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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended: September 30, 2021
or
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☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 001-38888
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| Red River Bancshares, Inc. | |
| (Exact name of registrant as specified in its charter) | |
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Louisiana | | 72-1412058 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification Number) |
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1412 Centre Court Drive, Suite 501, Alexandria, Louisiana | | 71301 |
(Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (318) 561-5028
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, no par value | RRBI | The Nasdaq Stock Market, LLC |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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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 ☒
As of October 31, 2021, the registrant had 7,276,400 shares of common stock, no par value, issued and outstanding.
TABLE OF CONTENTS
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PART I | Financial Information | |
Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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PART II | Other Information | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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GLOSSARY OF TERMS
Unless the context indicates otherwise, references in this filing to “we,” “our,” “us,” “the Company,” and “our company” refer to Red River Bancshares, Inc., a Louisiana corporation and bank holding company, and its consolidated subsidiaries. All references in this filing to “Red River Bank,” "the bank,” and "the Bank” refer to Red River Bank, our wholly owned bank subsidiary.
Other abbreviations or acronyms used in this filing are defined below.
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ABBREVIATION OR ACRONYM | | DEFINITION |
AFS | | Available-for-sale |
ASC | | Accounting Standards Codification |
ASU | | Accounting Standards Update |
Basel III | | Basel Committee's 2010 Regulatory Capital Framework (Third Accord) |
BOLI | | Bank-owned life insurance |
bp(s) | | Basis point(s) |
CARES Act | | Coronavirus Aid, Relief, and Economic Security Act, as amended |
CBLR | | Community Bank Leverage Ratio |
CECL | | Current Expected Credit Losses, related to ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments |
COVID-19 | | Coronavirus Disease 2019 |
CRA | | Community Reinvestment Act |
Amended and Restated Director Compensation Program | | Compensation program which allows directors of the Company and the Bank an opportunity to select how to receive their annual director fees. |
Economic Aid Act | | Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act |
Economic Growth Act | | Economic Growth, Regulatory Relief, and Consumer Protection Act |
EPS | | Earnings per share |
Exchange Act | | Securities Exchange Act of 1934, as amended |
FDIC | | Federal Deposit Insurance Corporation |
Federal Reserve | | Board of Governors of the Federal Reserve System |
FHLB | | Federal Home Loan Bank of Dallas |
FTE | | Fully taxable equivalent basis |
GAAP | | Generally Accepted Accounting Principles in the United States of America |
HFI | | Held for investment |
HFS | | Held for sale |
IPO | | Initial public offering |
MSA | | Metropolitan statistical area |
NOW | | Negotiable order of withdrawal |
NPA(s) | | Nonperforming asset(s) |
OTTI | | Other-than-temporary impairment |
PPP | | Paycheck Protection Program |
PPP1 | | PPP First Draw |
PPP2 | | PPP Second Draw |
SBA | | Small Business Administration |
SBIC | | Small Business Investment Company |
Securities Act | | Securities Act of 1933, as amended |
SEC | | Securities and Exchange Commission |
TDR(s) | | Troubled debt restructuring(s) |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” and “outlook,” or the negative version of those words, or such other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:
•business and economic conditions generally and in the financial services industry, nationally and within our local market areas;
