OBK Q2 2024: Sees Mid-Single-Digit NIM Gain on $250M Loan Repricing
- Margin Expansion: Management expects a mid‐single-digit expansion in net interest margin per quarter driven by asset repricing benefits and stabilizing deposit costs, which supports improved profitability.
- Asset Repricing: Approximately $0.25 billion of loans and securities are set to mature and reprice at 350–400 basis points higher on average, enhancing future earnings.
- Robust Fee Income: Both the mortgage and insurance businesses delivered strong results, outperforming seasonal expectations, which reinforces the bank’s diversified revenue streams.
- Uncertainty in resolving questioned activity: Executives noted that forensic accounting is still underway with no clear timeline on resolving the questioned activity, which could lead to lingering risks and potential additional losses.
- Potential balance sheet growth risks: While the bank expects to remain below $10 billion, there is uncertainty in the warehouse business. A scenario where a Fed rate cut leads to a refinancing wave could unexpectedly drive growth beyond anticipated limits, potentially affecting returns and balance sheet management.
- Pressure from elevated expenses: The discussion highlighted that expenses remain elevated due to legal and accounting costs associated with questioned activity, which could further pressure EPS if these issues persist. ** **
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Suspicious Activity
Q: Is loss from suspicious activity material?
A: Management expects no material losses despite a $0.25 EPS impact, noting it as an internal control issue under review with external experts. -
Margin Outlook
Q: What is the margin outlook post-reversal?
A: They anticipate a mid‐single‐digit quarterly margin expansion driven by asset repricing and stable deposit costs, even after a minor interest reversal impact. -
Growth Strategy
Q: Is the focus shifting to quality growth?
A: The team is emphasizing quality relationships and client selection to drive ROA, expecting loan growth in the mid-single digits rather than aggressive volume expansion. -
Size Control
Q: Will OBK remain below the $10B threshold?
A: Management is confident that careful growth management will keep the balance sheet below $10B, aligning with strategic deposit expansion and controlled lending. -
Organic vs M&A
Q: Are acquisitions deprioritized versus organic growth?
A: They stress organic growth as central to their strategy, with occasional partnerships when beneficial, without signaling a move away from M&A altogether. -
Portfolio Exposure
Q: What is the exposure from the questioned transactions?
A: Specific dollar amounts were not disclosed due to ongoing dispute reviews, with management emphasizing that any exposure is minimal and contained. -
Resolution Timeline
Q: When will the internal issue be resolved?
A: No definitive timeline has been provided as forensic accounting remains underway, though confidence is high for a prompt resolution. -
Reserve Adjustments
Q: Why were credit reserves adjusted lower?
A: Reserves were effectively freed by exiting about $3M in credits and releasing approximately $1.3M tied to charge-offs, reflecting stable overall credit quality. -
Fee Trends
Q: How did mortgage and insurance fees perform?
A: Both segments exceeded expectations—with strong mortgage volumes and predictable, seasonal insurance revenues—contributing stable noninterest income.
Research analysts covering Origin Bancorp.