Origin Bancorp Inc

NYSE:OBK

Earnings Call Transcript 2023-Q4

[Operator]

Good morning and welcome to the Origin Bancorp, Inc. Fourth Quarter Earnings Conference Call. My name is David and I will be your [indiscernible] call moderator. Please note that this event is being recorded.

I would now like to turn the conference over to Chris Reigelman, Director of Investor Relations. Please go ahead.

[Chris Reigelman, executive]

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.ir.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; President and CEO of Origin Bank, Lance Hall; our Chief Financial Officer, Wally Wallace; our 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. Drake, the call is yours.

[Drake Mills, executive]

Thanks, Chris. As I look back on 2023, the realization that our people successfully navigated one of the most stressful years in my career provides me with confidence that Origin has a team, infrastructure footprint and deposit franchise to be highly successful in the future. And I've often said we don't manage our company quarter-to-quarter and we have never backed down from capitalizing on the right opportunities and investing for future success. This quarter was no exception, as we are excited about entering our newest markets in South Alabama and the Florida Panhandle. Nate Sommer will lead this new Southeast market. He and his team has worked together for more than 15 years, building dynamic relationships throughout that region. South Alabama and Florida Panhandle offer tremendous opportunity for Origin. Our culture, our focus on the client experience, our geographic management model is what has attracted highly talented bankers to Origin.

I believe the combination of this team and our way of doing business will allow us to grow market share and impact communities in a powerful way. Throughout 2023, we communicated our strategy of staying under $10 billion in assets and we were successful with that strategy finishing the year at $9.7 billion. We anticipate crossing this important threshold in 2024. We have invested in technology, processes and people in preparation for the new regulatory environment. While there is expense associated with this growth, we are committed to building this company for long-term success. I continue to be optimistic about where we are as a company. The markets we serve in Texas, Louisiana and Mississippi have been resilient and the investments we are making in South Alabama and Florida Panhandle create additional opportunity to add meaningful long-term shareholder value.

Now I'll turn it over to Lance.

[Martin Hall, executive]

Thanks and good morning. As Drake mentioned, I'm excited about this team of dynamic bankers that will create the new Southeast market with Origin offices planned in Mobile, Alabama and Fort Walton Beach, Florida. This new geographic market will partner alongside our existing markets of Houston, North Texas, East Texas, Louisiana and Mississippi. Similar to our organic entries into Houston and Dallas and Fort Worth, we have confidence that our Southeast market will be a driver of profitable growth. I'm personally excited about this opportunity for several reasons.

First, I look forward to introducing the Origin brand and the way of doing business to Alabama and Florida. These are dynamic and complementary growth markets and will allow us to further diversify our client base and loan portfolio. Secondly, I'm honored that such experienced and exceptional bankers would choose to be a part of Origin's growth story. This is a strong example of how our corporate culture is tangible and valuable.

Origin is attractive to bankers because of our culture, because of our franchise dynamics, because of our entrepreneurial spirit and because of our geographic management model. This Southeast market team is going to be extremely valuable to Origin as we continue to grow. I firmly believe that our new teammates will be great culture fits, great producers and great partners.

Turning to 2023. Deposits remain the primary focus of our bankers throughout the year and our results from last quarter reflect that focus. Excluding brokered deposits, which we intentionally reduced as we manage below $10 billion, deposits increased 1.3% compared to the previous quarter. I'm proud of our team and how they're expanding relationships to provide value to our clients despite the challenging interest rate environment.

Looking forward, I'm confident that we can grow our deposits in the mid-single-digit range in 2024, which will allow us to fund loans in the mid-single digits. As we've said consistently, deposit growth will be a governor to loan growth. If deposit trends demonstrate continued momentum similar to Q4, loan growth could exceed our mid-single-digit target, especially given the strength within our Texas footprint. While we continue to invest in our markets and our people, we also feel strongly that investments in technology is what enhances the client experience and drives market share growth. We currently have implemented a number of new initiatives and are scheduled for more in 2024 that will greatly improve the digital and mobile experience for our clients. We've also implemented measures on the back end of our business that create efficiencies. I've spoken previously about our continued use of robotics.

