Origin Bancorp, Inc. Q4 FY2025 Earnings Call

Good morning, and welcome to the Origin Bancorp, Inc. Fourth Quarter 2025 Earnings Call. My name is David, and I will be your Evercall coordinator. The format of the call includes prepared remarks from the company followed by a question and answer session. I would now like to turn the conference call over to Chris Reigelman, Director of Investor Relations. Please go ahead.

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 use of non-GAAP financial measures. For those of you joining by the 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 and CEO, Drake Mills; President and CEO of Origin Bank, Lance Hall; our Chief Financial Officer, Wally Wallace; Chief Risk Officer, Jim Crotwell; 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.

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 and 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 by 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 this new year. I'm proud of the progress that we've made 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 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 surpass $10 billion in assets. Our teams and our markets are ready. Now I'll turn it over to Lance and the team.

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 a company. My confidence in what we accomplished 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 noninterest expense, excluding notables, was down 0.7%. I've said before on our 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 originations 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 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 2026, 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've added more than 10 production bankers in Houston and Dallas-Fort Worth and see additional opportunities ahead. This investment and disruption is a major strategic focus for us in 2026. Our guidance assumes we will invest roughly $10 million in new bankers and banking 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.

Thanks, Lance. I am pleased to report sound credit metrics for the quarter. Total past dues at year-end came in at 0.96% of total loans, reflecting no change from the prior quarter. Past dues 30 to 89 days came in at 0.19%, a moderate increase from 0.1% as of 9/30 and compares favorably to a level of 0.24% 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 0.17% annualized charge-off rate for the quarter. During the quarter, nonperforming assets declined from 1.18% to 1.07% at year-end, an approximately $7 million reduction. We did experience a slight increase in total classifieds, increasing from 1.84% of total loans to 1.92%, an increase of $9.3 million, driven primarily by the downgrade of four relationships, partially offset by a reduction in five relationships. For the quarter, our allowance for credit losses increased $523,000 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 risk-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.

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 $29.5 million, which drives a run rate return on average assets of 1.19%, well above the targeted 1% plus 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 $1.7 million, equivalent to $0.04 in EPS pressure. On a pretax pre-provision basis, we reported $40.6 million in Q4. Excluding $1.6 million in net expense from notable items in Q4 and $7.9 million of net revenue in Q3, pretax pre-provision earnings increased to $42.2 million from $39.9 million, and annualized pretax pre-provision ROA increased to 1.7% 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 $215 million in interest-bearing deposits. These deposits were repurchased two days later. Excluding the 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 $215 million in deposits sold and then repurchased. Moving forward, we're 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 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 a current bias to the higher end. Our outlook includes 25 basis point 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 noninterest income, we reported $16.7 million in Q4. Excluding $483,000 in net benefits from notable items in Q4 and $9 million in net benefits in Q3, noninterest income declined to $16.3 million from $17.1 million, 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 noninterest expense of $62.8 million in Q4. Excluding $1.3 million in expense from notable items in Q4 and $1 million in Q3, noninterest expense increased to $61.5 million from $61.1 million. 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 outlook, the end result is the expectation that we will achieve a run rate ROA of at least 1.15% in Q4 and a pretax 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 13th consecutive quarter of growth. The TCE ratio ended the quarter at 11.3%, up from 10.9% in Q3. During 2025, we redeemed roughly $145 million in sub debt and repurchased roughly $16 million worth of our common stock, all while maintaining 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.

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 officially on the offensive. Thank you for being on the call. We'll open it up for questions.

Our first question comes from Matt from Stephens.

I guess I think it was Lance's comments that the bank has 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 line item from new producer hires or other items in the expense base?

Yes. Matt, thanks for the question. I'll take part of this and maybe Wally wants to jump in on part of this. No, we have a lot of dry powder in that $10 million to be able to hire on top of that $10 million plus. Those are some that we've done in the last couple of months, some here in the recently kind of in the last 30 days. But I can 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. 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 $10 million 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's kind of a little bit of a war chest to allow us to accomplish both things we want to accomplish, which is 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 spot for us to be in.

