the servicing volatility.
Yes, Thanks, Matt.
So.
The reason that we sold the servicing business was because that while on an underlying basis. It ran at <unk>.
Slight profitability over time, it was very volatile from quarter to quarter due to hedging of the MSR.
We don't like that volatility in our earnings stream and so that was really what drove the decision to sell the asset so rather than give you the numbers over over the back half looking back why don't we just say that with the with the way we're running our mortgage business now, which is really a community bank mortgage model.
David: Your line is muted. Ladies and gentlemen, good morning and welcome to the Origin Bancorp, Inc. First Quarter Earnings Conference Call. My name is David, and I will be your Evercall Coordinator. The format of today's call includes prepared remarks from the company, followed by a question and answer session. Please note that this event is being recorded and that all participants will be in a listen-only mode until the Q&A portion of today's call. I would now like to turn the conference call over to Chris Reigelman, Director of Investor Relations. Please, Chris, go ahead.
Chris Reigelman: We made some changes to rightsize the business at the end of last year, and we anticipate running in the one to one 5 million dollar.
Chris Reigelman: And revenue per quarter, which would be kind of a breakeven run rate.
Chris Reigelman: We think running breakeven right now at this point in the cycle is acceptable with the anticipation that win when mortgage rates come back in and will be will be therefore, whatever volume.
Chris Reigelman: 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. Please refer to page 2 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.
Chris Reigelman: Comps comes in we will accept the breakeven run rate. So on the expense side, we would anticipate we take out about four or $500000 a quarter, but we anticipated the sale of this business in our guidance. So we're not.
Chris Reigelman: Encouraging you to reduce your expenses from where you were before.
Chris Reigelman: Please also note that our Safe Harbor Statements are available on page 5 of our earnings release file with the SEC. All comments during today's call are subject to safe harbor statements in our slide presentation and earnings release.
Speaker Change: Okay perfect. Thanks for that Wally.
Chris Reigelman: And I also wanted to ask about just overall capital.
Chris Reigelman: We're seeing a nice build of capital levels over the last few quarters of last year.
Chris Reigelman: Think that CET, one ratio is now close to 12%.
Chris Reigelman: I'm joined this morning by Origin Bancorp's Chairman, President, and CEO, Drake Mills; President and CEO of Origin Bank, Lance Hall; our Chief Financial Officer, Wally Wallace; Chief Risk Officer, Jim Crotwell; our Chief Accounting Officer, Steve Brawley; and our Chief Credit and Banking Officer, Preston Moore. After the presentation, we'll be happy to address any questions you may have. Drake, the call is yours.
Chris Reigelman: I would think that would give you a lot more flexibility to do something a.
Speaker Change: Love to get your updated thoughts on deployment of capital.
Speaker Change: How you're thinking about M&A securities restructuring buybacks. It seems like you have a lot of flexibility just curious kind of what your what are your thoughts there. Thanks.
Drake D. Mills: Thank you Matt Drake.
Speaker Change: For us we.
Drake D. Mills: Thanks, Chris. This past quarter, we showed good progress as our teams continued to improve efficiency and performance with a sharp focus on maximizing shareholder value. I'm very pleased with the production our teams experienced across our footprint as each demonstrated resilience amidst challenging market conditions with good loan and deposit growth. Our continued organic growth reflects our strategy and progress in building long-term relationships with our customers. We finished the quarter with pre-tax, pre-provision earnings of $31.9 million and diluted EPS of $0.73.
Speaker Change: I danced.
Chris Reigelman: Early in the year our expansion into.
Drake D. Mills: South, Alabama, and the Florida, Panhandle, and where they have high expectations of what an awesome team, we've been able to put together and just really pleased with their the start of their business and what theyre going to do so we have that we also feel that as you look at things starting to as we see some momentum on the deposit side.
Speaker Change: And certainly our teams are focused on growing deposits. We think we can get back to growth numbers.
Drake D. Mills: Tangible book value grew 2% to $29.24, and our TCE ratio was 9.3% at the end of the quarter. Next, we'll get into more specifics, but I'm optimistic about our deposit growth. Excluding broker deposits, we saw an increase of $102 million for the quarter. This is a testament to our bankers understanding our strategy and delivering on it. While loan growth exceeded core deposit growth this quarter, deposit growth remains a top priority and will be the governor to loan growth for the year.
Drake D. Mills: Going into 'twenty, five that a bit historical for us and if you look at those opportunities with the thought that as multiples as we do take care of our business and focus on performance and we start to see a multiple return that with relationships. We have that those are going to be opportunities for us.
Drake D. Mills: As we focus on and I think this is important internally as we say who are we today and what are we going to do there is certainly pressure as you cross over $10 billion.
Drake D. Mills: As discussed in previous calls, we continue to make investments and strategic decisions in preparation for crossing the $10 billion asset threshold. At the end of the year, we made the decision to write down the value of our MSR asset and explore its potential sale. During the first quarter, we were successful in selling the MSR asset. This will remove volatility from our earnings stream and will reduce regulatory risk as we prepare to cross $10 billion in assets.
Drake D. Mills: To get to a point of of an asset base that allows you to get back to profitability and focus so we've worked.
Drake D. Mills: Really hard internally on the expense side as we start to build up our complete the buildup to cross over $10 billion. So we understand that we need to get to that $15 billion number fairly quickly to be able to recognize the performance. We expect so that's certainly going to have to come through some some M&A activity, where that's not front.
Drake D. Mills: While we are pleased with the results of this quarter, we are strategically focused on improving our profitability. We continue to identify opportunities to drive revenue and better leverage our expense base. Whether it's investments in new markets, like our recent entry into South Alabama in the Florida Panhandle, or the steps we've recently taken to revamp our mortgage business, Origin is committed to building a more efficient and more profitable company. Now, I'll turn it over to Lance.
