SEC Filing | Origin Bank

September 30, 2018

December 31, 2017

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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 September 30, 2018

☐ 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 ☐
		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: 23,621,235 shares of Common Stock, par value $5.00 per share, were issued and outstanding as of November 2, 2018.

ORIGIN BANCORP, INC.

FORM 10-Q

SEPTEMBER 30, 2018

INDEX



	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:

Unaudited Consolidated Balance Sheets at September 30, 2018 and December 31, 2017	3
Unaudited Consolidated Statements of Income (Loss) for the three and nine months ended September 30, 2018 and 2017	4
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2018 and 2017	5
Unaudited Consolidated Statements of Changes in Stockholders' Equity for the nine months ended September 30, 2018 and 2017	6
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	7
Notes to Unaudited Condensed Consolidated Financial Statements	9

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	41

Item 3. Quantitative and Qualitative Disclosures about Market Risk	61

Item 4. Controls and Procedures	63

Part II - OTHER INFORMATION	64

Item 1. Legal Proceedings	64

Item 1.A. Risk Factors	64

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 3. Defaults Upon Senior Securities	64

Item 4. Mine Safety Disclosures	64

Item 5. Other Information	64

Item 6. Exhibits	65

SIGNATURE PAGE	67

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ORIGIN BANCORP, INC.

Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)



	September 30, 2018			December 31, 2017
Assets	(Unaudited)
Cash and due from banks	$	60,716		$	78,489
Interest-bearing deposits in banks	59,721			108,698
Federal funds sold	20,000			—
Total cash and cash equivalents	140,437			187,187
Securities:
Available for sale	585,788			404,532
Held to maturity ($19,567 and $20,265 at fair value, respectively)	19,602			20,188
Securities carried at fair value through income	11,273			12,033
Total securities	616,663			436,753
Non-marketable equity securities held in other financial institutions	39,283			22,967
Loans held for sale ($20,786 and $32,768 at fair value, respectively)	50,658			65,343
Loans, net of allowance for loan losses of $35,727 and $37,083, respectively ($20,444 and $26,611 at fair value, respectively)	3,565,354			3,203,948
Premises and equipment, net	74,936			77,408
Mortgage servicing rights	26,163			24,182
Cash surrender value of bank-owned life insurance	32,487			27,993
Goodwill and other intangible assets, net	33,228			24,336
Accrued interest receivable and other assets	88,355			83,878
Total assets	$	4,667,564		$	4,153,995
Liabilities and Stockholders' Equity
Noninterest-bearing deposits	$	976,260		$	832,853
Interest-bearing deposits	1,985,757			2,060,068
Time deposits	765,141			619,093
Total deposits	3,727,158			3,512,014
FHLB advances and other borrowings	358,532			144,357
Junior subordinated debentures	9,637			9,619
Accrued expenses and other liabilities	40,318			32,663
Total liabilities	4,135,645			3,698,653
Commitments and contingencies	—			34,991
Stockholders' equity:
Preferred stock, no par value, 2,000,000 shares authorized:
Preferred stock - Series SBLF (zero and 48,260 shares authorized; zero and 48,260 shares issued at September 30, 2018, and December 31, 2017, respectively)	—			48,260
Preferred stock - Series D (zero and 950,000 shares authorized; zero and 901,644 shares issued at September 30, 2018, and December 31, 2017, respectively)	—			16,998
Common stock ($5.00 par value; 50,000,000 shares authorized; 23,621,235 and 19,518,752 shares issued at September 30, 2018, and December 31, 2017, respectively)	118,106			97,594
Additional paid‑in capital	240,832			146,061
Retained earnings	179,178			145,122
Accumulated other comprehensive (loss) income	(6,197		)	1,307
	531,919			455,342
Less: ESOP-owned shares	—			34,991
Total stockholders' equity	531,919			420,351
Total liabilities and stockholders' equity	$	4,667,564		$	4,153,995

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

ORIGIN BANCORP, INC.

Consolidated Statements of Income (Loss)

(unaudited)

(Dollars in thousands, except per share amounts)



	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Interest and dividend income
Interest and fees on loans	$	43,872		$	36,185		$	121,565		$	101,935
Investment securities-taxable	2,754			1,536			6,551			4,614
Investment securities-nontaxable	1,129			1,187			3,469			3,579
Interest and dividend income on assets held in other financial institutions	1,080			706			3,446			2,057
Federal funds sold	7			—			7			—
Total interest and dividend income	48,842			39,614			135,038			112,185
Interest expense
Interest-bearing deposits	7,891			4,995			20,691			13,868
FHLB advances and other borrowings	1,314			612			2,542			1,821
Subordinated debentures	140			139			414			410
Total interest expense	9,345			5,746			23,647			16,099
Net interest income	39,497			33,868			111,391			96,086
Provision (benefit) for credit losses	504			3,327			(709		)	8,094
Net interest income after provision (benefit) for credit losses	38,993			30,541			112,100			87,992
Noninterest income
Service charges and fees	3,234			2,919			9,405			8,575
Mortgage banking revenue	2,621			3,895			7,332			12,700
Insurance commission and fee income	3,306			2,043			7,239			5,788
Loss on non-mortgage loans held for sale, net	—			(5,409		)	—			(12,708		)
(Loss) gain on sales and disposals of other assets, net	(207		)	(44		)	(147		)	1,372
Other fee income	364			574			1,219			1,759
Other income	919			1,063			5,604			2,986
Total noninterest income	10,237			5,041			30,652			20,472
Noninterest expense
Salaries and employee benefits	21,054			18,342			59,154			52,647
Occupancy and equipment, net	4,169			4,046			11,615			11,917
Data processing	1,523			1,259			4,343			3,784
Electronic banking	761			235			2,184			1,498
Communications	490			469			1,515			1,435
Advertising and marketing	1,245			651			2,924			1,859
Professional services	982			1,364			2,245			3,555
Regulatory assessments	411			748			1,791			2,128
Loan related expenses	718			993			2,229			2,960
Office and operations	1,499			1,330			4,365			4,105
Litigation settlement	—			10,000			—			10,000
Other expenses	1,492			1,006			3,848			3,015
Total noninterest expense	34,344			40,443			96,213			98,903
Income (loss) before income tax expense (benefit)	14,886			(4,861		)	46,539			9,561
Income tax expense (benefit)	2,568			(2,688		)	8,112			664
Net income (loss)	$	12,318		$	(2,173	)	$	38,427		$	8,897
Preferred stock dividends	—			1,086			1,923			3,258
Net income allocated to participating stockholders	54			32			945			271
Net income (loss) available to common stockholders	$	12,264		$	(3,291	)	$	35,559		$	5,368
Basic earnings (loss) per common share	$	0.52		$	(0.17	)	$	1.66		$	0.28
Diluted earnings (loss) per common share	$	0.52		$	(0.17	)	$	1.64		$	0.27

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

ORIGIN BANCORP, INC.

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

(Dollars in thousands)



	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Net income (loss)	$	12,318		$	(2,173	)	$	38,427		$	8,897
Other comprehensive income (loss)
Securities available for sale and transferred securities:
Net unrealized holding losses arising during the period	(2,755		)	(1,486		)	(10,134		)	(51		)
Net losses realized as a yield adjustment in interest on investment securities	(3		)	(2		)	(8		)	(7		)
Change in the net unrealized losses on investment securities, before tax	(2,758		)	(1,488		)	(10,142		)	(58		)
Income tax benefit related to net unrealized losses arising during the period	(579		)	(521		)	(2,130		)	(21		)
Change in the net unrealized loss on investment securities, net of tax	(2,179		)	(967		)	(8,012		)	(37		)
Cash flow hedges:
Net unrealized gains (losses) arising during the period	50			9			272			(73		)
Reclassification adjustment for losses included in net income	(7		)	16			14			73
Change in the net unrealized gain on cash flow hedges, before tax	43			25			286			—
Income tax expense related to net unrealized gains on cash flow hedges	9			9			60			—
Change in the net unrealized gain on cash flow hedges, net of tax	34			16			226			—
Other comprehensive loss, net of tax	(2,145		)	(951		)	(7,786		)	(37		)
Comprehensive income (loss)	$	10,173		$	(3,124	)	$	30,641		$	8,860

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

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 nine months ended September 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	—	—			—			—		—		8,897			—			—			8,897
Other comprehensive income, net of tax	—	—			—			—		—		—			(37		)	—			(37		)
Recognition of stock compensation, net	15,354	—			—			76		557		—			—			—			633
Net change in ESOP shares	—	—			—			—		—		—			—			168			168
Dividends declared - Series SBLF preferred stock	—	—			—			—		—		(3,257		)	—			—			(3,257		)
Dividends declared - Series D preferred stock	—	—			—			—		—		(88		)	—			—			(88		)
Dividends declared - common stock ($0.0975 per share)	—	—			—			—		—		(1,901		)	—			—			(1,901		)
Balance at September 30, 2017	19,499,072	$	48,260		$	16,998		$	97,495	$	145,625	$	141,100		$	3,426		$	(28,396	)	$	424,508
For the nine months ended September 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	—	—			—			—		—		38,427			—			—			38,427
Other comprehensive loss, net of tax	—	—			—			—		—		—			(7,786		)	—			(7,786		)
Reclassification of tax effects related to the adoption of ASU 2018-02	—	—			—			—		—		(282		)	282			—			—
Recognition of stock compensation, net	88,589	—			—			443		401		—			—			—			844
Terminated ESOP put option	—	—			—			—		—		—			—			34,991			34,991
Stock issuance - common	3,045,426	—			—			15,227		79,508		—			—			—			94,735
Stock issuance - RCF acquisition	66,824	—			—			334		2,372		—			—			—			2,706
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 ($0.0975 per share)	—	—			—			—		—		(2,166		)	—			—			(2,166		)
Balance at September 30, 2018	23,621,235	$	—		$	—		$	118,106	$	240,832	$	179,178		$	(6,197	)	$	—		$	531,919

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

ORIGIN BANCORP, INC.

Consolidated Statements of Cash Flows

(unaudited)

(Dollars in thousands)



	Nine months ended September 30,
Cash flows from operating activities:	2018			2017
Net income	$	38,427		$	8,897
Adjustments to reconcile net income to net cash provided by operating activities:
(Benefit) provision for credit losses	(709		)	8,094
Depreciation and amortization	4,316			4,041
Net amortization on securities	1,079			1,437
Amortization of investments in tax credit funds	1,417			1,487
Deferred income tax expense	4,683			5,945
Stock-based compensation expense	828			758
Originations of mortgage loans held for sale	(233,229		)	(380,370		)
Proceeds from mortgage loans held for sale	243,153			387,691
Originations of mortgage servicing rights	(1,537		)	(2,184		)
Net loss (gain) on disposals of premises and equipment	60			(1,454		)
Loss on non-mortgage loans held for sale	—			12,708
Increase in the cash surrender value of life insurance	(494		)	(471		)
Net losses on sales and write downs of other real estate owned	87			82
Net decrease in accrued interest and other assets	(2,424		)	(9,429		)
Net increase in accrued expenses and other liabilities	4,682			17,998
Other operating activities, net	3,757			(988		)
Net cash provided by operating activities	64,096			54,242
Cash flows from investing activities:
Net cash paid in business combinations	(6,447		)	—
Purchases of securities available for sale	(450,459		)	(318,187		)
Maturities, paydowns and calls of securities available for sale	257,983			307,599
Maturities, paydowns and calls of securities held to maturity	585			395
Paydowns of securities carried at fair value	230			204
Net purchases of non-marketable equity securities held in other financial institutions	(14,240		)	(5,459		)
Paydowns and proceeds from non-mortgage loans held for sale	—			7,250
Originations of mortgage warehouse loans	(3,488,575		)	(1,265,686		)
Proceeds from pay-offs of mortgage warehouse loans	3,510,293			1,256,543
Net increase in loans, excluding mortgage warehouse and loans held for sale	(383,912		)	(153,763		)
Purchase of bank-owned life insurance	(4,000		)	—
Return of capital on limited partnership investments	336			756
Capital calls on limited partnership investments	(2,838		)	(1,666		)
Purchases of premises and equipment	(4,202		)	(1,702		)
Proceeds from sales of premises and equipment	111			4,509
Proceeds from sales of other real estate owned	505			1,294
Net cash used in investing activities	(584,630		)	(167,913		)

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

ORIGIN BANCORP, INC.

Consolidated Statements of Cash Flows

(unaudited)

(Dollars in thousands)



	Nine months ended September 30,
Cash flows from financing activities:	2018			2017
Net increase in deposits	215,144			10,269
Net increase (decrease) in other borrowed funds	219,634			(719		)
Net decrease in securities sold under agreements to repurchase	(2,369		)	(11,645		)
Dividends paid	(5,173		)	(5,246		)
Taxes paid related to net share settlement of equity awards	(25		)	(124		)
Cash received from exercise of stock options	98			—
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	473,784			(7,465		)
Net decrease in cash and cash equivalents	(46,750		)	(121,136		)
Cash and cash equivalents at beginning of period	187,187			259,883
Cash and cash equivalents at end of period	$	140,437		$	138,747

Income taxes paid	$	382		$	5,298
Significant non-cash transactions:
Real estate acquired in settlement of loans	605			749
Conversion of Series D preferred stock to common stock	16,998			—
Fair value of common stock issued in conjunction with business combination	2,706			—

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

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"), doing business as Thomas & Farr and Reeves, Coon and Funderburg. 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, including those for loans, impaired loans, non-accrual loans and allowance for loan losses, are described in Note 1 of the Notes to Consolidated Financial Statements in the financial statements for the year ended December 31, 2017, included in the Company's prospectus filed with the SEC on May 9, 2018. There have been no significant changes to these policies since December 31, 2017. Additionally, there were no new accounting policies or changes to existing policies adopted during the first nine 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.

Table of Contents

ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

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.

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 $756,000 of the return of capital proceeds from limited partnership investments from operating activities to investing activities for the nine-month period ended September 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.

ASU No. 2014-09 —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.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

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.

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. 2018-15, Intangibles, Goodwill and Other, Internal Use Software - (Topic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. 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. There is no expected impact to the consolidated financial statements or disclosures associated with the adoption of this ASU.

ASU No. 2018-13, Fair Value Measurement - (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. 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 is evaluating the impact of this ASU on the consolidated financial statements and disclosures.

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

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

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 the Company is 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. ASU No. 2018-11, Leases (Topic 842), Targeted Improvements allows entities with an additional (and optional) transition method to adopt the new lease requirements by allowing them to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company expects to make use of this transition option guidance and is currently finalizing the review of key assumptions, including the discount rate used to quantify the valuation of the asset and liability, which is based upon the current interest rate environment and may differ at the time of adoption of the ASU. Based on preliminary evaluation, the overall impact to the balance sheet reflected in the right-of-use asset and corresponding lease obligation liability are expected to range between $19.0 million and $21.0 million at adoption. The Company will continue to evaluate other impacts of adoption but does not anticipate these to be significant.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

Note 2 - Earnings Per Share



	Three months ended September 30,					Nine months ended September 30,
(Dollars in thousands, except per share amounts)	2018		2017			2018		2017
Basic earnings per common share
Net income (loss)	$	12,318	$	(2,173	)	$	38,427	$	8,897
Less: Dividends to preferred stock	—		1,086			1,923		3,258
Net income allocated to participating stockholders^{(1) (2)}	54		32			945		271
Net income (loss) available to common stockholders	$	12,264	$	(3,291	)	$	35,559	$	5,368
Weighted average common shares outstanding	23,493,065		19,418,280			21,476,801		19,411,745
Basic earnings (loss) per common share	$	0.52	$	(0.17	)	$	1.66	$	0.28
Diluted earnings per common share
Diluted earnings (loss) applicable to common stockholders⁽³⁾	$	12,300	$	(3,291	)	$	35,653	$	5,381
Weighted average diluted common shares outstanding:
Weighted average common shares outstanding	23,493,065		19,418,280			21,476,801		19,411,745
Dilutive effect of common stock options⁽⁴⁾	223,714		—			223,714		221,998
Weighted average diluted common shares outstanding	23,716,779		19,418,280			21,700,515		19,633,743
Diluted earnings (loss) per common share	$	0.52	$	(0.17	)	$	1.64	$	0.27

____________________________

⁽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⁾	The average participating share count for the September 30, 2018, year-to-date earnings per share calculation includes an allocation for Series D preferred stockholders. Series D preferred stock was not outstanding during the quarter ended September 30, 2018, and therefore no allocation was made for it during the quarter.


⁽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.


⁽⁴⁾	There was no dilutive effect of common stock options for the third quarter of 2017 due to the anti-dilutive effect on the calculation of diluted loss per common share.

Note 3 - Business Combinations

All acquisitions are accounted for using the acquisition method of accounting. Accordingly, the assets and liabilities of the acquired entities were recorded at their estimated fair values at the acquisition date. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market willing participants at the measurement date. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices, third party valuations, and estimates made by management. Purchase price allocations on completed acquisitions may be modified through the measurement period which cannot exceed one year from the acquisition date. The excess of the purchase price over the estimated fair value of the net assets for tax-free acquisitions is recorded as goodwill, none of which is deductible for tax purposes. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred. The results of operations for the acquisition described below have been included in the Company’s consolidated financial results beginning on the acquisition date.

Reeves, Coon & Funderburg

On July 1, 2018, the Company acquired certain assets and assumed certain liabilities of Reeves, Coon & Funderburg, ("RCF"), a Louisiana-based independent insurance agency offering commercial, personal, health and life insurance. Total consideration was $9.5 million, which was comprised of 66,824 shares of its common stock at a price of $40.50 per share, based upon the closing stock price on June 28, 2018, and $6.8 million in cash.