Yes, Matt, I'll provide more details about our expense load and our thinking on it. We have ten new hires that began either late in the fourth quarter or early this quarter. We'll also implement merit increases and cost of living adjustments in the first quarter, along with the full impact of payroll taxes returning then. Additionally, in our fourth quarter noninterest expense, we noted increases due to expenses from renegotiating technology contracts. Occasionally, we collaborate with third parties to help us with major technology contract negotiations. As part of our Optimize initiative, we thoroughly reviewed all contracts and engaged a firm for assistance with some of the larger ones. We successfully completed one of those negotiations in the fourth quarter and expect to see the benefits affecting this year's expense run rate. We are also nearing completion on a larger negotiation that we expect to finalize in the first quarter. When these negotiations conclude, there is a significant upfront expense recognized, after which we benefit from a reduced run rate. In terms of numbers, we anticipate an expense run rate of around $64 million, give or take $1 million in the first quarter. If we finalize this negotiation and record the fee in the first quarter, we will be on the higher end of that range, with benefits reflecting in the second, third, and fourth quarters leading us back to the lower end of the range. As we add new hires, our expenses will rise again. So, keep in mind the $64 million estimate, and you can hypothesize about our hiring timeline. We're actively in discussions and plan to continue seeking new talent as the year advances due to ongoing disruptions. I hope this clarification helps you consider our expenses in your models.

Yes, Wally, 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 it relates to the loan growth guidance this year, any of those new hires do you expect to impact the loan growth guidance in '26? Or is that more of a 2027 impact?

Yes. And Wally you 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, as we make these hires, they have nonsolicitation, noncompete language. There's timing around that. So anything that got put in for this year was very much in the back half.

Yes. 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-end 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 hires, it's hard to budget for 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.

Okay. And then I guess switching gears on the net interest margin, Wally, it sounds like the margin, I don't know, may have got ahead of itself in the fourth quarter. It sounds like the loan beta 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 in the prepared remarks about the first quarter.

Yes. So thanks, Matt. We do get some timing differential. Our bankers have been very disciplined, and we are anticipating how we're going to move deposit costs before Fed moves. The cuts that we got in the fourth quarter, we moved deposits on day one. For the floating rate loans, those loans don't reprice until their next billing cycle. So if somebody got their bill right before the Fed cuts and then they cut, it would be 30 days before we see the impact of that on the loan pricing. So we've already got the benefit of the deposit reset starting to flow through the numbers, but the loan pricing will come down on a slight lag. So that results in a little bit of pressure in the first quarter. But we still have the tailwinds from assets repricing. In 2026, we've got about $150 million or so of securities that will roll off and that we will replace. We're picking up right now about 50 to 75 basis points on spread on those. And then we've got $350 million to $400 million of loans maturing in 2026. The average yield on those is about 4.8%. And right now, new yields are in the kind of low to mid-6s. So we're picking up some decent spread on those as well. So net-net, we do anticipate after the first quarter that you'd see margin expand back up to what we provided on the outlook slide, that 3.75 range, plus or minus 5 basis points.

Our next question comes from Michael from Raymond James Financial.

Following up on Matt's question regarding the additional hires this year, I believe we agree that there are significant opportunities available, especially with another deal announced yesterday. What types of lenders are you focusing on hiring? I assume most will be in Texas, but there has been some disruption in other parts of your market as well. Can you provide details on what you're looking for? Do you anticipate that the hiring pace will continue throughout the year, with the potential for more in 2027? Additionally, might the expense growth slow down as we move into 2027, given the expected operating leverage from this year's plans?

Yes, this is Lance. Yes, very much so. So the strategic identification of kind of bankers that are going to be really effective in our model really are C&I focused with also kind of a focus on deposits and treasury. So of the 11-ish that we've hired so far, it's been, I'm going to say, two private bankers, three treasury management officers, and the rest are C&I lenders. And I think that will be kind of the mix as we continue to grow as we're balancing really strong core deposit growth along with this loan opportunity. Yes, at the volume of the conversations we're having, I think this is going to be a consistent opportunity for the foreseeable future. I do think operating leverage will continue to enhance for us through this because it's a unique combination right now of our organic pipeline just from the business that we have is really strong and growing. One of the things we talked about in the last couple of quarters was I really felt like I was seeing really strong originations that was getting masked by some of the credits that we were pushing out as well as sort of unusual payoffs and paydowns. It was interesting to watch this quarter kind of get back to normal. We saw the highest origination level that we've seen in over two years as well as the paydowns and payoffs drop to the lowest level in two years. And then looking at what our pipeline is for the next 30 days, like there's a real ramp-up of demand and loan opportunity at what I think are the really disciplined pricing levels. And so I'm very optimistic without the hires of our ability to get that upper single-digit growth, mid- to high single-digit growth and then just sort of gets the accelerator with these new hires that we have targeted. So really, really optimistic around that.

Michael, this is Drake. I also want to address your question about 2027 and our focus on achieving positive operating leverage. I am incredibly proud of Lance and the team at the bank because, as we onboard new hires and concentrate on our return on assets challenges, they are effectively reducing expenses within the organization to offset the costs associated with these new personnel. We are not complacent when it comes to expense management; we are actively lowering those expenses even as we expand our team. This helps to balance out the financial impact in 2027.

Yes. Maybe a data point or two, Drake, that's a good point. Kind of going back to the beginning of Optimize, we've now reduced our commercial banking team by almost 25%, and that was pushing out portfolios that we just didn't think were going to be the right mix for us or the ability to kind of grow ROA at the level that we needed it done. And it wasn't necessarily to cut expense. It was really to reinvest into better producers, better revenue streams. We're seeing that. Just last year, the average ROA of our bankers' portfolios increased by 26 basis points. And so the work around ROA and the data that Wally and his team are doing is really paying dividends for helping us make better decisions on future revenue growth.

Very helpful insights. As a follow-up, when I look at current consensus, I’m not saying it’s accurate, but it does indicate that return on assets may stagnate in 2027. However, what I’m hearing today suggests that you will continue to invest, which will yield benefits, and potentially reduce some technology costs, leading to sustainably higher loan growth. I understand that the benchmark for peers has also shifted to reach the top quartile. Therefore, it seems that achieving this will require more effort in 2027. Is that the way we should conceptualize this? Additionally, I apologize for the numerous questions, but the capital buildup is quite significant. Why not consider increasing the buyback as well?

As we look ahead to 2027, our focus will remain on achieving peer ROA and entering the upper quartile. Optimize Origin is not just a project but an ongoing effort to enhance profitability and our company culture. We will continue refining our strategies and haven't yet discussed third-party management concerning some expenses and projects in the pipeline that could provide significant revenue opportunities while also improving our models to identify what works and reducing costs on what doesn’t. I'm optimistic about 2027 as we expect to see a rise in ROA rather than stagnation. When it comes to capital deployment, we believe this market dislocation presents substantial opportunities for growth, which may occur at a quicker pace than anticipated. Recent developments will positively impact us in Texas and throughout our operations, and I'm pleased with what's happening in Louisiana. Our organic growth strategy is fully in motion and we expect it to accelerate. While I value capital, share buybacks are essential for us now as they enhance shareholder value. We will also consider dividends and plan to allocate about 20% of our earnings toward them going forward, with buybacks remaining a significant part of our strategy for the near future.

Our next question comes from Woody from KBW.

I wanted to just follow up on the disruption. And obviously, it should be a boon for the hiring front. But do you feel the impact of that on the loan competition side? Or is competition as intense as ever?

Yes. Woody, this is Lance. Good question. We were actually talking about that this morning. I would say it is highly competitive, but not irrational is the way I would say it. I think the competitors have been good. I mean, we're starting to see some tighter margins around SOFR quotes, primarily in the urban markets. On the opposite side, the main competition on the deposit side, some of the smaller community banks. But I don't feel that it's irrational at this point. And I feel like there's still discipline and there's still opportunity to kind of keep growing margin and ROA.

And I love what Lance said because internally, this is about profitable growth. We are looking at total relationships, and the market opportunities we have give us the opportunity to be extremely disciplined through this process. So it's not about total growth. I think we can sit here and grow 15%, 20%. But when we look at our ROA hurdles and what it takes to make a relationship profitable to the point that it accelerates that, that's where our focus is. And I'm really pleased that we have these opportunities and can stay disciplined.

Got it. And then on the deposit side, I mean, you all have been very successful in lowering deposit costs during this current easing cycle. Are we at the point yet where incremental cuts get a little more difficult to lower deposit rates? Or do you think that you can continue these deposit betas?

