Origin Bancorp, Inc. (NYSE:OBK) Q3 2025 Earnings Call Transcript

Origin Bancorp, Inc. (NYSE:OBK) Q3 2025 Earnings Call Transcript October 23, 2025

Operator: Good morning, and welcome to the Origin Bancorp, Inc. Third Quarter Earnings Conference Call. My name is Tom, and I’ll be your Evercall coordinator. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference call over to Chris Reigelman. Chris, you may proceed.

Chris Reigelman: 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 7 of our earnings release filed with the SEC yesterday. All comments made during today’s call are subject to safe harbor statements in our slide presentation and earnings release.

I’m joined this morning by Origin Bancorp’s Chairman, President and CEO, Drake Mills; President and CEO of Origin Bank, Lance Hall; our Chief Financial Officer, Wally Wallace; Chief Risk Officer, Jim Crotwell; our Chief Accounting Officer, Steve Brolly; and our Chief Credit and Banking Officer, Preston Moore. After the presentation, we’ll be happy to address any questions you may have. Drake, the call is yours.

Drake Mills: Thanks, Chris, and thanks for being with us this morning. Before we discuss our third quarter performance, I want to share my perspective on Tricolor and the related charge-off. We had a 20-year relationship with Tricolor. During that time, Origin has grown into a dynamic company that strategically builds relationships and has a strong system of risk mitigation. For Tricolor, our systems and processes included audited financials, various loan covenants, monthly borrowing base certificates and a third-party trust company as collateral custodian. However, even with the best practices of risk mitigation, losses can occur in the event of a customer fraud. As a leader, it’s important to use an event like this as an opportunity to better your organization by diving deep into policies, processes and portfolios to identify lessons learned.

Our decision to charge off the entire Tricolor outstanding debt is extremely conservative. We do anticipate recoveries through a combination of no collections, insurance claims and legal recourse. This isolated event does not define Origin. When I think of our long history of success, the depth of our management team, the momentum we have generated with Optimize Origin and the unprecedented opportunities within our markets due to M&A-driven disruption, I am passionate and confident we will achieve our ultimate goal of being a top-quartile performer. Now, I’ll turn it over to Lance and the team.

Martin Hall: Thanks, Drake, and good morning. I’m extremely proud of how we’ve executed on Optimize Origin and the momentum that has been created throughout our markets. We are ahead of pace on our stated plan and are creating real traction on our goal of being a top quartile ROA performer. Excluding notable items, our pretax pre-provision ROA increased 48 basis points to 1.63% for the third quarter of 2025 compared to 1.15% in the second quarter of 2024 when we began the planning stages of Optimize Origin. Over the same period, NIM has expanded 48 basis points. Total revenue, excluding notable items, is up 10% and noninterest expense, excluding notable items, is down 3%. We strongly believe the level of paydowns and payoffs that we’ve seen through the first 3 quarters of this year masks the high level of production we are experiencing.

We continue to see positive trends in loan production with loan originations up 19.2% year-to-date compared to the same period last year. At a more granular level, business loan production under $2.5 million across our footprint is up 22.9% during that same period. Through Optimize and through insight into data gleaned from our banker profitability reports, our bankers have heightened their focus on generating ROA lift through relationship expansion. This is highlighted by treasury management fee income increasing 7% year-over-year and loan and swap fees up 62% during the same period. We’ve seen a strong build on the deposit side in Q3 as noninterest-bearing deposits were up $158.6 million or 8.6% quarter-over-quarter. While we’ve come a long way with Optimize Origin, I’m very optimistic about what we can continue to accomplish as we close out the remainder of the year and look towards 2026.

The hires we have made in our DFW markets in addition to our Southeast team reaching profitability gives me great confidence in our ability to drive long-term value in the most dynamic markets in the country. Now, I’ll turn it over to Jim.

Jim Crotwell: Thanks, Lance. As Drake mentioned previously, in early September, we became aware of allegation of fraud related to Tricolor. As you are aware, Tricolor filed Chapter 7 bankruptcy last month. As of quarter end, our credit relationship with Tricolor totaled $30.1 million, including $1.5 million in unfunded letters of credit. We are working with a successor servicer to begin the process of not only servicing the notes, but also working closely with the bankruptcy trustee to identify duplicative and any potential fraudulent notes. Given fraud allegations and the inability to clearly establish the level of unduplicated notes supporting our loans to Tricolor, we elected to charge off the entirety of the outstanding Tricolor debt totaling $28.4 million and to fully reserve the $1.5 million in unfunded letters of credit.

While we do anticipate there will be some level of recovery from the notes pledged, we are unable to determine the magnitude of the suspected fraud with 100% certainty at this time. We will aggressively pursue all available remedies to protect the bank’s interest and maximize recoveries in this matter. As such, net charge-offs for Q3 came in at $31.4 million with $3 million in net charge-offs outside of Tricolor. On an annualized basis, excluding Tricolor, net charge-offs came in at 0.16% for the quarter. Loans past due 30 to 89 days and still accruing reduced from 0.16% last quarter to 0.10% as of 9/30. Classified loans increased $10.7 million and as a percentage of total loans increased to 1.84% at quarter end compared to 1.66% as of June 30, while nonperforming assets increased $1.6 million to 1.18% at quarter end compared to 1.14% as of the prior quarter.

For the quarter, our allowance for credit losses increased from 1.29% to 1.35%, net of mortgage warehouse. We did not experience any significant changes in our CECL model assumptions for the quarter, and the increase was primarily driven by increases in the individually evaluated portion of the reserve associated with our nonaccruals. The level of our reserve at 1.35%, net of mortgage warehouse, compares to a level of 1.31% at year-end 2023. Lastly, as to total ADC and CRE, we continue to have ample capacity to meet the needs of our clients and grow this segment of our portfolio, reflecting funding to total risk-based capital of 47% for ADC and 235% for CRE. I’ll now turn it over to Wally.

William Wallace: Thanks, Jim, and good morning, everyone. Turning to the financial highlights, in Q3, we reported diluted earnings per share of $0.27. As you can see on Slide 26, the combined financial impact of notable items during the quarter equated to a net expense of $23.3 million, equivalent to $0.59 in EPS pressure. On a pretax pre-provision basis, we reported $47.8 million. Excluding $7.9 million in net benefits from notable items in Q3 and $15.6 million net pressures in Q2, pretax pre-provision earnings increased to $39.9 million from $37.1 million. On the balance sheet side, loans decreased 1.9% sequentially and decreased 0.6% when excluding mortgage warehouse. Total deposits increased 2.6% during the quarter and 2.9% excluding brokered.

Importantly, noninterest-bearing deposits grew 8.6% sequentially, improving to 24% of total deposits. Both total and noninterest-bearing deposits also increased on an average basis, up 0.9% and 1.1%, respectively. As Lance mentioned, we are excited about the momentum we are seeing from our relationship managers across our markets, and we remain optimistic that loan production is accelerating, though paydowns have remained a near-term headwind to reported loan balances. While we currently are anticipating that loan growth will return in Q4, the continued declines in Q3 lead us to reduce our loan growth guidance from up low single digits to essentially flat for the year. Given the positive momentum we have seen on the deposit side of the balance sheet and the typically strong seasonal inflows in Q4, we are maintaining our deposit growth guidance of low single digits for the year.

Turning to the income statement, net interest margin expanded 4 basis points during the quarter to 3.65%, in line with our expectations. Driving most of this expansion was increased interest income from our securities portfolio, in large part due to the portfolio optimization trade executed during Q2. Moving forward, as you can see in our outlook on Slide 4 and due primarily to the expectation of an additional Fed rate cut, we tightened our margin guidance range to 3.65% in Q4 ’25 and 3.60% for the full year, plus or minus 3 basis points. Our modeling now considers 25 basis point rate cuts in each of October and December as opposed to only December in our prior guide. Shifting to noninterest income, we reported $26.1 million in Q3. Excluding $9 million in net benefits from notable items in Q3 and $14.6 million in net pressures in Q2, noninterest income increased to $17.1 million from $16 million in Q2, due in large part to the addition of $1.2 million of equity method investment income from increasing our ownership in Argent Financial to over 20%.

Our noninterest expense was basically flat at $62 million in Q3. Excluding $1 million of notable items in both Q3 and Q2, noninterest expense increased slightly to $61.1 million from $61.0 million in Q2, in line with our expectations. We are maintaining our guidance for Q4 and lowering our guidance slightly for the full year to down low single digits from flat to down slightly. Lastly, turning to capital, we note that Q3 tangible book value grew sequentially to $33.95, the 12th consecutive quarter of growth. And the TCE ratio ended the quarter at 10.9%, flat from Q2. As shown on Slide 25, all of our regulatory capital levels remain above levels considered well capitalized. As such, we remain confident that we have the capital flexibility to take advantage of any capital deployment opportunities to drive value for our shareholders.

In fact, during the quarter, we repurchased 265,248 shares at an average price of $35.85. Furthermore, we anticipate the full redemption of the remaining $74 million of subordinated debt on our balance sheet on November 1, which will allow us to save $3 million in net annual increased interest expense. With that, I will now turn it back to Drake.

Drake Mills: Thanks, Wally. As you have heard throughout this call, we have a great deal of momentum heading into the fourth quarter and next year. I referenced in my opening remarks about the opportunities, particularly in our Texas markets, associated with disruption from recent M&A. This year alone, there have been 15 bank acquisitions in Texas, with selling banks totaling $37 billion in deposits. I firmly believe that we have the infrastructure and bankers to win new business and capitalize on this opportunity. Thank you for being on the call today, and thanks to our employees who remain committed to our strategic vision of optimizing origin. We’ll open up for questions.

Q&A Session

Operator: [Operator Instructions]. Our first question comes from Matt with Stephens.

Matt Olney: I want to dig a little bit more on credit. Can you just talk about your NBFI exposure about what this does include and maybe what it does not include? And then secondly, any more — as you scrub the portfolio, anything you want to disclose as far as exposure to other auto lending or subprime credits that would be of interest?

Jim Crotwell: Matt, it’s Jim. I’ll start with a little bit of recap color on subprime and then kind of move through some of the questions you asked. Our subprime portfolio at the end of the quarter was about $92 million that represented about 1.2% of total loans. The breakdown of that would be about 68% would be residential, about 15% RV and about 15% auto. And then kind of moving to your question about subprime auto, reflective, if you kind of do the math on that, it’s only 0.2% of our entire portfolio and it consists of 2 relationships, both of which are performing. And on both of those, as the sole lender in both of those relationships, some of the issues that we are experiencing in Tricolor, the double pledging of collateral, is really not an issue in the situation of these 2 relationships.

Moving to the total NBFI portfolio, which is excluding mortgage warehouse, our NBFI exposure is approximately 5% of total loans, 61% of that is real estate related, with 15% related to capital call lines of credit. And the remaining 25% is spread across about 6 different categories. We’ve done a deep dive into this entire segment of the portfolio, and these companies have experienced management teams. The underlying loans have good income and cash flow, and our long-term relationships with the bank. And we have no past dues and no performing loans in the entirety of our NBFI segment.

Matt Olney: Drake, I heard you mention the Tricolor and the fraud allegations. Can you just walk us through any insurance that could offset some of these charge-offs? And what does that look like compared to the charge-offs that we just saw? And what are some thoughts on time lines around that insurance?

Drake Mills: Matt, as I said, we are aggressively pursuing recovery on these loans. We believe in time that we will see some degree of recovery. But there are — right now, there’s too many variables at present for us to sit here and quantify how much that will be and when that will occur. That’s why we took the charge the way we did. It’s at this point, we feel very good that we have these avenues of recovery. And as I’ve told investors and other relationships I have, I am going to be working diligently to ensure that we have recovery, but it’s unclear. That’s why we took the charge away we did. We feel confident that we will have some recovery. It’s just in this Chapter 7 and going through bankruptcy and understanding the timing of this is extremely difficult to quantify anything.

Matt Olney: Okay. Appreciate that. And then if I could just shift gears over to the loan growth commentary. I think the updated guidance now calls for flat balances in 2025 year-over-year. If we go back to January earlier this year, I think the guidance was mid- to high single digits, and that was kind of walked down each successive quarter since then. And Origin is certainly not alone in seeing some of the slower loan growth trends this year, but it does feel more acute at Origin than maybe some of your peers. So can we just take a step back and remind us about your loan growth views throughout the year and how that evolves? And then would love to hear any kind of preliminary thoughts you may have on loan growth in 2026.

Martin Hall: Matt, it’s Lance. I’d be glad to go through it. I’m actually really bullish and optimistic about where loan growth is going in Q4 and next year, but we’ll kind of step back and understand why I used the word earlier that I feel like our extraordinary origination and production has really been masked by paydowns and payoffs. So if you think about that, we have actually been averaging the last 4 quarters, $685 million a quarter in paydowns and payoffs, which are extraordinarily high historically for us. Combination of that is slowing things down purposely to stay under $10 billion has led to a little less than $400 million in reduction of our commercial construction and development portfolio. So that takes some time to rebuild that back up.

So that is — a big part of our originations for this year is kind of getting back active and aggressive in that space. And that’s one of the reasons we’re very bullish on the fundings that will come from that next year. But just to kind of give you a little color, that $685 million per quarter over the last 4 quarters is compared to a little over $500 million, which would be sort of a typical quarter for us. And so part of that is tariffs, part of that is us pushing out credits that Jim has talked about the last few quarters. But again, I think that has sort of covered up what has been pretty extraordinary on the origination side. Our originations for the first 9 months of this year are up almost 20% compared to the 9 months of the year previously.

Strong pipeline for Q4. I think we’re expecting about 2% growth, ex warehouse, for Q4. So if you annualize that kind of at 8% on an annualized basis, I think our guidance for 2026 would continue to be mid- to high single digits. But we’re seeing really positive momentum kind of throughout each of our markets. Texas is starting to come on strong again. Louisiana has been really strong this year. We’ve had about 5.5% loan and deposit growth in our Louisiana market. Really like seeing what we’re seeing out of Nate and the Southeast team, a good year out of Mississippi. So we are well positioned right now. And then, I’m sure later we’ll talk about Optimize and kind of say how that’s translating into NIM expansion and ROA expansion. And so the engine is running really well now, it’s just having to kind of get past this unprecedented level of paydowns and payoffs.

Operator: Our next question comes from Woody with KBW.

Wood Lay: I wanted to start, I think in the opening comments, you mentioned sort of in wake of this event, you’ll be evaluating sort of the processes and systems in place to avoid incidents like this in the future. Do you expect there to be any impact to the expense run rate if there’s additional investments that need to be made?

Drake Mills: At this point, we don’t see any additional impact or an impact to expenses. We are going to be utilizing some — actually a move with one of our executives to come in and create a new group that is internal at this point to really focus on credit management and credit audit process, looking at the components. And as I think about Tricolor and you can sit here and say what lessons were learned. This is a process that we’re undergoing right now, and we’ve really identified several enhancements that we believe will mitigate risk going forward as we better detect fraud. As an example, we’ve conducted a deep dive, as Jim said, and have gone through a comprehensive review of the segment in our portfolio. We’re enhancing our processes and controls for monitoring and testing our collateral.

But outside of that, we’re expanding the role, as I said of this executive, who will build out a team of internal resources to provide additional oversight and streamlined collateral protection, monitoring and documentation. So I don’t see that creating significant or really any additional expense.

