Is Origin Bancorp (OBK) a Buy After Q2 2025 Earnings Disappointment? Assessing Long-Term Value and Valuation Metrics

The second quarter of 25, 2025, brought a mixed bag for investors in regional bank stocks. Origin Bancorp (OBK) reported a significant earnings decline, with net income falling to $14.6 million ($0.47 EPS) from $22.4 million ($0.71 EPS) in Q1 2025. While the headline numbers disappointed, a deeper dive into the company's strategic initiatives and long-term financial health reveals a compelling case for patient investors. The question on every analyst's mind is: Is OBK undervalued, and does its “Optimize Origin” strategy justify a buy recommendation despite near-term headwinds?

The Q2 Earnings Headwinds: A Strategic Sacrifice

The primary drag on Q2 results was a $14.4 million loss from the sale of lower-yielding securities as part of a bond portfolio optimization. While this reduced diluted EPS by $0.35, the move is a calculated step to boost long-term profitability. By replacing $215.8 million in low-yield assets with higher-yielding securities, Origin expects an annual net interest income lift of $5.6 million—a gain that will compound over the next 2.6 years. This “pain now, gain later” approach is not uncommon in banking, where balance sheet optimization often precedes margin expansion.

The net interest margin (NIM-FTE) expanded by 17 basis points to 3.61%, driven by a 8-bp increase in asset yields and a 5-bp decline in liability costs. This margin improvement, though modest in the short term, signals the company's ability to navigate interest rate dynamics—a critical factor in a post-peak rate environment.

Tangible Book Growth: A Quiet Indicator of Value

Origin's tangible book value per share (TBVPS) rose to $33.33 in Q2, a 2.8% increase from Q1 and a 12% annualized gain since 2024. This growth outpaces the stock price, which closed at $37.66 as of July 23, 2025. The price-to-tangible-book ratio (P/TB) now stands at 1.13x, well below the 1.3x-1.5x range typical for well-managed regional banks. This suggests the stock may be undervalued, especially when considering the company's capital return initiatives.

In Q2, Origin repurchased shares at an average price of $31.84, a 4.4% discount to the current stock price. The new $50 million buyback program, replacing the prior $30 million plan, underscores management's confidence in the intrinsic value of the business. Buybacks at a discount to TBV are a hallmark of shareholder-friendly strategies, and with TBV expected to grow by 7.9% to $35.98 in 12 months, the case for a rebound in valuation becomes stronger.

Margin Expansion and Strategic Execution

The “Optimize Origin” strategy is gaining momentum. Branch consolidation, headcount reductions, and mortgage business restructuring are expected to deliver $34.2 million in annual pre-tax earnings improvements. These savings, combined with the securities portfolio optimization, could drive margin expansion of 6-8 basis points by late 2026.

While noninterest income dipped 91% due to the securities loss, the company's cost discipline is intact. Noninterest expenses fell by 0.1% year-over-year, with occupancy and equipment costs down $1.4 million. Salaries and data processing expenses rose slightly, but these are offset by long-term efficiency gains. The key will be maintaining this cost control while scaling up commercial banking and wealth management services in high-growth markets like Texas and Louisiana.

Credit Quality and Risk Management

Credit metrics showed mixed signals. Loans past due 30-89 days decreased by $30.1 million, but nonperforming loans rose to 1.11% of total loans. The provision for loan losses fell to $2.9 million, reflecting improved underwriting and a cautious approach to risk. While the credit loss provision is manageable, investors should monitor the impact of economic volatility on Origin's loan portfolio, particularly in its commercial real estate segment.

Valuation and Investment Thesis

Origin's stock is trading at a compelling discount to tangible book, with a forward P/TB ratio of 1.13x. Historical averages for regional banks hover around 1.4x, suggesting a 25-30% upside in valuation if the company meets its ROAA target of >1% by late 2025. The “Optimize Origin” strategy, with its $34.2 million in pre-tax savings and $5.6 million in annual net interest income from bond optimization, provides a clear path to margin expansion and earnings growth.

Final Verdict: A Buy for the Long-Term

Despite the Q2 earnings dip, Origin Bancorp's strategic clarity, tangible book growth, and disciplined capital allocation make it an attractive long-term buy. The $14.4 million securities loss was a one-time cost with long-term benefits, and the stock's current valuation offers a margin of safety. Investors who can stomach near-term volatility in exchange for a well-structured balance sheet and a 7.9% projected TBV growth should consider adding OBK to their watchlists.

Investment Recommendation: Buy for a 12-18 month horizon, with a price target of $42-45 (11-15% upside from current levels).