Origin Bancorp Inc (OBK) 2021 Q1 法說會逐字稿

Good day, and welcome to the Origin Bancorp First Quarter 2021 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded. I would like now to turn the conference over to Chris Reigelman, Head of Investor Relations. Please go ahead.

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 a slide presentation that we will refer to during this presentation.

Please refer to Slide 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 6 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; our Chief Financial Officer, Steve Brolly, President and CEO of Origin Bank, Lance Hall; our Chief Risk Officer, Jim Crotwell, and our Chief Banking Officer, Preston Moore. After the presentation, we will be happy to address any questions you may have.

Now I'll turn the call over to you, Drake.

Thanks, Chris, and good morning, everyone. To start, I am very pleased with the results of the first quarter of this year, and I'm equally pleased with the process that our teams are going through to elevate the performance of our company. Now as vaccines are more available throughout our markets and economic activity continues to improve, I am encouraged and optimistic about how Origin is positioned as we move forward in 2021.

Looking at the results for the quarter, net income was $25.5 million, up $8 million from the prior quarter. Pretax pre-provision earnings were a record high for Origin at $32.9 million for the quarter compared to $28.3 million for the prior quarter. Net interest income was $3.4 million higher this quarter for a total of $55.2 million, another historic quarterly high. Provision expense came in at $1.4 million, which is the lowest level we've recorded in a quarter since the pandemic began early last year. Diluted EPS for the first quarter was $1.08, up 44% from the prior quarter. Our total assets ended at $7.57 billion and total loans held for investments were $5.85 billion at March 31, up $125 million from the previous quarter.

I'm not going to continue to go through the strong performance metrics for the quarter, but I'll let Lance, Jim and Steve provide more detail as we go through our slide presentation. The success we've enjoyed in Q1 is a direct result of the hard work and effort put in by our teams over the past year. As I often say on these calls, we are guided by our strategic plan, which I view as an intentional and methodical process to position us for success. In the past, we have talked about investments we've made in infrastructure and teams throughout our footprint and our focus and commitment to those investments are paying off in a big way.

On Slide 6, you can see the results of some of the investments we've made with the sets we've had in Houston and DFW. We still see tremendous opportunities for growth in Texas-based on our current infrastructure and quality teams of bankers as well as opportunities that exist based on disruptions in the market that we anticipate capitalizing on. We were highly successful in the first quarter, and I'm looking forward to what our teams will accomplish in 2021.

Now I'll turn it over to Lance.

Thanks, Drake. We take you a great deal of pride in what the numbers on Slide 7 represents. Our mission from the beginning of the pandemic was to support our customers in a meaningful and dynamic way, and they face a tremendous amount of uncertainty. Our loans under COVID forbearance until June 30 last year were just over $1 billion. At March 31, only $5.3 million of loans remained under the COVID-related forbearance. Our support for our customers during this past year has created a tremendous amount of loyalty, allowed us to strategically attract new clients and strengthen long-term relationships that will continue to pay off in the future.

At the bottom of the slide, we provide an update on our PPP metrics. We've originated over $767 million in PPP loans in Round 1 and Round 2, with almost $200 million in Round 2 alone. In total, we originated nearly 5,000 loans across both rounds of the program. We had over 61% of PPP loan balances that have been applied for forgiveness, with 28% having been fully forgiven at March 31. We have collected over $24 million in PPP fees and at March 31, have around $11.5 million in net PPP fees unearned on our balance sheet. We have seen the direct impact of this program with our clients and their employees. I'm proud of my response and our bankers' commitment to delivering for our clients when they needed us most.

On Slide 8, you can see our continued focus on leveraging technology to deliver a meaningful client experience. We see growth across our platform to continue to have above-industry adoption of mobile banking features within our customer base. Our technology committee has been very active over the past quarter, evaluating our current product offerings and working with our fintech partners on new opportunities. Our commitment to aligning ourselves with leading fintech partners and the elevation of our technology experience remains a primary focus and is a central component of our vision statement.