•the impact of COVID-19 (including the emergence of multiple COVID-19 variants) on our business, the communities where we have our banking centers, the state of Louisiana, and the United States, related to the economy and overall financial stability;
•government and regulatory responses to the COVID-19 pandemic;
•government intervention in the U.S. financial system, including the effects of recent and future legislative, tax, accounting, and regulatory actions and reforms, including the CARES Act and the Economic Aid Act which established the SBA PPP1 and the PPP2 programs, and other stimulus legislation or changes in banking, securities, accounting, and tax laws and regulations, and their application by our regulators;
•changes in management personnel;
•increased competition in the financial services industry, particularly from regional and national institutions;
•volatility and direction of market interest rates;
•our ability to maintain important deposit customer relationships, our reputation, and to otherwise avoid liquidity risks;
•factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers, and the success of construction projects that we finance, including any loans acquired in acquisition transactions;
•changes in the value of collateral securing our loans;
•risks associated with system failures or failures to protect against cybersecurity threats, such as breaches of our network security;
•deterioration of our asset quality;
•the adequacy of our reserves, including our allowance for loan losses;
•operational risks associated with our business;
•natural disasters and adverse weather, acts of terrorism, pandemics, an outbreak of hostilities or other international or domestic calamities, and other matters beyond our control;
•our ability to prudently manage our growth and execute our strategy;
•compliance with the extensive regulatory framework that applies to us;
•the impending cessation of LIBOR and the impact of replacement alternatives on our business;
•changes in the laws, rules, regulations, interpretations, or policies relating to financial institution, accounting, tax, trade, monetary, and fiscal matters; and
•other risks and uncertainties listed from time to time in our reports and documents filed with the SEC.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Quarterly Report on Form 10-Q. Additional information on these and other risk factors can be found in "Part II - Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q and in "Part I - Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RED RIVER BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| | | | | | | | | | | | | |
| |
| | | | | |
(in thousands, except share amounts) | September 30, 2021 | | December 31, 2020 | | |
ASSETS | | | | | |
Cash and due from banks | $ | 36,614 | | | $ | 29,537 | | | |
Interest-bearing deposits in other banks | 693,950 | | | 417,664 | | | |
Total Cash and Cash Equivalents | 730,564 | | | 447,201 | | | |
Securities available-for-sale | 568,199 | | | 498,206 | | | |
Equity securities | 7,920 | | | 4,021 | | | |
Nonmarketable equity securities | 3,449 | | | 3,447 | | | |
Loans held for sale | 8,782 | | | 29,116 | | | |
Loans held for investment | 1,622,593 | | | 1,588,446 | | | |
Allowance for loan losses | (19,168) | | | (17,951) | | | |
Premises and equipment, net | 47,432 | | | 46,924 | | | |
Accrued interest receivable | 5,927 | | | 6,880 | | | |
Bank-owned life insurance | 27,886 | | | 22,413 | | | |
Intangible assets | 1,546 | | | 1,546 | | | |
Right-of-use assets | 3,847 | | | 4,154 | | | |
Other assets | 11,807 | | | 8,231 | | | |
Total Assets | $ | 3,020,784 | | | $ | 2,642,634 | | | |
LIABILITIES | | | | | |
Noninterest-bearing deposits | $ | 1,143,693 | | | $ | 943,615 | | | |
Interest-bearing deposits | 1,560,890 | | | 1,396,745 | | | |
Total Deposits | 2,704,583 | | | 2,340,360 | | | |
| | | | | |
| | | | | |
Accrued interest payable | 1,340 | | | 1,774 | | | |
Lease liabilities | 3,943 | | | 4,233 | | | |
Accrued expenses and other liabilities | 12,230 | | | 10,789 | | | |
Total Liabilities | 2,722,096 | | | 2,357,156 | | | |
