What changed in this filing

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Item 1A. Risk Factors

2024-02-28 compared with 2023-02-22 · 45 added, 75 removed, 506 unchanged (19% of the section changed)

16 unchanged sentences

• Our loan portfolio contains a number of large loans to certain borrowers, and deterioration in the financial condition of these borrowers could have a significant adverse impact on our asset quality;

• We are subject to various risks associated with COVID-19;

• The loss of executive management or other key employees, as well as our ability to attract and retain profitable bankers, could adversely impact our business or reputation;

• Unauthorized access, cyber-crime and other threats to data security may cause harm to our business;

• The discontinuation of LIBOR could result in financial, operational, legal, reputational or compliance risks to us;

• Fraud, unauthorized access, cyber-crime and other threats to data security has impacted and may cause harm to our business;

• We may have exposure to tax liabilities that are larger than we anticipate;

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We are operating in an uncertain economic environment.

The pandemic caused a global economic slowdown, and while we have seen economic recovery, continuing supply chain issues, labor shortages and inflation risk are affecting the continued recovery.

The COVID-19 pandemic caused a global economic slowdown, and while we have seen economic recovery, labor shortages and inflation risk are affecting the continued recovery.

Our business and operations, which primarily consist of lending money to customers in the form of loans, borrowing money from customers in the form of deposits and investing in securities, are sensitive to general business and economic conditions in the U.S.

Continued economic uncertainty and a recessionary or stagnant economy could result in financial stress on our borrowers, which could adversely affect our business, financial condition and results of operations.

We decreased the expense for credit losses over fiscal year 2021 as the economy began to recover, however, deteriorating conditions in the regional economies we serve, or in certain sectors of those economies, could drive losses beyond that which is provided for in our allowance for credit losses.

Continued economic uncertainty and an inflationary, recessionary or stagnant economy could result in financial stress on our borrowers, which could adversely affect our business, financial condition and results of operations.

Deteriorating conditions in the regional economies we serve, or in certain sectors of those economies, could drive losses beyond that which is provided for in our allowance for credit losses.

We could also face the following risks in connection with the following events:

• inflationary pressures remained elevated throughout 2022 and are likely to continue into 2023;

• inflationary pressures remained elevated throughout 2022 and 2023, and may to continue into 2024;

• market developments and economic stagnation or slowdown may affect consumer confidence levels and may cause adverse changes in payment patterns, resulting in increased delinquencies and default rates on loans and other credit facilities;

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• our ability to assess the creditworthiness of our borrowers may be impaired if the models and approaches we use to select, manage, and underwrite loans become less predictive of future charge-offs;

• regulatory scrutiny of the industry could increase, leading to increased regulation of the industry that could lead to a higher cost of compliance, limit our ability to pursue business opportunities and increase our exposure to litigation or fines;

• regulatory scrutiny of the industry has increased and could continue to increase, leading to increased regulation of the industry that could lead to a higher cost of compliance, limit our ability to pursue business opportunities and increase our exposure to litigation or fines;

• ineffective monetary policy or other market conditions could cause rapid changes in interest rates and asset values that would have a materially adverse impact on our profitability and overall financial condition;

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Further, such losses could be realized into earnings should liquidity and/or business strategy necessitate the sales of securities in a loss position.

Additionally, an increase in interest rates may, among other things, reduce the demand for loans and our ability to originate loans and decrease loan repayment rates.

Additionally, further increases in interest rates may, among other things, reduce the demand for loans and our ability to originate loans and decrease loan repayment rates.

A decrease in the general level of interest rates may affect us through, among other things, increased prepayments on our loan portfolio and increased competition for deposits.

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As a result of our mortgage servicing business, we have a portfolio of mortgage servicing rights on unpaid principal balances of $1.39 billion at December 31, 2023.

During the second half of 2022, we entered into an agreement to sell our GNMA mortgage servicing rights portfolio, which met all final sale conditions in early 2023.

We sold approximately $1.8 million in GNMA mortgage servicing rights, representing $453.3 million in unpaid principal balances and derecognized the related GNMA repurchase asset and offsetting liability of $24.6 million.

A mortgage servicing right is the right to service a mortgage loan - collect principal, interest and escrow amounts - for a fee.

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If such changes in fair value significantly reduce the carrying value of our mortgage servicing rights, our business, financial condition and results of operations could be adversely affected.

