Prepared remarks
Ladies and gentlemen, good morning, and welcome to the Origin Bancorp, Inc. second quarter earnings conference call. My name is Tom, 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. All attendees will be in listen-only mode until the Q&A portion of the call. Please note this event is being recorded. I would now like to turn the conference call over to Chris Reigelman, Director of Investor Relations. Please go ahead.
Good morning, 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 we refer to during today's call. Please refer to page two of our slide presentation, which includes our safe harbor statements regarding forward-looking statements and the use of non-GAAP financial measures. For those of you 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 seven of our earnings release filed with the SEC yesterday. All comments made during today's call are subject to our safe harbor statements and our slide presentation and earnings release. I am 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 will be happy to address any questions you may have. Drake, the call is yours.
Thanks, Chris, thanks for being with us this morning. This quarter marks another important step in the work we started about 18 months ago with Optimize Origin. We have remained disciplined in executing a strategy centered on delivering elite financial performance while strengthening the culture that has always differentiated Origin. Today, we are seeing the benefits of that work across our company. We report a strong net income, ROA, and ROE results in the second quarter. We achieved these results while maintaining disciplined growth, strong credit performance, and continued investment in our people and our franchise. We believe the best long-term results come from balancing strong profitability with disciplined execution. What encourages me most is the consistency of our performance. Optimize Origin has become the way we operate. It influences how we allocate capital, how we invest in technology, how we recruit talent, and how we serve clients, and ultimately, how we create value for our shareholders. The opportunities we discussed over the last several quarters continue to grow. The disruption we're seeing across our markets continues to create opportunities. Talented bankers and quality clients are looking for stability, a strong culture, and a long-term partner. Our teams continue to capitalize on this disruption. We are well-positioned to grow relationships without compromising credit standards and the client selection process that have helped define Origin's success. As we move through the remainder of 2026, our objectives remain clear. We will continue to execute on Optimize Origin, invest strategically across our footprint, attract exceptional talent, and appropriately deploy excess capital. These priorities position us well to achieve our near-term financial targets while continuing our pursuit of becoming a top quartile performer. Now I'll turn it over to Lance and team.
Thanks, Drake, and good morning. Over the past 18 months, Optimize Origin has transformed the way we operate. We are becoming a more disciplined, more intelligent, and more scalable organization. Optimize represents the intersection of focused execution, strategic investment, and the ability to capitalize on market disruption that positions Origin for long-term value creation. The results we report in this quarter highlight the generational market disruption opportunity in our footprint on both the banker and client acquisition fronts. Since April 1st, we added 12 experienced bankers as part of our targeted and disciplined lift-out strategy. That follows the 15 bankers we added during the first quarter. In the second quarter, we expanded into Birmingham, Alabama, with a well-known team of local experienced bankers. We also added production talent in North Texas, Houston, East Texas, and Mississippi. These additions reinforce our belief that Origin is increasingly becoming an institution of choice for talented bankers and quality clients who believe that trust is earned, not acquired. Great bankers attract great clients, and we are seeing that play out across our markets. I'm equally encouraged by the balance and discipline of our growth. Year-to-date, C&I and owner-occupied commercial real estate grew $196 million. Other commercial real estate categories grew $167 million, and mortgage warehouse grew $61 million. This healthy growth is based on full relationships with disciplined pricing and attractive long-term results. Our strategic investments in growth markets continue to validate our vision. Through the first half of the year, our Texas and Southeast markets generated $323 million of loan growth, including roughly $250 million from Texas alone on approximately $860 million of new loan production. The market disruption opportunity is real. We are taking advantage of this opportunity during this period with new bankers, new clients, new production, and strong pipelines across the company. Our objective clearly