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Origin Bancorp, Inc. (NASDAQ:OBNK)
Q3 2019 Earnings Call
Oct 24, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Origin Bancorp Incorporated 2019 Third Quarter Conference Call and Webcast. [Operator Instructions]

I would now like to turn the conference over to Chris Reigelman, Investor Relations. Mr. Reigelman, the floor is yours, sir. Please go ahead.

Chris Reigelman -- Investor Relations

Good morning and thank you for being with us. 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 today's call. Before we begin, I'd like to remind you that this presentation may include information about our management's views of our future performance, business and growth strategy, projected plans and objectives and various other matters that constitute forward-looking statements under federal securities laws. Due to various risks and uncertainties, actual results may differ materially from historical results or any results implied or indicated by any forward-looking statements.

For a discussion of these risks and uncertainties, please refer to the forward-looking statement section of our earnings release and the risk factors included in our most recent annual report on Form 10-K filed with the SEC as well as any update set forth in other documents we periodically file with the SEC. Forward-looking statements speak as of the date they are made, and Origin undertakes no obligation to publicly update or revise any forward-looking statement. If you're logged into our webcast, please also refer to slide two of the slide presentation, which includes our forward-looking statement, Safe Harbor statement. Those joining by phone, please note the slide presentation is available on our website at www.origin.bank. All comments made during today's call are subject to the forward-looking statement, Safe Harbors in our slide presentation and earnings release.

Finally, in this presentation, we may discuss certain financial measures that are not calculated in accordance with U.S. GAAP. Please refer to the reconciliations of these non-GAAP financial measures to their closest comparable GAAP metrics in our earnings release and slide presentation, which are available on our website at www.origin.bank. We believe that certain non-GAAP financial measures can provide meaningful information to investors. However, these non-GAAP financial measures are supplemental and should not be viewed as a substitute for operating results determined in accordance with GAAP, nor they necessarily comparable to non-GAAP financial measures that may be presented by other companies.

I'm joined this morning by Origin Bancorp's Chairman, President and CEO, Drake Mills; our Chief Financial Officer, Steve Brolly; and Lance Hall, President of Origin Bank. After the presentation, we'll be happy to address any questions you may have.

At this time, I'll turn the call over to Drake.

Drake Mills -- Chairman, President and Chief Executive Officer

Thanks, Chris. And thanks to everyone for being on the call today. You know as I consider our goals for the third quarter, while taking into consideration strong competition in our current interest rate environment. I'm proud of what we have accomplished and our team is committed to build and profitable relationships. Our team believes in and remains focused on our strategies, which is evident to the success we had this quarter in particular, grabbing profitable loan deposit growth.

We said in the past, our loan growth will be governed by the positive growth and I'm very pleased with the momentum we've seen on the deposit side especially with non-interest bearing deposits growing over $200 million year-to-date. We reported record net interest income and record net income for the quarter, which was impacted by a number of factors that Steve and Lance will discuss.

Our net income was $44.6 million for the quarter, which is up 3.8% in prior quarter. Our net income for the quarter was $14.6 million or $0.62 per share. You know, while interest rates have created a headwind for our company for much at 2019, our bankers have been diligent and disciplined in pricing new and renewed relationship utilizing relationship profitability versus only loan pricing. The loan growth we saw in the third quarter was over 5% and our loan yields were in line with our expectations. Year-to-date we've seen loan growth north of 13% on annualized basis.

Our expenses for the quarter were also in line with our expectations. Year-to-date we're seeing loan growth north of 13% on the annualized basis. Our expenses for the quarter were also in line with our expectations, even with the interest rate environment; our bankers have found opportunities to add value to our customers and to enhance performance.

Now, Steve will discuss more details around the performance of the quarter.

Stephen Brolly -- Chief Financial Officer

Thanks, Drake. I'll start with financial highlights on slide 4. We ended the quarter with $4.2 billion in loans held for investment, an increase of 5.1% from the prior quarter, and a year-over-year increase of 16.3%. Our deposits ended at $4.3 billion, an increase of close to 15% on a year-over-year basis.

As Drake mentioned, we had record net interest income for the quarter of $44.6 million, up 3.8% from the linked quarter. Operational expense for the quarter was $4.2 million, an increase from the linked quarter and prior year, same quarter. Lance will cover more about this later in our presentation.

