Origin Bancorp, Inc. Q4 FY2022 Earnings Call

Good day, and welcome to the Origin Bancorp Fourth Quarter and Full Year 2022 Earnings Call. My name is Brett, and I'll be your call coordinator. The format of the call includes prepared remarks from the company, followed by a question-and-answer session. At this time, it's my pleasure to turn the call over to Chris Reigelman of Origin Bancorp. You may now begin.

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 the slide presentation that we will refer to during this call. Please refer to Page 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 7 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; President and CEO of Origin Bank, Lance Hall; our Chief Financial Officer, Wally Wallace; Chief Risk Officer, Jim Crotwell; our Chief Accounting Officer, Steve Brolly; and our Chief Credit and Banking Officer, Preston Moore. After the presentation, we'll be happy to address any questions you may have. The call is yours, Drake.

Thanks, Chris. Good morning. As I review 2022, our successful year was a year of major accomplishments that significantly strengthened our company. We finished a strong fourth quarter with an enhanced management team that is laser-focused on strategic decisions that will impact long-term performance and value. The overall condition of our company, as we begin 2023, positions us very well to take advantage of our markets in a meaningful way. Our strength starts with our executive team and filters throughout our organization across all of our markets in Texas, Louisiana, Mississippi. This is reinforced this year with Origin being recognized as the second best bank to work for in the country by American Banker. We take great pride in our culture and the competitive differences it creates. One of the major highlights for us in 2022, as I've discussed, was a partnership with BTH Bank. I've often said how BTH is a unicorn, and this has remained the case two months post-conversion. Culture will always be the foundation with any partnership we develop. Our shared culture of putting people first and delivering for our employees, customers, communities, and shareholders is what has made this partnership so successful. I am pleased that we have successfully kept intact the BTH organization. I'm very excited about the growth opportunities that East Texas presents. In 2022, we saw strategic growth throughout our footprint. Excluding mortgage warehouse, loans grew over 24% organically and nearly 50%, including BTH. As liquidity moved out of the system during 2022, we experienced a highly competitive deposit environment. Our teams took advantage of the market to reduce our exposure to high-cost non-core deposits, thus strengthening our core deposit base. We reduced non-relationship deposits by over $300 million, while mortgage warehouse experienced a reduction of over $100 million. On an average basis, we grew deposits by 5.5% without including BTH. Our bankers remain laser-focused on deposit growth in 2023, and we are proud of our balance sheet position with a loan-to-deposit ratio of 88%, excluding mortgage warehouse. We finished the year with $9.7 billion in total assets. And as we planned, we strategically managed the balance sheet below $10 billion. The asset sensitivity of our balance sheet was highlighted by net interest margin expansion in each of the past three quarters. Wally will provide more color around NIM. As I've mentioned in the past, the Texas growth story for Origin has been impressive, and the addition of BTH has created an incredible opportunity to drive value in a meaningful way. As you can see in our presentation, our Texas franchise represents approximately 70% of loans held for investment, excluding mortgage warehouse, and 54% of deposits. Lance will talk more in detail about the success we are having. But I think it's important to point out that our investments in infrastructure and people in these dynamic Texas growth markets have and will continue to pay off for our company. As proud as I am about our production, I'm even more proud of our current credit metrics. Jim Crotwell, our Chief Risk Officer; Preston Moore, our Chief Credit Officer, along with their teams, have done an amazing job of managing credit risk. Jim will talk about the details later, but it's more than just the credit metrics; it's about the camaraderie, the trust that our producers and credit teams have with each other that helped us perform so well in 2022. And even more importantly, puts us in a position of strength as we head into an uncertain economic environment in 2023. Now, I'll turn it over to Lance.

