bwb_Current_Folio

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 001-38412

BRIDGEWATER BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


Minnesota (State or other jurisdiction of incorporation or organization)		26‑0113412 (I.R.S. Employer Identification No.)

3800 American Boulevard West, Suite 100 Bloomington, Minnesota (Address of principal executive offices)		55431 (Zip Code)

(952) 893‑6868

(Registrant’s telephone number, including area code)

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.


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 ☒

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


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock, $0.01 Par Value	BWB	The Nasdaq Stock Market LLC

The number of shares of the Common Stock outstanding as of May 2, 2019 was 30,070,543.

PART 1 – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands, except share data)


	March 31,		December 31,
	2019		2018
	(Unaudited)
ASSETS
Cash and Cash Equivalents	$	48,750	$	28,444
Bank-Owned Certificates of Deposit		2,948		3,305
Securities Available for Sale, at Fair Value		250,285		253,378
Loans, Net of Allowance for Loan Losses of $20,607 at March 31, 2019 (unaudited) and $20,031 at December 31, 2018		1,698,231		1,640,385
Federal Home Loan Bank (FHLB) Stock, at Cost		7,324		7,614
Premises and Equipment, Net		15,697		13,074
Accrued Interest		7,058		6,589
Goodwill		2,626		2,626
Other Intangible Assets, Net		1,004		1,052
Other Assets		14,188		17,274
Total Assets	$	2,048,111	$	1,973,741

LIABILITIES AND EQUITY
LIABILITIES
Deposits:
Noninterest Bearing	$	404,937	$	369,203
Interest Bearing		1,238,729		1,191,731
Total Deposits		1,643,666		1,560,934
Federal Funds Purchased		—		18,000
Notes Payable		14,500		15,000
FHLB Advances		124,000		124,000
Subordinated Debentures, Net of Issuance Costs		24,656		24,630
Accrued Interest Payable		1,679		1,806
Other Liabilities		7,835		8,373
Total Liabilities		1,816,336		1,752,743

SHAREHOLDERS' EQUITY
Preferred Stock- $0.01 par value
Authorized 10,000,000; None Issued and Outstanding at March 31, 2019 (unaudited) and December 31, 2018		—		—
Common Stock- $0.01 par value
Common Stock - Authorized 75,000,000; Issued and Outstanding 30,097,674 at March 31, 2019 (unaudited) and 30,097,274 at December 31, 2018		301		301
Non-voting Common Stock- Authorized 10,000,000; Issued and Outstanding -0- at March 31, 2019 (unaudited) and December 31, 2018		—		—
Additional Paid-In Capital		126,209		126,031
Retained Earnings		103,252		96,234
Accumulated Other Comprehensive Income (Loss)		2,013		(1,568)
Total Shareholders' Equity		231,775		220,998
Total Liabilities and Equity	$	2,048,111	$	1,973,741

See accompanying notes to consolidated financial statements.

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Income

(dollars in thousands, except per share data)

(Unaudited)


	Three Months Ended
	March 31,		March 31,
	2019		2018
INTEREST INCOME
Loans, Including Fees	$	22,179	$	17,048
Investment Securities		1,901		1,567
Other		187		95
Total Interest Income		24,267		18,710

INTEREST EXPENSE
Deposits		5,703		3,009
Notes Payable		121		152
FHLB Advances		775		299
Subordinated Debentures		377		369
Federal Funds Purchased		160		118
Total Interest Expense		7,136		3,947

NET INTEREST INCOME		17,131		14,763
Provision for Loan Losses		600		600

NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		16,531		14,163

NONINTEREST INCOME
Customer Service Fees		191		170
Net Loss on Sales of Available for Sale Securities		(5)		—
Net Gain on Sales of Foreclosed Assets		—		4
Other Income		448		213
Total Noninterest Income		634		387

NONINTEREST EXPENSE
Salaries and Employee Benefits		4,802		4,318
Occupancy and Equipment		656		574
Other Expense		2,427		1,640
Total Noninterest Expense		7,885		6,532

INCOME BEFORE INCOME TAXES		9,280		8,018
Provision for Income Taxes		2,262		2,068
NET INCOME	$	7,018	$	5,950

EARNINGS PER SHARE
Basic	$	0.23	$	0.23
Diluted		0.23		0.23
Dividends Paid Per Share		—		—

See accompanying notes to consolidated financial statements.

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

Three Months Ended March 31, 2019 and 2018

(dollars in thousands, except share data)

(Unaudited)


											Accumulated
							Additional				Other
	Shares		Common Stock				Paid-‑In		Retained		Comprehensive
	Voting	Nonvoting	Voting		Nonvoting		Capital		Earnings		Income (Loss)		Total

BALANCE December 31, 2017	20,834,001	3,845,860	$	208	$	38	$	66,324	$	69,508	$	1,084	$	137,162
Stock-based Compensation	—	—		—		—		199		—		—		199
Comprehensive Income (Loss)	—	—		—		—		—		5,950		(3,129)		2,821
Issuance of Common Stock, Net of Issuance Costs	5,379,513	—		54		—		58,803		—		—		58,857
Conversion of Non-voting Stock to Voting Stock	1,022,318	(1,022,318)		10		(10)		—		—		—		—
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act to Retained Earnings	—	—		—		—		—		(194)		194		—
BALANCE March 31, 2018	27,235,832	2,823,542	$	272	$	28	$	125,326	$	75,264	$	(1,851)	$	199,039

BALANCE December 31, 2018	30,097,274	—	$	301	$	—	$	126,031	$	96,234	$	(1,568)	$	220,998
Stock-based Compensation	—	—		—		—		175		—		—		175
Comprehensive Income	—	—		—		—		—		7,018		3,581		10,599
Stock Options Exercised	400	—		—		—		3		—		—		3
BALANCE March 31, 2019	30,097,674	—	$	301	$	—	$	126,209	$	103,252	$	2,013	$	231,775

See accompanying notes to consolidated financial statements.

Bridgewater Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)


	Three Months Ended
	March 31,
	2019		2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	7,018	$	5,950
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Net Amortization on Securities Available for Sale		668		699
Net Loss on Sales of Securities Available for Sale		5		—
Provision for Loan Losses		600		600
Depreciation and Amortization of Premises and Equipment		210		184
Amortization of Other Intangible Assets		48		48
Amortization of Subordinated Debt Issuance Costs		26		25
Net Gain on Sale of Foreclosed Assets		—		(4)
Stock-based Compensation		175		199
Changes in Operating Assets and Liabilities:
Accrued Interest Receivable and Other Assets		1,574		(2,084)
Accrued Interest Payable and Other Liabilities		(665)		(1,103)
Net Cash Provided by Operating Activities		9,659		4,514

CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) Decrease in Bank-owned Certificates of Deposit		357		(731)
Proceeds from Sales of Securities Available for Sale		8,150		—
Proceeds from Maturities, Paydowns, Payups and Calls of Securities Available for Sale		4,761		5,345
Purchases of Securities Available for Sale		(5,867)		(17,519)
Net Increase in Loans		(58,446)		(58,262)
Net (Increase) Decrease in FHLB Stock		290		(67)
Purchases of Premises and Equipment		(2,833)		(220)
Proceeds from Sales of Foreclosed Assets		—		297
Net Cash Used in Investing Activities		(53,588)		(71,157)

CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits		82,732		13,686
Net Decrease in Federal Funds Purchased		(18,000)		(14,000)
Principal Payments on Notes Payable		(500)		(500)
Proceeds from FHLB Advances		—		5,000
Stock Options Exercised		3		—
Issuance of Common Stock		—		58,857
Net Cash Provided by Financing Activities		64,235		63,043

NET CHANGE IN CASH AND CASH EQUIVALENTS		20,306		(3,600)
Cash and Cash Equivalents Beginning		28,444		23,725
Cash and Cash Equivalents Ending	$	48,750	$	20,125

SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash Paid for Interest	$	7,237	$	3,828
Cash Paid for Income Taxes		—		2,150
Loans Transferred to Foreclosed Assets		—		—

See accompanying notes to consolidated financial statements.

Emerging Growth Company

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, even if the Company complies with the greater obligations of public companies that are not emerging growth companies, the Company may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as the Company is an emerging growth company. The Company will continue to be an emerging growth company until the earliest to occur of: (1) the end of the fiscal year following the fifth anniversary of the date of the first sale of common equity securities under the Company’s Registration Statement on Form S-1, which was declared effective by the SEC on March 13, 2018; (2) the last day of the fiscal year in which the Company has $1.07 billion or more in annual revenues; (3) the date on which the Company is deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); or (4) the date on which the Company has, during the previous three-year period, issued publicly or privately, more than $1.0 billion in non-convertible debt securities. Management cannot predict if investors will find the Company’s common stock less attractive because it will rely on these exemptions. If some investors find the Company’s common stock less attractive as a result, there may be a less active trading market for its common stock and the Company’s stock price may be more volatile.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company elected to take advantage of the benefits of this extended transition period.

Impact of Recently Issued Accounting Standards

The following accounting standard updates (“ASU”) have been issued by the Financial Accounting Standards Board (“FASB”) and may impact the Company’s consolidated financial statements in future reporting periods.

In May 2014, the FASB issued ASU 2014‑09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014‑09”). ASU 2014‑09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014‑09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2015‑14, Revenue from Contracts with Customers (Topic 606) (“ASU 2015‑14”) was issued in August 2015 which defers adoption to annual reporting periods beginning after December 15, 2018 and interim reporting periods beginning after December 15, 2019. The timing of the Company’s revenue recognition is not expected to materially change. The Company’s largest portions of revenue, interest and fees on loans, are specifically excluded from the scope of the guidance, and the Company currently recognizes the majority of the remaining revenue sources in a manner that management believes is consistent with the new guidance. Because of this, management believes that revenue recognized under the new guidance will generally approximate revenue recognized under current GAAP. These observations are subject to change as the evaluation is completed.

In January 2016, the FASB issued ASU 2016‑01, Financial Instruments—Overall (Subtopic 825‑10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016‑01”). This guidance changes how entities account for equity investments that do not result in consolidation and are not accounted for under the equity method of accounting. Entities will be required to measure these investments at fair value at the end of each reporting period and recognize changes in fair value in net income. A practicability exception will be available for equity

investments that do not have readily determinable fair values; however, the exception requires the Company to adjust the carrying amount for impairment and observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This guidance also changes certain disclosure requirements and other aspects of current GAAP. This guidance is effective for fiscal years beginning after December 15, 2018 and for interim reporting periods beginning after December 15, 2019. Early adoption is permitted for only one of the six amendments. The Company is evaluating the impact this new standard will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842) (“ASU 2016‑02”). The new guidance establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. Entities will be required to recognize the lease assets and lease liabilities that arise from leases in the statement of financial position and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases. Also, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements which provides an optional transition method to adopt the new requirements of ASU 2016-02 as of the adoption date with no adjustment to the presentation or disclosure of comparative prior periods included in the financial statement in the period of adoption. The guidance is effective for fiscal years beginning after December 15, 2019 and interim reporting periods beginning after December 15, 2020. The Company’s assets and liabilities will increase based on the present value of the remaining lease payments for leases in place at the adoption date; however, this is not expected to be significant to the Company’s results of operations.

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (modified by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses and ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments Credit Losses.) The amendments in this ASU affect all entities that measure credit losses on financial instruments including loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial asset that has a contractual right to receive cash that is not specifically excluded. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology required in current GAAP with a methodology that reflects expected credit losses that requires consideration of a broader range of reasonable and supportable information to estimate credit losses. The amendments in this ASU will affect entities to varying degrees depending on the credit quality of the assets held by the entity, the duration of the assets held, and how the entity applies the current incurred loss methodology. The amendments in this ASU are effective for fiscal years and interim reporting periods beginning after December 15, 2021.

All entities may adopt the amendments in the ASU early as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Amendments should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The Company is evaluating the impact this new standard will have on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017‑04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU were issued to address concerns over the cost and complexity of the two-step goodwill impairment test and resulted in the removal of the second step of the test. The amendments require an entity to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This ASU is intended to reduce the cost and complexity of the two-step goodwill impairment test and is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2021, with early adoption permitted for testing performed after January 1, 2017. Upon adoption, the amendments should be applied on a prospective basis and the entity is required to disclose the nature of and reason for the change in accounting principle upon transition. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU 2017‑08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310‑20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount as discounts continue to be accreted to maturity. This ASU is intended to more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. In most cases, market participants price securities to the call date that produces the worst yield when the coupon is above current market rates and prices securities to maturity when the coupon is below market rates. As a result, the amendments more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. This ASU is intended to reduce diversity in practice and is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Upon adoption, the amendments should be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principles. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU 2017‑12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments of this ASU better align an entity’s accounting and financial reporting for hedging activities with the economic objectives of those activities. The ASU is effective for fiscal years beginning after December 15, 2019 and interim reporting periods beginning after December 15, 2020, with early adoption permitted. The Company is evaluating the impact this new standard will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018‑13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments of this ASU modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). 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). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.

In March 2019, the FASB issued ASU No. 2019-01, Leases (Topic 842): Codification Improvements. This ASU provides clarifications to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing essential information about leasing transactions. Specifically, this ASU (i) states that for lessors that are not manufacturers or dealers, the fair value of the underlying asset is its cost, less any volume or trade discounts, as long as there isn’t a significant amount of time between acquisition of the asset and lease commencement, (ii) allows for the cash flows received for sales-type and direct financing leases to continue to be presented as results from investing, and (iii) clarifies the transition guidance related to certain interim disclosures provided in the year of adoption. The guidance is effective for fiscal years beginning after December 15, 2019 and interim reporting periods beginning after December 15, 2020. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.

Note 2: Earnings Per Share

Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share are calculated by dividing net income by the weighted average number of shares adjusted for the dilutive effect of stock options. The dilutive effect was computed using the treasury stock method, which assumes the stock options were exercised and the hypothetical proceeds from the exercise were used by the Company to purchase common stock at the average market price during the period.

The following table presents the numerators and denominators for basic and diluted earnings per share computations for the three months ended March 31, 2019 and 2018:


	Three Months Ended
	March 31,
	2019		2018
Net Income Available to Common Shareholders	$	7,018	$	5,950
Weighted Average Common Stock Outstanding:
Weighted Average Common Stock Outstanding (Basic)		30,097,638		25,755,764
Stock Options		609,098		415,669
Weighted Average Common Stock Outstanding (Dilutive)		30,706,736		26,171,433

Basic Earnings per Common Share	$	0.23	$	0.23
Diluted Earnings per Common Share		0.23		0.23

Note 3: Securities

The following tables present the amortized cost and estimated fair value of securities with gross unrealized gains and losses at March 31, 2019 and December 31, 2018:


	March 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Securities Available for Sale:
U.S. Treasury Securities	$	14,922	$	5	$	(5)	$	14,922
Municipal Bonds		113,334		3,547		(269)		116,612
Mortgage-Backed Securities		47,505		210		(637)		47,078
Corporate Securities		26,152		187		(60)		26,279
SBA Securities		46,085		18		(709)		45,394
Total Securities Available for Sale	$	247,998	$	3,967	$	(1,680)	$	250,285


	December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Securities Available for Sale:
U.S. Treasury Securities	$	17,862	$	54	$	(19)	$	17,897
Municipal Bonds		117,991		1,257		(1,115)		118,133
Mortgage-Backed Securities		48,816		52		(1,692)		47,176
Corporate Securities		21,170		72		(124)		21,118
SBA Securities		49,876		13		(835)		49,054
Total Securities Available for Sale	$	255,715	$	1,448	$	(3,785)	$	253,378

