Origin Bancorp, Inc. (NASDAQ:OBNK) Q4 2022 Earnings Call Transcript

Origin Bancorp, Inc. (NASDAQ:OBNK) Q4 2022 Earnings Call Transcript January 26, 2023

Operator: Good day, and welcome to the Origin Bancorp Fourth Quarter and Full Year 2022 Earnings Call. My name is Brett, and I’ll be your (ph) call coordinator. The format of the call includes prepared remarks from the company, followed by a question-and-answer session. At this time, it’s my pleasure to turn the call over to Chris Reigelman of Origin Bancorp. You may now begin.

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 the 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 joining by phone, please note the slide presentation is available on our website at www.origin.bank. Please also note that our safe harbor statements are available on Page 7 of our earnings release filed with the SEC yesterday. All comments made during today’s call are subject to the safe harbor statements in our slide presentation and earnings release.

I’m joined this morning by Origin 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 Brolly; and our Chief Credit and Banking Officer, Preston Moore. After the presentation, we’ll be happy to address any questions you may have. The call is yours, Drake.

Drake Mills: Thanks, Chris. Good morning. As I review 2022, our successful year was a year of major accomplishments that significantly strengthened our company. We finished a strong fourth quarter with an enhanced management team that is laser-focused on strategic decisions that will impact long-term performance and value. The overall condition of our company, as we begin 2023, positions us very well to take advantage of our markets in a meaningful way. Our strength starts with our executive team and filters throughout our organization across all of our markets in Texas, Louisiana, Mississippi. This is reinforced this year with Origin being recognized as the second best bank to work for in the country by American Banker. We take great pride in our culture and the competitive differences it creates.

One of the major highlights for us in 2022, as I’ve discussed, was a partnership with BTH Bank. I’ve often said how BTH is unicorn, and this has remained the case two months post conversion. Culture will always be the foundation with any partnership we develop. Our shared culture of putting people first and delivering for our employees, customers, communities and shareholders is what has made this partnership so successful. I am pleased that we have successfully kept intact the BTH organization. I’m very excited about the growth opportunities that East Texas presents. In 2022, we saw strategic growth throughout our footprint. Excluding mortgage warehouse, loans grew over 24% organically and nearly 50%, including BTH. As liquidity moved out of the system during 2022, we experienced a highly competitive deposit environment.

Our teams took advantage of the market to reduce our exposure to high-cost non-core deposits, thus strengthening our core deposit base. We reduced non-relationship deposits by $300-plus million, while mortgage warehouse experienced a reduction of $100-plus million. On an average basis, we grew deposits 5.5% without including BTH. Our bankers remain laser-focused on deposit growth in 2023, and we are proud of our balance sheet position with a loan/deposit ratio of 88%, excluding mortgage warehouse. We finished the year with $9.7 billion in total assets. And as we planned, we strategically managed the balance sheet below $10 billion. The asset sensitivity of our balance sheet was highlighted by net interest margin expansion in each of the past three quarters.

Wally will provide more color around NIM. As I’ve mentioned in the past, the Texas growth story for Origin has been impressed, and the addition of BTH has created an incredible opportunity to drive value in a meaningful way. As you can see in our presentation, our Texas franchise represents approximately 70% of loans held for investment, excluding mortgage warehouse and 54% of deposits. Lance will talk more in detail about the success we are having. But I think it’s important to point out that our investments in infrastructure and people in these dynamic Texas growth markets have and will continue to pay off for our company. As proud as I am about our production, I’m even more proud of our current credit metrics. Jim Crotwell, our Chief Risk Officer; Preston Moore, our Chief Credit Officer, along with their teams, have done an amazing job of managing credit risk.

Jim will talk about the details later, but it’s more than just the credit metrics, it’s about the comradery, the trust that our producers and credit teams have with each other that helped us perform so well in 2022. And even more importantly, puts us in a position of strength as we head into uncertain economic environment in 2023. Now, I’ll turn it over to Lance.