is not just to grow asset size. Through data and models, our focus is on relationship profitability, pricing, core deposit generation, and long-term returns. That discipline on both the asset and funding side of the balance sheet is becoming an important differentiator for Origin. On the deposit side, I'm very encouraged how we are executing. Noninterest-bearing deposits increased nearly $200 million during the quarter and are now 26% of total deposits. That is a meaningful outcome. More importantly, it's evidence that our bankers are winning primary banking relationships. This is supported as I look more deeply into our deposit account opening data. Account openings accelerated meaningfully during the first half of the year, up more than 36% year-over-year. The pace continued to build throughout the second quarter. June was a historically strong month for deposit account openings, with new account openings up 82% year-over-year. To me, this growth is one of the clearest indicators that our relationship strategy is gaining traction. Deposit account growth is not just a funding metric, it's a client acquisition metric. It tells us that the businesses and families across our markets are choosing Origin as their primary banking partner. While we continue investing in talented bankers, we're also making meaningful investments in technology, artificial intelligence, and data to enhance our operating model. These investments are designed to give our bankers better information, faster insights, and simpler processes so they can spend time doing what differentiates Origin: building deep relationships with clients. We believe these investments will improve productivity, enhance decision-making, and allow us to scale the franchise more efficiently. Finally, I want to spend a moment on culture because I believe it is directly connected to the financial results we are producing. As highlighted on slide seven of our presentation, our most recent Glint survey produced the highest scores in our company's history across culture, engagement, employee satisfaction, and willingness to recommend. These results are among the top 10% globally across all industries and reflect years of intentional investment in our people, our leadership, and our values. As our industry continues to evolve, I believe that Origin's culture remains one of our most meaningful competitive advantages. I am very optimistic about the momentum we are building and the opportunities ahead for Origin. With that, I'll turn it over to Jim.
Thanks, Lance. We experienced sound and improving credit metrics during the second quarter of 2026. Total past dues 30 to 89 days and accruing decreased to 0.06%, reflecting the lowest level over the past five quarters. Net charge-offs for the quarter were only $454,000, benefiting from recoveries totaling $2 million. On a percentage basis, annualized net charge-offs for the quarter were 0.02% and 0.08% year-to-date. Non-performing assets decreased $9 million to 0.98% of loans, representing the lowest level over the past five quarters. Classified assets also decreased to 1.79% from 1.97% as of the prior quarter, a decline of $10.2 million driven primarily by the downgrade of four relationships, more than offset by balance reduction in seven relationships. For the quarter, our allowance for credit losses declined $827,000 to $98.2 million. On a percentage basis, our allowance reduced from 1.34% to 1.30% of total loans, net of mortgage warehouse. As in recent quarters, we did not experience any significant changes in our CECL model assumptions with the primary drivers of the reserve for Q2 being the $5.5 million required in reserves related to new production being offset by the $4.5 million reserve release related to credit migration, including payoffs, as well as the $1.6 million release driven by the reduction in historical loss factors within the CECL model. As to total ADC and CRE, 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 51% for ADC and 237% 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. Good morning, everyone. Turning to our financial highlights, in Q2, we reported diluted earnings per share of $1.09, representing our strongest quarterly earnings performance since Q4 of 2021. Net income totaled $33.8 million, resulting in a return on average assets of 1.35%, well above our 1.15% near-term run rate objective and another meaningful step toward our long-term goal of becoming a top quartile performer. On a pre-tax, pre-provision basis, ROA was 1.73%. As you can see on slide 26, notable items were negligible during the quarter, resulting in no impact to EPS. On the balance sheet side, loans grew 2.7% sequentially and 1.9% when excluding mortgage warehouse. Total deposits declined 0.6% during the quarter, consistent with seasonal trends. Importantly, non-interest-bearing deposits grew 9.6% sequentially and 5.2% on an average basis, ending the quarter at 26% of total deposits, or 25% on an average basis. Moving forward, we continue to target loan and deposit growth in the mid to