Earnings Call Transcript - OBK Q1 2026

Operator, Operator

Good morning, and welcome to the Origin Bancorp, Inc. First Quarter Earnings Conference Call. My name is Jen, and I will be your Evercall coordinator. Please note this event is being recorded. I would now like to turn the call over to Chris Reigelman, Director of Investor Relations. Please go ahead.

Chris Reigelman, Director of Investor Relations

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 the 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 6 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 our 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, Chairman, President and CEO

Thanks, Chris, and thanks for being with us this morning. While I'm pleased with the results of this quarter, I'm even more encouraged by the momentum we're building as we focus on developing a high-performing organization through Optimize Origin. Our ROA in the past two quarters highlights the level of focus we have in strategically improving performance for all of our stakeholders. In Q1, our ROA was 1.11%, and we are on pace to achieve our target run rate by year-end. The momentum we spoke about last quarter has only accelerated as we've started the new year. We saw very positive loan and deposit growth for the quarter, which has been disciplined and strategic. I remain encouraged with what I'm seeing and hearing throughout our markets. The growth we saw in Texas and in the Southeast is a reflection of both the strength within those dynamic markets and the generational dislocation that is occurring. This dislocation is creating valuable opportunities to add new relationships, expand on existing ones and add new bankers to our already impressive team. Lance will provide more detail on this, but we are receiving calls from bankers within our current markets as well as in new markets who have an interest in joining our team. The volume of activity being created by disruption is even greater than we anticipated. Momentum is strong at Origin and is based on our award-winning culture and our drive for elite financial performance through Optimize Origin. Again, I'm proud of our results this quarter, and I'm optimistic about what we can accomplish. Now I'll turn it over to Lance and the team.

Lance Hall, President and CEO, Origin Bank

Thanks, Drake, and good morning. It's an exciting time for Origin. Across our company, Optimize Origin has clearly become the operating system driving more consistent, higher-quality performance. We are seeing Optimize translate into stronger execution, disciplined growth and increased operating leverage. In Q1, we delivered strong loan and deposit growth. Loans held for investment, excluding mortgage warehouse, increased $200 million or 2.8% quarter-over-quarter. Total deposits, adjusting for deposits sold at the end of 2025, grew $234 million or 2.8%. As expected, this production is being driven out of our Houston, DFW and the Southeast markets. This growth reflects disciplined execution, not opportunistic volume. We remain fully focused on full relationship profitability, balancing loan growth with core deposit generation, pricing discipline and long-term client value. This consistency is critical as we continue to build a more durable and high-performing balance sheet. As Drake mentioned, the interest we are receiving from high-quality bankers who desire stability, opportunity and a vision for the future has been exceptional. Since the beginning of this year, we have added 15 bankers to our production teams. While our loan growth in the first quarter was strong, it doesn't capture what our new bankers will add throughout the remainder of the year. I'm confident that we will continue to strategically enhance our teams across our footprint during this time of disruption. Our footprint, geographic model and talented bankers create an environment where I feel confident we will capture our desired growth without needing to take any unreasonable credit or interest rate risk. We have the luxury of not needing to stretch or deviate from our standards or credit culture in any way. At the same time, we are continuing to invest in the capabilities that will define our next phase of performance. During the first quarter, we hired Brad Waldhoff as Chief Technology and Innovation Officer. Brad has more than 20 years of success leading digital innovation for high-growth companies. He is already partnering with our teams across the organization to align technology, data and AI more directly with business outcomes. This focus on enterprise architecture and innovation strategy is directly connected to driving measurable improvements in productivity, decision speed and quality and enhanced client experiences. Over time, we expect this alignment to enhance our ability to scale effectively, strengthen revenue and risk management and drive better overall returns. As we continue to Optimize Origin, we are hyper-focused on revenue creation, process improvement, speed of delivery, scaling with discipline and driving elite financial performance. This unique position of a dynamic footprint and ability to take advantage of market disruption through talent acquisition and award-winning culture as well as a commitment to AI, technology and automation is why we are so confident and optimistic on Origin's strategic path. As other financial institutions are consolidating, we are investing in our independent future. Now I'll turn it over to Jim.