During December 2023 and January 2024, we solicited non-binding indications of interest with respect to the proposed sale of substantially all of our mortgage servicing rights asset and recognized an impairment of $1.8 million in December 2023.

The Company plans to sell approximately $17.4 million in mortgage servicing rights, representing approximately $1.39 billion in unpaid principal balances, subject to successful negotiation of a definitive purchase and sale agreement and satisfaction of all closing conditions.

Inflationary pressures and rising prices may affect our results of operations and financial condition.

Inflation rose in 2022 at levels not seen for over 40 years.

Inflationary pressures are likely to continue into 2023.

Inflation rose throughout 2022 and 2023 to levels not seen for over 40 years.

Inflationary pressures may continue into 2024.

Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk.

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The global credit and financial markets have from time to time experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, high rates of inflation, and uncertainty about economic stability.

The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, including the current conflict between Russia and Ukraine, which is increasing volatility in commodity and energy prices, creating supply chain issues and causing instability in financial markets.

Sanctions imposed by the United States and other countries in response to such conflict could further adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability.

The specific consequences of the conflict in Ukraine on our business is difficult to predict at this time, but in addition to inflationary pressures affecting our operations and those of our customers and borrowers, we may also experience an increase in cyberattacks against us, our customers and borrowers, service providers and other third parties.

The financial markets and the global economy may also be adversely affected by the current or anticipated impact of military conflict, including the ongoing wars in the Ukraine and the Middle East, which have increased volatility in commodity and energy prices, created supply chain issues and caused instability in financial markets, all of which may continue or worsen in the future.

Sanctions imposed by the United States and other countries in response to such conflicts could further adversely impact the financial markets and the global economy, and any economic countermeasures by the affected countries or others could exacerbate market and economic instability.

There can be no assurance that further deterioration in markets and confidence in economic conditions will not occur.

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Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing certain of our loans and result in loan and other losses.

Real estate values in many Texas, Louisiana and Mississippi markets have experienced periods of fluctuation over the last several years, and the market value of real estate can fluctuate significantly in a short period of time.

Real estate values in our markets have experienced periods of fluctuation over the last several years, and the market value of real estate can fluctuate significantly in a short period of time.

At December 31, 2023, $5.25 billion, or 68.5%, of our total LHFI was comprised of loans with real estate as a primary component of collateral.

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If real estate values decline, it is also more likely that we would be required to increase our allowance for loan credit losses, which could have an adverse effect on our business, financial condition and results of operations.

The geographic concentration of our markets in Texas, Louisiana and Mississippi makes us more sensitive than our more geographically diversified competitors to adverse changes in the local economy.

The geographic concentration of our markets in Texas, Louisiana, Mississippi, and most recently into Alabama and Florida makes us more sensitive than our more geographically diversified competitors to adverse changes in the local economy.

Unlike larger financial institutions that are more geographically diversified, we are a regional bank concentrated in the Interstate 20 Corridor between the Dallas/Fort Worth metropolitan area, East Texas, North Louisiana and Jackson, Mississippi, as well as in Houston, Texas.

At December 31, 2022, 66.1% of our total loans (by dollar amount), excluding mortgage warehouse lines of credit, were made to borrowers who reside or conduct business in Texas, 20.5% attributable to Louisiana and 7.3% attributable to Mississippi, and substantially all of our real estate loans are secured by properties located in these states.

Recently, we expanded our presence into Mobile, Alabama and Fort Walton Beach, Florida.

At December 31, 2023, 67.9% of our total loans (by dollar amount), excluding mortgage warehouse lines of credit, were made to borrowers who reside or conduct business in Texas, 19.2% attributable to Louisiana and 6.5% attributable to Mississippi, and majority of our real estate loans are secured by properties located in these states.

A deterioration in local economic conditions or in the residential or commercial real estate markets could have an adverse effect on the quality of our portfolio, the demand for our products and services, the ability of borrowers to timely repay loans, and the value of the collateral securing loans.

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If any of our largest borrowers become unable to repay their loan obligations as a result of economic or market conditions or personal circumstances, our nonperforming loans and our provision for loan losses could increase significantly, which could have an adverse effect on our business, financial condition and results of operations.

The ongoing COVID-19 pandemic and resulting adverse economic conditions have adversely impacted, and could continue to adversely impact, our business and results.

Our business is dependent on the willingness and ability of our customers to conduct banking and other financial transactions.

The ongoing COVID-19 global and national health emergency caused significant disruption in the United States and international economies and financial markets and continues to cause illness, quarantines, reduced attendance at events and reduced travel, reduced commercial and financial activity, and overall economic and financial market instability.

