Origin Bancorp : Fourth Quarter 2025 Earnings Call Transcription

About this update from Origin Bancorp, Inc.

Origin Bancorp, Inc. Fourth Quarter 2025 Earnings Call -Transcript Transcribed By: FINSIGHT 530 7th Avenue New York, NY 10018 DISCLAIMER: FINSIGHT makes every effort to ensure an accurate transcription. Enclosed is the output of transcribing from an audio recording. Although the transcription is largely accurate, in some cases, it may be incomplete or inaccurate due to inaudible passages or transcription errors. This transcript is provided as an aid to understanding but should not be treated as an authoritative record. FINSIGHT makes no representations or warranties to the accuracy and completeness of this transcript. Evercall Moderator Good morning, and welcome to the Origin Bancorp, Inc. Fourth Quarter Earnings Call. My name is David, and I'll be your Evercall Coordinator. The format of the call includes prepared remarks from the company, followed by a question-and-answer session. Please note that all attendees will be on in listen-only mode until the Q&A portion of the call. I would now like to turn the conference call over to Chris Reigelman, Director of Investor Relations. Please go ahead. Chris Reigelman (Origin Bancorp) 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 a 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 use of non-GAAP financial measures. For those joining by phone, please note the slide presentation is available on our website at 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 the safe harbor statements in our slide presentation and earnings release. I'm joined this morning by Origin Bancorp's Chairman, President & 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 will be happy to address any questions you may have. Drake, the call is yours. Drake Mills (Origin Bancorp) Thanks Chris and thanks for being with us this morning. This time last year on our call, we introduced Optimize Origin. As we outlined, Optimize Origin was more than a project, it was more than a point in time. It represented an evolution for our company in how we connect our award-winning culture with our drive for elite financial performance. Our short-term goal was for a 1% or greater ROA run rate by the fourth quarter of 2025. We accomplished this goal. While I am pleased with our results, I'm not surprised how our team delivered. We remain laser-focused on our ultimate goal of delivering a top quartile ROA. Origin has a tremendous amount of momentum as we enter the new year. I'm proud of our progress and extremely optimistic about our future. My optimism is based on three primary themes. First, our team continues to execute on Optimize Origin. Second, we will continue to capitalize on the disruption in our markets created by recent M&A activity. And third, we have no barrier to growth as we have properly prepared to pass $10B in assets-our teams and our markets are ready. Now, I'll turn it over to Lance and the team. Lance Hall (Origin Bancorp) Thanks Drake and good morning. As Drake mentioned, we have a deep sense of optimism for Origin as we enter 2026, and that is felt throughout our entire company. I'm proud of the passion and discipline our team showed in 2025, and the aspirational belief we share together in what we can be as company. My confidence in what we can accomplish is based on our team's unrelenting focus and execution surrounding Optimize. This past year we achieved 20% ownership of Argent Financial, consolidated banking centers, restructured the way we deliver mortgages to the market, and reduced FTEs by nearly 7%. NII was up 10.2%, total revenue excluding notable items was up 8.8% and non-interest expense excluding notables was down 0.7%. I've said before on previous calls that I felt our production has been masked by planned reductions due to our client selection process and by payoff and paydown pressures. Even with these dynamics, and a data-driven strategic reduction in our production team, loan origination dollars increased approximately $500 million or 37% year over year, and loan and swap fees increased 57% over the same period. Our continued execution of Optimize Origin is so critical to our success. At its core, Optimize is about simplifying how we work, sharpening execution, eliminating friction, and freeing up our teams to spend more time creating value for our clients. Optimize will continue to guide how we improve performance, strengthen accountability, and invest intentionally for the future. In late 2024 and 2025 our efforts were primarily focused on balance sheet management and expense reduction. In '26, we are intensifying our focus on the client delivery model and opportunities for additional revenue growth. As Drake mentioned, the disruption in our markets is a tremendous opportunity for us. Just over the past few months we have added more than 10 bankers in Houston and DFW and see additional opportunities ahead. This "investment in disruption" is a major strategic focus for us in 2026. Our guidance assumes we will invest roughly 10 million dollars in new bankers and teams throughout our markets this year. These investments are on top of continued investments we're making across the organization that should drive continued efficiencies and growth as we strive for our ultimate top quartile ROA target. We feel strongly that the current environment presents unprecedented opportunity for Origin; we are poised to take advantage of it. Now, I'll turn it over to Jim. Jim Crotwell (Origin Bancorp) Thanks Lance. I'm pleased to report sound credit metrics for the quarter. Total past dues at year end came in at .96% of Total loans reflecting no change from the prior quarter. Past dues 30 to 89 days came in at .19%, a moderate increase from .10% as of 9/30 and compares favorably to a level of .24% reported as of the prior year end. Net Charge-offs for the quarter were $3.2 million, which were in line with expectations and represent a .17% annualized charge-off rate for the quarter. During the quarter non-performing assets declined from 1.18% to 1.07% at year end, an approximate $7M reduction. We did experience a slight increase in total Classifieds increasing from 1.84% of total loans to 1.92%, an increase of $9.3M, driven primarily by the downgrade of 4 relationships partially offset by reductions in 5 relationships. For the quarter, our Allowance for Credit Losses increased $523 thousand to $96.8 million. On a percentage basis, our allowance remained stable at 1.34% of total loans net of Mortgage Warehouse compared to 1.35% for the prior quarter. As in recent quarters, we did not experience any significant changes in our CECL model assumptions with the actual increase this quarter primarily driven by loan growth. 