Red River Bancshares(RRBI) - 2022 Q2 - Quarterly Report

Glossary of Terms This section defines abbreviations and acronyms used throughout the filing, including financial and regulatory terms - The glossary defines abbreviations and acronyms used throughout the filing, including financial terms (AFS, AOCI, CECL, EPS), regulatory bodies (FDIC, Federal Reserve, SEC), and legislative acts (CARES Act, Economic Aid Act, Economic Growth Act)[8][9][10][11] Cautionary Note Regarding Forward-Looking Statements This section outlines forward-looking statements and associated risks that may cause actual results to differ materially - The report contains forward-looking statements based on current expectations, estimates, and projections, which are subject to inherent uncertainties and risks that could cause actual results to differ materially[13] - Key risk factors include general business and economic conditions, the impact of COVID-19, government and regulatory actions, increased competition, interest rate volatility, loan portfolio performance, cybersecurity threats, asset quality deterioration, natural disasters, and compliance with regulatory frameworks[14] PART I. Financial Information Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Red River Bancshares, Inc., including balance sheets, income statements, comprehensive income statements, statements of changes in stockholders' equity, and cash flow statements, along with detailed notes explaining significant accounting policies, securities, loans, deposits, fair value measurements, and regulatory capital requirements Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Total Assets | $3,121,113 | $3,224,710 | | Total Cash and Cash Equivalents | $356,400 | $784,864 | | Securities available-for-sale | $651,125 | $659,178 | | Securities held-to-maturity | $159,562 | — | | Loans held for investment | $1,841,585 | $1,683,832 | | Allowance for loan losses | $(19,395) | $(19,176) | | Total Deposits | $2,850,195 | $2,910,348 | | Total Liabilities | $2,867,517 | $2,926,560 | | Total Stockholders' Equity | $253,596 | $298,150 | - Total assets decreased by $103.6 million (3.2%) from December 31, 2021, to June 30, 2022, primarily due to a decrease in cash and cash equivalents and deposits[17] - Loans held for investment increased by $157.8 million (9.4%) from December 31, 2021, to June 30, 2022[17] Consolidated Statements of Income This section reports the company's financial performance over periods, detailing revenues, expenses, and net income Consolidated Statements of Income Highlights (in thousands, except per share data) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Interest and Dividend Income | $22,498 | $18,644 | $42,507 | $37,822 | | Total Interest Expense | $1,349 | $1,397 | $2,630 | $2,984 | | Net Interest Income | $21,149 | $17,247 | $39,877 | $34,838 | | Provision for loan losses | $250 | $150 | $400 | $1,600 | | Total Noninterest Income | $4,860 | $6,403 | $9,262 | $13,178 | | Total Operating Expenses | $14,471 | $13,392 | $28,533 | $26,555 | | Net Income | $9,147 | $8,239 | $16,539 | $16,304 | | Basic EPS | $1.27 | $1.13 | $2.30 | $2.23 | | Diluted EPS | $1.27 | $1.13 | $2.30 | $2.22 | - Net income for Q2 2022 increased by $908,000 (11.0%) YoY to $9.1 million, and for the six months ended June 30, 2022, it increased by $235,000 (1.4%) to $16.5 million[19] - Net interest income for Q2 2022 increased by $3.9 million (22.6%) YoY to $21.1 million, and for the six months ended June 30, 2022, it increased by $5.0 million (14.5%) to $39.9 million[19] Consolidated Statements of Comprehensive Income This section presents net income and other comprehensive income items, reflecting total changes in equity from non-owner sources Consolidated Statements of Comprehensive Income Highlights (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $9,147 | $8,239 | $16,539 | $16,304 | | Unrealized net gain (loss) on securities (net of tax) | $(20,779) | $1,415 | $(60,878) | $(5,711) | | Comprehensive Income (Loss) | $(10,838) | $9,628 | $(43,492) | $10,441 | - Comprehensive income experienced a significant decline, primarily due to large unrealized losses on securities arising during the period, reflecting market interest rate changes[21] Consolidated Statements of Changes in Stockholders' Equity This section details changes in equity components, including net income, dividends, and other comprehensive income Consolidated Statements of Changes in Stockholders' Equity Highlights (in thousands) | Item | Balance as of December 31, 2021 | Net Income (6M 2022) | Stock Incentive Plan (6M 2022) | Cash Dividend (6M 2022) | Other Comprehensive Income (Loss) (6M 2022) | Balance as of June 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------- | :----------------------------- | :------------------------ | :------------------------------------------ | :---------------------------- | | Common Stock | $60,233 | — | $35 | — | — | $60,050 | | Additional Paid-In Capital | $1,814 | — | $126 | — | — | $1,940 | | Retained Earnings | $239,876 | $16,539 | — | $(1,005) | — | $255,410 | | Accumulated Other Comprehensive Income (Loss) | $(3,773) | — | — | — | $(60,031) | $(63,804) | | Total Stockholders' Equity | $298,150 | $16,539 | $161 | $(1,005) | $(60,031) | $253,596 | - Total stockholders' equity decreased by $44.6 million from December 31, 2021, to June 30, 2022, primarily due to a significant increase in accumulated other comprehensive loss, driven by unrealized losses on securities[23] - The company repurchased 4,465 shares of common stock for $218,000 during the six months ended June 30, 2022[23] Consolidated Statements of Cash Flows This section summarizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $18,195 | $35,338 | | Net cash provided by (used in) investing activities | $(385,283) | $(41,108) | | Net cash provided by (used in) financing activities | $(61,376) | $226,041 | | Net change in cash and cash equivalents | $(428,464) | $220,271 | | Cash and cash equivalents - end of period | $356,400 | $667,472 | - Net cash used in investing activities significantly increased to $385.3 million for the six months ended June 30, 2022, compared to $41.1 million in the prior year, primarily due to substantial purchases of securities AFS and an increase in loans HFI[26] - Net cash used in financing activities was $61.4 million for the six months ended June 30, 2022, a notable shift from $226.0 million provided in the prior year, driven by a net decrease in deposits[26] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited consolidated financial statements 1. Summary of Significant Accounting Policies This section outlines the key accounting principles and methods used in preparing the financial statements - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information, with all necessary adjustments included[31] - ASU No. 2021-05 (Leases) was adopted on January 1, 2022, with no material impact[34] - ASU No. 2016-13 (CECL model) is effective January 1, 2023, and is expected to result in a 1.0% to 5.0% increase in the allowance for credit losses and unfunded commitments[35] 2. Securities This section details the company's investment securities portfolio, including available-for-sale and held-to-maturity classifications - Total securities were $810.7 million as of June 30, 2022. The net unrealized loss on securities AFS increased by $59.0 million for the six months ended June 30, 2022, resulting in a net unrealized loss of $63.7 million[38][39] - During Q2 2022, the Company reclassified $166.3 million (20.5% of the portfolio) from AFS to HTM at fair value, with the net unrealized loss of $17.9 million amortized over the remaining life[40] Securities AFS and HTM (in thousands) | Category | June 30, 2022 Fair Value | December 31, 2021 Fair Value | | :------------------------ | :----------------------- | :-------------------------- | | Securities AFS | $651,125 | $659,178 | | Securities HTM | $148,062 | — | | Equity securities | — | $7,846 | - Equity securities, primarily a CRA mutual fund, were liquidated in April 2022, recognizing a loss of $447,000 for the six months ended June 30, 2022[48] 3. Loans and Asset Quality This section provides an overview of the loan portfolio, asset quality, and the allowance for loan losses Loans Held for Investment (in thousands) | Loan Category | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Commercial real estate | $765,131 | $670,293 | | One-to-four family residential | $510,741 | $474,420 | | Construction and development | $138,965 | $106,339 | | Commercial and industrial | $320,169 | $311,373 | | SBA PPP, net | $1,349 | $17,550 | | Total loans HFI | $1,841,585 | $1,683,832 | - Total loans HFI increased by $157.8 million (9.4%) from December 31, 2021, to June 30, 2022, with significant growth in commercial real estate and one-to-four family residential loans[50] Allowance for Loan Losses (in thousands) | Item | December 31, 2021 | Provision (6M 2022) | Charge-offs (6M 2022) | Recoveries (6M 2022) | June 30, 2022 | | :-------------------------- | :---------------- | :------------------ | :-------------------- | :------------------- | :------------ | | Total allowance for loan losses | $19,176 | $400 | $(277) | $96 | $19,395 | - Nonaccrual loans decreased from $280,000 at December 31, 2021, to $248,000 at June 30, 2022. Total impaired loans decreased from $6.1 million to $4.7 million over the same period[53][55] - Unfunded loan commitments increased to $372.3 million as of June 30, 2022, from $357.9 million at December 31, 2021[64] 4. Deposits This section details the composition and changes in the company's deposit base by type and customer Deposits by Type (in thousands) | Deposit Type | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Noninterest-bearing deposits | $1,181,781 | $1,149,672 | | Interest-bearing deposits | $1,668,414 | $1,760,676 | | Total Deposits | $2,850,195 | $2,910,348 | - Total deposits decreased by $60.2 million (2.1%) from December 31, 2021, to June 30, 2022, primarily due to expected customer deposit account activity[67] - Noninterest-bearing deposits increased by $32.1 million (2.8%), and their proportion of total deposits rose to 41.46% from 39.50%[67] 5. Contingencies This section discusses potential future obligations arising from legal matters and other business activities - The Company and the Bank are involved in various legal matters in the ordinary course of business, but management does not expect their resolution to have a material adverse effect on financial condition or results of operations[68] 6. Fair Value This section explains the methodologies and hierarchy used for fair value measurements of assets and liabilities - Fair value measurements are categorized into a three-level hierarchy based on the observability of inputs: Level 1 (quoted prices in active markets), Level 2 (observable market data for similar assets/liabilities), and Level 3 (unobservable data)[71][73] Fair Value of Assets Measured on a Recurring Basis (in thousands) | Asset Category | June 30, 2022 Fair Value | Level 2 (June 30, 2022) | December 31, 2021 Fair Value | Level 2 (December 31, 2021) | | :------------------------ | :----------------------- | :---------------------- | :-------------------------- | :-------------------------- | | Loans HFS | $4,524 | $4,524 | $4,290 | $4,290 | | Securities AFS | $651,125 | $651,125 | $659,178 | $659,178 | | Equity securities | — | — | $7,846 | — | - Impaired loans and foreclosed assets are measured at fair value on a nonrecurring basis, primarily using Level 3 inputs based on discounted appraisals and collateral discounts[77][80][82] 7. Regulatory Capital Requirements This section outlines the company's compliance with regulatory capital standards and its capital adequacy ratios Red River Bank Capital Ratios (June 30, 2022, in thousands) | Capital Ratio | Actual Amount | Actual Ratio | Minimum Ratio | Minimum Plus CCB Ratio | | :-------------------------- | :------------ | :----------- | :------------ | :--------------------- | | Total Risk-Based Capital | $322,847 | 16.27% | 8.00% | 10.50% | | Tier I Risk-Based Capital | $303,452 | 15.29% | 6.00% | 8.50% | | Common Equity Tier I Capital | $303,452 | 15.29% | 4.50% | 7.00% | | Tier I Leverage Capital | $303,452 | 9.35% | 4.00% | 4.00% | - Red River Bank met all Basel III capital adequacy requirements as of June 30, 2022, and was categorized as 'well capitalized' by the FDIC[86] - Red River Bancshares, Inc. exceeded $3.0 billion in assets as of June 30, 2022, and therefore expects to no longer receive the benefits of the Small Bank Holding Company Policy Statement starting in 2023[88] - The Company and the Bank qualify for the CBLR framework but do not intend to utilize it[90] 8. Earnings Per Common Share This section presents the basic and diluted earnings per share calculations for the reporting periods Earnings Per Common Share (6M 2022 vs. 6M 2021) | EPS Type | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------ | :----------------------------- | :----------------------------- | | Basic EPS | $2.30 | $2.23 | | Diluted EPS | $2.30 | $2.22 | - Basic and diluted EPS increased slightly for the six months ended June 30, 2022, compared to the prior year[92] 9. Equity This section details changes in stockholders' equity, including stock repurchases and accumulated other comprehensive income - The Board approved a renewal of the stock repurchase program, authorizing up to $5.0 million in repurchases through December 31, 2022. For the six months ended June 30, 2022, 4,465 shares were repurchased for $218,000, leaving $4.8 million available[93] - AOCI was impacted by the reclassification of securities from AFS to HTM in Q2 2022, with a net unamortized unrealized loss of $13.5 million (net of tax) remaining in AOCI as of June 30, 2022[94][95] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition as of June 30, 2022, compared to December 31, 2021, and results of operations for the three and six months ended June 30, 2022, compared to prior periods. It highlights record net income, improved net interest margin, solid loan growth, and strategic changes to the securities portfolio, while also discussing operational highlights and future outlook Corporate Summary This section provides an overview of the company's business, operational strategy, and market presence - Red River Bancshares, Inc. is a bank holding company for Red River Bank, a Louisiana state-chartered bank established in 1999, operating 28 banking centers and one loan and deposit production office across Louisiana[99] - The Company's strategy focuses on expanding market share in existing markets, opportunistic de novo expansion, and strategic acquisitions, driven by relationship-oriented commercial banking[100] Second Quarter 2022 Financial and Operational Highlights This section summarizes key financial and operational achievements and trends for the second quarter of 2022 - Net income for Q2 2022 reached a record $9.1 million ($1.27 diluted EPS), a 23.7% increase from Q1 2022, driven by a $2.4 million increase in net interest income[102] Q2 2022 Performance Ratios | Ratio | Q2 2022 | Q1 2022 | | :------------------------ | :------ | :------ | | Return on assets | 1.15% | 0.93% | | Return on equity | 14.30% | 10.27% | | Net interest margin FTE | 2.75% | 2.46% | | Efficiency ratio | 55.64% | 60.80% | - Non-PPP loans HFI increased by $105.6 million (6.1%) from March 31, 2022, to $1.84 billion, reflecting increased loan activity across all markets[102] - The Company continued its organic expansion, opening a full-service banking center in Lafayette and remodeling a new banking center in downtown New Orleans[105] Results of Operations This section analyzes the company's financial performance, including net interest income, noninterest income, and expenses Net Interest Income and Net Interest Margin This section analyzes the components of net interest income and the net interest margin, highlighting interest rate impacts - Net interest income for Q2 2022 was $21.1 million, up 12.9% from Q1 2022, driven by a $2.5 million increase in interest and dividend income, partially offset by a $68,000 increase in interest expense[111] - Net interest margin FTE increased 29 bps to 2.75% in Q2 2022 from 2.46% in Q1 2022, primarily due to an improved asset mix and a higher interest rate environment[112] - For the six months ended June 30, 2022, net interest income increased by $5.0 million (14.5%) YoY to $39.9 million, mainly due to higher non-PPP loan income, taxable securities income, and short-term liquid asset income[117][118] - The net interest margin FTE for the six months ended June 30, 2022, decreased three bps to 2.61% YoY, primarily due to a 19 bp decrease in loan yield, partially offset by higher interest rates and an improved asset mix[120][121] Provision for Loan Losses This section discusses the provision for loan losses, reflecting changes in asset quality and economic outlook - The provision for loan losses for Q2 2022 was $250,000, an increase of $100,000 from Q1 2022, attributed to potential economic challenges and loan growth[128] - For the six months ended June 30, 2022, the provision decreased by $1.2 million (75.0%) YoY to $400,000, due to continued favorable asset quality metrics, contrasting with the higher provision in 2021 for anticipated COVID-19 effects[129][130] Noninterest Income This section details the various sources of noninterest income and factors influencing their performance - Noninterest income increased by $458,000 (10.4%) to $4.9 million in Q2 2022 compared to Q1 2022, driven by decreased loss on equity securities, higher SBIC income, and increased debit card and brokerage income[132] - Mortgage loan income decreased by $235,000 (20.9%) in Q2 2022 due to reduced purchase and refinancing activity from higher interest rates and limited housing stock[137] - For the six months ended June 30, 2022, noninterest income decreased by $3.9 million (29.7%) YoY to $9.3 million, primarily due to lower mortgage loan income, a loss on equity securities, and reduced SBIC income[139][140][141] Operating Expenses This section analyzes the company's operating expenses, identifying key drivers of changes over the period - Operating expenses increased by $409,000 (2.9%) to $14.5 million in Q2 2022 compared to Q1 2022, mainly due to higher data processing, personnel, and loan and deposit expenses[147] - For the six months ended June 30, 2022, operating expenses increased by $2.0 million (7.4%) YoY to $28.5 million, primarily due to higher personnel, occupancy and equipment, and other taxes, driven by expansion and increased activity[150][152][153][154] Income Tax Expense This section reports the income tax expense and effective tax rate, reflecting pre-tax income and tax planning - Income tax expense for Q2 2022 was $2.1 million, up $615,000 (40.3%) from Q1 2022, due to increased pre-tax income. The effective tax rate for Q2 2022 was 19.0%[160] - For the six months ended June 30, 2022, income tax expense increased by $110,000 (3.1%) YoY to $3.7 million, with an effective tax rate of 18.1%[161] Financial Condition This section provides an overview of the company's balance sheet, including assets, liabilities, and equity General This section provides a high-level overview of changes in the company's overall financial position and asset deployment - Total assets decreased by $103.6 million (3.2%) to $3.12 billion as of June 30, 2022, primarily due to a $60.2 million decrease in deposits[162] - The Company strategically deployed short-term liquid assets into loans and the securities portfolio, increasing loans HFI by $157.8 million (9.4%) and total securities by $143.7 million (21.5%)[162] Interest-bearing Deposits in Other Banks This section details changes in interest-bearing deposits held in other banks, reflecting liquidity management strategies - Interest-bearing deposits in other banks decreased by $444.7 million (58.4%) to $317.1 million as of June 30, 2022, as excess liquidity was deployed into loans and securities[163] Securities This section analyzes the company's securities portfolio, including changes in fair value and reclassifications - Total debt securities increased by $151.5 million (23.0%) to $810.7 million as of June 30, 2022[165] - The net unrealized loss on securities AFS increased by $59.0 million to $63.7 million as of June 30, 2022, due to a significant increase in market interest rates[166][173] - During Q2 2022, $166.3 million of securities were reclassified from AFS to HTM to manage the portfolio mix[167] - The average life of the securities portfolio increased to 7.0 years with an effective duration of 5.3 years as of June 30, 2022, up from 4.9 years and 4.1 years, respectively, at December 31, 2021, due to rising market rates[172] Loan Portfolio This section provides a detailed breakdown of the loan portfolio by category and market, highlighting growth trends - Loans HFI increased by $157.8 million (9.4%) to $1.84 billion as of June 30, 2022[181] - Non-PPP loans HFI (non-GAAP) increased by $174.0 million (10.4%) to $1.84 billion, driven by new customer activity and increased loan activity across the state[183] Non-PPP Loans HFI by Market of Origin (June 30, 2022) | Market | Amount (in thousands) | Percent of Non-PPP Loans HFI | | :--------------- | :-------------------- | :--------------------------- | | Central | $626,540 | 34.1% | | Capital | $493,309 | 26.8% | | Northwest | $370,307 | 20.1% | | Southwest | $132,959 | 7.2% | | Northshore | $112,192 | 6.1% | | New Orleans | $54,488 | 3.0% | | Acadiana | $50,441 | 2.7% | | Total | $1,840,236 | 100.0% | - Health care loans represent the largest industry concentration at 8.0% of non-PPP loans HFI, with an average loan size of $323,000[185] Nonperforming Assets This section reports on the company's nonperforming loans and assets, indicating asset quality trends - NPAs totaled $971,000 as of June 30, 2022, a slight decrease of $8,000 (0.8%) from December 31, 2021, maintaining a ratio of 0.03% of total assets[191] Nonperforming Loans and Assets (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Nonaccrual loans | $248 | $280 | | Accruing loans 90+ days past due | $63 | $39 | | Total nonperforming loans | $311 | $319 | | Foreclosed assets | $660 | $660 | | Total NPAs | $971 | $979 | Potential Problem Loans This section categorizes loans by credit quality, identifying potential problem loans and their classifications - As of June 30, 2022, 98.5% of loans HFI were classified as 'pass,' with 1.2% as 'special mention' and 0.3% as 'substandard.' No loans were classified as 'doubtful' or 'loss'[197] Allowance for Loan Losses This section details the allowance for loan losses, its adequacy, and factors influencing its changes - The allowance for loan losses was $19.4 million (1.05% of loans HFI) as of June 30, 2022, an increase of $219,000 from December 31, 2021, mainly due to a $400,000 provision partially offset by $181,000 of net charge-offs[200] - The provision for loan losses for the six months ended June 30, 2022, decreased by $1.2 million (75.0%) YoY, reflecting continued favorable asset quality metrics[201] Deposits This section analyzes the composition and trends of the company's deposit base, including interest-bearing and noninterest-bearing accounts - Total deposits decreased by $60.2 million (2.1%) to $2.85 billion as of June 30, 2022, primarily due to expected customer activity[204] - Noninterest-bearing deposits increased by $32.1 million (2.8%) and constituted 41.5% of total deposits, up from 39.5% at December 31, 2021[205] Deposits by Customer Type (in thousands) | Customer Type | June 30, 2022 Balance | % of Total (June 30, 2022) | December 31, 2021 Balance | % of Total (December 31, 2021) | | :-------------- | :-------------------- | :------------------------- | :------------------------ | :----------------------------- | | Consumer | $1,367,169 | 48.0% | $1,400,369 | 48.1% | | Commercial | $1,305,648 | 45.8% | $1,283,992 | 44.1% | | Public | $177,378 | 6.2% | $225,987 | 7.8% | | Total deposits | $2,850,195 | 100.0% | $2,910,348 | 100.0% | Borrowings This section reports on the company's borrowing activities and outstanding debt obligations - The Company had no outstanding borrowings as of June 30, 2022, or December 31, 2021, utilizing deposits as its primary funding source[207] Equity and Regulatory Capital Requirements This section discusses changes in stockholders' equity and compliance with regulatory capital standards - Total stockholders' equity decreased by $44.6 million (14.9%) to $253.6 million as of June 30, 2022, primarily due to a $60.0 million (net of tax) market adjustment to AOCI related to securities[208] - The Company repurchased 4,465 shares of common stock for $218,000 during the first six months of 2022 under its renewed stock repurchase program[211] - As of June 30, 2022, the Company's assets exceeded $3.0 billion, meaning it will no longer qualify for the Small Bank Holding Company Policy Statement benefits starting in 2023[212] Liquidity and Asset-Liability Management This section outlines the company's strategies for managing liquidity and interest rate risk Liquidity This section describes the company's liquidity sources and management strategies to meet financial obligations - Liquidity needs are primarily met by core deposits, security and loan maturities, and cash flows from amortizing portfolios. Excess deposits are invested in interest-earning deposits, federal funds sold, or securities[214][216] - Securities AFS totaled $651.1 million (20.9% of assets) as of June 30, 2022, serving as an alternative liquidity source, though $159.7 million were pledged to secure public entity deposits[217] - The Company's net borrowing capacity from the FHLB was $779.5 million as of June 30, 2022, and it maintains $101.0 million in federal funds lines of credit and other lines of credit[218][219] Commitments to Extend Credit This section details the company's off-balance sheet commitments, including unfunded loan commitments and letters of credit - As of June 30, 2022, unfunded loan commitments totaled $372.3 million, and commitments under standby letters of credit totaled $14.3 million[222] Investment Commitments This section outlines the company's outstanding commitments to various investment partnerships - The Company has outstanding commitments to SBIC limited partnerships totaling $4.5 million and a bank technology limited partnership commitment of $727,000 as of June 30, 2022[223][224][225] Interest Rate Sensitivity and Market Risk This section assesses the company's exposure to interest rate fluctuations and other market risks - The Company's balance sheet is asset sensitive, meaning assets reprice faster than liabilities, which is expected to positively impact net interest income in a rising interest rate environment[235] Simulated Change in Net Interest Income and Fair Value of Equity (12-month horizon) | Change in Interest Rates (Bps) | % Change in Net Interest Income (June 30, 2022) | % Change in Fair Value of Equity (June 30, 2022) | | :----------------------------- | :---------------------------------------------- | :--------------------------------------------- | | +300 | 12.6% | 0.0% | | +200 | 8.4% | 0.5% | | +100 | 4.4% | 1.0% | | Base | 0.0% | 0.0% | | -100 | (8.3)% | (4.3)% | | -200 | (15.8)% | (11.9)% | - As of June 30, 2022, floating rate loans were 14.4% of loans HFI, and floating rate transaction deposits were 4.3% of interest-bearing transaction deposits[237] Non-GAAP Financial Measures This section presents and reconciles non-GAAP financial measures used to evaluate the company's performance Tangible Assets, Tangible Equity, Tangible Book Value, and Realized Book Value This section defines and presents non-GAAP metrics like tangible book value and realized book value for financial analysis - Non-GAAP measures like tangible book value per share and tangible common equity to tangible assets are used to evaluate financial institutions by excluding intangible assets[241][243] - Realized book value per share, a non-GAAP measure, excludes AOCI to monitor book value changes without the impact of temporary market fluctuations on securities AFS[245] Non-GAAP Equity and Asset Metrics (in thousands, except per share data) | Item | June 30, 2022 | March 31, 2022 | June 30, 2021 | | :--------------------------------------- | :------------ | :------------- | :------------ | | Total tangible common equity (non-GAAP) | $252,050 | $263,328 | $291,378 | | Total realized common equity (non-GAAP) | $317,400 | $308,693 | $291,866 | | Tangible book value per share (non-GAAP) | $35.12 | $36.69 | $40.00 | | Realized book value per share (non-GAAP) | $44.23 | $43.02 | $40.06 | | Total tangible assets (non-GAAP) | $3,119,567 | $3,210,914 | $2,876,930 | | Tangible common equity to tangible assets (non-GAAP) | 8.08% | 8.20% | 10.13% | PPP-Adjusted Metrics This section provides financial metrics adjusted for the impact of Paycheck Protection Program loans for clearer analysis - PPP-adjusted metrics are used to provide a more accurate portrayal of financial condition and performance by excluding PPP loans, which have unique short-term, low-interest characteristics[250] - As of June 30, 2022, PPP loans totaled $1.3 million (0.1% of loans HFI), with 99.9% of originated PPP loans having received SBA forgiveness or borrower payments[249] PPP-Adjusted Loan Metrics | Item | June 30, 2022 | December 31, 2021 | June 30, 2021 | | :--------------------------------------- | :------------ | :---------------- | :------------ | | Non-PPP loans HFI (non-GAAP) | $1,840,236 | $1,666,282 | $1,517,416 | | Allowance for loan losses to non-PPP loans HFI (non-GAAP) | 1.05% | 1.15% | 1.28% | | Nonperforming loans to non-PPP loans HFI | 0.02% | 0.02% | 0.13% | Critical Accounting Estimates This section discusses the significant accounting judgments and estimates that materially impact financial reporting - There were no material changes in methodologies for critical accounting estimates during the reporting period, as disclosed in the Annual Report on Form 10-K for December 31, 2021[252] Recent Accounting Pronouncements This section outlines the impact of recently issued accounting standards on the company's financial statements - Refer to Note 1 of the Unaudited Consolidated Financial Statements for details on recent accounting pronouncements, including the expected impact of the CECL model effective January 1, 2023[254] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the disclosures about market risk from the Annual Report on Form 10-K for December 31, 2021, and provides additional information as of June 30, 2022, related to interest rate sensitivity and market risk - Disclosures about market risk are incorporated by reference from the Annual Report on Form 10-K, with additional updates provided in Item 2 of this report regarding interest rate sensitivity and market risk[254] Item 4. Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures, concluding their effectiveness as of the end of the reporting period, and confirms no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022[256] - There were no material changes in the Company's internal control over financial reporting during the second quarter of 2022[257] PART II. Other Information Item 1. Legal Proceedings This section states that the Company and its subsidiaries are involved in various legal matters in the ordinary course of business, but management does not expect their resolution to have a material adverse effect on the consolidated financial statements - Management believes that current legal proceedings are not expected to have a material adverse effect on the Company's consolidated results of operations, financial condition, or cash flows[258] Item 1A. Risk Factors This section refers to the risk factors disclosed in the Company's Annual Report on Form 10-K for December 31, 2021, and confirms no material changes to those factors - There have been no material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[259] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section summarizes the Company's stock repurchase program, indicating no shares were repurchased during the second quarter of 2022, with $4.8 million remaining available under the program - No shares of common stock were repurchased under the publicly announced stock repurchase program during the second quarter of 2022[260] - As of June 30, 2022, approximately $4.8 million remained available for repurchases under the program, which authorizes purchases up to $5.0 million through December 31, 2022[260] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[261] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[262] Item 5. Other Information This section states that there is no other information to report - No other information is reported[263] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, executive agreements, certifications, and XBRL financial information - The report includes various exhibits such as Restated Articles of Incorporation, Amended and Restated Bylaws, Supplemental Executive Retirement Benefits Agreement, and certifications from principal executive and financial officers[264] - Financial information for the quarter ended June 30, 2022, is formatted in Inline Extensible Business Reporting Language (XBRL) as Exhibit 101[264]