Lance: Of mind right this moment.
Lance: We think that our ability to use capital through M&A and growth in our expansion markets plus what we're seeing in Texas.
Lance: I would like to focus on capital use that way.
Drake D. Mills: Oh.
Drake D. Mills: Sure.
Lance: Okay. Thanks for the commentary there and then just lastly for me on the deposit cost I think the interest bearing deposit costs were up 13 bps this quarter.
Martin Lance Hall: Our bankers have been extremely focused on deposit growth throughout all of our markets, and they understand our commitment to fully funding loan growth with customer deposits. I'm pleased with the efforts of our bankers to drive deposit growth in the first quarter. And based on these trends I'm seeing across our markets, I remain confident that we will achieve this goal for the year. As a strategic differentiator, we continue to believe that our geographic management model is the most effective structure to deliver for our clients, to build communities, and to have empowered leaders and decision makers throughout our organization.
Martin Lance Hall: I think the commentary included some.
Martin Lance Hall: Additional pressure, but easing from from from more recent levels any other color you can you can add as far as what your expectations are on deposit costs from here. Thanks.
Martin Lance Hall: Yeah, Hey, Matt Good morning, this is lance.
Martin Lance Hall: I think some of it can be timing and some of it is going to be which markets. We're seeing the growth and I'm really proud of our President's we challenged all of our markets to make.
Martin Lance Hall: To this point, this past quarter, we made the strategic decision to realign our treasury management model to better serve our geographic strategy. This will more effectively scale our dynamic treasury management team for the future, when there are additional markets built, banking teams hired, or banks acquired.
Martin Lance Hall: Make sure that you could self fund in 2020 for them.
Martin Lance Hall: So you know one of the reasons between a little bit of higher cost is tougher competition.
Martin Lance Hall: And in Dallas, and Houston, and that's where we saw the majority of our growth. Some of that is seasonal based on what we see in north Louisiana. We are still seeing a competitive advantage where in north Louisiana interest bearing deposits, we're able to get it about 50 bps lower than we are in Texas. So that's.
Martin Lance Hall: While our treasury management team has been highly successful, we believe this will expand our ability to drive additional deposits and fee income growth while being more efficient. We also remain strategically committed to our client selection philosophy. We talk often with our bankers about being trusted advisors and building unwavering loyalty with our clients. This applies to the full relationship and the need to drive deposit and loan growth.
Martin Lance Hall: Great for us.
Speaker Change: But I would agree with what wally's commentary it feels like.
Martin Lance Hall: The market is being a little more receptive to.
Martin Lance Hall: Normalizing deposit cost.
Martin Lance Hall: I've talked often about how we are using technology to enhance the client experience and drive efficiencies across our company. We continue to see positive results, one of which is with our robotic process automation. Through the use of bots, we saved approximately 3,100 hours of manual work in the first quarter of 2024. That's about 50% of what we saved for the entire year in 2023. These efforts not only save time and make us more efficient, but they also reduce risk to the company. As an example,
Martin Lance Hall: But for US we feel there.
Martin Lance Hall: Short and long term value in maintaining a franchise that has sub 90% loan to deposit ratios excluding mortgage warehouse. So.
Martin Lance Hall: Continuing to grow liquidity and continue to grow deposits as is job number one.
Martin Lance Hall: The offset is we've done a really good job with disciplined loan pricing.
Martin Lance Hall: And our ability to continue to maintain and not see reduction in NIM and it actually was.
Martin Lance Hall: I think we'll see potentially a little bit of NIM expansion as we go forward.
Martin Lance Hall: We have prevented thousands of dollars in fraud loss while delivering for our clients using our mobile deposit box. Since we began using this bot, we have reduced mobile deposit fraud loss by 84% year-over-year. Currently, we have approximately 50 automation processes in production with our RPA team, and I'm very optimistic about what they will continue to do as we move forward.
Martin Lance Hall: So our.
Martin Lance Hall: Our deposit franchise is paying off and I'm proud of what we're doing.
Martin Lance Hall: Yeah.
Martin Lance Hall: Yeah.
Speaker Change: Okay. Thanks for that Lance I'll hop back in the queue congrats on the quarter.
Speaker Change: Thank you Matt.
Speaker Change: Thank you Matt.
Martin Lance Hall: Our next question comes from Michael <unk> from Raymond James.
Martin Lance Hall: Your line is open.
Speaker Change: Hey, good morning, everyone. Thanks for taking my questions.
Martin Lance Hall: Before I turn it over to Jim, I want to acknowledge our employees and their commitment to our company. Every year, we designate March as Culture Month where, as a company, we celebrate our culture, reflect on our accomplishments, and lay out our strategic plan for the year. The passion and energy that our employees have right now across all of our markets is impressive. We talk about our culture often. It has become a competitive differentiator for us in driving employee engagement and attracting best-in-class bankers. We will never lose sight of our commitment to our culture and building long-term relationships. Now, I will turn it over to Jim.
Jim: Just wanted to start off on this quarter's loan and deposit growth. So if I look at ex warehouse you guys annualized so of over 9% and then deposit growth was double digit.
Jim: <unk> I know you talked about.
Jim: Reiterating the guidance.
Jim: What's driving the projected slowdown, it's just less fund ups of construction loans, what's supposed to be a big driver. This quarter and then on the deposit side just given the stronger start should we expect.
Jim: Higher than what <unk> guided before which is essentially matching.
Jim: Loan growth thanks.
Jim: Yeah, Hey, this is lance thanks, a lot for that.