As the consideration paid for RCF exceeded the provisional value of the tangible net assets acquired, goodwill of $4.5 million and identifiable intangible assets valued at $4.9 million associated primarily with RCF's customer relationships

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

were recorded related to the acquisition. This goodwill resulted from the combination of expected operational synergies and increased market share.

Note 4 - 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
September 30, 2018
Available for sale:
State and municipal securities	$	119,570	$	2,292	$	(314	)	$	121,548
Corporate bonds	3,000		80		—			3,080
U.S. Government and agency securities	60,414		—		(117		)	60,297
Commercial mortgage-backed securities	14,439		—		(71		)	14,368
Residential mortgage-backed securities	180,867		55		(3,735		)	177,187
Residential collateralized mortgage obligations	215,787		18		(6,497		)	209,308
Total	$	594,077	$	2,445	$	(10,734	)	$	585,788
Held to maturity:
State and municipal securities	$	19,602	$	—	$	(35	)	$	19,567
Securities carried at fair value through income:
State and municipal securities⁽¹⁾	$	11,688	$	—	$	—		$	11,273

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 6 - 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 September 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
September 30, 2018	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Available for sale:
State and municipal securities	$	23,114	$	(258	)	$	1,517	$	(56	)	$	24,631	$	(314	)
U.S. Government and agency securities	60,283		(117		)	—		—			60,283		(117		)
Commercial mortgage-backed securities	14,368		(71		)	—		—			14,368		(71		)
Residential mortgage-backed securities	118,323		(1,742		)	44,059		(1,993		)	162,382		(3,735		)
Residential collateralized mortgage obligations	115,173		(1,908		)	91,506		(4,589		)	206,679		(6,497		)
Total	$	331,261	$	(4,096	)	$	137,082	$	(6,638	)	$	468,343	$	(10,734	)
Held to maturity:
State and municipal securities	$	14,349	$	(35	)	$	—	$	—		$	14,349	$	(35	)

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	)

At September 30, 2018, the Company had 173 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 September 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
September 30, 2018	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	—	$	—	$	58,119	$	58,069
Due after one year through five years	14,384		14,349		28,088		28,396
Due after five years through ten years	—		—		85,875		87,421
Due after ten years	5,218		5,218		10,902		11,039
Commercial mortgage-backed securities	—		—		14,439		14,368
Residential mortgage-backed securities	—		—		180,867		177,187
Residential collateralized mortgage obligations	—		—		215,787		209,308
Total	$	19,602	$	19,567	$	594,077	$	585,788

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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)	September 30, 2018		December 31, 2017
Carrying value of securities pledged to secure public deposits	$	325,897	$	276,319
Carrying value of securities pledged to repurchase agreements	38,631		36,685

Note 5 - Loans

Loans consist of the following:



(Dollars in thousands)	September 30, 2018		December 31, 2017
Loans held for sale	$	50,658	$	65,343
Loans held for investment:
Loans secured by real estate:
Commercial real estate	$	1,162,274	$	1,083,275
Construction/land/land development	406,249		322,404
Residential real estate	585,931		570,583
Total real estate	2,154,454		1,976,262
Commercial and industrial	1,193,035		989,220
Mortgage warehouse lines of credit	233,325		255,044
Consumer	20,267		20,505
Total loans held for investment⁽¹⁾	3,601,081		3,241,031
Less: Allowance for loan losses	35,727		37,083
Net loans held for investment	$	3,565,354	$	3,203,948

____________________________

⁽¹⁾Includes net deferred loan fees of $2.9 million and $1.0 million at September 30, 2018, and December 31, 2017, respectively.

Included in total loans held for investment as of September 30, 2018, were $19.7 million and $739,000 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 6 - 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. Loan risk ratings are the primary indicator of credit quality for the loan portfolio and are continually evaluated to ensure they are appropriate based on currently available information.

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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 September 30, 2018, and December 31, 2017, excluding loans held for sale, were as follows:



	September 30, 2018
(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Total
Loans secured by real estate:
Commercial real estate	$	1,139,571	$	8,440	$	14,263	$	—	$	—	$	1,162,274
Construction/land/land development	403,159		160		2,930		—		—		406,249
Residential real estate	574,728		28		11,175		—		—		585,931
Total real estate	2,117,458		8,628		28,368		—		—		2,154,454
Commercial and industrial	1,112,473		32,050		48,512		—		—		1,193,035
Mortgage warehouse lines of credit	233,325		—		—		—		—		233,325
Consumer	20,028		—		239		—		—		20,267
Total loans held for investment	$	3,483,284	$	40,678	$	77,119	$	—	$	—	$	3,601,081



	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:



	September 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	$	414	$	7,512	$	976	$	8,902	$	1,153,372	$	1,162,274	$	—
Construction/land/land development	25		—		465		490		405,759		406,249		—
Residential real estate	2,507		196		3,621		6,324		579,607		585,931		—
Total real estate	2,946		7,708		5,062		15,716		2,138,738		2,154,454		—
Commercial and industrial	434		738		7,842		9,014		1,184,021		1,193,035		—
Mortgage warehouse lines of credit	—		—		—		—		233,325		233,325		—
Consumer	81		35		—		116		20,151		20,267		—
Total loans held for investment	$	3,461	$	8,481	$	12,904	$	24,846	$	3,576,235	$	3,601,081	$	—

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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 September 30, 2018
(Dollars in thousands)	Beginning balance		Charge-offs		Recoveries		Provision (Benefit)⁽¹⁾			Ending balance
Loans secured by real estate:
Commercial real estate	$	9,768	$	42	$	7	$	(4	)	$	9,729
Construction/land/land development	3,153		228		5		238			3,168
Residential real estate	5,468		398		68		206			5,344
Commercial and industrial	15,299		290		1,370		606			16,985
Mortgage warehouse lines of credit	203		—		—		65			268
Consumer	260		51		22		2			233
Total	$	34,151	$	1,009	$	1,472	$	1,113		$	35,727

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⁽¹⁾	The $504,000 provision for credit losses on the consolidated statements of income includes a $1.1 million net loan loss provision and a $609,000 release of provision for off-balance sheet commitments for the three months ended September 30, 2018.



	Nine months ended September 30, 2018
(Dollars in thousands)	Beginning balance		Charge-offs		Recoveries		Provision (Benefit)⁽¹⁾			Ending balance
Loans secured by real estate:
Commercial real estate	$	8,998	$	51	$	223	$	559		$	9,729
Construction/land/land development	2,950		228		6		440			3,168
Residential real estate	5,807		407		117		(173		)	5,344
Commercial and industrial	18,831		2,759		2,090		(1,177		)	16,985
Mortgage warehouse lines of credit	214		—		—		54			268
Consumer	283		96		54		(8		)	233
Total	$	37,083	$	3,541	$	2,490	$	(305	)	$	35,727

____________________________


⁽¹⁾	The $709,000 benefit for credit losses on the consolidated statements of income includes a $305,000 net loan loss benefit and a $404,000 release of provision for off-balance sheet commitments for the nine months ended September 30, 2018.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements



	Three months ended September 30, 2017
(Dollars in thousands)	Beginning balance		Charge-offs		Recoveries		Provision (Benefit) ⁽¹⁾			Ending balance
Loans secured by real estate:
Commercial real estate	$	9,201	$	272	$	12	$	133		$	9,074
Construction/land/land development	3,086		—		1		346			3,433
Residential real estate	7,363		1,306		21		(176		)	5,902
Commercial and industrial	21,347		4,629		271		3,532			20,521
Mortgage warehouse lines of credit	303		—		—		(79		)	224
Consumer	334		89		26		20			291
Total	$	41,634	$	6,296	$	331	$	3,776		$	39,445

____________________________


⁽¹⁾	The $3.3 million provision for credit losses on the consolidated statements of income includes a $3.8 million net loan loss provision offset by a $449,000 release of provision for off-balance sheet commitments for the three months ended September 30, 2017.



	Nine months ended September 30, 2017
(Dollars in thousands)	Beginning balance		Charge-offs		Recoveries		Provision⁽¹⁾		Ending balance
Loans secured by real estate:
Commercial real estate	$	8,718	$	272	$	88	$	540	$	9,074
Construction/land/land development	2,805		—		4		624		3,433
Residential real estate	5,003		1,326		98		2,127		5,902
Commercial and industrial	33,590		17,962		670		4,223		20,521
Mortgage warehouse lines of credit	139		—		—		85		224
Consumer	276		137		36		116		291
Total	$	50,531	$	19,697	$	896	$	7,715	$	39,445

____________________________


⁽¹⁾	The $8.1 million provision for credit losses on the consolidated statements of income includes a $7.7 million net loan loss provision and an $379,000 provision for off-balance sheet commitments for the nine months ended September 30, 2017.

The following tables present the balance of loans receivable by method of impairment evaluation at the dates indicated:



	September 30, 2018
(Dollars in thousands)	Period end allowance allocated to loans individually evaluated for impairment		Period end allowance allocated to loans collectively evaluated for impairment		Period end loan balance individually evaluated for impairment		Period end loan balance collectively evaluated for impairment ⁽¹⁾
Loans secured by real estate:
Commercial real estate	$	1,193	$	8,536	$	10,078	$	1,132,491
Construction/land/land development	19		3,149		1,044		405,205
Residential real estate	70		5,274		7,558		578,373
Commercial and industrial	2,029		14,956		13,381		1,178,915
Mortgage warehouse lines of credit	—		268		—		233,325
Consumer	23		210		230		20,037
Total	$	3,334	$	32,393	$	32,291	$	3,548,346

____________________________


⁽¹⁾	Excludes $19.7 million and $739,000 of commercial real estate loans and commercial and industrial loans, respectively, at fair value, which are not evaluated for impairment due to the fair value option election. See Note 6 - Fair Value of Financial Instruments for more information.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements



	December 31, 2017
(Dollars in thousands)	Period end allowance allocated to loans individually evaluated for impairment		Period end allowance allocated to loans collectively evaluated for impairment		Period end loan balance individually evaluated for impairment		Period end loan balance collectively evaluated for impairment ⁽¹⁾
Loans secured by real estate:
Commercial real estate	$	312	$	8,686	$	4,945	$	1,057,330
Construction/land/land development	4		2,946		1,963		320,441
Residential real estate	72		5,735		7,915		562,668
Commercial and industrial	4,356		14,475		24,598		959,011
Mortgage warehouse lines of credit	—		214		—		255,044
Consumer	63		220		237		20,268
Total	$	4,807	$	32,276	$	39,658	$	3,174,762

____________________________


⁽¹⁾	Excludes $21.0 million and $5.6 million of commercial real estate loans and commercial and industrial loans, respectively, at fair value, which are not evaluated for impairment due to the fair value option election. See Note 6 - Fair Value of Financial Instruments for more information.

The following tables present impaired loans at the dates indicated. No mortgage warehouse lines of credit were impaired at either September 30, 2018, or December 31, 2017.



	September 30, 2018
(Dollars in thousands)	Unpaid contractual principal balance		Recorded investment with no allowance		Recorded investment with an allowance		Total recorded investment		Allocation of allowance for loan losses
Loans secured by real estate:
Commercial real estate	$	10,950	$	2,304	$	7,774	$	10,078	$	1,193
Construction/land/land development	1,344		737		307		1,044		19
Residential real estate	8,533		6,626		932		7,558		70
Total real estate	20,827		9,667		9,013		18,680		1,282
Commercial and industrial	13,894		5,541		7,840		13,381		2,029
Consumer	251		—		230		230		23
Total impaired loans	$	34,972	$	15,208	$	17,083	$	32,291	$	3,334



	December 31, 2017
(Dollars in thousands)	Unpaid contractual principal balance		Recorded investment with no allowance		Recorded investment with an allowance		Total recorded investment		Allocation of allowance for loan losses
Loans secured by real estate:
Commercial real estate	$	6,047	$	1,782	$	3,163	$	4,945	$	312
Construction/land/land development	2,268		1,813		150		1,963		4
Residential real estate	10,024		6,750		1,165		7,915		72
Total real estate	18,339		10,345		4,478		14,823		388
Commercial and industrial	25,212		6,161		18,437		24,598		4,356
Consumer	259		141		96		237		63
Total impaired loans	$	43,810	$	16,647	$	23,011	$	39,658	$	4,807

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

The average recorded investment and interest recognized on impaired loans while classified as impaired for the three and nine months ended September 30, 2018 and 2017, were as follows:



	Three months ended September 30,
	2018				2017
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans secured by real estate:
Commercial real estate	$	10,070	$	14	$	6,894	$	41
Construction/land/land development	1,228		2		846		2
Residential real estate	7,741		12		9,439		16
Total real estate	19,039		28		17,179		59
Commercial and industrial	12,891		54		30,545		95
Consumer	263		1		253		2
Total impaired loans	$	32,193	$	83	$	47,977	$	156



	Nine months ended September 30,
	2018				2017
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans secured by real estate:
Commercial real estate	$	9,983	$	57	$	7,454	$	127
Construction/land/land development	1,515		14		924		7
Residential real estate	7,631		48		9,777		57
Total real estate	19,129		119		18,155		191
Commercial and industrial	14,932		158		45,536		250
Consumer	264		4		242		5
Total impaired loans	$	34,325	$	281	$	63,933	$	446

All interest accrued but not received for loans placed on nonaccrual status is reversed against interest income. Subsequent receipts on nonaccrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Troubled debt restructurings ("TDRs") are included in certain loan categories within impaired loans. At September 30, 2018, the Company has committed to advance $15,000 in connection with impaired loans.

Non-performing (nonaccrual) loans held for investment were as follows:



(Dollars in thousands)	September 30, 2018		December 31, 2017
Loans secured by real estate:
Commercial real estate	$	8,851	$	1,745
Construction/land/land development	960		1,097
Residential real estate	7,220		7,166
Total real estate	17,031		10,008
Commercial and industrial	9,285		13,512
Consumer	238		282
Total nonaccrual loans	$	26,554	$	23,802

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

For the nine months ended September 30, 2018 and 2017, gross interest income which would have been recorded had the nonaccruing loans been current in accordance with their original terms was $997,000 and $2.4 million, respectively. No interest income was recorded on these loans while they were considered nonaccrual during the nine months ended September 30, 2018 or 2017.

The Company elects the fair value option for recording residential mortgage loans held for sale, as well as certain commercial real estate and commercial and industrial loans, in accordance with US GAAP. The Company had $1.4 million of nonaccrual mortgage loans held for sale that were recorded using the fair value option election at September 30, 2018, and zero at December 31, 2017. There were no nonaccrual loans held for investment that were recorded using the fair value option election at September 30, 2018, or December 31, 2017.

The following is a summary of loans classified as TDRs.



(Dollars in thousands)	September 30, 2018		December 31, 2017
TDRs
Nonaccrual TDRs	$	2,040	$	2,622
Performing TDRs	5,862		14,234
Total	$	7,902	$	16,856

The following table presents the pre-modification balance of TDR modifications that occurred during the three and nine months ended September 30, 2018, and September 30, 2017, and the ending balances by concession type as of each period presented.



	At and for the three months ended September 30, 2018
(Dollars in thousands)	Number of loans restructured	Pre-modification recorded balance		Term Concessions		Interest Rate Concessions		Combination		Total Modifications
Loans secured by real estate:
Commercial real estate	1	$	252	$	150	$	—	$	—	$	150
Commercial and industrial	3	199		182		—		15		197
Total	4	$	451	$	332	$	—	$	15	$	347



	At and for the nine months ended September 30, 2018
(Dollars in thousands)	Number of loans restructured	Pre-modification recorded balance		Term Concessions		Interest Rate Concessions		Combination		Total Modifications
Loans secured by real estate:
Commercial real estate	1	$	252	$	150	$	—	$	—	$	150
Residential real estate	5	187		49		21		102		172
Total real estate	6	439		199		21		102		322
Commercial and industrial	3	198		182		—		15		197
Consumer	1	33		—		—		31		31
Total	10	$	670	$	381	$	21	$	148	$	550

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements



	At and for the three months ended September 30, 2017
(Dollars in thousands)	Number of loans restructured	Pre-modification recorded balance		Term Concessions		Interest Rate Concessions		Combination		Total Modifications
Loans secured by real estate:
Commercial real estate	—	$	—	$	—	$	—	$	—	$	—
Residential real estate	2	130		40		—		206		246
Total real estate	2	130		40		—		206		246
Commercial and industrial	1	42		—		—		44		44
Consumer	1	49		47		—		—		47
Total	4	$	221	$	87	$	—	$	250	$	337



	At and for the nine months ended September 30, 2017
(Dollars in thousands)	Number of loans restructured	Pre-modification recorded balance		Term Concessions		Interest Rate Concessions		Combination		Total Modifications
Loans secured by real estate:
Commercial real estate	3	$	2,643	$	2,001	$	—	$	—	$	2,001
Residential real estate	4	171		79		—		206		285
Total real estate	7	2,814		2,080		—		206		2,286
Commercial and industrial	7	8,295		7,392		—		44		7,436
Consumer	1	49		47		—		—		47
Total	15	$	11,158	$	9,519	$	—	$	250	$	9,769

During the nine months ended September 30, 2018, one loan with an outstanding principal balance of $26,000 defaulted after having been modified as a TDR within the previous 12 months. During the nine months ended September 30, 2017, there were no payment defaults for loans restructured as TDR's within the previous 12 months. A payment default is defined as a loan that was 90 or more days past due. The modifications made during the three and nine months ended September 30, 2018, did not significantly impact the Company's determination of the allowance for loan losses. On an ongoing basis, the Company monitors the performance of the modified loans to their restructured terms. In the event of a subsequent default, the allowance for loan losses continues to be reassessed on the basis of an individual evaluation of the loan.