high single digits for the year, though we are still tracking towards the higher end of the range. Turning to the income statement, net interest margin expanded 21 basis points during the quarter to 3.92%, substantially exceeding our expectations entering the quarter. This expansion drove a 5.7% sequential increase in net interest income to $92.2 million, despite a 1% decline in average earning assets. Margin expansion was driven by a combination of improved loan yields, slightly lower cost of deposits, and runoff of excess liquidity due to normal seasonality in our deposit portfolio during the quarter. Moving forward, we've removed any Fed rate actions from our forecast for the remainder of the year, and we expect margin will remain relatively flat. Combined with our balance sheet growth expectations, we now anticipate net interest income growth in the high single digits for both the full year and Q4 over Q4. Shifting to non-interest income, we reported $15.4 million in Q2. Excluding notable items, non-interest income decreased from $16.4 million in Q1, primarily due to normal seasonality in our insurance business. We continue to track toward the lower end of our prior non-interest income outlook, resulting in an adjusted outlook for full-year non-interest income growth in the low to mid-single digits with Q4-over-Q4 growth in the low single digits when excluding notable items. We reported non-interest expense of $64.4 million in Q2. Excluding $0.1 million in net expense from notable items in Q2 and $1.0 million in Q1, non-interest expense increased to $64.3 million from $62.8 million in Q1, consistent with our expectations. Our expense growth outlook remains 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 pre-tax, pre-provision run rate ROA in excess of 1.72%, though we are tracking ahead of these targets. Turning to capital, we note that Q2 tangible book value grew sequentially to $36.37, the 15th consecutive quarter of growth, and the TCE ratio into the quarter at 11.1%. During Q2, we repurchased 217,034 shares at an average price of $46.60 while maintaining all regulatory capital ratios above well-capitalized levels. Notably, the board increased our share repurchase authorization by $100 million, leaving $121.6 million in remaining authorization. During the quarter, we also continued returning capital through our recently increased quarterly dividend. We believe our balance sheet, earnings profile, and capital position provide us with significant flexibility as we continue investing in growth while also returning capital to shareholders as appropriate. With that, I'll turn it back to Drake.
Thanks, Wally. Over the past several quarters, we've talked extensively about Optimize Origin and the transformation across our company. Today, we're seeing what that transformation looks like when it's more fully reflected in our financial performance. This quarter wasn't simply about reporting strong earnings. It was about demonstrating that we can consistently produce higher levels of profitability while remaining disciplined in how we grow, how we manage risk, and how we invest in our people and our communities. I'm extremely confident in Origin's future. Our markets present outstanding long-term opportunities. We are attracting talented bankers and high-quality clients. Our investment in technology and innovations are improving how we serve our customers and how we operate as an organization. Perhaps most importantly, we are executing at a high level of discipline. When I step back and look at Origin today compared to 18 months ago, I see a fundamentally different company. Through Optimize Origin, we've become more disciplined in our execution, more intentional in our investments, more data-driven in our decisions, and more focused on long-term value. The results we're discussing today aren't the destination. It's evidence that the transformation is working. Thanks for being on the call. We'll open up for questions.
Questions and answers
Thank you again, team. Ladies and gentlemen, at this time, we will conduct the question-and-answer session. If you'd like to ask a question, please press star 1 on your telephone keypad to enter the queue. Or if you've joined via web, please press the raise hand icon on the right side of your virtual screen. Again, that'll be star 1 on your telephone keypad or the raise hand icon on the right side of your virtual screen. We will pause here briefly to allow any questions to generate. Our first question comes from Matt with Stephens. Matt, your line is open. You may proceed.
Hey, thanks. Good morning. Appreciate you taking my questions.
You bet.
On the loan growth front: another quarter of solid loan growth. I think based on Lance's comments, a lot of that growth was in Texas and also in the Southeast markets. Any more color you can share about the loan growth, the loan pipeline from here, and specifically what you're seeing around loan pricing? I think Wally mentioned in the second quarter that loan yields improved. Anything to call out there? Thanks.