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 risked based capital of 47% for ADC and 236% for CRE. We continue to be pleased with the sound credit performance of our portfolio. I'll now turn it over to Wally. Wally Wallace (Origin Bancorp) Thanks Jim and good morning, everyone. Turning to the financial highlights, in Q4 we reported diluted earnings per share of $0.95. We also reported net income of $29.5M, which drives a run rate return on average assets of 1.19%, well above the targeted 1.0%+ run rate that we outlined as our near-term target last January. As you can see on slide 25, the combined financial impact of notable items during the quarter equated to net expense of $1.7M, equivalent to $0.04 in EPS pressure. On a pretax pre-provision basis, we reported $40.6M in Q4. Excluding $1.6M in net expense from notable items in Q4 and $7.9M of net revenue in Q3, pre-tax pre-provision earnings increased to $42.2M from $39.9M, and annualized pre-tax, pre-provision ROA increased to 1.70% from 1.63%. On the balance sheet side, loans grew 1.8% sequentially and 1.1% when excluding mortgage warehouse. Total deposits declined 0.3% during the quarter; however, on the last day of the year, we sold $215M in interest-bearing deposits; these deposits were repurchased two days later. Excluding this sale, deposits would have increased 2.3% during the quarter. Also, while noninterest bearing deposits declined 1.0% sequentially, they increased 5.3% on an average basis and ended the quarter at 23% of total deposits after adjusting to include the $215M in deposits sold and then repurchased. Moving forward, we are currently targeting loan and deposit growth in the mid- to high-single digits for the year. We remain optimistic that momentum will continue to build, especially as we continue to capitalize on M&A driven disruption in our markets, and our expectation is for loan growth to be more weighted to the second half of the year. Turning to the Income Statement, Net Interest Margin expanded 8 basis points during the quarter to 3.73%, ahead of our expectations. Moving forward, we expect slight margin compression in Q1 due to timing differences in loan versus deposit repricing following the recent Fed rate cuts. By Q4, we currently anticipate NIM in the 3.70% to 3.80% range with current bias to the higher end. Our outlook includes 25-bp Fed rate cuts in March and June. Combined with our balance sheet growth expectations, this results in expected net interest income growth in the mid- to high-single digits for both the full year and Q4 over Q4. Shifting to non-interest income, we reported $16.7M in Q4. Excluding $483,000 in net benefits from notable items in Q4 and $9.0M in net benefits in Q3, noninterest income declined to $16.3M from $17.1M in Q3, due largely to a reduction in swap fee income and normal seasonality in our insurance segment. Moving forward, we anticipate full year noninterest income growth in the mid- to high-single digits with Q4 over Q4 growth in the low-to-mid single digits, when excluding notable items. We reported non-interest expense of $62.8M in Q4. Excluding $1.3M in expense from notable items in Q4 and $1.0M in Q3, noninterest expense increased to $61.5M from $61.1M in Q3. Moving forward, as both Drake and Lance mentioned, we believe there is a significant opportunity facing Origin as a result of M&A driven disruption across our footprint. Given the magnitude of this potential opportunity, we felt the best strategic decision we could make for the long-term benefit of our shareholders is to invest in the production side of our business. As a result, our expense outlook is for mid-single digit growth both for the full year and on a Q4 over Q4 basis, after excluding notable items. Combined with our revenue growth expectations, the end result is the expectation that we will achieve a run-rate ROA of at least 1.15% in Q4 and a pre-tax, pre-provision run rate ROA in excess of 1.72%. Lastly, turning to capital, we note that Q4 tangible book value grew sequentially to $35.04, the 13 th consecutive quarter of growth, and the TCE ratio ended the quarter at 11.3%, up from 10.9% in Q3. During 2025, we redeemed roughly $145M in sub-debt and repurchased roughly $16M worth of our common stock, while maintaining all regulatory capital ratios above levels considered well capitalized, as shown on slide 24 of our investor presentation. As such, we continue to have capital flexibility. With that, I will now turn it back to Drake. Drake Mills (Origin Bancorp) Thanks Wally. As we close out 2025, I want to reiterate how proud I am of our team and the results we delivered throughout the year. The initial steps we have taken with Optimize Origin have made us a stronger, more resilient, and more efficient company. We are entering 2026 with significant momentum, a stronger earnings profile, and a sharper focus on our employees, customers, communities, and shareholders. I believe there is more opportunity before us than at any other time in my career. Origin is on the offensive. Thanks for being on the call. We'll open it up for questions. Evercall Moderator Thank you. At this time we will conduct the question-and-answer session. If you'd like to ask a question, please press *1 on your telephone keypad to enter the queue. If you have joined via Web, please press the raise hand icon on the right side of your Deal Roadshow screen. Again, that's *1 on your telephone keypad to enter the queue, or the raised hand icon on the right side of your Deal Roadshow screen. We will pause very briefly for any questions to generate. Our first question comes from Matt from Stevens. Matt, please proceed. Matt Olney (Stevens) Hey. Thanks. I appreciate you taking my question. Good