On Slide 9, you can see an overview of deposit trends. As Drake mentioned at the beginning of the call, our bankers have an intentional and methodical process for success. The deposit growth we have seen over the past year and the relationships we have developed speak to the commitment our bankers have in driving results for our company. Our average deposits for the quarter were $5.9 billion, an increase of $1.5 billion over the first quarter of 2020. Over the same time, our NIBs have increased 55% from an average of $1.1 billion to $1.7 billion.

Over the past year, we've improved our deposit mix as average NIBs have grown from 25.4% to 29.3% of total deposits. This increase in NIBs, along with the focus of our bankers, has reduced our deposit cost to 26 basis points for the quarter. Our cost of time deposits have decreased significantly over the past 5 quarters, declining 52%, and we still have an opportunity to manage that cost even lower.

On Slide 10, you could see our loan composition. In the bottom left of the slide, we show the trend of our loan portfolio over the past 4 quarters. You can see our loans held for investment have grown by approximately $1.4 billion over the past 4 quarters, due primarily to $653 million of growth in our mortgage warehouse portfolio and $584 million of growth in PPP loans. In the current quarter, our loans held for investment, excluding PPP and mortgage warehouse, grew by 2% or an annualized growth rate close to 8%. Based on recent pipelines, I'm optimistic about our loan growth opportunities in 2021.

As we look at our mortgage warehouse line of business, not only have we seen growth in loan and deposit balances over the past 4 quarters, but our customer base has also grown strategically. This growth is based on the incredible job our warehouse team has done in growing existing relationships and capitalizing on new relationships due to disruption in the broader market.

I'm very proud of the commitment and execution of our bankers, and I'm very confident in our ability to drive meaningful growth. Now I'll turn it over to Jim.

Thanks, Lance. Over the past quarter, we have continued to closely monitor our portfolio, particularly in the sectors of hotels, nonessential retail, restaurants and assisted living. As reflected on Slide 11, these sectors total $510 million as of March 31 and represented 9.7% of total loans held for investment, excluding PPP loans. As we have reported throughout the pandemic, we feel very comfortable with the quality of our relationships within these sectors.

As mentioned earlier, we are extremely pleased with the reduction in COVID-related modifications for our entire portfolio, and that is true for these targeted sectors as well with only $1.9 million, representing 0.37% of these sectors still under modification. We continue to be pleased with the resiliency and performance of these sectors, as evidenced by past dues only 0.16%, classified loans of only 1.16% and nonperforming loans of only 0.22% for these sectors.

Looking at the portfolio as a whole and as reflected on Slide 12, we continue to see stable and improving credit trends, perhaps most evidenced by the reduction of classified loans to total loans, excluding PPP to 1.81% as of the quarter end. Past due to levels remained stable at 0.5%, while net charge-offs for the quarter totaled $2.9 million or 0.23% annualized, which compares to 0.24% for all of 2020. While we did see an increase in the ratio of nonperforming loans to 0.63% as of quarter-end, the ratio is still below pre-pandemic levels.

As a result of the above portfolio trends, particularly the reduction in classified loans and the improving economic outlook, we reduced our allowance for loan credit losses from 1.51% to 1.46% of loans held for investment from the prior quarter. Excluding PPP loans and mortgage warehouse, we reduced our allowance from 2.1% to 2.02% of loans.

We will continue to closely monitor the economic outlook, particularly the impact of the ongoing vaccination progress, virus variance and the recent global increases in COVID cases. With that said, we do anticipate continued improvement in economic conditions throughout the remainder of this year, which should positively impact our required reserve levels.

I'll turn it over to Steve.

Thanks, Jim. On Slide 13, I will cover a couple of points on our asset yields and cost of funds. As Lance discussed previously, our cost of deposits continued to decline, the 5 basis points decrease during the quarter, which is a 16% decline from the prior quarter and is 73% lower than the first quarter of 2020. Loan yields ticked up during the first quarter to 3.99%, up 10 basis points from the prior quarter. Excluding PPP, our loan yields had a slight decrease of 3 basis points. Our fixed floating profile has remained relatively unchanged from prior quarters, and we continue to remain asset sensitive.