In 2023, we were able to save over 6,500 hours through our process automation platform and reduce a substantial amount of risk to the company. I'm very proud of our teams throughout our markets and their unwavering commitment to the vision and strategy of Origin. As we move into 2024, I'm confident that we will continue to leverage our corporate culture and geographic management model to profitably grow our markets and business lines.

Now I'll turn it over to Jim.

[Jim Crotwell, executive]

Thanks, Lance. As reflected on Slide 13, I am pleased to report continued solid credit metrics for the quarter. Past due loans held for investment came in at 0.34% at year-end, up 7 basis points from the prior quarter end and continue to be well within acceptable levels. Classified loans held for investment as a percentage of total loans held for investment came in at 1.05% as of year-end, up from 0.85% last quarter and matches the level reported as of year-end 2022. Our current level of total classified loans also continues to be well within acceptable levels.

I am pleased to report this quarter decreases in both nonperforming loans as well as net charge-offs. Nonperforming loans as a percentage of loans held for investment ended the year at 0.39%, down from 0.42%, while annualized net charge-offs totaled 0.10% for Q4 compared to 0.14% for the prior quarter. As we have shared in the past, we are relationship-driven with credit underwriting focused on primary, secondary and tertiary sources of repayment. This focus, particularly the focus on secondary and tertiary sources of repayment paid dividends in the fourth quarter as evidenced by $1.9 million in recoveries for the quarter, contributing to the reduction in net charge-offs.

For the quarter, our allowance for credit losses increased $1.7 million to $96.9 million, resulting in no change from the prior quarter of 1.26% as a percentage of total loans held for investments. Net of mortgage warehouse, our reserve ratio increased slightly from 1.30% as of the prior quarter to 1.31% as of year-end. The stable level of our allowance mirrors our stable credit metrics. As to reserve levels and as discussed in previous quarters, we continue to balance our sound credit quality with continued economic headwinds.

On Slide 14, we have updated the additional information on our CRE office portfolio, which continues its sound performance. As of year-end, this segment of our portfolio totaled $375.9 million with an average loan size of only $2.2 million. The sound credit profile of this segment is evidenced by a weighted average debt service coverage of 1.47x as well as a weighted average loan-to-value of 59.4%. Past due loans totaled 0.32%, while this sector reflected no classifieds, no nonperforming and no charge-offs.

In summary, our portfolio continues its sound performance driven by our constant focus on relationship banking. I'll now turn it over to Wally.

[William Wallace, executive]

Thanks, Jim and good morning, everyone. Turning to the financial highlights. In Q4, we reported diluted earnings per share of $0.43. On an adjusted basis, Q4 EPS were $0.60 after excluding a $1.8 million write-down of our MSR and a $4.6 million loss on securities sold during the quarter.

Starting with deposits. Total deposits declined 1.5% during the quarter. However, as Lance mentioned earlier, deposits grew 1.3% linked quarter if you exclude brokered deposits. We continue to see a shift of noninterest-bearing deposits into interest-bearing accounts, though this trend continued to abate and was better than our expectations in Q4.

Moving forward, we still forecast some continued pressure to our noninterest-bearing deposit mix over the next couple of quarters. Ultimately, combined with some continued pricing pressures, our total deposit beta increased slightly to 50% from 47% in Q3, 42% in Q2 and 35% in Q1. Pricing pressures are easing but we do expect our beta will increase slightly over the next couple of quarters, absent any change in the rate environment.

Importantly, actions taken to reposition our securities portfolio late in Q3 and again late in Q4, drove a favorable shift in our earning asset mix and combined with loan pricing discipline to more than offset funding cost pressures resulting in 5 basis points of net interest margin expansion during the quarter to 3.19%, essentially in line with our expectations.

Moving forward, we anticipate Q1 NIM should be relatively flat at plus or minus 1 basis point. Assuming a flat interest rate environment, we would expect expansion throughout the remainder of 2024 and at an increasing rate in the second half of the year due to elevated volumes of fixed rate loans repricing. That said, the current Fed dot plot calls for 325 basis point cuts during 2024 and the forward curve is pricing an expectation of 5 to 6, 25 basis point cuts during 2024.