COMMITMENTS AND CONTINGENCIES | — | | | — | | | |
STOCKHOLDERS' EQUITY | | | | | |
Preferred stock, no par value: Authorized - 1,000,000 shares; None Issued and Outstanding | — | | | — | | | |
Common stock, no par value: Authorized - 30,000,000 shares; Issued and Outstanding - 7,276,400 and 7,325,333 shares | 65,130 | | | 68,055 | | | |
Additional paid-in capital | 1,751 | | | 1,545 | | | |
Retained earnings | 231,868 | | | 208,957 | | | |
Accumulated other comprehensive income (loss) | (61) | | | 6,921 | | | |
Total Stockholders' Equity | 298,688 | | | 285,478 | | | |
Total Liabilities and Stockholders' Equity | $ | 3,020,784 | | | $ | 2,642,634 | | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
(in thousands, except per share data) | 2021 | | 2020 | | 2021 | | 2020 |
INTEREST AND DIVIDEND INCOME | | | | | | | |
Interest and fees on loans | $ | 16,993 | | | $ | 17,080 | | | $ | 50,509 | | | $ | 50,623 | |
Interest on securities | 2,220 | | | 2,099 | | | 6,247 | | | 5,766 | |
Interest on federal funds sold | 20 | | | 30 | | | 67 | | | 179 | |
Interest on deposits in other banks | 202 | | | 27 | | | 432 | | | 265 | |
Dividends on stock | 7 | | | 13 | | | 9 | | | 19 | |
Total Interest and Dividend Income | 19,442 | | | 19,249 | | | 57,264 | | | 56,852 | |
INTEREST EXPENSE | | | | | | | |
Interest on deposits | 1,333 | | | 1,954 | | | 4,317 | | | 6,497 | |
Interest on other borrowed funds | — | | | — | | | — | | | 16 | |
| | | | | | | |
| | | | | | | |
Total Interest Expense | 1,333 | | | 1,954 | | | 4,317 | | | 6,513 | |
Net Interest Income | 18,109 | | | 17,295 | | | 52,947 | | | 50,339 | |
Provision for loan losses | 150 | | | 1,590 | | | 1,750 | | | 3,618 | |
Net Interest Income After Provision for Loan Losses | 17,959 | | | 15,705 | | | 51,197 | | | 46,721 | |
NONINTEREST INCOME | | | | | | | |
Service charges on deposit accounts | 1,258 | | | 1,055 | | | 3,457 | | | 3,001 | |
Debit card income, net | 1,094 | | | 978 | | | 3,344 | | | 2,629 | |
Mortgage loan income | 1,770 | | | 2,884 | | | 7,009 | | | 5,720 | |
Brokerage income | 851 | | | 586 | | | 2,491 | | | 1,725 | |
Loan and deposit income | 413 | | | 413 | | | 1,281 | | | 1,340 | |
Bank-owned life insurance income | 176 | | | 139 | | | 473 | | | 425 | |
Gain (Loss) on equity securities | (41) | | | — | | | (100) | | | 96 | |
Gain (Loss) on sale and call of securities | — | | | 125 | | | 193 | | | 1,348 | |
SBIC income | 136 | | | 200 | | | 616 | | | 568 | |
Other income (loss) | (14) | | | 40 | | | 57 | | | 122 | |
Total Noninterest Income | 5,643 | | | 6,420 | | | 18,821 | | | 16,974 | |
OPERATING EXPENSES | | | | | | | |
Personnel expenses | 7,956 | | | 8,077 | | | 24,087 | | | 23,072 | |
Occupancy and equipment expenses | 1,412 | | | 1,319 | | | 4,019 | | | 3,739 | |
Technology expenses | 734 | | | 661 | | | 2,144 | | | 1,863 | |
Advertising | 282 | | | 240 | | | 691 | | | 717 | |
Other business development expenses | 283 | | | 233 | | | 889 | | | 782 | |
Data processing expense | 528 | | | 491 | | | 1,445 | | | 1,412 | |
Other taxes | 527 | | | 433 | | | 1,584 | | | 1,308 | |
Loan and deposit expenses | 325 | | | 289 | | | 773 | | | 808 | |
Legal and professional expenses | 453 | | | 487 | | | 1,189 | | | 1,587 | |
Regulatory assessment expenses | 251 | | | 172 | | | 665 | | | 337 | |
Other operating expenses | 933 | | | 849 | | | 2,753 | | | 2,445 | |
Total Operating Expenses | 13,684 | | | 13,251 | | | 40,239 | | | 38,070 | |
Income Before Income Tax Expense | 9,918 | | | 8,874 | | | 29,779 | | | 25,625 | |
Income tax expense | 1,780 | | | 1,589 | | | 5,337 | | | 4,741 | |
Net Income | $ | 8,138 | | | $ | 7,285 | | | $ | 24,442 | | | $ | 20,884 | |
EARNINGS PER SHARE | | | | | | | |
Basic | $ | 1.12 | | | $ | 0.99 | | | $ | 3.35 | | | $ | 2.85 | |
Diluted | $ | 1.12 | | | $ | 0.99 | | | $ | 3.34 | | | $ | 2.84 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Net income | $ | 8,138 | | | $ | 7,285 | | | $ | 24,442 | | | $ | 20,884 | |
Other comprehensive income (loss): | | | | | | | |
Unrealized net gain (loss) on securities arising during period | (1,416) | | | 353 | | | (8,645) | | | 9,479 | |
Tax effect | 297 | | | (74) | | | 1,815 | | | (1,990) | |
(Gain) loss on sale of securities included in net income | — | | | (125) | | | (193) | | | (1,348) | |
Tax effect | — | | | 26 | | | 41 | | | 283 | |
Total other comprehensive income (loss) | (1,119) | | | 180 | | | (6,982) | | | 6,424 | |
Comprehensive Income | $ | 7,019 | | | $ | 7,465 | | | $ | 17,460 | | | $ | 27,308 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except share amounts) | Common Shares Issued | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
Balance as of December 31, 2019 | 7,306,221 | | | $ | 68,082 | | | $ | 1,269 | | | $ | 182,571 | | | $ | (24) | | | $ | 251,898 | |
Net income | — | | | — | | | — | | | 6,745 | | | — | | | 6,745 | |
Stock incentive plan | — | | | — | | | 64 | | | — | | | — | | | 64 | |
Issuance of shares of common stock through exercise of stock options | 14,720 | | | 8 | | | — | | | — | | | — | | | 8 | |
Issuance of shares of common stock as board compensation | 1,591 | | | 87 | | | — | | | — | | | — | | | 87 | |
Cash dividend - $0.06 per common share | — | | | — | | | — | | | (439) | | | — | | | (439) | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 5,812 | | | 5,812 | |
Balance as of March 31, 2020 | 7,322,532 | | | $ | 68,177 | | | $ | 1,333 | | | $ | 188,877 | | | $ | 5,788 | | | $ | 264,175 | |
Net income | — | | | — | | | — | | | 6,854 | | | — | | | 6,854 | |
Stock incentive plan | — | | | — | | | 96 | | | — | | | — | | | 96 | |
Cash dividend - $0.06 per common share | — | | | — | | | — | | | (440) | | | — | | | (440) | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 432 | | | 432 | |
Balance as of June 30, 2020 | 7,322,532 | | | $ | 68,177 | | | $ | 1,429 | | | $ | 195,291 | | | $ | 6,220 | | | $ | 271,117 | |
Net income | — | | | — | | | — | | | 7,285 | | | — | | | 7,285 | |
Stock incentive plan | — | | | — | | | 58 | | | — | | | — | | | 58 | |
Issuance of restricted shares of common stock through stock incentive plan, net | 5,625 | | | — | | | — | | | — | | | — | | | — | |
Repurchase of common stock under stock repurchase program | (2,824) | | | (122) | | | — | | | — | | | — | | | (122) | |
Cash dividend - $0.06 per share | — | | | — | | | — | | | (440) | | | — | | | (440) | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 180 | | | 180 | |
Balance as of September 30, 2020 | 7,325,333 | | | $ | 68,055 | | | $ | 1,487 | | | $ | 202,136 | | | $ | 6,400 | | | $ | 278,078 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
8
RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED) (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except share amounts) | Common Shares Issued | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity |
Balance as of December 31, 2020 | 7,325,333 | | | $ | 68,055 | | | $ | 1,545 | | | $ | 208,957 | | | $ | 6,921 | | | $ | 285,478 | |
Net income | — | | | — | | | — | | | 8,065 | | | — | | | 8,065 | |
Stock incentive plan | — | | | — | | | 93 | | | — | | | — | | | 93 | |
Issuance of shares of common stock as board compensation | 1,075 | | | 56 | | | — | | | — | | | — | | | 56 | |
Repurchase of common stock under stock repurchase program | (19,661) | | | (1,018) | | | — | | | — | | | — | | | (1,018) | |
Cash dividend - $0.07 per share | — | | | — | | | — | | | (511) | | | — | | | (511) | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (7,252) | | | (7,252) | |
Balance as of March 31, 2021 | 7,306,747 | | | $ | 67,093 | | | $ | 1,638 | | | $ | 216,511 | | | $ | (331) | | | $ | 284,911 | |
Net income | — | | | — | | | — | | | 8,239 | | | — | | | 8,239 | |
Stock incentive plan | — | | | — | | | 54 | | | — | | | — | | | 54 | |
Forfeiture of restricted shares of common stock | (100) | | | — | | | — | | | — | | | — | | | — | |
Repurchase of common stock under stock repurchase program | (21,653) | | | (1,159) | | | — | | | — | | | — | | | (1,159) | |
Cash dividend - $0.07 per share | — | | | — | | | — | | | (510) | | | — | | | (510) | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 1,389 | | | 1,389 | |
Balance as of June 30, 2021 | 7,284,994 | | | $ | 65,934 | | | $ | 1,692 | | | $ | 224,240 | | | $ | 1,058 | | | $ | 292,924 | |