Note 6 - Fair Value of Financial Instruments

Fair value is the exchange price that is expected to be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Certain assets and liabilities are recorded in the Company's financial statements at fair value. Some are recorded on a recurring basis and some on a non-recurring basis.

The Company utilizes fair value measurement to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach to estimate the fair values of its financial instruments. Such valuation techniques are consistently applied.

A hierarchy for fair value has been established which categorizes the valuation techniques into three levels used to measure fair value. The three levels are as follows:

Level 1 - Fair value is based on unadjusted quoted prices in active markets for identical assets or liabilities.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

Level 2 - Fair value is based on significant other observable inputs which are generally determined based on a single price for each financial instrument provided to the Company by an unrelated third-party pricing service and is based on one or more of the following:

•Quoted prices for similar, but not identical, assets or liabilities in active markets;

•Quoted prices for identical or similar assets or liabilities in markets that are not active;


•	Inputs other than quoted prices that are observable, such as interest rate and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates;

•Other inputs derived from or corroborated by observable market inputs.

Level 3 - Prices or valuation techniques that require inputs that are both significant and unobservable in the market. These instruments are valued using the best information available, some of which is internally developed, and reflects the Company's own assumptions about the risk premiums that market participants would generally require and the assumptions they would use.

There were no transfers between fair value reporting levels for any period presented.

Fair Values of Assets and Liabilities Recorded on a Recurring Basis

The following tables summarize financial assets and financial liabilities recorded at fair value on a recurring basis at September 30, 2018, and December 31, 2017, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value. There were no changes in the valuation techniques during either period.



	September 30, 2018
(Dollars in thousands)	Level 1		Level 2			Level 3		Total
State and municipal securities	$	—	$	81,348		$	40,200	$	121,548
Corporate bonds	—		3,080			—		3,080
U.S. Government and agency securities	—		60,297			—		60,297
Commercial mortgage-backed securities	—		14,368			—		14,368
Residential mortgage-backed securities	—		177,187			—		177,187
Residential collateralized mortgage obligations	—		209,308			—		209,308
Securities available for sale	—		545,588			40,200		585,788
Securities carried at fair value through income	—		—			11,273		11,273
Loans held for sale	—		20,786			—		20,786
Loans at fair value	—		—			20,444		20,444
Mortgage servicing rights	—		—			26,163		26,163
Other assets - derivatives	—		3,234			—		3,234
Total recurring fair value measurements - assets	$	—	$	569,608		$	98,080	$	667,688

Other liabilities - derivatives	$	—	$	(2,616	)	$	—	$	(2,616	)
Total recurring fair value measurements - liabilities	$	—	$	(2,616	)	$	—	$	(2,616	)

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements



	December 31, 2017
(Dollars in thousands)	Level 1		Level 2			Level 3		Total
State and municipal securities	$	—	$	87,963		$	42,015	$	129,978
Corporate bonds	—		3,136			—		3,136
Residential mortgage-backed securities	—		105,029			—		105,029
Residential collateralized mortgage obligations	—		166,389			—		166,389
Securities available for sale	—		362,517			42,015		404,532
Securities carried at fair value through income	—		—			12,033		12,033
Loans held for sale	—		32,768			—		32,768
Loans at fair value	—		—			26,611		26,611
Mortgage servicing rights	—		—			24,182		24,182
Other assets - derivatives	—		3,146			—		3,146
Total recurring fair value measurements - assets	$	—	$	398,431		$	104,841	$	503,272

Other liabilities - derivatives	$	—	$	(3,320	)	$	—	$	(3,320	)
Total recurring fair value measurements - liabilities	$	—	$	(3,320	)	$	—	$	(3,320	)

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2018 and 2017, are summarized as follows:



(Dollars in thousands)	Loans at Fair Value			MSRs			Securities Available for Sale			Securities at FV Through Income
Balance at January 1, 2018	$	26,611		$	24,182		$	42,015		$	12,033
Gain (loss) recognized in earnings:
Mortgage banking revenue⁽¹⁾	—			444			—			—
Other noninterest income	(488		)	—			—			(530		)
Gain (loss) recognized in AOCI	—			—			(219		)	—
Purchases, issuances, sales and settlements:
Originations	—			1,537			—			—
Purchases	—			—			259			—
Settlements	(5,679		)	—			(1,855		)	(230		)
Balance at September 30, 2018	$	20,444		$	26,163		$	40,200		$	11,273

Balance at January 1, 2017	$	33,693		$	29,385		$	43,858		$	12,511
Gain (loss) recognized in earnings:
Mortgage banking revenue⁽¹⁾	—			(5,298		)	—			—
Other noninterest income	(462		)	—			—			(35		)
Gain recognized in AOCI	—			—			277			—
Purchases, issuances, sales, and settlements:
Purchases	—			2,184			275			—
Sales	(2,516		)	—			—			—
Settlements	(3,535		)	—			(2,171		)	(204		)
Balance at September 30, 2017	$	27,180		$	26,271		$	42,239		$	12,272

____________________________


⁽¹⁾	Total mortgage banking revenue includes changes in fair value due to market changes and due to run-off.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

The following methodologies were used to measure the fair value of financial assets and liabilities valued on a recurring basis:

Securities Available for Sale

Securities classified as available for sale are reported at fair value utilizing Level 2 or Level 3 inputs. For Level 2 securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, market consensus prepayment speeds, credit information and the security's terms and conditions, among other things. In order to ensure the fair values are consistent with ASC 820, Fair Value Measurements and Disclosures, the Company periodically checks the fair value by comparing them to another pricing source, such as Bloomberg. The third -party pricing service is subject to an annual review of internal controls (SSAE 16), which is made available to the Company. In certain cases where Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Mortgage Servicing Rights ("MSR")

The carrying amounts of the MSRs equal fair value and are valued on a discounted cash flow valuation technique. The significant assumptions used to value MSRs were as follows:

In recent years, there have been significant market-driven fluctuations in the assumptions listed above. These fluctuations can be rapid and may continue to be significant. Therefore, estimating these assumptions within ranges that market participants would use in determining the fair value of MSRs requires significant management judgment.

Derivatives

Fair values for interest rate swap agreements are based upon the amounts that would be required to settle the contracts. Fair values for derivative loan commitments and forward loan sale commitments are based on fair values of the underlying mortgage loans and the probability of such commitments being exercised. Significant management judgment and estimation is required in determining these fair value measurements.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

Fair Values of Assets Recorded on a Recurring Basis for which the Fair Value Option has been Elected

Certain assets are measured at fair value on a recurring basis due to the Company's election to adopt fair value accounting treatment for those assets. This election allows for a more effective offset of the changes in fair values of the assets and the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting under ASC 815, Derivatives and Hedging. For assets for which the fair value has been elected, the earned current contractual interest payment is recognized in interest income, loan origination costs and fees on fair value option loans are recognized in earnings as incurred and not deferred. At September 30, 2018, and December 31, 2017, there were no gains or losses recorded attributable to changes in instrument-specific credit risk. The following tables summarize the difference between the fair value and the unpaid principal balance for financial instruments for which the fair value option has been elected:



	September 30, 2018
(Dollars in thousands)	Aggregate Fair Value		Aggregate Unpaid Principal Balance		Difference
Loans held for sale⁽¹⁾	$	20,786	$	20,538	$	248
Commercial and industrial loans held for investment⁽²⁾	739		739		—
Commercial real estate loans held for investment⁽²⁾	19,705		19,625		80
Securities carried at fair value through income	11,273		11,688		(415		)
Total	$	52,503	$	52,590	$	(87	)

____________________


⁽¹⁾	$1.4 million of loans were designated as nonaccrual or past due 90 days or more at September 30, 2018. Of this balance, the Company had guarantees receivable from U.S. Government agencies totaling $1.2 million.


⁽²⁾	There were no commercial and industrial loans or commercial real estate loans for which the fair value had been elected that were designated as nonaccrual or past due 90 days or more at September 30, 2018.



	December 31, 2017
(Dollars in thousands)	Aggregate Fair Value		Aggregate Unpaid Principal Balance		Difference
Loans held for sale⁽¹⁾	$	32,768	$	32,216	$	552
Commercial and industrial loans held for investment⁽²⁾	5,611		5,591		20
Commercial real estate loans held for investment⁽²⁾	21,000		20,451		549
Securities carried at fair value through income	12,033		11,918		115
Total	$	71,412	$	70,176	$	1,236

____________________________


⁽¹⁾	$2.4 million of loans were past due 90 days or more at December 31, 2017. Of this balance, the Company had guarantees receivable from U.S. government agencies totaling $1.8 million.


⁽²⁾	There were no commercial and industrial loans or commercial real estate loans for which the fair value had been elected that were designated as nonaccrual or past due 90 days or more at December 31, 2017.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

Changes in the fair value of assets for which the Company elected the fair value option are classified in the income statement line items reflected in the following table



	Three months ended September 30,						Nine months ended September 30,
(Dollars in thousands)	2018			2017			2018			2017
Changes in fair value included in noninterest income:
Mortgage banking revenue	$	(251	)	$	80		$	(304	)	$	100
Other income:
Loans at fair value held for investment	(101		)	(288		)	$	(488	)	(462		)
Securities carried at fair value through income	(140		)	(63		)	(530		)	(35		)
Total impact on other income	(241		)	(351		)	(1,018		)	(497		)
Total fair value option impact on noninterest income⁽¹⁾	$	(492	)	$	(271	)	$	(1,322	)	$	(397	)

____________________________


⁽¹⁾	The fair value option impact on noninterest income is offset by the derivative gain/loss recognized in noninterest income. Please see Note 7 - Mortgage Banking for more detail.

The following methodologies were used to measure the fair value of financial assets valued on a recurring basis for which the fair value option was elected:

Securities at Fair Value through Income

Securities carried at fair value through income are valued using a discounted cash flow with a credit spread applied to each instrument based on the credit worthiness of each issuer. Credit spreads ranged from 126 to 227 basis points at both September 30, 2018, and December 31, 2017. The Company believes the fair value approximates an exit price.

Loans Held for Sale

Fair values for loans held for sale are established using anticipated sale prices for loans allocated to a sale commitment, and those unallocated to a commitment are valued based on the interest rate and term for similar loans allocated. The Company believes the fair value approximates an exit price.

Loans Held for Investment

For loans held for investment for which the fair value option has been elected, fair values are calculated using a discounted cash flow model with inputs including observable interest rate curves and unobservable credit adjustment spreads based on credit risk inherent in the loan. Credit spreads ranged from 290 to 413 basis points at September 30, 2018, and ranged from 283 to 413 basis points at December 31, 2017. The Company believes the fair value approximates an exit price.

Fair Value of Assets Recorded on a Nonrecurring Basis

Equity Securities without Readily Determinable Fair Values

Equity securities without readily determinable fair values totaled $39.3 million and are shown on the face of the balance sheet. 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.

Government National Mortgage Association Repurchase Asset

The Company recorded $29.9 million and $32.6 million, respectively, at September 30, 2018, and December 31, 2017, for Government National Mortgage Association ("GNMA") repurchase assets included in mortgage loans held for sale on the balance sheet. The assets are valued at the lower of cost or market and, where market is lower than cost, valued using anticipated sale prices for loans allocated to a sale commitment, and those unallocated to a commitment are valued based on

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

the interest rate and term for similar loans allocated. The Company believes the fair value approximates an exit price. Please see Note 7 - Mortgage Banking for more information on the GNMA repurchase asset.

Collateral Dependent Impaired Loans

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans. If the impaired loan is identified as collateral-dependent, the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. Impaired loans that are collateral-dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method. The fair value of impaired loans with specific allocated losses was $15.2 million and $18.2 million at September 30, 2018, and December 31, 2017, respectively.

Non-Financial Assets

Foreclosed assets held for sale are the only non-financial assets valued on a non-recurring basis which are initially recorded by the Company at fair value, less estimated costs to sell. At foreclosure, if the fair value, less estimated costs to sell, of the real estate acquired is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for loan losses. Additionally, valuations are periodically performed by management and any subsequent reduction in value is recognized by a charge to income. The carrying value and fair value of foreclosed assets held for sale is estimated using Level 3 inputs based on observable market data and was $3.3 million and $499,000 at September 30, 2018, and December 31, 2017, respectively. At September 30, 2018, the Company had $2.3 million in residential mortgage loans in the process of foreclosure.

Fair Values of Financial Instruments Not Recorded at Fair Value

The carrying value and estimated fair values of financial instruments not recorded at fair value are as follows:



(Dollars in thousands)	September 30, 2018				December 31, 2017
Financial assets:	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Level 1 inputs:
Cash and cash equivalents	$	140,437	$	140,437	$	187,187	$	187,187
Level 2 inputs:
Securities held to maturity	19,602		19,567		20,188		20,265
Non-marketable equity securities held in other financial institutions	39,283		39,283		22,967		22,967
Accrued interest and loan fees receivable	14,618		14,618		10,719		10,719
Level 3 inputs:
Loans held for investment, net⁽¹⁾	3,544,910		3,433,735		3,177,337		3,238,872
Financial liabilities:
Level 2 inputs:
Deposits	3,727,158		3,468,832		3,512,014		3,352,213
FHLB advances and other borrowings	358,532		356,878		144,357		145,330
Junior subordinated debentures	9,637		10,724		9,619		14,132
Accrued interest payable	2,564		2,564		2,424		2,424

____________________________


⁽¹⁾	The Loans held for investment, net does not include loans for which the fair value option had been elected at September 30, 2018, or December 31, 2017, respectively, as these loans are carried at fair value on a recurring basis.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

Note 7 - Mortgage Banking

The following table presents the Company's revenue from mortgage banking operations:



(Dollars in thousands)	For the three months ended						For the nine months ended
Mortgage banking revenue	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Origination	$	194		$	358		$	646		$	963
Gain on sale of loans held for sale	1,761			3,121			5,121			8,541
Servicing	1,728			1,963			5,339			6,072
Total gross mortgage revenue	3,683			5,442			11,106			15,576
Mortgage derivatives gain (loss)	(283		)	(136		)	(511		)	554
MSR change due to payoffs and paydowns	(960		)	(1,027		)	(2,791		)	(3,117		)
MSR and hedge fair value adjustment	181			(41		)	(497		)	30
Gain (loss) on MSR sale⁽¹⁾	—			(343		)	25			(343		)
Mortgage banking revenue	$	2,621		$	3,895		$	7,332		$	12,700

___________________________


⁽¹⁾	Amount shown during the nine months ended September 30, 2018, reflects final settlement on a loan servicing portfolio sold during the three months ended December 31, 2017.

Management uses mortgage-backed securities to mitigate the impact of changes in fair value of MSRs. See Note 9 - Derivative Financial Instruments for further information.

Mortgage Servicing Rights

Activity in MSRs was as follows:



	Three months ended September 30,						Nine months ended September 30,
(Dollars in thousands)	2018			2017			2018		2017
Balance at beginning of period	$	25,738		$	27,852		$	24,182	$	29,385
Origination of servicing rights	544			748			1,537		2,184
Change in fair value, including amortization	(119		)	(2,329		)	444		(5,298		)
Balance at end of period	$	26,163		$	26,271		$	26,163	$	26,271

The Company receives annual servicing fee income approximating 0.28% of the outstanding balance of the underlying loans. In connection with the Company's activities as a servicer of mortgage loans, the investors and the securitization trusts have no recourse to the Company's assets for failure of debtors to pay when due.

The Company is potentially subject to losses in its loan servicing portfolio due to loan foreclosures. The Company has obligations to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loan sold was in violation of representations or warranties made by it at the time of the sale, herein referred to as mortgage loan servicing putback expenses. Such representations and warranties typically include those made regarding loans that had missing or insufficient file documentation and/or loans obtained through fraud by borrowers or other third parties. Putback requests may be made until the loan is paid in full. When a putback request is received, the Company evaluates the request and takes appropriate actions based on the nature of the request. The Company is required by Federal National Mortgage Association and Federal Home Loan Mortgage Corporation to provide a response to putback requests within 60 days of the date of receipt.

The total mortgage loan servicing putback expenses incurred by the Company were $0 for both the three months ended September 30, 2018 and 2017, and $0 and $52,000 for the nine months ended September 30, 2018 and 2017, respectively. At September 30, 2018, and December 31, 2017, the reserve for mortgage loan servicing putback expenses totaled $196,000 and $254,000, respectively. There is inherent uncertainty in reasonably estimating the requirement for reserves against future mortgage loan servicing putback expenses. Future putback expenses are dependent on many

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

subjective factors, including the review procedures of the purchasers and the potential refinance activity on loans sold with servicing released and the subsequent consequences under the representations and warranties.

GNMA optional repurchase programs allow financial institutions to buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing. At the servicer's option and without GNMA's prior authorization, the servicer may repurchase such a delinquent loan for an amount equal to 100 percent of the remaining principal balance of the loan. This buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. When the Company is deemed to have regained effective control over these loans under the unconditional buy-back option, the loans can no longer be reported as sold and must be brought back onto the balance sheet as mortgage loans held for sale, regardless of whether the Company intends to exercise the buy-back option. These loans are reported as held for sale at lower of cost or market with the offsetting liability being reported in FHLB advances and other borrowings. The balance included in mortgage loans held for sale and FHLB advances and other borrowings at September 30, 2018, and December 31, 2017, was $29.9 million and $32.6 million, respectively.

Note 8 - Borrowings

Borrowed funds are summarized as follows:



(Dollars in thousands)	September 30, 2018		December 31, 2017
Overnight repurchase agreements with depositors	$	33,809	$	36,178
GNMA repurchase liability	29,872		32,575
Long-term FHLB advances⁽¹⁾	294,851		75,604
Total FHLB advances and other borrowings	$	358,532	$	144,357
Junior subordinated debentures	$	9,637	$	9,619

____________________________

⁽¹⁾Includes a FHLB advance of $250.0 million, with a final maturity in 2033, that is callable quarterly at the option of the FHLB beginning in the third quarter of 2019.