As a reminder, we are asset sensitive. In our modeling, we assume the first 2 to 4 cuts will pressure margin more than subsequent cuts as we assume deposit betas will lag on the way down, just as they lagged on the way up. As such, we assume the first 100 basis points of cuts could result in 15 to 20 basis points of margin pressure in a static environment weighted towards the first 2, 25 basis point cuts. Notably, the previously mentioned fixed rate commercial loan repricing in the second half of 2024 should act as a relief valve to the aforementioned margin pressure should the Fed begin cutting rates.

In an environment where the Fed is easing, we still expect we can run our business at a NIM above 3% with a longer-term full cycle target over 3.5%. As Drake and Lance discussed, we are very excited about the creation of our new Southeast market. This strategic investment positions us well from a growth standpoint as we continue our evolution into a midsized bank and was very attractive financially. We estimate the new Southeast market will achieve breakeven within 4 quarters and payback in less than 2.5 years, assuming loans are funded with market deposits and cash on hand.

Based on these metrics, we believe the upfront EPS impact is justifiable. Lastly, as outlined on Slide 15 of today's investor presentation, we sold securities with a book value of $78.9 million at a realized loss of $4.6 million during the quarter. We will use the proceeds of this transaction as cash on hand to fund the unfunded loan gap in the new Southeast market as well as for loan growth across our other markets.

You can see on Slide 15, a range of earn-back, margin and EPS benefits for the securities trade depending on our ability to deploy the proceeds from cash into loans and how long it takes. But at the midpoint of expectations, we estimate a payback of 1.5 years, a margin benefit of 4 basis points and an annual EPS benefit of $0.09.

Shifting to noninterest income, we reported $8.2 million in Q4. Excluding the previously mentioned $1.8 million write-down of our MSR asset and $4.6 million loss on securities sold during the quarter, our adjusted noninterest income was $14.6 million in Q4, down from $15.2 million in Q3, the $10.1 million gain on an investment write-up and a $7.2 million loss from sale of securities. Expected seasonality in our insurance business was the primary driver of this decline.

During the quarter, we decided to begin exploring the sale of our mortgage servicing business and recognized an impairment of $1.8 million on the associated MSR to facilitate the planned sale of the asset. Our noninterest expense increased to $60.9 million in Q4 from $58.7 million in Q3. The quarter was impacted by $1.5 million in expense, not in our expectations. These unexpected costs were related in large part to elevated healthcare, self-insurance costs and our new Southeast market entry. While we remain laser-focused on managing our operating expense levels, we also believe we can operate from a position of strength and take advantage of opportunities that fit our long-term growth vision like team lift-outs. As such, we believe expense growth in 2024, including the impact of our new Southeast market will be in the mid-single-digit range compared to 2023.

Turning to capital, we note that our TCE ratio exceeded 9% in Q4 ending at 9.3% as favorable interest rate movement late in the quarter improved the loss position in our securities portfolio, combined with organic growth in tangible common equity. Furthermore, as shown on Slide 23 of our investor presentation, all of our regulatory capital levels at both the bank and holding company remain above levels considered well capitalized even if we were to include our AOCI loss in the calculations.

As such, we remain confident that we have the capital flexibility to take advantage of any potential future capital deployment opportunities to drive value for our shareholders. With that, I'll now turn it back to Drake.

[Drake Mills, executive]

Thanks, Wally. I'm passionate and excited about what we have built as a company and more importantly, where we are going. I think about how we are positioned and the strategic investment we've made and we'll continue to make to grow our balance sheet and create scale. Our team doesn't think about just being a $10 billion bank but a $20 billion, $30 billion and beyond. Our investment in people is what gives us so much confidence. High-end quality leaders like Wally Wallace as CFO, to work alongside Steve Brolly, the addition of Derek McGee as Chief Legal Counsel and his network throughout Texas and the rest of the industry. The addition of our new compliance Officer, Brandi Gregg and new Treasurer, Will Lankford, as well as Blair Diamond our New Regulatory Liaison. These additions are to an already impressive team who have worked together for decades.

As we are proving through investment in people, technologies, lift-outs, acquisition and culture, our strategic plan is purposeful and focused on building long-term growth and profitability. The moves we made in 2023 and initiatives that we continue to prioritize are all aimed at long-term profitable growth. We continue to build an incredibly talented team who operate in what we believe are some of the best, if not the best markets in the United States and we invest in best-in-class technology to provide an unmatched customer experience. This is a business model built to last and more importantly, one that is scalable as we look to continue our growth trajectory. Origin is in a great position and we are on the offensive.

Now we'll open the call for questions.

[Operator]

Thank you, team. Ladies and gentlemen, at this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from Matt from Stephens, Inc.

[Matt Olney, analyst]

Well, I'd love to hear more about this expansion in the Southeast markets and the team that you hired. I think you mentioned 2 LPOs, 8 lenders right now and support personnel. Any more color on just how big an opportunity this could be and not just over the next year or 2 but just longer term, what this looks like. And then within this team, what types of customers are they going to be focused on and specifically, do you expect loan growth to lead deposit growth for this team? Or will it move in tandem?

[Drake Mills, executive]

Thanks, Matt. For us, we've -- the last, I guess, a couple of years, we've talked about longer-term growth opportunities and we quietly have looked around from the standpoint of M&A opportunity in that market because obviously, it's a little bit quicker path that way. But fortunately, we were introduced to this team and they've come out of several different institutions. And I really categorize them as a very successful Compass BBVA team, if I look at it that way. And it just -- as we continue to be C&I focused, as we continue to stay kind of positioned as to keep our portfolio mix going in the same direction, these people fit our culture, our plans, our strategies perfectly. We weren't necessarily ready to do something like this but it reminds me that tough times bring opportunities and that's when we have to take advantage of them.

So we hope that this is a springboard to other opportunities in these markets. But right now, we're going to focus on getting these people up going into profitability, which is going to be key. I've often said anything we do outside of leveraging our current infrastructure is going to take away from efficiency. We understand the impact to this decision. But ultimately, when you look at the footprint map, this is right in line with what our longer-term expectations and strategies were.

So I'm very pleased. And I want to kind of turn it over to Lance to talk a little bit about their strategy, their type of customer and how they're focused. Lance was able to spend what I think is a tremendous amount of time with them, creating relationships down the road, Lance.

[Martin Hall, executive]

Incredibly excited about this opportunity. As we think about the future, this gives us opportunities to diversify, to grow and specifically to do what we like to do, which is focus on C&I and operating companies. Had the honor to get connected to Nate Sommer, get to build a relationship with him, maybe and the next Regions employee, knowing the strength that Compass had in Alabama. We have a lot of Compass BBVA employees in Texas that always spoke incredibly highly of the old Compass BBVA South Alabama team. And so getting to kind of understand and sort of rebuild some of that old team, we think is going to be exciting for us. To kind of give you a frame of reference around what we think potential is in the long run, this team at Compass BBVA had $1 billion in loans and $1 billion in deposits.

So from a long-term perspective, we're really excited about that opportunity there, vast, vast majority C&I, which fits our profile perfectly. We like the demographic moves post-COVID and work from home, you've seen tremendous growth in Baldwin County and some of these counties that they represent. And so as we work to build this out, I think it's going to be a dynamic opportunity for us to scale and create new relationships.

[Matt Olney, analyst]

And then on the loan growth side, I think you're pointing us towards that mid-single-digit number but it sounds like that could be partially impacted by the success you have on the deposit growth front. Just help us appreciate that mid-single-digit loan growth outlook. And how much of that is from the legacy Origin side and there was the new team coming on, how much does that influence the mid-single-digit loan growth guidance you provided?

[Martin Hall, executive]

Yes. So for us, right, it's -- we've been saying this consistently the last 3 or 4 quarters. Loan growth for us is completely governed by deposit growth. I feel more optimistic today than I have in the last couple of quarters because of what we saw in Q4. We shrunk broker deposits purposely in Q4 so that we could make sure that we stayed under $10 billion. But with that, we had, actually had core deposit growth in Q4. So I think conservatively, we're kind of thinking 4% to 7% on the deposit side, which would then, therefore, align what we're going to do on the loan side. But if we're able to continue the trend from Q4, we know we have loan growth upside because of the dynamic markets in Texas.

At this point, the vast majority of sort of what we're budgeting and thinking through is sort of our legacy business. The mandate to our Southeast partners is to self-fund and so their initial push is going to be to help really grow deposits with loans to follow.

[Matt Olney, analyst]

And then also want to ask Wally. I think I appreciate the guidance you gave around the margin more near term flattish. It sounds like there's potential for expansion, a little bit of expansion beyond that due to that fixed rate loan repricing. I assume that was assuming flat rates because I guess the caveat that you put out was at the Fed desk, there would be some pressure. So did I capture the upside scenario, the back half of the year on margin would be a flat rate scenario?

[Drake Mills, executive]

Are you there, operator?

[Operator]

We hear you team.

[Drake Mills, executive]

Sorry, we had a power surge through a storm that's coming through. So if we could get Matt Olney back, I'd appreciate it.

[Matt Olney, analyst]

Can you hear me?

[Drake Mills, executive]

Yes, we can now. And I apologize, Matt, we had a power surge. We've got a storm moving through.

[Matt Olney, analyst]

Understood.

[William Wallace, executive]

You asked a question about the margin. We just caught the front part.

[Matt Olney, analyst]

Okay. No problem. While I was asking about the commentary you made on the prepared remarks about the margin trajectory for the rest of the year kind of flattish more near term, I got that part of it but I think you mentioned the back half of the year, the margin could have some upward support driven by the fixed rate loan pricing. I assume that was in a flat rate scenario given your comments about if the Fed does cut, you'd be asset sensitive, there'd be some pressure. I just want to make sure I appreciate the puts and takes around that.

[William Wallace, executive]

Your assumption is correct. So the way we kind of think about what might happen if the Fed cuts, I said in the prepared remarks, we kind of assume deposit betas will lag. So if you look at the repricing potential we have in the portfolio against the pressures that we would expect from a Fed regime that seems to be more hawkish, the expansion opportunity we have in the second half, we assume and model would offset about 4 rate cuts. So if the Fed cuts 4x, we think our margin could be flattish to where it is right now. The cadence would be, it would be down a little bit if they cut -- if they started cutting early but if they start cutting later in the year, that actually we've got so much -- so many loans repricing in the second half, we think that, that would offset the pressures from Fed cuts.

Does that help?

[Matt Olney, analyst]

That's helpful, Wally. And I'm sure embedded within some of your assumptions is something around deposit betas. And I hear your point as far as it lagging initially from the first cut. But maybe beyond that, any preliminary thoughts about deposit betas on the way down in this upcoming cycle?

[William Wallace, executive]

Yes. We think they'll lag. In our model, we actually modeled a beta of 0 for the first cut and then a slightly better beta in the second and we kind of went to our historical betas the last time we saw Fed cuts and model that when we get over 100 in cuts. In that environment, we would actually expect to see some margin recovery. But overall, you'd look at 1 to 2 basis points of pressure in the -- after the first 100 basis points, when we get kind of to what we would expect would be our cycle betas, if you will.

[Operator]

Our next question comes from Brady from KBW.

[Brady Gailey, analyst]

So I know with you guys crossing $10 billion this year in the past, we've talked about Durbin being a roughly $5 million pretax number. Is that a number you all still feel good about?

[Drake Mills, executive]

Yes. With the recent changes that we saw this probably ramps up to about $5.5 million, maybe max $6 million and that will start impacting this midpoint [ '25 ].

[Brady Gailey, analyst]

All right. And then I know it's probably embedded in your expense guidance of mid-single-digit growth. But do you feel like most of the expenses have been already incurred to get you guys ready for this $10 billion cross? Or [Technical Difficulty] expenses that you feel like are upcoming as you guys think about this cross?

[Drake Mills, executive]

And obviously, we spend a lot of time with everything from GAAP analysis to talking to other institutions that have gone over $10 billion. And I kind of give an analogy, I'm driving 100 miles an hour in a rainstorm and the wipers aren't quite keeping up to understand exactly what additional expenses are. I've got this gut feeling and there's nothing that's going to tell you that 60%, 70% of our expense of crossing, we somewhat have behind us. But we are ramping up positions around compliance, around audit, especially around risk management. We understand working with some of our Fed examiners or regulators that some of the expectations are going to be around enterprise risk management and the pieces and parts.