Jim Crotwell, Chief Risk Officer

Thanks, Lance. I'm pleased to report continued sound credit metrics for the first quarter of 2026. Total past dues 30 to 89 days increased to 0.22% and compared favorably to an average of 0.25% over the previous four quarters. Net charge-offs for the quarter were $2.8 million, down from $3.2 million, and represent an annualized charge-off rate of 0.15% for the quarter. Nonperforming assets increased $6.4 million, increasing moderately from 1.07% of loans to 1.12% and remain below the level of 1.18% reported at Q3 2025. Classified assets also increased moderately from 1.93% of total loans to 1.97%, an increase of $6.3 million, driven primarily by the downgrade of nine relationships, partially offset by balance reductions in six relationships. For the quarter, our allowance for credit losses increased $2.2 million to $99 million. On a percentage basis, our allowance remained stable at 1.34% of total loans net of mortgage warehouse. As in recent quarters, we did not experience any significant changes in our CECL model assumptions. As to total ADC and CRE and as we have shared on previous calls, 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 48% for ADC and 233% 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, Chief Financial Officer

Thanks, Jim, and good morning, everyone. Turning to the financial highlights. In Q1, we reported diluted earnings per share of $0.89. As you can see on Slide 25, the combined financial impact of notable items during the quarter equated to net expense of $577,000, equivalent to $0.01 of EPS pressure. On a pretax pre-provision basis, we reported $40.2 million in Q1. Excluding notable items, pretax pre-provision earnings were $40.8 million and annualized pretax pre-provision ROA was 1.61%. On the balance sheet side, loans grew 2.5% sequentially and 2.8% when excluding mortgage warehouse. Total deposits grew 5.4% 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 this sale, deposits would have increased 2.8% during the quarter. Noninterest-bearing deposits grew 4.2% sequentially and ended the quarter at 23.6% of total deposits. Moving forward, we continue to target loan and deposit growth in the mid- to high-single digits for the year, though we are clearly tracking towards the higher end after Q1. Turning to the income statement. Net interest margin contracted two basis points during the quarter to 3.71%, in line with our guidance of slight compression. Moving forward, we expect margin will bounce back in Q2 by about 10 basis points, plus or minus, as excess liquidity from seasonal balances in our public funds customer accounts runs back off, leaving average earning asset balances roughly flat. By Q4, we continue to anticipate NIM in the 3.7% to 3.8% range with current bias remaining at the higher end. Our outlook now includes 25 basis point Fed rate cuts in July and December. Combined with our balance sheet growth expectations, we continue to expect 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 $16.8 million in Q1. Excluding $438,000 in net benefits from notable items in Q1 and $483,000 in net benefits in Q4, noninterest income increased slightly to $16.4 million from $16.3 million in Q4 as $3.3 million in net losses on limited partnership investments offset the seasonal strength in our insurance business. We are maintaining our outlook for 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, though we are currently tracking on the lower end. We reported noninterest expense of $63.8 million in Q1. Excluding $1 million in expense from notable items in Q1 and $1.3 million in Q4, noninterest expense increased to $62.8 million from $61.5 million in Q4. Our expense growth outlook remains for mid-single-digit growth for both the full year and on a Q4-over-Q4 basis after excluding notable items. Notably, we are maintaining our run rate ROA expectation 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 Q1 tangible book value grew sequentially to $35.61, the 14th consecutive quarter of growth, and the TCE ratio ended the quarter at 11%. During Q1, we repurchased 165,500 shares while maintaining all regulatory capital ratios above levels considered well capitalized, as shown on Slide 24 of our investor presentation. Furthermore, we announced yesterday the Board's approval of an increase in our quarterly dividend from $0.15 to $0.25. We believe this decision, combined with our continued share repurchases, is a reflection of both the strength in our capital levels and a more consistent earnings stream to support dividend payout levels closer to peers. With that, I'll now turn it back to Drake.

Drake Mills, Chairman, President and CEO

Wally, thank you. Optimize Origin continues to shape how we operate, how we allocate capital and how we think about long-term value creation. Over the past few years, we've invested in top-tier talent, infrastructure and technology while strengthening our culture. My optimism is based on our focus and our ability to execute. We will remain strategic and deliberate in how we drive value for our stakeholders. Thanks for being on the call today. We'll open it up for questions.

Operator, Operator

Thank you, Drake. Our first question is from Matt Olney at Stephens.

Matt Olney, Analyst, Stephens

I have a few questions around loan growth. Just looking for more color around the drivers of what we saw in the first quarter. It looks like it was a lot of CNI, I think, mostly in Texas. Just any more color on what you saw there and kind of how the pipelines look today? And then secondly, we've heard a few of your peers in Texas mentioned that loan pricing continues to tighten for a handful of the CNI segments in Texas. Just would love to know kind of what you're seeing there.

Lance Hall, President and CEO, Origin Bank

This is Lance. Thanks for the question. Really excited about what we produced in the first quarter and what we see from a pipeline and a forecast perspective for the rest of the year and going forward. You were right. It's exactly what we would hope it would be. I think $184 million of the growth was in CNI; Texas and the Southeast, where we've been making our big investments, were the huge drivers of that. Houston did a great job. We're really seeing the increase now from Nate and his team in the Southeast as well as that's really coming through. We are seeing competitive pressures on pricing. I will say, for the first quarter, I thought we did a really good job of being disciplined. We were seeing new loan pricing come in between about 6.3% and 6.5%, which I feel is really good. As I said in our commentary, I feel like our footprint and our investment in bankers gives us a little bit of luxury that we don't have to reach as much. So I'm proud of our teams. I'm proud of our credit officers for the discipline that they're driving. The mix of the loans as far as industries was really spread out, pretty granular, pretty typical to what you would see from us. There were some industrial services, transportation, construction, construction equipment, a little bit of clean energy and renewable stuff that we saw, so a little bit across the board that we feel good about. I think we had talked about a $190 million pipeline in Q1. So we were kind of right at that level. We're seeing about a $150 million to $160 million pipeline for Q2. We've had good success through the first part of the quarter, and I think that that's really going to pay dividends. And as we talked about, I'm going to say that the growth that we've seen so far is organic completely, not a function of new hires or disruption yet. And so that investment for us is going to really pay dividends in the back half of the year and for the next couple of years, as that investment continues to pay off.

Matt Olney, Analyst, Stephens

Okay. I appreciate the color there, Lance. And if I could switch gears over to the capital side. I think Drake noted some good capital actions during the quarter, the Board approved the dividend that we'll see here and also bought back some shares in the first quarter. Just would love to hear updated thoughts around capital priorities. Are there certain capital levels you're targeting? And at what point does M&A come back into play?

Drake Mills, Chairman, President and CEO

Yes, Matt, thank you. Our capital deployment outlook is pretty much as it has been. We feel like we're in a position of luxury from the standpoint of strength of capital. But obviously, growth is our major emphasis on capital deployment. On the other hand, we have to become more peer-like in how we utilize capital, especially excess capital. We're very pleased with the approval of the increase of the dividend. That will give us an opportunity to continue in the next several years to be peer-plus like in how we manage capital return. But from a buyback activity standpoint, we are focused on, as we always have been, not just ROA, but ROE and how we manage capital from a perspective of shareholder return, while at the same time getting this ROE number up. Our deployment is going to be the same. We're very pleased with the levels of growth that we're seeing in all markets, and we'll continue to focus on that. At this point, we're in a position of strength. We have significant confidence in our earnings durability, which gives us the opportunity to move forward with increased dividends. Ultimately, there's going to be a desire to continue to deploy this through organic growth, and we're seeing some significant opportunities in markets.

Lance Hall, President and CEO, Origin Bank

And Drake, the last part of that, can you address M&A for the bank?

Drake Mills, Chairman, President and CEO

Yes. For us, I think the best plan is for us to grow organically. We've got a nice opportunity to grow organically. M&A is just not on the table at this point. We've got too much opportunity to maintain our culture and strong credit quality. The growth we're seeing is high quality. So we're going to take advantage of this organic growth, this lift-out opportunity, really do the things that we've done for years that made us who we are, but focus on a disciplined approach of return and profitable growth. And I think that's going to be the driver that keeps us out of the M&A game.

Operator, Operator

Our next question is from Michael Rose at Raymond James.

Michael Rose, Analyst, Raymond James

I was trying to write down some of the commentary, Wally, that you provided around NII and fees. I think what I'm hearing is that the margin should maybe be towards the upper end. Does that imply that the NII should also be kind of towards the upper end of the range? And then I think I heard that fee income would maybe be tracking towards the lower end of the range, but the full year revenue should kind of balance out. Is that broadly kind of the way to think about it?

Wally Wallace, Chief Financial Officer

Generally, I would say, yes, Michael. The NII would certainly be tracking towards the higher end, especially if loan growth and NIM are tracking towards the higher end of guidance. On the fee income side or the total revenue side, NII is obviously going to be the biggest driver of our total revenue growth. So even with our fee income tracking towards the lower end, primarily a result of the losses on the LP investments in the first quarter, the total revenue still looks stronger due to the NII strength.

Michael Rose, Analyst, Raymond James

Okay. Helpful. I appreciate that clarification. And then Drake, maybe for you, obviously, the Optimize Origin efforts, I know it's been a lot of work to kind of get where you are, but it seems like the momentum is really beginning to build here, and I think you'll have more progress as you move into next year. Just as you think about some of those efforts and maybe finishing kind of the job, kind of where do you see the company over the next two to three years? I know you've talked about prior getting back to kind of a top quartile performance. What needs to happen from here to really kind of get there because it does seem like the bar has certainly moved higher? So just trying to balance what you've laid out already with kind of what's to come and how we get back to that top quartile profitability.

Drake Mills, Chairman, President and CEO

Well, thanks to Lance and his team, Optimize Origin — and I love how Lance refers to it as our operating system — it's not a project. It's not a point in time. It is literally how we look at this company moving forward. To answer the bulk of your question, organic growth at the levels we're seeing today, maybe a little less, have to continue for us to be able to get to the point of a top quartile performer, and we are very confident in that. That's why we're seeing a significant balance in the opportunities we have at this point for teams that are contacting us. We are looking at the impact to our financial model and our ability to hit these targets from an ROA standpoint in the next couple of years, while balancing bringing these teams in. We're looking at teams that have significant CNI focus, that have funding capabilities themselves, that have longevity in their relationships with significant credit quality because ultimately a derailer, if we have growth, is the credit quality aspect of it. So we are so focused on high-quality growth. We're focused, as Lance said, on discipline, pricing and profitability. If we can continue managing Optimize Origin as our operating system and our entire organization buys into that, then we'll see high credit quality, pricing discipline that will allow us to stay in the game, and growth that matters. I would rather take a 6% to 7% growth that's high quality and high profit versus just throwing up a 10% to 12% growth. So I see a company that's growing at this 8% to 10% level in the next couple of years with significant discipline, high-quality credit and earnings power that continues to grow. With those factors, I've got a lot of confidence in our ability to be an upper quartile earner in the next three years and continue being a disciplined performance company.

Lance Hall, President and CEO, Origin Bank

Yes. I might want to add to that. That was a great answer, Drake. The back end of it, through the lens of Optimize, is really trying to continue to identify lower-returning sections, markets, bankers, clients and products, understanding where our expenses are and how we can take advantage of the market and move expenses into what I'm going to call future revenue streams. Right now, with the emphasis on artificial intelligence, we have taken advantage of a window to really dig into contract renegotiations with technology vendors and are having a tremendous amount of success. That in the moment is not just to cut costs, but to be able to reinvest those dollars into future automation as well as future investments in banking teams that are going to drive revenue. They're going to push us forward. The hire of our new Chief Technology and Innovation Officer points to that, the real emphasis on data and how decisions are made through automation, through speed of delivery and process improvement. We are doing a deep dive inside the organization on all things along this journey and personalization for the clients so that we're delivering in a cheaper manner and driving this, and that's really pushing ROA significantly.

Operator, Operator

Our next question is from Stephen Scouten at Piper Sandler.

Stephen Scouten, Analyst, Piper Sandler

I wanted to dig into some of the guide a little bit more, just particularly around the deposit growth. Does that guidance account for the movement we saw around year-end and the beginning of the year, with managing around the $10 billion in assets?

Wally Wallace, Chief Financial Officer

Yes. So just to kind of give you some thoughts around how the deposit growth will trend, the first quarter is always a seasonally strong quarter for us. Our public funds customers, especially in Louisiana, have a lot of inflows from tax receipts. Those deposits then run off in the second quarter. So the second quarter is typically down slightly, and then we build back up in the third and fourth quarters. So yes, if you look at the guide, that mid- to high-single-digit guide would be on the higher end if you don't add back the deposits that we sold at the end of 2025.

Stephen Scouten, Analyst, Piper Sandler

Got it. And then, Wally, I think I heard you say that the NIM guide currently assumes two cuts in July and December. Would there be any material change to the path for the NIM if we do not get any cuts this year?

Wally Wallace, Chief Financial Officer

So we have about $350 million or so of loans that are maturing for the rest of this year. Those loans on average are priced around 5%. As Lance said, we're pricing — in the first quarter we were pricing new loans in the 6.30% to 6.50% range. So if the Fed doesn't cut and we don't see meaningful spread pressures, then we'll pick up an extra 25 basis points or so on those loans that are repricing. We've moved cuts from March and June to July and December. That would be in the guide. The December cut is not going to impact the guide that much. So if the July cut comes out of our guidance, then we'd have a little bit of extra boost from those $350 million or so of loans that are repricing. Not hugely material.

Stephen Scouten, Analyst, Piper Sandler

Yes. Makes sense. Okay. And then just last thing for me. Obviously, Texas clearly represents the lion's share of loans today. Can you give us any color on what you're seeing in the DFW and Houston markets in terms of demand and impacts from continued dislocation with deals in those markets, and how you would expect that concentration of loans to the Texas markets to continue as we move forward?

Lance Hall, President and CEO, Origin Bank

You are 100% right. Our teams are doing a great job. As we talked about, think $160 million of the CNI growth came out of the Texas market in Q1, and the pipeline looks very similar to that as far as the mix. On the deposit side, we grew $200 million in deposits in Texas. Because of the CNI focus we have in those markets with our operating companies, the noninterest-bearing percentage in Dallas and Houston is clearly higher than other markets across our corporation. They've actually worked and done a great job now that their total deposit costs in Dallas and Houston are the cheapest that we have, which is impressive. They've done such a good job. A lot of treasury management revenue is flowing through there. From a dislocation perspective, you're right. I think Drake used the term generational — we are feeling it significantly. A year ago, I was spending all of my time around Optimize and resetting and thinking through cost reductions. Right now, I'm spending all my time recruiting. We're having significant and meaningful conversations across our footprint, literally in every market. Of the 15 new production hires that we had in Q1, it was six in Houston and six in North Texas. The opportunities we're seeing, and hopefully we'll be announcing very soon, are going to really move this company forward. I would also say that we see significant opportunity in the Southeast market. They are maturing and coming into their own, and the conversations being had there will result in dramatic pickup. So while Texas clearly is the driver for us, the Southeast is going to pick up dramatically.

Operator, Operator

Our next question is from Gary Tenner at D.A. Davidson.

Gary Tenner, Analyst, D.A. Davidson

I had another question about the CNI growth in the quarter. Do you have a sense of how much was new customer generated versus increased utilization among your existing customer base? Is there any sense that there's a pickup in company investment to take advantage of the tax bill and accelerated depreciation or anything along those lines?

Lance Hall, President and CEO, Origin Bank

I don't have an exact number for you, but going through loan committee, pipelines and reviewing the business, I think the vast majority of it was more business from existing customers. We are actively working with our business development officers, TMOs and bankers to make calls and bring in new customers, and that will pick up even greater with these new hires. But the vast majority of this is additional business in Texas. I think you're right that there are incentives to drive new business from this administration that's paying off.

Gary Tenner, Analyst, D.A. Davidson

Okay. I appreciate that. And then just another NIM-related question. On the deposit cost side of things right now, you've obviously got some CDs repricing in the second quarter. Just hoping to get a sense of how much opportunity you think there still is in terms of deposit repricing, let's say, in the absence of rate cuts from here? Or are we pretty near a bottom?

Wally Wallace, Chief Financial Officer

With the last cut that we got, our markets worked very hard to improve pricing. We looked at what we thought were opportunities with some higher cost deposits across the franchise. Absent another cut, I don't see that we have more opportunity to improve those costs. Our goal, part of our ethos as Drake mentioned, is to be disciplined around pricing. As loan growth accelerates, we need to fund that loan growth with new deposit growth. New deposits tend to come in a little bit more expensive than your existing deposit base. So I wouldn't model that we have a lot more opportunity on the deposit side from a net interest margin perspective. The greater opportunity is really coming from the repricing of loans, where we are currently picking up 125 to 150 basis points of spread on new loan pricing.

Gary Tenner, Analyst, D.A. Davidson

Appreciate that. And just one more deposit-related question. Have you seen a significant shift in competition around deposit pricing, whether in Louisiana or Texas or otherwise?

Lance Hall, President and CEO, Origin Bank

Yes, it's leaking in. I have two mailers sitting on my desk right now from competitor banks here in North Louisiana. One was a 3.8% CD, and one was about a 3.55% money market. We're fortunate here that we have such a competitive advantage in North Louisiana. Pricing does matter, but we're being very disciplined on that. We have long-term relationships with these clients. But you are right, as these banks are trying to get growth, they're going to have to fund it somehow, and competition is going to be fierce.

Operator, Operator

And ladies and gentlemen, this concludes the Q&A session. Handing it back to Drake Mills for any final remarks.

Drake Mills, Chairman, President and CEO

Yes. As I mentioned earlier, we have a deep commitment throughout our company to deliver on Optimize Origin. We have significant momentum in all of our markets, and we're seeing an acceleration of high-quality production. As we're blessed to be a part of these dynamic markets that are truly experiencing generational dislocation, it has given us opportunities that I just haven't seen in my career. As we move forward, we are going to be highly disciplined in our growth, pricing, quality and the decisions that we make to balance growth and earnings momentum. I appreciate everybody being on the call, appreciate your confidence in us, and look forward to seeing most of you on the road in the month of May. Thank you.

Operator, Operator

Thank you. This concludes today's call. A replay will be made available shortly after today's call. Thank you, and have a great day.