Wood Lay: Got it. And then — so you’ve essentially charged off the full exposure to Tricolor. Is there any indirect exposure to the company like personal loans made to Mr. Chu or any referrals from insiders in the business?

Drake Mills: Yes. While we can’t necessarily speak to any specific customer information, I feel very strongly that all the exposure in our portfolio has been properly identified and appropriately accounted for. We do have approximately $500,000 in mortgages with one of the executives, about a 50% LTV and performing. Outside of that, we’ve disclosed everything, but feel very confident in that we’ve addressed any type of exposure.

Wood Lay: Got it. That’s helpful. And then I guess just sort of excluding the impact of Tricolor, just overall thoughts on credit, were there any trends to note in criticized or classified?

Drake Mills: Yes, I’m going to let Preston — Preston and his team have worked diligently through this process to really be able to recap where we are with credit and how we feel. So Preston?

Preston Moore: Yes. Clearly, we feel like the Tricolor situation was an isolated and one-off event for Origin Bank. But in terms of the credit trends to get to your question, in my opinion, we saw a normal cycle movement of credits, which in my experience can be lumpy, certainly. We saw an increase in classified loans, nonperforming loans, charge-offs and past dues in the quarter. The increase in classified loans and nonperforming loans was part of our expected credit migration for the quarter. With respect to looking at charge-offs, clearly, we had a very elevated charge-off with Tricolor. But if we exclude that, net charge-offs would have been 16 basis points for the quarter, which is very much in line with our past experiences.

And then finally, while total past due loans rose modestly in the quarter, past due 30 to 89 days and still accruing loans declined from 16 basis points last quarter to 10 basis points at the end of the quarter. And I just would say, bottom line, we do not see signs of credit deterioration in our loan portfolio.

Operator: [Operator Instructions]. Our next question comes from [ Evan ] with Raymond James.

Unknown Analyst: I know it’s been a busy year with Optimize Origin. You’ve added new benefits to the project each quarter. You’re staying under $10 billion at year-end. But as we look towards 2026, can we expect that the heavy lifting on Optimize Origin is behind us? And is there — will there be more balance towards balance sheet growth?

Martin Hall: Evan, this is Lance. We have a tremendous amount of opportunities still in front of us around Optimize Origin. I think Drake jokingly said we’re in the top of the fourth inning when it comes to opportunities. So yes, we’ve done a lot of heavy lift early. And you think about the tremendous progress we’ve made, and we commented on some of this earlier, Optimize was basically crafted in 2Q of ’24. And so if you look at that period of time from 2Q ’24 to now, as we noted earlier, I mean, ROA is up 48 bps, NIM is up 48 bps. Revenue is up about 10%, expenses are down about 3%. We’ve executed on what we said we were going to do with Argent Financial, which is a meaningful lift for us. We’ve recreated our mortgage business.

We actually had positive contribution income out of our mortgage business this month for the first time in years. Our Southeast market hit profitability last quarter, which is a great trend for us. We’re doing a lot of really cool stuff with data. The use — and we’ve talked about this in the past, our banker profitability report since we started Optimize, the ROA of our banker portfolios is up 32 bps on average, and that’s really through the identification and understanding of where our revenues are created, where our profits are created. But then just everything seems to be genuine in a positive way from treasury management to fee revenue. But for us, Optimize is a continuous process. There’s not a stopping point to this for us. So the way that we’re continuing to use third-party benchmarking company, we have actually created an internal group that we call performance optimization partners.

They are digging into process improvement, revenue enhancement, expense controls, and the insights that we’re getting from that group is setting what’s going to be a pretty dynamic strategic planning and budget session for us here in the next 2 weeks. And so from that, I would expect continual projects that we’ll be announcing on Optimize that’s really going to continue to transform this company as we evolve this into a top-tier ROA producer.

Unknown Analyst: Great. Great. That’s helpful. And then I just had another question on capital. So you mentioned the buybacks this quarter and then I think the redemption of, I think you said $74 million in sub debt in the fourth quarter. But as we saw most capital ratios tick up, just kind of wondering what your priorities are on capital deployment at this point.