Good morning. We're incredibly proud and optimistic about what we're seeing on the loan side. It's a combination of dynamic markets where we're working—in Houston, Dallas—and the investments we've made. I saw a chart recently that ranked dislocated markets across the U.S.; Houston was number two, Dallas number four, and Birmingham number six. That aligns with where our investments are and where we're focused on lift-outs and investing in teams. We've had loan growth in all of our markets, but the primary driver has been Texas and the Southeast. Our average loan size is still about $590,000. Working with Preston and Jim, we're seeing the industries and markets that are driving those loans. More than 50% of our loan growth has been C&I for the year. CRE is exactly what you would expect for us, and it's been reflected in our credit quality. On the pricing side, our new loans for the most recent month are coming in about 6.4%; discipline has been strong. I'm proud of our bankers and what they're accomplishing. We're seeing full relationships. Treasury management revenue continues to grow about 15% annualized. Clearly, we are seeing pricing pressure from competitors on both the loan and deposit side, and we're also starting to see term pressure. Looking at some larger relationships, competitors are offering non-recourse more regularly than before. That's not the way we've modeled our business. We're conservative on our credit culture and credit quality, so we'll continue to adhere to that. The pipelines remain very strong because of the market and because of lift-outs. We've been strategic with hires—27 hires this year—and at this point only $12 million of our loan growth has come from bankers hired in 2026. The theme for us continues to be ROA ramp while investing in future revenue streams.
Okay. That's great, Lance. Appreciate the commentary. If I switch to deposits, I'm curious about deposit pricing. Obviously, we didn't see deposit growth in Q2 from the seasonality Wally mentioned, but the guidance implies you expect some good deposit growth in the back half of the year. Any more color on what you're seeing on deposit growth in the back half of the year and where you expect it to come from? Should we anticipate your average deposit costs moving higher from here? Thanks.
The most recent new deposit costs for us are about 2.7%. Q2 didn't surprise us; seasonality is a factor. We have deep relationships with community partners, so our public funds portfolio moves down in the second quarter, and we'll see it ramp back up in Q4 and Q1 of next year. With the balance of C&I we have, tax dollars affect us in Q2 probably more than other banks. Overall deposit growth is a big positive story: year-over-year we've had about 7.5% growth in deposits, a little over $600 million. The exciting part was 23% growth in noninterest-bearing deposits. Using data to focus our bankers on C&I growth is paying off. New deposit account openings have been extraordinary: over 1,800 new deposit accounts in June versus right under 1,000 a year earlier—almost doubling. While that is a combination of lift-out, it also reflects dislocation, new client acquisition, and client dissatisfaction with competitors. That is ramping every month and should continue. While our loan pipelines are good, I'm confident in our ability to fund that.
Okay. Thanks for the commentary, guys. I'll step back.
Thank you, Matt.
Thank you again, Matt. Our next question comes from Woody with KBW. Woody, your line is open. You may proceed.
Hey, good morning, guys.
Good morning, Woody. How are you doing?
I'm doing good. I wanted to follow up on the noninterest-bearing growth, which was really impressive. How sticky do you think that growth ultimately is? It seems like if it is sticky, that could be a positive to total cost of deposits next quarter.
Between lift-outs, market disruption, and our focus on C&I, I think these noninterest-bearing accounts and relationships are extremely sticky. That's why we focus on growing that side of the business and why our lift-out strategy is focused on C&I lenders. It's one of the stickiest dollars we have, other than through utilization into company investments. We're really pleased with that growth on the noninterest-bearing side.
Got it. Maybe if I could shift to fee income: I wanted some color on the Origin fees this quarter. It looks like they took a step down, and I'm curious on the outlook there.
We book our portion of Argent income on an estimate basis, and from time to time we adjust the estimate based on actuals. Since Argent's acquisition of the Huntington Trust business, their earnings have been a bit more volatile. Net-net, our outlook for the year remains unchanged, in that $5-$6 million range we've spoken about consistently.
Okay, got it. Maybe just one last from me: given all the growth momentum, it feels like a $10 billion cross is likely this year. Is that still the plan? Could you remind us of the impact of Durbin and some of the levers you have to help offset that?
We've completely crossed $10 billion. We're over the $10 billion mark. Durbin impacts us mid-year next year and will be in the $4 million-$4.5 million range, but we're working to replace that. Our relationship with Argent and the equity method of accounting is part of the plan to offset the Durbin impact. We have great growth and most of the cost behind us. We'll continue investing in areas like audit processes and IT audit. We're in a good place with the majority of the $10 billion cost behind us.
All right. I appreciate the color. Congrats on the strong quarter.
Thank you.
Thank you again, Woody. Our next question comes from Michael with Raymond James & Associates. Michael, your line is open. You may proceed.
Hey, good morning, guys. Thanks for taking my questions. Just wanted to go back to the loans side. I understand not much of the growth has come from hires you've put on the books this year. I also saw you opened the Birmingham market, which is good to see. You're already talking toward the upper end of guidance, which assumes some deceleration in the back half. Is there potential upside to that outlook based on the commentary on pipelines and hiring?
What is hard to control is competition around terms and rates, which is why we guide to mid to high single digits. Everything we're seeing from a pipeline perspective, especially after non-solicitation time frames on new hires, indicates upside. I'm excited about Will and the team in Birmingham and the business they'll build. We've had 12 new hires across our footprint and are excited about East Texas. I believe there's upside, but it'll be subject to the battle around terms and rates on some of the larger C&I deals. I feel confident in our ability there.
Helpful. One for Wally on margin: any one-timers in there this quarter? The guide implies some range; if I were to get to 3.85% it would imply some downside. Just want to understand the puts and takes. Thanks.
In our modeling, we're assuming margin will be essentially flat to Q2 for Q3 and Q4. Q2 did have some interest reversal or recovery on non-accrual loans, about three basis points of benefit. We have roughly $250 million of fixed-rate loans that will reprice or pay off in the back half of the year, and based on current pricing we're picking up about 160-170 basis points on those. In our securities portfolio, we have about $35 million-$40 million of principal roll-off each quarter and are picking up about 100 basis points as we reinvest those monies. There are tailwinds for NIM, but deposit pricing pressures and loan pricing pressures will offset some of that. A big driver that could shift ±5 basis points is liquidity. Our average cash balances declined about $400 million during the quarter, which was a meaningful positive to NIM. If seasonality builds or we bring deposits on faster than loans, you could see some NIM pressure, but that would be very positive to net interest income.
Very helpful. I'll step back. Thanks for taking my questions, guys.
Thank you again, Michael. Our next question comes from Gary with D.A. Davidson. Gary, your line is open. You may proceed.
Thanks. Good morning.
Good morning.
Going back to loan yields: you suggested what you're seeing this quarter, but could you give a sense of origination yields in Q2 versus Q1?
Our new loan pricing has been right around 6.40%, with five to ten basis point swings depending on mix from month to month. It's been pretty consistent around that 6.40% range this year.
You've not really seen much spread compression recently. Is that the right read?
We have not seen meaningful spread compression, and that's a function of staying disciplined. Some banks are taking lower SOFR spreads than we've been doing, and you can feel that on the horizon, but it hasn't affected us to date.
Appreciate that. You've talked about the market opportunity and dislocation; can you talk about expectations around recruiting for the back half of the year?
Recruiting is still our number one priority. The opportunity for transformational growth through market share in the best markets in America right now is significant. Last year I spent time on efficiency opportunities; now I'm spending time on recruiting. These are targeted, disciplined hires—twos and fours, not 13-person teams—focused on C&I bankers, treasury management officers, and deposit specialists. We can ramp ROA while making investments in technology, automation, and AI. Our new CTIO has been transformational. We're renegotiating large technology contracts; it's clicking on all cylinders.
Great. Appreciate that.
Thank you again, Gary. Ladies and gentlemen, as a reminder, if you'd like to ask a question, that will be star one on your telephone keypad to enter the queue, or if you joined via web, please press the raise hand icon on the right side of your screen. We will pause here briefly once more to allow any final questions to generate. Our next question comes from Stephen with Piper Sandler. Stephen, your line is open. You may proceed.
Hey, thanks. Good morning. I apologize if I missed it, but you increased the repurchase authorization. How can we think about the potential pace of repurchases? How aggressive could you be? How price sensitive is the program, and are there internal impediments, such as holding company cash constraints, that might keep buybacks more muted than expected?
To answer the last part first: the buyback has been driven by cash at the holding company that we're allowed to push up from the bank. We repaid about $150 million of sub-debt, which previously constrained the amount of cash we could dividend up. Those constraints are generally lifted. Going forward, valuation will be the bigger driver of buyback volume. Below one and a half times tangible, the math works for us; above one and a half times tangible, it becomes less compelling.
Okay, great. You noted an ROA of at least 1.15% in Q4. If everything goes right and the pace of new hires continues, is there a stretch goal for the fourth quarter or for 2027? Can you describe a 'Goldilocks' scenario if everything breaks well?
We've discussed our desire to be a top quartile performer, and we feel we can achieve that in the next three years. We understand where we are today and have our sights set on the Q4 run rate for this year. We plan to maintain that while continuing to invest in the business because of the opportunities we have. We must do it at a pace that doesn't significantly impact our ROA hurdle points. For 2027, there could be pricing and NIM pressures that might slow the pace, but our internal focus is on achieving the ROA run rates. With our investments, including technology and our new CTIO, we expect the transformation to create value for us in 2027. Considering all moving parts, we believe we can hit our hurdle points and be in the upper quartile of performance in the next three years.
Thanks. It sounds like you're not going to let a near-term potential drag on expenses prevent you from taking advantage of dislocation and hiring opportunities. The priority is building the franchise for the long term, and you'll earn back the expense over time. Is that right?
Yes, with the caveat that we will not do that at the expense of our ROA run rates that we're attempting to achieve.
Perfect. Great. Thank you very much. Congrats on a really good quarter.
Thank you.
Thank you again, Stephen. Our final question is a follow-up from Matt with Stephens. Matt, your line is open. You may proceed.
Just one more follow-up. You quantified the new hires in the first half of the year. Is it fair to think that the pace could continue in the back half of the year given current conversations, or is the bulk of disruption and new producer hires already in the numbers? Also, can you remind us of the overall number of producers you have now to put the 27 hires in context?
I don't expect the exact same pace to continue, but there will be strategic hires across the market. Birmingham was a major emphasis for us. When we started Optimize, we were in the 123 producer range; right now we're just under 100. With new hires, we're also managing through our data and profitability models to manage lower producers while bringing in higher producers. We'll continue to focus on that. Our geographic delivery model and culture make Origin attractive, and there are many exciting conversations happening now.
Okay. Makes sense. Thank you.
Thank you again, Matt. It appears there are currently no further questions. Handing it back to Drake Mills for any final remarks.
As I mentioned earlier, I'm most pleased about our continued ability to create consistent performance. I think that's been the missing link for a number of years that we invested in this business. We are approaching this through a very disciplined position. We feel confident in our growth throughout our footprint as generational dislocation continues to fuel exceptional opportunity. We are experiencing acceleration in production pipelines as we focus on disciplined pricing. The key is not about a specific growth percentage; it's about whatever growth is achieved at a favorable margin. Our employees have a deep commitment to deliver on Optimize Origin while maintaining one of the strongest cultures in the industry. I am extremely pleased with our momentum, the markets we're in, and particularly the attraction of talent and new customers. We're in a strong position and will continue to leverage it to be consistent in our performance. I appreciate each of you being on the call today. Thank you for your support and I look forward to seeing you in the future.
Ladies and gentlemen, this concludes today's conference call. Thank you all and have a great day.