On the non-interest income and expense front, we saw some really positive developments. Non-interest income was up 15.2% quarter-over-quarter, ending at $12.9 million. This was driven by strong quarter swap fee income with our bankers being able to really create value for our customers in the bank with back-to-back swaps.

Non-interest expense was down over 5% on a quarter-over-quarter basis, ending at just over $35 million. There were several factors impacting our non-interest expenses quarter, which we will discuss later.

Our non-interest margin on a tax equivalent basis for the quarter decreased one basis point to 3.69%. Our efficiency ratio for the quarter also decreased to 60.98% compared to 68.51% in the linked quarter and year-to-date with mere 65%. Our results for the quarter also drove linked quarter improvement in the ROA and ROE at 1.12% and now 9.85%, respectively.

Looking at our net interest income and net interest margin trends over the next slide, you could see that our net interest income has increased steadily over the past five quarters. Given the loan growth and increase in yields shown over the same periods, our income trends are in line with our expectations.

As I mentioned, our margin declined one basis point from prior quarter on a tax equivalent basis. In a pre-tax equivalent basis, margin was flat at 3.65% quarter-over-quarter.

During the third quarter increased loan fees driven by pre-payments had a positive impact of 2.5 basis points when compared to the linked quarter. As we look into the fourth quarter, you will have a full quarter impact of the two most recent Federal Reserve interest rate cuts, as well as whatever impact we see from any potential rate cut that comes from the second meeting later next week or later this quarter.

However, we remain focused on optimizing our funding mix, and the rates we pay on that mix to help offset the potential negative impact falling rates will have on our asset yields.

Now, Lance will cover more about loans, deposits and credit quality.

Lance Hall -- President of Origin Bank

Thanks, Steve. As Drake and Steve mentioned previously, we've seen fantastic loan growth this quarter. We were up over 5% quarter-over-quarter and over 10.5% year-to-date. As we look at the composition of our portfolio is shown in the presentation, we continue to be focused on C&I relationships with approximately 50% of the total loan portfolio a quarter end focused on C&I, owner occupied CRE, the mortgage warehouse.

We ended the quarter with 30% of our total loan mix concentrated and non-owner occupied CRE, a significant portion of this loan growth continues to come from the Texas market. While I'm proud of the loan growth throughout the markets, I continue to be impressed with a deep relationships our bankers are building, which is evidenced about the deposit growth we have experienced. Our total deposits have grown $501 million or 13.2% year-to-date. And as Drake mentioned, our NI bearing have grown $203 million or 21% year-to-date.

With this outstanding performance by our bankers our NI bearing ended the quarter at 27% of total deposits. As Steve mentioned earlier, our provision for the quarter was $4.2 million due to net charge-offs of $3 million with the remainder due to loan growth. Charge-offs for the quarter were primarily driven by the claim of three credits. The most significant being in the restaurant industry with the other two in healthcare.

Aside from the restaurant credit mentioned, you have exposure to the restaurant industry totaling $73 million, which is 1.7% of our total loans at quarter end. We do not view these charge-offs as indicative of any trend in the portfolio. Past due loans remain at positive levels with 72 basis points at quarter end, and the level of non-performing loans remain stable.

While the quarters net charge-offs were higher compared to net charge-offs for Q1 and Q2, our year-to-date annualized net charge-off ratio of 11 basis points is right in line with our expected annual net charge-offs in the 12 to 14 basis point range. I'm very pleased with the production we have seen from the markets as our bankers have continued to focus on building meaningful relationships that are very profitable.

I'm going to turn it back over to Steve now to cover a little bit more on expenses.

Stephen Brolly -- Chief Financial Officer

Thanks, Lance. I just wanted to cover our non-interest expense and operating efficiency a little bit. When we look at the non-interest expense for the quarter, we ended up with $35.1 million. There were a couple things in there that we need to unpack, we adjusted those to create clarity in the presentation.

In Q3, we were able to utilize all the FDIC assessment credit we have been awarded previously, which was a one time benefit of just over $1 million. We also had a benefit of $570,000 from self-insured medical expense reserves that were released during the quarter that were accrued during second quarter. This created a quarter-over-quarter swing of nearly $1.2 million.

