Red River Bank - SEC Filing

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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: March 31, 2019



☐	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: 001-38888



	Red River Bancshares, Inc.
	(Exact name of registrant as specified in its charter)



Louisiana (State or Other Jurisdiction of Incorporation or Organization)		72-1412058 (I.R.S. Employer Identification Number)

1412 Centre Court Drive, Suite 402, Alexandria, Louisiana		71301
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (318) 561-5028

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	RRBI	The NASDAQ Stock Market, LLC

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, a 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.



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 Exchange Act). YES ☐ NO ☒

At May 31, 2019, the registrant had 7,300,246 shares of common stock, no par value, issued and outstanding.

TABLE OF CONTENTS



		Page
Glossary of Terms		3
Cautionary Note Regarding Forward-Looking Statements		4

PART I	Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition	5
	Consolidated Statements of Income	6
	Consolidated Statements of Comprehensive Income	7
	Consolidated Statements of Changes in Shareholder’s Equity	8
	Consolidated Statements of Cash Flows	9
	Notes to Unaudited Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42

PART II	Other Information
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Used of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
	Signatures	45

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GLOSSARY OF TERMS

Unless the context indicates otherwise, references in this filing to “we,” “our,” “us,” “the Company,” and “our company” refer to Red River Bancshares, Inc., a Louisiana corporation and bank holding company, and its consolidated subsidiaries. All references in this filing to “Red River Bank,” the “bank,” and the “Bank” refer to Red River Bank, our wholly owned bank subsidiary.

Other abbreviations or acronyms used in this filing are defined below.



ABBREVIATION OR ACRONYM		DEFINITION
2018 2-for-1 stock split		A stock split that was accomplished by a stock dividend with a record date of October 1, 2018, whereby each holder of the Company's common stock received one additional share of common stock for each share owned as of such date.
AFS		Available-for-sale
AOCI		Accumulated other comprehensive income or loss
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
Basel III		Basel Committee's 2010 Regulatory Capital Framework (Third Accord)
BOLI		Bank-owned life insurance
CECL		Current Expected Credit Losses, related to ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
Economic Growth Act		Economic Growth, Regulatory Relief, and Consumer Protection Act
EPS		Earnings per share
Exchange Act		Securities Exchange Act of 1934, as amended
FDIA		Federal Deposit Insurance Act
FDIC		Federal Deposit Insurance Corporation
FBT CT I		FBT Capital Trust I
FHLB		Federal Home Loan Bank
FTE		Fully taxable equivalent basis
GAAP		Generally Accepted Accounting Principles in the United States of America
HTM		Held-to-maturity
IPO		Initial public offering
LPO		Loan production office
MSA		Metropolitan statistical area
NOW		Negotiable order of withdrawal
OTTI		Other-than-temporary impairment
SEC		Securities and Exchange Commission
TDR(s)		Troubled debt restructuring(s)
Trust II		Red River Statutory Trust II
Trust III		Red River Statutory Trust III

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q 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 such other comparable words or phrases 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:


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


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


•	changes in management personnel;


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


•	volatility and direction of market interest rates;


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


•	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;


•	risks associated with system failures or failures to protect against cybersecurity threats, such as breaches of our network security;


•	deterioration of our asset quality;


•	the adequacy of our reserves, including our allowance for loan losses;


•	operational risks associated with our business;


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


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


•	compliance with the extensive regulatory framework that applies to us;


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


•	the impact of recent and future legislative and regulatory changes, including the Tax Cuts and Jobs Act of 2017, the Economic Growth Act, and other changes in banking, securities, accounting, and tax laws and regulations, and their application by our regulators; and


•	other factors that are discussed in the section titled “Risk Factors” in our Prospectus that was filed with the SEC on May 3, 2019, relating to our IPO.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this quarterly report on Form 10-Q. 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.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RED RIVER BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS



(in thousands, except share amounts)	(Unaudited) March 31, 2019			(Audited) December 31, 2018
ASSETS
Cash and due from banks	$	32,371		$	34,070
Interest-bearing deposits in other banks	145,593			117,836
Securities available-for-sale	319,353			307,877
Equity securities	3,869			3,821
Nonmarketable equity securities	1,303			1,299
Loans held for sale	2,210			2,904
Loans held for investment	1,349,181			1,328,438
Allowance for loan losses	(13,101		)	(12,524		)
Premises and equipment, net	40,033			39,690
Accrued interest receivable	4,988			5,013
Bank-owned life insurance	21,434			21,301
Intangible assets	1,546			1,546
Right-of-use assets	4,844			—
Other assets	8,494			9,317
Total Assets	$	1,922,118		$	1,860,588
LIABILITIES
Noninterest-bearing deposits	$	565,757		$	547,880
Interest-bearing deposits	1,125,377			1,097,703
Total Deposits	1,691,134			1,645,583
Other borrowed funds	—			—
Junior subordinated debentures	11,341			11,341
Accrued interest payable	1,967			1,757
Lease liabilities	4,856			—
Accrued expenses and other liabilities	10,636			8,204
Total Liabilities	1,719,934			1,666,885
COMMITMENTS AND CONTINGENCIES	—			—
STOCKHOLDERS' EQUITY
Preferred stock, no par value: Authorized - 1,000,000 shares; None Issued and Outstanding	—			—
Common stock, no par value: Authorized - 30,000,000 shares; Issued and Outstanding - 6,636,926 and 6,627,358 shares	41,271			41,094
Retained earnings	164,534			160,115
Accumulated other comprehensive income (loss)	(3,621		)	(7,506		)
Total Stockholders' Equity	202,184			193,703
Total Liabilities and Stockholders' Equity	$	1,922,118		$	1,860,588

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

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RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)



(in thousands, except per share data)	For the Three Months Ended March 31,
	2019		2018
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	15,504	$	13,586
Interest on securities	1,763		1,822
Interest on federal funds sold	212		51
Interest on deposits in other banks	416		107
Dividends on stock	9		6
Total Interest and Dividend Income	17,904		15,572
INTEREST EXPENSE
Interest on deposits	2,296		1,535
Interest on other borrowed funds	—		3
Interest on junior subordinated debentures	156		124
Total Interest Expense	2,452		1,662
NET INTEREST INCOME	15,452		13,910
Provision for loan losses	526		411
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	14,926		13,499
NONINTEREST INCOME
Service charges on deposit accounts	1,026		1,200
Debit card income, net	695		704
Mortgage loan income	514		346
Brokerage income	365		335
Loan and deposit income	346		268
Bank-owned life insurance income	133		137
Gain on sale of investments	—		41
Other income	217		126
Total Noninterest Income	3,296		3,157
OPERATING EXPENSES
Personnel expenses	6,640		6,142
Occupancy and equipment expenses	1,175		1,079
Technology expenses	544		506
Advertising	209		175
Other business development expenses	282		307
Data processing expense	459		392
Other taxes	353		342
Loan and deposit expenses	223		180
Legal and professional expenses	319		324
Other operating expenses	954		860
Total Operating Expenses	11,158		10,307
INCOME BEFORE INCOME TAX EXPENSE	7,064		6,349
Income tax expense	1,368		1,118
NET INCOME	$	5,696	$	5,231
EARNINGS PER SHARE⁽¹⁾
Basic	$	0.86	$	0.78
Diluted	$	0.85	$	0.77


⁽¹⁾	2018 amounts adjusted to give effect to the 2018 2-for-1 stock split

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

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RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



(in thousands)	For the Three Months Ended March 31,
	2019			2018
Net income	$	5,696		$	5,231
Other comprehensive income (loss):
Unrealized net gains (loss) on securities arising during period	4,918			(4,245		)
Tax effect	(1,033		)	907
Less: Gains included in net income	—			(41		)
Tax effect	—			9
Total other comprehensive income (loss)	3,885			(3,370		)
Comprehensive income	$	9,581		$	1,861

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

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RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)



(in thousands, except share amounts)	Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
Balance at December 31, 2017	$	45,539	$	137,949		$	(5,385	)	$	178,103
Net income	—		5,231			—			5,231
Stock incentive plan expense	—		47			—			47
Issuance of 1,226 shares of common stock as board compensation⁽¹⁾	92		—			—			92
Cash dividend - $0.15 per share⁽¹⁾	—		(1,009		)	—			(1,009		)
Other comprehensive income (loss)	—		—			(3,370		)	(3,370		)
Balance at March 31, 2018	$	45,631	$	142,218		$	(8,755	)	$	179,094