On Slide 14, our quarterly net interest income hit another historic high, both including PPP and excluding PPP. Total net interest income was $55.2 million, including $6.1 million PPP interest and fee income. The PPP interest and fee income was elevated during the quarter from acceleration of fees as a result of loans paid off in the forgiveness process. Our NIM, fully tax equivalent, for the quarter was 3.22%, up 15 basis points from the prior quarter. When excluding the impact of PPP, our tax equivalent NIM was down 2 basis points from the first quarter.

Slide 15 shows our net revenue distribution and the breakdown of noninterest income. In Q1, our noninterest revenue was 24% of net revenue. During the quarter, we saw an increase in insurance commission and fees, which were in line with the first quarter of 2020 and expected due to the cyclical nature of the insurance revenue stream. Other income sources were $2.7 million higher than the prior quarter, as you can see in the graph on the right of the slide. This included increases of the $1.4 million in gains on sales of securities and $1.4 million in limited partnership investment income. Mortgage banking revenue declined during the quarter but remained 65% higher in quarter one 2020, which is more comparative quarter due to the seasonal nature of the mortgage business. The linked quarter decline was primarily driven by a decrease in our mortgage pipeline, the impact of the winter storm and the rise in the 5 and 10-year U.S. treasury rates.

The next slide is from the trending information about our noninterest expense. For the quarter, our noninterest expense was $39.4 million, which is $552,000 higher than Q4 2020. During the quarter, we terminated some Federal Home Loan Bank advances and incurred a prepayment penalty of $1.6 million, which is shown in part of the other category in the chart on the left of the page. Salaries and benefits continue to remain stable, declining $150,000 on a linked-quarter basis. The cost controls and efficiency measures continue to improve our operating leverage, as you can see in the bottom right with our efficiency ratio for the quarter at 54.49%.

With that, I'll turn it over to Drake.

Thanks, Steve. On Slide 17, you see our capital trends for both the bank and the bank holding company. On the bottom right, we show the changes in our total capital ratio at the holding company. Strong earnings for the quarter supported our growth, while increasing capital levels, enhancing our position to take advantage of market opportunities. After raising $150 million in sub debt in 2020, we are well positioned from a capital standpoint. As you've heard throughout the call today, we had an impressive quarter and are prepared to perform at a high level throughout 2021. From a strategic perspective, Origin is in a strong position. We have plenty of runway in our current infrastructure. Our teams of talented bankers has the capacity to continue to drive strong organic growth. We have a corporate culture that has and will continue to attract best-in-class bankers and teams. Our liquidity and capital level put us in a position to deploy capital in ways that will be beneficial to our shareholders and drive long-term value.

I am proud of our team in what they do every day to serve our customers, communities and shareholders. My optimism for this company and what I know we can accomplish is extremely high and is reflected in our 30% increase in our dividend this quarter.

Thank you, and we'll now open the call up for questions.

(Operator Instructions) Our first question will come from Matt Olney with Stephens.

I want to start on the organic loan growth, ex warehouse, ex PPP, would love to hear more about the investments you've been making in recent years, new teams, individuals, where they're located and what types of lending they're most focused on? And then what's the pipeline look like for new hires, new investments this year? Can you compare the pipeline today to previous years? I think some of your peers, especially in the Texas markets, have talked about lots of M&A disruption that's creating opportunities for new hires. I'm curious if you're seeing those opportunities in your markets in Texas or Louisiana, Mississippi.

Yes, Matt, absolutely. I mean our model is based on lift-outs and the success of that. And certainly, I feel this institution is positioned better than ever to take advantage of -- as we said, for the last couple of years, we're going to put ourselves in a position to take advantage of dislocation. We're starting to see that a lot of activity. And -- but what we're seeing is opportunity throughout our entire footprint when it comes to lift-out opportunities, loan growth, pipeline growth, a number of different things. I'm actually going to ask Lance at the tail end of this comment to give you some color around pipeline growth and what we're expecting.