The following tables present the fair value and gross unrealized losses of securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2019 and December 31, 2018:


	Less Than 12 Months				12 Months or Greater				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
March 31, 2019
U.S. Treasury Securities	$	9,970	$	(5)	$	—	$	—	$	9,970	$	(5)
Municipal Bonds		695		—		16,730		(269)		17,425		(269)
Mortgage-Backed Securities		7		—		33,931		(637)		33,938		(637)
Corporate Securities		6,571		(28)		2,012		(32)		8,583		(60)
SBA Securities		11,812		(91)		28,939		(618)		40,751		(709)
Total Securities Available for Sale	$	29,055	$	(124)	$	81,612	$	(1,556)	$	110,667	$	(1,680)


	Less Than 12 Months				12 Months or Greater				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
December 31, 2018
U.S. Treasury Securities	$	14,866	$	(19)	$	—	$	—	$	14,866	$	(19)
Municipal Bonds		15,405		(199)		34,172		(916)		49,577		(1,115)
Mortgage-Backed Securities		1,751		(21)		41,776		(1,671)		43,527		(1,692)
Corporate Securities		9,063		(74)		1,996		(50)		11,059		(124)
SBA Securities		28,186		(366)		15,878		(469)		44,064		(835)
Total Securities Available for Sale	$	69,271	$	(679)	$	93,822	$	(3,106)	$	163,093	$	(3,785)

At March 31, 2019, 130 debt securities had unrealized losses with aggregate depreciation of approximately 1.5% from the Company’s amortized cost basis. At December 31, 2018, 195 debt securities had unrealized losses with aggregate depreciation of approximately 2.3% from the Company’s amortized cost basis. These unrealized losses relate principally to changes in interest rates and are not due to changes in the financial condition of the issuer, the quality of any underlying assets, or applicable credit enhancements. In analyzing whether unrealized losses on debt securities are other than temporary, management considers whether the securities are issued by a government body or agency, whether a rating agency has downgraded the securities, industry analysts’ reports, the financial condition and performance of the issuer, and the quality of any underlying assets or credit enhancements. Since management has the ability and intent to hold these debt securities for the foreseeable future, no declines were deemed to be other than temporary as of March 31, 2019.

The following is a summary of amortized cost and estimated fair value of debt securities by the lesser of expected call date or contractual maturity as of March 31, 2019. Call date is used when a call of the debt security is expected, determined by the Company when the security has a market value above its amortized cost. Contractual maturities will differ from expected maturities for mortgage-backed and SBA securities because borrowers may have the right to call or prepay obligations without penalties.


March 31, 2019	Amortized Cost		Fair Value
Due in One Year or Less	$	20,827	$	20,861
Due After One Year Through Five Years		29,250		29,685
Due After Five Years Through 10 Years		88,451		90,690
Due After 10 Years		15,880		16,577
Subtotal		154,408		157,813
Mortgage-Backed Securities		47,505		47,078
SBA Securities		46,085		45,394
Totals	$	247,998	$	250,285

As of March 31, 2019 and December 31, 2018, the securities portfolio was unencumbered.


	March 31,		December 31,
	2019		2018
Commercial	$	284,807	$	260,833
Construction and Land Development		178,782		210,041
Real Estate Mortgage:
1-4 Family Mortgage


PART I FINANCIAL INFORMATION	3

Item 1. Consolidated Financial Statements (unaudited)	3
Consolidated Balance Sheets	3
Consolidated Statements of Income	4
Consolidated Statements of Comprehensive Income	5
Consolidated Statements of Shareholders’ Equity	6
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	51
Item 4. Controls and Procedures	53

PART II OTHER INFORMATION	53

Item 1. Legal Proceedings	53
Item 1A. Risk Factors	53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3. Defaults Upon Senior Securities	53
Item 4. Mine Safety Disclosures	53
Item 5. Other Information	54
Item 6. Exhibits	54

SIGNATURES	55