We talked last quarter about the transition of our telecom providers and we record an expense reduction in Q3 of $150,000 due to this transition. Going forward, we don't expect to have any further significant impacts from this transition. We also had an additional true up of $213,000 in franchise tax expense associated with a following of our 2018 tax returns, which we recorded in Q3 and we don't expect this to impact a run rate of franchise tax expense in any significant way. We also had $441,000 of additional loan expenses -- loan related expenses, due to legal costs associated with the loan workout, one being the bad debt Lance touched on earlier.

With that, I'll turn it back over to Drake for closing remarks.

Drake Mills -- Chairman, President and Chief Executive Officer

Thanks, Steve. Steve, Lance, thank you for walking the call through the results of the quarter. I'm very pleased with our company's recent decisions affecting our shareholders. We repurchased 300,000 shares of stock during the third quarter, and we increased our quarterly dividend from $0.0325 per share to $0.0925 per share. Through dividends and share repurchase, we have returned $13.8 million to our shareholders in 2019 with 12.3 million of that in the third quarter alone.

Earlier I mentioned the challenging environment we face which is requiring our team to be efficient with growth moving forward. Overall, I'm pleased with the direction of our company and the way our bankers are executing on our strategic plan. As we move through the fourth quarter 2019, we will remain focused on continue to drive deposit growth with meaningful and profitable relationships.

Questions and Answers:

Operator

Operator: Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] And the first question we have will come from Matt Olney with Stephens. Please go ahead.

Matt Olney -- Stephens -- Analyst

Hi. Thanks. Good morning, guys.

Drake Mills -- Chairman, President and Chief Executive Officer

Good morning, Matt.

Matt Olney -- Stephens -- Analyst

So I want to start on expenses. And it sounds like the $35 million was a little bit light. And if I take into account some of those items, as Steve mentioned, the FDIC assessment and the lower healthcare expense and if I think about a 4Q run rate is about $37 million in the fourth quarter. Is that about the right place to start for a fourth quarter run rate?

Stephen Brolly -- Chief Financial Officer

Matt, looking -- we've done a lot of work on this since our second quarter call to try to create clarity, especially for the analyst and we believe at this point that 367, 368 number is probably reasonable for the fourth quarter

Matt Olney -- Stephens -- Analyst

Got it? Okay. That's helpful. And then on the credit side, it sounds like there was a -- the write-off of the restaurant loan created, I guess, moved to higher charge offs in the quarter. What else can you tell us about that loan? Did you write it all off? Is there any remaining exposure? Or is there still some amount of that in non-accrual.

Drake Mills -- Chairman, President and Chief Executive Officer

Yeah. Now, we have -- we wrote off the exposure of that credit and I want to talk about that just for a few seconds, if I could. But we have a $3 million balance remaining, which is the bid that we have at hand for that business and we feel pretty confident that will hold up at this point.

But we have -- and I want to make sure that I clarify this, that we have $71 million remaining in our restaurant portfolio and have really scrubbed that portfolio pretty -- real deep down and that portfolio feel extremely comfortable.

And I know that we've heard a lot of the term use one-off, for us this loan is truly a one off. It's not -- that does not look like any other restaurant lone that we have. We're very comfortable with the portfolio and I've been -- I've said that in most of our calls with our investors that are extremely comfortable with our investment, I mean, our portfolio overall.

We estimated between 12 and 14 basis points of loss on our portfolio for 2019. We're at 11 right now, we feel like we're going to come in with that range. Nothing else out there that we currently know of is, should impact that significantly.

But very comfortable with the remaining part of our portfolio, I think, it's 1.3% of our portfolio at this point. So truly one off. We've worked with it. This is a relationship that we began dealing with in 2013, 2016 we expanded; they expanded pretty quickly into some southern states. And at this point, we are where we are with it.

Matt Olney -- Stephens -- Analyst

Okay, thank you for that, Drake. And then just generally, on credit quality, any discussion or any views as far as the overall past-due list or classifieds criticize? Any migrations, or any themes that you saw in the third quarter?

Drake Mills -- Chairman, President and Chief Executive Officer

Absolutely not, past is continued to inch down well under 1% sustained has continued to move south and we just feel very good about a credit quality, just finished up a external loan review, they went through about 54% of the portfolio. Very, very tough review came out with just a minor downgrade. Very complimentary owned on the credit quality, especially when we look at the industries that we want to concentrate on. So as I've been saying the last couple quarters, as we took a deep dive and some of our industries and concerns, I think we're in very good shape. Like we said, we projected 12 basis points, 14 basis points we will come in within that at this point.

Matt Olney -- Stephens -- Analyst

Okay. Great. All right guys. Nice quarter, I'll step back in the queue.

Drake Mills -- Chairman, President and Chief Executive Officer

Thank you, Matt.

Operator

Next we will have William Wallace with Raymond James.

William Wallace -- Raymond James -- Analyst

Thanks. Good morning, guys.

Drake Mills -- Chairman, President and Chief Executive Officer

Good morning. Wallace, how are you today?

William Wallace -- Raymond James -- Analyst

Very good. Thank you. Maybe a quick follow up on the restaurant loan and the exposure there. Did you say -- Did I hear you say that you already have a bit of 3 million for the entire business?

Drake Mills -- Chairman, President and Chief Executive Officer

Yes.

William Wallace -- Raymond James -- Analyst

Okay. What kind of restaurant was it? Is it like a fast casual?

Drake Mills -- Chairman, President and Chief Executive Officer

Yeah. It was a fast casual in the southern states.

William Wallace -- Raymond James -- Analyst

Okay. And then and you said you've done a deep dive into the remaining portfolio. I'm curious if you have -- happen to have any information on hand as to maybe some of the breakout of types of restaurants in your portfolio and anything like that that you can share with us?

Drake Mills -- Chairman, President and Chief Executive Officer

Yeah. We actually out of the 71 million, we have actually looking at the list at this point. The most of it -- I would say that, it's pretty much 50-50 it appears between fast casual, I mean casual -- fast casual and the fast food. We have a couple of real strong sonic operators. We have a Burger King operators, really strong with Popeye's also. And just I think well position, we -- and the other thing about our restaurant portfolio we have significant sponsorship behind that portfolio and strong operator.

So -- and these -- like this, this one that we talked about on a loss, this was a 2013. This was a new relationship we just brought in had significant investors behind this restaurant and they -- there was a lot more money lost and the investment side than it was on the bank side. I feel very good. And I would --as you know, I'm extremely transparent if I had -- we had issues around the restaurant portfolio to tell you. But again, it's 1.3% of our portfolio, which is very good where we are at this point.

William Wallace -- Raymond James -- Analyst

Thanks. And one last question on that, before I move on. Do you know the average loan size or relationship size in that portfolio?

Drake Mills -- Chairman, President and Chief Executive Officer

Looking at this list, I'm going to say, is probably in the $3 million to $5 million range.

William Wallace -- Raymond James -- Analyst

Okay. Great. Thanks. You talked about a expense of 36.7 to 36.8 in the fourth quarter. Last quarter, we spoke about some changes that you've made in the mortgage business around servicing. I'm wondering if you can help us think about what we might look at on the expense side maybe in the first quarter of 2020 once we start to see the impact of changes that you've made on mortgage.

Drake Mills -- Chairman, President and Chief Executive Officer

Works from that is we're finishing our conversion to subservice and our mortgage servicing portfolio level and that will be on November 1st. We expect that to reduce expenses around $1 million for 2020 from the subservicing perspective. We continue to look at servicing strategically the direction we're headed.

As you know, we have focused on reducing the size of our mortgage operation to retail footprint operation that you'd expect in the community bank. Subservicing I believe is the first step and that's addressing the volatility and we believe that at some point, we could potentially even exit the servicing business and just focus on mortgage production and that's something that we've had some success here recently on attracting and continuing to add what we think are very strong mortgage bankers.

We had a real success here recently in our core market and with an individual we think is going to be a game-changer for us. So, we're really focused Wally on mortgage production and starting to diminish the impact that servicing will have in the future.

We just -- I'd like thinking about not having that compliance risk, not having the volatility. And so from a run rate perspective, to answer your question, I think you can reduce that run right over four quarters by $1 million in 2020. And we're going to work hard to -- I mean, we have, for instance, going through a health insurance rebid right now that's a big issue for us to try to understand where costs are, but overall from an infrastructure standpoint, feel very good that we have a pretty good cost structure moving forward.

William Wallace -- Raymond James -- Analyst

And just to clarify when you say it could be $1 million lower, do you mean it could be $1 million per quarter or $250,000?

