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Table of Contents    

 
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: June 30, 2019

or
 
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     

Commission File Number: 001-38888 
 
Red River Bancshares, Inc.
 
 
(Exact name of registrant as specified in its charter)
 
Louisiana
 
72-1412058
(State or Other Jurisdiction of Incorporation or Organization)
 
(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 July 31, 2019, the registrant had 7,306,221 shares of common stock, no par value, issued and outstanding. 
 



TABLE OF CONTENTS
 
 
Page
 
 
 
PART I
Financial Information
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II
Other Information
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 




2

Table of Contents    

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
Director Compensation Program
 
Compensation program which allows directors of the Company and the Bank an opportunity to select how to receive their annual director fees.
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, a Delaware statutory trust
FHLB
 
Federal Home Loan Bank
FTE
 
Fully taxable equivalent basis
GAAP
 
Generally Accepted Accounting Principles in the United States of America
HFI
 
Held for investment
HFS
 
Held for sale
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
SBIC
 
Small Business Investment Company
Securities Act
 
Securities Act of 1933, as amended
SEC
 
Securities and Exchange Commission
TDR(s)
 
Troubled debt restructuring(s)
Trust II
 
Red River Statutory Trust II, a Connecticut statutory trust
Trust III
 
Red River Statutory Trust III, a Delaware statutory trust

3

Table of Contents    

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 risks and uncertainties listed from time to time in our reports and documents filed with the SEC.

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. Additional information on these and other risk factors can be found in Item 1A "Risk Factors" of this quarterly report on Form 10-Q and in the section titled "Risk Factors" in our Prospectus that was filed with the SEC on May 3, 2019, relating to our IPO. 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.


4

Table of Contents    

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RED RIVER BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(Unaudited)
June 30,
2019
 
(Audited)
December 31,
2018
ASSETS
 
 
 
Cash and due from banks
$
29,854

 
$
34,070

Interest-bearing deposits in other banks
71,761

 
117,836

Total cash and cash equivalents
101,615

 
151,906

Securities available-for-sale
318,082

 
307,877

Equity securities
3,924

 
3,821

Nonmarketable equity securities
1,342

 
1,299

Loans held for sale
6,029

 
2,904

Loans held for investment
1,393,154

 
1,328,438

Allowance for loan losses
(13,591
)
 
(12,524
)
Premises and equipment, net
40,032

 
39,690

Accrued interest receivable
5,570

 
5,013

Bank-owned life insurance
21,570

 
21,301

Intangible assets
1,546

 
1,546

Right-of-use assets
4,748

 

Other assets
8,897

 
9,317

Total Assets
$
1,892,918

 
$
1,860,588

LIABILITIES
 
 
 
Noninterest-bearing deposits
$
576,934

 
$
547,880

Interest-bearing deposits
1,057,656

 
1,097,703

Total Deposits
1,634,590

 
1,645,583

Junior subordinated debentures
5,155

 
11,341

Accrued interest payable
1,998

 
1,757

Lease liabilities
4,773

 

Accrued expenses and other liabilities
8,491

 
8,204

Total Liabilities
1,655,007

 
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 - 7,300,246 and 6,627,358 shares
68,082

 
41,094

Retained earnings
170,122

 
160,115

Accumulated other comprehensive income (loss)
(293
)
 
(7,506
)
Total Stockholders' Equity
237,911

 
193,703

Total Liabilities and Stockholders' Equity
$
1,892,918

 
$
1,860,588



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


Table of Contents    

RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
INTEREST AND DIVIDEND INCOME
 
 
 
 
 
 
 
Interest and fees on loans
$
15,945

 
$
14,435

 
$
31,448

 
$
28,022

Interest on securities
1,784

 
1,744

 
3,547

 
3,565

Interest on federal funds sold
212

 
64

 
425

 
114

Interest on deposits in other banks
306

 
119

 
722

 
226

Dividends on stock
9

 
7

 
19

 
13

Total Interest and Dividend Income
18,256

 
16,369

 
36,161

 
31,940

INTEREST EXPENSE
 
 
 
 
 
 
 
Interest on deposits
2,449

 
1,665

 
4,746

 
3,200

Interest on other borrowed funds

 
2

 

 
4

Interest on junior subordinated debentures
156

 
136

 
312

 
260

Total Interest Expense
2,605

 
1,803

 
5,058

 
3,464

NET INTEREST INCOME
15,651

 
14,566

 
31,103

 
28,476

Provision for loan losses
529

 
526

 
1,055

 
937

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
15,122

 
14,040

 
30,048

 
27,539

NONINTEREST INCOME
 
 
 
 
 
 
 
Service charges on deposit accounts
1,083

 
1,124

 
2,109

 
2,324

Debit card income, net
785

 
764

 
1,481

 
1,468

Mortgage loan income
657

 
706

 
1,171

 
1,052

Brokerage income
626

 
590

 
991

 
925

Loan and deposit income
382

 
329

 
727

 
597

Bank-owned life insurance income
137

 
139

 
270

 
276

Gain (Loss) on equity securities
56

 
(93
)
 
104

 
(93
)
Gain on sale of investments

 

 

 
41

Other income
373

 
106

 
542

 
233

Total Noninterest Income
4,099

 
3,665

 
7,395

 
6,823

OPERATING EXPENSES
 
 
 
 
 
 
 
Personnel expenses
7,005

 
6,489

 
13,645

 
12,631

Occupancy and equipment expenses
1,334

 
1,081

 
2,509

 
2,161

Technology expenses
558

 
536

 
1,101

 
1,042

Advertising
396

 
211

 
605

 
386

Other business development expenses
277

 
241

 
560

 
547

Data processing expense
483

 
427

 
942

 
820

Other taxes
455

 
349

 
808

 
691

Loan and deposit expenses
392

 
222

 
615

 
402

Legal and professional expenses
383

 
344

 
702

 
668

Other operating expenses
1,121

 
1,047

 
2,075

 
1,907

Total Operating Expenses
12,404

 
10,947

 
23,562

 
21,255

INCOME BEFORE INCOME TAX EXPENSE
6,817

 
6,758

 
13,881

 
13,107

Income tax expense
1,279

 
1,226

 
2,647

 
2,344

NET INCOME
$
5,538

 
$
5,532

 
$
11,234

 
$
10,763

EARNINGS PER SHARE(1)
 
 
 
 
 
 
 
Basic
$
0.79

 
$
0.82

 
$
1.64

 
$
1.60

Diluted
$
0.78

 
$
0.82

 
$
1.63

 
$
1.59

(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.
6


Table of Contents    

RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
5,538

 
$
5,532

 
$
11,234

 
$
10,763

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized net gain (loss) on securities arising during period
4,213

 
(839
)
 
9,131

 
(5,084
)
Tax effect
(885
)
 
185

 
(1,918
)
 
1,092

Less: Gains included in net income

 

 

 
(41
)
Tax effect

 

 

 
9

Total other comprehensive income (loss)
3,328

 
(654
)
 
7,213

 
(4,024
)
Comprehensive income
$
8,866

 
$
4,878

 
$
18,447

 
$
6,739


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


Table of Contents    

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 as of 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 2,452 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 as of March 31, 2018
$
45,631

 
$
142,218

 
$
(8,755
)
 
$
179,094

Net income

 
5,532

 

 
5,532

Stock incentive plan expense

 
46

 

 
46

Issuance of 2,000 shares of common stock through exercise of stock options(1)
29

 

 

 
29

Reclassification for adoption of accounting standard

 
(74
)
 
74

 

Other comprehensive income (loss)

 

 
(654
)
 
(654
)
Balance as of June 30, 2018
$
45,660

 
$
147,722

 
$
(9,335
)
 
$
184,047

 
 
 
 
 
 
 
 
Balance as of 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 as of March 31, 2019
$
41,271

 
$
164,534

 
$
(3,621
)
 
$
202,184

Net income

 
5,538

 

 
5,538

Stock incentive plan expense

 
50

 

 
50

Issuance of 663,320 shares of
common stock through IPO
26,812

 

 

 
26,812

Board compensation adjustment
(1
)
 

 

 
(1
)
Other comprehensive income (loss)

 

 
3,328

 
3,328

Balance as of June 30, 2019
$
68,082

 
$
170,122

 
$
(293
)
 
$
237,911

(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.
8


Table of Contents    

RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
For the Six Months Ended June 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
11,234

 
$
10,763

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
847

 
822

Amortization
151

 
214

Share-based compensation earned
99

 
93

Share-based board compensation earned
96

 
92

(Gain) Loss on other assets owned
11

 
(12
)
Net (accretion) amortization on AFS securities
566

 
687

Net (accretion) amortization on HTM securities

 
7

Gains on sales of AFS securities

 
(41
)
Provision for loan losses
1,055

 
937

Deferred income tax benefit (expense)
(263
)
 

Net (increase) decrease in loans HFS
(3,125
)
 
(2,353
)
Net (increase) decrease in accrued interest receivable
(557
)
 
173

Net (increase) decrease in BOLI
(269
)
 
(276
)
Net increase (decrease) in accrued interest payable
241

 
(129
)
Other operating activities, net
(1,539
)
 
(1,092
)
Net cash provided by operating activities
8,547

 
9,885

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Activity in AFS securities:
 
 
 
Sales

 
3,168

Maturities, prepayments, and calls
33,255

 
26,048

Purchases
(34,893
)
 
(3,009
)
Activity in HTM securities:
 
 
 
Maturities, prepayments, and calls

 
1,235

Purchase of nonmarketable equity securities
(43
)
 
(22
)
Net increase in loans HFI
(64,703
)
 
(78,962
)
Proceeds from sales of foreclosed assets
333

 
71

Purchases of premises and equipment
(1,174
)
 
(1,209
)
Net cash used in investing activities
(67,225
)
 
(52,680
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net increase (decrease) in deposits
(10,993
)
 
34,354

Repayments of other borrowed funds

 
(90
)
Redemption of junior subordinated debentures
(6,186
)
 

Proceeds from exercise of stock options
80

 
29

Proceeds from initial public offering, net
26,812

 

Cash dividends
(1,326
)
 
(1,009
)
Net cash provided by financing activities
8,387

 
33,284

Net change in cash and cash equivalents
(50,291
)
 
(9,511
)
Cash and cash equivalents - beginning of period
151,906

 
59,667

Cash and cash equivalents - end of period
$
101,615

 
$
50,156

 
 
 
 
SUPPLEMENTAL DISCLOSURES
 
 
 
Cash paid during the year for:
 
 
 
Interest
$
4,817

 
$
3,594

Income taxes
$
3,323

 
$
2,469

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.
9


Table of Contents    

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 Company's audited 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 audited 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 the Company's financial statements.
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.

10

Table of Contents    

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 June 30, 2019
 
 
 
 
 
 
 
Securities AFS:
 
 
 
 
 
 
 
Mortgage-backed securities
$
209,919

 
$
482

 
$
(1,508
)
 
$
208,893

Municipal bonds
88,010

 
987

 
(489
)
 
88,508

U.S. agency securities
18,527

 
148

 
(14
)
 
18,661

U.S. Treasury securities
1,996

 
24

 

 
2,020

Total Securities AFS
$
318,452

 
$
1,641

 
$
(2,011
)
 
$
318,082

 
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 June 30, 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
$
9,227

 
$
9,213

After one year but within five years
51,266

 
51,160

After five years but within ten years
86,933

 
87,172

After ten years
171,026

 
170,537

Total
$
318,452

 
$
318,082



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Table of Contents    

Information pertaining to securities with gross unrealized losses as of June 30, 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 June 30, 2019:
 
 
 
 
 
 
 
Securities AFS:
 
 
 
 
 
 
 
Mortgage-backed securities
$
(9
)
 
$
1,944

 
$
(1,499
)
 
$
154,672

Municipal bonds
(23
)
 
2,927

 
(466
)
 
25,614

U.S. agency securities

 

 
(14
)
 
6,986

Total Securities AFS
$
(32
)
 
$
4,871

 
$
(1,979
)
 
$
187,272

 
 
 
 
 
 
 
 
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 192 as of June 30, 2019. The aggregate unrealized loss of these securities as of June 30, 2019, was 0.63% 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, primarily due to adequate liquidity, until each security has recovered its cost basis. 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 six months ended June 30, 2019 or the year ended December 31, 2018.
Pledged Securities
Securities with carrying values of approximately $100.6 million and $93.5 million were pledged to secure public deposits, as of June 30, 2019 and December 31, 2018, respectively.

12

Table of Contents    

3.
Loans and Asset Quality
Loans
Loans HFI by category and loans HFS are summarized below (in thousands):
 
June 30, 2019
 
December 31, 2018
Real estate:
 
 
 
Commercial real estate
$
494,666

 
$
454,689

One-to-four family residential
416,122

 
406,963

Construction and development
119,255

 
102,868

Commercial and industrial
272,278

 
275,881

Tax-exempt
57,497

 
60,104

Consumer
33,336

 
27,933

Total loans HFI
$
1,393,154

 
$
1,328,438

Total loans HFS
$
6,029

 
$
2,904


Allowance for Loan Losses
The following table summarizes the activity in the allowance for loan losses by category for the six months ended June 30, 2019 (in thousands):
 
Beginning
Balance December 31, 2018
 
Provision
for Loan
Losses
 
Loans
Charged-off
 
Recoveries
 
Ending
Balance June 30, 2019
Real estate:
 
 
 
 
 
 
 
 
 
Commercial real estate
$
3,081

 
$
(101
)
 
$

 
$

 
$
2,980

One-to-four family residential
3,146

 
(15
)
 
(15
)
 
2

 
3,118

Construction and development
951

 
26

 

 
77

 
1,054

Commercial and industrial
4,604

 
1,032

 
(568
)
 
579

 
5,647

Tax-exempt
372

 
(42
)
 

 

 
330

Consumer
370

 
155

 
(136
)
 
73

 
462

Total allowance for loan losses
$
12,524

 
$
1,055

 
$
(719
)
 
$
731

 
$
13,591

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