Termite damage? Coming through drywall
I've dealt with several carpenter ant nests in houses. One thing I've found very useful is to have a good shopvac handy when opening the wall, either form the inside or the outside, to vacuum up the ants and eggs.

Also, you mentioned water damage. Carpenter ants use rotted wood for their tunneling, never dry solid wood. Termites - I'm not an expert but my reading says they prefer solid wood because they digest the cellulose fibers in the wood and rotted wood those fibers are not so much there. So I'm leaning towards thinking you have carpenter ants. I live in Michigan, FWIW.

If you do have carpenter ants, vacuuming most of them up, spraying ant spray as far into the wall cavity as you can go, and replacing the rotted wood and fixing the cause of rotted wood will almost certainly fix your problem. These steps have worked for me.