KBRA Affirms Ratings for Origin Bancorp, Inc.

12 Jan 2024   |   New York


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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A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1002967

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