Note 9 - Derivative Financial Instruments

Risk Management Objective of Using Derivatives

The Company enters into derivative financial instruments to manage risks related to differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments, as well as to manage changes in fair values of some assets which are marked at fair value through the income statement on a recurring basis.

Cash Flow Hedges of Interest Rate Risk

The Company is a party in interest rate swap agreements under which the Company receives interest at a variable rate and pays at a fixed rate. This derivative instrument represented by this swap agreement is designated as a cash flow hedge of the Company's forecasted variable cash flows under a variable-rate term borrowing agreement. During the term of the swap agreement, the effective portion of changes in the fair value of the derivative instrument are recorded in accumulated other comprehensive income and subsequently reclassified into earnings in the periods that the hedged forecasted variable-rate interest payments affected earnings. There was no ineffective portion of the change in fair value of the derivative recognized directly in earnings. The entire swap fair value will be reclassified into earnings before the expiration date.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

Derivatives Not Designated as Hedges

Customer interest rate derivative program

The Company offers certain derivatives products, primarily interest rate swaps, directly to qualified commercial banking customers to facilitate their risk management strategies. In some instances, the Company acts only as an intermediary, simultaneously entering into offsetting agreements with unrelated financial institutions, thereby mitigating its net risk exposure resulting from such transactions and not significantly impacting its results of operations. Because the interest rate derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivatives and any offsetting derivatives are recognized directly in earnings as a component of noninterest income.

Mortgage banking derivatives

The Company enters into certain derivative agreements as part of its mortgage banking and related risk management activities. These agreements include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a mandatory delivery basis. The Company also economically hedges the value of MSRs by entering into a series of commitments to purchase mortgage-backed securities in the future.

Fair Values of Derivative Instruments on the Balance Sheet

The following tables disclose the fair value of derivative instruments in the Company's balance sheets at September 30, 2018, and December 31, 2017, as well as the effect of these derivative instruments on the Company's condensed consolidated statements of income for the nine months ended September 30, 2018 and 2017:



	Notional Amounts⁽¹⁾				Fair Values
(Dollars in thousands)	September 30, 2018		December 31, 2017		September 30, 2018			December 31, 2017
Derivatives designated as cash flow hedging instruments:
Interest rate swaps included in other assets	$	10,500	$	10,500	$	327		$	41

Derivatives not designated as hedging instruments:
Interest rate swaps included in other assets	$	170,792	$	132,959	$	2,373		$	2,314
Interest rate swaps included in other liabilities	166,178		159,479		(2,350		)	(3,221		)
Forward commitments to purchase mortgage-backed securities included in other liabilities	100,000		160,000		(266		)	(50		)
Forward commitments to sell residential mortgage loans included in other assets (liabilities)	35,550		57,400		119			(49		)
Interest rate-lock commitments on residential mortgage loans included in other assets	30,623		37,072		415			791
	$	503,143	$	546,910	$	291		$	(215	)

____________________________


⁽¹⁾	Notional or contractual amounts, which represent the extent of involvement in the derivatives market, are used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the consolidated balance sheets.

The weighted-average rates paid and received for interest rate swaps at September 30, 2018, were as follows:



	Weighted-Average
	Interest Rate Paid		Interest Rate Received
Interest rate swaps:
Cash flow hedges	4.81	%	5.07	%
Non-hedging interest rate swaps - financial institution counterparties	4.80		4.13
Non-hedging interest rate swaps - customer counterparties	4.14		4.79

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

Gains and losses recognized on derivative instruments not designated as hedging instruments are as follows:



(Dollars in thousands)	Three months ended September 30,					Nine months ended September 30,
Derivatives not designated as hedging instruments:	2018			2017		2018			2017
Amount of (loss) gain recognized in mortgage banking revenue	$	(791	)	$	292	$	(2,998	)	$	1,346
Amount of gain recognized in other non-interest income	192			141		931			353

Some interest rate swaps included in other assets are subject to a master netting arrangement with the counterparty in all years presented and could be offset against some amounts included in interest rate swaps included in other liabilities. The Company has chosen not to net these exposures in the condensed consolidated balance sheets, and any impact of netting these amounts would not be significant.

At September 30, 2018, and December 31, 2017, the Company had cash collateral on deposit with swap counterparties totaling $250,000 and $7.0 million, respectively. These amounts are included in interest-bearing deposits in banks in the condensed consolidated balance sheets.

Note 10 - Stock and Incentive Compensation Plans

The Company has granted, and currently has outstanding, stock and incentive compensation awards subject to the provisions of the Company's 2012 Stock Incentive Plan (the "2012 Plan"). Additionally, awards have been issued prior to the establishment of the 2012 Plan, some of which are still outstanding. The 2012 Plan is designed to provide flexibility to the Company regarding its ability to motivate, attract and retain the services of key officers, employees and directors. The 2012 Plan allows the Company to make grants of dividend equivalent rights, incentive stock options, non-qualified stock options, performance unit awards, restricted stock awards, restricted stock units and stock appreciation rights. At September 30, 2018, the maximum number of shares of the Company's common stock available for issuance under the 2012 Plan was 1,054,172 shares.

Share-based compensation cost charged to income for the three and nine months ended September 30, 2018 and 2017, is presented below:



	Three months ended September 30,				Nine months ended September 30,
(Dollars in thousands)	2018		2017		2018		2017
Restricted stock	$	411	$	265	$	828	$	788
Stock options⁽¹⁾	—		—		—		(30		)
Total stock compensation expense	$	411	$	265	$	828	$	758
Related tax benefits recognized in net income	$	86	$	93	$	174	$	265

____________________________


⁽¹⁾	Stock option expense for the nine months ended September 30, 2017, included expense reversal related to 5,546 common stock options forfeited during the period. All remaining stock options became fully vested during the first quarter of 2017, with no further expense incurred after February 2017.

Restricted Stock Grants

The Company's restricted stock grants are time-vested awards and are granted to the Company's Board of Directors, executives and senior management team. The service period in which time-vested awards are earned ranges from one to five years. Time-vested awards are valued utilizing the fair value of the Company's stock at the grant date. These awards are recognized on the straight-line method over the requisite service period, with forfeitures recognized as they occur.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

The following table summarizes the Company's time-vested award activity:



	Nine months ended September 30,
	2018				2017
	Shares		Weighted Average Grant-Date Fair Value		Shares		Weighted Average Grant-Date Fair Value
Nonvested shares, January 1,	61,293		$	24.61	84,019		$	24.22
Granted	83,500		38.29		24,206		24.60
Vested	(18,982	)	24.31		(24,632	)	22.42
Forfeited	(2,001	)	37.47		(3,636	)	24.12
Nonvested shares, September 30,	123,810		$	33.67	79,957		$	24.37

During the nine months ended September 30, 2018, award recipients surrendered and the Company retired 910 shares to cover taxes owed upon the vesting of restricted stock awards. During the nine months ended September 30, 2017, award recipients surrendered and the Company retired 5,216 shares to cover taxes owed upon the vesting of restricted stock awards.

At September 30, 2018, there was $3.5 million of total unrecognized compensation cost related to nonvested restricted shares awarded under the 2012 Plan. That cost is expected to be recognized over a weighted average period of 2.14 years.

Stock Option Grants

The Company issues common stock options to select officers and employees through individual agreements and as a result of obligations assumed in association with negotiated mergers. As a result, both incentive and nonqualified stock options have been issued and may be issued in the future. The exercise price of each option varies by agreement and is based on either the fair value of the stock at the date of the grant in circumstances where option grants occurred or based on the previously committed exercise price in the case of options acquired through merger. No outstanding stock option has a term that exceeds twenty years. Vesting periods range from immediate to ten years from the date of grant or merger. The Company recognizes compensation cost for stock option grants over the required service period based upon the grant date fair-value, which is established using a Black-Scholes valuation model. The Black-Scholes valuation model uses assumptions of risk-free interest rate, expected term of stock options, expected stock price volatility and expected dividends. Forfeitures are recognized as they occur.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

The table below summarizes the status of the Company's stock options and changes during the nine months ended September 30, 2018 and 2017.



(Dollars in thousands, except per share amounts)	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Nine months ended September 30, 2017
Outstanding at January 1, 2017	358,638		$	11.37	7.79	$	3,844
Forfeited and expired	(16,638	)	23.89
Outstanding at September 30, 2017	342,000		$	10.76	6.92	$	5,390

Nine months ended September 30, 2018
Outstanding at January 1, 2018	319,500		$	10.65	7.07	$	4,840
Exercised	(8,000	)	12.29		—	—
Outstanding at September 30, 2018	311,500		10.61		6.42	8,423
Exercisable at September 30, 2018	311,500		$	10.61	6.42	$	8,423

Note 11 - Income Taxes

The provision for income taxes is as follows:



	Three months ended September 30,						Nine months ended September 30,
(Dollars in thousands)	2018			2017			2018			2017
Federal income taxes:
Current	$	901		$	(4,551	)	$	2,939		$	(5,472	)
Deferred	1,493			1,890			4,652			5,908
State income taxes:
Current	147			(35		)	491			192
Deferred	27			8			30			36
Income tax expense (benefit)	$	2,568		$	(2,688	)	$	8,112		$	664
Effective income tax rate	17.3		%	55.3		%	17.4		%	6.9		%

The effective income tax rates differed from the U.S. statutory federal income tax rates of 21% during 2018, and 35% during 2017, primarily due to the effect of tax-exempt income from securities, low income housing and qualified school construction bond tax credits, tax-exempt income from life insurance policies and income tax effects associated with stock-based compensation. Because of these items, the Company expects the effective income tax rate to continue to remain below the U.S. statutory rate. These tax-exempt items can have a larger than proportional effect on the effective income tax rate as net income decreases.

The Tax Cuts and Jobs Act, enacted on December 22, 2017, reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. The Company remeasured certain deferred tax assets and liabilities in the period of enactment based on the rates at which they are expected to reverse in the future, which is generally 21%.

During the first quarter of 2018, the Company adopted the provisions of ASU 2018-02 which resulted in a $282,000 adjustment from accumulated other comprehensive income to retained earnings. Refer to Note 12 - Accumulated Other Comprehensive Income and Note 1 - Significant Accounting Policies for additional information.

The Company files a consolidated income tax return in the U.S. federal jurisdiction and various states. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities in these taxing jurisdictions for the years before 2015.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

Note 12 - Accumulated Other Comprehensive Income

Accumulated other comprehensive income ("AOCI") includes the after-tax change in unrealized gains and losses on available for sale ("AFS") securities and cash flow hedging activities.



(Dollars in thousands)	Unrealized gains on AFS securities			Cash flow hedges			Accumulated other comprehensive income
Balance at January 1, 2018	$	1,280		$	27		$	1,307
Net change	(8,012		)	226			(7,786		)
Reclassification of tax effects related to the adoption of ASU 2018-02⁽¹⁾:
Current	(293		)	17			(276		)
Deferred	569			(11		)	558
Balance at September 30, 2018	$	(6,456	)	$	259		$	(6,197	)

Balance at January 1, 2017	$	3,505		$	(42	)	$	3,463
Net change	(37		)	—			(37		)
Balance at September 30, 2017	$	3,468		$	(42	)	$	3,426

____________________________

⁽¹⁾

During the first quarter of 2018, the Company adopted ASU 2018-02. The ASU was issued by the Financial Accounting Standards Board ("FASB") in February 2018, to address the issue of other comprehensive income or loss that became stranded in AOCI as a result of the re-measurement of an entity’s deferred income tax assets and liabilities following the reduction of the U.S. federal corporate tax rate from 35% to 21% pursuant to the enactment of the Tax Cuts and Jobs Act in December 2017. The Company also had certain current tax amounts stranded in AOCI that resulted from a tax accounting election to tax net gains and losses on AFS securities and cash flow hedges as current items beginning in 2016. The Company reclassifies the taxes from AOCI to earnings as the individual securities and hedges are realized. Due to the change in corporate tax rates, the Company had certain net gains and losses taxed at the 35% rate reflected in AOCI. As these transactions are realized over time, they will flow through income tax expense at the 21% rate. Rather than adjusting income tax expense for the difference as each of these securities and instruments are realized, the Company elected to adjust the difference (stranded tax effect) to retained earnings, consistent with the treatment of the deferred tax adjustment.

Note 13 - Stockholders' Equity

Stock Issuance

On May 9, 2018, the Company completed the initial public offering of its common stock at a price to the public of $34.00 per share. The Company issued 3,045,426 shares in the offering, including 545,426 shares sold at the option of the underwriters, and certain selling shareholders sold 1,136,176 shares in the offering. The Company received net proceeds of $96.3 million, before expenses, in the offering. The Company's common stock became eligible for trading on May 9, 2018, on the Nasdaq Global Select Market under the symbol “OBNK.” Additionally, on July 1, 2018, the Company acquired RCF, a Louisiana-based independent insurance agency, issuing 66,824 shares of its common stock at a price of $40.50 per share, based upon the closing stock price on June 28, 2018, increasing common stock outstanding and additional paid in capital by $334,000 and $2.4 million, respectively, in partial consideration of the acquisition.

Preferred Stock

On June 8, 2018, the Company redeemed all of the 48,260 shares of its Senior Non-Cumulative Perpetual Preferred Stock, Series SBLF (“SBLF Preferred Stock”) thereby eliminating its obligation to pay the nine percent dividend on the SBLF stock. The aggregate redemption price of the SBLF Preferred Stock was $49.1 million, which included dividends of $808,000 accrued up to, but not including, the redemption date. The SBLF Preferred Stock was redeemed from the Company's surplus capital, which included the proceeds of its recently completed initial public offering. The redemption was approved by Origin’s primary federal regulator and it terminated the Company's participation in the Small Business Lending Fund program.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

During the quarter ended June 30, 2018, all of the 901,644 shares of the Company's outstanding Series D preferred stock were converted into shares of its common stock, on a one-for-one basis. As a result, no shares of Series D preferred stock were outstanding at September 30, 2018.

Note 14 - Capital and Regulatory Matters

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Company is subject to the Basel III regulatory capital framework (the "Basel III Capital Rules"). Starting in January 2016, the implementation of the capital conservation buffer was effective for the Company starting at the 0.625% level and increasing 0.625% each year thereafter, until it reaches 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress and requires increased capital levels for the purpose of capital distributions and other payments. Failure to meet the full amount of the buffer will result in restrictions on the Company's ability to make capital distributions, which includes dividend payments and stock repurchases and to pay discretionary bonuses to executive officers.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, CET1 and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, at September 30, 2018, and December 31, 2017, that the Company and the Bank met all capital adequacy requirements to which they are subject, including the capital buffer requirement.

At September 30, 2018, and December 31, 2017, the Bank’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized," the Bank must maintain minimum total risk based, CET1, Tier 1 risk based and Tier 1 leverage ratios as set forth in the table.

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ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

The actual capital amounts and ratios of the Company and Bank at September 30, 2018, and December 31, 2017, are presented in the following table:



(Dollars in thousands)	Actual				Minimum Capital Required - Basel III Fully Phased-In				To be Well Capitalized Under Prompt Corrective Action Provisions
September 30, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common Equity Tier 1 Capital to Risk-Weighted Assets
Origin Bancorp, Inc.	$	502,273	11.79	%	$	298,171	7.00	%	N/A		N/A
Origin Bank	494,111		11.63		297,276		7.00		$	276,042	6.50	%
Tier 1 Capital to Risk-Weighted Assets
Origin Bancorp, Inc.	511,584		12.01		362,067		8.50		N/A		N/A
Origin Bank	494,111		11.63		360,978		8.50		339,744		8.00
Total Capital to Risk-Weighted Assets
Origin Bancorp, Inc.	548,923		12.88		447,422		10.50		N/A		N/A
Origin Bank	531,450		12.51		445,915		10.50		424,681		10.00
Leverage Ratio
Origin Bancorp, Inc.	511,584		11.34		180,455		4.00		N/A		N/A
Origin Bank	494,111		10.98		179,955		4.00		224,944		5.00
December 31, 2017
Common Equity Tier 1 Capital to Risk-Weighted Assets
Origin Bancorp, Inc.	$	360,069	9.35	%	$	269,570	7.00	%	N/A		N/A
Origin Bank	416,175		10.82		269,244		7.00		$	250,012	6.50	%
Tier 1 Capital to Risk-Weighted Assets
Origin Bancorp, Inc.	433,338		11.25		327,411		8.50		N/A		N/A
Origin Bank	416,175		10.82		326,940		8.50		307,708		8.00
Total Capital to Risk-Weighted Assets
Origin Bancorp, Inc.	472,437		12.26		404,616		10.50		N/A		N/A
Origin Bank	455,274		11.84		403,748		10.50		384,522		10.00
Leverage Ratio
Origin Bancorp, Inc.	433,338		10.53		164,611		4.00		N/A		N/A
Origin Bank	416,175		10.13		164,334		4.00		205,418		5.00

In the ordinary course of business, the Company is dependent upon dividends from the Bank to provide funds for the payment of dividends to stockholders and to provide for other cash requirements. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared and paid exceed the Bank's year-to-date net income combined with the retained net income for the preceding year. Under the foregoing dividend restrictions and while maintaining its “well capitalized” status, management believes that at September 30, 2018, the Bank could pay aggregate dividends of up to $43.1 million to the Company without prior regulatory approval.

Note 15 - Commitments and Contingencies

Credit Related Commitments

In the normal course of business, the Company enters into financial instruments, such as commitments to extend credit and letters of credit, to meet the financing needs of its customers. Such instruments are not reflected in the accompanying consolidated financial statements until they are funded, although they expose the Company to varying degrees of credit risk and interest rate risk in much the same way as funded loans.