Lance Hall: Thanks, Drake. I’m extremely proud of how we performed as a company over the past year. We remain committed to the Origin vision of combining the power of trusted advisers with innovative technology to build unwavering loyalty by connecting people to their dreams. Drake mentioned this is being recognized as the second best bank in America to work for, this doesn’t need to get overlooked. I’ll get into the numbers from a production standpoint, but it’s important to understand what we’re building and what is taking place over the last 12 months. Our culture and geographic management model creates an environment that attracts high-quality people who are committed to building valuable long-term relationships. This past quarter, we made several strategic hires in the East Texas market, and in total for 2022, added 21 new producers, primarily in the Texas market, who are driving meaningful growth on the deposit and loan side.

Certainly, there is an expense to this investment, but the long-term impact of these strategic hires, coupled with the incredible talent that we already have gives me tremendous optimism for Origin in the future. Drake mentioned our impressive loan growth for the year, and this took place across all of our markets. Excluding mortgage warehouse and BTH, our bankers delivered over $2.9 billion in new loan production, up 37% from 2021. We saw 10% growth in North Louisiana, 8% in Mississippi, 24% in North Texas, and 55% in our Houston market. The Dallas-Fort Worth and Houston markets each delivered over $1 billion in new loan production. This growth reinforces our strategy of attracting the best-in-class bankers across our footprint and their ability to drive long-term growth for our company.

We’re all aware that the deposit climate is extremely competitive. Deposit growth has been and will continue to be a strategic focus for us. One of the strengths of this organization is our core deposit franchise, and we’ve talked often about how we are uniquely positioned with sticky rural deposit relationships fueling growth into our metro markets. The addition of our East Texas market further exemplifies our deposit strategy and is a key differentiator for Origin. We are clearly in the midst of a change in the rate cycle. And because of this, we took steps in the fourth quarter to bolster our deposit product offerings and have positive momentum in the traction we are seeing. In our presentation, you can see detail as it relates to our deposit betas.

While the steps we took in Q4 resulted in an acceleration in deposit betas to 23% on a cumulative basis, we remind you that we are still better than the range of prior tightening cycles, where our total deposit betas range from 27% to 37%. We are hopeful that we can maintain relatively strong deposit betas in 2023. We are watching trends closely, and we’ll react accordingly to drive strong deposit performance. As we continue to execute on our strategic plan, I see opportunities for Origin to enhance our investments in talented people, core deposits and technologies to drive efficiency and a superior customer experience. To assure that our investments and plans are being executed in a meaningful way, it is critical that we continue to deeply measure our activities.

Investments, Finance

As highlighted on Page 4 of our Investor Day, we presently measure employee engagement and culture through our Glint surveys, our community support through employee volunteerism, customer satisfaction through Net Promoter Scores, and efficiency through our robotics automation processes. The tremendous success that we achieved in all these categories, along with the continued improvement in our financial performance, makes us believe that Origin can be the best bank in America. Now, I’ll turn it over to Jim.

Jim Crotwell: Thanks, Lance. As reflected on Slide 14, our loan portfolio continued its strong performance in the fourth quarter. Past due loans held for investment as a percentage of total loans held for investment were at 0.15% at quarter-end. We are extremely pleased with the continued reduction in the level of nonperforming loans held for investment as a percentage of total loans held for investment, which ended the year at 0.14%, down from 0.20% as of the prior quarter and down from 0.49% a year ago. Classified loans remained stable at 1.05% of total loans held for investment. Lastly, and perhaps the best evidence of the resiliency and strength of our portfolio is reflected by our annualized net charge-offs for the quarter, which was only 0.01%.

During the quarter, we increased our allowance for credit losses $3.8 million to $87.2 million, increasing from 1.21% to 1.23% as a percentage of loans held for investment. We determined that our reserve increase for the quarter was appropriate, given the balance between the strong position of our portfolio and the continued economic headwinds. A particular note is the increase in our reserve as a percentage of nonperforming loans, increasing to 877% as of quarter-end compared to 594% for the prior quarter and 259% a year ago. As we shared last quarter, we are closely monitoring the impact of inflation, rising rates and the likelihood of an economic recession on our portfolio, as well as continued geopolitical concerns and its impact. We continue to believe that the markets we serve will be impacted to a lesser degree by a recession than other areas of the country.