Thanks, Drake. I'm extremely proud of how we performed as a company over the past year. We remain committed to the Origin vision of combining the power of trusted advisers with innovative technology to build unwavering loyalty by connecting people to their dreams. Drake mentioned that being recognized as the second best bank in America to work for doesn't need to be overlooked. I'll get into the numbers from a production standpoint, but it's important to understand what we're building and what is taking place over the last 12 months. Our culture and geographic management model create an environment that attracts high-quality people who are committed to building valuable long-term relationships. This past quarter, we made several strategic hires in the East Texas market, and in total for 2022, added 21 new producers, primarily in the Texas market, who are driving meaningful growth on the deposit and loan side. Certainly, there is an expense to this investment, but the long-term impact of these strategic hires, coupled with the incredible talent that we already have gives me tremendous optimism for Origin in the future. Drake mentioned our impressive loan growth for the year, and this took place across all of our markets. Excluding mortgage warehouse and BTH, our bankers delivered over $2.9 billion in new loan production, up 37% from 2021. We saw 10% growth in North Louisiana, 8% in Mississippi, 24% in North Texas, and 55% in our Houston market. The Dallas-Fort Worth and Houston markets each delivered over $1 billion in new loan production. This growth reinforces our strategy of attracting the best-in-class bankers across our footprint and their ability to drive long-term growth for our company. We're all aware that the deposit climate is extremely competitive. Deposit growth has been and will continue to be a strategic focus for us. One of the strengths of this organization is our core deposit franchise, and we've talked often about how we are uniquely positioned with sticky rural deposit relationships fueling growth into our metro markets. The addition of our East Texas market further exemplifies our deposit strategy and is a key differentiator for Origin. We are clearly in the midst of a change in the rate cycle. And because of this, we took steps in the fourth quarter to bolster our deposit product offerings and have positive momentum in the traction we are seeing. In our presentation, you can see detail as it relates to our deposit betas. While the steps we took in Q4 resulted in an acceleration in deposit betas to 23% on a cumulative basis, we remind you that we are still better than the range of prior tightening cycles, where our total deposit betas range from 27% to 37%. We are hopeful that we can maintain relatively strong deposit betas in 2023. We are watching trends closely, and we'll react accordingly to drive strong deposit performance. As we continue to execute on our strategic plan, I see opportunities for Origin to enhance our investments in talented people, core deposits, and technologies to drive efficiency and a superior customer experience. To assure that our investments and plans are being executed in a meaningful way, it is critical that we continue to deeply measure our activities. As highlighted on Page 4 of our Investor Day, we presently measure employee engagement and culture through our Glint surveys, our community support through employee volunteerism, customer satisfaction through Net Promoter Scores, and efficiency through our robotics automation processes. The tremendous success that we achieved in all these categories, along with the continued improvement in our financial performance, makes us believe that Origin can be the best bank in America. Now, I'll turn it over to Jim.

Thanks, Lance. As reflected on Slide 14, our loan portfolio continued its strong performance in the fourth quarter. Past due loans held for investment as a percentage of total loans held for investment were at 0.15% at quarter-end. We are extremely pleased with the continued reduction in the level of nonperforming loans held for investment as a percentage of total loans held for investment, which ended the year at 0.14%, down from 0.20% as of the prior quarter and down from 0.49% a year ago. Classified loans remained stable at 1.05% of total loans held for investment. Lastly, and perhaps the best evidence of the resiliency and strength of our portfolio is reflected by our annualized net charge-offs for the quarter, which was only 0.01%. During the quarter, we increased our allowance for credit losses by $3.8 million to $87.2 million, increasing from 1.21% to 1.23% as a percentage of loans held for investment. We determined that our reserve increase for the quarter was appropriate, given the balance between the strong position of our portfolio and the continued economic headwinds. A particular note is the increase in our reserve as a percentage of nonperforming loans, increasing to 877% as of quarter-end compared to 594% for the prior quarter and 259% a year ago. As we shared last quarter, we are closely monitoring the impact of inflation, rising rates, and the likelihood of an economic recession on our portfolio, as well as continued geopolitical concerns and its impact. We continue to believe that the markets we serve will be impacted to a lesser degree by a recession than other areas of the country. In summary, our focus on relationship banking, along with sound underwriting and credit structure continue to result in our well-diversified and resilient portfolio. I'll now turn it over to Wally.