While the level of disruption caused by, and the economic impact of, COVID-19 has lessened in 2022, there is no assurance that the pandemic will not worsen again, included as a result of the emergence of new strains of the virus.

Any worsening of the pandemic and its effects on the economy could further impact our business, our provision and allowance for credit losses, and the value of certain assets that we carry on our consolidated balance sheets such as goodwill.

Our customers, business partners, and third-party providers, including those who perform critical services for our business, may also be adversely affected.

We rely heavily on our executive management team and other key employees, and the loss of any these individuals could adversely impact our business or reputation.

We rely heavily on our executive management team and other key employees, and the loss of any of these individuals could adversely impact our business or reputation.

Our success depends in large part on the performance of our key personnel, as well as on our ability to attract, motivate and retain highly qualified senior and middle management and other skilled employees.

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It is possible that we could have exposure to liability and suffer losses as a result of a security breach or cyber-attack that occurred through no fault of our own.

Further, the probability of a successful cyber-attack against us or one of our third-party services providers cannot be predicted.

Cyber-security risks appear to be growing and, as a result, the cyber-resilience of banking organizations is of increased importance to federal and state banking agencies and other regulators.

Further, the probability of a successful cyber-attack against us or one of our third-party services providers cannot be predicted, and in some cases, prevented.

Cyber-security risks are growing and, as a result, the cyber-resilience of banking organizations is of increased importance to federal and state banking agencies and other regulators.

New or revised laws and regulations may significantly impact our current and planned privacy, data protection and information security-related practices, the collection, use, sharing, retention and safeguarding of consumer and employee information, and current or planned business activities.

For example, a final rule that the federal banking agencies issued in November 2021 requires banking organizations to notify their primary federal regulator of significant computer security incidents within 36 hours of determining that such an incident has occurred.

Compliance with current or future privacy, data protection and information security laws to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could materially and adversely affect our profitability.

Our business is susceptible to fraud.

The Company’s business exposes it to fraud risk from loan and deposit customers, the parties they do business with, as well as from employees, contractors and vendors.

The Company relies on financial and other data from new and existing customers which could turn out to be fraudulent when accepting such customers, executing their financial transactions and making and purchasing loans and other financial assets.

In times of increased economic stress the Company is at increased risk of fraud losses.

The Company believes it has underwriting and operational controls in place to prevent or detect such fraud, but cannot provide assurance that these controls will be effective in detecting fraud or that the Company will not experience fraud losses or incur costs or other damage related to such fraud, at levels that adversely affect financial results or reputation.

The Company’s lending customers may also experience fraud in their businesses which could adversely affect their ability to repay their loans or make use of services.

The Company’s and its customers’ exposure to fraud may increase the Company’s financial risk and reputation risk as it may result in unexpected loan losses that exceed those that have been provided for in the allowance for credit losses.

Our ability to attract and retain profitable bankers is critical to the success of our business strategy.

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If we are unable to attract and retain profitable bankers, or if our bankers fail to meet our expectations in terms of customer relationships and profitability, we may be unable to execute our business strategy, which could have an adverse effect on our business, financial condition and results of operations.

The discontinuation of LIBOR could result in financial, operational, legal, reputational or compliance risks to us.

On March 5, 2021, the United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that (i) 24 LIBOR settings would cease to exist immediately after December 31, 2021 (all seven euro LIBOR settings;

all seven Swiss franc LIBOR settings;

the Spot Next, 1-week, 2-month, and 12-month Japanese yen LIBOR settings;

the overnight, 1-week, 2-month, and 12-month sterling LIBOR settings;

and the 1-week and 2-month US dollar LIBOR settings);

(ii) the 1-month, 3-month, 6-month and 12-month US LIBOR settings would cease to exist after June 30, 2023;

and (iii) the FCA would consult on whether the remaining nine LIBOR settings should continue to be published on a synthetic basis for a certain period using the FCA’s proposed new powers that the UK government is legislating to grant to them.

Central banks and regulators in a number of major jurisdictions (for example, United States, United Kingdom, European Union, Switzerland and Japan) have convened working groups to find, and implement the transition to, suitable replacements for interbank offered rates.

Regardless, the federal banking agencies issued guidance on November 30, 2020, encouraging banks to (i) stop using LIBOR in new financial contracts no later than December 31, 2021;

and (ii) either use a rate other than LIBOR or include clear language defining the alternative rate that will be applicable after LIBOR’s discontinuation.