In summary, our focus on relationship banking, along with sound underwriting and credit structure continue to result in our well-diversified and resilient portfolio. I’ll now turn it over to Wally.

Wally Wallace: Thanks, Jim. Turning to the financial highlights. In Q4, we reported diluted earnings per share of $0.95. On an adjusted basis, Q4 earnings per share were $0.99 after excluding $1.2 million in pre-tax merger-related expense. Net interest margin expanded 13 basis points during the quarter and 75 basis points from last Q4 to 3.81%. Excluding $1.9 million in net purchase accounting accretion, our adjusted net interest margin expanded 12 basis points to 3.73% from 3Q, and expanded 81 basis points from last Q4 when excluding $3.8 million in PPP fees from that period. Margin expanded for the third consecutive quarter in Q4, demonstrating the asset-sensitive positioning of our balance sheet and despite a marked increase in deposit pricing competition during the quarter.

On fee income, we reported $13.4 million in Q4, down slightly from $13.7 million in Q3, which included $1.7 million in gain on sale of securities and a $2 million impairment on our Ginnie Mae MSR, which we have subsequently entered into a contract to sell at current carrying value. Excluding the gain on sale of securities and MSR write-down, our fee income decline was driven primarily by a seasonal decline in insurance fee income combined with a slight loss in limited partnership investments following a slight gain in Q3. Our noninterest expense increased to $57.3 million from $56.2 million in Q3. However, excluding merger-related expense, our noninterest expense increased to $56.1 million from $52.6 million. This increase was due primarily to the additional month of BTH expense when compared to the prior quarter and was slightly better than our $57 million to $58 million guidance as we were able to pull some BTH-related vendor cost saves forward into Q4.

Turning to capital. It is worth noting the roughly $15 million improvement in our AOCI balance given the shift in rates during the quarter, which helped increase our TCE ratio back above 8%. Our regulatory capital ratios all improved during the quarter, and we remain well capitalized, allowing us flexibility from a capital perspective 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.

Drake Mills: Thanks, Wally. We have a lot to be excited about based on what we accomplished in 2022 and where we are positioned moving into this year. We have the right team in place with incredible employees who know and understand our clients. I am pleased about where we are from a credit perspective and the credit culture that is in place. I’m confident in our ability to manage liquidity and our capital levels allow us to take advantage of opportunities in our market. There is strength in our local and regional economies. Our Texas market continues to benefit from domestic migration and strong economic growth. And our teams are laser-focused on driving strategic profitable loan and deposit growth. We have proven throughout a history that we can capitalize on opportunities in uncertain times.

I know we will do the same in 2023. Thank you to our employees and our shareholders for a great year, and thank you for being on the call today. Now, we’ll open it up for questions.

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Q&A Session

Operator: Thank you. Our first question comes from Matt at Stephens. Matt, your line is open.

Matt Olney: Hey, thanks. Good morning, everybody.

Drake Mills: Good morning, Matt.

Matt Olney: I want to start with the margin and the NII. We saw some improvement in linked quarter, but still little below consensus forecast. Would love to hear your updated thoughts on deposit pricing and deposit betas from here? And then, kind of given the incremental deposit pricing pressure that we’re seeing across the industry, I’m curious if you now think we’ve seen a peak in the NIM at Origin. And if so, any color on where you think that margin could land in the near term? Thanks.

Drake Mills: Yes. Thanks, Matt. Before I turn it over to Wally, obviously, for the industry and especially us, we recognized early on that this liquidity would be pulled out of this market and that we would get back into a situation where we’re highly competitive. I think as we’ve discussed in the past, as we’ve been able to grow this institution through an organic strategy, it’s been very important that we ran a higher loan deposit ratio to cover up some of the cost of organic growth, especially our de novo growth. As we went into 2022, strategically, we made the decision that we were mature enough in our life cycle that we needed to adjust from a liquidity perspective, how we ran this institution. And certainly, want to be sub-9% on loan/deposit ratio.