Thanks, Jim. Turning to the financial highlights. In Q4, we reported diluted earnings per share of $0.95. On an adjusted basis, Q4 earnings per share were $0.99 after excluding $1.2 million in pre-tax merger-related expense. Net interest margin expanded 13 basis points during the quarter and 75 basis points from last Q4 to 3.81%. Excluding $1.9 million in net purchase accounting accretion, our adjusted net interest margin expanded 12 basis points to 3.73% from Q3 and expanded 81 basis points from last Q4 when excluding $3.8 million in PPP fees from that period. Margin expanded for the third consecutive quarter in Q4, demonstrating the asset-sensitive positioning of our balance sheet despite a marked increase in deposit pricing competition during the quarter. On fee income, we reported $13.4 million in Q4, down slightly from $13.7 million in Q3, which included $1.7 million in gain on the sale of securities and a $2 million impairment on our Ginnie Mae MSR, which we have subsequently entered into a contract to sell at current carrying value. Excluding the gain on the sale of securities and the MSR write-down, our fee income decline was driven primarily by a seasonal decline in insurance fee income combined with a slight loss in limited partnership investments following a slight gain in Q3. Our noninterest expense increased to $57.3 million from $56.2 million in Q3. However, excluding merger-related expense, our noninterest expense increased to $56.1 million from $52.6 million. This increase was due primarily to the additional month of BTH expense when compared to the prior quarter and was slightly better than our $57 million to $58 million guidance as we were able to pull some BTH-related vendor cost savings forward into Q4. Turning to capital, it is worth noting the roughly $15 million improvement in our AOCI balance given the shift in rates during the quarter, which helped increase our TCE ratio back above 8%. Our regulatory capital ratios all improved during the quarter, and we remain well capitalized, allowing us flexibility from a capital perspective to take advantage of any potential future capital deployment opportunities to drive value for our shareholders. With that, I will now turn it back to Drake.

Thanks, Wally. We have a lot to be excited about based on what we accomplished in 2022 and where we are positioned moving into this year. We have the right team in place with incredible employees who know and understand our clients. I am pleased about where we are from a credit perspective and the credit culture that is in place. I'm confident in our ability to manage liquidity and our capital levels allow us to take advantage of opportunities in our market. There is strength in our local and regional economies. Our Texas market continues to benefit from domestic migration and strong economic growth. And our teams are laser-focused on driving strategic profitable loan and deposit growth. We have proven throughout our history that we can capitalize on opportunities in uncertain times. I know we will do the same in 2023. Thank you to our employees and our shareholders for a great year, and thank you for being on the call today. Now, we'll open it up for questions.

Thank you. Our first question comes from Matt at Stephens. Matt, your line is open.

Hey, thanks. Good morning, everybody.

Good morning, Matt.

I want to start with the margin and the NII. We saw some improvement in linked quarter, but still little below consensus forecast. Would love to hear your updated thoughts on deposit pricing and deposit betas from here? And then, kind of given the incremental deposit pricing pressure that we're seeing across the industry, I'm curious if you now think we've seen a peak in the NIM at Origin. And if so, any color on where you think that margin could land in the near term? Thanks.

Yes. Thanks, Matt. Before I turn it over to Wally, obviously, for the industry and especially us, we recognized early on that this liquidity would be pulled out of this market and that we would get back into a situation where we're highly competitive. I think as we've discussed in the past, as we've been able to grow this institution through an organic strategy, it's been very important that we ran a higher loan-to-deposit ratio to cover some of the cost of organic growth, especially our de novo growth. As we went into 2022, strategically, we made the decision that we were mature enough in our life cycle that we needed to adjust from a liquidity perspective how we ran this institution. And certainly, we want to be sub-9% on loan-to-deposit ratio. So, we got very aggressive with our teams, and we talk about lift-outs and the teams that we bring on. I do want to remind everyone that in these teams, we always have a deposit focus, a business development focus, deposit experts that we brought on. So, we feel very good about where we are. We're still in a competitive environment. We're seeing some easing of that pressure from a rate standpoint as we came out of the fourth quarter. And we certainly did what I think was an excellent job. But on top of everything, NIB, our commercial clients are using their funds. They're using them to pay down debt to do projects, to do a number of different things as we see this liquidity come out of the market. So that was expected on our part. We knew there would be a remix of the deposit categories, and we are managing that what I think is in an exceptional way. We think, and I will tell you that I'm highly confident in our ability to continue to grow core deposits. But I always talk about the Texas plus aspect of our business. That plus is the core deposit markets that we have in Louisiana and how beneficial they are, that's going to prove itself and show some real value as we go through the first couple of quarters in '23. So, as we look at margin, I'm going to let Wally get into that because we're doing a lot of work around where we think we are. Yes, we could have seen a topping out of our margin for now, because there are certainly some opportunities for us to continue progressing through the quarter. So, I'll turn it over to Wally for some specifics.

Thanks, Drake. So, Matt, you probably heard Lance referenced in his prepared remarks that we did make some moves during the quarter as we saw our commercial customers paying down some of their cash balances. We saw and we strategically made the decision to protect our deposit balances as best we can, and we increased our rate sheet across the board. That was in early to mid-November. So that's where we started to see the pressure on the deposit betas. Moving into the first quarter, we expect that that decision will continue to pressure the deposit betas in January. In our modeling, we are assuming that the Fed gives us a 25 basis point hike next week, and we think that the corresponding increase to loan yields will help to offset some of the pressure from the deposits. So, overall, for the first quarter, we think the pressure on the deposit side does trump the loan yields. We think net interest margin will probably be down kind of mid-single digits. But as the quarter progresses, we think the loan yields start to trump the deposit pressures, and we are actually anticipating margin will start to expand again in the second quarter. Another hike from the Fed might help that. But you can imagine, we are watching our deposit balances on a daily basis, and we'll continue to be strategic to try to make sure that we are protecting our deposit base.

And Matt, from a strategic perspective, everything that we are focused on today, we focus on from a longer-term perspective and driving long-term growth. We have an excellent deposit base. We've looked at those customers. Are we losing customers? No. Are we losing credits, or are we losing commercial customers? No. They are utilizing the resources at this point. So, I hope that answered your question.

Yes. Drake and Wally, that's helpful on the details there. Just a follow-up on some of those comments. If some of those commercial customers are kind of paying down their debt and moving liquidity out of the bank, help me appreciate why the loan growth at Origin still remains very strong.

Yes. And I'm going to let Lance talk about that. But again, we're seeing some real results out of the teams that we brought on in 2022. Lance?

Yes, good morning, Matt. Our bankers continue to perform at a high level, largely due to the robust economies in North Texas and Houston, leading to significant growth opportunities. The lift-out strategies have been effective, and this morning I noted that on the commercial lending front, the new hires have generated over $200 million in loan growth as they transition their relationships from their former banks. We appreciate this from both a pricing and credit standpoint because of the longstanding knowledge and history these bankers have with their clients. We intend to maintain this strategy, as our pipeline appears very strong. The 21 new hires from last year are actively connecting us with their clients, which has greatly benefited our loan and deposit sides. We believe we've established a company that will grow at an annual rate of 10%. However, for 2023, we're anticipating the impact of rising interest rates and a potential recession on loan growth, budgeting for mid-single-digit growth in loans while expecting our deposits to exceed our loans in 2023. This outcome will largely be influenced by our bankers and incentive plans. We have traditionally incentivized deposits at the same level as loan growth, but in 2023, we will adjust this so that deposits receive greater incentives than loans. Our loan incentives will focus primarily on commercial and industrial lending, as well as owner-occupied properties. Our bankers are aligned with our mission, understanding our strategic approach to client selection and pricing. I am very optimistic about our growth prospects this year.

Matt, I’d like to share a couple of examples. We are bringing in new clients, and we're experiencing loan growth. For instance, one relationship I know well had a $32 million balance, and currently, they have a $22 million balance because they used funds for a project. Another strong customer of ours, a manufacturer, had a balance of $25 million to $26 million and has paid off $18 million in debt. Despite this, we are still seeing growth with new clients as our teams continue to bring them in.

Maybe a better way to ask kind of a similar question. It sounds like the new producers are kind of building to the team and adding the loan growth. Any change in the utilization rates you're seeing more recently, if there are some customers paying down some of their debt?

Well, it's a little interesting, because we've continued to have such good growth, even though we are seeing some of that down. We've actually seen a slight uptick in the utilization on the line. We've historically averaged like 48%, 48.5% utilization on our revolvers. At the end of the quarter, we were at 51%. Matt, I would just say it this way: Houston and Dallas are doing what we thought they were going to do. I mean, we had three of our existing Houston bankers that are dynamic create over $100 million in loan growth last year each for individuals that produced over $1 million in fees. I mean, these markets are just strong growing dynamic, and it's exactly where we thought it was going to be.

Okay. And then, going back to the margin, I think the market has growing concerns that the Fed could cut rates later in 2023. If this did happen, I'm curious what your thoughts are what this would mean for Origin? And what are some options that you consider pulling in 2023, if that was a scenario?

Hey, Matt, it's Wally. We are paying very close attention to the forward curve and are well aware of what the curve is telling us about what they think the Fed will do. We have spent a considerable amount of time educating ourselves on what opportunities there are to hedge interest rate risk for when and if the Fed starts to take rates down. There are several options that we have in front of us from floors to collars to swaps; we are considering all of the options. Right now, the pricing on hedging instruments is relatively expensive. We watch the curve every day and feel like we've educated ourselves enough that we can take advantage of any changes in the curves and any change in the cost for these instruments, and we'll take advantage of them if they present themselves. So, we are, obviously, asset sensitive, and we're aware of that, and we will do what we can to begin to position ourselves for when and if the Fed starts to take rates down.

Okay. Thanks, Wally. And just lastly for me, maybe on credit for Jim. Classified loans pretty flat linked quarter. But obviously, investors are becoming more focused on credit. Would love to hear any updated thoughts that you have, Jim, on the portfolio you're most focused on, maybe from an industry perspective or geography, kind of what your focus is on maybe overall in the industry, and then maybe specifically within Origin Bank, what you're most focused on? Thanks.

Good morning. I believe we're now witnessing the actual advantages of the relationships that Lance mentioned during the lift-out process. These are clients that our bankers already know well, which is where our growth is coming from. Additionally, we are benefiting from remaining true to our identity, which is focused on relationships and prioritizing primary, secondary, and tertiary source repayments. Throughout the pandemic, we conducted in-depth assessments of various sectors, and we continue to do so. For instance, regarding the office sector, which is currently garnering significant attention, our portfolio is quite diversified, with no concentration in just downtown business districts. When evaluating secondary source repayment in that sector, the average loan-to-value ratio for us is approximately 53%, indicating our conservative underwriting approach. Furthermore, in terms of tertiary components, we have around $385 million in non-owner-occupied office properties, and the collective liquidity of our guarantor is nearly $350 million. Importantly, we have no nonperforming loans or past dues in this sector. Similar results are evident in other sectors as well, reflecting our diligence. We do not engage in enterprise value lending except under very limited circumstances. We've also undertaken stress-testing exercises to analyze cash flow coverages, especially concerning potential interest rate increases. We are quite satisfied with the outcomes, particularly when identifying credits that may face challenges with overall debt service, as we are well-positioned due to our careful loan-to-value assessments. We have successfully navigated through various economic cycles and feel we are in a strong position. Our past due levels, which serve as an early indicator, are very low, and our nonperforming loans are minimal, which gives me confidence in our portfolio's overall health during this uncertain time. Lastly, we are optimistic about the markets we serve, as they are likely to be less affected by any economic downturn. If a downturn does occur, we anticipate it will be short-lived, perhaps lasting only three quarters, after which we expect a quick recovery.

Matt, I'm going to add a little bit to something one of my concerns, and I voiced this through the last several years have been credits that are consumer spending dependent. And we've done a tremendous amount of work around understanding those types of stresses in how they would impact if we continue to see a breakdown in consumer spending. And I will tell you, I'm very pleased with what Jim has brought to the table. Preston talks about this. And I'm confident of where we are through '23. And we're preparing ourselves for any type of deterioration perceived. But at this point, and I know it's going to come to some level, but we're just not seeing deterioration at this point.

Okay. Great commentary. Thanks, guys.

Thank you, Matt. Our next question comes from Michael at Raymond James. Michael, your line is open.

Hey, good morning, guys. Hope you all are doing well. Matt touched on a bunch of my questions, but I did want to touch on expenses. Obviously, the revenue is a little bit lower than I think we were looking for, but so were the expenses. Last quarter, you guys had kind of talked about using the fourth quarter run rate and growing that, I think, about mid-single digits, just given the inflationary pressures that we're seeing, maybe some offsets. Maybe you're not going to be as aggressive in hiring. Just wanted to get a sense of what you think about expenses as we move through 2023? And then, just how much of the cost saves from the acquisition have you realized to date? Thanks.

Yes, I appreciate your question. We are currently very focused on managing expenses. However, as Lance mentioned in his remarks, we are also making strategic investments in technology that will enhance efficiency and improve the customer experience. While I won't go into specifics today, we are encouraged by the progress in our bot processes and the expected cost reductions. We are investing in key locations to ensure we effectively serve our communities, which we believe will lead to strong deposit growth in those areas. We prioritize building facilities around teams and talent, not just for the sake of having more locations. We have three new facilities launching soon, alongside one that opened earlier last year. Our goal is to reduce expenses while achieving a mid-single-digit run rate through 2023. At the same time, we are implementing strategies that reduce costs and enhance our technological capabilities, people, and locations. We take a strategic approach to all initiatives, focusing on long-term value creation while managing expenses. We have seen a slight improvement in our efficiency ratio, and Lance is actively working on further enhancing our efficiency. Achieving a specific efficiency benchmark is crucial for us to be recognized as high performers, and that remains a key focus for us in 2023.

Okay.

Michael... I'll just add a couple of kind of puts and takes to that mid-single-digit growth in 2023. We have a couple of relief valves from incentive accruals in 2022. Our organic loan growth was over 20%. We're not budgeting for that level of growth in 2023. But we have invested strategically in new people, and we've also made some strategic investments in real estate that will offset some of those. As far as your cost saves questions, we pulled forward a little bit from some technology contracts. We have a couple left that will impact us in the first quarter positively, but that will be about the extent of the cost saves.

Okay. So just given some of the revenue headwinds, do you think there's room to bring down the efficiency ratio from here? Or should we expect it to kind of flatline to maybe increase just given the challenges that are out there? Thanks.

Yes. In '23, Mike, I think we'll see a little bit of flatlining. I still think we have possible reduction, but we're budgeting and we're looking for a successful year would be one that we were flat from an efficiency standpoint and see a kickoff in '24.

Okay. That’s helpful. Lastly, it seems like you're planning to slow loan growth a bit, aiming for mid-single digits compared to last quarter's high-single digits, which I completely understand. Considering the capital build, that should support further acceleration. Could you provide an update on your strategic priorities? Also, are you considering using the existing authorization, especially with the stock trading at an attractive level?

Yes, thank you. We are entering a challenging economic period in 2023. Capital is essential, and we will continue to build our capital to ensure we can navigate any upcoming difficulties. We are confident in our current position. We do have a share buyback program, but we are seeing slower growth than we anticipated, which might affect our activity in repurchasing stock. As I like to say, the stock is currently on sale. This option remains available to us, and you may see us become more active in this regard, as we have the authorization to proceed.

Great. Very interesting to hear the comment on the chatbot. Maybe you can use that to replace your newly-hired CFO. Just kidding. Thanks, guys.

Ouch. Wow.

Thank you, Michael. Our next question comes from Brad at Piper Sandler. Brad, your line is open.

Hey, good morning, guys.

Good morning, Brad.

Good morning, Brad.

Yes, thanks for taking my question. I appreciate all the color. If I heard you correctly, you expect deposit growth to outpace loan growth. Just wanted to kind of think about the size of your balance sheet. Do you think, one, you could stay under $10 billion again in '23? And then, second, how should we think about the bond portfolio? I guess would that potentially remain more stable now as you maybe put some of those excess cash flows back to work? Or where might you put the liquidity that you're going to gain from the better deposit growth might pay down borrowings? Just wanted to kind of get a sense of what your plans are there.