So I think we have a little bit to go. But I also realize that day 1, we don't have to have those expenses in place. I look at this as an opportunity over the next 18, 24 months to feather those in. So I would say more than half of the expense of crossing, in my world and this isn't anything that I can sit and look at data because there's going to be some unexpected. There's going to be some unknowns. But I feel pretty good that we're halfway plus there.

[Brady Gailey, analyst]

And then Drake, you guys have a pretty attractive insurance business. And you've been growing it organically. You've been growing it through acquisitions. There's been a lot of banks recently that have been selling their insurance just given the valuations and using that gain to go off and do something else. It feels like you guys are still in building mode but maybe just updated thoughts on how you think about the insurance business at Origin.

[Drake Mills, executive]

Yes. I'm pretty passionate about the insurance business, the teams we have, the ability to expand footprint. The reason we haven't not been as active as we have in the past is where -- you're looking at a hard market that's driving increased revenues but yet we see a multiple that's been generated that's higher than I would like to play in. So we're waiting for some of that to relieve itself. But we see, as we build noninterest income opportunities, insurance being a significant part of enhancing and growing that. We also like and recently because of the sales that have gone on, started to prepare and look at the benefits outside of just revenue created. What I mean by that is the relationships that we have on the bank side because of the Agency book of business and we see that continuing to enhance, the referral process is very good.

So it's kind of hand in glove from growing this footprint and building what I think is recognizable and very valuable noninterest income. So we can certainly still look at it. We've looked at sales, what it would generate, what opportunities do we have with those funds at this point. We had a 10% growth in revenue last year. We saw that type of growth in profitability. So even with interest rates where they are, I still see this as a bigger win for investors if we continue this business and stay focused on to the next several years.

[Operator]

Our next question comes from [ Graham ] from Piper Sandler.

[Unknown Analyst]

I just wanted to start with the Southeast market you guys expanded into, obviously, I know you said you're focused on profitability right now and making sure the team is fully integrated. But as you look at this market longer term, how does M&A play into the cards here? Is this sort of your new area of focus when it comes to building relationships with other banks that might want to partner up with you down the line? Or do you think you'll just continue to sort of build out around these teams and just see where it goes from there.

[Drake Mills, executive]

With current conditions and I think about -- when I think about M&A strategy, I think about the regulatory front, I think about interest rate marks, I think about AOCI and the difficulty of the current valuation expectations from these partners and where we currently are. We've got to create an opportunity to have a better currency than we do to get successful. So we've kind of gone back to the playbook on using team and building off of teams.

In my previous world, I've had more success, let's say, from growing through team acquisitions and not necessarily have an M&A. And I'm not -- I'm excluding BTH from that. But as we look at what partnerships or what opportunities we have, the majority of that right now is in Texas. We have had some conversations in the Southeast and we will continue to build those relationships. But I do think for the next -- and I'm going to say, 3 to 4 quarters, we're going to focus on this team strategy versus -- or see benefit from team strategy than we are going to see from M&A.

[Unknown Analyst]

And then I guess just going back to the NIM and more specifically, deposit beta. I know you guys are traditionally asset-sensitive NIM. But I think it's fair to say that deposit costs maybe exceeded where we thought they would go this cycle, just given what you guys have done in prior cycles. So I'm wondering, Wally, as you look at the NIM next year; one, the historical deposit beta, is that around 30%? And then, I guess, also; two, do you think you might be able to outperform that similar to, I guess, the incremental pressure that you saw on the way up, which is closer to 50% now?

[William Wallace, executive]

I appreciate the question. I think that we're trying to take a prudent approach to how we think about deposit betas. Historically, when you look at what happened in prior cycles, we didn't have Texas. And Texas is much more of a C&I market for us and a lot of those deposits will float in our index but they also come with more noninterest-bearing deposits. So I agree with your statement that the deposit beta was higher than we thought on the way up. But we are not going to assume that it will be higher than we would expect on the way down. We're taking a much more conservative approach in our own modeling. And if you heard us [indiscernible], we're actually modeling a beta of 0 for the first cut or 2. And then our modeling on the way down would suggest that the deposit in prior cycles the betas were a little bit lower than they were on the way up.

[Unknown Analyst]

Then I guess you mentioned it there but on index deposits, do you guys have like a number of total index deposits in the bank that would move immediately with any change in rates?

[William Wallace, executive]

Don't have the dollar amount but you can look at our public funds and assume that the majority of those are indexed and the majority of what's remaining is not.

[Operator]

[Operator Instructions] Our next question comes from Tim from Raymond James.

[Unknown Analyst]

So I just wanted to start kind of on the bond sale and using that -- those proceeds to fund loan growth in the new South Alabama, Panhandle market. Kind of how quickly do you think you can deploy that capital? And how sensitive would your kind of EPS and NII outlook that you line down the slide be to kind of that time frame?

[William Wallace, executive]

We are -- expect that those proceeds are going to fund loan growth in the new market as well as our other markets. Obviously, the Texas markets are fast-growing markets. We think we can get it deployed. It doesn't take that long to deploy it because any new loan that's made, we can use those proceeds to fund. We don't have to pull any borrowings or pull any brokered deposits. So we actually think that it will be weighted more towards the more positive outcome in the scenario I outlined in the slide deck.

And I apologize, what's the second part of your question?

[Unknown Analyst]

No, that was perfect. And then just kind of wanted to get your general update on credit, if any areas of concern have emerged over the quarter, just kind of what you're seeing across your portfolio?

[Drake Mills, executive]

Let me -- I'm going to turn that over to Jim Crotwell, he is doing an awesome job with, I guess, positioning us. We've had a very aggressive approach to credit. And I'm very pleased with where the credit metrics ended '23 and the outlook for '24. So Jim?

[Jim Crotwell, executive]

I feel really good about where we are continuing, from a credit perspective. We're seeing stability through our credit metrics. One of the things, we did have a slight increase in our level of classifieds but when you look a little bit deeper, I was pleased that our actual nonaccrual levels decreased. And that drove -- when we went through our reserve analysis, basically held that flat as a percentage to total loans. So again, going back to the overall levels of we're just seeing some good stabilization within our entire portfolio, not seeing any particular level of concentration or areas of concern within the portfolio. So.

[Drake Mills, executive]

And Tim, I want to go in here. Credit -- [indiscernible] some areas of concerns. But as I've always been concerned, we're not seeing it. But I'm being concerned about office and retail but still those areas are holding up extremely well for us.

[Unknown Analyst]

And then just one last one for me. You guys have talked in the past about kind of taking a more meaningful stake in [indiscernible] trying to get [indiscernible] any updated thoughts on that front?

[Martin Hall, executive]

Yes, this is Lance. Yes, still our strategy, Origin had a large acquisition in the last half of last year, continue to grow profitability, grow EBITDA. We're very bullish on that business, the partnership that we have, beginning to connect that more to our markets. It's still our intention to increase our investment and we hope the timing of that works out this year.

[Operator]

It appears there are currently no further questions, handing it back to the Origin team for any additional remarks.

[Drake Mills, executive]

Thank each one of you for spending time with us this morning. I was recently asked why I seem to be as optimistic as I am. And my response took me back to think about and consider that during my career, we have experienced our strongest periods of growth coming out of downturns or industry stress. We positioned ourselves during each one of those to have strong credit metrics, good liquidity and the team is ready to go. We are in that exact position today. And it's odd to sit here and say we're on the offensive. We realize and recognize we have to be concerned about expenses. We've got to build revenues and do things to get through this interest rate environment.

But we are on the offensive. We have opportunities that include our geography, the teams that we have deployed ready to go that have significant experience, the C&I focus. Our credit profile coming into this period of time is as good as we can consider it be as excellent. Our deposit base continues to show that we have opportunities for growth and then when you look at current opportunities in our footprint, it just puts together a very optimistic opportunity for us to stay focused, do the things that we know how to do. We have made several decisions this year that has impacted net earnings or earnings as a whole. And each one of those was to put us in a better position to be able to deploy capital, put these teams to work and really take advantage of these opportunities.

So as you can tell, I'm passionate, I'm optimistic and it's really nice to be sitting here today on the offensive. I appreciate your time. I appreciate your interest in Origin Bank and Origin Bancorp and I thank you for your investment. Hope to see each one of you soon.

[Operator]

This concludes today's call. Thank you and have a great day. Goodbye.