We suspended the utilization of LIBOR as an index for new and renewed loans and instrument contracts as of December 31, 2021.

To address the problem created by legacy financial contracts that incorporate LIBOR as their reference interest rate, but extend beyond the date after which LIBOR will be published, on March 15, 2022, Congress enacted the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”).

On December 16, 2022, the Federal Reserve adopted a final rule implementing the LIBOR Act by adopting benchmark rates based on the Secured Overnight Financing Rate (“SOFR”) that will replace LIBOR in certain financial contracts after June 30, 2023.

Given LIBOR's extensive use across financial markets, the transition away from LIBOR presents various risks and challenges to financial markets and institutions and could have a range of adverse effects on our business, financial condition and results of operations.

Our commercial and consumer businesses issue, trade and hold various products that are currently indexed to LIBOR.

Among other products, at December 31, 2022, we had approximately $1.07 billion of loans indexed to LIBOR.

Our products that are indexed to LIBOR are significant, and if not sufficiently planned for, the discontinuation of LIBOR could result in financial, operational, legal, litigation, reputational or compliance risks to us.

The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, swaps and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations.

All our notes contain fallback language that allows us to replace the index in the event LIBOR becomes unavailable, or unascertainable, ceases to be published or is otherwise unreliable.

We determine the replacement index in our sole discretion and can include an effective adjustment to the spread.

In addition, any inadequate fallback language may result in issues establishing an alternative index and adjusting the margin as applicable.

We continue to monitor this activity and evaluate the related risks.

In addition, in light of the FCA's announced schedule for the cessation of LIBOR, we will continue to renegotiate credit agreements executed prior to the addition of the LIBOR fallback language and extending beyond June 30, 2023 that utilize LIBOR as a factor in determining the interest rate, in order to replace LIBOR with SOFR or another new standard that is established, which may have an adverse effect on our overall financial condition or results of operations.

Following the replacement of LIBOR, some or all of these credit agreements may bear interest at a lower interest rate, which could have an adverse impact on our results of operations.

Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.

Any failure to adequately manage this transition process with our customers could also adversely impact our reputation.

We will be subject to heightened regulatory requirements if our total assets grow in excess of $10 billion as of December 31 of any calendar year.

As of December 31, 2022, our total assets were $9.69 billion.

As of December 31, 2023, our total assets were $9.72 billion and we expect our total assets to grow in excess of $10 billion during the 2024 year.

In addition to our current regulatory requirements, banks with $10 billion or more in total assets are, among other things:

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We have a continuing need for technological change, and we may not have the resources to effectively implement new technology, or we may experience operational challenges when implementing new technology.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services and an established and growing demand for mobile and other phone and computer banking applications.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services (including those related to or involving artificial intelligence, machine learning, blockchain and other distributed ledger technologies) and an established and growing demand for mobile and other phone and computer banking applications.

The effective use of technology increases efficiency and enables financial institutions to reduce costs as well as service our customers better.

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Deposit balances can decrease when customers perceive alternative investments as providing a better risk/return tradeoff.

If our customers move money out of deposits and into other investments such as money market funds, we would lose a relatively low-cost source of funds, increasing our funding costs and reducing our net interest income and net income.

Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities, and proceeds from the issuance and sale of our equity and debt securities to investors.

1 unchanged sentence

Additional liquidity is provided by the ability to borrow from the Federal Reserve Bank of Dallas and the Federal Home Loan Bank of Dallas.

Recently proposed changes to the Federal Home Loan Bank system could adversely impact the Company’s access to Federal Home Loan Bank borrowings or increase the cost of such borrowings.

We also may borrow funds from third-party lenders, such as other financial institutions.

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Market risk exists to the extent that interest rates change in ways that are significantly different from what we expected when we entered into the derivative transaction.

The transition away from LIBOR as the interest rate benchmark for derivatives, including interest rate swaps, also may present market risk.

The existence of credit and market risk associated with our derivative instruments could adversely affect our net interest income and, therefore, could have an adverse effect on our business, financial condition and results of operations.

1 unchanged sentence

At December 31, 2023, the fair value of our portfolio of available for sale investment securities was approximately $1.25 billion, which included a net unrealized loss of approximately $154.0 million, before taxes.

The decline in the fair value of our available for sale investment securities during the year ended December 31, 2022, negatively impacted total stockholders' equity, primarily due to the steepening of the short end of the yield curve that occurred during the first three quarters of 2022.