So, we got very aggressive with our teams, and we talk about lift-outs and we talk about the teams that we bring on. I do want to remind everyone that in these teams, we always had a deposit focus, a business development focus, deposit experts that we brought on. So, we feel very good about where we are. We’re still in a competitive environment. We’re seeing some easing of that pressure from a rate standpoint as we came out of the fourth quarter. And we certainly did what I think was an excellent job. But on top of everything, NIB, our commercial — our commercial clients are using their funds. They’re using them to pay down debt to do projects, to do a number of different things as we see this liquidity to come out of the market. So that was expected on our part.

We knew there’d be a remix of the deposit categories, and we are managing that, what I think, in an exceptional way. We think, and I will tell you that I’m highly confident in our ability to continue to grow core deposits. But I always talk about the Texas plus aspect of our business. That plus is the core deposit markets that we have in Louisiana and how beneficial they are, that’s going to prove itself and show some real value as we go through the first couple of quarters in ’23. So, as we look at margin, I’m going to let Wally get into that, because we’re doing a lot of work around where we think we are. Yes, we could have seen a topping out of our margin for now, because there is certainly some opportunities for us to continue progressing through the quarter.

So, I’ll turn it over to Wally for some specifics.

Wally Wallace: Thanks, Drake. So, Matt, you probably heard Lance referenced in his prepared remarks that we did make some moves during the quarter as we saw our commercial customers paying down some of their cash balances. We saw and we strategically made the decision to protect our deposit balances as best we can, and we increased our rate sheet across the board. That was in early to mid-November. So that’s where we started to see the pressure on the deposit betas. Moving into the first quarter, we expect that, that decision will continue to pressure the deposit betas in January. In our modeling, we are assuming that the Fed gives us a 25 basis point hike next week, and we think that the corresponding increase to loan yields will help to offset some of the pressure from the deposits.

So, overall, for the first quarter, we think the pressure on the deposit side does trump the loan yields. We think net interest margin will probably be down kind of mid-single digits. But as the quarter progresses, we think the loan yields start to trump the deposit pressures, and we are actually anticipating margin will start to expand again in the second quarter. Another hike from the Fed might help that. But you can imagine, we are watching our deposit balances on a daily basis, and we’ll continue to be strategic to try to make sure that we are protecting our deposit base.

Drake Mills: And Matt, from a strategic perspective, everything that we are focused on today, we focus on from a longer-term perspective and driving long-term growth. We have an excellent deposit base. We’ve looked at those customers. Are we losing customers? No. Are we losing credits, or are we losing commercial customers? No. They are utilizing the resources at this point. So, I hope that answered your question.

Matt Olney: Yes. Drake and Wally, that’s helpful on the details there. Just a follow-up on some of those comments. If some of those commercial customers are kind of paying down their debt and moving liquidity out of the bank, help me appreciate why the loan growth at Origin still remains very strong.

Drake Mills: Yes. And I’m going to let Lance talk about that. But again, we’re seeing some real results out of the teams that we brought on in 2022. Lance?

Lance Hall: Yes. Thanks. Hi, good morning, Matt. No, our bankers have continued to produce at a high level, and honestly, because of the strong economies in North Texas and Houston. We continue to see great growth opportunities. The lift-out strategies have worked exactly as we thought we did. I actually looked at it this morning. On the commercial lending side, the new hires produced over $200 million in loan growth as they’re continuing to bring their relationships over from their old banks. And we’ve talked about it. We like that from a pricing perspective. We love it from a credit perspective, because of the history and the knowledge these bankers have of these relationships going back years and years. So, we want to keep following that strategy.

We feel our pipeline remains very strong. The 21 new hires that we hired last year are continuing to introduce us to their clients, which both on the loan and the deposit side has been incredibly helpful. We continue to believe that we’ve built a company that’s going to be a 10% annual grower. Now, I will say in 2023, as we look at what the effect of higher interest rates are going to be to loan growth and what the looming recession could be to loan growth that we’re — in our budget, we’ve sort of modeled mid-single digits on the loan side, and we expect our deposits to outpace our loans in 2023. And that’s really going to be driven by sort of the mix of the bankers that we have and our incentive plans. I mean, we’ve talked a lot in the past about — we have been a company that has incented $1 of deposits equal to $1 of loan growth.

In 2023, we will shift those weights a little bit and deposits will be incented at a higher level than loans will. And then, inside of our incentive plan on the loan side, it’s going to be really C&I-focused and owner occupied. And so, that just continues to pay off. Our bankers understand our purpose. They understand what we’re trying to accomplish, the strategic discipline around our client selection and our pricing. And I just — I’m incredibly optimistic of our continued growth this year.

Drake Mills: And, Matt, I want to give you a couple of examples. So, we are bringing over new clients, and we’re seeing that loan growth. But two of relationships that I’m very close to: $32 million balance, today, they have a $22 million balance, because they utilized funds on the project; another one, very strong customer of ours, that’s a manufacturer, had — was running $25 million, $26 million. They went ahead and paid off $18 million worth of debt. But we’re still seeing these new — this new client growth as these teams bring them over.

Matt Olney: Maybe a better way to ask kind of a similar question. It sounds like the new producers are kind of building to the team and adding the loan growth. Any change in the utilization rates you’re seeing more recently, if there are some customers paying down some of their debt?

Lance Hall: Well, it’s a little interesting, because we’ve continued to have such good growth, even though we are seeing some of that down, we’ve actually seen a slight uptick in the utilization on the line. We’ve historically averaged like 48%, 48.5% utilization on our revolvers. At the end of the quarter, we were at 51%. Matt, I would just say it this way, like Houston and Dallas do what we thought Houston and Dallas were going to do. I mean we had three of our existing Houston bankers that are dynamic create over $100 million in loan growth last year each for individuals that produced over $1 million in fees. I mean, these markets are just strong growing dynamic, and it’s exactly where we thought it was going to be.

Matt Olney: Okay. And then, going back to the margin, I think the market has growing concerns that the Fed could cut rates later in 2023. If this did happen, I’m curious what your thoughts are what this would mean for Origin? And what are some leverage — what are some options that you consider pulling in 2023, if that was a scenario?

Wally Wallace: Hey, Matt, it’s Wally. We are paying very close attention to the forward curve and are well aware of what the curve is telling us about, what they think the Fed will do. We have spent a considerable amount of time educating ourselves on what opportunities there are to hedge interest rate risk for when and if the Fed starts to take rates down. There are several options that we have in front of us from floors to collars to swaps, we are considering all of the options. Right now, the pricing on hedging instruments is relatively expensive. We watch the curve every day and feel like we’ve educated ourselves enough that we can take advantage of any changes in the curves and any change in the cost to these instruments, and we’ll take advantage of them if they present themselves. So, we are, obviously, asset sensitive, and we’re aware of that, and we will do what we can to begin to position ourselves for when and if the Fed starts to take rates down.

Matt Olney: Okay. Thanks, Wally. And just lastly for me, maybe on credit for Jim. Classified loans pretty flat linked quarter. But obviously, investors are becoming more focused on credit. Would love to hear any updated thoughts that you have, Jim, on the portfolio you’re most focused on, maybe from an industry perspective or geography, kind of what your focus is on maybe overall in the industry, and then maybe specifically within Origin Bank, what you’re most focused on? Thanks.

Jim Crotwell: Good morning. Yes, we — I think what we’re seeing now is the real benefit of the relationships from the — that Lance spoke to the lift-out. I mean these are customers that are well known to our bankers. And so that’s where our growth is. And I think we’re also seeing the benefit of being true to who we are, relationship focused, focused on primary, secondary and tertiary source repayments. When we looked at it and we talked about it before, as we went through the pandemic, and we did deep dives in the sectors, we continue that process. And I’ll just look at office right now, because I know that’s a sector that everybody is really paying close attention to. For our portfolio, it’s very granular. We don’t have any offices that are, say, they’re just downtown business district.

It’s very diversified. One of the things we looked at when we talk about secondary source repayment, the average LTV in that sector for us is about 53%. So that kind of tells you where we are in our underwriting. One other factor, if we go to the tertiary component of that, we have about $385 million in nonowner-occupied office, the combined liquidity of our guarantor supporting those credits is almost exactly the same as $350 million. And if you look at where we are, we have no nonperforming loans and no past dues at all in that sector. And so that kind of gives you an idea. And when you look at the other areas, sectors, if you will, very similar results. And I think that is, again, a manifestation of us being very diligent. And we do not do enterprise value lending.

If we do, it’s going to be very limited. And so that’s consistent throughout. One of the things that we’ve also done is we’ve looked through our portfolio is to go through an exercise from a stress-testing standpoint of evaluating cash flow coverages, if you will, particularly from an interest rate rise perspective. And we’re very pleased with the results, particularly if you take the next step, if you identify credits that maybe have maybe would have some strain from an overall debt service, then you go to what I just spoke to secondary source repayment. And we’re in really good shape there because of being very diligent from a loan-to-value standpoint. We’ve navigated very successfully through various economic cycles, and we feel that we’re very, very well positioned.

As you can see, our level of past dues, which is early indicator. Our level of nonperforming loans is extremely low. And so, I feel really, really good about where we are from an overall portfolio position, given this time of uncertainty. Last thing I would say is that when we look at our markets, we — as I said in the call, we feel really good about our markets that we serve as well, and that they will be less impacted if there is an economic downturn. And from what we’re seeing, hopefully, if there is one, it will be fairly brief and maybe three quarters and we’ll come back out of this very quickly.

Drake Mills: Matt, I’m going to add a little bit to something one of my concerns, and I voiced this through the last several years have been credits that are consumer spending dependent. And we’ve done a tremendous amount of work around understanding those type of stresses in how they would impact if we continue to see a breakdown in consumer spending. And I will tell you, very pleased with what Jim has brought to the table. Preston talks about this. And I’m confident of where we are through ’23. And we’re preparing ourselves for any type of deterioration received. But at this point, and I know it’s going to come to some level, but we’re just not seeing deterioration at this point.

Matt Olney: Okay. Great commentary. Thanks, guys.

Operator: Thank you, Matt. Our next question comes from Michael at Raymond James. Michael, your line is open.

Michael Rose: Hey, good morning, guys. Hope you all are doing well. Matt touched on a bunch of my questions, but I did want to touch on expenses. Obviously, the revenue is a little bit lower than I think we were looking for, but so were the expenses. Last quarter, you guys had kind of talked about using the fourth quarter run rate and growing that, I think, about mid-single digits, just given the inflationary pressures that we’re seeing maybe some offsets, maybe you’re not going to be as aggressive in hiring. Just wanted to get a sense of what you think about expenses as we move through 2023? And then, just how much of the cost saves from the acquisition have you realized to date? Thanks.

Drake Mills: Yes. Michael, thanks. I appreciate. We are so expense focused right now. But on the same hand, we’re doing, as Lance talked about in his prepared remarks, strategic investments in technology, technology that is going to drive efficiency, and I don’t want to get into it today, but our bot process and what we’re seeing from there and the reduction in costs that we think we’ll see, but the technology investments also to drive a superior customer experience. We’re also making investments that are included in these numbers in strategic locations, that are going to allow us to not only address making sure that we serve the communities, but put us in a position where I think we will see strong deposit growth in those markets.

Again, strong bankers — and we don’t build facilities just to build a facility and location, we build facilities around teams and people, and that’s what you’re seeing. So, we’ve got three coming on, another one that came on earlier last year. So, we are doing the things necessary to make sure that we reduce expense and have a run rate that I think is going to see mid-single-digit run rate through ’23. But yet at the same time, do some things that we think, and we’ll start talking about those that reduces cost and cost allow us to do more things that we’re talking about from a technology people and locations. So, this is — and I’ll say it, and I know it’s kind of corny, but — we look at everything strategically through models that show long-term value build.