Drake Mills -- Chairman, President and Chief Executive Officer

No, no, $1 million for the year.

William Wallace -- Raymond James -- Analyst

Okay. Okay.

Drake Mills -- Chairman, President and Chief Executive Officer

I think to put this in perspective, we -- at this point; we're projecting about 3% to 5% expense increase for 2020.

William Wallace -- Raymond James -- Analyst

Okay.

Drake Mills -- Chairman, President and Chief Executive Officer

And we're in the midst of working on that as we speak.

William Wallace -- Raymond James -- Analyst

Okay, great. And then my last question is on the net interest margin. We had to cut in September, you guys have a lot of floating rate loans, but you've had pretty strong deposit growth. I'm wondering if you could just kind of help us think about how we might model net interest margin compression with Fed moves.

Drake Mills -- Chairman, President and Chief Executive Officer

They're doing a lot of work around that. At this point, we think with the Fed move -- and we're baking in a Fed move for this quarter and really feel that we're going to be pretty, pretty comfortable in that with the move 10 to 12 basis points impact in NIM.

One upside to that we've seen a somewhat of a decline in the percentage of our floating right loan from 62% to 59% and feel that that trend could continue and it's, again, something that we're working on -- not to really position ourselves more neutral necessarily because we're not going to be in this environment forever, but we are working to lessen the impact of that, but our deposit growth has been strong.

We feel in the fourth quarter that that we're going to see -- not deposit growth, the level we saw in the in the third quarter, but we're going to see strong deposit growth. So, again, we're going to stay focused on that. I'm going to say, 7%, 8% loan growth and 8% to 10% deposit growth moving forward.

William Wallace -- Raymond James -- Analyst

Okay, great. And to clarify, you said we could see 10 to 12 basis points of pressure in the fourth quarter, that assumes that the Fed cuts next week that include?

Stephen Brolly -- Chief Financial Officer

Yeah, we baked in a cut. We were not -- I thought about giving it without the cut, but we're pretty sure the cuts going to be there. So we're giving you one number. And that's probably, if you want to know 2 to 4 basis points added with a cut.

William Wallace -- Raymond James -- Analyst

Okay, great. Alright, thanks. On a lighter note, I know you spent a lot of time in Houston but I just want to -- I just want to say, go nuts. Thanks, guys.

Stephen Brolly -- Chief Financial Officer

Okay

Operator

The next question we have will come from Brad Millsaps with Sandler O'Neill.

Peter Ruiz -- Sandler O'Neill -- Analyst

Hey, good morning guys. It's actually Peter Ruiz on for Brad.

Stephen Brolly -- Chief Financial Officer

Hi Peter. How are you doing?

Peter Ruiz -- Sandler O'Neill -- Analyst

Good. Most of the questions have been answered, but just maybe following up on the margin really appreciate the color there that you gave on you know the expectations there, especially including an October cut. But kind of just, you know, taking a deeper dive, what -- do you guys have a sense of what the spot rates were sort of for deposit cost maybe near the quarter end?

Stephen Brolly -- Chief Financial Officer

Spot rate for the quarter, for the month of September was 156 for total interest bearing deposits.

Peter Ruiz -- Sandler O'Neill -- Analyst

Okay, that's great.

Stephen Brolly -- Chief Financial Officer

That does not include the non-interest spend, so the spot rate 156 total interest bearing deposits. In July that number was 152.

Peter Ruiz -- Sandler O'Neill -- Analyst

Okay.

Drake Mills -- Chairman, President and Chief Executive Officer

And again we're going to focus a little bit here on significant growth in Abby's, we were very pleased with our continued incentives and the teams that we built around treasure management around deposit guarantees in DFW and Houston markets and just seeing -- non expense deposit growth.

Stephen Brolly -- Chief Financial Officer

Also, from our brokers perspective, obviously the majority of what we do there, we've talked a lot with everyone here about our relationship with Origin Financial that has come down from 220 something range to 189 at the end of the quarter and we'll continue to see that, as money market right go down

Peter Ruiz -- Sandler O'Neill -- Analyst

Okay, great. Appreciate all that color. And maybe I don't think I heard you correctly, kind of got it 8% to 10% loan growth here in the near term. Maybe just give a little bit of color on what you're seeing in your market right now. Obviously, I'm sure Texas is a strength, but anything else you can provide?

Stephen Brolly -- Chief Financial Officer

Yeah, I want to go back to that because I said, you know, 7% to 8% loan growth and then 8% to 10% deposit growth moving forward. And obviously, we're in such dynamic markets in Texas and seeing a lot of success they're. Starting to see some decent growth in Mississippi where it's been flat last year. Still surprised at Louisiana at 5.3% annualized growth year to date. So have a decent growth in the market, but when you look at the DFW in Houston, they certainly are the shining stars. Houston, 33.7% annualized loan growth. So those teams that we -- they were fortunate to lift out and get in inside and they performed as expected, maybe even stronger than expected.

Peter Ruiz -- Sandler O'Neill -- Analyst

That's great. That's it for me.

Stephen Brolly -- Chief Financial Officer

Thank you.

Operator

And next we will have Brady Gailey of KBW.

Brady Gailey -- KBW -- Analyst

Hey, thanks. Good morning, guys.

Drake Mills -- Chairman, President and Chief Executive Officer

Good morning, Brady.

Stephen Brolly -- Chief Financial Officer

How are you today?

Brady Gailey -- KBW -- Analyst

ood. So a nice loan growth quarter from you all. It sounds like a lot of it was Texas. Was there any other energy based program?

Drake Mills -- Chairman, President and Chief Executive Officer

We have one credit that was energy based that was around -- I want to say $8 million to $10 million, but not E&P.

Stephen Brolly -- Chief Financial Officer

Yes, not E&P. And again, let me stress when we talk about energy, it doesn't have a solid E&P in it, it is services andmidstream.

Brady Gailey -- KBW -- Analyst

All right.

Drake Mills -- Chairman, President and Chief Executive Officer

Yeah. So Brady from a funding perspective, we're about 1.5% of our portfolio in total energy.

Brady Gailey -- KBW -- Analyst

Okay.

Drake Mills -- Chairman, President and Chief Executive Officer

And Brady, this was -- this credit I just mentioned was a long-term strong relationship that of our Houston team.

Brady Gailey -- KBW -- Analyst

Okay. So Drake, you get active with the buyback you repurchased about one a little over 1% of the company. You know, will that -- will that continue from here?

Drake Mills -- Chairman, President and Chief Executive Officer

Yeah. I think it's an option for us. And we'll continue to look at those tools -- dependent on market and where we are, you know, we're having what we think is very strong organic growth. And each month, we look at where we are, what options we have, and certainly that's going to be an option and a tool that will use, if necessary.

Brady Gailey -- KBW -- Analyst

Okay. Maybe an update on M&A, how conversations are going? Or are you closer further away from announcing a deal?

Drake Mills -- Chairman, President and Chief Executive Officer

It's staying active, very active, it's -- we are trying to find the right partner. And I don't want to say, I'm picky, but it's going to be the right deal for us. And we still have the same number of active opportunities. And it's tough to say, I'm closer I'm farther way. And in the other side of it is we're still we're certainly trying to understand the CECL impact of acquisitions moving forward and really how you just price based on that, and does it impact that, that -- that from that standpoint.

Brady Gailey -- KBW -- Analyst

Okay. Then you added a little more FHLB in the quarter? I know you did some last quarter in the second quarter. But you know, can you just talk about if you -- if you plan to continue to do that. And you know what, what the strategy is behind this kind of balance sheet remix?

Stephen Brolly -- Chief Financial Officer

Hey Brady, this is Steve. This past quarter we did do $100 million in a photo, which they have the option. And that was at 35 basis points. They have the option to call that in later November. Last year, we mentioned 250 million at 165. That was callable at their option in the summer and they did not call based on the rates. But we do is, we'll look at the Federal Home Loan Bank borrowings, will look at brokerage deposits, will look at a warehouse letters -- lines of credits that we fund. And it's a daily look where we are, where we're going to be. And it's not a will we do this continuously. It's a total mix.

The other thing we have to look at is the Federal Home Loan Bank and will not do these LIBOR based lending as of a couple days ago after first quarter of next year, so we'll continue look at the Home Loan Bank, they'll be coming out with other products. And I hope that gives you comfort.