Yes, this is Lance. I'll address the first part of your question. We are projecting mid- to high-single digit growth in loans and deposits, which means we expect deposits to increase more than loans. However, staying under $10 billion is not our goal. We are designed for growth and face strong competition in our markets with robust economies. That said, based on our modeling, it is possible we may remain under $10 billion due to certain factors like leveraging the runoff from our investment portfolio. We believe this is a viable possibility, but we have no intention of slowing down the growth of our core relationships.

Yes, I'm going to elaborate on that. Currently, we're at $9.5 billion with $450 million in growth. From a loan-to-deposit perspective, we are actively ensuring our teams remain engaged, taking care of our clients, and building quality relationships. Altogether, we have $300 million in deposits available for immediate use if necessary. There is a clear opportunity for us to remain below $10 billion for 2023, especially with an additional $170 million in securities that will mature and can be used to pay off debt. We have many strategies in place, but we are committed to maintaining our momentum and growth without compromising on that. I am confident that we have a solid opportunity ahead.

Okay. Maybe just a follow-up to ask more specifically, if I was planning on reducing the securities book in 2023, that might not necessarily be the case anymore given some of your deposit growth aspirations?

Yes, I apologize for the confusion. I am trying to understand the question better. With our goals for deposit growth, I believe that in our markets, we can grow loans at 6.5%. However, we need to manage this strategically to ensure liquidity remains stable, as our loan-to-deposit ratio is below 90%. We aim to grow deposits to support any loan growth, ensuring that maturities from the investment portfolio can either reduce costs, be reinvested in loans, or be used to pay down debt by the end of the year.

Okay. Great. Thank you. I appreciate it.

And we won't be active in building securities at this point.

Thank you, Brad. Our next question comes from Woody at KBW. Woody, your line is open.

Hey, good morning, guys.

Hey, Woody, how you doing?

I'm doing good. I just had a follow-up on the NIM discussion from earlier. In regards to the expected decline in the first quarter, I'm assuming that was talking about the core margins, so excluding any accretable yield?

Yes, that's correct.

Okay. For the potential margin rebound in the second quarter, is that solely due to the fixed loan portfolio repricing higher? Is that the potential support for the margin?

No. We are modeling an increase in interest rates from the Fed next week, which is the main factor. We will experience the effects of this move on our entire deposit base after January. Additionally, if the Fed raises rates next week, it will be advantageous for 57% of our loans that are variable.

And Woody, that's the only hike that we're budgeting in at this time for 2023.

Yes. All right, that's all from me. Thanks, guys.

Thank you.

Thank you, Woody. It appears there are currently no questions. Handing it back to Drake Mills of Origin Bancorp for final remarks.

First off, thank you, everyone, for attending. I real quickly want to talk about our company from a 2022 highlights, the BTH partnership, the process we went through, the relationships that we've built, how we went through that process was amazing. Pristine credit, we continue to build what we think is a better balance sheet, a fortress balance sheet, focusing on loan/deposit growth and liquidity. Strong growth in '22, the Texas story plus Louisiana deposits, 70% of our loans today are in Texas, and 54% is in deposits with East Texas coming on. We really are excited about that partnership. Management strength. We've added Derek McGee and Wally Wallace, or William J. Wallace, to the team, and really have started to look at where we are today moving forward. Second best bank in America to work for, we're going to put the performance on top of that. We continue, and we'll always continue to invest in people and technology to make us better, but also core deposit growth. So, as I look at this, I am extremely confident. In my career, if I could replace us with someone else or put us in a different market, I wouldn't do it. So confident where we are, what we're doing, the quality of this organization, our footprint, even though we're in trying times, this is where we have shined in the past. I'm extremely confident in our ability. I appreciate the interest in this organization. Thank you for being on the call, and we'll talk to you next quarter. Thank you.

Thank you, Drake. This concludes today's earnings call. A replay will be made available shortly following today's call. Thank you, and have a great day.