Table of Contents

ORIGIN BANCORP, INC.

Notes to Condensed Consolidated Financial Statements

Commitments to extend credit include revolving commercial credit lines, nonrevolving loan commitments issued mainly to finance the acquisition and development or construction of real property or equipment, and credit card and personal credit lines. The availability of funds under commercial credit lines and loan commitments generally depends on whether the borrower continues to meet credit standards established in the underlying contract and has not violated other contractual conditions. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the borrower. Credit card and personal credit lines are generally subject to cancellation if the borrower’s credit quality deteriorates. A number of commercial and personal credit lines are used only partially or, in some cases, not at all before they expire, and the total commitment amounts do not necessarily represent future cash requirements of the Company.

A substantial majority of the letters of credit are standby agreements that obligate the Company to fulfill a customer’s financial commitments to a third party if the customer is unable to perform. The Company issues standby letters of credit primarily to provide credit enhancement to its customers’ other commercial or public financing arrangements and to help them demonstrate financial capacity to vendors of essential goods and services.

The contract amounts of these instruments reflect the Company’s exposure to credit risk. The Company undertakes the same credit evaluation in making loan commitments and assuming conditional obligations as it does for on-balance sheet instruments and may require collateral or other credit support. These off-balance sheet financial instruments are summarized below:



(Dollars in thousands)	September 30, 2018		December 31, 2017
Commitments to extend credit	$	1,247,579	$	1,068,088
Standby letters of credit	81,432		79,893

In addition to the above, the Company guarantees the credit card debt of certain customers to the merchant bank that issues the credit cards. These guarantees are in place for as long as the guaranteed credit card is open. At both September 30, 2018, and December 31, 2017, these credit card guarantees totaled $747,000 and $1.0 million, respectively. This amount represents the maximum potential amount of future payments under the guarantee for which the Company would be responsible in the event of customer non-payment.

At September 30, 2018, and December 31, 2017, the Company had FHLB letters of credit totaling $130.0 million and $185.0 million, respectively, available to secure public deposits, and for other purposes required or permitted by law.

Management establishes an asset-specific allowance for lending-related commitments that are considered impaired and computes a formula-based allowance for performing consumer and commercial lending-related commitments. These are computed using a methodology similar to that used for the commercial loan portfolio, modified for expected maturities and probabilities of drawdown. The reserve for lending-related commitments was $1.6 million and $2.0 million at September 30, 2018, and December 31, 2017, respectively, and is included in other liabilities in the accompanying consolidated balance sheets.

Loss Contingencies

From time to time the Company is also party to various legal proceedings arising in the ordinary course of business. Management does not believe that loss contingencies, if any, arising from such pending litigation or regulatory matters would have a material adverse effect on the consolidated financial position or liquidity of the Company.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Unless the context indicates otherwise, references in the management discussion and analysis to “we,” “our,” and “us,” refer to Origin Bancorp, Inc., a Louisiana corporation, and its consolidated subsidiaries. All references to “Origin Bank” or “the Bank” refer to Origin Bank, our wholly owned bank subsidiary.

The following discussion and analysis presents our financial condition and results of operations on a consolidated basis. However, we conduct all of our material business operations through our wholly owned bank subsidiary, Origin Bank, and the discussion and analysis that follows primarily relates to activities conducted at the bank level.

This section presents management’s perspective on our financial condition and results of operations. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.” We assume no obligation to update any of these forward-looking statements.

General

We are a financial holding company headquartered in Ruston, Louisiana. We provide a broad range of financial services, operating through one segment, to small and medium-sized businesses, municipalities, high net worth individuals and retail clients through 41 banking centers in Louisiana, Texas and Mississippi. We generate the majority of our revenue from interest earned on loans and investments, service charges and fees on deposit accounts.

2018 Third Quarter Executive Summary:


•	Net interest income increased by $5.6 million, or 16.6%, and $15.3 million, or 15.9%, over the three and nine months ended September 30, 2017, respectively.


•	Net interest margin for the quarter ended September 30, 2018, was 3.70% (3.76% fully tax equivalent), an increase of 17 basis points over the three months ended September 30, 2017. Net interest margin for the nine months ended September 30, 2018, was 3.67% (3.73% fully tax equivalent), an increase of 28 basis points over the nine months ended September 30, 2017.


•	Total loans held for investment increased by $372.1 million, or 11.5%, from September 30, 2017. The yield earned on total loans held for investment during the three and nine months ended September 30, 2018, was 5.00% and 4.88%, respectively, compared to 4.48% and 4.33% for the three and nine months ended September 30, 2017, respectively.


•	Total deposits increased by $273.6 million, or 7.9%, from September 30, 2017. Noninterest-bearing deposits were 26.2% of total deposits at September 30, 2018, compared to 25.2% at September 30, 2017.


•	Completed acquisition of Reeves, Coon & Funderburg ("RCF") insurance agency, solidifying our presence as one of the larger independent insurance agencies in North Louisiana.


•	Continued development of quality lending and deposit relationships through the recent integration of new lending and relationship banking teams in the Houston, Dallas and Shreveport markets.

Comparison of the Results of Operations for the Three Months Ended September 30, 2018 and 2017

Net Interest Income

Net interest income for the quarter ended September 30, 2018, was $39.5 million, an increase of $5.6 million over the quarter ended September 30, 2017. The increase was primarily driven by higher loan yields resulting from increases in market interest rates during the intervening period and growth in average total loans. The yield earned on the total loan

portfolio was 5.00% for the quarter ended September 30, 2018, compared to 4.47% for the quarter ended September 30, 2017. Average total loans were $3.48 billion for the quarter ended September 30, 2018, compared to $3.21 billion for the quarter ended September 30, 2017. Commercial and industrial and commercial real estate loans contributed a total of $5.1 million, or 66.2%, of the $7.7 million increase in interest income earned on loans for the comparable periods, driven by a $178.8 million increase in average loan balances and a 55 basis point increase in the average yield. Also contributing to the increase in net interest income was a $1.2 million increase in income earned on investment securities driven by higher volume and to a lesser extent increases in yield. The increase in net interest income was partially offset by higher costs of funding, which was also primarily driven by increases in market interest rates.

Interest-bearing liability rates increased in the current quarter compared the quarter ended September 30, 2017, primarily due to higher average savings and interest-bearing deposit account rates and higher average balances of borrowings. The average rate paid on interest-bearing deposits was 1.16% for the quarter ended September 30, 2018, representing an increase of 39 basis points compared to the quarter ended September 30, 2017. The average outstanding balance of borrowings increased by $128.3 million or 168.3% compared to the quarter ended September 30, 2017. The increase in the current period compared to the quarter ended September 30, 2017, was due to a $250.0 million FHLB advance obtained in the third quarter of 2018, which has been re-deployed into higher yielding interest-earning assets such as loans, investment securities and interest-bearing cash accounts and replaced higher rate FHLB advances.

The $250.0 million FHLB advance contributed to the increase in net interest income as average yields earned on the re-deployed funds exceeded the rate paid on the advance. Despite generating an increase in net interest income, the net interest margin for the quarter ended September 30, 2018, was negatively impacted by the FHLB advance.

The following table presents average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the three months ended September 30, 2018 and 2017.



	Three months ended September 30,
(Dollars in thousands)	2018						2017
Assets	Average Balance⁽¹⁾		Income/Expense		Yield/Rate⁽²⁾		Average Balance⁽¹⁾		Income/Expense		Yield/Rate⁽²⁾
Commercial real estate	$	1,122,377	$	14,042	4.96	%	$	1,033,602	$	11,906	4.57	%
Construction/land/land development	392,936		5,284		5.34		316,660		3,812		4.78
Residential real estate	575,126		6,826		4.75		511,644		5,733		4.48
Commercial and industrial	1,120,431		13,995		4.96		1,030,369		11,043		4.25
Mortgage warehouse lines of credit	228,031		3,089		5.37		249,511		2,856		4.54
Consumer	20,129		348		6.91		21,515		345		6.42
Loans held for investment	3,459,030		43,584		5.00		3,163,301		35,695		4.48
Loans held for sale	22,157		288		5.20		50,318		490		3.89
Loans receivable	3,481,187		43,872		5.00		3,213,619		36,185		4.47
Investment securities-taxable	440,676		2,754		2.50		288,100		1,536		2.13
Investment securities-non-taxable	125,489		1,129		3.60		134,566		1,187		3.53
Non-marketable equity securities held in other financial institutions	32,058		186		2.31		19,473		192		3.91
Interest-bearing balances due from banks	148,853		894		2.38		147,726		514		1.38
Federal funds sold	1,304		7		2.03		—		—		—
Total interest-earning assets	4,229,567		48,842		4.58	%	3,803,484		39,614		4.13	%
Noninterest-earning assets⁽³⁾	310,804						294,358
Total assets	$	4,540,371					$	4,097,842
Liabilities and Stockholders' Equity
Liabilities
Interest-bearing liabilities
Savings and interest-bearing transaction accounts	$	1,963,821	$	5,020	1.01	%	$	1,953,333	$	3,332	0.68	%
Time deposits	740,893		2,871		1.54		621,271		1,663		1.06
Total interest-bearing deposits	2,704,714		7,891		1.16		2,574,604		4,995		0.77
FHLB advances	204,607		1,235		2.40		76,265		586		3.05
Securities sold under agreements to repurchase	34,284		79		0.92		29,182		26		0.35
Subordinated debentures	9,633		140		5.67		9,610		139		5.72
Total interest-bearing liabilities	2,953,238		9,345		1.26		2,689,661		5,746		0.85
Noninterest-bearing deposits	984,330						880,199
Other liabilities⁽³⁾	68,553						63,730
Total liabilities	4,006,121						3,633,590
Stockholders' Equity	534,250						464,252
Total liabilities and stockholders' equity	$	4,540,371					$	4,097,842
Net interest spread					3.32	%					3.28	%
Net interest income and margin			$	39,497	3.70	%			$	33,868	3.53	%
Net interest income and margin - (tax equivalent)⁽⁴⁾			$	40,104	3.76	%			$	34,760	3.63	%

____________________________


⁽¹⁾	Nonaccrual loans are included in their respective loan category for the purpose of calculating the yield earned. All average balances are daily average balances.


⁽²⁾	Yields earned and rates paid are calculated at the portfolio level using the actual number of days in each month over the actual number of days in the year, except for our securities, consumer real estate and held for sale loan portfolios, which are calculated using 30 days in a month over 360 days in a year.

⁽³⁾

Includes Government National Mortgage Association ("GNMA") repurchase average balances of $29.9 million and $25.7 million for the three months ended September 30, 2018, and September 30, 2017, respectively. The GNMA repurchase asset and liability are recorded as equal offsetting amounts in the consolidated balance sheets, with the asset included in Loans held for sale and the liability included in FHLB advances and other borrowings. For more information on the GNMA repurchase option, see Note 7 - Mortgage Banking in the condensed notes to the financial statements.

⁽⁴⁾

In order to present pre-tax income and resulting yields on tax-exempt investments comparable to those on taxable investments, a tax-equivalent adjustment has been computed. This adjustment also includes income tax credits received on Qualified School Construction Bonds. Income from tax-exempt investments and tax credits were computed using a Federal income tax rate of 21% for the three months ended September 30, 2018, and 35% for the three months ended September 30, 2017. The tax-equivalent net interest margin would have been 3.59% for the three months ended September 30, 2017, if we had been subject to the 21% Federal income tax rate enacted for 2018, in the Tax Cuts and Jobs Act.

Rate/Volume Analysis

Increases and decreases in interest income and interest expense result from changes in average balances ("volume") of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to average outstanding balances and those due to changes in interest rates. The change in interest attributable to rate changes has been determined by applying the change in rate between periods to average balances outstanding in the earlier period. The change in interest due to volume has been determined by applying the rate from the earlier period to the change in average balances outstanding between periods. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.



	Three months ended September 30, 2018 vs. three months ended September 30, 2017
(Dollars in thousands)	Increase (decrease) due to change in
Interest-earning assets	Volume			Yield/Rate			Total Change
Loans:
Commercial real estate	$	1,023		$	1,113		$	2,136
Construction/land/land development	918			554			1,472
Residential real estate	711			382			1,093
Commercial and industrial	965			1,987			2,952
Mortgage warehouse lines of credit	(246		)	479			233
Consumer	(22		)	25			3
Loans held for sale	(274		)	72			(202		)
Loans receivable	3,075			4,612			7,687
Investment securities-taxable	814			404			1,218
Investment securities-non-taxable	(80		)	22			(58		)
Non-marketable equity securities held in other financial institutions	124			(130		)	(6		)
Interest-bearing deposits in banks	4			376			380
Federal funds sold	—			7			7
Total interest-earning assets	3,937			5,291			9,228
Interest-bearing liabilities
Savings and interest-bearing transaction accounts	18			1,670			1,688
Time deposits	320			888			1,208
FHLB advances	986			(337		)	649
Securities sold under agreements to repurchase	4			49			53
Junior subordinated debentures	—			1			1
Total interest-bearing liabilities	1,328			2,271			3,599
Net interest income	$	2,609		$	3,020		$	5,629

Provision for Credit Losses

The provision for credit losses, which includes both the provision for loan losses and provision for off-balance sheet commitments, is based on management’s assessment of the adequacy of both our allowance for loan losses and our reserve for off-balance sheet lending commitments. Factors impacting the provision include inherent risk characteristics in our loan portfolio, the level of nonperforming loans and net charge-offs, both current and historic, local economic and credit conditions, the direction of the change in collateral values, and the funding probability on unfunded lending commitments. The provision for credit losses is charged against earnings in order to maintain our allowance for loan losses, which reflects management’s best estimate of probable losses inherent in our loan portfolio at the balance sheet date, and our reserve for off-balance sheet lending commitments, which reflects management's best estimate of probable losses inherent in our legally binding lending-related commitments. The allowance is increased by the provision for loan losses and decreased by charge-offs, net of recoveries.

We recorded provision expense of $504,000 for the quarter ended September 30, 2018, a decrease of $2.8 million compared to provision expense of $3.3 million for the quarter ended September 30, 2017. The decrease in provision expense during the current quarter was due to an overall improvement in credit quality within our loan portfolio. At September 30, 2018, the allowance for loan losses as a percentage of total loans held for investment was 0.99%, compared to 1.22% at September 30, 2017. Allowance for loan losses as a percentage of nonperforming loans held for investment was 134.54% at September 30, 2018, compared to 159.93% at September 30, 2017. The decline in reserves for impaired loans was driven by paydowns and credit quality improvement of certain collateral dependent impaired loans.

Noninterest Income

The table below presents the various components of and changes in our noninterest income for the periods indicated.



(Dollars in thousands)	Three months ended September 30,
Noninterest income:	2018			2017			$ Change			% Change
Service charges and fees	$	3,234		$	2,919		$	315		10.8	%
Mortgage banking revenue	2,621			3,895			(1,274		)	(32.7	)
Insurance commission and fee income	3,306			2,043			1,263			61.8
Losses on non-mortgage loans held for sale, net	—			(5,409		)	5,409			(100.0	)
Loss on sales and disposals of other assets, net	(207		)	(44		)	(163		)	N/M
Other fee income	364			574			(210		)	(36.6	)
Other income	919			1,063			(144		)	(13.5	)
Total noninterest income	$	10,237		$	5,041		$	5,196		103.1	%

Noninterest income for the three months ended September 30, 2018, increased by $5.2 million, or 103.1%, to $10.2 million, compared to $5.0 million for the three months ended September 30, 2017. The primary drivers of the increase were losses on non-mortgage loans sold, which were zero during the current quarter, compared to losses of $5.4 million during the quarter ended September 30, 2017, as well as an increase of $1.3 million in insurance commission and fee income. These increases were partially offset by a decline of $1.3 million in mortgage banking revenue.

Losses on non-mortgage loans held for sale, net. During the quarter ended June 30, 2017, several energy loans previously classified as held for investment were re-classified as held for sale. The reclassification was part of our strategy to manage the reduction in our energy loan portfolio through the sale of certain remaining energy loans. During the quarter ended September 30, 2017, in conjunction with efforts to market the loans, we re-evaluated the loans and determined that an additional impairment charge of $5.4 million was necessary. We did not have any energy loans held for sale during the three months ended September 30, 2018, and did not record any impairment charges during the three months ended September 30, 2018.

Insurance commission and fee income. The $1.3 million increase in insurance commission and fee income was primarily driven by the recent acquisition of RCF completed on July 1, 2018.

Mortgage banking revenue. The decline in mortgage banking revenue was primarily driven by a 35.9% decrease in the volume of loans sold which resulted in a $1.4 million decrease in gain on the sale of mortgage loans. The decrease in volume was primarily driven by a strategic decision made in 2017 to discontinue purchasing loans originated by third parties, and to focus on generating volume within our core market areas through the development and build-out of our own retail platform, as well as reductions in refinance activity as a result of increasing market rates.

Noninterest Expense

The following table presents the significant components of noninterest expense for the periods indicated:



(Dollars in thousands)	Three months ended September 30,				$ Change			% Change
Noninterest expense:	2018		2017		$ Change			% Change
Salaries and employee benefits	$	21,054	$	18,342	$	2,712		14.8	%
Occupancy and equipment, net	4,169		4,046		123			3.0
Data processing	1,523		1,259		264			21.0
Electronic banking	761		235		526			N/M
Communications	490		469		21			4.5
Advertising and marketing	1,245		651		594			91.2
Professional services	982		1,364		(382		)	(28.0	)
Regulatory assessments	411		748		(337		)	(45.1	)
Loan related expenses	718		993		(275		)	(27.7	)
Office and operations	1,499		1,330		169			12.7
Litigation settlement	—		10,000		(10,000		)	(100.0	)
Other	1,492		1,006		486			48.3
Total noninterest expense	$	34,344	$	40,443	$	(6,099	)	(15.1	)%

Noninterest expense for the three months ended September 30, 2018, decreased by $6.1 million, or 15.1%, to $34.3 million, compared to $40.4 million for the three months ended September 30, 2017. During the quarter ended September 30, 2017, we recorded a $10.0 million litigation settlement agreement. After adjusting for the $10.0 million litigation charge, noninterest expense increased by $3.9 million, primarily due to increases of $2.7 million, $594,000, $526,000 and $486,000, in salaries and employee benefits, advertising and marketing, electronic banking expenses, and other noninterest expense, respectively.