And that’s the focus that we have, but yet we’re going to manage expenses. You saw a slight reduction in our efficiency ratio. Lance is — I mean, he’s challenged with continued pushdown efficiency. We think we have to get to a certain efficiency number to be a high performer from a performance standpoint. Those are the things that we’re going to continue to focus on in ’23.

Michael Rose: Okay.

Wally Wallace: Michael

Michael Rose: Yes, go ahead, sorry.

Wally Wallace: I’ll just add a couple of kind of puts and takes to that mid-single-digit growth in 2023. We have a couple of relief valves from incentive accruals in 2022. Our organic loan growth was over 20%. We’re not budgeting for that level of growth in 2023. But we have invested strategically in new people, and we’ve also made some strategic investments in real estate that will offset some of those. As far as your cost saves questions, we pulled forward a little bit from some technology contracts. We have a couple left that will impact us in the first quarter positively, but that will be about the extent of the cost saves.

Michael Rose: Okay. So just given some of the revenue headwinds, do you think there’s room to bring down the efficiency ratio from here? Or should we expect it to kind of flatline to maybe increase just given the challenges that are out there? Thanks.

Drake Mills: Yes. In ’23, Mike, I think we’ll see a little bit of flatlining. I still think we have possible reduction, but we’re budgeting and we’re looking for a successful year would be one that we were flat from an efficiency standpoint and see a kickoff in ’24.

Michael Rose: Okay. Helpful. And then maybe just finally for me. It does sound like you’re — I’m going to slow the loan growth here a little bit. I think you said mid-single digits. I think last — third quarter, you said kind of high-single digits, completely understand. But as we think about capital build here, I mean, that should just further the acceleration. Can you just give us an update on what your strategic priorities are? And if you would look to actually use the authorization you have in place just given where the stock is trading, (ph) looks pretty attractive. Thanks.

Drake Mills: Yes. And thank you. It’s — we going into a cloudy economic cycle in ’23. Certainly, capital is king, and we’re going to continue to build capital in a positive way to ensure that we can weather whatever storms coming our way. Feel comfortable with where we are. We do have a share buyback. We see a continued slip and slower growth than I think that we would be active in buying that stock back, because it is — like I joke about, it is on sale right now. So, this is something that is a tool in our tool chest. I think you could potentially see us get active, but we do have authorization and we could use it.

Michael Rose: Great. Very interesting to hear the comment on the chatbot. Maybe you can use that to replace your newly-hired CFO. Just kidding. Thanks, guys.

Wally Wallace: Ouch. Wow.

Operator: Thank you, Michael. Our next question comes from Brad at Piper Sandler. Brad, your line is open.

Brad Milsaps: Hey, good morning, guys.

Drake Mills: Good morning, Brad.

Wally Wallace : Good morning, Brad.

Brad Milsaps: Yes, thanks for taking my question. I appreciate all the color. If I heard you correctly, you expect deposit growth to outpace loan growth. Just wanted to kind of think about the size of your balance sheet. Do you think, one, you could stay under $10 billion again in ’23? And then, second, how should we think about the bond portfolio? I guess would that potentially remain more stable now as you maybe put some of those excess cash flows back to work? Or where might you put the liquidity that you’re going to gain from the better deposit growth might pay down borrowings? Just wanted to kind of get a sense of what your plans are there.

Lance Hall: Yes. This is Lance. I’ll take the first part of that. As we said, we’re kind of projecting mid- to high-single digits on loans and deposits. And so, the net dollars of that would be an increase in deposits over loans, obviously. That being said, staying under $10 billion is not our goal. We are sort of built to grow, and we have a lot of competitive individuals in our markets and a lot of strong economies. At the same time, when we model it up, I think it’s very possible that you see us stay under $10 billion, just the way some of the levers we have to pull, the way that we can use the runoff from our investment portfolio. So, we think that’s a real possibility, although that’s — we’re not going to do anything to slow the growth of building core relationships.