Jimmy R. Crotwell: Thanks, Lance. As reflected on slide 13, I am pleased to report continued sound credit metrics for the quarter. Past-due loans held for investment came in at 0.42% at quarter end, up 8 basis points from the prior quarter, and continue to be within historically acceptable levels. Non-performing loans increased $10.3 million for the quarter, while coming in at 0.51% as the percentage of total loans held for investment, up from 0.39% at year end, while classified loans increased only $3.7 million, coming in at 1.07% as the percentage of total loans held for investment, up only 2 basis points from the prior quarter and down 10 basis points from Q1 2023 levels.
Jim: I still think we're.
Speaker Change: We still believe guidance is the accurate way to look at it.
Jimmy R. Crotwell: There is no question that we have done a really good job in my opinion in the last few years of Onboarding through our client selection process and really good customers, Texas is such a competitive advantage for us and that's where we continue to see the loan growth opportunities and we really benefited in Q1 in two ways one was.
Jimmy R. Crotwell: The funding up of some construction projects that we feel really strongly about.
Speaker Change: But also we had utilization on our C&I lines increase.
Jimmy R. Crotwell: From what was a little bit subnormal.
Jimmy R. Crotwell: The $10.3 million increase in non-performing loans was primarily driven by 12 relationships being placed on non-accrual during the quarter, including 7 CNI borrowers contributing $4.7 million and 5 CRE borrowers contributing $3.7 million. The current levels of both non-performing and classified loans also continue to be within historically acceptable levels. Net charge-offs totaled 0.13% per quarter, compared to 0.10% for the prior quarter, and benefited from $4.1 million in recoveries during Q1. Of note, as part of an agreed-upon workout plan for one relationship, we applied $2.8 million of recoveries from one loan against another loan in the same relationship.
Jimmy R. Crotwell: To a more normal usage.
Speaker Change: Which created some some of our funding a little bit quicker than we thought it was going to be.
Jimmy R. Crotwell:
Speaker Change: It's a little bit of a balance for us in the sense that we feel like <unk>.
Speaker Change: Because of our locations because of the bankers, we have in Texas, we have great loan growth opportunity, but we're disciplined on this and he can continue to govern that buy smart and strategic deposit growth. So that that's the driver for us is making sure that we can fund at the appropriate way.
Speaker Change: Very helpful and then maybe for Wally.
Jimmy R. Crotwell: Looking at the margin I think you said two to three cuts. This year is now the expectation do you expect the margin can grind higher but if I go back to your comments from last quarter. I don't think you were assuming any cuts and if we did get cuts you could see at least for the first 100 basis points around 15 to 20 basis points of NIM pressure. So this seems to be a nice.
William Jefferson Wallace: As such, adjusted charge-offs and recoveries would be $3.8 million and $1.2 million, respectively, with no impact on net charge-offs for the quarter. Our level of charge-offs continues to be in line with our expectations. For the quarter, our allowance for credit losses increased $1.5 million to $98.4 million, resulting in a slight percentage change from the prior quarter to 1.25 percent from 1.26 percent as a percentage of total loans held for investments. And at a mortgage warehouse, our reserve ratio also reflected a slight percentage change from the prior quarter to 1.30 percent from 1.31 percent.
Speaker Change: Step up can you just walk us through maybe.
William Jefferson Wallace: What's changed in your modeling whether its deposit betas.
William Jefferson Wallace: Growth assumptions et cetera. Thanks.
Speaker Change: Yeah. Thanks, Good morning, Mike.
William Jefferson Wallace: We actually haven't changed any any expectations in our model as it relates to fed cuts, we've put one cut in our own forecast that.
Speaker Change: The commentary that we provide since it seems like expectations are when all over the place and to changing constantly.
William Jefferson Wallace: The dollar increase in the reserve for the quarter was driven by loan growth, as well as the required reserve attributed to the increase in non-performing loans. The stable level of our allowance mirrors the balancing of our continued sound credit metrics with the ongoing economic headwinds. On slide 14, we have updated the additional information on our CRE office portfolio. As of quarter end, this segment of our portfolio totaled $377.8 million, with an average loan size of only $2.3 million.
William Jefferson Wallace: I just don't know what people are going to put in their models. So we think that we could offset two maybe three cuts and still see margin expansion if the fed were to cut.
William Jefferson Wallace: The as far as the puts and takes in our model.
William Jefferson Wallace: Our deposit cost expectations were a little bit higher than we had anticipated however to lance's point.
William Jefferson Wallace: We have asked our markets to be very conscious about how they price their loans and we're seeing our loan yields have also been coming in better than our expectations. So net net the margin has has been.
William Jefferson Wallace: We had no past dues, no classifieds, no non-performing, and no charge-offs. This sector continues its strong financial performance. In summary, while we are experiencing normalization in our credit metrics, our portfolio continues its overall sound performance, driven by our constant focus on relationship banking. I'll now turn it over to Wally.
Wally: Performing as we had anticipated so there's some puts and takes in there, but our expectations really haven't changed.
William Jefferson Wallace: Okay.
Wally: Okay, Great I'll step back thanks for taking my questions.
Wally: Thank you.
Wally: Thank you Michael.
William Jefferson Wallace: Thanks, Jim, and good morning, everyone. Turning to the financial highlights, in Q1, we reported diluted earnings per share of $0.73. On an adjusted basis, Q1 EPS was also $0.73 after excluding a $410,000 gain on the sale of our MSR and a $403,000 loss on securities sold during the quarter. Starting with deposits, total deposits grew 3.1% during the quarter. Excluding the brokerage business, deposits grew 1.3%, which is in line with last quarter's 1.3% growth. We continue to see a shift of non-interest-bearing deposits into interest-bearing accounts, though we believe this trend is stabilizing.
Wally: Our next question comes from Woody from K B W. Your.
Speaker Change: Your line is open.
Jim: Hey, good morning, guys.
William Jefferson Wallace: More woody.
Speaker Change: Wanted to start out with noninterest bearing deposits.
Jim: It looked like that remix is beginning to slow and you sounded pretty optimistic in your opening comments, but just any color you can give on sort of the monthly trends youre seeing in the noninterest bearing segment.
William Jefferson Wallace: We still forecast some continued pressure on our non-interest-bearing deposit mix over the next couple of quarters, but we currently forecast it to remain above 20%. Notably, while pricing pressures still exist, they are easing, which we expect will remain a stabilizing factor in our net interest margin for cash. Gross loans held for investment grew 3.1% during the quarter. Excluding mortgage warehouse, loans grew 2.3%. This growth was above our expectations but was driven in large part by construction project funding, which should abate as the year progresses.
Speaker Change: Good morning.
William Jefferson Wallace: You know for the last.
William Jefferson Wallace: Five quarters, we have been building an expectation that we'd see a shift in our noninterest bearing mix.
William Jefferson Wallace: We had done a study where we went back and looked at our portfolio.
William Jefferson Wallace: The last time fed funds was.
William Jefferson Wallace: <unk> rates, where we are today and the last time, we had seen a kind of a meaningful period of tightening.
William Jefferson Wallace: Our expectations have pretty consistently been that we would see that mix start.
William Jefferson Wallace: To kind of stabilize in the low 20% range.
William Jefferson Wallace: The deterioration or the change in that mix has has moved exactly as we expected. However every quarter, it's down a little bit better than we were modeling so.
William Jefferson Wallace: While loan growth was greater than deposit growth, ex-brokered, we continue to expect loan growth in the mid-single digits for the year, with deposit growth essentially matching. Net interest margin was flat for the quarter at 3.19%, in line with our guidance of plus or minus one basis point. Moving forward, we anticipate net interest margin should be flat to up slightly with momentum for margin expansion building as the year progresses due to asset repricing benefits. We believe these benefits are enough to offset two to three 25 basis point Fed rate cuts, even assuming a zero deposit beta on our non-indexed interest-bearing deposits.
William Jefferson Wallace: We're still modeling and anticipating that the mix will bottom in that low 20% range and we were pleased this quarter to see it.
William Jefferson Wallace: Come in right around 22%, we were closer to 21, 5%.
William Jefferson Wallace: So that trend is we're seeing a stabilizing just like we're seeing the stabilization and the rate of change of our deposit costs increasing so.
William Jefferson Wallace: The trends that we're seeing give us give us some I guess increased confidence in our own forecasts.
Speaker Change: Hopefully that helps answer your question.
Speaker Change: Yeah that's helpful.
Drake D. Mills: As a reminder, in an environment where the Fed is easing, we still expect we can run our business at a net interest margin above 3% with a longer-term full cycle target of over 3.5%. Shifting to non-interest income, we reported $17.3 million in Q1. Excluding the previously mentioned $410,000 gain on sale of our MSR and $403,000 loss on securities sold, our adjusted non-interest income was $17.2 million in Q1, up from $14.6 million in Q4, which excluded a $1.8 million write-down of our MSR and a $4.6 million loss on securities sold.
Speaker Change: And then could you just remind me how you think about funding the mortgage warehouse what was the increase in the warehouse in the quarter part of the reason what drove the higher broker deposits.
Speaker Change: Yeah, so yes.
Speaker Change: Yes, what we will fund the mortgage warehouse with.
Drake D. Mills: Whatever.
Drake D. Mills: Wholesale funding is that or is that at our disposal and as the cheapest so right now brokered funding as the the more optimal.
Drake D. Mills: Use of funding that business, but if the FH L b market.
Drake D. Mills: Improves relative to brokered then we would shift to FH L. P.
Drake D. Mills: Incremental strength in our insurance business and increased production in our mortgage segment were the primary drivers of this increase. However, our non-interest expense decreased to $58.7 million in Q1 from $60.9 million in Q4. The quarter benefited from a net of roughly $1.1 million in items that, while normal in the course of business, are non-recurring in nature. As such, while we remain laser-focused on managing our operating expense levels, we continue to expect expense growth in the mid-single-digit range in 2024 compared to 2023.
Drake D. Mills: Note, though that we target.
Drake D. Mills: Ninety's or sub loan to deposit ratio and that's important to us as well.
Drake D. Mills: It's worth noting that right now the mortgage warehouse business is actually our most profitable business just because we can fund it with wholesale but it turns so quickly and we did a lot of work last year working with our customers on how we price that business and.
Drake D. Mills: It is it's a very strong and profitable business for us today.
Speaker Change: Alright, and then last for me I wanted to touch on expenses I think in your opening comments you call out sort of a million of nonrecurring items in the quarter. Just any color you can give on sort of what those items were.
Drake D. Mills: Turning to capital, we note that our TCE ratio remained above 9% in Q1, ending flat to Q4 at 9.3%. Furthermore, as shown on slide 24 of our investor presentation, all of our regulatory capital levels at both the bank and holding company level remain above levels considered well capitalized even if we were to include our AOCI loss in the calculation. As such, we remain confident that we have the capital flexibility to take advantage of any potential future capital deployment opportunities to drive value for our shareholders. With that said, I will now turn it back to Drake. Thanks, Wally. I like the Ener-GMO Minimark.
Drake: Yeah look you know we had there was just a handful of things that that happen from quarter to quarter and year to year and we just happened to have a handful of them. This quarter. There was a legal recovery, we had a fraud recovery, we had a reversal of an accrual related to incentives and so it's just a.
Drake D. Mills: It was a kind of combination of a lot of little things that added up to about $1 $1 million. So as you think about your model I would still look at that fourth quarter run rate and think about kind of a.
Drake D. Mills: Thanks, Wally. I like the energy and momentum our company is building. Our efforts are pointed towards our goal of being a high-performing financial institution whose culture and client experience are unmatched. We remain focused on our plan for achieving that goal. We acknowledge the challenges within our industry but also acknowledge that we have the production teams and management to overcome any challenges we may face and have built a company that our employees, customers, community, and shareholders can be proud of. Thank you for being on the call. We'll open it up for questions.
Drake D. Mills: Growth rate off of that I wouldn't use the first quarter Azure as your base for your growth expectations in the back half of the year. So we took our forecast and kept our second third and fourth quarter. The same our full year came down by that $1 $1 million that we exceeded our expectations with.
Speaker Change: Alright, that's all from me thanks for taking my questions.
Drake D. Mills: Okay.
Operator: Ladies and gentlemen, at this time we will conduct the question and answer session. If you would like to ask a question, please press either star 1 on your telephone keypad, or if you've joined via web, press the raise hand icon on the right side of your DRS screen. Once again, that'll be star one on your telephone keypad to enter the queue or the raise hand icon on the right side of your Deal Roadshow screen. We'll pause here briefly to allow any questions to generate. Our first question comes from Matt from Stevens, your line.
Speaker Change: Thank you Woody.
Matt: And our next question comes from man win at D. A Davidson your.
Matt: Your line is open.
Matt: I think you kind of covered my question on expenses I was going to lean towards could you come in at the low end of the guide, but it sounds like you are taking out.
Matt: These one time expense items.
Matt: And it just it.
Matt: It works out that it doesn't really change the guidance that the right way to take it take this.
Operator: Yes.
Matt: We're one quarter into the year, we were pleased with our expense management in the first quarter, but we don't want to use that and get over exuberant and.
Matt: Hey, thanks. Good morning, everybody. Good morning, Matt.
Matt: I want to make sure I understand the impact of the MSR sale. I assume within that mortgage line item, it will now just include the income from the sale of mortgage loans and origination fees. Is that right? And any color on what that's looked like over the last few quarters? Just trying to get a better idea of what the Moorish Line can look like now without that servicing volatility.
Matt: Have expectations dropped to the low end of the range, we think that the.
Matt: Guidance, we gave is appropriate still at this point.
Matt: Could you expand on your comments on <unk>.
Matt: Getting a little bit better loan yields.
Matt: We're pushing to get better loan yields and just how is that working out competitively.
Matt: Is that any issues at this point I mean growth is really strong so youre still.
Matt: It can't be that big of a deal, but just kind of thoughts on loan pricing and loan yield.
William Jefferson Wallace: Yep, thanks Matt. The reason that we sold the servicing business was that, while on an underlying basis it ran at slight profitability over time, it was very volatile from quarter to quarter due to the hedging of the MSR. We didn't like that volatility in our earnings stream, and so that was really what drove the decision to sell the asset. So rather than give you the numbers for the back half, you know, looking back, why don't we just say that with the way we're running our mortgage business now, which is really a community bank mortgage model, we made some changes to right-size the business at the end of last year, and we anticipate running in the $1 to $1.5 million in revenue per quarter, which would be kind of a break-even run rate.
William Jefferson Wallace: Development across the year.
William Jefferson Wallace: Yeah, Yeah. This is lance.
William Jefferson Wallace: Yeah, I think through.
William Jefferson Wallace: Really clearly understand and our strategic plan understanding where sort of the banking is from a cycle perspective, we've just got some dynamic president's that understand sort of running their markets.
William Jefferson Wallace: What what the message is and what their primary goal is right now which is grow core deposit clients.
William Jefferson Wallace: Take very minimal risk in the credit portfolio and really focus on margin and so you know there is no growth for growth's sake, that's going on inside of origin right now it's very targeted.
William Jefferson Wallace: We're very focused and so you know as we govern growth with.
William Jefferson Wallace: Liquidity, we also are governing growth through yield and so you know my hats off to our president because they they have clearly understood and carry that message to the bankers.
William Jefferson Wallace: We think running break-even right now at this point in the cycle is acceptable with the anticipation that when mortgage rates come back in, we'll be there for whatever volume comes, and we'll accept a break-even run rate. So on the expense side, we would anticipate we'd take out about $400,000 or $500,000 a quarter, but we anticipated the sale of this business in our guidance. So we're not encouraging you to reduce your expenses from where you were before.
William Jefferson Wallace: And so again I keep going back to Texas creates that opportunity for US there is a lot of demand. There's a lot of great projects as we highlighted in our investor deck.
William Jefferson Wallace: The.
William Jefferson Wallace: The migration of corporate clients and consumers into our marketplace continues to create opportunity for us that because of our footprint that other banks, probably don't have the luxury of.
William Jefferson Wallace: Which is allowing us to.
William Jefferson Wallace: To be more disciplined on loan pricing.
William Jefferson Wallace: Okay, perfect. Thanks for that, Wally.
Speaker Change: Okay I appreciate the comment thank you.
Matt: And I also wanted to ask about just overall capital. We're seeing a nice build in capital levels over the last few quarters of last year. I think that the CET1 ratio is now close to 12%. I would think that would give you a lot more flexibility to do something. We'd love to get your updated thoughts on the deployment of capital, you know, how you're thinking about M&A, securities restructuring, buybacks, it just seems like you have a lot of flexibility. Just curious about what your thoughts are. Thanks.
Matt: Okay.
Speaker Change: Thank you.
Matt: And once again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone keypad, the raise hand icon on the right side of your deal about choice screen.
Matt: Our next question is a follow up from Matt from Stephens.
Speaker Change: Hey, guys, yeah. Thanks for the follow up.
Matt: Drake earlier, you mentioned that the bank has strong momentum on the organic growth side and there's a desire to return to growth numbers that have been more historical at the bank.
Drake D. Mills: Thank you, Matt, Drake. You know, for us, we announced early in the year our expansion into South Alabama and the Florida Panhandle, where they have high expectations.