Litigation settlement. On January 23, 2017, the ResCap Liquidating Trust, or ResCap, as successor to Residential Funding Company, LLC f/k/a Residential Funding Corporation, or RFC, filed a complaint against Origin Bank, as successor to Cimarron Mortgage Company, or Cimarron, a former residential mortgage lender purchased by Origin Bank in 2011 and merged into the bank in 2013, in the United States District Court for the District of Minnesota. The complaint included a claim for damages against Origin Bank arising out of a guaranty in which the Bank, as successor to Cimarron, guaranteed Cimarron's full performance under the contract governing the sale of mortgage loans to RFC. During the quarter ended September 30, 2017, we entered into a settlement agreement with respect to litigation with ResCap. Under the agreement, we paid $10.0 million to fully resolve all claims under the lawsuit and to avoid the further costs, disruption, and distraction of defending the ResCap litigation. We recorded a charge to non-interest expense in our consolidated statement of income for the three months ended September 30, 2017, to recognize this settlement.

Salaries and employee benefits. The $2.7 million increase in salaries and employee benefits reflects a $1.1 million increase due to hiring an existing loan team from another company ("lift out team") in Houston during the second quarter of 2018, and a $965,000 increase due to the RCF acquisition, which was completed on July 1, 2018.

Advertising and marketing. During 2017, marketing expenditures were temporarily scaled back as part of a Company-wide expense management strategy, but in March 2018 marketing efforts were resumed with the launch of a new advertising campaign, which increased costs during the quarter ended September 30, 2018.

Electronic banking. During the quarter ended September 30, 2017, we received a $410,000 vendor refund for certain credits designed to offset electronic banking expenses. There was no corresponding refund during the quarter ended September 30, 2018.

Other. Intangible asset amortization as a result of the RCF acquisition resulted in an increase in noninterest expense of approximately $272,000 over the quarter ended September 30, 2017.

Income Tax Expense

The amount of income tax expense is influenced by the amounts of our pre-tax income, tax-exempt income, tax credits and nondeductible expenses. Deferred tax assets and liabilities are reflected at currently enacted income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

For the three months ended September 30, 2018, we recognized income tax expense of $2.6 million, compared to an income tax benefit of $2.7 million for the three months ended September 30, 2017. Our effective tax rate for the three months ended September 30, 2018, was 17.3%, compared to 55.3% for the three months ended September 30, 2017.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted, which lowered the Federal corporate income tax rate to 21% from 35% for tax years beginning in 2018. Our effective income tax rates have differed from the U.S. statutory rate of 21% and 35% during the three months ended September 30, 2018 and 2017, respectively, due to the effect of tax-exempt income from securities, low income housing and qualified school construction bond tax credits, tax-exempt income from life insurance policies and income tax effects associated with stock-based compensation. Because of these items, we expect our effective income tax rate to continue to remain below the U.S. statutory rate. These tax-exempt items can have a larger than proportional effect on the effective income tax rate as net income decreases.

Comparison of the Results of Operations for the Nine Months Ended September 30, 2018 and 2017

Net Interest Income

Net interest income for the nine months ended September 30, 2018, was $111.4 million, an increase of $15.3 million over the nine months ended September 30, 2017. The increase was primarily due to higher yields earned on our loan portfolio, driven by rising market interest rates during the intervening period, which provided $13.5 million of the increase in interest income on loans. The yield earned on the total loan portfolio was 4.88% for the nine months ended September 30, 2018, compared to 4.32% for the nine months ended September 30, 2017. Average total loans totaled $3.33 billion for the nine months ended September 30, 2018, compared to $3.16 billion for the nine months ended September 30, 2017. Increases in average total loans provided $6.1 million of the increase in interest income on loans and higher average balances drove majority of the $1.9 million of the increase in interest income on investment securities. Commercial and industrial and commercial real estate loans contributed a total of $11.9 million, or 60.5%, of the $19.6 million increase in interest income earned on loans for the comparable periods, driven by a 60 basis point increase in the average yield and a $69.8 million increase in average loan balances. These increases were partially offset by higher costs of funding, which was also driven by increases in market interest rates.

Interest-bearing liability rates increased during the nine months ended September 30, 2018, compared to the same period in 2017, primarily due to higher average savings and interest-bearing transaction account rates. The average rate paid on interest-bearing deposits was 1.02% for the nine months ended September 30, 2018, an increase of 31 basis points from 0.71% for the nine months ended September 30, 2017.

The following table presents average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the nine months ended September 30, 2018 and 2017.



	Nine months ended September 30,
(Dollars in thousands)	2018						2017
Assets	Average Balance⁽¹⁾		Income/Expense		Yield/Rate⁽²⁾		Average Balance⁽¹⁾		Income/Expense		Yield/Rate⁽²⁾
Commercial real estate	$	1,099,755	$	39,729	4.83	%	$	1,018,550	$	33,923	4.45	%
Construction/land/land development	357,490		13,882		5.19		316,220		10,701		4.52
Residential real estate	579,196		19,974		4.60		479,647		15,944		4.43
Commercial and industrial	1,049,536		38,166		4.86		1,060,986		32,105		4.05
Mortgage warehouse lines of credit	204,047		8,009		5.25		213,222		7,009		4.40
Consumer	20,649		1,042		6.73		21,862		1,027		6.26
Loans held for investment	3,310,673		120,802		4.88		3,110,487		100,709		4.33
Loans held for sale	23,225		763		4.38		46,560		1,226		3.51
Loans Receivable	3,333,898		121,565		4.88		3,157,047		101,935		4.32
Investment securities-taxable	372,195		6,551		2.35		288,984		4,614		2.13
Investment securities-non-taxable	128,858		3,469		3.59		135,354		3,579		3.53
Non-marketable equity securities held in other financial institutions	26,055		630		3.23		18,483		544		3.93
Interest-bearing deposits in banks	200,238		2,816		1.88		189,261		1,513		1.07
Federal funds sold	440		7		2.03		—		—		—
Total interest-earning assets	4,061,684		$	135,038	4.45	%	3,789,129		$	112,185	3.96	%
Noninterest-earning assets⁽³⁾	307,753						290,200
Total assets	$	4,369,437					$	4,079,329
Liabilities and Stockholders' Equity
Liabilities
Interest-bearing liabilities
Savings and interest-bearing transaction accounts	$	2,017,731	$	13,623	0.90	%	$	1,978,914	$	8,964	0.61	%
Time deposits	686,997		7,068		1.38		637,007		4,904		1.03
Total interest-bearing deposits	2,704,728		20,691		1.02		2,615,921		13,868		0.71
FHLB advances	118,885		2,375		2.67		76,502		1,757		3.07
Securities sold under agreements to repurchase	31,097		167		0.72		28,727		64		0.30
Subordinated debentures	9,628		414		5.66		9,604		410		5.70
Total interest-bearing liabilities	2,864,338		23,647		1.10		2,730,754		16,099		0.79
Noninterest-bearing deposits	930,910						827,111
Other liabilities⁽³⁾	71,722						60,646
Total liabilities	3,866,970						3,618,511
Stockholders' Equity	502,467						460,818
Total liabilities and stockholders' equity	$	4,369,437					$	4,079,329
Net interest spread					3.35	%					3.17	%
Net interest income and margin			$	111,391	3.67	%			$	96,086	3.39	%
Net interest income and margin - (tax equivalent)⁽⁴⁾			$	113,224	3.73	%			$	98,763	3.48	%

____________________________


⁽¹⁾	Nonaccrual loans are included in their respective loan category for the purpose of calculating the yield earned. All average balances are daily average balances.


⁽²⁾	Yields earned and rates paid are calculated at the portfolio level using the actual number of days in each month over the actual number of days in the year, except for our securities, consumer real estate and held for sale loan portfolios, which are calculated using 30 days in a month over 360 days in a year.

⁽³⁾

Includes GNMA repurchase average balances of $30.4 million and $24.8 million for the nine months ended September 30, 2018, and September 30, 2017, respectively. The GNMA repurchase asset and liability are recorded as equal offsetting amounts in the consolidated balance sheets, with the asset included in loans held for sale and the liability included in FHLB advances and other borrowings. For more information on the GNMA repurchase option, see Note 7 - Mortgage Banking in the condensed notes to the financial statements.

⁽⁴⁾

In order to present pre-tax income and resulting yields on tax-exempt investments comparable to those on taxable investments, a tax-equivalent adjustment has been computed. This adjustment also includes income tax credits received on Qualified School Construction Bonds. Income from tax-exempt investments and tax credits were computed using a Federal income tax rate of 21% for the nine months ended September 30, 2018, and 35% for the nine months ended September 30, 2017. The tax-equivalent net interest margin would have been 3.45% for the nine months ended September 30, 2017, if we had been subject to the 21% Federal income tax rate enacted for 2018, in the Tax Cuts and Jobs Act.

Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and those due to changes in interest rates. The change in interest attributable to rate changes has been determined by applying the change in rate between periods to average balances outstanding in the earlier period. The change in interest due to volume has been determined by applying the rate from the earlier period to the change in average balances outstanding between periods. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.



	Nine months ended September 30, 2018, vs. nine months ended September 30, 2017
(Dollars in thousands)	Increase (decrease) due to change in
Interest-earning assets	Volume			Yield/Rate			Total Change
Loans:
Commercial real estate	$	2,705		$	3,101		$	5,806
Construction/land/land development	1,397			1,784			3,181
Residential real estate	3,309			721			4,030
Commercial and industrial	(346		)	6,407			6,061
Mortgage warehouse lines of credit	(302		)	1,302			1,000
Consumer	(57		)	72			15
Loans held for sale	(615		)	152			(463		)
Loans receivable	6,091			13,539			19,630
Investment securities-taxable	1,328			609			1,937
Investment securities-non-taxable	(172		)	62			(110		)
Non-marketable equity securities held in other financial institutions	223			(137		)	86
Interest-bearing deposits in banks	88			1,215			1,303
Federal funds sold	—			7			7
Total interest-earning assets	7,558			15,295			22,853
Interest-bearing liabilities
Savings and interest-bearing transaction accounts	176			4,483			4,659
Time deposits	385			1,779			2,164
FHLB advances	974			(356		)	618
Securities sold under agreements to repurchase	5			98			103
Junior subordinated debentures	1			3			4
Total interest-bearing liabilities	1,541			6,007			7,548
Net interest income	$	6,017		$	9,288		$	15,305

Provision for Credit Losses

We recorded a provision benefit of $709,000 for the nine months ended September 30, 2018, a $8.8 million decrease from provision expense of $8.1 million for the nine months ended September 30, 2017. The primary driver of the decrease in provision expense was a deteriorating portfolio of certain collateral-dependent impaired loans during the nine months ended September 30, 2017, as compared to the current improving credit profile of our loan portfolio. The release of provision for the nine months ended September 30, 2018, reflects a decrease in the estimated general reserve for losses incurred within the loan portfolio due to reductions in the balance and credit improvement in collateral dependent loans, which resulted in a decrease of reserves recorded on loans. This overall improvement in credit quality drove the decrease in general reserves despite an increase of $372.1 million in loans held for investment from September 30, 2017. General reserves totaled $32.4 million, or 0.9% of total loans held for investment at September 30, 2018, compared to $34.6 million, or 1.1% at September 30, 2017. Specific reserves totaled $3.3 million at September 30, 2018, compared to $4.8 million at September 30, 2017.

Noninterest Income

The table below presents the various components of and changes in our noninterest income for the periods indicated.



(Dollars in thousands)	Nine months ended September 30,
Noninterest income:	2018			2017			$ Change			% Change
Service charges and fees	$	9,405		$	8,575		$	830		9.7	%
Mortgage banking revenue	7,332			12,700			(5,368		)	(42.3	)
Insurance commission and fee income	7,239			5,788			1,451			25.1
Losses on non-mortgage loans held for sale, net	—			(12,708		)	12,708			(100.0	)
(Loss) gain on sales and disposals of other assets, net	(147		)	1,372			(1,519		)	(110.7	)
Other fee income	1,219			1,759			(540		)	(30.7	)
Other income	5,604			2,986			2,618			87.7
Total noninterest income	$	30,652		$	20,472		$	10,180		49.7	%

Noninterest income for the nine months ended September 30, 2018, increased by $10.2 million, or 49.7%, to $30.7 million, compared to $20.5 million for the nine months ended September 30, 2017. The increase in noninterest income was driven primarily by losses incurred on non-mortgage loans held for sale during the nine months ended September 30, 2017, which were not incurred during the nine months ended September 30, 2018, as well as increases in other income and insurance commission and fee income. These increases were partially offset by declines in mortgage banking revenue and losses/gains on sales and disposals of other assets.

Losses on non-mortgage loans held for sale, net. During the nine months ended September 30, 2017, several energy loans previously classified as held for investment were re-classified as held for sale. The reclassification was part of our strategy to manage the reduction in our energy loan portfolio through the sale of certain remaining energy loans. As we began efforts to sell the loans and it became apparent there was limited marketability for these loans due to the state of uncertainty around the energy sector, which resulted in significantly discounted purchase offers being received from willing market participants. Due to our desire to reduce further loss exposure to these energy loans we recorded $12.7 million in total losses on discounted sales of these loans during the nine months ended September 30, 2017. We did not have any energy loans held for sale during the nine months ended September 30, 2018, and did not record any impairment charges on such loans during the nine months ended September 30, 2018.

Mortgage banking revenue. The $5.4 million decline in mortgage banking revenue for the comparative nine month periods ended September 30, 2018 and 2017, was primarily driven by a 37.3% reduction in the volume of loans sold, resulting in a decrease in gains on sale of loans of approximately $3.4 million. Additionally, a decline in our mortgage pipeline during the nine months ended September 30, 2018, compared to an increase in our pipeline during the nine months ended September 30, 2017, drove a decline in valuation income of $1.1 million between the comparative periods. Mortgage servicing revenue declined by $733,000 during the nine months ended September 30, 2018, compared to the same period in 2017, due primarily to a decline in the balance of our servicing portfolio, which was $2.11 billion at September 30, 2018, compared to $2.44 billion at September 30, 2017.

Other income. The most significant driver of the increase in other noninterest income for the nine months ended September 30, 2018, compared to the same period in 2017, was a positive valuation adjustment of $2.0 million on a common stock investment due to a recent accounting standard change. For more information on ASU 2016-01, please refer to Note 1 - Significant Accounting Policies in the notes to the condensed consolidated financial statements.

(Loss) Gain on sales and disposals of other assets, net. The decrease in this category was driven by the sale of a bank-owned tract of vacant land for a gain of $1.5 million during the nine months ended September 30, 2017, with no corresponding sale during the nine months ended September 30, 2018.

Insurance commission and fee income. The $1.5 million increase in insurance commission and fee income was primarily driven by the RCF acquisition that was completed on July 1, 2018.

Noninterest Expense

The following table presents the significant components of noninterest expense for the periods indicated:



(Dollars in thousands)	Nine months ended September 30,				$ Change			% Change
Noninterest expense:	2018		2017		$ Change			% Change
Salaries and employee benefits	$	59,154	$	52,647	$	6,507		12.4	%
Occupancy and equipment, net	11,615		11,917		(302		)	(2.5	)
Data processing	4,343		3,784		559			14.8
Electronic banking	2,184		1,498		686			45.8
Communications	1,515		1,435		80			5.6
Advertising and marketing	2,924		1,859		1,065			57.3
Professional services	2,245		3,555		(1,310		)	(36.8	)
Regulatory assessments	1,791		2,128		(337		)	(15.8	)
Loan related expenses	2,229		2,960		(731		)	(24.7	)
Office and operations	4,365		4,105		260			6.3
Litigation settlement	—		10,000		(10,000		)	(100.0	)
Other	3,848		3,015		833			27.6
Total noninterest expense	$	96,213	$	98,903	$	(2,690	)	(2.7	)%

Noninterest expense for the nine months ended September 30, 2018, decreased by $2.7 million, or 2.7%, to $96.2 million, compared to $98.9 million for the nine months ended September 30, 2017. The most significant driver of the decrease were litigation settlement expenses, which decreased by $10.0 million. After adjusting for the $10.0 million litigation charge, noninterest expense increased by $7.3 million, primarily due to increases of $6.5 million and $1.1 million in salary and employee benefits and advertising and marketing expenses, respectively, partially offset by a decrease of $1.3 million in professional services.

Litigation settlement. During the nine months ended September 30, 2017, we entered into a settlement agreement with respect to litigation with ResCap. Under the agreement, we paid $10.0 million to fully resolve all claims under the lawsuit and to avoid the further costs, disruption, and distraction of defending the ResCap litigation. We recorded a charge to non-interest expense in our consolidated statement of income during the three months ended September 30, 2017, to recognize this settlement.

Salaries and employee benefits. The $6.5 million increase in salaries and employee benefit expense was due to increases in salary expense and incentive compensation of $3.3 million and $3.2 million, respectively. Of the increase in salary expense, $1.6 million and $965,000 was attributed to the addition of the Houston lift-out team and the RCF acquisition, respectively. The remainder of the increase in salary expense was due to additional headcount added during the past 12 months to support our recent growth. The increase in incentive compensation was driven by the overall improvement in performance of the Company during the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017, which resulted in significantly more performance targets being met.