Drake Mills -- Chairman, President and Chief Executive Officer

Right, this is Drake. I will say that with such a strong focus and drive on growing core deposits, we're starting to see less reliance on broker deposits and less reliance on borrowing. So, as I said earlier, we were successful to lift our team to asset growth has been strong. I feel the momentum is catching and loan deposit ratio was slowly inching down as we expected it to.

Brady Gailey -- KBW -- Analyst

Yes, that makes sense. Thanks for the color guys.

Operator

[Operator Instructions] Next we have a follow up from Matt Olney of Stephens.

Matt Olney -- Stephens -- Analyst

Hey, thanks for taking the follow up. I just want to revisit the discussion around the margin. And it sounds like you're expecting 10 to 12 bps of compression in the fourth quarter. I'm trying to reconcile why the third quarter margin held up so well, and why you're expecting more compression in 4Q.

It seems like the LIBOR headwinds could be similar maybe a little bit more in the fourth quarter. Sounds like the fees were good enough in third quarter maybe you're assuming less fees in the fourth quarter. You know, you can share that would help us understand why the margin will be down a lot more in 4Q then we saw in the third quarter?

Stephen Brolly -- Chief Financial Officer

Matt, this Steve. What you said, we had two to three basis points of extra prepayment fees. We do expect a normal prepayment but this last quarter had a large amount of prepayment fees which we do not expect going forward. So that's going to be two to three basis points there.

Also, during the second quarter, we had those two rate cuts, but it was only doing partial, we will have the full impact during the fourth quarter. And then we expect another rate cut next week. So when you add all those together that gives you the 10 to 12 basis points.

Matt Olney -- Stephens -- Analyst

And on the deposit side, and specifically the non-interest bearing deposits, that growth was very strong in the third quarter, can you talk about the pipeline for non-interest of bearing deposit growth? And I guess some banks talk about seasonality of that business. Do you guys have any seasonality to speak of in that business?

Lance Hall -- President of Origin Bank

Yeah, this is Lance, we will have some seasonality you'll have some -- we've had some nice lift in NIBs and our mortgage warehouse customers, Matt, we feel like we'll see some pull back in that. However, at the same time we have about 300 million in public funds. A lot of the municipalities across North Louisiana, some of those are tax dollars. So we actually get a lift there and probably funds in the fourth quarter from a seasonality perspective. So it's a little bit of offset a little bit.

Matt Olney -- Stephens -- Analyst

Okay. Okay, that that clears that up. And then I think the effective tax rate was a little bit higher in the third quarter, I think you alluded to that in the prepared remarks. Any color you can give us as far as what kind of tax rate we should be assuming for 4Q and then 2020.

Lance Hall -- President of Origin Bank

19.5% to 20% effective going forward for this quarter. And then the-probably the same amount for 2020.

Matt Olney -- Stephens -- Analyst

Okay, OK, guys, it's all for me. Thank you.

Operator

Thank you. Well, so no further questions at this time. We'll go ahead and conclude our question-and-answer session. I would now like to turn the conference call back over to Mr. Drake Mills for any closing remarks. Sir?

Drake Mills -- Chairman, President and Chief Executive Officer

Thank you. And I appreciate everyone that's on the call. But I want to, I guess, make the point that we have continued to run this institution. As we saw in the IPO, we think we are in the most dynamic markets. We're having significant success in Texas especially in the Houston market. And I say that really some momentum moving in DFW with the deposit team, so feel very comfortable that we can continue to perform within the strategies that we laid out. We feel extremely good about the team of people, the quality of the loans that we're bringing on and just think that we're well positioned.

I will -- had a question the other day about where's our next market? Where's our next move? And my response was, I have one-third of 1% market share in DFW and Houston, I mean, the greatest markets, I have a lot of market to grow. And we have the infrastructure there. And we just think that we have to continue to leverage this infrastructure and be successful in those Texas market.

So appreciate everyone on the call. Thank you for your time. And we're always available for additional calls or questions if you need Thank you.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Chris Reigelman -- Investor Relations

Drake Mills -- Chairman, President and Chief Executive Officer

Stephen Brolly -- Chief Financial Officer

Lance Hall -- President of Origin Bank

Matt Olney -- Stephens -- Analyst

William Wallace -- Raymond James -- Analyst

Peter Ruiz -- Sandler O'Neill -- Analyst

Brady Gailey -- KBW -- Analyst

More OBNK analysis

All earnings call transcripts

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