Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q



(Mark One)

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018

OR

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________

Commission file number 001-38487
Origin Bancorp, Inc.

(Exact name of registrant as specified in its charter)
Louisiana
 
72-1192928
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)

500 South Service Road East
Ruston, Louisiana 71270
(318) 255-2222
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐
 
Accelerated filer ☐
Non-accelerated filer ☒
 
Smaller reporting company ☐
(Do not check if a smaller reporting company)
 
Emerging growth company ☒
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 23,574,887 shares of Common Stock, par value $5.00 per share, were issued and outstanding as of August 6, 2018.




1



ORIGIN BANCORP, INC.
FORM 10-Q
JUNE 30, 2018
INDEX
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORIGIN BANCORP, INC.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)


 
June 30, 2018
 
December 31, 2017
Assets
(Unaudited)
 
 
Cash and due from banks
$
71,709

 
$
78,489

Interest-bearing deposits in banks
97,865

 
108,698

Total cash and cash equivalents
169,574

 
187,187

Securities:
 
 
 
Available for sale
507,513

 
404,532

Held to maturity ($19,700 and $20,265 at fair value, respectively)
19,731

 
20,188

Securities carried at fair value through income
11,413

 
12,033

Total securities
538,657

 
436,753

Non-marketable equity securities held in other financial institutions
25,005

 
22,967

Loans held for sale ($32,587 and $32,768 at fair value, respectively)
62,072

 
65,343

Loans, net of allowance for loan losses of $34,151 and $37,083, respectively
($20,872 and $26,611 at fair value, respectively)
3,337,945

 
3,203,948

Premises and equipment, net
77,064

 
77,408

Mortgage servicing rights
25,738

 
24,182

Cash surrender value of bank-owned life insurance
28,326

 
27,993

Goodwill and other intangible assets, net
24,113

 
24,336

Accrued interest receivable and other assets
83,298

 
83,878

Total assets
$
4,371,792

 
$
4,153,995

Liabilities and Stockholders' Equity
 
 
 
Noninterest-bearing deposits
$
950,080

 
$
832,853

Interest-bearing deposits
1,995,798

 
2,060,068

Time deposits
726,219

 
619,093

Total deposits
3,672,097

 
3,512,014

FHLB advances and other borrowings
139,092

 
144,357

Junior subordinated debentures
9,631

 
9,619

Accrued expenses and other liabilities
31,616

 
32,663

Total liabilities
3,852,436

 
3,698,653

Commitments and contingencies

 
34,991

Stockholders' equity:
 
 
 
Preferred stock, no par value, 2,000,000 shares authorized:
 
 
 
Preferred stock - Series SBLF (48,260 shares authorized; zero and 48,260 shares issued at June 30, 2018 and December 31, 2017, respectively)

 
48,260

Preferred stock - Series D (950,000 shares authorized; zero and 901,644 shares issued at June 30, 2018 and December 31, 2017, respectively)

 
16,998

Common stock ($5.00 par value; 50,000,000 shares authorized; 23,504,063 and 19,518,752 shares issued at June 30, 2018 and December 31, 2017, respectively)
117,520

 
97,594

Additional paid‑in capital
238,260

 
146,061

Retained earnings
167,628

 
145,122

Accumulated other comprehensive (loss) income
(4,052
)
 
1,307

 
519,356

 
455,342

Less: ESOP-owned shares

 
34,991

Total stockholders' equity
519,356

 
420,351

Total liabilities and stockholders' equity
$
4,371,792

 
$
4,153,995


The accompanying notes are an integral part of these condensed consolidated financial statements.
3

ORIGIN BANCORP, INC.
Consolidated Statements of Income
(unaudited)
(Dollars in thousands, except per share amounts)


 
Three months ended June 30,
 
Six months ended June 30,
 
2018
 
2017
 
2018
 
2017
Interest and dividend income
 
 
 
 
 
 
 
Interest and fees on loans
$
40,219

 
$
33,782

 
$
77,693

 
$
65,750

Investment securities-taxable
2,057

 
1,630

 
3,797

 
3,078

Investment securities-nontaxable
1,156

 
1,192

 
2,340

 
2,392

Interest and dividend income on assets held in other financial institutions
1,320

 
689

 
2,366

 
1,351

Total interest and dividend income
44,752

 
37,293

 
86,196

 
72,571

Interest expense
 
 
 
 
 
 
 
Interest-bearing deposits
6,820

 
4,636

 
12,800

 
8,872

FHLB advances and other borrowings
624

 
604

 
1,228

 
1,209

Subordinated debentures
138

 
136

 
274

 
271

Total interest expense
7,582

 
5,376

 
14,302

 
10,352

Net interest income
37,170

 
31,917

 
71,894

 
62,219

Provision (benefit) for credit losses
311

 
1,953

 
(1,213
)
 
4,767

Net interest income after provision (benefit) for credit losses
36,859

 
29,964

 
73,107

 
57,452

Noninterest income
 
 
 
 
 
 
 
Service charges and fees
3,157

 
2,883

 
6,171

 
5,655

Mortgage banking revenue
2,317

 
4,713

 
4,711

 
8,805

Insurance commission and fee income
1,826

 
1,821

 
3,933

 
3,745

Loss on non-mortgage loans held for sale, net

 
(7,299
)
 

 
(7,299
)
Gain on sales and disposals of other assets, net
121

 
1,545

 
60

 
1,416

Other fee income
403

 
507

 
855

 
1,186

Other income
2,791

 
1,136

 
4,685

 
1,923

Total noninterest income
10,615

 
5,306

 
20,415

 
15,431

Noninterest expense
 
 
 
 
 
 
 
Salaries and employee benefits
19,859

 
17,718

 
38,100

 
34,305

Occupancy and equipment, net
3,793

 
3,926

 
7,446

 
7,870

Data processing
1,347

 
1,252

 
2,820

 
2,525

Electronic banking
680

 
624

 
1,423

 
1,263

Communications
510

 
533

 
1,025

 
966

Advertising and marketing
1,022

 
618

 
1,679

 
1,207

Professional services
598

 
1,582

 
1,263

 
2,191

Regulatory assessments
660

 
699

 
1,380

 
1,380

Loan related expenses
798

 
1,182

 
1,511

 
1,967

Office and operations
1,588

 
1,499

 
2,866

 
2,775

Other expenses
1,157

 
1,041

 
2,356

 
2,011

Total noninterest expense
32,012

 
30,674

 
61,869

 
58,460

Income before income tax expense
15,462

 
4,596

 
31,653

 
14,423

Income tax expense
2,760

 
773

 
5,544

 
3,353

Net income
$
12,702

 
$
3,823

 
$
26,109

 
$
11,070

Preferred stock dividends
808

 
1,115

 
1,923

 
2,230

Net income allocated to participating stockholders
40

 
102

 
921

 
369

Net income available to common stockholders
$
11,854

 
$
2,606

 
$
23,265

 
$
8,471

Basic earnings per common share
$
0.54

 
$
0.13

 
$
1.14

 
$
0.44

Diluted earnings per common share
$
0.53

 
$
0.13

 
$
1.13

 
$
0.43


The accompanying notes are an integral part of these condensed consolidated financial statements.
4

ORIGIN BANCORP, INC.
Consolidated Statements of Comprehensive Income
(unaudited)
(Dollars in thousands)


 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Net income
 
$
12,702

 
$
3,823

 
$
26,109

 
$
11,070

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Securities available for sale and transferred securities:
 


 
 
 
 
 
 
Net unrealized holding (losses) gains arising during the period
 
(1,696
)
 
1,009

 
(7,380
)
 
1,440

Net losses realized as a yield adjustment in interest on investment securities
 
(3
)
 
(3
)
 
(5
)
 
(5
)
Change in the net unrealized (losses) gains on investment securities, before tax
 
(1,699
)
 
1,006

 
(7,385
)
 
1,435

Income tax (benefit) expense related to net unrealized (losses) gains arising during the period
 
(357
)
 
353

 
(1,551
)
 
505

Change in the net unrealized (loss) gain on investment securities, net of tax
 
(1,342
)
 
653

 
(5,834
)
 
930

Cash flow hedges:
 
 
 
 
 
 
 
 
Net unrealized gains (losses) arising during the period
 
57

 
(84
)
 
223

 
(82
)
Reclassification adjustment for losses included in net income
 
5

 
26

 
21

 
57

Change in the net unrealized gain (loss) on cash flow hedges, before tax
 
62

 
(58
)
 
244

 
(25
)
Income tax expense (benefit) related to net unrealized gains on cash flow hedges
 
13

 
(20
)
 
51

 
(9
)
Change in the net unrealized gain (loss) on cash flow hedges, net of tax
 
49

 
(38
)
 
193

 
(16
)
Other comprehensive (loss) income, net of tax
 
(1,293
)
 
615

 
(5,641
)
 
914

Comprehensive income
 
$
11,409

 
$
4,438

 
$
20,468

 
$
11,984



The accompanying notes are an integral part of these condensed consolidated financial statements.
5

ORIGIN BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
(Dollars in thousands, except per share amounts)


 
 
Common Shares Outstanding
 
Preferred
Stock
Series
SBLF
 
Preferred
Stock
Series D
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (loss)
 
Less: ESOP-Owned Shares
 
Total
Stockholders'
Equity
For the six months ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2017
 
19,483,718

 
$
48,260

 
$
16,998

 
$
97,419

 
$
145,068

 
$
137,449

 
$
3,463

 
$
(28,564
)
 
$
420,093

Net income
 

 

 

 

 

 
11,070

 

 

 
11,070

Other comprehensive income, net of tax
 

 

 

 

 

 

 
914

 

 
914

Recognition of stock compensation, net
 
14,213

 

 

 
71

 
341

 

 

 

 
412

Net change in ESOP shares
 

 

 

 

 

 

 

 
(668
)
 
(668
)
Dividends declared - Series SBLF preferred stock
 

 

 

 

 

 
(2,172
)
 

 

 
(2,172
)
Dividends declared - Series D preferred stock
 

 

 

 

 

 
(58
)
 

 

 
(58
)
Dividends declared - common stock ($0.065 per share)
 

 

 

 

 

 
(1,268
)
 

 

 
(1,268
)
Balance at June 30, 2017
 
19,497,931

 
$
48,260

 
$
16,998

 
$
97,490

 
$
145,409

 
$
145,021

 
$
4,377

 
$
(29,232
)
 