These increases were partially offset by decreases in commission expense and severance compensation of $1.1 million and $645,000, respectively, which were primarily driven by a reduction in volume in our mortgage banking loan originations during the nine months ended September 30, 2018, and the departure of one of our executives during the nine months ended September 30, 2017.

Professional services. During the nine months ended September 30, 2017, we incurred approximately $666,000 in consulting fees related to the marketing and sale of certain energy loans as part of our initiative to strategically reduce our exposure to nonperforming energy loans, and incurred approximately $329,000 in legal fees that were associated with the resolution of the ResCap litigation. Neither of these expenses were incurred during the nine months ended September 30, 2018.

Advertising and marketing. The increase in advertising and marketing expense for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017, is largely due to a Company-wide expense management strategy that temporarily scaled back marketing expenditures during the 2017 period. In March 2018, marketing efforts were resumed with the launch of a new advertising campaign.

Income Tax Expense

For the nine months ended September 30, 2018, we recognized income tax expense of $8.1 million, compared to $664,000 for the nine months ended September 30, 2017. Our effective tax rate for the nine months ended September 30, 2018, was 17.4% compared to 6.9% for the nine months ended September 30, 2017.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted which lowered the Federal corporate income tax rate to 21% from 35% for tax years beginning in 2018. Our effective income tax rates have differed from the U.S. statutory rate of 21% and 35% during the nine months ended September 30, 2018 and 2017, respectively, due to the effect of tax-exempt income from securities, low income housing and qualified school construction bond tax credits, tax-exempt income from life insurance policies and income tax effects associated with stock-based compensation. Because of these items, we expect our effective income tax rate to continue to remain below the U.S. statutory rate. These tax-exempt items can have a larger than proportional effect on the effective income tax rate as net income decreases.

Comparison of Financial Condition at September 30, 2018, and December 31, 2017

General

Total assets increased by $513.6 million, or 12.4%, to $4.67 billion at September 30, 2018, from $4.15 billion at December 31, 2017. The increase was primarily attributable to increases in loans held for investment and securities available for sale of $360.1 million, and $181.3 million, respectively, and was partially offset by a decrease of $46.8 million in cash and cash equivalents.

Loan Portfolio

At September 30, 2018, 71.9% of our loan portfolio held for investment was comprised of commercial and industrial loans, mortgage warehouse lines of credit and commercial real estate loans. The following table presents the ending balance of our loan portfolio held for investment by purpose category at the dates indicated.



	September 30, 2018				December 31, 2017
(Dollars in thousands)	Amount		Percent		Amount		Percent		$ Change			% Change
Real estate:
Commercial real estate	$	1,162,274	32.3	%	$	1,083,275	33.5	%	$	78,999		7.3	%
Construction/land/land development	406,249		11.3		322,404		9.9		83,845			26.0
Residential real estate	585,931		16.2		570,583		17.6		15,348			2.7
Total real estate	2,154,454		59.8		1,976,262		61.0		178,192			9.0
Commercial and industrial	1,193,035		33.6		989,220		30.5		203,815			20.6
Mortgage warehouse lines of credit	233,325		6.0		255,044		7.9		(21,719		)	(8.5	)
Consumer	20,267		0.6		20,505		0.6		(238		)	(1.2	)
Total loans held for investment	$	3,601,081	100.0	%	$	3,241,031	100.0	%	$	360,050		11.1	%

At September 30, 2018, total loans held for investment were $3.60 billion, an increase of $360.1 million, or 11.1%, compared to $3.24 billion at December 31, 2017. The increase was driven by the continued generation of organic growth coupled with the recruitment of seasoned lenders and relationship managers in our expansion markets, which is evident by

increased loan production in most significant loan categories and led by increases in commercial and industrial and construction/land/land development loans.

Loan Portfolio Maturity Analysis

The table below presents the maturity distribution of our loans held for investment at September 30, 2018. The table also presents the portion of our loans that have fixed interest rates versus interest rates that fluctuate over the life of the loans based on changes in the interest rate environment.



	September 30, 2018
(Dollars in thousands)	One Year or Less		Over One Year Through Five Years		Over Five Years		Total
Real estate:
Commercial real estate	$	189,503	$	797,270	$	175,501	$	1,162,274
Construction/land/land development	116,652		253,047		36,550		406,249
Residential real estate loans	93,521		233,409		259,001		585,931
Total real estate	399,676		1,283,726		471,052		2,154,454
Commercial and industrial loans	469,702		636,262		87,071		1,193,035
Mortgage warehouse lines of credit	233,325		—		—		233,325
Consumer loans	6,248		13,545		474		20,267
Total loans held for investment	$	1,108,951	$	1,933,533	$	558,597	$	3,601,081

Amounts with fixed rates	$	198,292	$	1,003,148	$	223,356	$	1,424,796
Amounts with variable rates	910,659		930,385		335,241		2,176,285
Total	$	1,108,951	$	1,933,533	$	558,597	$	3,601,081

Nonperforming Assets

Nonperforming assets consist of nonperforming loans and property acquired through foreclosures or repossession. Our nonperforming loans are comprised of nonaccrual loans and accruing loans that are contractually past due 90 days or more.

Loans are considered past due when principal and interest payments have not been received at the date such payments are contractually due. We discontinue accruing interest on loans when we determine the borrower's financial condition is such that collection of interest and principal payments in accordance with the terms of the loan are not reasonably assured. Loans may be placed on nonaccrual status even if the contractual payments are not past due if information becomes available that causes substantial doubt about the borrower's ability to meet the contractual obligations of the loan. All interest accrued but not collected for loans that are placed on nonaccrual status is reversed against interest income. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal outstanding. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. If a loan is determined by management to be uncollectible, regardless of size, the portion of the loan determined to be uncollectible is then charged to the allowance for loan losses.

We manage the quality of our lending portfolio in part through a disciplined underwriting policy and through continual monitoring of loan performance and borrowers financial condition. There can be no assurance, however, that our loan portfolio will not become subject to losses due to declines in economic conditions or deterioration in the financial condition of our borrowers.

The following schedule shows our nonperforming loans and nonperforming assets at the dates indicated:



(Dollars in thousands)	September 30, 2018			December 31, 2017
Nonperforming loans held for investment
Commercial real estate	$	8,851		$	1,745
Construction/land/land development	960			1,097
Residential real estate	7,220			7,166
Commercial and industrial	9,285			13,512
Consumer	238			282
Total nonperforming loans held for investment	26,554			23,802
Nonperforming loans held for sale	1,391			—
Total nonperforming loans	27,945			23,802
Other real estate owned
Commercial real estate, construction/land/land development	2,993			390
Residential real estate	313			109
Total other real estate owned	3,306			499
Other repossessed assets owned	—			75
Total repossessed assets owned	3,306			574
Total nonperforming assets	$	31,251		$	24,376
Troubled debt restructuring loans - nonaccrual	$	2,040		$	2,622
Troubled debt restructuring loans - accruing	5,862			14,234
Total loans held for investment	3,601,081			3,241,031
Total allowance for loan losses	35,727			37,083
Ratio of allowance for loan losses to total nonperforming loans held for investment	134.54		%	155.80		%
Ratio of nonperforming loans held for investment to total loans held for investment	0.74			0.73
Ratio of nonperforming assets to total assets	0.67			0.59

At September 30, 2018, total nonperforming loans increased by $4.1 million, or 17.4%, over December 31, 2017, primarily as a result of a $7.5 million commercial real estate loan secured by a health care facility that was reclassified to nonaccrual status due to the facility experiencing lower than expected occupancy rates. The increase in other real estate owned was caused by the closure and reclassification, from premises and equipment to other real estate owned, of one of our branch locations and subsequently listing the property for sale. Despite the increase in total nonperforming loans, we continue to see improvement in our overall credit profile as disclosed in Note 5 - Loans, driven by downward trends in impaired and past due loans.

Potential Problem Loans

From a credit risk standpoint, we classify loans in one of five categories: pass, special mention, substandard, doubtful or loss. The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. We review the ratings on loans and adjust them to reflect the degree of risk and loss that is felt to be inherent in each loan. The methodology is structured so that reserve allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss). Loans rated special mention reflect borrowers who exhibit credit weaknesses or downward trends deserving close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the bank’s credit position at some future date. While potentially weak, no loss of principal or interest is envisioned and these borrowers currently do not pose sufficient risk to warrant adverse classification. Loans rated substandard are those borrowers with deteriorating trends and well-defined weaknesses that jeopardize the orderly liquidation of debt. A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower might be in jeopardy, although no loss of principal is envisioned.

Loans rated as doubtful have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values. Loans classified as loss are charged-off and we have no expectation of the recovery of any payments in respect to loans rated as loss. Information regarding the internal risk ratings of our loans at September 30, 2018, is included in Note 5 - Loans in the notes to our condensed consolidated financial statements included in this report.

Allowance for Loan Losses

We maintain an allowance for loan losses which represents management’s estimate of loan losses inherent within the portfolio of loans held for investment at the respective balance sheet date. The allowance for loan losses is maintained at a level which management believes is adequate to absorb all existing probable losses on loans in the loan portfolio. The amount of the allowance for loan losses should not be interpreted as an indication that charge-offs in future periods will necessarily occur in those amounts, or at all. In determining the allowance for loan losses, we estimate losses on specific loans, or groups of loans, where the probable loss can be identified and reasonably determined. The balance of the allowance for loan losses is based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature of the loan portfolio, overall portfolio quality, industry concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates.

The amount of the allowance is affected by loan charge-offs, which decrease the allowance, recoveries on loans previously charged off, which increase the allowance as well as the provision for loan losses charged to income, which increases the allowance. We allocate the allowance for loan losses either to specific allocations, or general allocations for each major loan category. In determining the provision for loan losses, management monitors fluctuations in the allowance resulting from actual charge-offs and recoveries and to periodically review the size and composition of the loan portfolio in light of current and anticipated economic conditions. If actual losses exceed the amount of allowance for loan losses, it could materially and adversely affect our earnings.

As a general rule, when it becomes evident that the full principal and accrued interest of a loan may not be collected, or at 90 days past due, we will reflect that loan as nonperforming. It will remain nonperforming until it performs in a manner that it is reasonable to expect that we will collect the full principal and accrued interest. When the amount or likelihood of a loss on a loan has been confirmed, a charge-off should be taken in the period it is determined.

We establish general allocations for each major loan category and credit quality. The general allocation is based, in part, on historical charge-off experience and the expected loss given default, derived from our internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data. We give consideration to trends, changes in loan mix, delinquencies, prior losses and other related information.

In connection with the review of our loan portfolio, we consider risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements we consider include:


•	for commercial real estate loans, the debt service coverage ratio, operating results of the owner in the case of owner occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type;


•	for construction, land and land development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio;


•	for residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan-to-value ratio, and the age, condition and marketability of the collateral; and

•

for commercial and industrial loans, the debt service coverage ratio (income from the business in excess of operating expenses compared to loan repayment requirements), the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral.

Our allowance for loan losses decreased by $1.4 million, or 3.7%, to $35.7 million at September 30, 2018, from $37.1 million at December 31, 2017. The ratio of the allowance for loan losses to loans held for investment at September 30, 2018, and December 31, 2017, was 0.99% and 1.05%, respectively. The decrease in the total allowance for loan losses was driven primarily by a lower level of general reserves required on our loan portfolio due to improvement in the credit profile as well as lower specific reserves on impaired loans. Our general reserve was 0.9% of total loans held for investment at September 30, 2018, compared to 1.1% at September 30, 2017. Specific reserves on impaired loans at September 30, 2018 and 2017, totaled $3.3 million and $4.8 million, respectively.



	At and for the nine months ended
(Dollars in thousands, unaudited) Loans held for investment	September 30, 2018			September 30, 2017
Allowance for loan losses
Balance at beginning of period	$	37,083		$	50,531
(Benefit) provision for loan losses	(305		)	7,715
Charge-offs:
Commercial real estate	51			272
Construction/land/land development	228			—
Residential real estate	407			1,326
Commercial and industrial	2,759			17,962
Consumer	96			137
Total charge-offs	3,541			19,697
Recoveries:
Commercial real estate	223			88
Construction/land/land development	6			4
Residential real estate	117			98
Commercial and industrial	2,090			670
Consumer	54			36
Total recoveries	2,490			896
Net charge-offs	1,051			18,801
Balance at end of period	$	35,727		$	39,445
Ratio of allowance for loan losses to:
Nonperforming loans held for investment	134.54		%	159.93		%
Total loans held for investment	0.99			1.22

Securities

Our securities portfolio totaled $616.7 million at September 30, 2018, representing an increase of $179.9 million, or 41.2%, from $436.8 million at December 31, 2017. During the quarter ended September 30, 2018, we borrowed $250.0 million from the FHLB to fund loan growth and manage short-term liquidity, however, the portion not utilized to repay higher rate advances was re-deployed into higher yielding interest earning assets such as loans, investment securities and interest bearing cash accounts. For additional information regarding our securities portfolio, please see Note 4 - Securities in the notes to our condensed consolidated financial statements included in this report.

Deposits

Deposits are the primary funding source used to fund our loans, investments and operating needs. We offer a variety of products designed to attract and retain both consumer and commercial deposit customers. These products consist of noninterest and interest-bearing checking accounts, savings deposits, money market accounts and time deposits. Deposits are primarily gathered from individuals, partnerships and corporations primarily in our market areas. We also obtain deposits from local municipalities. Our policy also permits the acceptance of brokered deposits on a limited basis, and our current deposits labeled as brokered are relationship-based accounts which we believe are stable.

We manage our interest expense on deposits through specific deposit product pricing that is based on competitive pricing, economic conditions and current or anticipated funding needs. We may use interest rates as a mechanism to attract or deter additional deposits based on our anticipated funding needs and liquidity position. We also consider potential interest rate risk caused by extended maturities of time deposits when setting the interest rates in periods of future economic uncertainty.

The following table presents our deposit mix at the dates indicated and the dollar and percentage change between periods:



	September 30, 2018				December 31, 2017
(Dollars in thousands)	Balance		% of Total		Balance		% of Total		$ Change			% Change
Noninterest-bearing demand	$	976,260	26.2	%	$	832,853	23.7	%	$	143,407		17.2	%
Interest-bearing demand	659,582		17.7		738,967		21.0		(79,385		)	(10.7	)
Money market	899,500		24.1		900,039		25.7		(539		)	(0.1	)
Time deposits	765,141		20.5		619,093		17.6		146,048			23.6
Brokered	278,784		7.5		276,214		7.9		2,570			0.9
Savings	147,891		4.0		144,848		4.1		3,043			2.1
Total deposits	$	3,727,158	100.0	%	$	3,512,014	100.0	%	$	215,144		6.1	%

The following schedule reflects the classification of our average deposits and the average rate paid on each deposit category for the periods indicated:



	Nine months ended September 30, 2018						Nine months ended September 30, 2017
(Dollars in thousands)	Average Balance		Interest Expense		Annualized Average Rate Paid		Average Balance		Interest Expense		Annualized Average Rate Paid
Interest-bearing demand	$	700,093	$	2,980	0.57	%	$	701,875	$	2,010	0.38	%
Money market	904,124		6,705		0.99	%	857,676		4,539		0.71	%
Time deposits	686,997		7,068		1.38	%	637,007		4,904		1.03	%
Brokered	265,396		3,795		1.91	%	276,416		2,283		1.10	%
Savings	148,118		143		0.13	%	142,947		132		0.12	%
Total interest-bearing	$	2,704,728	$	20,691	1.02	%	$	2,615,921	$	13,868	0.71	%
Noninterest-bearing demand	930,910						827,111
Total average deposits	$	3,635,638	$	20,691	0.76	%	$	3,443,032	$	13,868	0.54	%

Our average deposit balance was $3.64 billion for the nine months ended September 30, 2018, an increase of $192.6 million, or 5.6%, from $3.44 billion for the nine months ended September 30, 2017. This increase is primarily due to our continued relationship-based efforts to attract deposits within our markets. The average annualized rate paid on our interest-bearing deposits for the nine months ended September 30, 2018, was 1.02%, compared to 0.71% for the nine months ended September 30, 2017. The increase in the average cost of our deposits was primarily the result of increases in market interest rates that occurred during the intervening period to September 30, 2018, from September 30, 2017, which caused us to increase the interest rates we paid on deposits to remain competitive with other depository institutions in our markets.

Average noninterest-bearing deposits at September 30, 2018, were $930.9 million, compared to $827.1 million at September 30, 2017, an increase of $103.8 million, or 12.5%. Average noninterest-bearing deposits represented 25.6% and 24.0% of average total deposits for the nine months ended September 30, 2018 and 2017, respectively.

Borrowings

Average FHLB borrowings for the nine months ended September 30, 2018, increased by $42.4 million, or 55.4%, over the same period in 2017. The increase compared to 2017 is due to a $250.0 million FHLB advance obtained in the third quarter of 2018 to fund loan growth and short-term liquidity needs. The portion of the advance that was not utilized to repay higher rate advances was re-deployed into higher interest-earning assets such as loans, investment securities and interest-bearing cash accounts.

The table below shows FHLB advances by maturity and weighted average rate at September 30, 2018:



(Dollars in thousands)	Balance		Weighted Average Rate
Less than 90 days	$	20,385	2.53	%
90 days to less than one year	463		5.10
One to three years	1,783		5.06
Three to five years	6,732		5.30
After five years⁽¹⁾	265,488		1.80
Total	$	294,851	1.96	%

____________________________


⁽¹⁾	Included in the after five years category is a FHLB advance of $250.0 million, with a final maturity in 2033, that is callable quarterly at the option of the FHLB beginning in the third quarter of 2019.