Drake D. Mills: Once you get to 2025.
Drake D. Mills: We shape that 2025 still a ways away, but just just remind us kind of how you think about historically historical growth numbers and what's realistic as you as the new teams that you've hired.
Drake D. Mills: What an awesome team we've been able to put together and really pleased with the start of their business and what they're going to do. So, we have that. We also feel that as we see things starting to, as we see some momentum on the deposit side, and certainly, our teams are focused on creating deposits, we can get back to growth numbers going into 2025 that have been historic for us.
Drake D. Mills: <unk> start to grow in 2025.
Speaker Change: Thank you, Matt you know realistic growth for us has averaged 10% a year.
Drake D. Mills: We feel like we build our infrastructure we've everything from philosophy. The team. We have is built to grow at 10% per year, and we think our capital.
Drake D. Mills: And if you look at those opportunities with the thought that, as multiples, as we take care of our business and focus on performance, and we start to see a multiple return on the relationships we have, those are going to be opportunities for us. And as we focus on, and I think this is important internally as we say who we are today and what we are going to do, there's certainly pressure as you cross over $10 billion to get to a point of an asset base that allows you to get back to profitability and focus.
Drake D. Mills: And current capital levels allow us to do that so if we could return to that we think the expansion opportunities and while we made the decision first off those that team.
Drake D. Mills: Just exceptional.
Drake D. Mills: Exceptional people that their culture mashed, our culture and everything else. So if you apply that to historical growth rates and our ability to go into markets.
Drake D. Mills: We see the same opportunities in South, Alabama, and Florida Panhandle.
Drake D. Mills: So in Texas.
Drake D. Mills: Nine of 10, and then to <unk>.
Drake D. Mills: <unk> in 2014 and going into Houston, So if I look at those opportunities and believe that we see.
Drake D. Mills: So we've worked really hard internally on the expense side as we start to build up or complete the build-up to cross over $10 billion. So we understand that we need to get to that $15 billion number, you know, fairly quickly to be able to recognize the performance we expect. So that's certainly going to have to come through some M&A activity. Where that's not front of mind right now, we think our ability to use capital through M&A and growth in our expansion markets, plus what we are seeing in Texas, I would like to focus on capital use that way.
Drake D. Mills: Some liquidity coming back in the industry and I think as rates come down it certainly sets us up well to be competitive and to be able to drive.
Drake D. Mills: Funding to where we could return to a 10% growth rate. If you look at current pipeline opportunities, even with a slight slowdown.
Drake D. Mills: If we looked at everything the way we did let's say in 19 2021, we would be growing at a 10% clip today, if we had that funding opportunities. So.
Drake D. Mills: I look forward to getting back to those numbers, but we certainly have the infrastructure are our teams are running about 50%, maybe 55% capacity. So we have a lot of capacity internally to be able to accomplish that.
Matt: Okay, thanks Drake for the commentary there. And then, just lastly for me on the deposit cost, I think the interest-bearing deposit costs were up 13 bits this quarter. I think the commentary included some... Additional pressure but easing from more recent levels. Any other color you can add as far as what your expectations are on deposit costs from here? Thanks.
Speaker Change: And just following up there Drake.
Matt: I think the guidance this year for loan and deposit growth still that mid single digit level that we talked about earlier.
Matt: Last time on the call in January we said that did not include any impact or benefits from these from this newer team is that is that right is that still your expectation for 2024.
Martin Lance Hall: Yeah. Hey, Matt. Good morning. This is Lance.
Lance: That is correct Matt exactly.
Martin Lance Hall: Okay.
Martin Lance Hall: Great.
Martin Lance Hall: I think some of it's going to be timing, and some of it's going to be which markets we're seeing growth in. I'm really proud of our presidents. We challenged all of our markets to make sure they could self-fund in 2024. So, you know, one of the reasons for a little bit of higher cost is tougher competition, you know, in Dallas and Houston, and that's where we saw the majority of our growth. Some of that is:
Speaker Change: The follow up.
Speaker Change: Thank you.
Speaker Change: Thank you Matt.
Martin Lance Hall: Ladies and gentlemen, this concludes the question and answer session.
Martin Lance Hall: I'll now pass it back to Drake mills for any additional remarks.
Speaker Change: Thank you so much for being on the call today and we are very pleased at where we recognized we had a good quarter, but we don't we still understand that we have to focus on performance, but that's performance without slowing momentum and I am pleased with the team's focus and performance and I look forward to our as I was just talking with Matt stronger.
Martin Lance Hall: Seasonally, based on what we see in North Louisiana, we're still seeing a competitive advantage where, in North Louisiana, interest-bearing deposits, we're able to get them about 50 bps lower than we are in Texas. Great force, but I would agree with Wally's commentary that it feels like the market is being a little more receptive to normalizing deposit costs. But for us, we feel they're of short- and long-term value in maintaining a franchise that has sub-90% loan-to-deposit ratios, excluding mortgage warehouse.
Martin Lance Hall: Growth as we go move into 25, our expansion to the South, Alabama, and Florida Panhandle has been exceptional for US is start off but we do recognize that we have to earn our cost of capital plus so the focus internally is truly outperformance and its own the right type of performance as we prepare ourselves across.
Martin Lance Hall: Over 10, B, when we get to that point I think we're going to be prepared and we're gonna be in a position to be able to perform at a level that provides cost of capital plus.
Martin Lance Hall: Continuing to grow liquidity, continuing to grow deposits is job number one. The offset is we've done a really good job with disciplined loan prices and our ability to continue to maintain and not see a reduction in NIMH and, you know, actually, we think we'll see, you know, potentially a little bit of NIMH expansion as we go forward. So our deposit franchise is paying off, and I'm proud of what we're doing
Speaker Change: Appreciate everyone's confidence in us being on the call today and if anyone has any other questions were opened for a comment. So I appreciate everyones opportunity to spend time with your day and look forward to seeing you in the future.