$
428,323

For the six months ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2018
 
19,518,752

 
$
48,260

 
$
16,998

 
$
97,594

 
$
146,061

 
$
145,122

 
$
1,307

 
$
(34,991
)
 
$
420,351

Net income
 

 

 

 

 

 
26,109

 

 

 
26,109

Other comprehensive loss, net of tax
 

 

 

 

 

 

 
(5,641
)
 

 
(5,641
)
Reclassification of tax effects related to the adoption of ASU 2018-02
 

 

 

 

 

 
(282
)
 
282

 

 

Recognition of stock compensation, net
 
38,241

 

 

 
191

 
201

 

 

 

 
392

Terminated ESOP put option
 

 

 

 

 

 

 

 
34,991

 
34,991

Stock issuance - common
 
3,045,426

 

 

 
15,227

 
79,508

 

 

 

 
94,735

Redemption of preferred stock - Series SBLF
 

 
(48,260
)
 

 

 

 

 

 

 
(48,260
)
Conversion of preferred stock - Series D to common stock
 
901,644

 

 
(16,998
)
 
4,508

 
12,490

 

 

 

 

Dividends declared - Series SBLF preferred stock
 

 

 

 

 

 
(1,894
)
 

 

 
(1,894
)
Dividends declared - Series D preferred stock
 

 

 

 

 

 
(29
)
 

 

 
(29
)
Dividends declared - common stock ($0.065 per share)
 

 

 

 

 

 
(1,398
)
 

 

 
(1,398
)
Balance at June 30, 2018
 
23,504,063

 
$

 
$

 
$
117,520

 
$
238,260

 
$
167,628

 
$
(4,052
)
 
$

 
$
519,356



The accompanying notes are an integral part of these condensed consolidated financial statements.
6

ORIGIN BANCORP, INC.
Consolidated Statements of Cash Flows
(unaudited)
(Dollars in thousands)


 
Six months ended June 30,
Cash flows from operating activities:
2018
 
2017
Net income
$
26,109

 
$
11,070

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
(Benefit) provision for credit losses
(1,213
)
 
4,767

Depreciation and amortization
2,698

 
2,997

Net amortization on securities
730

 
678

Amortization of investments in tax credit funds
975

 
1,031

Deferred income tax expense
3,163

 
4,048

Stock-based compensation expense
417

 
492

Originations of mortgage loans held for sale
(156,646
)
 
(247,619
)
Proceeds from mortgage loans held for sale
159,321

 
256,836

Originations of mortgage servicing rights
(993
)
 
(1,436
)
Net loss (gain) on disposals of premises and equipment
19

 
(1,498
)
Loss on non-mortgage loans held for sale

 
7,299

Increase in the cash surrender value of life insurance
(333
)
 
(323
)
Net (gains) losses on sales and write downs of other real estate owned
(79
)
 
82

Net increase (decrease) in accrued interest and other assets
95

 
(5,896
)
Net (decrease) increase in accrued expenses and other liabilities
(3,256
)
 
2,077

Other operating activities, net
(989
)
 
15

Net cash provided by operating activities
30,018

 
34,620

Cash flows from investing activities:
 
 
 
Purchases of securities available for sale
(318,649
)
 
(220,142
)
Maturities, paydowns and calls of securities available for sale
207,554

 
205,404

Maturities, paydowns and calls of securities held to maturity
456

 
276

Paydowns of securities carried at fair value
230

 
164

Net purchases of non-marketable equity securities held in other financial institutions

 
(1,133
)
Paydowns and proceeds from non-mortgage loans held for sale

 
7,250

Originations of mortgage warehouse loans
(2,237,738
)
 
(1,219,654
)
Proceeds from pay-offs of mortgage warehouse loans
2,222,288

 
1,178,178

Net increase in loans, excluding mortgage warehouse and loans held for sale
(118,178
)
 
(44,489
)
Return of capital on limited partnership investments
144

 
741

Capital calls on limited partnership investments
(2,125
)
 
(1,143
)
Purchases of premises and equipment
(2,261
)
 
(1,391
)
Proceeds from sales of premises and equipment
111

 
6,790

Proceeds from sales of other real estate owned
586

 
1,294

Net cash used in investing activities
(247,582
)
 
(87,855
)
Cash flows from financing activities:
 
 
 
Net increase (decrease) in deposits
160,083

 
(38,942
)
Net decrease in other borrowed funds
(499
)
 
(476
)
Net decrease in securities sold under agreements to repurchase
(1,676
)
 
(4,991
)
Dividends paid
(4,407
)
 
(3,498
)
Taxes paid related to net share settlement of equity awards
(25
)
 
(80
)
Proceeds from issuance of common stock, net of offering expenses
94,735

 

Redemption of Series SBLF preferred stock
(48,260
)
 

Net cash provided by (used in) financing activities
199,951

 
(47,987
)
Net decrease in cash and cash equivalents
(17,613
)
 
(101,222
)
Cash and cash equivalents at beginning of period
187,187

 
259,883

Cash and cash equivalents at end of period
$
169,574

 
$
158,661

 
 
 
 
Income taxes paid
$
374


$
4,805

Significant non-cash transactions:
 
 
 