Net income | — | | | — | | | — | | | 8,138 | | | — | | | 8,138 | |
Stock incentive plan | — | | | — | | | 59 | | | — | | | — | | | 59 | |
Issuance of restricted shares of common stock through stock incentive plan, net | 7,400 | | | — | | | — | | | — | | | — | | | — | |
Repurchase of common stock under stock repurchase program | (15,994) | | | (804) | | | — | | | — | | | — | | | (804) | |
Cash dividend - $0.07 per share | — | | | — | | | — | | | (510) | | | — | | | (510) | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (1,119) | | | (1,119) | |
Balance as of September 30, 2021 | 7,276,400 | | | $ | 65,130 | | | $ | 1,751 | | | $ | 231,868 | | | $ | (61) | | | $ | 298,688 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
9
RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | | | | | | | | | | | |
| For the Nine Months Ended September 30, | | |
(in thousands) | 2021 | | 2020 | | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 24,442 | | | $ | 20,884 | | | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | |
Depreciation | 1,409 | | | 1,362 | | | |
Amortization | 475 | | | 404 | | | |
Share-based compensation earned | 206 | | | 218 | | | |
Share-based board compensation earned | 34 | | | 47 | | | |
(Gain) Loss on other assets owned | 12 | | | 5 | | | |
Net (accretion) amortization on securities AFS | 1,888 | | | 2,130 | | | |
(Gain) Loss on sale and call of securities | (193) | | | (1,348) | | | |
Provision for loan losses | 1,750 | | | 3,618 | | | |
Deferred income tax (benefit) expense | (660) | | | (127) | | | |
Net (increase) decrease in loans HFS | 20,334 | | | (18,269) | | | |
Net (increase) decrease in accrued interest receivable | 953 | | | (1,366) | | | |
Net (increase) decrease in BOLI | (473) | | | (425) | | | |
Net increase (decrease) in accrued interest payable | (434) | | | (417) | | | |
Net increase (decrease) in accrued income taxes payable | (96) | | | 462 | | | |
Other operating activities, net | 423 | | | 1,465 | | | |
Net cash provided by (used in) operating activities | 50,070 | | | 8,643 | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Activity in securities AFS: | | | | | |
Sales | 111,522 | | | 93,376 | | | |
Maturities, principal repayments, and calls | 75,143 | | | 75,305 | | | |
Purchases | (267,191) | | | (293,503) | | | |
| | | | | |
| | | | | |
Purchase of equity securities | (4,000) | | | — | | | |
Purchase of nonmarketable equity securities | (2) | | | (2,095) | | | |
Capital contribution in partnerships | (123) | | | — | | | |
Net (increase) decrease in loans HFI | (34,946) | | | (211,734) | | | |
| | | | | |
Purchase of bank owned life insurance | (5,000) | | | — | | | |
Proceeds from sales of foreclosed assets | 96 | | | 330 | | | |
Purchases of premises and equipment | (1,917) | | | (4,113) | | | |
Net cash provided by (used in) investing activities | (126,418) | | | (342,434) | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
Net increase (decrease) in deposits | 364,223 | | | 472,820 | | | |
Proceeds from other borrowed funds | — | | | 50,000 | | | |
Repayments of other borrowed funds | — | | | (50,000) | | | |
| | | | | |
Repurchase of common stock | (2,981) | | | (122) | | | |
Proceeds from exercise of stock options | — | | | 8 | | | |
| | | | | |
Cash dividends | (1,531) | | | (1,319) | | | |
Net cash provided by (used in) financing activities | 359,711 | | | 471,387 | | | |
Net change in cash and cash equivalents | 283,363 | | | 137,596 | | | |
Cash and cash equivalents - beginning of period | 447,201 | | | 133,292 | | | |
Cash and cash equivalents - end of period | $ | 730,564 | | | $ | 270,888 | | | |
| | | | | |
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| | | | | |
| | | | | |
| | | | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
10
RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED)
| | | | | | | | | | | |
(in thousands) | For the Nine Months Ended September 30, |
| 2021 | | 2020 |
SUPPLEMENTAL DISCLOSURES | | | |
Cash paid during the year for: | | | |
Interest | $ | 4,751 | | | $ | 6,930 | |
Income taxes | $ | 6,114 | | | $ | 4,387 | |
| | | |
SUPPLEMENTAL INFORMATION FOR NON-CASH INVESTING AND FINANCING ACTIVITIES | | | |
Assets acquired in settlement of loans | $ | 266 | | | $ | 23 | |
| | | |
| | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
11
RED RIVER BANCSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with GAAP for interim financial information, general practices within the financial services industry, and with instructions for Form 10-Q and Regulation S-X. Accordingly, these interim financial statements do not include all of the information or footnotes required by GAAP for annual financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results which may be expected for the entire fiscal year. These statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Certain prior period amounts have been reclassified to conform to the current period presentation. These changes in presentation did not have a material impact on the Company's financial condition or results of operations.
Critical Accounting Policies and Estimates
There were no material changes or developments during the reporting period with respect to methodologies the Company uses when applying critical accounting policies and developing critical accounting estimates as disclosed in Note 1 of the notes to the audited consolidated financial statements for the year ended December 31, 2020, that were included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in stockholders’ equity, and cash flows for the interim period presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions.
Recent Accounting Pronouncements
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 sets forth the CECL model requiring the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses. In addition, the update amends the accounting for credit losses on AFS securities. As an SEC registrant with smaller reporting company filing status as determined on June 30, 2019, CECL is effective for the Company January 1, 2023. The Company continues to evaluate the impact of this ASU on the consolidated financial statements and disclosures. In that regard, the Company has formed a cross-functional working group and is currently working through an implementation plan. The implementation plan includes an assessment of data, model development and documentation, documentation of processes, and implementation of a third-party vendor solution to assist in the adoption of ASU 2016-13.
ASU No. 2021-05, Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments. The guidance issued in this update addressed lessors' concerns by amending the lease classification requirements. The amendments in this update address an issue related to a lessor's accounting for certain leases with variable lease payments. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if two criteria are met. Those criteria are that the lease would have been classified as a sales-type lease or a direct financing lease in accordance with GAAP, and that the lessor would have otherwise recognized a day-one loss. This update is effective for fiscal years beginning after December 15, 2021, and interim periods within those annual periods. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial statements.
ASU No. 2021-06, Presentation of Financial Statements (Topic 205), Financial Services - Depository and Lending (Topic 942), and Financial Services - Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and NO. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. The guidance in this update amends various SEC paragraphs relating to financial disclosures. This update is an alignment of SEC and GAAP reporting and was effective upon issuance. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
2. Securities
Securities held for indefinite periods of time are classified as AFS and carried at estimated fair value. Investment activity for the nine months ended September 30, 2021, included $267.2 million of securities purchased, partially offset by $111.5 million in sales and $75.1 million in maturities, principal repayments, and calls. The net unrealized gain on the securities AFS portfolio decreased $8.8 million for the nine months ended September 30, 2021, resulting in an unrealized loss of $77,000 as of September, 30, 2021.
The amortized cost and estimated fair values of securities AFS are summarized in the following tables:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Securities AFS: | | | | | | | |
Mortgage-backed securities | $ | 343,914 | | | $ | 1,799 | | | $ | (4,836) | | | $ | 340,877 | |
Municipal bonds | 218,288 | | | 3,902 | | | (1,030) | | | 221,160 | |
U.S. agency securities | 6,074 | | | 111 | | | (23) | | | 6,162 | |
| | | | | | | |
Total Securities AFS | $ | 568,276 | | | $ | 5,812 | | | $ | (5,889) | | | $ | 568,199 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Securities AFS: | | | | | | | |
Mortgage-backed securities | $ | 271,709 | | | $ | 3,450 | | | $ | (332) | | | $ | 274,827 | |
Municipal bonds | 207,834 | | | 5,498 | | | (51) | | | 213,281 | |
U.S. agency securities | 9,902 | | | 200 | | | (4) | | | 10,098 | |
| | | | | | | |
Total Securities AFS | $ | 489,445 | | | $ | 9,148 | | | $ | (387) | | | $ | 498,206 | |
The amortized costs and estimated fair value of debt securities as of September 30, 2021, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers have the right to call or repay obligations with or without call or prepayment penalties.
| | | | | | | | | | | |
(in thousands) | Amortized Cost | | Fair Value |
Within one year | $ | 5,305 | | | $ | 5,335 | |
After one year but within five years | 25,980 | | | 26,560 | |
After five years but within ten years | 39,162 | | | 40,249 | |
After ten years | 497,829 | | | 496,055 | |
Total | $ | 568,276 | | | $ | 568,199 | |
| | | |
| | | |
Information pertaining to securities with gross unrealized losses as of September 30, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous loss position is described as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Less than twelve months | | Twelve months or more |
(in thousands) | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value |
September 30, 2021 | | | | | | | |
Securities AFS: | | | | | | | |
Mortgage-backed securities | $ | (4,792) | | | $ | 258,205 | | | $ | (44) | | | $ | 1,721 | |
Municipal bonds | (1,030) | | | 45,752 | | | — | | | — | |
U.S. agency securities | (23) | | | 2,958 | | | — | | | — | |
Total Securities AFS | $ | (5,845) | | | $ | 306,915 | | | $ | (44) | | | $ | 1,721 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
December 31, 2020 | | | | | | | |
Securities AFS: | | | | | | | |
Mortgage-backed securities | $ | (332) | | | $ | 72,367 | | | $ | — | | | $ | — | |
Municipal bonds | (51) | | | 9,466 | | | — | | | — | |
U.S. agency securities | (4) | | | 4,996 | | | — | | | — | |
Total Securities AFS | $ | (387) | | | $ | 86,829 | | | $ | — | | | $ | — | |
| | | | | | | |
| | | | | | | |
As of September 30, 2021, the Company held 125 securities that were in unrealized loss positions. The aggregate unrealized loss of these securities as of September 30, 2021, was 1.04% of the amortized cost basis of the total securities AFS portfolio. Management and the Asset-Liability Management Committee continually monitor the securities portfolio and are able to effectively measure and monitor the unrealized loss positions on these securities. Management does not intend to sell these securities prior to recovery, and it is more likely than not that the Company will have the ability to hold them, primarily due to adequate liquidity, until each security has recovered its cost basis. The unrealized losses on these securities have been determined by management to be a function of the movement of interest rates since the time of purchase. Based on the review of available information, including recent changes in interest rates and credit rating information, management believes the decline in fair value of these securities is temporary. The Company does not consider these securities to have OTTI.
Management evaluates securities for OTTI on at least a quarterly basis and more frequently if economic or market concerns merit such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost; (2) the financial condition and near-term prospects of the issuer; and (3) whether the Company intends to, and it is more likely than not that it will be able to, retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Additionally, the Company annually performs a detailed credit review of the municipal securities owned to identify any potential credit concerns. There were no OTTI losses on debt securities related to credit losses recognized during the nine months ended September 30, 2021, or the year ended December 31, 2020.
The proceeds from sales and calls of securities AFS and their gross gain (loss) for the three and nine months ended September 30, 2021 and 2020, are shown below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Proceeds (1) | $ | 1,675 | | | $ | 6,451 | | | $ | 116,843 | | | $ | 93,376 | |
Gross gain | $ | 1 | | | $ | 125 | | | $ | 851 | | | $ | 1,441 | |
Gross loss | $ | ( |