Yes. I'll let Wally speak to the betas, but I'll just tell you, anecdotally, I feel like we still have opportunity. I think the back half of last year, I think we saw some of the benefit and the power of the rural deposit base we have in North Louisiana. We spend a lot of time talking about Texas as our sort of driving force and rightfully so. I mean, we grew like loan originations 36% year-over-year, and 75% of that was in Texas. But if you step back, we actually grew deposits 14% in Louisiana at our lowest deposit price point across our footprint. So Louisiana continues to pay huge dividends, and that's a big piece of getting our total deposit cost down. So I think there's still opportunity for us to push on that.

Yes, Woody, I would just add that when considering our deposit betas, in our outlook and internally, we are still relying on our historical beta assumptions for modeling net interest margin or net interest income, even though we have been exceeding those assumptions so far. It does seem that at some point, it will become more challenging to continue surpassing that beta. However, it is an area we are focused on and view as an opportunity. We hope to keep exceeding our own expectations regarding deposit betas.

That's helpful color. And then just last for me. As I think about the top end of the range for the net interest margin versus the bottom end, does it really come down to loan growth where if growth is stronger, you all might be on the lower end of that range? And if it's lighter, you all might be at the top. Is that the right way to think about it?

I think that's a fair way to put it, Woody. We are uncertain about how aggressively acquiring banks will promote loans, which might affect loan spreads. We are considering this in our modeling. However, if those pressures increase, it could push us toward the lower end of the range. The same applies to deposits. We acknowledge the wide range of possibilities and are aware that we need to address the uncertainty around bank behavior until we have more information. We'll keep you updated each quarter. Currently, even with some pressure on spreads for both loans and deposits, we tend to lean toward the higher end of that range, although that could change if the pressure becomes more severe.

Our next question comes from Stephen from Piper Sandler.

I don't want to dwell too much on the topic of new hires, but you mentioned that this is a generational opportunity, so I think it's important to keep discussing it. Can you share your thoughts on the earn-back or breakeven period for these new hires, especially after they navigate their noncompete agreements? Additionally, how do you attract these individuals? Every bank we encounter is referring to this generational opportunity, and the industry appears to be thriving. It seems that everyone has capital and is eager to expand, so how do you position your bank as the preferred choice for these candidates?

Well, first off, I think we're so focused on C&I, owner-occupied CRE and those lenders, they want to be in a shop that does C&I well and it supports the markets. Also, I think we have very good representation in all of our markets. I think about Nate in the Southeast that has deep relationships with these teams that have worked with them at some point in time. They have respect for our presidents in our markets. And I think the relationship, the culture, the C&I drive and how we manage our teams gives us somewhat of a competitive advantage. Through this, we have been pretty focused on 12 to 15-month earn back or profitability levels timing, I should say, on these teams. Where Nate and his team in the Southeast took 18 months, they are now profitable. That was in an environment with higher interest rates and tough to move some credits until maturity. So we're in a different environment. We like the environment we're in, and we think that we can pick and choose the right people that fit our culture, that fit our philosophies when it comes to lending and are in the markets and the industries that we want to lend into. So I think overall, that gives us a very strong competitive advantage to be successful.

Yes. I love this opportunity more than M&A because we can effectively use data to determine the types of clients we want in our portfolio. This approach allows us to operate in a low-risk environment while identifying and targeting teams, which is where our culture truly excels. Being recognized repeatedly as one of the best banks in America to work for, combined with our geographic model that C&I bankers appreciate, fosters an entrepreneurial spirit that isn’t confined to a specific line of business. Bankers have the freedom to serve the clients they wish to have. If we can provide a solid model within an entrepreneurial organization that enables them to bank the clients they desire from a C&I perspective, along with excellent treasury management tools that help them expand their reach, I believe this creates a competitive advantage for Origin.

Yes, that's really good. And Lance, you touched on something that I wanted to hit, and it's like is the use of data. And it seems like a lot of the progress has been aided by really intentional and sophisticated use of data. I'm curious how that has helped shape the composition of your loan growth and kind of what you're focused on and maybe how that shifted from a couple of years ago, whether it's risk-adjusted returns, loan sizes, loan type and just kind of how this Optimized Origin process has changed the focus of the bank as you move forward and how you lend.