Real estate acquired in settlement of loans
662


750

Conversion of Series D preferred stock to common stock
16,998

 


The accompanying notes are an integral part of these condensed consolidated financial statements.
7

Table of Contents
ORIGIN BANCORP, INC.
Notes to Condensed Consolidated Financial Statements




Note 1 - Significant Accounting Policies
Nature of Operations:    Origin Bancorp, Inc. (the "Company") is a financial holding company headquartered in Ruston, Louisiana. The Company's wholly owned bank subsidiary, Origin Bank (the "Bank"), provides a broad range of financial services to businesses, municipalities, high net worth individuals and retail clients. The Company currently operates 41 banking centers located in North Louisiana, Central Mississippi, Dallas/Fort Worth and Houston, Texas. The Company principally operates in one business segment, which is community banking.
Consolidation:    The condensed consolidated financial statements include the accounts of the Company and all other entities in which the Company has a controlling financial interest, including the Bank and Davison Insurance Agency, LLC ("Davison Insurance"), and Davison Insurance’s wholly owned subsidiary, Thomas & Farr Agency, LLC (“T&F”). These condensed consolidated interim financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ("US GAAP") and with the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all normal and recurring adjustments which are considered necessary to fairly present the results for the interim periods presented have been included. These unaudited statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2017, included in the Company's prospectus filed with the SEC on May 9, 2018, pursuant to Section 424(b) of the Securities Act of 1933, as amended. Interim results are not necessarily indicative of results for a full year. Certain prior year amounts have been reclassified to conform to the current year financial statement presentations. These changes and reclassifications did not impact previously reported net income or comprehensive income.
The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements in the 2017, financial statements included in the Company's prospectus filed with the SEC on May 9, 2018. There were no new accounting policies or changes to existing policies adopted during the first six months of 2018, that had a significant effect on the Company’s results of operations or financial condition. For interim reporting purposes, the Company follows the same basic accounting policies and considers each interim period as an integral part of an annual period.
Use of Estimates: The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Material estimates that are particularly susceptible to change are: the allowance for loan losses; the evaluation of investment securities for other than temporary impairment; fair value measurements of assets and liabilities; and income taxes. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual results could differ from those estimates.
Effect of Recently Adopted Accounting Standards

ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Since these amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. These amendments require that an entity disclose a description of the accounting policy for releasing income tax effects from accumulated other comprehensive income. These amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted, including adoption in any interim period, for reporting periods for which financial statements have not yet been issued. These amendments should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. Rather than adjusting income tax expense for the differences as the effect of the change in the U.S. federal corporate income tax rates are realized, the Company elected to adjust the difference (stranded tax effect) to retained earnings, consistent with the treatment of the deferred tax adjustment. The Company adopted this guidance during the first quarter of 2018, which resulted in a reclassification of $282,000 from accumulated other comprehensive income to retained earnings. The Company's policy is to release material stranded tax effects on a specific identification basis.

8

Table of Contents
ORIGIN BANCORP, INC.
Notes to Condensed Consolidated Financial Statements



ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 permits hedge accounting for risk components in hedging relationships involving nonfinancial risk and interest rate risk. It also changes the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk. In addition to the amendments to the designation and measurement guidance for qualifying hedging relationships, the amendments in this ASU also align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This ASU requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. For public entities, these amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted. The Company has analyzed its hedges and determined that the amendments in this ASU are currently not applicable to any hedge relationships in effect and therefore, no transition adjustment is necessary. The Company has adopted this ASU during the first quarter of 2018, and will apply the updates to hedging instruments on a go forward basis.
ASU No. 2016-15 —Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 adds or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. The Company adopted this guidance on January 1, 2018, and, as a result, reclassified $741,000 of return of capital proceeds from limited partnership investments from operating activities to investing activities for the six-month period ended June 30, 2017.
ASU No. 2016-01 —Financial Instruments —Overall (Subtopic 825-10). The Company adopted this update effective January 1, 2018. The main provisions are to eliminate the available for sale classification of accounting for equity securities and to adjust the fair value disclosures for financial instruments carried at amortized costs such that the disclosed fair values represent an exit price as opposed to an entry price. The majority of the Company's equity investments qualify for the practical expedient allowed for equity securities without a readily determinable fair value, such that the Company has elected to carry these securities at cost adjusted for any observable transactions during the period, less any impairment. To date, no impairment has been recorded on the Company's investments in equity securities which do not have readily determinable fair values. The disclosure of fair value of the loan and interest-bearing deposit portfolios has been presented using an exit price methodology and had an immaterial impact on the Company's financial position.
Revenue Recognition:    
On January 1, 2018, the Company adopted ASU No. 2014-09, "Revenue from Contracts with Customers" (Topic 606), which outlines a single comprehensive revenue recognition model for entities to follow in accounting for revenue from contracts with customers. The implementation of this new guidance did not have a material impact on the measurement or recognition of revenue and no cumulative effect adjustment was recorded to opening retained earnings. Results for reporting periods beginning after January 1, 2018, are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with the Company's historic accounting under Topic 605.
The majority of the Company's revenue is generated from sources outside the scope of Topic 606. Interest and fees on loans, income from investment securities and mortgage banking revenue are all outside the scope of Topic 606 and are recorded in adherence with US GAAP. Service charges and fees on deposit accounts, credit card interchange insurance commission and fee income, as well as gains and losses on the sale of other assets including other real estate owned (“OREO”) are within the scope of Topic 606; however, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Descriptions of the Company's revenue generating activities that are within the scope of Topic 606 are described below.
Service charges and fees on deposit accounts
Service charges and fees on deposit accounts are primarily comprised of maintenance fees, service fees, stop payment and non-sufficient funds fees. The Company's performance obligation for service fees or other fees covering a period of time are generally satisfied, and related revenue recognized, over the period in which the service is provided. The Company's performance obligation for transactional-based fees are generally satisfied, and related revenue recognized, at a point in time.
Insurance commission and fee income
The Company earns commission income through production on behalf of insurance carriers and also earns fee income by providing complementary services such as collection of premiums. In most instances the Company considers the performance obligation to be complete at the time the service was rendered.

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ORIGIN BANCORP, INC.
Notes to Condensed Consolidated Financial Statements



Credit card interchange income
The Company records credit card interchange income at a point in time as card transactions occur. The Company's performance obligation for these transactions is deemed to have occurred upon completion of each transaction. The amounts are included as a component of other income in the consolidated statements of income.
Gain or loss on sale of other assets and OREO
In the normal course of business, the Company recognizes the sale on other assets and OREO, along with any gain or loss, when control of the property transfers to the buyer through an executed contractual agreement. The transaction price is fixed, and on occasion the Company will finance a portion of the purchase price of the transferred asset.
Effect of Newly Issued But Not Yet Effective Accounting Standards

ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The Company anticipates a significant change in the processes and procedures to calculate the loan losses, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. The Company expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses at the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact on our results of operations, financial position or disclosures. However, the Company has begun developing processes and procedures to ensure we are fully compliant at the required adoption date. Among other things, the Company has initiated data gathering and assessment to support forecasting of asset quality, loan balances, and portfolio net charge-offs and developing asset quality forecast models in preparation for the implementation of this standard. For public business entities that are SEC filers, the amendments in the update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company continues to evaluate the impact of this ASU on the consolidated financial statements and disclosures.
ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to put most leases on their balance sheets but recognize expenses in the income statement in a manner similar to current accounting treatment. This ASU changes the guidance on sale-leaseback transactions, initial direct costs and lease execution costs, and, for lessors, modifies the classification criteria and the accounting for sales-type and direct financing leases. For public business entities, this ASU is effective for annual periods beginning after December 15, 2018, and interim periods therein. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is evaluating the impact of this ASU on the consolidated financial statements and disclosures.

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ORIGIN BANCORP, INC.
Notes to Condensed Consolidated Financial Statements



Note 2 - Earnings Per Share
 
 
Three months ended June 30,
 
Six months ended June 30,
(Dollars in thousands, except per share amounts)
 
2018
 
2017
 
2018
 
2017
Basic earnings per common share
 
 
 
 
 
 
 
 
Net income
 
$
12,702

 
$
3,823

 
$
26,109

 
$
11,070

Less: Dividends to preferred stock
 
808

 
1,115

 
1,923

 
2,230

         Net income allocated to participating stockholders(1)
 
40

 
102

 
921

 
369

Net income available to common stockholders
 
$
11,854

 
$
2,606

 
$
23,265

 
$
8,471

Weighted average common shares outstanding(2)
 
22,107,489

 
19,412,313

 
20,451,960

 
19,408,424

Basic earnings per common share
 
$
0.54

 
$
0.13

 
$
1.14

 
$
0.44

Diluted earnings per common share
 
 
 
 
 
 
 
 
Diluted earnings applicable to common stockholders(3)
 
$
11,876

 
$
2,612

 
$
23,318

 
$
8,497

Weighted average diluted common shares outstanding:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
22,107,489

 
19,412,313

 
20,451,960

 
19,408,424

Dilutive effect of common stock options
 
274,514

 
211,821

 
274,514

 
211,745

Weighted average diluted common shares outstanding
 
22,382,003

 
19,624,134

 
20,726,474

 
19,620,169

Diluted earnings per common share
 
$
0.53

 
$
0.13

 
$
1.13

 
$
0.43

____________________________
(1) 
Participating stockholders include those that hold certain share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents. Such shares or units are considered participating securities (i.e., nonvested restricted stock grants). Additionally, for periods prior to June, 30, 2018, Series D preferred stockholders were participating stockholders as those shares participated in dividends with common shares on a one-for-one basis. Net income allocated to participating stockholders does not include dividends paid to preferred stockholders.
(2) 
Series D preferred stock was converted to common stock on a one-for-one basis on June 8, 2018, and as a result no dividend was paid on Series D preferred stock during the quarter ended June 30, 2018. The Series D quarterly weighted average outstanding shares are included in the quarterly weighted average common shares outstanding for the quarter ended June 30, 2018, resulting in no impact to the basic or diluted earnings per share calculation.
(3) 
Net income allocated to common stockholders for basic and diluted earnings per share may differ under the two-class method as a result of adding common stock equivalents for options to dilutive shares outstanding, which alters the ratio used to allocate earnings to common stockholders and participating securities for the purposes of calculating diluted earnings per share.