But our driver, we're a strong organic growth story. We are going to continue to focus on the infrastructure we've built as we continue to communicate. I've actually never felt better about the position this company is in than I do right now because not only dislocation and the opportunity for us to continue to lift-out strategy, which, by the way, a lot of conversations are going on. Again, across the footprint, not just in Texas, really pleased with what's going on in our Texas markets, though.

But when you look at the capacity that we currently have within our current teams, we have a lot of runway there to continue to organically grow. Our infrastructure and the scalability of that infrastructure is phenomenal. I think we're in a really good place. Rob is going to add a couple of pieces here. But in doing that, I think we're going to, for the most part, keep the expense structure flat. But I think the strong part of this story is the fact that where we are positioned as interest rates potentially move forward. And you got to think that with the things going on and the inflationary pressure we're having that certainly is in our future.

We are just so well positioned to take advantage of the disruption in the market, lift out the teams, get these relationships on board, we continue to see significant growth in relationships on even mortgage warehouse that I thought maybe would slow down. So just overall, Matt, I think we're in an awesome position. And we are going to continue to focus on the organic growth story and be successful through that and other opportunities are just going to add ice into the cake.

So Lance, if you would, let's go through just a little bit of pipeline color to answer Matt's question.

Yes. Thanks, Drake. Drake is 100% right. The reality is we never slowed down from our strategy of continuing to add on dynamic OEMs and producers. We were very fortunate that we added one in our Houston market in the last few months. The pipeline that she has already built kind of moving clients over from the bank that she came from has been tremendous. One in North Texas, Mississippi. This strategy is sort of developing the corporate culture and attracting talent continues to pay dividends for us.

Drake is right, we still have tremendous capacity from the lift-outs that we've delivered over the last 5 years. And we think specifically in Texas, but also in Mississippi, it has been a big win for us. As you saw in the first quarter, we had a 2% loan growth, not including PPP or warehouse. We feel incredibly confident that we can kind of continue on that path. As I'm sitting here, looking at pipeline reports now, our North Texas and Houston markets specifically are showing very strong in residential real estate and multifamily, construction draws that we know are coming, owner-occupied real estate.

We've been able to grow despite having pullbacks in our revolving lines, as I'm sure everybody does. If you look back a year ago, we were 56% utilization on our revolving lines. Today, we're at $44 million. That's a $200 million reduction, and yet we've achieved growth even on top of that. Of the $200 million in reduction, $50 million of that was energy that we were sort of pushing out. And then obviously, the rest is the liquidity in the marketplace. And so incredibly optimistic. And as we've built this company, this loan growth engine, I think, is about to pay real dividends for us.

Okay. That's great commentary, Lance and Drake. And then just one more, just shifting over towards credit quality. It sounds like that the -- you're feeling better about credit and maybe the ultimate loss content in the portfolio isn't what we thought it was 6 months ago or even 3 months ago. So I'd love to hear more about how the team is thinking about net charge-offs in 2021. And it seems like last year, the bank cleaned up a few lingering credits that have out there for a while. Would love to hear more about 2021 charge-offs.

Yes, Matt, for 2021, I think we're going to continue to feel that we can drive -- and I'm going to say this, where we had some clean up in '20 we still have a couple of pieces that we're still cleaning up in '21. That's going to impact our charge-off levels somewhat higher than what traditionally you would see from this company. So we still believe that 25 basis points is a number that we can achieve throughout the year. And -- but I'll say this. Outside of those lingering issues that are credits that we've dealt with for a number of years, I am bullish and feel very strong about the quality of the portfolio.

But as I've talked about in the fourth quarter, 2021 for us was a year that we were going to drive loan growth down somewhat, focusing on loan yields and quality client selection. And these are the 2 elements from an incentive concept -- our incentive pay concept that we're utilizing that I think is going to drive rewards. The surprise to this was the strong pipelines that we're seeing and what we think where we were kind of leaning towards 5% or 6% growth. I think this 8% growth is sustainable for us through the year then comes equally through the rest of the 3 quarters for '21. So I think our credit quality is stronger than it's ever been. And I think moving forward, what we bring on the books and put on the books is going to have sustainability around credit quality.

Our next question will come from Brad Milsaps with Piper Sandler.

Drake or Lance, just wanted to start -- to follow up on the loan growth, maybe on the warehouse side of the equation. I know I think Lance, you mentioned you continue to pick up customers. Just curious if you added anymore in the first quarter and sort of what your crystal ball shows for kind of how you guys can maintain that? You guys sort of bucked the trend this quarter and showed a linked-quarter increase in the average warehouse, where a lot of banks were down. So just any additional color there would be helpful.

Yes. Brad, disruptions still provide quality opportunities for us. And again, I'm going to go back to the client selection because we are going to make sure that the acquisition of these customers that we bring on are going to be -- that's going to add quality overall. We did increase from 41 clients in mortgage warehouse to 45. We have, I think, a couple in the pipeline now that are high quality, but we're just seeing significant opportunity.

And it's really given management the opportunity to look at what mortgage warehouse ends up being as a percentage of outstandings for us, and we're still working through that. But I will say what I've talked about in the fourth quarter that I saw mortgage warehouse from an outstanding perspective, I think, is going to be somewhat higher than that. And I think that, that $700 million, $800 million range is achievable and sustainable for us with quality acquisition of these clients.

So it's certainly producing strong fee income, it's producing noninterest-bearing deposits that are very good for us at this point. So I'm bullish on that. And I'm going to try not to say the word bullish again. But it feels good, and mortgage warehouse is a good business for us.

Great. And then just a follow-up. Can you guys comment on kind of what you're seeing in terms of new loan yields coming on the books? You guys are obviously seeing great growth. But I'm sure it's coming at a little bit dilutive to the current book yield. Just kind of curious kind of where those new loans are coming on the books?

Well, as I opened up and talked about our client selection in loan yields and trying to push loan yields more peer like, even though we do have a short portfolio in C&I heavy, it is a focus. And we're seeing on the low end, on high-quality deals, the 3.25, we're pushing to see the 3.75 in the Texas market, where in the core markets were more in that 3.75 to 4 range. So where we are seeing pressure, I do think our client selection and passing on deals just from pricing and Lance -- I want Lance to talk a little bit about the type of pressure we're seeing in the marketplace and what's going on and how we're finning in all, Lance?

Yes. We've talked periodically on these calls about what are we seeing from a competition perspective, both on covenants, on risk and it comes to pricing. So we've had some pretty strong examples here recently on competition that's been lacks in all of those. I mean we saw one the other day, it was a good C&I opportunity where competition came in with no covenants and then really, really, really loosen. And so we let that go.

We also had a very interesting -- one of the big national banks came into North Louisiana in one of our markets, made a call to one of our really good C&I clients, offer them 1.8% fixed for 2 years to move their business. They end up staying with us because of the relationship, the loyalty, the relationship with Drake personally and other things. So we were able to fin that off. But that -- it clearly goes to show you what some of the bigger banks think of the what the rate environment is going to be the next 2 years.

So as Drake said, we're clearly feeling pressure across our markets. And I think we saw a couple of basis points compression. We're doing everything in our power to fin that off with deposit reductions. I think we've done a good job getting cost deposits down to 26 bps here across North Louisiana, it's even less than that. So we are fighting the good fight on loan yield. At this point, we have 68% of our floating rate loans have floors, and we're at the floor of 52% of that. Obviously, we think when rates go up, we have a real advantage. But it clearly is a fight right now on yields.

And to add to that, I don't think we have a lot of gap in those floors to feel the rate -- the increased rate impact. So we're in a good position there. I will say that we are reminding these long-term clients of some of these big bank strategies around coming in and just don't have nothing more, but low rates and then as industries start feeling some stress, they pull out and leave them hanging. So we're doing everything we can. I hate to use a competitor's name, but I'm pulling a little Johnny Allison on them here and there about remember when and how that counts. So I think we're in good shape.

