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"). 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 are supported by Origin’s successful execution of its growth strategy in recent years, resulting in notable improvements and diversification of the franchise since the initial rating assignment. This has been achieved largely through organic growth initiatives and supplemented by opportunistic M&A transactions in both the whole bank and non-bank space. OBK has generated meaningful scale and market share in the Dallas and Houston MSAs, which we view as among the stronger MSAs in the country with respect to population demographics. Capital ratios are in line with rated peer averages, and we favorably view management's decision to preserve capital recently, as well as the ability to generate internal capital at a quick pace given the digestible dividend payout, the expectation of slower balance sheet growth, and minimal share repurchase activity. The ratings also positively reflect OBK’s diversified commercial loan portfolio, which includes below average exposure to more cyclical asset classes, with credit quality in concert with peers and a strong levels of reserves. KBRA recognizes Origin’s diverse and durable noninterest income, with fee income averaging ~17% of total revenues in the last two years. However, higher base interest rates and greater reliance upon non-core funding have notably increased funding costs, with deposit costs at 2.61% in 3Q23, above KBRA-rated peers, reducing NIM. Despite NIM compression in 2023, OBK's profitability remains solid overall. However, the probability of rate cuts, continued pressure on funding costs, and expenses associated with crossing the $10 billion asset threshold are all potential earnings headwinds in 2024. KBRA also recognizes Origin’s healthy liquidity position, with adequate on-balance sheet liquidity and strong levels of secondary liquidity.

Rating Sensitivities

A rating upgrade is not expected in the near to medium term. However, improved earnings and core funding metrics, while maintaining strong capital and asset quality metrics, could lead to positive rating momentum over time. A rating downgrade is unlikely, though any material deterioration or slippage among key ratios, most notably liquidity, credit, or earnings metrics, could potentially pressure ratings.

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Methodologies