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ORIGIN BANCORP, INC.
Notes to Condensed Consolidated Financial Statements



Note 3 - Securities
The following table is a summary of the amortized cost and estimated fair value, including gross unrealized gains and losses, of available for sale, held to maturity and securities carried at fair value through income for the dates indicated:
(Dollars in thousands)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross Unrealized Losses
 
Fair
Value
June 30, 2018
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
State and municipal securities
 
$
122,007


$
2,249


$
(286
)
 
$
123,970

Corporate bonds
 
3,000


89



 
3,089

Commercial mortgage-backed securities
 
7,580

 

 
(6
)
 
7,574

Residential mortgage-backed securities
 
165,659

 
213

 
(2,642
)
 
163,230

Residential collateralized mortgage obligations
 
214,801


101


(5,252
)
 
209,650

Total
 
$
513,047

 
$
2,652

 
$
(8,186
)
 
$
507,513

Held to maturity:
 
 
 
 
 
 
 
 
State and municipal securities
 
$
19,731


$


$
(31
)
 
$
19,700

Securities carried at fair value through income:
 
 
 
 
 
 
 
 
State and municipal securities(1)
 
$
11,688


$


$


$
11,413

 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
State and municipal securities
 
$
125,909

 
$
4,104

 
$
(35
)
 
$
129,978

Corporate bonds
 
3,000

 
136

 

 
3,136

Residential mortgage-backed securities
 
105,132

 
492

 
(595
)
 
105,029

Residential collateralized mortgage obligations
 
168,645

 
262

 
(2,518
)
 
166,389

Total
 
$
402,686

 
$
4,994

 
$
(3,148
)
 
$
404,532

Held to maturity:
 
 
 
 
 
 
 
 
State and municipal securities
 
$
20,188

 
$
77

 
$

 
$
20,265

Securities carried at fair value through income:
 
 
 
 
 
 
 
 
State and municipal securities(1)
 
$
11,918

 
$

 
$

 
$
12,033

____________________________
(1) 
Securities carried at fair value through income have no unrealized gains or losses at the balance sheet date as all changes in value have been recognized in the consolidated statements of income. See Note 5 - Fair Value of Financial Instruments for more information.



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ORIGIN BANCORP, INC.
Notes to Condensed Consolidated Financial Statements



Securities with unrealized losses at June 30, 2018, and December 31, 2017, aggregated by investment category and those individual securities that have been in a continuous unrealized loss position under and over 12 months were as follows:
(Dollars in thousands)
 
Less than 12 Months
 
12 Months or More
 
Total
June 30, 2018
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal securities
 
$
17,822

 
$
(246
)
 
$
1,184

 
$
(40
)
 
$
19,006

 
$
(286
)
Commercial mortgage-backed securities
 
7,580

 
(6
)
 

 

 
7,580

 
(6
)
Residential mortgage-backed securities
 
92,554

 
(1,777
)
 
18,224

 
(865
)
 
110,778

 
(2,642
)
Residential collateralized mortgage obligations
 
125,231

 
(2,406
)
 
56,194

 
(2,846
)
 
181,425

 
(5,252
)
Total
 
$
243,187

 
$
(4,435
)
 
$
75,602

 
$
(3,751
)
 
$
318,789

 
$
(8,186
)
Held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal securities
 
$
14,480

 
$
(31
)
 
$

 
$

 
$
14,480

 
$
(31
)
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal securities
 
$
2,114

 
$
(5
)
 
$
1,210

 
$
(30
)
 
$
3,324

 
$
(35
)
Residential mortgage-backed securities
 
46,018

 
(198
)
 
20,233

 
(397
)
 
66,251

 
(595
)
Residential collateralized mortgage obligations
 
70,788

 
(641
)
 
60,622

 
(1,877
)
 
131,410

 
(2,518
)
Total
 
$
118,920

 
$
(844
)
 
$
82,065

 
$
(2,304
)
 
$
200,985

 
$
(3,148
)
Held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal securities
 
$

 
$

 
$

 
$

 
$

 
$


At June 30, 2018, the Company had 127 individual securities that were in an unrealized loss position. The unrealized losses for each of the securities relate to market interest rate changes. The Company has considered the current market for the securities in an unrealized loss position, as well as the severity and duration of the impairments, and expects that the value will recover. Management does not intend to sell these investments until the fair value exceeds amortized cost and it is more likely than not that the Company will not be required to sell debt securities before the anticipated recovery of the amortized cost basis of the security; thus, the impairment is determined not to be other-than-temporary.
The following table presents the amortized cost and fair value of securities available for sale and held to maturity at June 30, 2018, grouped by contractual maturity. Mortgage-backed securities and collateralized mortgage obligations, which do not have contractual payments due at a single maturity date, are shown separately. Actual maturities for mortgage-backed securities and collateralized mortgage obligations will differ from contractual maturities as a result of prepayments made on the underlying mortgages.
(Dollars in thousands)
 
Held to maturity
 
Available for sale
June 30, 2018
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due in one year or less
 
$

 
$

 
$
2,721

 
$
2,729

Due after one year through five years
 
14,511

 
14,480

 
27,425

 
27,868

Due after five years through ten years
 

 

 
83,686

 
85,020

Due after ten years
 
5,220

 
5,220

 
11,175

 
11,442

Commercial mortgage-backed securities
 

 

 
7,580

 
7,574

Residential mortgage-backed securities
 

 

 
165,659

 
163,230

Residential collateralized mortgage obligations
 

 

 
214,801

 
209,650

Total
 
$
19,731

 
$
19,700

 
$
513,047

 
$
507,513



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ORIGIN BANCORP, INC.
Notes to Condensed Consolidated Financial Statements



The following table presents carrying amounts of securities pledged as collateral for deposits and repurchase agreements for the period ends presented.
(Dollars in thousands)
 
June 30, 2018
 
December 31, 2017
Carrying value of securities pledged to secure public deposits
 
$
288,417

 
$
276,319

Carrying value of securities pledged to repurchase agreements
 
37,575

 
36,685

Note 4 - Loans
Loans consist of the following:
(Dollars in thousands)
June 30, 2018
 
December 31, 2017
Loans held for sale
$
62,072

 
$
65,343

Loans held for investment:
 
 
 
Loans secured by real estate:
 
 
 
Commercial real estate
$
1,091,581

 
$
1,083,275

Construction/land/land development
380,869

 
322,404

Residential real estate
563,016

 
570,583

Total real estate
2,035,466

 
1,976,262

Commercial and industrial
1,046,488

 
989,220

Mortgage warehouse lines of credit
270,494

 
255,044

Consumer
19,648

 
20,505

Total loans held for investment(1)
3,372,096

 
3,241,031

Less: Allowance for loan losses
34,151

 
37,083

Net loans held for investment
$
3,337,945

 
$
3,203,948

____________________________
(1) 
Includes net deferred loan fees of $1.7 million and $1.0 million at June 30, 2018, and December 31, 2017, respectively.

Included in total loans held for investment as of June 30, 2018, were $20.1 million and $802,000 of commercial real estate loans and commercial and industrial loans, respectively, for which the fair value option was elected as of that date. At December 31, 2017, the Company held $21.0 million and $5.6 million of commercial real estate loans and commercial and industrial loans, respectively, at fair value. The Company mitigates the interest rate component of fair value risk on loans at fair value by entering into derivative interest rate contracts. See Note 5 - Fair Value of Financial Instruments for more information on loans for which the fair value option has been elected.
Credit quality indicators. As part of the Company's commitment to manage the credit quality of its loan portfolio, management annually updates and evaluates certain credit quality indicators, which include but are not limited to (i) weighted-average risk rating of the loan portfolio, (ii) net charge-offs, (iii) level of non-performing loans, (iv) level of classified loans, and (v) the general economic conditions in the states in which the Company operates. The Company maintains an internal risk rating system where ratings are assigned to individual loans based on assessed risk. Risk ratings are continually evaluated to ensure they are appropriate based on currently available information. These risk ratings are the primary indicator of credit quality for the loan portfolio.
    

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ORIGIN BANCORP, INC.
Notes to Condensed Consolidated Financial Statements



The following is a summary description of the Company's internal risk ratings:
• Pass (1-6)
Loans within this risk rating are further categorized as follows:
Minimal risk (1)
Well-collateralized by cash equivalent instruments held by the Bank.
Moderate risk (2)
Borrowers with excellent asset quality and liquidity. Borrowers' capitalization and liquidity exceed industry norms. Borrowers in this category have significant levels of liquid assets and have a low level of leverage.
Better than average risk (3)
Borrowers with strong financial strength and excellent liquidity that consistently demonstrate strong operating performance. Borrowers in this category generally have a sizable net worth that can be converted into liquid assets within 12 months.
Average risk (4)
Borrowers with sound credit quality and financial performance, including liquidity. Borrowers are supported by sufficient cash flow coverage generated through operations across the full business cycle.
Marginally acceptable risk (5)
Loans generally meet minimum requirements for an acceptable loan in accordance with lending policy, but possess one or more attributes that cause the overall risk profile to be higher than the majority of newly approved loans.
Watch (6)
A passing loan with one or more factors that identify a potential weakness in the overall ability of the borrower to repay the loan. These weaknesses are generally mitigated by other factors that reduce the risk of delinquency or loss.
• Special Mention (7)
This grade is intended to be temporary and includes borrowers whose credit quality have deteriorated and is at risk of further decline.  
• Substandard (8)
This grade includes "Substandard" loans, in accordance with regulatory guidelines. Substandard loans exhibit a well-defined weakness that jeopardizes debt repayment in accordance with contractual agreements, even though the loan may be performing. These obligations are characterized by the distinct possibility that a loss may be incurred if these weaknesses are not corrected and repayment may be dependent upon collateral liquidation or secondary source of repayment.
• Doubtful (9)
This grade includes "Doubtful" loans, in accordance with regulatory guidelines. Such loans are placed on nonaccrual status and repayment may be dependent upon collateral with no readily determinable valuation or valuations that are highly subjective in nature. Repayment for these loans is considered improbable based on currently existing facts and circumstances.
• Loss (0)
This grade includes "Loss" loans in accordance with regulatory guidelines. Loss loans are charged-off or written-down when repayment is not expected.