Balance at December 31, 2018	$	41,094	$	160,115		$	(7,506	)	$	193,703
Net income	—		5,696			—			5,696
Stock incentive plan expense	—		49			—			49
Issuance of 7,200 shares of common stock through exercise of stock options	80		—			—			80
Issuance of 2,368 shares of common stock as board compensation	97		—			—			97
Cash dividend - $0.20 per share	—		(1,326		)	—			(1,326		)
Other comprehensive income (loss)	—		—			3,885			3,885
Balance at March 31, 2019	$	41,271	$	164,534		$	(3,621	)	$	202,184


⁽¹⁾	Adjusted to give effect to the 2018 2-for-1 stock split

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

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RED RIVER BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



(in thousands)	For the Three Months Ended March 31,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,696		$	5,231
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	424			417
Amortization	113			112
Share-based compensation earned	49			47
Share-based board compensation earned	97			92
(Gain) loss on sale of other assets owned	(20		)	6
Net (accretion) amortization on AFS securities	283			350
Net (accretion) amortization on HTM securities	—			4
Gains on sales of AFS securities	—			(41		)
Provision for loan losses	526			411
Net (increase) decrease in loans held for sale	694			(1,156		)
Net (increase) decrease in accrued interest receivable	25			451
Net (increase) decrease in BOLI	(133		)	(137		)
Net increase (decrease) in accrued interest payable	210			(55		)
Other operating activities, net	1,759			1,791
Net cash provided by operating activities	9,723			7,523
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in AFS securities:
Sales	—			3,168
Maturities, prepayments and calls	17,005			13,208
Purchases	(23,845		)	—
Activity in HTM securities:
Maturities, prepayments and calls	—			735
Purchase of nonmarketable equity securities	(4		)	(3		)
Net increase in loans	(20,692		)	(28,526		)
Proceeds from sales of foreclosed assets	333			7
Purchases of premises and equipment	(767		)	(250		)
Net cash used in investing activities	(27,970		)	(11,661		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits	45,551			34,348
Repayments of other borrowed funds	—			(45		)
Proceeds from exercise of stock options	80			—
Cash dividends	(1,326		)	(1,009		)
Net cash provided by financing activities	44,305			33,294
Net change in cash and cash equivalents	26,058			29,156
Cash and cash equivalents - beginning of period	151,906			59,667
Cash and cash equivalents - end of period	$	177,964		$	88,823
CASH AND CASH EQUIVALENTS INCLUDE
Cash and due from banks	$	32,371		$	16,049
Interest-bearing deposits in other banks	145,593			72,774
	$	177,964		$	88,823
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest	$	2,242		$	1,717
Income taxes	$	—		$	—
Initial measurement and recognition of operating lease assets in exchange for lease liabilities	$	4,954		—

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

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RED RIVER BANCSHARES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


1.	Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with GAAP for interim financial information, general practices within the financial services industry, and with instructions for Form 10-Q and Regulation S-X. Accordingly, these interim financial statements do not include all of the information or footnotes required by GAAP for annual financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results which may be expected for the entire fiscal year. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto for the year ended December 31, 2018, included in the Company’s Prospectus filed with the SEC on May 3, 2019, relating to its IPO.

Certain prior period amounts have been reclassified to conform to the current period presentation. These changes in presentation did not have a material impact on the Company's financial condition or results of operations.

Critical Accounting Policies and Estimates

There were no material changes or developments during the reporting period with respect to methodologies the Company uses when applying critical accounting policies and developing critical accounting estimates as disclosed in Note 1 of the Notes to the Consolidated Financial Statements for the year ended December 31, 2018, that were included in the Company's Prospectus as filed with the SEC on May 3, 2019. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in stockholders’ equity, and cash flows for the interim period presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.

Accounting Standards Adopted in 2019

As of January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842) and the related amendments using the modified retrospective approach. The primary purpose of this ASU was to increase the transparency and comparability among organizations by recognizing a lease liability related to the lessee's obligation to make lease payments based on a lease contract, and a right-of-use asset related to the lessee's right to use the leased asset for the term of the lease. The Company recorded right-of-use assets and corresponding lease liabilities of $4.9 million at the time of adoption. The required disclosures are included in Note 5 to these unaudited consolidated financial statements.

ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 permits hedge accounting for risk components in hedging relationships involving nonfinancial risk and interest rate risk. It also changes the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk. In addition to the amendments to the designation and measurement guidance for qualifying hedging relationships, the amendments in this ASU also align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This ASU requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. ASU 2017-12 became effective for the Company on January 1, 2019 and did not have a material impact on our financial statements as the Company does not utilize derivatives as of March 31, 2019.

Recent Accounting Pronouncements

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 sets forth the CECL model requiring the Company to measure all expected credit losses for financial instruments held as of the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. For public business entities that are SEC registrants, the amendments in this 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. In that regard, the Company has formed a cross functional working group and is currently working through its implementation plan which includes assessment and documentation of processes, internal controls, and data sources; model development and documentation; and implementation of a third-party vendor solution to assist in the application of ASU 2016-13.

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2.	Securities

Securities held for indefinite periods of time are classified as AFS and carried at estimated fair value. The Company does not hold HTM securities. The amortized cost and estimated fair values of securities AFS are summarized in the following tables (in thousands):



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
As of March 31, 2019
Securities AFS:
Mortgage-backed securities	$	219,112	$	81	$	(3,922	)	$	215,271
Municipal bonds	82,302		387		(1,120		)	81,569
U.S. agency securities	20,528		47		(71		)	20,504
U.S. Treasury securities	1,995		14		—			2,009
Total Securities AFS	$	323,937	$	529	$	(5,113	)	$	319,353



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
As of December 31, 2018
Securities AFS:
Mortgage-backed securities	$	221,799	$	11	$	(7,122	)	$	214,688
Municipal bonds	70,416		94		(2,235		)	68,275
U.S. agency securities	23,170		6		(261		)	22,915
U.S. Treasury securities	1,994		5		—			1,999
Total Securities AFS	$	317,379	$	116	$	(9,618	)	$	307,877

The amortized costs and estimated market values of debt securities as of March 31, 2019, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities because issuers have the right to call or repay obligations with or without call or prepayment penalties.



	Amortized Cost		Fair Value
Within one year	$	10,636	$	10,591
After one year but within five years	50,140		49,649
After five years but within ten years	89,701		88,653
After ten years	173,460		170,460
Total	$	323,937	$	319,353

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Information pertaining to securities with gross unrealized losses as of March 31, 2019 and December 31, 2018, aggregated by investment category and length of time that individual securities have been in a continuous loss position is described as follows (in thousands):



	Less than twelve months					Twelve months or more
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
As of March 31, 2019:
Securities AFS:
Mortgage-backed securities	$	(26	)	$	3,842	$	(3,896	)	$	195,240
Municipal bonds	(10		)	3,557		(1,110		)	44,388
U.S. agency securities	(5		)	951		(66		)	12,846
Total Securities AFS	$	(41	)	$	8,350	$	(5,072	)	$	252,474

As of December 31, 2018:
Securities AFS:
Mortgage-backed securities	$	(75	)	$	8,845	$	(7,047	)	$	200,532
Municipal bonds	(48		)	3,389		(2,187		)	52,879
U.S. agency securities	(41		)	3,801		(220		)	14,123
Total Securities AFS	$	(164	)	$	16,035	$	(9,454	)	$	267,534

The number of investment positions in an unrealized loss position totaled 260 as of March 31, 2019. The aggregate unrealized loss of these securities as of March 31, 2019, was 1.58% of the amortized cost basis of the total AFS securities portfolio. Management and the Asset-Liability Committee continually monitor the securities portfolio and are able to effectively measure and monitor the unrealized loss positions on these securities. Management does not intend to sell these securities prior to recovery, and it is more likely than not that the Company will have the ability to hold them until each security has recovered its cost basis, as the Company's current liquidity position is more than adequate. The unrealized losses of these securities has been determined by management to be a function of the movement of interest rates since the time of purchase. Based on review of available information, including recent changes in interest rates and credit rating information, management believes the declines in fair value of these securities are temporary. The Company does not consider these securities to have OTTI.

