OBK Q3 Deep Dive: Credit Event Overshadows Revenue Growth, Forward Momentum Tied to Strategic Execution

Regional banking company Origin Bancorp (NYSE:OBK) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 21% year on year to $109.8 million. Its non-GAAP profit of $0.86 per share was 24.5% above analysts’ consensus estimates.

Is now the time to buy OBK? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Origin Bancorp’s third quarter performance was marked by strong top-line growth, but the market response was negative as investors focused on a significant credit event. Management identified the $28.4 million charge-off related to alleged fraud at long-time borrower Tricolor as the primary factor impacting results, with CEO Drake Mills describing the event as “extremely conservative” and emphasizing the company’s commitment to aggressive recovery efforts. Excluding the charge, management highlighted momentum from the Optimize Origin initiative, including rising loan originations and growth in noninterest-bearing deposits, but acknowledged that the Tricolor loss weighed heavily on the quarter’s perception.

Looking ahead, Origin Bancorp’s outlook is shaped by continued execution of its Optimize Origin strategy, which management believes will drive profitability through relationship expansion and operational discipline. Management pointed to opportunities arising from market disruption in Texas and the Southeast, particularly as recent bank mergers create openings to win new business. CFO Wally Wallace cautioned that loan growth for the year is now expected to be flat due to persistent paydowns but expressed optimism for a return to growth in the final quarter and into next year. Mills stated, “We have the infrastructure and bankers to win new business and capitalize on this opportunity,” underscoring the focus on organic expansion and improved risk controls.

Key Insights from Management’s Remarks

Management attributed third quarter results to a mix of credit challenges, strategic initiatives, and underlying business momentum while emphasizing both immediate and long-term actions taken in response to recent events.

• Tricolor fraud impact: The $28.4 million charge-off tied to alleged fraud at auto loan partner Tricolor was identified as a one-off event, with management stressing conservative accounting and ongoing efforts to recoup losses through insurance and legal channels. Mills said, “Losses can occur in the event of customer fraud,” and emphasized learnings to strengthen risk processes.
• Optimize Origin traction: Continued progress on the Optimize Origin initiative drove improvements in key profitability metrics, including a 48-basis-point increase in pretax pre-provision return on assets and expanded net interest margin. Management credited these gains to operational discipline and focus on higher-yielding relationship business.
• Loan production versus paydowns: Loan originations rose nearly 20% year-over-year, but elevated paydowns and payoffs masked underlying production strength. Hall noted that paydowns averaged $685 million per quarter, well above historical norms, and said, “Our extraordinary origination and production has really been masked by paydowns and payoffs.”
• Deposit growth momentum: Noninterest-bearing deposits increased 8.6% quarter-over-quarter, with management highlighting successful relationship banking efforts and positive trends in core deposit gathering, especially in key Texas and Southeast markets.
• Credit review and risk controls: In response to Tricolor, Origin conducted a comprehensive portfolio review and is enhancing collateral monitoring, credit audit processes, and internal oversight. Mills stated that these enhancements are not expected to materially increase expenses but are designed to mitigate future risk.

Drivers of Future Performance

Origin Bancorp’s forward outlook relies on relationship-driven loan growth, margin management, and capturing market share in disrupted regions while navigating credit and interest rate headwinds.

• Organic loan and deposit growth: Management expects loan growth to return as paydown pressures ease and new business is captured, particularly in Texas and the Southeast, which are benefitting from competitor M&A disruption. Hall remains "very bullish" on origination pipelines for the coming quarters.
• Margin expansion and interest rate sensitivity: Net interest margin is projected to remain in the 3.60–3.65% range, with some benefit expected from the repricing of loans as older, lower-yielding assets roll off. However, CFO Wallace cautioned that some tailwinds have been pulled forward and modeled in additional Federal Reserve rate cuts, which could limit future margin gains.
• Enhanced risk management: Strengthened credit controls and process improvements, implemented in the wake of the Tricolor incident, are aimed at reducing future loss risk. These measures include new internal teams focused on collateral monitoring, with management seeing no significant impact on near-term expenses but viewing them as critical to long-term stability.

Catalysts in Upcoming Quarters

Looking ahead, our team will monitor (1) the pace of loan growth and whether new business in Texas and Southeast markets offsets paydown headwinds, (2) the effectiveness of enhanced credit controls in limiting future loss events, and (3) sustained momentum in noninterest-bearing deposit growth. We’ll also watch for execution on the Optimize Origin initiative and the ability to capitalize on competitor disruption.

Origin Bancorp currently trades at $33.22, down from $34.35 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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