Drake Mills: Yes. And I’m going to add a little color to that, if you don’t mind. If today, we’re sitting at $9.5 billion, and we have $450 million of growth, which in — from a loan/deposit standpoint and very active in making sure that we continue to keep teams engaged. We continue to take care of our clients. We add quality relationships. You add all that up, we have $300 million worth of deposits that we can push off overnight if we need to. There is a very clear path of opportunity for us to stay under $10 billion for ’23 plus, add on that $170 million of securities that will mature and come back — can flow back in that we could pay debt off. So, a lot of levers, as Lance said, it’s a strategy, but we’re not going to jeopardize the momentum and growth of this company just for that reason, but I do have some confidence that we have an opportunity.

Brad Milsaps: Okay. Maybe just a follow-up to ask more specifically, if I was planning — assuming that you reduced the securities book in ’23, that might not necessarily be the case anymore given some of your deposit growth aspirations?

Drake Mills: Yes. And I’m sorry. Okay. I’m trying to understand that question. I’m sorry. I didn’t — so we — with our deposit growth aspirations, and I’m not saying this, but in reality, I believe in our markets, we have more opportunity to grow loans at 6.5%. But as strategically to manage this to where liquidity stays intact, our loan/deposit ratio was below 90%. We think that we should grow deposits to cover up any type of loan growth. So that maturities in the investment portfolio would come back in either to reduce cost, put back in the loans or pay down debt towards the end of the year.

Brad Milsaps: Okay. Great. Thank you. I appreciate it.

Drake Mills: And we won’t be active in building securities at this point.

Brad Milsaps: Got it. Thank you.

Operator: Thank you, Brad. Our next question comes from Woody at KBW. Woody, your line is open.

Wood Lay: Hey, good morning, guys.

Drake Mills: Hey, Woody, how you doing?

Wood Lay: I’m doing good. I just had a follow up on the NIM discussion from earlier. In regards to the expected decline in the first quarter, I’m assuming that was talking about the core margins, so excluding any accretable yield?

Wally Wallace: Yes, that’s correct.

Wood Lay: Okay. And then for the potential for the margin to rebound a little in the second quarter, is that just a function of the fixed loan portfolio repricing higher? Is that sort of the tailwind — the potential tailwind to the margin there?

Wally Wallace: No. We put — we are modeling — in our models, we are assuming that we get a Fed hike next week, and that’s really the primary driver. So, we’ll lap the pressures from the move across our entire deposit base after January. And then, if the Fed hikes next week, that will benefit the 57% of our loans that float.

Drake Mills: And Woody, that’s the only hike that we’re budgeting in at this time for 2030.

Wood Lay: Yes. All right, that’s all from me. Thanks, guys.

Drake Mills: Thank you.

Operator: Thank you, Woody. It appears there are currently no questions. Handing it back to Drake Mills of Origin Bancorp for final remarks.

Drake Mills: First off, thank you, everyone, for attending. I real quickly want to talk about our company from a 2022 highlights, the BTH partnership, the process we went through, the relationships that we’ve built, how we went through that process was amazing. Pristine credit, we continue to build what we think is a better balance sheet, a fortress balance sheet, focusing on loan/deposit growth and liquidity. Strong growth in ’22, the Texas story plus Louisiana deposits, 70% of our loans today are in Texas, 54% is in deposits with East Texas coming on. We really are excited about that partnership. Management strength. We’ve added Derek McGee and Wally Wallace, or William J. Wallace, to the team, and really have started to look at where we are today moving forward.

Second best bank in America to work for, we’re going to put the performance on top of that. We continue, and we’ll always continue to invest in people and technology to make us better, but also core deposit growth. So, as I look at this, I am extremely confident. In my career, if I could replace us with someone else or put us in a different market, I wouldn’t do it. So confident where we are, what we’re doing, the quality of this organization, our footprint, even though we’re in trying times, this is where we have shined in the past. I’m extremely confident in our ability. I appreciate the interest in this organization. Thank you for being on the call, and we’ll talk to you next quarter. Thank you.

Operator: Thank you, Drake. This concludes today’s AVer call. A replay will be made available shortly following today’s call. Thank you, and have a great day.