Our next question will come from Woody Lay with KBW.

So on the credit front, I just wanted to touch on during the quarter, we saw a tick up in MPAs, but a decline in criticized loans. Could you just give some color on what drove the changes in those 2 buckets?

Yes. Jim Crotwell, our Chief Risk Officer, is here to respond to that. I've got to stick by hitting in the head.

Yes. On the increase and the nonperforming loans, that was just a couple of I would refer to as legacy credits, so that were previously classified and reserve for. So unfortunately, they did shift over into the nonperforming levels. I would point out, when we look at the -- that's an area of focus on that we've really over the last year and before, and we worked with that level of nonperforming down. So where we find ourselves, even with the increase quarter-to-quarter, we look back. We're still at a level that's very comparable and actually lower than pre-pandemic levels. So we'll continue to manage that.

As it relates to overall classified reductions, very pleased. And I think that's really an indication of what Drake was speaking to as the overall quality of our portfolio and continued improvement. When we looked at that, we had several credits that actually paid down in reducing that level. And we also had upgrades in the category of classifieds that drove the overall levels down.

So when we look as a portfolio as a whole, look at levels of past dues as an early indicator, we just really feel good, and we continued our deep dive through the course of the -- over the last year. We do -- we see resilience within our entire portfolio. So really pleased with where we are from a credit metric perspective.

Okay. That's great color. And then I wanted to touch on the FHLB prepayment. What rate of those long-term advances had? And when exactly in the quarter did you repay them?

Sure, Woody. They would have 5.2%, and we paid them about the very end of February. So they were sitting -- we had them one for 2 months basically in one month off for the quarter.

All right. Got it. So I guess with that in mind, I think earlier on the call you mentioned, excluding PPP, the NIM was down 2 basis points. How do you sort of see that going forward year of the next couple of quarters, especially with the pressure on loan yields a little bit just from competition?

Well, the pressure on loan yields, we're definitely managing. The hardest part we're going to have is with all the liquidity adding to cash and investments in bonds, you rather have it in loans where you have a higher yielding. So we still think it's going to be tough. Maybe it's going to be very hard to keep it flat with liquidity, but we think it's going to be about the same, maybe 1 to 2 basis point decrease next quarter. But it really depends on how fast the cash comes in and what can we do with it?

Our next question will come from William Wallace with Raymond James.

Drake, you endorsed a kind of 8% growth level in loans for the quarter. But Lance, when I was listening to your commentary about the pipelines, it's reading between the lines. It sounds like the pipelines are actually growing pretty, pretty meaningfully. Is that a fair read through? Or am I getting too optimistic?

Well, I think the 8% number sort of feels good for us right now. We are seeing pipelines build. I'll say they're better today than they were 3 months ago and 6 months ago. Kind of working through some timeliness of closing on some deals in North Louisiana. So yes, you heard me, I'm very optimistic, but I feel like the 8% number is sort of the right guidance.

Okay. And then Drake, when you're discussing the opportunities for potential lift-out, did I hear you say that you would consider lift-outs, but your goal would be to keep expenses flat? Or are you saying you're hiring opportunistically and trying to manage expenses, but lift-outs would be hard to keep expensive -- expenses flat?

Yes, no, no. I'm with our team, I think we're driving to keep expenses flat less added any lift-outs that we have, and that's one of the points I wanted to make sure everybody was clear on because we're going to continue to do the things that we've built this company on and feel like where we're leveraging in our efficiency in the direction we're going, that we have some runway to be able to do that, but yet still manage core expenses flat.

Okay. And then if I look at the first quarter, that 37.8 after backing out the prepay penalty. Is that the right run rate? Or was there some deferred comp related to PPP, et cetera, that would come back in? Just help us think about where we should be kind of a starting point.

Yes. I'm going to make this simple for all for everyone. I'm just -- I'm going to look at a 39 run rate for the balance of the year, and that puts us right at where we thought we'd be about 1.9% increase in expenses.

Okay. And then you guys have done a good job talking about the investments in technology that you've made. And if I look at one of the slides that you show some of the partners that you've made, it seems like a lot of that is really to kind of help the customer experience. And then I know, obviously, there's some investments you've made to help streamline the production processes, et cetera. Are there technology -- continued technology opportunities that would really help you streamline on the back office, on the customer acquisition front and just kind of across the platform that could severely change or dramatically change the way you think about the branch network? You guys are not a branch heavy bank, but you do seem to be forward-thinking on technology. So I'd love to know your thoughts on how technology could change the branch system at your bank and perhaps at others?

Yes. This is Lance. You're exactly right. This is something we're focused on all the time now. We've created a technology committee inside of the organization that includes our operation partners. We have a dedicated robotics automation person working with our accounting groups. So internal automation is kind of the key for us right now as well as what we're doing on the client experience. What I am finding, and I think other banks will probably agree is the ability to accomplish both. We're finding the right fintech partners that are going to deliver a more meaningful experience, but they're also coming at a cheaper price than what we're getting from our traditional core providers.

So we're able to enhance, at the same time, create some efficiency on the cost side. There is a lot of interesting technology coming around. We had an ongoing conversation right now with a direct payment provider that's using blockchain, that's going to be pretty fascinating to work through. We're kind of embedding some ideas around how to use more virtual environment in drive-throughs. And so just a lot of conversations going around about how do we continue to drive automation, reduce expenses but enhance the experience. And I think it's an exciting time.

Our next question will come from Kevin Fitzsimmons with D.A. Davidson.

Drake, I wanted to ask about M&A because it seems like in the past, you guys have put that out there as something you were really looking closely for an opportunity. But now understandably the tone, you've used the word a number of time bullishness on organic growth on the opportunity to get -- to take advantage of disruption from other competitors' deals, you feel better about mortgage warehouse, lift-out potential. On the other side, you have a much better multiple today than what we -- when we've talked in past quarters. So I'm wondering how you net those 2 in terms of M&A opportunities? Are you less on the hunt for those, even though you got a better multiple just because of all the organic opportunity you have in front of you or is it still a high priority?

Well, I'm going to go back to who we are and who we sold ourselves as. We're an organic growth story. And I feel so much better right now than I did last couple of years about our opportunity with this -- in this location marketplace. And what we're going to see as that continues. We are in a better position, I think, today to take advantage of that and keep the bones of the company as strong as they are today, which I think is important. And I would say that as you look at capital deployment and the opportunity to make mistakes, I now feel that we could do nothing and continue to do what we do consistently and very well and be highly successful.

Now it also puts us in a position to continue to have these conversations as we are. Because there are some opportunities to partner and fill in some gaps in our footprints that make a tremendous amount of sense. But it's not going to be at the mistake of applying capital to a deal that doesn't make sense for us.

So we're being more selective, I would say. And we're optimistic about every -- the lift-out opportunities with this dislocation and also our currency to give us some conversations to find true partners. And I think, for us, M&A is all about our geographic structure and how we account and how we manage. That's an attractive partnership for some of these companies that we're having some conversations with. So we're still in the ball game. It's not something that I feel we have to be successful with, but I think eventually we'll be.

Okay. Great. And is it fair to say the whole issue of being more selective that if maybe opportunities might be more likely in Louisiana, in Mississippi, where you can get cheap deposits as opposed to paying up for opportunities in Texas where you already have this opportunity for organic growth. Is that a fair statement? Or is it -- or is that off base?

Well, actually, the opportunities that we are visiting with are in each of the 3 states in our marketplace. But I'll tell you, a couple of these less metropolitan Texas opportunities have just as low-cost deposits as some of the things that we're seeing in our Mississippi opportunities, Louisiana opportunities because they're very good banks in those markets, and they're in good markets that have some quality franchise on the positive side. So I've been pleased with what we've seen from an overall cost of deposits in some of the Texas plays.

