Origin Bancorp, Inc. Q4 FY2024 earnings call

• Optimize Origin has 3 pillars: productivity, delivery, efficiency; balance sheet optimization; culture and employee engagement.
• Closed 8 banking centers in DFW, Houston, North Louisiana, and Mississippi, expecting $4.6 million annual expense reduction.
• Created banker profitability report to analyze portfolio mix, yields, etc., and repositioned production teams, expecting $6.7 million annual expense reduction from production groups.
• Working with consulting firm on benchmarking project, aiming to complete in Feb 2025.
• Investing in Argent Financial to get over 20% ownership, currently at ~19%.
• Studying reimagination of mortgage business to improve returns.
• Strong credit culture with low charge-offs, positive client selection results, and provision release.
• Non-owner occupied CRE office segment in portfolio is resilient with no past dues, classifieds, etc.

In Q4, deposits were down 3.1% but ex-brokered deposits grew 1.1% QoQ. Non-interest bearing deposits grew for the second consecutive quarter. Loans (excluding mortgage warehouse) were down 3.2% QoQ due to client selection, paydowns, and lower new loan production. Net interest margin expanded 15 bps to 3.33% in Q4. Non-interest income was negative $330,000 in Q4. Non-interest expense increased to $65.4 million in Q4 but ex-notable items was up slightly. Branch closures in DFW, Houston, North Louisiana, and Mississippi are expected to result in $4.6 million annual expense reduction. Banker profitability report provides insights into portfolio mix, yields, etc., and repositioning production teams is expected to drive $6.7 million annual expense reduction from production groups.

• Expect ROA run rate of 1% or greater by Q4 2025, ultimate target top quartile of peers.
• Anticipate mid- to high single-digit loan growth in 2025, funded by new deposits and liquidity.
• Expect net interest margin to expand to 3.45% in 4Q '25 and 3.40% for full year 2025, plus or minus 10 bps.
• Non-interest expense in 4Q '25 expected flat to slightly down vs 4Q '24, 2025 expense up low single digits ex-notable items.
• Pretax pre-provision benefits of ~$21 million from Optimize Origin efforts by 4Q '25.

• Market focus on non-owner occupied CRE office poses potential risks.
• Variability in deposit betas impacting net interest margin.
• Impact of Durbin amendment starting in 2026, estimated ~$5.5M to $6M pretax annual impact.
• Uncertainty around mortgage business reimagination outcomes.

Q: On loan growth in 2025, why the inflection from 2024 and expectations for mid- to high single-digit growth?

A: Drake Mills mentioned focus on client selection, limiting CRE, and repositioning production teams. Lance Hall added strong liquidity, loan-to-deposit ratio, and market pipelines.

Q: Interpretation of $21M pretax savings and remaining items like Argent and benchmarking?

A: Drake Mills said 1% ROA is first step, Argent investment and benchmarking could bring further improvements.

Q: Timing of $21M annualized benefit from optimization items?

A: Wally Wallace explained branch consolidation half in 1Q, banker optimization full in 1Q, securities optimization half in 4Q and rest in 1Q, bank-level sub debt redemption in mid-Feb, cash and liquidity mgmt benefits in latter half of 4Q.

Q: Deposit betas and confidence in NIM outlook?

A: Wally Wallace discussed improved understanding of deposit betas, historical trends, and confidence in model if Fed continues cutting.

Q: Mortgage business restructure and warehouse?

A: Drake Mills said warehouse will continue, mortgage business is being reimagined for better efficiency.

Q: Capital, buyback, and M&A?

A: Drake Mills said capital is a runway, buyback plan in place, and M&A could be part of growth strategy.

Q: Argent investment accounting and impact?

A: Wally Wallace said 20% ownership would trigger equity method accounting, Lance Hall mentioned timing around April for potential share acquisition.

Q: Southeast growth potential?

A: Lance Hall discussed strong deposit and loan growth in Southeast, projected ~$115M in loans and deposits by end of 2025.

Q: NIM wildcards?

A: Lance Hall mentioned liquidity mix, loan growth, and deposit betas as biggest wildcards for NIM outcome.