I'm really glad you asked that. This has become a key part of our operations, and I credit Wally and his team for it. Honestly, we're a different company now than we were two and a half years ago due to our access to valuable and actionable data. We dedicate a significant amount of time to analyzing portfolio data, banker profitability, client profitability, and product profitability. You've seen our approach to branches; we are now focused on identifying return on assets enhancement opportunities through data. We can now define what an ideal top-performing banker looks like for our model using this data. On the other hand, we can also identify the characteristics of our lowest-performing bankers and figure out how to coach based on data insights or when it's time to push for reinvestment. I can't give enough credit to Wally and his team for what they've accomplished. This effort helps us attract the types of deposit clients we want, influence our treasury investments, and shape our loan mix. We're making decisions in a fundamentally different way now than in the past, thanks to the tools we have at our disposal.

Yes, that's great. And lastly, I noticed that net charge-offs have returned to a more typical level this quarter. Nonperforming loans are still somewhat higher than you would prefer. Given the positive developments, is there a way to address the remaining credit issues more rapidly? What is your perspective on the future of nonperforming loans?

This is Jim. Yes, when Lance spoke to client selection move out, it's really shifting more toward those loans that are criticized this quarter, the $45 million, with 75% of that being in the criticized area. And so that really is our focus. So I'm very pleased with the progress we made on nonperforming for the quarter, and we see some reduction there. We've always had some good news early on this quarter. And that is really our focus to really drive those metrics down, particularly as it relates to nonperforming. So I feel good where we are in the direction of what I'm seeing that we can accomplish in '26.

Our next caller is Gary from D.A. Davidson.

I had a couple of questions. One, just moving over to the fee side for a minute. Just curious about the swap activity in the quarter, obviously down quite a bit. And I think you had kind of flagged that it would be down, but pretty minimal in the quarter. So just wondering if there was anything unusual behind that. I would have thought with the expected and actual rate cuts that it would have been a little more active.

Yes. To be honest, I thought the third quarter was remarkable. It seemed to return to a more normalized state. Budgeting was somewhat challenging because our swap and loan fees increased by 59% compared to last year. We anticipate strong volumes in this area this year, but perhaps not to the same extent as last year. Overall, it seems that the third quarter's performance was exceptionally high.

Okay. And then you had noted securities cash flow is about $150 million. If loan growth comes in a bit stronger, is there room to work the securities portfolio down a bit more and use some of those cash flows to fund loan growth? Or is the base case assumption that it's fully reinvested in the securities portfolio?

Yes, Gary, we have worked diligently over the last two to three years to reduce the securities portfolio to a manageable size on our balance sheet, which we consider to be in the 11% to 12% range, and that is where we currently stand. We plan to maintain the securities portfolio's proportion relative to our assets. If loan growth picks up, we would expect the securities portfolio to grow as well. Therefore, we do not foresee any significant movement of funds from securities to loans. However, we do have substantial liquidity at the moment, partly due to seasonal factors like public fund availability and tax season. This situation may present an opportunity for us to allocate some of this liquidity into the loan portfolio instead of the securities portfolio, which could be beneficial.

Yes. And then maybe also, we did a really good job of growing core deposits last year, which allowed us the luxury of replacing all of our broker deposits. I think at this point, correct, Wally, we have no broker deposits.

Correct. That's exactly right. We're in a good shape from a liquidity perspective, Drake.

This concludes the Q&A. Handing back to Drake Mills for any final remarks.

Thank you. As we look forward to 2026, we are blessed with many positives. Margin expansion, treasury management revenue growth, fee revenue growth, expense management, pipeline growth, strong loan growth outlook, deposit noninterest-bearing growth. Partners in Argent, 20% has been a big hit for us. Southeast market hit profitability in Q3, which is a big move for us. Our mortgage group has a positive contribution now. We have strong teams and strong dislocation in our markets. So due to Optimize our geographic footprint, we feel we're positioned to be balanced and disciplined. I think that is critical as we move forward to consistently build ROA while also investing in our long-term growth and shareholder value. We are so focused on how do we manage and create greater shareholder value. It's taking commitment and focus to put Origin in a position of offense. I look forward to a very rewarding 2026. Thank you for being on the call, and thank you for your support.

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