Okay. Great. And just as a follow-up on the whole topic of deploying excess capital. So you did buy back shares this quarter. But you also made a big statement with a big increase in the dividend, which makes a statement about how you feel going forward. Just given where the stock is trading, is it more likely now that buybacks probably fall off and in terms of priority level in terms of deploying capital?

Well, the buyback program that we built and the guardrails around that pretty much out of the market at this point based on what we built and what it allows us to do now. I hope we don't have this conversation that we have to change those guardrails because we see a pullback in economy and other things that put us back in the market. But for now, that's well down on the list of opportunities to deploy capital.

(Operator Instructions) Our next question is a follow-up from Matt Olney with Stephens.

Just a follow-up on the topic of mortgage. And I think for all banks this quarter, we're trying to understand mortgage trends and figure out where it's going to land at the end of the year. Is the refi volume slow when we get to the other side of this mortgage surge? So for Origin, it seems like it's twofold. It's on the warehouse and on the traditional gain on sale or margins on the fee side.

On the warehouse, I think Drake kind of addressed this already, trying to keep that mortgage warehouse balance in that $700 million to $800 million range when the surge -- the other side of that. What about on the gain on sale on the fee side? I think it was $4.5 million in the first quarter. Any color or any kind of data points you can provide that would help us appreciate where this could land over the next few quarters and towards the end of the year?

Yes, Matt, before Steve answers that question, I do want to -- our mortgage volume certainly decreased as we saw some other institutions have some upticks there. And I would say that not only the interest rate environment on the refinance side, but the storms that we experienced that actually slowed down those pipelines have been an influencer. But what we're seeing now and not as impactful on a mortgage warehouse because we have a footprint that's more region -- that's not as regional as, say, our mortgage footprint.

We're just seeing inventories and lack of inventory, that's a significant hurdle point to get those volumes up. And hopefully, there's not an answer for that, but we're just seeing some crazy, crazy deals around trying to purchase homes in this market. We've got a lot of applicants that can't get pull the trigger because of value. So that's going to continue to be a problem. Steve?

Sure. We had a $4.5 million or total -- excuse me, $4.6 million for total mortgage banking revenue for the quarter. We think next quarter is going to be definitely higher than that. We definitely have a little bit more origination. The gain on sale is still continuing to come down, but we think it's going to be more driven by volume. So we think the number will be probably 10% to 15% higher, start with a 5%, but it will be in the low 5s for the next quarter. The third quarter is generally a very good quarter also. But then historically, the fourth quarter will decrease.

Okay. And then just as a follow-up on the warehouse. I'm curious what the funding strategy of the warehouse is today with all the liquidity in the system, are you funding it differently today than a few years ago?

Yes. Right now, we're funding it mostly with low-cost deposits. When you compare Federal Home Loan Bank advances today, they're about 8%, but there's so much liquidity out there. You could get broker deposits for 1% and -- I'm sorry, 8 basis points. Yes, 8 basis points and then 1 basis points for brokered. So when you look at our non-core dependency, funding dependency, it's the lowest it's been. And so we are funding it mostly with deposits. And every once in a while, we'll go out and borrow some either Home Loan Bank at 8 basis points or broker deposits at 1 basis point.

Okay. And Steve, one more follow-up, I apologize for taking up the time here. You paid down some of the FHLB this quarter. Are there any more similar opportunities in the future of paying down higher cost deposits?

We're just talking about that today. We're going to run the numbers and take a look at it. What we have on the balance sheet right now is we have a $250 million, and that's at $165 million. And then the other amount is long-term also. So we definitely have a chance for the $7 million, the $250 million. We're going to have to run the numbers and really take a look at it.

This concludes our question-and-answer session. I would like to turn the conference back over to Drake Mills for any closing remarks.

Thank each and everyone of you for participating today. And I just want to reiterate that this company and the position that we're in today is very positive. I've used the word bullish, I'm going to continue to. Our opportunity for organic growth and to take advantage of market opportunities has never been better. And I just appreciate the -- our investors and the questions. And hopefully, if any of you have any additional questions, most of you have my cell phone number. And I look forward to hearing from each and every one of you, but thank you for your support.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.