Origin Bancorp, Inc. Q3 FY2026 earnings call

• Optimized Origin Strategy: The 'Optimized Origin' initiative has fundamentally changed how the balance sheet is managed, risk is priced, and capital is allocated. This discipline is translating into stronger financial performance and greater productivity, establishing a foundation for profitable organic growth.
• Loan Growth and Discipline: Year-to-date loan growth was $512 million (excluding mortgage warehouse), driven by Texas ($350 million) and the Southeast ($133 million). Growth is intentional, with only $82.5 million attributed to new hires; the rest stems from organic pipeline strength and market dislocations. The company continues to pass on deals that do not meet pricing discipline standards.
• Deposit Acquisition Trends: Average deposits increased by $221 million during the quarter, including $80 million in non-interest-bearing (NIB) deposits. Account opening trends show significant acceleration: NIB account openings increased 69% in Mississippi, 28% in East Texas, and 23% in Houston over the first nine months of 2026.
• Operational Efficiency and Technology: A 'Performance Optimization Partners' group is using Lean Six Sigma principles to improve operating models, remove friction, and enhance speed. Investments in technology and AI are being prioritized to improve decision-making speed, operational efficiency, and banker capacity. Some planned technology spend has been paused to allow the new Chief Innovation and Technology Officer to align investments with strategy, shifting some costs to 2027.
• Credit Quality: Credit remained sound with net charge-offs of $2.7 million (annualized 0.13%). Nonperforming assets decreased by $4.2 million to 0.93% of total loans, the lowest level in five quarters. The allowance for credit losses stands at $98.4 million (1.27% of loans).
• Talent and Culture: The company views its culture as a competitive advantage in attracting exceptional bankers. Hiring remains a key focus, with excitement around new hires in Q4 and beyond, particularly those with C&I backgrounds that align with portfolio goals.

Origin Bancorp reported record financial performance for the third quarter of 2026. The company achieved a record net income of $37.8 million and record diluted earnings per share (EPS) of $1.22, driven by record net interest income and a record net interest margin. The return on average assets (ROA) reached 1.47%, significantly outperforming the near-term objective established at the beginning of the year. Pre-tax pre-provision ROA also hit a record high of 1.93% when excluding notable items. While specific revenue contribution percentages by product segment are not explicitly detailed in the transcript, the management highlighted strong growth in Commercial & Industrial (C&I) loans and Treasury Management services, with Treasury Management revenue increasing 20% year-over-year.

• Net Interest Margin (NIM): Expects NIM expansion to approximately 4% in Q4 2026, plus or minus 5 basis points, assuming one additional 25 basis point Fed rate hike in December.
• Net Interest Income (NII): Anticipates NII growth in the low double digits for the full year 2026, supported by balance sheet growth expectations.
• Non-Interest Income: Expects full-year non-interest income growth to be in the low single digits.
• Non-Interest Expense: Outlook remains mid-single-digit growth for the year. However, expense growth in the second half of 2026 is expected to be lower than originally anticipated due to paused technology spend, which will likely shift to 2027.
• Pre-Tax Pre-Provision ROA: Increased outlook to greater than 1.85% in Q4 2026 and greater than 1.75% for the full year 2026.
• Loan Growth: Targeting high single-digit loan growth for the full year 2026.
• Deposit Growth: Targeting mid-to-high single-digit deposit growth for the full year 2026.

• Competitive Pricing Pressures: Significant competition exists on both loan and deposit pricing sides in their markets. This creates uncertainty regarding the sustainability of current margins and could pressure Net Interest Margin if competitive pressures intensify.
• Asset Sensitivity and Deposit Beta: As an asset-sensitive bank, the company faces risks related to deposit beta. While historical betas have been favorable, there is a risk that deposit pricing lag or competitive pressures could erode margins faster than expected.
• Credit Normalization: Management acknowledges the potential for credit normalization and volatility. They emphasize strict discipline in credit selection to avoid compromising returns for growth, indicating awareness of potential credit deterioration in the broader economy.
• Technology Investment Timing: Pausing certain technology investments to realign strategy introduces timing risks. While not a change in commitment, the shift of spend to 2027 may impact short-term expense visibility and operational efficiency timelines.

Q: Analyst asked about the sustainability of high single-digit loan growth into 2027/2028 and the role of new hires versus organic momentum. / A: Lance Hall confirmed momentum is building with consistent pipelines. Of the $512M YTD growth, only $82.5M came from new hires. He expects similar growth next year as non-solicitation periods end and new hires ramp up, viewing this as a giant tailwind for 2027.

Q: Analyst inquired about Net Interest Margin sustainability, specifically deposit beta assumptions and repricing dynamics in Q4 and 2027. / A: CFO Wally Wallace noted 54% of loans float, providing immediate benefit after Fed moves, while deposit pricing lags. Historical cumulative deposit betas were 55-70%. However, competitive pricing pressures are a major unknown. They model for ~4% NIM but acknowledge it could drop if market pressures intensify, requiring them to price competitively to fund growth.

Q: Analyst asked if the company would trade margin for overall NII growth in 2027 given tailwinds, and how tech investments affect operating leverage. / A: Management stated they will not compromise pricing discipline for growth sake, passing on deals that don't make sense. Regarding operating leverage, savings from 'Optimize Origin' efforts (branch consolidations, etc.) created a war chest to reinvest in technology. Tech spend is shifted to 2027, but the goal remains capturing ROA ramp through efficiency gains in banker capacity and automation.

Q: Analyst asked about the intermediate-term ROA target and whether the company would compromise it for growth. / A: CEO Drake Mills emphasized that upper-quartile ROA is the 'North Star.' Decisions on pricing, customer selection, and capital allocation are strictly based on return metrics. They passed on many recent credit opportunities because returns weren't optimal. They aim to maintain upper-single-digit growth without compromising these ROA targets, viewing 'Optimized Origin' as a cultural change rather than a project with an end date.

Q: Analyst asked about the Cadence of expenses in 2027 due to delayed tech investments and deposit pricing expectations. / A: CFO explained that while H1 2026 expense growth was ~5%, H2 slowed to ~4% due to paused tech spend. This spend will likely accelerate in H1 2027, potentially causing elevated YoY expense comparisons then. Regarding deposits, CDs are kept short for asset sensitivity; new CD pricing is seen around 3.75%, though not all renew at that rate, with interest-bearing deposits generally in the low threes.