Speaker Change: Ladies and gentlemen. This concludes today's origin Bancorp, Inc. First quarter earnings conference call. Thank you and have a great day.
Martin Lance Hall: Okay, thanks for that, Lance. All back in the queue. Congratulations on the quarter.
Speaker Change: The host has ended this call goodbye.
Michael: Our next question comes from Michael from Raymond James. Your line is:
Michael: Hey, good morning, everyone. Thanks for taking my questions. Just wanted to start off on this quarter's loan and deposit growth. So if I look at X Warehouse, you guys annualized to a little over nine percent, and then deposit growth was double digit annualized. I know you talked about, you know, reiterating the guidance.
Michael: What's driving the projected slowdown? Is it just less fund raising for construction loans, which look to be a big driver this quarter? And then on the deposit side, just given the stronger start, what should we expect? You know, higher than what you've had it before, which is essentially matching loan growth. Thanks.
Martin Lance Hall: Yeah, hey, this is Lance. Thanks. Thanks a lot for that.
Martin Lance Hall: No, I still think guidance is the accurate way to look at it, and that there is no question that we've done a really good job, in my opinion, the last few years of onboarding through our client selection process from really good customers. Texas is such a competitive advantage for us, and that's where we continue to see loan growth opportunities. We really benefited in Q1 in two ways. One was the funding of some construction projects that we feel really strongly about, but also, we had utilization on our CNI lines increase from what was a little bit sub-normal to more normal usage, which created some of our funding a little bit quicker than we thought it was going to be.
Martin Lance Hall: You know, it's a little bit of a balance for us in the sense that we feel like, because of our locations, because of the bankers we have in Texas, we have a great loan growth opportunity, but we're disciplined on this, and we're going to continue to govern that by... Smart and Strategic Deposit Growth, so that's the driver for us, making sure that we can fund it the appropriate way.
Michael: very helpful. And then maybe for Wally, just You know, looking at the margin. I think you said two to three cuts this year. Now, the expectation. You expect the margin can grind higher. But if I go back to your comments from last quarter, I don't think you were assuming any cuts. And if we did get cuts, you could see, at least for the first 100 basis points, around 15 to 20 basis points of NIMP pressure. So this seems to be a nice step up. Can you just walk us through maybe, you know, what's changed in your modeling, whether it's deposit betas, you know, growth assumptions, et cetera? Thanks.
William Jefferson Wallace: Yep. Thanks. Good morning, Mike.
William Jefferson Wallace: We actually haven't changed any expectations in our model as it relates to Fed cuts. We've put one cut in our own forecast. The commentary that we provide, since it seems like expectations are, one, all over the place and, two, changing constantly, I just don't know what people are going to put in their models.
William Jefferson Wallace: So we think that we could offset two, maybe three cuts and still see margin expansion if the Fed were to cut. As far as the puts and takes in our model, our deposit cost expectations were a little bit higher than we had anticipated. However, to Lance's point, we have asked our markets to be very conscious about how they price their loans, and we're seeing that our loan yields have also been coming in better than our expectations. So net-net, the margin has been performing as we had anticipated. So there's some puts and takes in there, but our expectations really haven't changed.
Michael: Okay, great. I'll step back. Thanks for taking my question.
Woody: Thank you, Michael. Our next question comes from Woody from KBW. Your line is open.
Woody: I wanted to start out with non-interest bearing deposits. It looks like that remix is beginning to flow, and you sounded pretty optimistic in your opening comments, but just any color you can give on sort of the monthly trends you're seeing in the non-interest bearing segment.
William Jefferson Wallace: You know, for the last..., five quarters, we have been building an expectation that we'd see a shift in our non-interest-bearing mix. We had done a study where we went back and looked at our portfolio, the last time Fed funds were near rates where we are today, and the last time we'd seen a kind of meaningful period of tightening.
William Jefferson Wallace: Our expectations have pretty consistently been that we would see that mix start to kind of stabilize in the low 20% range. The deterioration or change in that mix has moved exactly as we expected. However, every quarter, it's done a little bit better than we were modeling. So, we're still modeling and anticipating that the mix will bottom in that low 20% range. And we were pleased this quarter to see it come in at right around 22%.
William Jefferson Wallace: We were closer to 21.5%. So, that trend is, we're seeing it stabilizing just like we're seeing the stabilization and the rate of change of our deposit costs increasing. So, the trends that we're seeing give us some, I guess, increased confidence in our own forecast. Hopefully, that helps answer your question.
William Jefferson Wallace: Yeah, that's helpful. And then could you just remind me how you think about funding the mortgage warehouse? Was the increase in the warehouse in the quarter part of the reason that drove the higher broker deposits?
William Jefferson Wallace: Yeah, so yes, Woody, we will fund the mortgage warehouse with whatever wholesale funding is at our disposal and is the cheapest. So right now, brokered funding is the more optimal use of funding that business. But if the FHLB market improves relative to broker, then we would shift to FHLB. Also note, though, that we target, you know, 90 or below loan to deposit ratio, and that's important to us as well. It's worth noting that right now, the mortgage warehouse business is actually our most profitable business just because we can fund it with wholesale, but it turns so quickly. And we did a lot of work last year working with our customers on how we price that business, and it's a very strong and profitable business for us today.
William Jefferson Wallace: All right, then last for me, I wanted to touch on expenses. I think in your opening comments, you call out sort of a million non-recurring items in the quarter. Any color you can give on sort of what those items were.
William Jefferson Wallace: Yeah, look, you know, we had there are just a handful of things that that happened from quarter to quarter and year to year, and we just happen to have a handful of them this quarter. There was a legal recovery, we had a fraud recovery, we had a reversal of an accrual related to incentives. And so it's just a kind of combination of a lot of little things that added up to about $1.1 million.
