KBRA Affirms Ratings for Origin Bancorp, Inc.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Ruston, Louisiana-based Origin Bancorp, Inc. (NYSE: OBK) ("Origin" or "the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for Origin Bank, the main subsidiary. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings reflect Origin’s well-established banking franchise, which operates across a diverse footprint, including some of the strongest MSAs in the country. We recognize the management team’s proven ability to expand into higher-growth markets while maintaining a focus on C&I lending—an approach that, while challenging and time intensive to establish for most banks, has been executed successfully by OBK and remains a key component of the long-term strategy. This growth strategy, combined with recent investments in team lift-outs and preparation to cross the $10 billion asset threshold, has contributed to some relative earnings underperformance (ROA of 0.8% during 9M24), particularly amid the current higher-for-longer interest rate environment and associated NIM pressures. However, we believe that OBK is well-positioned to achieve positive operating leverage moving forward, supported by stronger organic loan growth opportunities—especially from recent expansions into Alabama and Florida—enhanced expense management initiatives, balance sheet optimization, and increased revenue generation, in part, through the potential recognition of equity method accounting from its investment in Argent Financial Group, Inc. The ratings also acknowledge Origin's diversified commercial loan portfolio, which includes below average exposure to more cyclical asset classes, with credit quality metrics tracking relatively in line with peers in recent years. The company has experienced an uptick in NPAs and NCOs in 2H24 due to certain questioned activity involving a single borrower from its acquisition in East TX, though most potential losses have already been reserved for. KBRA also recognizes that OBK reflects a below average exposure to investor CRE (221% of total risk-based capital as of 3Q24) compared to the rated peer group. As such, the concentration of investor office properties is also manageable at just below 5% of total loans, which is granular, conservatively underwritten, and includes a more resilient tenant mix, in our view. OBK continues to exhibit conservative capital management, including above average TCE and CET1 ratios (10.0% and 12.5%, respectively, as of 3Q24). Solid earnings capacity, coupled with a digestible dividend and minimal share buybacks in recent years, have enabled strong internal capital generation. Moving forward, capital will likely be deployed on organic growth opportunities, while likely maintaining levels above peers. Origin has also demonstrated a relatively conservative stance with liquidity management, including a loan-to-deposit ratio generally trending around the 90% level (excluding mortgage warehouse lending), which has allowed for the maintenance of a higher level of core deposits (83% of total funding as of 3Q24). With that said, despite lower costs in its legacy markets, the expansion into competitive TX markets has resulted in an above average deposit beta throughout this interest rate cycle, which, as noted, has caused some NIM headwinds.

Rating Sensitivities

A rating upgrade is not expected, though stronger profitability, notably following the passing of the $10 billion in assets threshold, improved credit metrics, and maintenance of its strong capital position, could potentially result in positive rating momentum over time. A rating downgrade in the near term is unlikely, though any deterioration among key financial metrics, notably earnings or capital, could pressure the ratings.

To access ratings and relevant documents, click here.

Methodologies