The decline in the fair value of our available for sale investment securities portfolio during the year ended December 31, 2022, and continuing into the year ended December 31, 2023, negatively impacted total stockholders’ equity, primarily due to the steepening of the short end of the yield curve.

Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities.

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Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party servicers.

The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations.

The failure or breach of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations.

Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions.

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Past, present and future litigation has included or could include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages.

We are also involved from time to time in other reviews, investigations and proceedings

(both formal and informal) by governmental, law enforcement and self-regulatory agencies regarding our business.

We are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental, law enforcement and self-regulatory agencies regarding our business.

These matters could result in adverse judgments, settlements, fines, penalties, injunctions, amendments and/or restatements of our SEC filings and/or financial statements, determinations of material weaknesses in our disclosure controls and procedures or other relief.

1 unchanged sentence

Banking institutions are also increasingly the target of class action lawsuits.

Most recently there has been an increase in class action lawsuits filed claiming deceptive practices or violations of account terms in connection with non-sufficient funds or overdraft charges.

In September 2021, we received a class action complaint alleging that we have improperly charged and collected overdraft fees on debit card transaction that were allegedly authorized while the account was positive, but settled when the account was negative or overdrafted.

Similarly, in January 2023, we received a class action complaint alleging that we have improperly charged and collected non-sufficient funds fees on items re-presented for payment.

We are vigorously defending these actions and monitoring activity with similar class action lawsuits.

If a court rules adversely to our defense of any class action lawsuits, or if we enter into a settlement agreement in connection with any class action lawsuit, we could be exposed to monetary damages, reputational harm, or subject to limits on our ability to operate our business, which could have an adverse effect on our financial condition and operating results.

Most recently there has been an increase in class action lawsuits filed claiming deceptive practices or violations of account terms in connection with non-sufficient fees or overdraft charges.

We have successfully defended and resolved similar class action lawsuits in the past.

However, if a court rules adversely to our defense of any class action lawsuits, or if we enter into a settlement agreement in connection with any class action lawsuit, we could be exposed to monetary damages, reputational harm, or subject to limits on our ability to operate our business, which could have an adverse effect on our financial condition and operating results.

We may be adversely affected by the soundness of other financial institutions.

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These problems, losses or defaults could have an adverse effect on our business, financial condition and results of operations.

Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system.

The closures of Silicon Valley Bank and Signature Bank in March 2023 and First Republic Bank in May 2023, and concerns about similar future events, have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks like the Company.

These market developments have negatively impacted customer confidence in the safety and soundness of regional banks.

As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.

While the Department of the Treasury, the Federal Reserve, and the FDIC took action to ensure that depositors of these failed banks had access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly.

Risks Related to the Regulation of Our Industry

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All of these laws and regulations, and the supervisory framework applicable to our industry, could have a material adverse effect on our business, financial condition, and results of operations.

The Paycheck Protection Program ("PPP") has also attracted interest from federal and state enforcement authorities, oversight agencies, regulators and Congressional committees.

State Attorneys General and other federal and state agencies may assert that they are not subject to the provisions of the CARES Act and the PPP regulations entitling Origin Bank to rely on borrower certifications, and they may take more aggressive actions against Origin Bank for alleged violations of the provisions governing Origin Bank’s participation in the PPP.

Federal and state regulators can impose or request that we

consent to substantial sanctions, restrictions and requirements if they determine there are violations of laws, rules or regulations or weaknesses or failures with respect to general standards of safety and soundness, which could adversely affect our business, reputation, results of operation and financial condition.

See the discussion above at Supervision, Regulation, and Other Factors for an additional discussion of the extensive regulation and supervision the Company and the Bank are subject to.

We are subject to stringent capital requirements, which may result in lower returns on equity, require us to raise additional capital, limit growth opportunities or result in regulatory restrictions.

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Prompt corrective action can include progressively more restrictive constraints on operations, management and capital distributions.

Failure to exceed the capital conservation buffer will result in certain limitations on dividends, capital repurchases, and discretionary bonus payments to executive officers.

Failure to exceed the capital

conservation buffer will result in certain limitations on dividends, capital repurchases, and discretionary bonus payments to executive officers.

Even if we meet minimum capital requirements, it is possible that our regulators may ask us to raise additional capital.

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Your investment will be subject to investment risk, and you must be capable of affording the loss of your entire investment.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors