Red River Bancshares(RRBI) - 2023 Q1 - Quarterly Report

Glossary of Terms The section provides definitions for abbreviations and acronyms used throughout the filing, including company references and financial/regulatory terms - The section provides definitions for abbreviations and acronyms used throughout the filing, including company references and financial/regulatory terms[9][10][11][12][13] Cautionary Note Regarding Forward-Looking Statements Forward-looking statements in this report are subject to inherent uncertainties and 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[15] - Key risk factors include general business and economic conditions, the impact of COVID-19, government and regulatory actions, increased competition, interest rate volatility, liquidity risks, asset quality, cybersecurity threats, and natural disasters[16] PART I. FINANCIAL INFORMATION This part presents Red River Bancshares, Inc.'s unaudited consolidated financial statements and management's discussion and analysis - Financial statements are prepared in accordance with GAAP for interim information, with all necessary normal recurring adjustments included[32][34] - The Company adopted ASU No. 2016-13 (CECL) on January 1, 2023, changing the impairment model for financial assets from an incurred loss to an expected loss model, resulting in a $569,000 net-of-tax decrease to stockholders' equity[35][36][37] Item 1. Financial Statements (Unaudited) This section presents Red River Bancshares, Inc.'s unaudited consolidated financial statements, including core financial statements and detailed accounting notes Consolidated Balance Sheets This table presents the Company's consolidated assets, liabilities, and stockholders' equity as of March 31, 2023, and December 31, 2022 Consolidated Balance Sheets (in thousands) | (in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $3,030,582 | $3,082,686 | $(52,104) | (1.7)% | | Total Liabilities | $2,753,942 | $2,816,933 | $(62,991) | (2.2)% | | Total Stockholders' Equity | $276,640 | $265,753 | $10,887 | 4.1% | | Cash and Cash Equivalents | $229,218 | $278,392 | $(49,174) | (17.7)% | | Loans held for investment | $1,921,850 | $1,916,267 | $5,583 | 0.3% | | Total Deposits | $2,731,385 | $2,798,936 | $(67,551) | (2.4)% | Consolidated Statements of Income This table details the Company's revenues, expenses, and net income for the three months ended March 31, 2023, and 2022 Consolidated Statements of Income (in thousands, except per share data) | (in thousands, except per share data) | For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Interest and Dividend Income | $27,732 | $20,009 | $7,723 | 38.6% | | Total Interest Expense | $4,823 | $1,281 | $3,542 | 276.5% | | Net Interest Income | $22,909 | $18,728 | $4,181 | 22.3% | | Provision for credit losses | $0 | $150 | $(150) | (100.0)% | | Total Noninterest Income | $4,340 | $4,402 | $(62) | (1.4)% | | Total Operating Expenses | $15,488 | $14,062 | $1,426 | 10.1% | | Net Income | $9,598 | $7,392 | $2,206 | 29.8% | | Basic EPS | $1.34 | $1.03 | $0.31 | 30.1% | | Diluted EPS | $1.33 | $1.03 | $0.30 | 29.1% | Consolidated Statements of Comprehensive Income This table presents the Company's net income and other comprehensive income (loss) components for the three months ended March 31, 2023, and 2022 Consolidated Statements of Comprehensive Income (in thousands) | (in thousands) | For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net income | $9,598 | $7,392 | $2,206 | 29.8% | | Total other comprehensive income (loss) | $2,625 | $(40,046) | $42,671 | 106.6% | | Comprehensive Income (Loss) | $12,223 | $(32,654) | $44,877 | 137.4% | Consolidated Statements of Changes in Stockholders' Equity This table outlines changes in stockholders' equity from December 31, 2022, to March 31, 2023, including net income, dividends, and other adjustments Consolidated Statements of Changes in Stockholders' Equity (dollars in thousands) | (dollars in thousands) | Balance as of December 31, 2022 | Net Income | Stock Incentive Plan | Board Compensation | Stock Repurchase | Cash Dividend | CECL Adjustment | Other Comprehensive Income (Loss) | Balance as of March 31, 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Common Stock | $60,050 | — | — | $84 | $(346) | — | — | — | $59,788 | | Additional Paid-In Capital | $2,088 | — | $69 | — | — | — | — | — | $2,157 | | Retained Earnings | $274,781 | $9,598 | — | — | — | $(574) | $(569) | — | $283,236 | | Accumulated Other Comprehensive Income (Loss) | $(71,166) | — | — | — | — | — | — | $2,625 | $(68,541) | | Total Stockholders' Equity | $265,753 | $9,598 | $69 | $84 | $(346) | $(574) | $(569) | $2,625 | $276,640 | Consolidated Statements of Cash Flows This table summarizes the Company's cash flows from operating, investing, and financing activities for the three months ended March 31, 2023, and 2022 Consolidated Statements of Cash Flows (in thousands) | (in thousands) | For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $13,330 | $8,827 | $4,503 | 51.0% | | Net cash provided by (used in) investing activities | $5,967 | $(263,232) | $269,199 | 102.3% | | Net cash provided by (used in) financing activities | $(68,471) | $16,660 | $(85,131) | (511.0)% | | Net change in cash and cash equivalents | $(49,174) | $(237,745) | $188,571 | 79.3% | | Cash and cash equivalents - end of period | $229,218 | $547,119 | $(317,901) | (58.1)% | Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and disclosures for the unaudited consolidated financial statements, covering key accounting policies and financial components 1. Summary of Significant Accounting Policies This section outlines the key accounting principles and methodologies applied in preparing the financial statements, including the adoption of CECL - The Company adopted ASC 326 (CECL) on January 1, 2023, replacing the incurred loss model with an expected loss model for financial assets measured at amortized cost, including loans HFI and securities HTM[35][36] - The adoption of ASC 326 resulted in a $569,000 net-of-tax decrease to stockholders' equity as of January 1, 2023, including a $278,000 increase to the allowance for loan losses and a $442,000 reserve for unfunded commitments[37][38] - The Allowance for Credit Losses (ACL) is estimated using internal and external data, past events, current conditions, and reasonable forecasts (one year, then two-year historical average), with adjustments for loan-specific risk characteristics and economic conditions[43][44] - For securities AFS and HTM, a zero credit loss assumption is applied to U.S. Treasury, agency, and government-backed mortgage-backed securities, while municipal bonds AFS are evaluated quarterly for credit loss[49][50] 2. Securities This section details the Company's securities portfolio, including AFS and HTM classifications, and associated unrealized gains or losses Securities Portfolio (in thousands) | (in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Securities AFS (Fair Value) | $611,794 | $614,407 | $(2,613) | (0.4)% | | Total Securities HTM (Amortized Cost) | $149,417 | $151,683 | $(2,266) | (1.5)% | | Net Unrealized Loss on Securities AFS | $(71,203) | $(74,138) | $2,935 | 4.0% | | Unrealized Loss on Securities HTM | $(19,905) | $(19,276) | $(629) | (3.3)% | - The net unrealized loss on securities AFS decreased by $3.0 million to $71.2 million as of March 31, 2023, primarily due to changes in market rates[56][175] - Investment activity for Q1 2023 included $8.8 million in securities purchased and $16.4 million in maturities/repayments/calls, with no sales of AFS or purchases/sales of HTM securities[57][177] - The Company sold $6.0 million of its CRA mutual fund (equity securities) in March 2023, resulting in a recognized gain of $31,000 for the three months ended March 31, 2023[68][185] 3. Loans and Asset Quality This section provides an overview of the Company's loan portfolio, including classifications, allowance for credit losses, and nonperforming assets Loans and Asset Quality Metrics (in thousands) | (in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total loans HFI | $1,921,850 | $1,916,267 | $5,583 | 0.3% | | Allowance for credit losses | $20,854 | $20,628 | $226 | 1.1% | | Nonaccrual loans | $2,283 | $2,364 | $(81) | (3.4)% | | Total nonperforming loans | $2,361 | $2,366 | $(5) | (0.2)% | | NPAs to assets | 0.08% | 0.08% | 0.00% | 0.0% | | Allowance for credit losses to loans HFI | 1.09% | 1.08% | 0.01% | 0.9% | - The Company adopted ASC 326 (CECL) on January 1, 2023, resulting in a $278,000 increase to the allowance for loan losses and establishing a $442,000 reserve for unfunded commitments[71][38] - No provision for credit losses was recorded in Q1 2023, compared to $150,000 in Q1 2022, reflecting the new CECL methodology[71][204] - Loans are categorized by risk rating (Pass, Special Mention, Substandard, Doubtful, Loss), with no loans classified as doubtful or loss as of March 31, 2023[81][82][83][84][86][199] 4. Deposits This section details the Company's deposit base, including interest-bearing and noninterest-bearing categories, and factors influencing deposit changes Deposit Composition (in thousands) | (in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Deposits | $2,731,385 | $2,798,936 | $(67,551) | (2.4)% | | Noninterest-bearing deposits | $1,060,042 | $1,090,539 | $(30,497) | (2.8)% | | Interest-bearing deposits | $1,671,343 | $1,708,397 | $(37,054) | (2.2)% | | Noninterest-bearing deposits to total deposits | 38.81% | 38.96% | (0.15)% | (0.4)% | - The decrease in deposits was attributed to the changing interest rate environment, customer deposit movement, and normal seasonal drawdowns by public entity customers, leading to a mix shift from lower to higher yielding categories[91][208] 5. Contingencies This section addresses potential legal and other contingencies, stating that management does not expect material adverse effects on the Company's financial position - The Company and its 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 consolidated results, financial condition, or cash flows[92][272] 6. Fair Value This section explains the Company's fair value measurements, categorizing assets and liabilities into a three-level hierarchy based on input observability - Fair value measurements are categorized into a three-level hierarchy (Level 1: quoted prices in active markets, Level 2: observable inputs, Level 3: unobservable inputs)[98] - Securities AFS, loans HFS, and equity securities are measured at fair value on a recurring basis, primarily using Level 2 inputs for debt securities and Level 1 for equity securities[95][96][99] - Impaired loans and foreclosed assets are measured at fair value on a nonrecurring basis, often using Level 3 inputs based on discounted appraisals and collateral discounts[97][100][102][104] 7. Regulatory Capital Requirements This section details the Company's compliance with Basel III capital guidelines and its regulatory capital ratios as of March 31, 2023 - The Company and the Bank are subject to Basel III capital guidelines and met all minimum capital adequacy requirements as of March 31, 2023[106][107] - Effective January 1, 2023, the Company became subject to consolidated capital requirements as its assets exceeded $3.0 billion as of June 30, 2022, losing benefits under the Small Bank Holding Company Policy Statement[108][221] - The Company and the Bank qualify for the Community Bank Leverage Ratio (CBLR) framework but do not intend to utilize it[109][110][222] Company Capital Ratios | Capital Ratio (Company) | March 31, 2023 (Actual Ratio) | Minimum Regulatory Requirement | | :--- | :--- | :--- | | Total Risk-Based Capital | 17.89% | 10.50% | | Tier I Risk-Based Capital | 16.85% | 8.50% | | Common Equity Tier I Capital | 16.85% | 7.00% | | Tier I Leverage Capital | 11.02% | 4.00% | 8. Earnings Per Common Share This section presents the basic and diluted earnings per common share calculations for the three months ended March 31, 2023, and 2022 Earnings Per Common Share (in thousands, except share amounts) | (in thousands, except share amounts) | For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net income - basic | $9,598 | $7,392 | | Weighted average shares outstanding - basic | 7,182,782 | 7,179,624 | | Basic EPS | $1.34 | $1.03 | | Diluted EPS | $1.33 | $1.03 | - Diluted EPS calculation includes accrued but unissued shares from the Director Compensation Program and restricted stock determined using the treasury stock method[111] 9. Equity This section discusses changes in stockholders' equity, including stock repurchase programs, AOCI, and the impact of the CECL adoption - The Company's board approved a stock repurchase program for up to $5.0 million of common stock from January 1, 2023, through December 31, 2023[113][218] - In Q1 2023, the Company repurchased 6,795 shares for $346,000, with $4.7 million remaining available under the program[113][218] - AOCI included a net unamortized, unrealized loss of $12.3 million (net of tax) on transferred securities from AFS to HTM as of March 31, 2023[115][220] - The adoption of CECL on January 1, 2023, resulted in a $569,000 net-of-tax adjustment to retained earnings[116][219] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the Company's financial condition and results of operations for Q1 2023 - Red River Bancshares, Inc. is the bank holding company for Red River Bank, operating 27 banking centers and one LDPO across Louisiana, focusing on commercial and retail banking[121] - The Company aims to drive shareholder value through market share expansion in existing markets, opportunistic de novo expansion, and strategic acquisitions[122] Corporate Summary This section provides an overview of Red River Bancshares, Inc., its banking operations, geographic presence, and strategic growth initiatives - Red River Bancshares, Inc. is the holding company for Red River Bank, a Louisiana state-chartered bank established in 1999, offering a full suite of banking products and services to commercial and retail customers[121] - The bank operates 27 banking centers and one loan and deposit production office (LDPO) across various Louisiana markets, including Alexandria, Shreveport-Bossier City, Baton Rouge, Lake Charles, Covington, Lafayette, and New Orleans[121] - The Company's strategy focuses on expanding market share in existing areas, pursuing new market de novo expansion, and considering strategic acquisitions of financial institutions with compatible philosophies[122] First Quarter 2023 Financial and Operational Highlights This section summarizes key financial and operational performance metrics for Q1 2023, including net income, EPS, asset quality, and dividend information Q1 2023 Financial and Operational Highlights | Metric | Q1 2023 | Q4 2022 | Q1 2022 | YoY Change (Q1 23 vs Q1 22) | QoQ Change (Q1 23 vs Q4 22) | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Income (in thousands) | $9,598 | $10,191 | $7,392 | +29.8% | -5.8% | | Diluted EPS | $1.33 | $1.42 | $1.03 | +29.1% | -6.3% | | Return on Average Assets | 1.28% | 1.33% | 0.93% | +0.35% | -0.05% | | Return on Average Equity | 14.33% | 16.34% | 10.27% | +4.06% | -2.01% | | Total Assets (in millions) | $3,030.6 | $3,082.7 | $3,212.5 | -5.7% | -1.7% | | Total Deposits (in millions) | $2,731.4 | $2,798.9 | $2,924.5 | -6.7% | -2.4% | | Loans HFI (in millions) | $1,921.8 | $1,916.3 | $1,741.0 | +10.4% | +0.3% | | NPAs to Assets | 0.08% | 0.08% | 0.03% | +0.05% | 0.00% | | ACL to Loans HFI | 1.09% | 1.08% | 1.11% | -0.02% | +0.01% | | Cash Dividends per Share | $0.08 | $0.07 | $0.07 | +14.3% | +14.3% | - The Company increased its quarterly dividend to $0.08 per common share and implemented the CECL methodology in Q1 2023[123][127] - In Q1 2023, the Company maintained an average of $241.7 million in liquid funds and had various borrowing alternatives with no borrowings, and Red River Bank became eligible for the Federal Reserve Board's Bank Term Funding Program[124] Results of Operations This section analyzes the Company's quarterly financial performance, focusing on net interest income, noninterest income, operating expenses, and income tax - Net income for Q1 2023 was $9.6 million ($1.33 diluted EPS), a 5.8% decrease QoQ but a 29.8% increase YoY, driven by changes in net interest income, provision for credit losses, noninterest income, and operating expenses[129][130] - The efficiency ratio for Q1 2023 was 56.84%, an increase from 54.76% in Q4 2022 but an improvement from 60.80% in Q1 2022[129][130] Net Interest Income and Net Interest Margin This section examines net interest income and margin components, highlighting the impact of interest rate changes on asset and liability yields Net Interest Income and Net Interest Margin Metrics | Metric | Q1 2023 | Q4 2022 | QoQ Change | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Interest Income (in thousands) | $22,909 | $23,674 | $(765) | $18,728 | $4,181 | | Net Interest Margin FTE | 3.13% | 3.17% | (0.04)% | 2.46% | 0.67% | | Cost of Deposits | 0.71% | 0.47% | 0.24% | 0.18% | 0.53% | | Yield on Loans | 4.54% | 4.38% | 0.16% | 3.97% | 0.57% | | Yield on Short-term Liquid Assets | 4.53% (deposits in other banks) | 3.69% (deposits in other banks) | 0.84% | 0.17% (deposits in other banks) | 4.36% | - The FOMC increased the target federal funds rate by 425 bps in 2022 and an additional 50 bps in Q1 2023, impacting net interest income and margin[132] - Net interest margin FTE is expected to continue to compress due to intensified deposit rate pressure and a shift in deposit mix, despite the asset-sensitive balance sheet[135] Provision for Credit Losses This section discusses the provision for credit losses, noting the impact of the new CECL methodology on the Company's expense recognition Provision for Credit Losses (dollars in thousands) | (dollars in thousands) | Q1 2023 | Q4 2022 | QoQ Change | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Provision for credit losses | $0 | $750 | $(750) | $150 | $(150) | - No provision expense was recorded in Q1 2023 under the new CECL methodology, which became effective January 1, 2023[145][146] - The Q4 2022 provision of $750,000 was due to potential economic challenges from the current inflationary environment, changing monetary policy, and loan growth[145] Noninterest Income This section analyzes the various sources of noninterest income, including mortgage loan income, brokerage income, and gains on equity securities Noninterest Income (dollars in thousands) | (dollars in thousands) | Q1 2023 | Q4 2022 | QoQ Change | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Noninterest Income | $4,340 | $4,619 | $(279) | $4,402 | $(62) | | Mortgage loan income | $275 | $453 | $(178) | $1,127 | $(852) | | Brokerage income | $807 | $1,013 | $(206) | $775 | $32 | | Gain (Loss) on equity securities | $31 | $(21) | $52 | $(365) | $396 | | SBIC income | $180 | $162 | $18 | $20 | $160 | - Mortgage loan income decreased significantly QoQ and YoY due to higher mortgage interest rates and reduced purchase activity[149][152] - SBIC income increased substantially YoY due to higher operating income distributions from the limited partnership[154] - The Company recognized a gain on equity securities in Q1 2023, a turnaround from losses in prior periods, partly due to the sale of $6.0 million of a CRA mutual fund[153] Operating Expenses This section reviews the Company's operating expenses, including personnel, occupancy, and regulatory assessment costs, and factors contributing to their changes Operating Expenses (dollars in thousands) | (dollars in thousands) | Q1 2023 | Q4 2022 | QoQ Change | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Operating Expenses | $15,488 | $15,082 | $406 | $14,062 | $1,426 | | Personnel expenses | $9,000 | $8,681 | $319 | $8,452 | $548 | | Occupancy and equipment expenses | $1,717 | $1,613 | $104 | $1,492 | $225 | | Regulatory assessment expenses | $406 | $277 | $129 | $250 | $156 | - Personnel expenses increased QoQ and YoY due to higher health insurance costs, filled positions, and expanded staff in the New Orleans market[158][164] - Regulatory assessment expenses increased due to the FDIC raising the deposit insurance assessment rate by two bps, effective January 1, 2023[159][166] - Occupancy and equipment expenses rose due to the opening of a new operations center and a full period of expenses for a new full-service banking center in New Orleans[160][165] Income Tax Expense This section analyzes the Company's income tax expense and effective tax rate, explaining factors that cause it to differ from the U.S. statutory rate Income Tax Expense and Rate (dollars in thousands) | (dollars in thousands) | Q1 2023 | Q4 2022 | QoQ Change | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Income tax expense | $2,163 | $2,270 | $(107) | $1,526 | $637 | | Effective income tax rate | 18.4% | 18.2% | 0.2% | 17.1% | 1.3% | - Income tax expense decreased QoQ due to lower pre-tax income but increased YoY due to higher pre-tax income[169][170] - The effective income tax rate differs from the U.S. statutory rate due to tax-exempt income from loans, securities, life insurance policies, and stock-based compensation effects[168] Financial Condition This section provides an in-depth analysis of the Company's balance sheet, including assets, liabilities, equity, and key financial ratios - Total assets decreased by $52.1 million (1.7%) to $3.03 billion as of March 31, 2023, primarily due to a $67.6 million decrease in deposits[171] - Stockholders' equity increased by $10.9 million (4.1%) to $276.6 million, driven by net income, a decrease in AOCI related to securities, and stock compensation, partially offset by cash dividends and a CECL adjustment[171][217] General This section provides a high-level overview of the Company's financial position, including total assets, deposits, loans, securities, and stockholders' equity Key Financial Condition Metrics | Metric | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $3.03 billion | $3.08 billion | $(52.1) million | (1.7)% | | Total Deposits | $2.73 billion | $2.80 billion | $(67.6) million | (2.4)% | | Loans HFI | $1.92 billion | $1.92 billion | $5.6 million | 0.3% | | Total Securities | $765.2 million | $776.1 million | $(10.9) million | (1.4)% | | Stockholders' Equity | $276.6 million | $265.8 million | $10.8 million | 4.1% | - The loans HFI to deposits ratio increased to 70.36% from 68.46%, while the noninterest-bearing deposits to total deposits ratio slightly decreased to 38.81% from 38.96%[171] Interest-bearing Deposits in Other Banks This section discusses the Company's interest-bearing deposits held in other banks, representing excess liquidity and their changes over the period Interest-bearing Deposits in Other Banks | Metric | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Interest-bearing deposits in other banks | $194.7 million | $240.6 million | $(45.9) million | (19.1)% | | % of Total Assets | 6.4% | 7.8% | (1.4)% | (17.9)% | - These deposits, representing excess liquidity not deployed into loans or securities, decreased due to overall deposit reductions[172] Securities This section provides a detailed analysis of the Company's securities portfolio, including its composition, duration, and pledged amounts Securities Portfolio Details (in thousands) | (in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Debt Securities | $761,191 | $766,100 | $(4,909) | (0.6)% | | Securities AFS (Fair Value) | $611,794 | $614,407 | $(2,613) | (0.4)% | | Securities HTM (Amortized Cost) | $149,417 | $151,683 | $(2,266) | (1.5)% | | Net Unrealized Loss on Securities AFS | $(71,203) | $(74,138) | $2,935 | 4.0% | | Unrealized Loss on Securities HTM | $(19,905) | $(19,276) | $(629) | (3.3)% | - The securities portfolio, 25.2% of assets, is managed for liquidity, return, and to complement lending, primarily consisting of U.S. Treasury, agency, mortgage-backed, and municipal bonds[173] - The average life of the securities portfolio was 6.6 years with an effective duration of 4.9 years as of March 31, 2023, slightly shorter than December 31, 2022[179] - $189.0 million of securities AFS were pledged to secure public entity deposits as of March 31, 2023, an increase of $32.3 million from December 31, 2022[229] Loan Portfolio This section provides a breakdown of the Company's loan portfolio by type, highlighting concentrations and changes in loan categories Loan Portfolio Composition (dollars in thousands) | (dollars in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total loans HFI | $1,921,850 | $1,916,267 | $5,583 | 0.3% | | Commercial real estate | $805,160 | $794,723 | $10,437 | 1.3% | | One-to-four family residential | $550,542 | $543,511 | $7,031 | 1.3% | | Construction and development | $145,967 | $157,364 | $(11,397) | (7.2)% | | Commercial and industrial | $315,738 | $310,053 | $5,685 | 1.8% | - The loan portfolio is the largest earning asset, diversified with a focus on commercial real estate (41.9%), one-to-four family residential (28.7%), and commercial and industrial loans (16.4%)[186][188] - Health care loans are the largest industry concentration at 8.4% of loans HFI, consistent with the prior quarter[189] - As of March 31, 2023, 1.4% of loans HFI were LIBOR-based with a June 30, 2023 expiration, with alternative rate language in place for transition[192] Nonperforming Assets This section details the Company's nonperforming assets, including nonaccrual loans and foreclosed assets, and their impact on asset quality Nonperforming Assets (dollars in thousands) | (dollars in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total NPAs | $2,383 | $2,366 | $17 | 0.7% | | Nonaccrual loans | $2,283 | $2,364 | $(81) | (3.4)% | | Accruing loans 90 days or more past due | $78 | $2 | $76 | 3800.0% | | Foreclosed assets | $22 | $0 | $22 | N/A | | NPAs to assets | 0.08% | 0.08% | 0.00% | 0.0% | | Nonperforming loans to loans HFI | 0.12% | 0.12% | 0.00% | 0.0% | - Asset quality is managed through disciplined underwriting, continuous monitoring, and focused management of NPAs, though economic declines or borrower deterioration could lead to losses[194] Potential Problem Loans This section categorizes loans by risk rating, identifying potential problem loans and assessing their impact on the portfolio's credit quality Loan Risk Ratings (in thousands) | (in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Pass | $1,899,906 | $1,893,491 | $6,415 | 0.3% | | Special Mention | $16,423 | $17,249 | $(826) | (4.8)% | | Substandard | $5,521 | $5,527 | $(6) | (0.1)% | | Total loans HFI | $1,921,850 | $1,916,267 | $5,583 | 0.3% | - Loans are categorized by risk rating (pass, special mention, substandard, doubtful, or loss) to reflect default and loss risk, with no loans classified as doubtful or loss as of March 31, 2023[196][199] Allowance for Credit Losses This section details the Allowance for Credit Losses (ACL), its changes, and the methodology used for its estimation under the CECL standard Allowance for Credit Losses Metrics | Metric | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | ACL | $20,854 | $20,628 | $226 | 1.1% | | ACL to Loans HFI | 1.09% | 1.08% | 0.01% | 0.9% | | Net (charge-offs)/recoveries | $(52) | N/A | N/A | N/A | - The ACL increased by $226,000 in Q1 2023, primarily due to the $278,000 increase from the adoption of ASC 326 (CECL) on January 1, 2023[203] - No provision for credit losses was recorded in Q1 2023, reflecting the CECL methodology, which considers expected credit losses over the loan's lifetime based on past events, current conditions, and forecasts[200][204] Deposits This section analyzes the Company's deposit trends, including changes in noninterest-bearing and interest-bearing deposits, and the impact of market conditions Deposit Trends (dollars in thousands) | (dollars in thousands) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Deposits | $2,731,385 | $2,798,936 | $(67,551) | (2.4)% | | Noninterest-bearing demand deposits | $1,060,042 | $1,090,539 | $(30,497) | (2.8)% | | Interest-bearing deposits | $1,671,343 | $1,708,397 | $(37,054) | (2.2)% | | Noninterest-bearing deposits to total deposits | 38.8% | 39.0% | (0.2)% | (0.5)% | | Average deposit account size | ~$29,000 | ~$30,000 | N/A | N/A | | Estimated uninsured deposits | $871.6 million | $975.1 million | $(103.5) million | (10.6)% | - Deposits decreased due to the changing interest rate environment, customer movement to higher-yielding accounts, and seasonal drawdowns by public entities[208] - The average cost of interest-bearing deposits increased to 1.16% in Q1 2023 from 0.81% in Q4 2022 due to increased deposit rates in response to competition[212] - The Company utilizes the IntraFi Network Insured Cash Sweep program, with $96.9 million swept off-balance sheet and $97.2 million returned as interest-bearing demand deposits as of March 31, 2023[210] Borrowings This section addresses the Company's borrowing activities, noting no outstanding borrowings and the use of deposits as the primary funding source - The Company had no outstanding borrowings as of March 31, 2023, or December 31, 2022, utilizing deposits as its primary funding source[216] - Borrowings may be used as a cost-effective funding source for asset growth, loan demand, or liquidity needs[216] Equity and Regulatory Capital Requirements This section details changes in stockholders' equity and regulatory capital compliance, including the impact of exceeding the $3.0 billion asset threshold Equity and Regulatory Capital Metrics | Metric | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $276.6 million | $265.8 million | $10.8 million | 4.1% | | Common shares outstanding | 7,177,650 | 7,183,915 | (6,265) | (0.1)% | - Stockholders' equity increased by $10.9 million, driven by net income ($9.6 million), a decrease in AOCI ($2.6 million net of tax), and stock compensation ($153,000), partially offset by cash dividends ($574,000), a CECL adjustment ($569,000 net of tax), and stock repurchases ($346,000)[217] - The Company repurchased 6,795 shares of common stock for $346,000 in Q1 2023 under a renewed $5.0 million stock repurchase program, with $4.7 million remaining[218] - Effective January 1, 2023, the Company became subject to consolidated capital requirements due to exceeding $3.0 billion in assets, no longer receiving benefits under the Small Bank Holding Company Policy Statement[221] Liquidity and Asset-Liability Management This section discusses the Company's liquidity position, asset-liability management strategies, and sensitivity to interest rate changes - The Company had $1.35 billion in available borrowing capacity and no outstanding borrowings as of March 31, 2023, with sufficient liquid assets[223] - Liquidity needs are primarily met by core deposits, security and loan maturities, and cash flows from amortizing portfolios, with access to purchased funds from correspondent banks, FHLB, and the Federal Reserve Bank of Atlanta[224][225] Liquidity This section details the Company's liquidity sources, including cash, securities, and available borrowing capacities from various facilities Liquidity Sources and Capacity | Metric | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $229.2 million | $278.4 million | $(49.2) million | (17.7)% | | Securities AFS | $611.8 million | $614.4 million | $(2.6) million | (0.4)% | | Total FHLB borrowing availability | $891.9 million | $875.8 million | $16.1 million | 1.8% | | Net FHLB borrowing capacity | $876.0 million | $774.9 million | $101.1 million | 13.1% | | Federal funds lines of credit | $95.0 million | $95.0 million | $0 | 0.0% | | Eligible securities for Bank Term Funding Program | ~$377.0 million | N/A | N/A | N/A | - Cash and cash equivalents decreased by $49.2 million due to a decrease in deposits during Q1 2023[228] - Securities AFS serve as an alternative liquidity source, with $100.0 million projected in principal repayments through December 31, 2023[229] - The Company has access to the Federal Reserve Board's Bank Term Funding Program, with approximately $377.0 million in eligible securities as collateral[232] Commitments to Extend Credit This section outlines the Company's unfunded loan commitments and standby letters of credit, noting associated credit and liquidity risks Commitments to Extend Credit (in millions) | (in millions) | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Unfunded loan commitments | $366.5 | $377.6 | $(11.1) | (2.9)% | | Standby letters of credit | $14.3 | $14.6 | $(0.3) | (2.1)% | - Commitments to extend credit and standby letters of credit expose the Company to credit, interest rate, and liquidity risks, though total outstanding commitments may not reflect actual future cash funding requirements as some may expire unused[233][235] Investment Commitments This section lists the Company's outstanding investment commitments to various limited partnerships Outstanding Investment Commitments (March 31, 2023) | Partnership | Outstanding Commitment (March 31, 2023) | | :--- | :--- | | SBIC limited partnership (2014) | $226,000 | | SBIC limited partnership (2020) | $3.6 million | | Bank technology limited partnership (2021) | $562,000 | Interest Rate Sensitivity and Market Risk This section describes the Company's management of interest rate sensitivity and market risk, including policy thresholds for net interest income and equity fair value - The Company's primary market risk is interest rate volatility, managed by the Asset-Liability Management Committee through guidelines for funds management and monitoring net interest rate sensitivity[238][241] - The balance sheet is asset-sensitive, meaning assets reprice faster than liabilities, though recent deposit rate pressure has caused deposit rates to adjust more quickly than the federal funds rate[246] - Policy thresholds for instantaneous parallel shifts of the yield curve specify that estimated net interest income at risk should not decline by more than 10.0% for a 100 bp shift and 15.0% for a 200 bp shift, and fair value of equity by no more than 20.0% for 100 bp and 25.0% for 200 bp[244] Interest Rate Sensitivity Analysis | Change in Interest Rates (Bps) | March 31, 2023 (% Change in Net Interest Income) | March 31, 2023 (% Change in Fair Value of Equity) | December 31, 2022 (% Change in Net Interest Income) | December 31, 2022 (% Change in Fair Value of Equity) | | :--- | :--- | :--- | :--- | :--- | | +300 | 4.8% | (3.5)% | 6.4% | (2.0)% | | +200 | 3.0% | (2.3)% | 4.1% | (1.2)% | | +100 | 1.7% | (0.5)% | 2.2% | 0.0% | | Base | 0.0% | 0.0% | 0.0% | 0.0% | | -100 | (1.4)% | (1.1)% | (2.6)% | (1.2)% | | -200 | (3.5)% | (4.8)% | (6.3)% | (5.4)% | Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures like tangible book value and realized book value per share for performance evaluation - The Company uses non-GAAP measures like tangible book value per share, tangible common equity to tangible assets, and realized book value per share to evaluate operating performance, believing they are useful to investors[251] - Tangible book value per share excludes intangible assets from total stockholders' equity, while tangible common equity to tangible assets excludes intangible assets from both equity and total assets[252][254] - Realized book value per share excludes Accumulated Other Comprehensive Income (AOCI) from total stockholders' equity, as AOCI can be temporary and highly variable due to market factors affecting securities AFS[256] Non-GAAP Financial Measures | Metric | March 31, 2023 | December 31, 2022 | March 31, 2022 | | :--- | :--- | :--- | :--- | | Book value per share (GAAP) | $38.54 | $36.99 | $36.91 | | Tangible book value per share (non-GAAP) | $38.33 | $36.78 | $36.69 | | Realized book value per share (non-GAAP) | $48.09 | $46.90 | $43.02 | | Total stockholders' equity to assets (GAAP) | 9.13% | 8.62% | 8.25% | | Tangible common equity to tangible assets (non-GAAP) | 9.08% | 8.57% | 8.20% | Critical Accounting Estimates This section highlights the critical accounting estimates and judgments made by management, particularly focusing on the Allowance for Credit Losses (ACL) methodology - The Company's financial statements require management to make estimates and assumptions, with actual results potentially differing from these estimates[259] - The Allowance for Credit Losses (ACL) is a critical accounting policy, replacing the allowance for loan losses, and represents management's best estimate of expected credit losses over the lifetime of loans HFI[260][261] - The ACL is estimated using relevant internal and external information, past events, current conditions, and reasonable and supportable forecasts (one year, then a two-year historical average), with adjustments for qualitative factors[261][265] - The ACL methodology involves both individual loan evaluation for those without similar risk characteristics and collective pool evaluation for loans sharing similar risk characteristics, using cohort loss rate and remaining life loss rate methodologies[262][263][264] Recent Accounting Pronouncements This section confirms that there are no recent accounting pronouncements applicable and not yet adopted by the Company as of March 31, 2023 - As of March 31, 2023, there were no recent accounting pronouncements applicable and not yet adopted by the Company[54][268] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to market risk disclosures in the MD&A, detailing the Company's primary market risk and interest rate sensitivity management - Quantitative and qualitative disclosures about market risk are incorporated by reference from the "Liquidity and Asset-Liability Management - Interest Rate Sensitivity and Market Risk" section of the MD&A[268] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting - The Company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2023, providing reasonable assurance of achieving control objectives[269] - There were no material changes in the Company's internal control over financial reporting during Q1 2023[270] PART II. OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, other information, exhibits, and signatures Item 1. Legal Proceedings The Company is involved in ordinary course legal matters, but management expects no material adverse effect on financial results, condition, or cash flows - While legal proceedings are part of ordinary business, management does not anticipate any material adverse effects on the Company's consolidated financial results, condition, or cash flows from current litigation[272] - Unfavorable outcomes or even the costs and diversion of management's attention from legal matters could adversely affect the Company's reputation and financial condition[272] Item 1A. Risk Factors This section highlights updated risk factors, particularly concerning liquidity and the soundness of other financial institutions following recent bank failures - A lack of liquidity could impair the Company's ability to fund operations, as reliance on deposits and effective management of loan/investment maturities is crucial[274] - Deposit balances can decrease due to customer perceptions of better alternative investments or negative views on financial market disruptions, potentially increasing funding costs and reducing net interest income[274] - The Company's ability to engage in funding transactions could be adversely affected by the actions and soundness of other financial institutions, especially given interdependencies in the financial services industry and recent high-profile bank failures[277] - Anticipated special assessments from the FDIC following recent bank failures could adversely impact the Company's operating expenses and earnings[279] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's common stock repurchases under its publicly announced stock repurchase program during the first quarter of 2023 Common Stock Repurchases | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) | | :--- | :--- | :--- | :--- | | January 1 - January 31, 2023 | 0 | $0.00 | $5,000 | | February 1 - February 28, 2023 | 3,448 | $51.13 | $4,824 | | March 1 - March 31, 2023 | 3,347 | $50.73 | $4,654 | | Total | 6,795 | $50.94 | $4,654 | - The Company repurchased 6,795 shares of common stock for an aggregate cost of $346,000 in Q1 2023 under a renewed $5.0 million stock repurchase program valid through December 31, 2023[280] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities during the period - There were no defaults upon senior securities reported[281] Item 4. Mine Safety Disclosures This item is not applicable to the Company - This disclosure item is not applicable to the registrant[282] Item 5. Other Information The Company reported no other information for the period - No other information was reported[283] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL-formatted financial information - Exhibits include Restated Articles of Incorporation, Amended and Restated Bylaws, Certifications of Principal Executive and Financial Officers (Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL financial information[285] Signatures The report is duly signed by Red River Bancshares, Inc.'s President and CEO, and EVP, CFO, and Assistant Corporate Secretary - The report was signed by R. Blake Chatelain, President and CEO, and Isabel V. Carriere, EVP, CFO, and Assistant Corporate Secretary, on May 10, 2023[289]