OBK Q1 Deep Dive: Margin Expansion and Strategic Refocus Drive Steady Outlook

Regional banking company Origin Bancorp (NYSE: OBK) announced better-than-expected revenue in Q1 CY2025, with sales up 3.8% year on year to $94.06 million. Its non-GAAP profit of $0.77 per share was 11.9% above analysts’ consensus estimates.

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

StockStory’s Take

Origin Bancorp’s first quarter results topped Wall Street’s revenue and profit expectations, reflecting a combination of net interest margin expansion and disciplined expense management. Management cited the early benefits of its Optimize Origin initiative, particularly progress on cost control and a restructuring of its mortgage business, as key contributors. CEO Drake Mills highlighted that “our bankers are doing a great job of managing costs and it shows in our results,” while CFO Wally Wallace noted that non-interest expenses were better than anticipated, aided by lower regulatory assessments and franchise tax rates. Net interest income growth and stable deposit trends were also called out as foundational to the quarter’s performance.

Looking ahead, Origin Bancorp’s outlook is anchored by its continued focus on efficiency and targeted loan growth, while remaining cautious amid macroeconomic uncertainty. Management expects the Optimize Origin initiative to drive further cost reductions, especially as changes in the mortgage segment take effect in the second half of the year. President Lance Hall stated, “We still expect mid to high-single-digit loan growth in 2025,” but acknowledged that expectations have shifted toward the lower end of the range given recent policy and economic headwinds. The company aims to achieve a 1% return on assets run rate by year-end, with margin improvements partially offsetting more modest loan growth assumptions.

Key Insights from Management’s Remarks

Management attributed Q1 performance to net interest margin gains, cost discipline, and a shift in mortgage strategy, while continuing to prioritize core deposit growth to support future lending.

• Net interest margin expansion: The company achieved an 11 basis point increase in net interest margin, driven by improved loan yields and disciplined deposit pricing. Management emphasized that deposit costs have remained in line with historical patterns, despite competitive pressures in certain markets.
• Optimize Origin cost savings: The Optimize Origin program delivered additional expense reductions, including a restructuring of the mortgage segment. This resulted in a lower non-interest expense run rate, with management anticipating further cost efficiencies as the year progresses.
• Mortgage business restructuring: Origin Bancorp transitioned its mortgage operations to a partnership model, designed to improve efficiency and reduce fixed costs. Management expects this change to generate annual pre-tax earnings improvements of approximately $1.5 million starting in the second half of 2025.
• Deposit and loan growth focus: Despite seasonal outflows of public funds, core deposits excluding brokered sources grew at a 7.2% annualized rate. Management believes this provides a solid foundation to fund loan growth in the coming quarters.
• Credit quality and portfolio optimization: The company continued to exit client relationships that no longer fit its selection criteria, reaching about $200 million in targeted reductions over four quarters. While past due and classified loans increased modestly, management reported that net charge-offs remained below expectations and credit reserves were stable.

Drivers of Future Performance

Origin Bancorp’s forward guidance is shaped by ongoing efficiency gains from Optimize Origin, targeted loan and deposit growth, and a cautious stance on the macroeconomic environment.

• Expense discipline and mortgage shift: Management expects further non-interest expense reductions, particularly as the new mortgage partnership model takes hold in the second half of the year. These efforts are projected to produce a flat to slightly declining expense base for 2025, supporting profitability even if loan growth slows.
• Loan growth moderated by uncertainty: While the company maintains a target of mid to high-single-digit loan growth, guidance has shifted to the lower end of this range due to increased macroeconomic and policy uncertainties. Management is monitoring industry-specific risks and project delays, with particular attention to construction and commercial real estate segments.
• Margin outlook and deposit strategy: The company raised its net interest margin guidance for the year, underpinned by stable deposit costs and disciplined loan pricing. Management indicated that any need to accelerate deposit gathering to fund higher loan growth could place some pressure on net interest margins, but overall net interest income is expected to rise.

Catalysts in Upcoming Quarters

In upcoming quarters, our analysts will focus on (1) the impact of the mortgage business restructuring on both expense and non-interest income trends, (2) the pace and quality of loan growth relative to management’s expectations, and (3) how deposit growth and pricing dynamics evolve amid ongoing competition and potential rate cuts. Strategic execution in key markets and further progress on Optimize Origin will also be closely monitored.

Origin Bancorp currently trades at $34.86, up from $31.76 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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