morning. I guess I think it was Lance's comments. The bank's already taken advantage of some market disruption with some recent new hires. I think Lance said it was about 10 producers in the footprint. It's great to hear, as far as the expense guidance that you provided any more color about how many producers, this implies that you're targeting for the year. Is it those 10, or do you expect additional hires? I'm just trying to appreciate any volatility we could see in the expense item from new producer hires or other items in the expense base. Thanks. Lance Hall (Origin Bancorp Inc) Yeah. Hey, Matt, good morning. Thanks for the question. I'll take part of this and maybe Wally wants to jump in on part of this. We have a lot of dry powder in that 10M to be able to hire on top of to hire on top of that 10 plus. Those are some that we've done the last couple of months, some here recently and kind of in the last 30 days. But I tell you, it's a fun time for us right now. We're having very strategic conversations in every one of our markets with bankers and banking teams. You know, this is the opportunity for us to really leverage our award winning culture and our geographic model, and kind of build from an organic perspective. So that 10M that we're talking about, I couldn't tell you if that's another 15 or 20 bankers or what it's going to be, specifically, but it kind of a little bit of a war chest to allow us to, you know, to accomplish both things we want to accomplish, which is, you know, have a nice, steady ROA build, and at the same time to invest in future revenue by taking advantage of this disruption. So it's a great, great spot for us to be in. Wally Wallace (Origin Bancorp) Yeah, maybe I'll, I'll just provide a little bit more cover color specifically on sort of the expense load and how we're thinking about it, to help you all out. So, you know, look, we have the 10 hires that started late, late in the fourth quarter, or even some were starting early this quarter, January, one of this year. We also will have our merit increases and cost of living adjustments that kick in in the first quarter. And then we also have the full impact of payroll taxes that come back in the first quarter. On top of that, if you noticed in the press release, when we discussed our fourth quarter non-interest expense, we talked about some increase driven by technology contract renegotiation expense. From time to time, we partner with another party or third parties that will help us renegotiate some of our larger technology contracts. And as part of optimize we turned over every stone and looked, took a look at all of our contracts, and we partnered with the firm to help us with some of our larger ones. We completed one of those during the fourth quarter, and we anticipate seeing the benefits of that negotiation beginning to impact the expense run rate this year. However, we are also in the process of renegotiating an even larger one that we are in the late stages of, and we're anticipating that we will finish that negotiation during the first quarter. When we finish one of these negotiations, there is a sizable upfront expense that gets booked, and then you get to see the run rate benefit after that. So to kind of put that all in, into numbers, I would, I would say maybe we think about a $64M expense, run rate, plus or minus a million dollars the first quarter, assuming we close this negotiation in the first quarter and book that fee, it would be on the higher end of that range. And then you'd see the benefits in the second, third and fourth quarter, bringing us down at the low end of the range. And then as we layer on hires, we'll, we'll, we'll build that expense back up. So think about 64 and then, you know, y'all can try to guess as good as we can as to when we'll hire, but we're actively in discussions, and we anticipate that we will continue to be looking for new people to have discussions with as the year progresses, just given this disruption. So that was a lot of words, but hopefully that helps you all just kind of think about the expenses in your models. Matt Olney (Stevens) Yeah. Well, that was perfect. Very helpful. Thanks for kind of going through all that stuff makes sense. And maybe just one point of clarification for Lance, as far as the new hires, as relates to the loan growth guidance this year, any of those new hires you expect to impact the loan growth guidance in '26 or is that more of a 2027, impact? Lance Hall (Origin Bancorp) Yeah, and Wally may want to correct me, I think the vast majority of what we put into budget was at the back half or Q4 I mean, you know, as we make these hires, they have non solicitation, non-compete language, you know, there's timing around that. So anything that got put in for this year was very much in the back half. Wally Wallace (Origin Bancorp Inc) Yeah, I would just add Matt that the equation for us is, how do we balance our desire to improve our profitability run rate, while also taking advantage of what looks to be almost a generational opportunity from potential disruption so known hires, people that we have hired and have started we budgeted, like Lance said that there would be impact really, really back and loaded, given the time it takes to get on board and then to start communicating with customers and building new relationships and impacting our balance sheet, and then unknown hunters, it's hard to budget them. So we would anticipate that a lot of the dry powder that Lance referenced would be impacting the 2027 loan growth run rate. So hopefully we can continue to see our loan growth accelerate in the coming one, two to even three years, depending on how long we can capitalize on this disruption. Matt Olney (Stevens) Okay, thanks for all the clarification there and then, I guess switching gears on the on the net interest, margin, Wally, it sounds like the margin may have got a hub itself in the fourth quarter. Sounds like the loan base could catch up in the first quarter. Just any more clarification on the margin and what we saw in the fourth quarter, and kind of more about what you mentioned prepared remarks about the first quarter. Wally Wallace (Origin Bancorp Inc)

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