William Jefferson Wallace: So as you think about your model, I would still look at that fourth quarter run rate and think about, you know, kind of a growth rate off of that. I wouldn't use the first quarter as your base for your growth expectations in the back half of the year. So we took our forecast and kept our second, third, and fourth quarter the same, our full year came down by that $1.1 million. These are our expectations. All right, that's all for me. Thanks for taking my question.
Woody: All right, that's all for me. Thanks for taking my questions.
Manuel: And our next question comes from Manuel at D.A. Davidson.
Manuel: Hey, I think you kind of covered my question on expenses. I was going to lean towards, could you come in at the low end of the guide? But it sounds like you're taking out these one-time expenses, and it just works out that it doesn't really change the guide. Is that the right way to take this?
William Jefferson Wallace: Yes, Manuel, we're one quarter into the year. We were pleased with our expense management in the first quarter, but we don't want to use that and get over exuberant, and have expectations drop to the low end of the range. We think that the guidance we gave is appropriate still at this point.
Martin Lance Hall: Could you expand on your comments on getting a little bit better loan yields? You know, you're pushing to get better loan yields, and just how is that working out competitively? Is that an issue at this point? I mean, growth is really strong, so you're still, it can't be that big of a deal, but just kind of thoughts on loan pricing and loan yield development across the year.
Martin Lance Hall: Yeah, yeah, this is Lance. Again, I think by really clearly understanding our strategic plan, understanding where sort of the banking is from a cycle perspective, we've got some dynamic presidents that understand sort of running their markets, kind of what the message is, and what their primary goal is right now, which is to grow core deposit clients, take very minimal risk in the credit portfolio, and really focus on margin. And so, you know, there is no growth for growth's sake that is going on inside of Origin right now.
Martin Lance Hall: It's very targeted, very focused, and so, you know, as we govern growth through liquidity, we also are governing growth through yield, and so my hats off to our presidents because they have clearly understood and carried that message to the bankers. And so again, I keep going back to it. Texas creates that opportunity for us. There's a lot of demand, there's a lot of great projects. As we highlighted in our investor deck, the migration of corporate clients and consumers into our marketplace continues to create opportunities for us that, because of our footprint, other banks probably don't have the luxury of, which is allowing us to be more disciplined on the loan price.
Manuel: Okay, I appreciate the comment. Thank you.
Operator: And once again, ladies and gentlemen, if you'd like to ask a question, please press star one on your telephone keypad or the raise hand icon on the right side of your DealGrid show screen. Our next question is a follow-up from Matt from Stevens.
Matt: Yeah, guys. Yeah, thanks for the follow up. Drake, earlier you mentioned that the bank has strong momentum on the organic growth side, and there's a desire to return to growth numbers that have been more historical at the bank once you get to 2025. I appreciate that 2025 is still a ways away, but just remind us how you think about historical growth numbers and what's realistic as the new teams that you've hired start to grow in 2025.
Drake D. Mills: Thank you, Matt. Realistic growth for us is averaging 10% a year, and we feel like we built our infrastructure, everything from philosophy to the teams we have, is built to grow at 10% per year. And we think our capital growth and current capital levels allow us to do that. So, if we could return to that, we think the expansion opportunities and why we made the decision, first off, that team, just exceptional people whose culture matched our culture and everything else.
Drake D. Mills: So, if you apply that to historical growth rates and our ability to go into markets, we see the same opportunities in South Alabama and the Florida Panhandle that we saw in Texas in 8, 9, and 10, and then 13 and 14, and going into Houston. So, if I look at those opportunities and believe that we see some liquidity coming back into the industry, and I think as rates come down, it certainly sets us up well to be competitive and to be able to drive funding to where we could return to a 10% growth rate.
Drake D. Mills: If you look at current pipeline opportunities, even with a slight slowdown, If we looked at everything the way we did, let's say in 19, 20, 21, we would be growing at a 10% clip today if we had that funding opportunity. So I look forward to getting back to those numbers, but we certainly have the infrastructure. Our teams are running about 50%, maybe 55% capacity. So we have a lot of capacity internally to be able to accomplish that.
Drake D. Mills: And just following up there, Drake, I think the guidance this year for loan and deposit growth is still that mid-single-digit level that we talked about earlier. I think last time on the call in January, we said that did not include any impact or benefits from this newer team. Is that right? Is that still your expectation for 2024?
Drake D. Mills: That is correct, Matt, exactly. Okay, perfect.
Matt: Perfect. Thanks for the follow up.
Operator: Ladies and gentlemen, this concludes the question and answer session. I'll now pass it back to Drake Mills for any additional remarks.
Drake D. Mills: Thank you so much for being on the call today. We are very pleased, and we recognize we had a good quarter, but we still understand that we have to focus on performance, but that's performance without slowing momentum. And I'm pleased with the team's focus and performance, and I look forward to, as I was just talking with Matt, stronger growth as we go into 25. Our expansion in the South Alabama and Florida Panhandle has been exceptional for us to start off.
Drake D. Mills: But we do recognize that we have to earn our cost of capital plus. So the focus internally is truly on performance, and it's on the right type of performance. You know, as we prepare ourselves to cross over to NB, when we get to that point, I think we're gonna be prepared, and we're gonna be in a position to be able to perform at a level that provides cost of capital plus. I appreciate everyone's confidence in us being on the call today. And if anyone has any other questions, we're open to comments. So I appreciate everyone's opportunity to spend time with you today. I look forward to seeing you in the future.
Operator: Ladies and gentlemen, this concludes today's Origin Bancorp, Inc. First Quarter Earnings Conference Call. Thank you, and have a great day. The host has ended this call. Goodbye.