At September 30, 2018, we were eligible to borrow an additional $508.4 million from the FHLB.

Liquidity and Capital Resources

Management oversees our liquidity position to ensure adequate cash flow and liquid assets are available to support our operations and satisfy current and future financial obligations which include demand for loan funding and deposit withdrawals. Management continually monitors our liquidity and non-core dependency ratios to ensure compliance with targets established by our Asset-Liability Management Committee.

Management measures our liquidity position by giving consideration to both on-balance sheet and off-balance sheet sources of and demands for funds on a daily and weekly basis. At September 30, 2018, and December 31, 2017, our cash and liquid securities totaled 7.7% and 5.7% of total assets, respectively, providing ample liquidity to support our existing operations.

The Company, which is a separate legal entity apart from the Bank, must provide for its own liquidity. The Company is responsible for the payment of dividends declared for our common stockholders and interest and principal on any outstanding Company debt or trust preferred securities. At September 30, 2018, and December 31, 2017, the Company had available cash balances of $4.3 million and $10.6 million, respectively. This cash is available for general corporate purposes, including our debt service obligations, providing capital support to the Bank and potential future acquisitions.

We utilize a number of funding sources to manage liquidity, which include core deposits, investment securities, cash and cash equivalents, loan repayments, as well as advances from the FHLB.

Core deposits, which are total deposits excluding time deposits greater than $250,000 and brokered deposits, are a major source of funds used to meet cash flow needs. Maintaining the ability to acquire these funds as needed in a variety of markets is the key to assuring our liquidity.

The investment portfolio is another alternative for meeting liquidity needs. These investments are generally traded in active markets which offer a readily available source of cash if needed. Securities within our investment portfolio are also used to secure certain deposit types.

Other sources available for meeting liquidity needs include federal funds lines of credit and short-term and long-term advances from the FHLB as well as a revolving line of credit with another financial institution. As of September 30, 2018, and December 31, 2017, we had unsecured lines of credit for the purchase of federal funds in the amount of $130.0 million and $125.0 million respectively, with no amounts outstanding at either date. Interest is charged at the prevailing market rate on federal funds purchased and FHLB advances. Long-term funds obtained from the FHLB are used primarily to meet day to day liquidity needs, particularly when the cost of such borrowing compares favorably to the rates that we would be required to pay to attract deposits.

Off-Balance Sheet Arrangements and Contractual Obligations

In the normal course of business as a financial services provider, we enter into financial instruments, such as certain contractual obligations, commitments to extend credit and letters of credit, that involve balance sheet risks. These

commitments involve elements of credit risk, interest rate risk and liquidity risk. Some instruments may not be reflected in the accompanying consolidated financial statements until they are funded, and a significant portion of commitments to extend credit may expire without being drawn down, although they expose us to varying degrees of credit risk and interest rate risk in much the same way as funded loans.

The table below presents the funding requirements of our most significant financial commitments, excluding interest and purchase discounts, at the date indicated:



	Payments Due by Period
(Dollars in thousands)	Less than One Year		One-Three Years		Three-Five Years		Greater than Five Years		Total
September 30, 2018
Operating lease obligations	$	4,165	$	7,545	$	6,362	$	10,891	$	28,963
FHLB advances⁽²⁾	20,848		1,783		6,732		265,488		294,851
Subordinated debentures	—		—		—		10,826		10,826
Time deposits	445,820		264,431		54,834		56		765,141
Limited partnership investments⁽¹⁾	5,216		—		—		—		5,216
Low income housing tax credits	237		165		205		484		1,091
Overnight repurchase agreements with depositors	33,809		—		—		—		33,809
Total contractual obligations	$	510,095	$	273,924	$	68,133	$	287,745	$	1,139,897

____________________________


⁽¹⁾	These commitments represent amounts we are obligated to contribute to various limited partnership investments in accordance with the provisions of the respective limited partnership agreements. The capital contributions may be required at any time, and are therefore reflected in the 'less than one year' category.


⁽²⁾	Included in the greater than five years category is a FHLB advance of $250.0 million, with a final maturity in 2033, that is callable quarterly at the option of the FHLB beginning in the third quarter of 2019.

Credit Related Commitments

A substantial majority of the letters of credit are standby agreements that obligate us to fulfill a customer’s financial commitments to a third party if the customer is unable to perform. We issue standby letters of credit primarily to provide credit enhancement to our customers’ other commercial or public financing arrangements and to help them demonstrate financial capacity to vendors of essential goods and services.

The table below presents our commitments to extend credit by commitment expiration date for the date indicated:



	September 30, 2018
(Dollars in thousands)	Less than One Year		One-Three Years		Three-Five Years		Greater than Five Years		Total
Commitments to extend credit⁽¹⁾	$	474,907	$	515,905	$	185,082	$	71,685	$	1,247,579
Standby letters of credit	79,107		2,325		—		—		81,432
Total off-balance sheet commitments	$	554,014	$	518,230	$	185,082	$	71,685	$	1,329,011

____________________________


⁽¹⁾	Includes $342.0 million of unconditionally cancellable commitments at September 30, 2018.

Stockholders' Equity and Regulatory Capital Requirements

Stockholders’ equity provides a source of permanent funding, allows for future growth and provides a cushion to withstand unforeseen adverse developments. At September 30, 2018, stockholders' equity was $531.9 million, representing an increase of $76.6 million, or 16.8%, compared to $455.3 million, at December 31, 2017. On May 9, 2018, we completed our initial public offering and issued 3,045,426 shares with net proceeds, before expenses, totaling $96.3 million, a portion of which was used to redeem all of the outstanding shares of our Senior Non-Cumulative Perpetual Preferred Stock, Series SBLF, thereby eliminating our obligation to pay the nine percent dividend on the SBLF stock. Also, during the quarter ended June 30, 2018, all of the 901,644 shares of our outstanding Series D preferred stock was converted into shares of common stock, on a one-for-one basis, effectively reducing the Series D preferred stock to zero, increasing our common stock by $4.5 million and our additional paid in capital by $12.5 million.

Together with the Bank, we are also subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements may result in certain actions by regulators that, if enforced, could have a direct material effect on our financial statements. At September 30, 2018, and December 31, 2017, we and the Bank were in compliance with all applicable regulatory capital requirements, and the Bank was classified as “well capitalized” for purposes of the FDIC’s prompt corrective action regulations. As we deploy capital and continue to grow operations, regulatory capital levels may decrease depending on the level of earnings. However, we expect to monitor and control growth in order to remain “well capitalized” under applicable regulatory guidelines and in compliance with all applicable regulatory capital standards.

The following table presents our regulatory capital ratios, as well as those of the Bank, at the dates indicated:



	September 30, 2018				December 31, 2017
(Dollars in thousands)	Amount		Ratio		Amount		Ratio
Origin Bancorp, Inc.
Common equity tier 1 capital (to risk-weighted assets)	$	502,273	11.79	%	$	360,069	9.35	%
Tier 1 capital (to risk-weighted assets)	511,584		12.01		433,338		11.25
Total capital (to risk-weighted assets)	548,923		12.88		472,437		12.26
Tier 1 capital (to average assets)	511,584		11.34		433,338		10.53

Origin Bank
Common equity tier 1 capital (to risk-weighted assets)	$	494,111	11.63	%	$	416,175	10.82	%
Tier 1 capital (to risk-weighted assets)	494,111		11.63		416,175		10.82
Total capital (to risk-weighted assets)	531,450		12.51		455,274		11.84
Tier 1 capital (to average assets)	494,111		10.98		416,175		10.13

Cautionary Note Regarding Forward-Looking Statements

This document contains forward-looking statements, which reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:


•	deterioration of our asset quality;


•	factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance, including any loans acquired in acquisition transactions;


•	changes in the value of collateral securing our loans;


•	business and economic conditions generally and in the financial services industry, nationally and within our local market area;


•	our ability to prudently manage our growth and execute our strategy;


•	changes in management personnel;


•	our ability to maintain important deposit customer relationships, our reputation or otherwise avoid liquidity risks;


•	operational risks associated with our business;


•	volatility and direction of market interest rates;


•	increased competition in the financial services industry, particularly from regional and national institutions;


•	changes in the laws, rules, regulations, interpretations or policies relating to financial institution, accounting, tax, trade, monetary and fiscal matters;


•	further government intervention in the U.S. financial system;


•	compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities and tax matters;


•	natural disasters and adverse weather, acts of terrorism, an outbreak of hostilities or other international or domestic calamities, and other matters beyond our control; and


•	other factors that are discussed in the section titled "Risk Factors" in the Company's prospectus filed with the Securities and Exchange Commission on May 9, 2018, pursuant to Section 424(b) of the Securities Act of 1933, as amended.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this document. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity and Market Risk

As a financial institution, our primary component of market risk is interest rate volatility. Our financial management policy provides management with guidelines for effective funds management and we have established a measurement system for monitoring the net interest rate sensitivity position.

Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

We manage exposure to interest rates by structuring the balance sheet in the ordinary course of business. Additionally, from time to time we enter into derivatives and futures contracts to mitigate interest rate risk from specific transactions. Based upon the nature of operations, we are not subject to foreign exchange or commodity price risk. We have entered into interest rate swaps to mitigate interest rate risk in limited circumstances, but it is not our policy to enter into such transactions on a regular basis.

Our exposure to interest rate risk is managed by Origin Bank’s Asset-Liability Management Committee in accordance with policies approved by Origin Bank's board of directors. The committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors.

The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. We employ methodologies to manage interest rate risk which include an analysis of relationships between interest-earning assets and interest-bearing liabilities, and an interest rate shock simulation model.

We use interest rate risk simulation models and shock analysis to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model as are prepayment assumptions, maturity data and call options within the investment portfolio. The average life of non-maturity deposit accounts are based on our balance retention rates using a vintage study methodology. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.

On a quarterly basis, we run various simulation models including a static balance sheet and dynamic growth balance sheet. These models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static model, rates are shocked instantaneously and ramped rates change over a twelve-month and twenty-four month horizon based upon parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Additionally, we run non-parallel simulation involving analysis of interest income and expense under various changes in the shape of the yield curve. Internal policy regarding interest rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than 15% for a 200 basis point shift, 8.0% for a 100 basis point shift, 15.0% for a 200 basis point shift, 20.0% for a 300 basis point shift, and 25.0% for a 400 basis point shift. We continue to monitor our asset sensitivity and evaluate strategies to prevent being significantly impacted by declining interest rates in the near future.

The following table summarizes the impact of an instantaneous, sustained simulated change in net interest income and fair value of equity over a 12-month horizon at the date indicated:



(Dollars in thousands)	At September 30, 2018
Change in Interest Rates (basis points)	% Change in Net Interest Income		% Change in Fair Value of Equity
+400	26.5	%	0.5	%
+300	20.0		0.5
+200	13.4		0.7
+100	6.8		0.6
Base
-100	(7.6	)	0.2
-200	(17.5	)%	(1.1	)%

We have found that, historically, interest rates on deposits change more slowly than changes in the discount and federal funds rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis, meaning that process by which we measure the gap between interest rate sensitive assets verses interest rate sensitive liabilities. The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various strategies.

Impact of Inflation

Our consolidated financial statements and related notes included in this Form 10-Q have been prepared in accordance with US GAAP. These require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession. Inflation generally increases the costs of funds and operating overhead, and to the extent loans and other assets bear variable rates, the yields on such assets. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant effect on the performance of a financial institution than the effects of general levels of inflation. In addition, inflation affects a financial institution’s cost of goods and services purchased, the cost of salaries and benefits, occupancy expense and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings and stockholders’ equity.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures — As of the end of the period covered by this report, an evaluation was performed by the Company, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective at the end of the period covered by this report.

Changes in internal control over financial reporting — There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2018, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

Refer to Note 15 - Commitments and Contingencies - Loss contingencies in the notes to the consolidated financial statements included in this report for additional information regarding legal proceedings not reportable under this Item.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in the Company's prospectus filed with the Securities and Exchange Commission on May 9, 2018, pursuant to Section 424(b) of the Securities Act of 1933, as amended.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On July 1, 2018, the Company acquired substantially all of the assets of Reeves, Coon & Funderburg. The consideration paid in this transaction included 66,824 shares of the Company’s common stock issued at acquisition closing with an aggregate value of approximately $2,706,372, based on the closing sale price of the Company's stock on the second business day prior to the acquisition date. The Company relied on the exemption from registration available under Section 4(a)(2) of the Securities Act of 1933, as amended, as the basis for exemption from registration for this issuance. These shares were issued in a privately negotiated transaction and not pursuant to a public solicitation. A Form D was filed on July 12, 2018.

In May 2018, the Company sold 3,045,426 shares of the Company’s common stock at a public offering price of $34.00 per share, including 545,426 shares sold in connection with the exercise of the underwriters’ option to purchase additional shares, and certain selling shareholders sold 1,136,176 shares in the offering. The offer and sale of all the shares in the initial public offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-224225), which was declared effective by the SEC on May 8, 2018. The Company received net proceeds of approximately $94.7 million in the offering, after deducting approximately $10.0 million of underwriters’ discounts and approximately $1.6 million of offering expenses. The underwriters of the initial public offering were Stephens Inc., Raymond James & Associates, Inc., Keefe, Bruyette & Woods, Inc. and Sandler O'Neill & Partners, L.P. The Company used approximately $49.1 million of the proceeds in connection with the redemption of the Senior Non-Cumulative Perpetual Preferred Stock, Series SBLF and the remainder of the proceeds was placed into the securities portfolio. The Company made no payments to its directors, officers or persons owning ten percent or more of its common stock or to their associates, or to its affiliates in connection with the issuance and sale of the common stock.

There has been no material change in the planned use of proceeds from the IPO as described in the prospectus filed with the SEC on May 9, 2018 pursuant to Rule 424(b)(4) under the Securities Act.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits



Exhibit Number	Description

3.1	Restated Articles of Incorporation, dated August 7, 2018 (incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q filed on August 9, 2018).

3.2	Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 filed April 10, 2018 (File No. 333-224225)).

4.1	Specimen common stock certificate (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 filed April 10, 2018 (File No. 333-224225)).

4.2	Registration Rights Agreement, dated November 9, 2012, by and between Community Trust Financial Corporation, Pine Brook Capital Partners, L.P., Pine Brook Capital Partners (SSP Offshore) II, L.P., and Pine Brook Capital Partners (Cayman), L.P. (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Company's Registration Statement on Form S-1 filed on April 19, 2018 (File No. 333-224225)).

4.3	Registration Rights Agreement, dated November 9, 2012, by and between Community Trust Financial Corporation and Castle Creek Capital Partners IV, LP (incorporated by reference to Exhibit 4.3 to Amendment No. 1 to the Company's Registration Statement on Form S-1 filed on April 19, 2018 (File No. 333-224225)).

4.4	Registration Rights Agreement, dated November 9, 2012, by and between Community Trust Financial Corporation and Banc Fund VII L.P. (incorporated by reference to Exhibit 4.4 to Amendment No. 1 to the Company's Registration Statement on Form S-1 filed on April 19, 2018 (File No. 333-224225)).

4.5	Registration Rights Agreement, dated November 9, 2012, by and between Community Trust Financial Corporation and Banc Fund VIII L.P. (incorporated by reference to Exhibit 4.5 to Amendment No. 1 to the Company's Registration Statement on Form S-1 filed April 19, 2018 (File No. 333-224225)).

10.1	Supplemental Executive Retirement Plan, dated August 17, 2018, by and between Origin Bank and Stephen H. Brolly (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on filed on August 21, 2018 (File No. 001-38487)).

10.2	Endorsement Method Split Dollar Plan Agreement, dated August 21, 2018, by and between Origin Bank and Stephen H. Brolly (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on filed on August 21, 2018 (File No. 001-38487)).

10.3	Form of Restricted Stock Award Agreement under the Origin Bancorp, Inc. 2012 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on filed on August 28, 2018 (File No. 001-38487)).

31.1	Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a).

31.2	Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a).

32.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	The following financial information from Origin Bancorp, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, is formatted in XBRL: (i) the Unaudited Condensed Consolidated Statements of Financial Condition, (ii) the Unaudited Condensed Consolidated Statements of Income, (iii) the Unaudited Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income, (iv) the Unaudited Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Unaudited Condensed Consolidated Financial Statements

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document



Exhibit Number	Description
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Origin Bancorp, Inc.

(Registrant)



Date:	November 07, 2018	By:	/s/ Drake Mills
			Drake Mills
			Chairman, President and Chief Executive Officer



Date:	November 07, 2018	By:	/s/ Stephen H. Brolly
			Stephen H. Brolly
			Executive Vice President and Chief Financial Officer

Exhibit

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

I, Drake Mills, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Origin Bancorp, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant at, as of and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, at the end of the period covered by this report based on such evaluation; and


d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 07, 2018

/s/ Drake Mills

Drake Mills

Chairman, President and Chief Executive Officer

Exhibit

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

I, Stephen H. Brolly, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Origin Bancorp, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant at, as of and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, at the end of the period covered by this report based on such evaluation; and


d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 07, 2018

/s/ Stephen H. Brolly

Stephen H. Brolly

Executive Vice President and Chief Financial Officer

Exhibit

Exhibit 32.1

STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Origin Bancorp, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Drake D. Mills, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company at the dates and for the periods presented in the financial statements included in such Report.

Date: November 07, 2018

/s/ Drake Mills

Drake Mills

Chairman, President and Chief Executive Officer

Exhibit

Exhibit 32.2

STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Origin Bancorp, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen H. Brolly, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

Date: November 07, 2018

/s/ Stephen H. Brolly

Stephen H. Brolly

Executive Vice President and Chief Financial Officer