William Wallace: Evan, it’s Wally. As far as priorities go, I mean, I think that our #1 priority would be to deploy our capital organically through balance sheet growth. We are very focused on trying to take advantage of any and all disruption in our markets. And as you know, that disruption has been increasing as of late, we have a successful history of lifting our teams and growing our balance sheet organically. So that would be priority #1. We recognize the level of capital that we have. We’ve been in the market the last 2 quarters buying back our own stock, and we will continue to look for opportunities to do that if the stock price remains at levels that we believe are where it’s attractive to deploy the capital in the market. And we are aware of M&A as an opportunity to deploy capital. I don’t think that’s our focus today, given where our stock is trading, but we would not take that off of the list.

Operator: Our next question is a follow-up from Matt with Stephens.

Matt Olney: Over the last year, we’ve talked a lot about this fixed loan repricing dynamic that will support the overall loan yields, and we’re definitely seeing the benefits of that over the last few quarters. As we look at that into 2026 and 2027, how would you characterize the remaining benefits from this dynamic compared to kind of what we’ve seen more recently?

William Wallace: Matt, it’s Wally. So with our with our payoffs and paydowns being elevated, some of that benefit has been pulled forward to this year, which is great for today NIM, but it does take away from a little bit of the tailwind that we have. That said, though, we still right now, as it stands today, have over $300 million of loans that will have planned payoffs in 2026, those loans are yielding in the mid-4s. Today, we’re putting on loans in the 6.9% to 7% range. So still plenty of opportunity there, and we have over $1 billion of forecasted principal and payoffs coming for the year. So it’s still a tailwind, but we have pulled some of that tailwind forward. If I look at year-over-year, I think our margin is up in the 30 to 35 basis point range.

I don’t think we’ll see that much benefit in 2026. We’re putting 4 cuts in our modeling right now and still see 10 to 15 basis points of potential margin expansion from the tailwinds that I just mentioned over the next 5 quarters.

Matt Olney: And then just one more point of clarification on the fee income guidance. I think there’s some discussion in the deck about — I see here, kind of a high single-digit — I’m sorry, low double-digit growth in the fourth quarter. Can you just — there are several nonrecurring items and some names that are nonoperating. So I’m a little confused as far as kind of what the base is. Can you — any way you can clarify the fee income expectations in the near term and kind of the puts and takes around the components of that?

William Wallace: Sure. If you take out the items that are fee income related from the notable items table at the end of the deck, you get to a third quarter base of about $17.1 million. The fourth quarter is a seasonally light quarter in both insurance and mortgage. So from a sequential basis, that’s probably more in the $15.5 million or so million dollars, which is up pretty meaningfully from last year’s fourth quarter where the base was about $14 million. So that’s where that growth guidance is coming from year-over-year, fourth quarter over fourth quarter, excluding notable items. The benefits coming from swap fees, which have been very strong this year, we don’t see the same level of swap fees in the fourth quarter that we saw in the second and third. But we also have the contribution now from Argent as another positive when you look year-over-year.

Operator: [Operator Instructions]. It appears there are currently no further questions. Handing it back to Drake Mills for any final remarks.

Drake Mills: Yes. I want to thank everyone for being on the call. And just from a recap of why we feel so positive about moving into ’26, it’s been extremely rewarding to me personally to see a deep commitment throughout our company from all our employees to deliver on Optimize Origin, which continues to build momentum. The momentum in all of our markets from Texas to the Southeast continue to build, the dislocation in the dynamic Texas market and Southeast market is significant for us. So as we add that to the acceleration of production, I love what’s going on with our strong pipelines. I currently am very positive and optimistic about our opportunity to reach our ultimate goal of being the top-quartile performer. I appreciate your support. Sincerely appreciate you being on the call. I look forward to seeing each of you soon.

Operator: Ladies and gentlemen, this concludes today’s Evercall. Thank you, and have a great day.