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ORIGIN BANCORP, INC.
Notes to Condensed Consolidated Financial Statements



The recorded investment in loans by credit quality indicator at June 30, 2018 and December 31, 2017, excluding loans held for sale, were as follows:
 
June 30, 2018
(Dollars in thousands)
Pass
 
Special Mention
 
Substandard
 
Doubtful
 
Loss
 
Total
Loans secured by real estate:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
1,065,396

 
$
8,518

 
$
17,667

 
$

 
$

 
$
1,091,581

Construction/land/land development
377,516

 
162

 
3,191

 

 

 
380,869

Residential real estate
551,468

 
31

 
11,517

 

 

 
563,016

Total real estate
1,994,380

 
8,711

 
32,375

 

 

 
2,035,466

Commercial and industrial
981,356

 
11,267

 
53,865

 

 

 
1,046,488

Mortgage warehouse lines of credit
270,494

 

 

 

 

 
270,494

Consumer
19,308

 

 
340

 

 

 
19,648

Total loans held for investment
$
3,265,538

 
$
19,978

 
$
86,580

 
$

 
$

 
$
3,372,096

 
December 31, 2017
(Dollars in thousands)
Pass
 
Special Mention
 
Substandard
 
Doubtful
 
Loss
 
Total
Loans secured by real estate:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
1,055,911

 
$
7,798

 
$
19,566

 
$

 
$

 
$
1,083,275

Construction/land/land development
318,488

 
170

 
3,746

 

 

 
322,404

Residential real estate
560,945

 
778

 
8,860

 

 

 
570,583

Total real estate
1,935,344

 
8,746

 
32,172

 

 

 
1,976,262

Commercial and industrial
915,111

 
15,332

 
58,777

 

 

 
989,220

Mortgage warehouse lines of credit
255,044

 

 

 

 

 
255,044

Consumer
20,223

 

 
279

 
3

 

 
20,505

Total loans held for investment
$
3,125,722

 
$
24,078

 
$
91,228

 
$
3

 
$

 
$
3,241,031

The following tables present the Company’s loan portfolio aging analysis at the dates indicated:
 
June 30, 2018
(Dollars in thousands)
30-59 Days past due
 
60-89 Days past due
 
Loans past due 90 days or more
 
Total past due
 
Current loans
 
Total loans receivable
 
Accruing loans 90 or more days past due
Loans secured by real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
1,121

 
$
25

 
$
826

 
$
1,972

 
$
1,089,609

 
$
1,091,581

 
$

Construction/land/land development
1,404

 

 
709

 
2,113

 
378,756

 
380,869

 

Residential real estate
1,400

 
1,574

 
3,359

 
6,333

 
556,683

 
563,016

 

Total real estate
3,925

 
1,599

 
4,894

 
10,418

 
2,025,048

 
2,035,466

 

Commercial and industrial
2,088

 
20

 
138

 
2,246

 
1,044,242

 
1,046,488

 

Mortgage warehouse lines of credit

 

 

 

 
270,494

 
270,494

 

Consumer
396

 
34

 
18

 
448

 
19,200

 
19,648

 

Total loans held for investment
$
6,409

 
$
1,653

 
$
5,050

 
$
13,112

 
$
3,358,984

 
$
3,372,096

 
$


16

Table of Contents
ORIGIN BANCORP, INC.
Notes to Condensed Consolidated Financial Statements



 
December 31, 2017
(Dollars in thousands)
30-59 Days past due
 
60-89 Days past due
 
Loans past due 90 days or more
 
Total past due
 
Current loans
 
Total loans receivable
 
Accruing loans 90 or more days past due
Loans secured by real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
8,427

 
$
2,791

 
$
1,150

 
$
12,368

 
$
1,070,907

 
$
1,083,275

 
$

Construction/land/land development
1,488

 
172

 
464

 
2,124

 
320,280

 
322,404

 

Residential real estate
2,630

 
347

 
3,910

 
6,887

 
563,696

 
570,583

 

Total real estate
12,545

 
3,310

 
5,524

 
21,379

 
1,954,883

 
1,976,262

 

Commercial and industrial
1,517

 
9,922

 
8,074

 
19,513

 
969,707

 
989,220

 

Mortgage warehouse lines of credit

 

 

 

 
255,044

 
255,044

 

Consumer
178

 
128

 
74

 
380

 
20,125

 
20,505

 

Total loans held for investment
$
14,240

 
$
13,360

 
$
13,672

 
$
41,272

 
$
3,199,759

 
$
3,241,031

 
$

The following tables detail activity in the allowance for loan losses by portfolio segment. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
 
Three months ended June 30, 2018
(Dollars in thousands)
Beginning balance
 
Charge-offs
 
Recoveries
 
Provision (Benefit)(1)
 
Ending balance
Loans secured by real estate:
 
 
 
 
 
 
 
 
 
Commercial real estate
$
10,144

 
$

 
$
89

 
$
(465
)
 
$
9,768

Construction/land/land development
2,707

 

 

 
446

 
3,153

Residential real estate
5,471

 

 
30

 
(33
)
 
5,468

Commercial and industrial
15,337

 
766

 
546

 
182

 
15,299

Mortgage warehouse lines of credit
158

 

 

 
45

 
203

Consumer
315

 
28

 
8

 
(35
)
 
260

Total
$
34,132

 
$
794

 
$
673

 
$
140

 
$
34,151

____________________________
(1) 
The $311,000