Management evaluates securities for OTTI on at least a quarterly basis, and more frequently if economic or market concerns merit such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost; (2) the financial condition and near-term prospects of the issuer; and (3) whether the Company intends to, and it is more likely than not that it will be able to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Additionally, the Company annually performs a detailed credit review of the municipal securities owned to identify any potential credit concerns. There were no OTTI losses on debt securities related to credit losses recognized during the three months ended March 31, 2019 or the year ended December 31, 2018.

Pledged Securities

Securities with carrying values of approximately $99.9 million and $93.5 million were pledged to secure public deposits, as of March 31, 2019 and December 31, 2018, respectively.

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3.	Loans and Asset Quality

Loans

Total loans held for investment by category and loans held for sale are summarized below (in thousands):



	March 31, 2019		December 31, 2018
Real estate:
Commercial real estate	$	475,269	$	454,689
One-to-four family residential	406,823		406,963
Construction and development	111,344		102,868
Commercial and industrial	269,987		275,881
Tax-exempt	56,838		60,104
Consumer	28,920		27,933
Total loans held for investment	$	1,349,181	$	1,328,438
Total loans held for sale	$	2,210	$	2,904

Allowance for Loan Losses

The following table summarizes the activity in the allowance for loan losses by category for the three months ended March 31, 2019 (in thousands):



	Beginning Balance December 31, 2018		Provision for Loan Losses			Loans Charged-off			Recoveries		Ending Balance March 31, 2019
Real estate:
Commercial real estate	$	3,081	$	(201	)	$	—		$	—	$	2,880
One-to-four family residential	3,146		(137		)	—			1		3,010
Construction and development	951		(57		)	—			77		971
Commercial and industrial	4,604		991			—			1		5,596
Tax-exempt	372		(46		)	—			—		326
Consumer	370		(24		)	(81		)	53		318
Total allowance for loan losses	$	12,524	$	526		$	(81	)	$	132	$	13,101

The following table summarizes the activity in the allowance for loan losses by category for the twelve months ended December 31, 2018 (in thousands):



	Beginning Balance December 31, 2017		Provision for Loan Losses			Loans Charged-off			Recoveries		Ending Balance December 31, 2018
Real estate:
Commercial real estate	$	3,270	$	(189	)	$	(27	)	$	27	$	3,081
One-to-four family residential	3,099		(136		)	(4		)	187		3,146
Construction and development	852		99			—			—		951
Commercial and industrial	2,836		2,112			(353		)	9		4,604
Tax-exempt	432		(60		)	—			—		372
Consumer	406		164			(353		)	153		370
Total allowance for loan losses	$	10,895	$	1,990		$	(737	)	$	376	$	12,524

Table of Contents

The balance in the allowance for loan losses and the related recorded investment in loans by category as of March 31, 2019, are as follows (in thousands):



	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total
Allowance for loan losses:
Real estate:
Commercial real estate	$	133	$	2,747	$	—	$	2,880
One-to-four family residential	3		3,007		—		3,010
Construction and development	11		960		—		971
Commercial and industrial	3,440		2,156		—		5,596
Tax-exempt	—		326		—		326
Consumer	23		295		—		318
Total allowance for loan losses	$	3,610	$	9,491	$	—	$	13,101

Loans:
Real estate:
Commercial real estate	$	3,408	$	471,861	$	—	$	475,269
One-to-four family residential	1,150		405,673		—		406,823
Construction and development	53		111,291		—		111,344
Commercial and industrial	11,834		258,153		—		269,987
Tax-exempt	—		56,838		—		56,838
Consumer	101		28,819		—		28,920
Total loans held for investment	$	16,546	$	1,332,635	$	—	$	1,349,181

The balance in the allowance for loan losses and the related recorded investment in loans by category as of December 31, 2018, are as follows (in thousands):



	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total
Allowance for loan losses:
Real estate:
Commercial real estate	$	206	$	2,875	$	—	$	3,081
One-to-four family residential	20		3,126		—		3,146
Construction and development	12		939		—		951
Commercial and industrial	2,304		2,300		—		4,604
Tax-exempt	—		372		—		372
Consumer	75		295		—		370
Total allowance for loan losses	$	2,617	$	9,907	$	—	$	12,524

Loans:
Real estate: