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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: September 30, 2023

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

Commission File Number: 001-38888 
Red River Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Louisiana 
72-1412058
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification Number)
1412 Centre Court Drive, Suite 301, Alexandria, Louisiana
 71301
(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (318) 561-4000
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, no par valueRRBIThe Nasdaq Stock Market, LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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, 2023, the registrant had 7,131,766 shares of common stock, no par value, issued and outstanding. 



TABLE OF CONTENTS
Page
PART I
Financial Information
Item 1.
Item 2.
Item 3.
Item 4.
PART II
Other Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
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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.
ABBREVIATION OR ACRONYMDEFINITION
ACLAllowance for credit losses
AFSAvailable-for-sale
ALLAllowance for loan losses
AOCIAccumulated other comprehensive income or loss
ASCAccounting Standards Codification
ASUAccounting Standards Update
Basel IIIBasel Committee’s 2010 Regulatory Capital Framework (Third Accord)
BOLIBank-owned life insurance
bp(s)Basis point(s)
CARES ActCoronavirus Aid, Relief, and Economic Security Act, as amended
CBLRCommunity bank leverage ratio
CCBCapital conservation buffer
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-19Coronavirus Disease 2019
CRACommunity Reinvestment Act
Director Compensation ProgramAmended and Restated Director Compensation program, which allows directors of the Company and the Bank an opportunity to select how to receive their annual director fees.
Economic Aid ActEconomic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act
Economic Growth ActEconomic Growth, Regulatory Relief, and Consumer Protection Act
EPSEarnings per share
Exchange ActSecurities Exchange Act of 1934, as amended
FDICFederal Deposit Insurance Corporation
Federal ReserveBoard of Governors of the Federal Reserve System
FHLBFederal Home Loan Bank of Dallas
FOMCFederal Open Market Committee
FTEFully taxable equivalent basis
GAAPGenerally Accepted Accounting Principles in the United States of America
HFIHeld for investment
HFSHeld for sale
HTMHeld-to-maturity
LDPOLoan and deposit production office
LIBORLondon Interbank Offered Rate
MSAMetropolitan statistical area
NOWNegotiable order of withdrawal
NPA(s)Nonperforming asset(s)
OFIOffice of Financial Institutions
Policy StatementFederal Reserve’s Small Bank Holding Company Policy Statement
PPPPaycheck Protection Program
ReportQuarterly Report on Form 10-Q
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ABBREVIATION OR ACRONYMDEFINITION
SBASmall Business Administration
SBICSmall Business Investment Company
Securities ActSecurities Act of 1933, as amended
SECSecurities and Exchange Commission
TDR(s)Troubled debt restructuring(s)
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, 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, the American Rescue Plan Act of 2021, and the Economic Aid Act, which established the SBA PPP, the Inflation Reduction Act of 2022, 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 and 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 credit losses;
operational risks associated with our business;
natural disasters and adverse weather, acts of terrorism, pandemics, an outbreak of hostilities, including the ongoing military conflicts between Russia and Ukraine and Israel and Hamas, or other international or domestic calamities, and other matters beyond our control;
our ability to prudently manage our growth and execute our strategy;
compliance with the extensive regulatory framework that applies to us;
changes in the laws, rules, regulations, interpretations, or policies relating to financial institutions, accounting, tax, trade, monetary, and fiscal matters; and
the risk factors found in “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, as well as in “Part II - Item 1A. Risk Factors” of this Report and other reports and documents we file from time to time 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 Report. Additional information on these and other risk factors can be found in “Part II - Item 1A. Risk Factors” of this Report and in “Part I - Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. 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, except as required by applicable law. New risks emerge from time to time, and it is not possible for us to predict what risks 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.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

RED RIVER BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share amounts)September 30,
2023
December 31,
2022
ASSETS
Cash and due from banks$42,413 $37,824 
Interest-bearing deposits in other banks279,786 240,568 
Total Cash and Cash Equivalents322,199 278,392 
Securities available-for-sale, at fair value529,046 614,407 
Securities held-to-maturity, at amortized cost143,420 151,683 
Equity securities, at fair value2,833 9,979 
Nonmarketable equity securities2,190 3,478 
Loans held for sale2,348 518 
Loans held for investment1,948,606 1,916,267 
Allowance for credit losses(21,183)(20,628)
Premises and equipment, net56,466 54,383 
Accrued interest receivable8,778 8,830 
Bank-owned life insurance29,332 28,775 
Intangible assets1,546 1,546 
Right-of-use assets3,757 4,137 
Other assets36,815 30,919 
Total Assets$3,066,153 $3,082,686 
LIABILITIES
Noninterest-bearing deposits$972,155 $1,090,539 
Interest-bearing deposits1,787,738 1,708,397 
Total Deposits2,759,893 2,798,936 
Accrued interest payable6,800 1,563 
Lease liabilities3,892 4,258 
Accrued expenses and other liabilities13,617 12,176 
Total Liabilities2,784,202 2,816,933 
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 - 7,150,685 and 7,183,915 shares, respectively
58,031 60,050 
Additional paid-in capital2,327 2,088 
Retained earnings299,079 274,781 
Accumulated other comprehensive income (loss)(77,486)(71,166)
Total Stockholders’ Equity281,951 265,753 
Total Liabilities and Stockholders’ Equity
$3,066,153 $3,082,686 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
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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)2023202220232022
INTEREST AND DIVIDEND INCOME
Interest and fees on loans$23,925 $19,740 $68,541 $54,543 
Interest on securities3,404 3,572 10,635 10,210 
Interest on federal funds sold 317 886 458 
Interest on deposits in other banks2,950 1,238 6,359 2,160 
Dividends on stock45 19 106 22 
Total Interest and Dividend Income30,324 24,886 86,527 67,393 
INTEREST EXPENSE
Interest on deposits9,562 1,798 21,319 4,428 
Interest on other borrowed funds37  64  
Total Interest Expense9,599 1,798 21,383 4,428 
Net Interest Income20,725 23,088 65,144 62,965 
Provision for credit losses185 600 485 1,000 
Net Interest Income After Provision for Credit Losses20,540 22,488 64,659 61,965 
NONINTEREST INCOME
Service charges on deposit accounts1,489 1,488 4,317 4,205 
Debit card income, net830 934 2,687 2,926 
Mortgage loan income604 624 1,524 2,643 
Brokerage income1,029 870 2,759 2,536 
Loan and deposit income571 502 1,566 1,283 
Bank-owned life insurance income191 181 557 533 
Gain (Loss) on equity securities(113) (145)(447)
Gain (Loss) on sale and call of securities 16  (59)
SBIC income920 231 2,479 401 
Other income (loss)60 21 184 107 
Total Noninterest Income5,581 4,867 15,928 14,128 
OPERATING EXPENSES
Personnel expenses9,461 8,853 28,008 25,879 
Occupancy and equipment expenses1,663 1,531 4,933 4,496 
Technology expenses675 653 2,066 2,118 
Advertising331 316 955 841 
Other business development expenses522 436 1,451 1,079 
Data processing expense651 604 1,689 1,484 
Other taxes664 650 2,042 1,933 
Loan and deposit expenses238 164 728 479 
Legal and professional expenses616 553 1,714 1,446 
Regulatory assessment expenses419 280 1,223 781 
Other operating expenses 990 1,001 3,041 3,037 
Total Operating Expenses16,230 15,041 47,850 43,573 
Income Before Income Tax Expense9,891 12,314 32,737 32,520 
Income tax expense
1,870 2,128 6,150 5,795 
Net Income$8,021 $10,186 $26,587 $26,725 
EARNINGS PER SHARE
Basic
$1.12 $1.42 $3.70 $3.72 
Diluted
$1.12 $1.42 $3.70 $3.71 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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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)2023202220232022
Net income$8,021 $10,186 $26,587 $26,725 
Other comprehensive income (loss):
Unrealized net gain (loss) on securities arising during period(10,295)(25,847)(9,186)(102,802)
Tax effect2,162 5,428 1,930 21,589 
(Gain) Loss on sale and call of securities included in net income (16) 59 
Tax effect 3  (13)
Change in unrealized net loss on securities transferred to held-to-maturity430 623 1,185 1,513 
Tax effect(90)(131)(249)(317)
Total other comprehensive income (loss)(7,793)(19,940)(6,320)(79,971)
Comprehensive Income (Loss)$228 $(9,754)$20,267 $(53,246)
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(dollars in thousands, except per share amounts)Common
Shares Issued
Common
Stock
Additional Paid-In CapitalRetained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Balance as of December 31, 20217,180,155 $60,233 $1,814 $239,876 $(3,773)$298,150 
Net income— — — 7,392 — 7,392 
Stock incentive plan— — 63 — — 63 
Issuance of shares of common stock as board compensation675 35 — — — 35 
Repurchase of common stock under stock repurchase program(4,465)(218)— — — (218)
Cash dividend - $0.07 per share
— — — (502)— (502)
Other comprehensive income (loss)— — — — (40,046)(40,046)
Balance as of March 31, 20227,176,365 $60,050 $1,877 $246,766 $(43,819)$264,874 
Net income— — — 9,147 — 9,147 
Stock incentive plan— — 63 — — 63 
Cash dividend - $0.07 per share
— — — (503)— (503)
Other comprehensive income (loss)— — — — (19,985)(19,985)
Balance as of June 30, 20227,176,365 $60,050 $1,940 $255,410 $(63,804)$253,596 
Net income— — — 10,186 — 10,186 
Stock incentive plan— — 74 — — 74 
Issuance of restricted shares of common stock through stock incentive plan, net7,550 — — — — — 
Cash dividend - $0.07 per share
— — — (503)— (503)
Other comprehensive income (loss)— — — — (19,940)(19,940)
Balance as of September 30, 20227,183,915 $60,050 $2,014 $265,093 $(83,744)$243,413 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED) (UNAUDITED)
(dollars in thousands, except per share amounts)Common
Shares Issued
Common
Stock
Additional Paid-In CapitalRetained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
Balance as of December 31, 20227,183,915 $60,050 $2,088 $274,781 $(71,166)$265,753 
Net income— — — 9,598 — 9,598 
Stock incentive plan— — 69 — — 69 
Forfeiture of restricted shares of common stock(1,130)— — — — — 
Issuance of shares of common stock as board compensation1,660 84 — — — 84 
Repurchase of common stock under stock repurchase program(6,795)(346)— — — (346)
Cash dividend - $0.08 per share
— — — (574)— (574)
Cumulative effect of change in accounting principle— — — (569)— (569)
Other comprehensive income (loss)— — — — 2,625 2,625 
Balance as of March 31, 20237,177,650 $59,788 $2,157 $283,236 $(68,541)$276,640 
Net income— — — 8,968 — 8,968 
Stock incentive plan— — 91 — — 91 
Issuance of restricted shares of common stock through stock incentive plan9,300 — — — — — 
Repurchase of common stock under stock repurchase program(11,894)(601)— — — (601)
Cash dividend - $0.08 per share
— — — (574)— (574)
Other comprehensive income (loss)— — — — (1,152)(1,152)
Balance as of June 30, 20237,175,056 $59,187 $2,248 $291,630 $(69,693)$283,372 
Net income— — — 8,021 — 8,021 
Stock incentive plan— — 79 — — 79 
Forfeiture of restricted shares of common stock(810)— — — — — 
Repurchase of common stock under stock repurchase program(23,561)(1,156)— — — (1,156)
Cash dividend - $0.08 per share
— — — (572)— (572)
Other comprehensive income (loss)— — — — (7,793)(7,793)
Balance as of September 30, 20237,150,685 $58,031 $2,327 $299,079 $(77,486)$281,951 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, 
(in thousands)20232022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$26,587 $26,725 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation1,618 1,516 
Amortization410 406 
Share-based compensation earned239 200 
Share-based board compensation earned30 59 
(Gain) Loss on other assets owned(1)60 
Net (accretion) amortization on securities AFS1,234 278 
Net (accretion) amortization on securities HTM(1,153) 
(Gain) Loss on sale and call of securities 59 
(Gain) Loss on equity securities145 447 
Provision for credit losses485 1,000 
Deferred income tax (benefit) expense(79)377 
Net (increase) decrease in loans HFS(1,830)2,754 
Net (increase) decrease in accrued interest receivable52 (1,537)
Net (increase) decrease in BOLI(557)(533)
Net increase (decrease) in accrued interest payable5,237 (116)
Net increase (decrease) in accrued income taxes payable(656)621 
Other operating activities, net258 3,027 
Net cash provided by (used in) operating activities32,019 35,343 
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in securities AFS:
Sales 31,762 
Maturities, principal repayments, and calls109,521 60,292 
Purchases(34,581)(313,514)
Activity in securities HTM:
Maturities, principal repayments, and calls9,416 13,074 
Sale of equity securities7,000 7,399 
Sale of nonmarketable equity securities2,178  
Purchase of nonmarketable equity securities(792)(10)
Capital contribution in partnerships(1,819)(817)
Net (increase) decrease in loans HFI(32,569)(196,060)
Proceeds from sales of foreclosed assets 641 
Proceeds from sales of premises and equipment11  
Purchases of premises and equipment(3,711)(6,321)
Net cash provided by (used in) investing activities54,654 (403,554)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits(39,043)(113,854)
Proceeds from other borrowed funds60,000  
Repayments of other borrowed funds(60,000) 
Repurchase of common stock(2,103)(218)
Cash dividends(1,720)(1,508)
Net cash provided by (used in) financing activities(42,866)(115,580)
Net change in cash and cash equivalents43,807 (483,791)
Cash and cash equivalents - beginning of period278,392 784,864 
Cash and cash equivalents - end of period$322,199 $301,073 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
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RED RIVER BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, 
(in thousands)20232022
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest
$16,146 $4,545 
Income taxes
$6,894 $4,766 
SUPPLEMENTAL INFORMATION FOR NON-CASH INVESTING AND FINANCING ACTIVITIES
Assets acquired in settlement of loans$22 $ 
Transfers of investment securities from AFS to HTM, prior to market value adjustment$ $184,238 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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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 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 that 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, 2022, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
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
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.
On January 1, 2023, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changed the impairment model for most financial assets that are measured at amortized cost, including loans HFI, securities, and unfunded commitments, from an incurred loss model to an expected loss model. Accounting policies related to the allowance for credit losses are considered critical as these policies involve considerable subjective judgment and estimation by management. Changes in factors and forecasts used in evaluating the overall loan portfolio may result in significant changes in the allowance for credit losses and related provision expense in future periods. The allowance level is influenced by loan portfolio growth, changes in the quality and composition of the loan portfolio, the level of nonperforming loans, delinquency and charge-off trends, current economic conditions, forecasted information, and other conditions influencing loss expectations. Changes to the assumptions in the model in future periods could have a material impact on the Company’s Consolidated Financial Statements. Refer to “- Accounting Standards Adopted in 2023” for a detailed discussion on the Company’s methodologies for estimating expected credit losses.
Accounting Standards Adopted in 2023
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. On January 1, 2023, the Company adopted ASC 326, as amended, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans HFI, securities HTM, and unfunded commitments. In addition, ASC 326 made changes to the accounting for securities AFS, which requires credit losses to be presented as an allowance rather than as a write-down on securities AFS that management does not intend to sell or believes that it is more likely than not that the Company will have the ability to hold until each security has recovered its cost basis.
The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and unfunded commitments. Results for reporting periods beginning after January 1, 2023, are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a $569,000, net of tax, decrease to stockholders’ equity as of January 1, 2023, for the cumulative effect of
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adopting ASC 326. The transition adjustment included a $278,000 increase to the December 31, 2022 allowance for loan losses and established a $442,000 reserve for unfunded commitments as presented in the following table.
(in thousands)December 31, 2022
 ALL
Impact of ASC 326 Adoption
January 1, 2023
ACL
Real estate:
Commercial real estate$7,720 $876 $8,596 
One-to-four family residential5,682 1,231 6,913 
Construction and development1,654 (444)1,210 
Commercial and industrial4,350 (822)3,528 
SBA PPP, net of deferred income   
Tax-exempt751 (427)324 
Consumer471 (136)335 
Total$20,628 $278 $20,906 
Reserve for unfunded commitments$ $442 $442 
Loans Held for Investment
Loans that management has the intent and ability to hold, for the foreseeable future or until maturity or payoff, are reported at amortized cost. Amortized cost is the principal balance outstanding, net of deferred fees and costs. Accrued interest receivable is reported in accrued interest receivable on the consolidated balance sheets and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.
Interest income on loans is discontinued, and the loans are placed on nonaccrual status at the time the loan is 90 days past due unless the loan is well secured and in process of collection. Loans, excluding credit cards, are charged-off to the extent management is relatively certain that principal and interest will be uncollectible. Credit card loans continue to accrue interest until they are charged-off no later than 120 days past due unless the loan is in the process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. When a loan is placed on nonaccrual status, uncollected accrued interest is reversed, reducing interest income, and future income accrual is discontinued. Subsequent payments, if any, of interest and fees are applied as reductions to the loan’s outstanding principal balance. Once the principal balance of a loan placed on nonaccrual status has been fully recovered, subsequent payments received are recognized as interest income on a cash basis. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Credit Losses - Loans
The ACL is a valuation account that is deducted from the amortized cost basis of loans HFI to present management’s best estimate of the expected credit losses to be collected over the lifetime of the loans. The amount of the ACL should not be interpreted as an indication that charge-offs in future periods will necessarily occur in those amounts, or at all. Loans are charged-off against the allowance when management is relatively certain that principal and interest will be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Subsequent recoveries, if any, are credited to the allowance.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. This reasonable and supportable forecast period is currently one year and incorporates Company and peer historical losses. After the forecast period, the Company reverts to an average historical loss rate over a two-year period. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term, as well as for changes in economic conditions, such as changes in unemployment rates, property values, or other relevant factors. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in the Company’s historic loss factors. The determination of the amount of allowance involves a high degree of judgement and subjectivity.
The ACL is measured on a collective pool basis when similar risk characteristics and risk profiles exist. The Company utilizes cohort loss rate (static pool analysis) and remaining life loss rate methodologies to estimate the quantitative portion of the ACL for loan pools. The cohort loss rate methodology tracks a closed pool of loans over their remaining lives
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to determine their loss behavior. The remaining life loss rate methodology takes the calculated loss rate and applies that rate to a pool of loans on a periodic basis based on the remaining life expectation of that pool.
The portfolio pools are based primarily on regulatory call report codes. These pools and certain of the inherent risks in the Company’s loan portfolio are summarized in the following table.
Loan PoolRisk Characteristics
Residential constructionThis category consists of loans to residential developers and to individual clients for construction of single-family homes. Risks inherent in this portfolio pool include fluctuations in the value of real estate, project completion risk, and change in market trends.
Commercial constructionThis category consists of loans to small and medium-sized businesses to construct owner occupied facilities and developers of commercial real estate investment properties. Risks inherent in this portfolio pool include fluctuations in the value of real estate, project completion risk, change in market trends, and the ability to sell the property upon completion.
FarmlandThis category consists of loans secured by real estate that is used or usable for agricultural purposes, including land used for crops, livestock production, grazing/pastureland, and timberland. Risks inherent in this portfolio pool include adverse changes in climate, fluctuations in feed and livestock prices, and changes in property values.
Home equity loans and linesThis category consists of home equity loans and lines of credit. Risks inherent in this portfolio pool include local unemployment rates, local residential real estate market conditions, and the interest rate environment.
Secured closed-liensThis category consists of loans secured by primary and secondary liens on residential real estate. Risks inherent in this portfolio pool include local unemployment rates, local residential real estate market conditions, and the interest rate environment. Generally, these loans are for longer terms than home equity loans and lines of credit.
Multifamily
This category consists of loans secured by apartment or residential buildings with five or more units used to accommodate households on a temporary or permanent basis. Risks inherent in this portfolio pool include local unemployment rates, changes in the local economy, and factors that would impact property values.
Owner occupied commercial real estateThis category consists of loans to established operating companies and secured by owner occupied offices and industrial real estate properties. Risks inherent in this portfolio pool include fluctuations in the value of real estate, the overall strength of the economy, new job creation trends, environmental contamination, and the quality of the borrower’s management.
Non-owner occupied commercial real estateThis category consists of loans to developers and other persons or entities and secured by non-owner occupied commercial real estate properties. Risks inherent in this portfolio pool include fluctuations in the value of real estate, the overall strength of the economy, new job creation trends, tenant vacancy rates, environmental contamination, and the quality of the borrower’s management.
Commercial and industrialThis category consists of secured and unsecured loans to purchase capital equipment, agriculture operating loans, and other business loans for working capital and operating purposes. Secured loans are primarily secured by accounts receivable, inventory, and other business assets. The performance of commercial and industrial loans may be adversely affected by, among other factors, conditions specific to the relevant industry, fluctuations in the value of the collateral, and individual performance factors related to the borrower such as the quality of the borrower’s management.
ConsumerThis category consists of loans to individuals for household, family, and other personal use. Risks inherent in this portfolio pool include the borrower’s financial condition, local unemployment rates, local economic conditions, and the interest rate environment.
Tax-exemptThis category consists of loans to political subdivisions primarily of the State of Louisiana including parishes, municipalities, utility districts, school districts, and development authorities. These loans undergo the same underwriting as any of the Company’s other loans and are typically paid for by ad valorem taxes or specific revenue sources.
Other loansThis category consists of loans not included in any other category. Risks inherent in this portfolio pool include local unemployment rates, local economic conditions, and the interest rate environment.
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Loans that do not share similar risk characteristics are evaluated on an individual basis and excluded from the collective evaluation. For loans evaluated on an individual basis that are collateral dependent, the specific allowance is estimated by calculating the difference between the fair value of the underlying collateral less estimated selling costs and the Bank’s exposure. If the loan is not collateral dependent, the discounted cash flow methodology is used. Either of these determinations are highly subjective and based on information available at the time of valuation.
Reserve for Unfunded Commitments
Commitments to extend credit are agreements to lend to a customer if all conditions of the commitment have been met. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The reserve for unfunded commitments is recorded within accrued interest payable on the consolidated balance sheets, and the related provision is recorded in other operating expenses on the consolidated statements of income. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The loss rates computed for each pool and expected pool-level funding rates are applied to the related unfunded commitment balance to obtain the reserve amount.
Securities AFS
ASC 326 requires the Company to measure expected credit losses on securities AFS. Impairment is evaluated when there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value. Management evaluates each security by considering the nature of the collateral, potential future changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, volatility of the security’s fair value, and historical loss information for financial assets secured with similar collateral, along with other factors. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the investments. If a decline in the fair value related to creditworthiness or other factors is determined, an ACL will be calculated using a discounted cash flow method, whereby management will compare the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the provision for credit losses in the consolidated statements of income. Accrued interest receivable is excluded from the amortized cost basis in measuring expected credit losses on the investment securities and no ACL is recorded on accrued interest receivable. The Company’s current securities AFS portfolio consists of U.S. Treasury securities, mortgage-backed securities, U.S. agency securities, and municipal bonds. The Company’s securities AFS, other than the municipal bonds, are considered treasuries, agencies, and instrumentalities of the U.S. government, which have a zero credit loss assumption. These securities have the full faith and credit backing of the U.S. government or one of its agencies. Municipal bonds AFS do not fall under the zero credit loss assumption and are evaluated quarterly using the considerations mentioned above to determine whether there is a credit loss associated with a decline in fair value. Due to the zero credit loss assumption and the considerations applied to the securities AFS, no ACL was recorded on January 1, 2023 for securities AFS.
Securities HTM
ASC 326 requires the Company to measure expected credit losses on securities HTM. Securities HTM are measured on a collective basis by major security type with those sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the securities HTM portfolio. Management monitors the HTM portfolio to determine whether an ACL should be recorded. The Company’s current securities HTM portfolio consists of mortgage-backed securities and U.S. agency securities. The Company’s securities HTM are considered agencies and instrumentalities of the U.S. government that have a zero credit loss assumption. These securities have the full faith and credit backing of the U.S. government or one of its agencies. Due to the zero credit loss assumption, no ACL was recorded on January 1, 2023 for securities HTM.
ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this update address how to determine whether a contract liability is recognized by the acquirer in a business combination. The amendment also resolves the inconsistency of post-acquisition revenue recognition by providing specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination. On January 1, 2023, the Company adopted ASU No. 2021-08. Adoption of this ASU did not have an impact on the Company’s consolidated financial statements.
ASU No. 2022-02 Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The guidance issued in this update eliminates the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, but also enhances the disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The guidance requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments – Credit Losses – Measured at
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Amortized Cost. On January 1, 2023, the Company adopted ASU No. 2022-02 on a prospective basis. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
ASU No. 2023-01, Leases (Topic 842): Common Control Arrangements. The guidance issued in this update addresses two issues. First, the standard requires entities to determine whether a related party arrangement between entities under common control is a lease. If the arrangement is a lease, the accounting for the lease is treated the same as an arrangement with an unrelated party. This is a change in the requirement under Topic 840, Leases, which used the basis of economic substance. Secondly, the standard requires leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group as long as the lessee controls the use of the underlying asset. If the lessor obtained control of the use of the underlying asset through a lease with another entity not within the common control group, the amortization period may not exceed the amortization period of the common control group. If the lessee no longer controls the use of the underlying asset, the improvement is accounted for as a transfer between entities under common control through an adjustment to equity. These leasehold improvements are subject to the impairment guidance in Topic 360 Property, Plant and Equipment. Both items of this amendment are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted for both interim periods and annual financial statements that have not been issued. On January 1, 2023, the Company early adopted ASU No. 2023-01, and it did not have an impact on the Company’s consolidated financial statements.
ASU No. 2023-03, Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718). The guidance in this update amends various SEC paragraphs relating to financial disclosures. This update is an alignment of SEC and GAAP reporting. This update was issued in the third quarter of 2023 and was effective upon issuance. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Recent Accounting Pronouncements
As of September 30, 2023, there were no recent accounting pronouncements that were applicable and not adopted.
2.    Securities
Securities are classified as AFS, HTM, and equity securities. Total securities were $675.3 million as of September 30, 2023.
Securities AFS and Securities HTM
Securities AFS and securities HTM are debt securities. Securities AFS are held for indefinite periods of time and are carried at estimated fair value. As of September 30, 2023, the estimated fair value of securities AFS was $529.0 million. The net unrealized loss on securities AFS increased $9.2 million for the nine months ended September 30, 2023, resulting in a net unrealized loss of $83.3 million as of September 30, 2023.
Securities HTM, which the Company has the intent and ability to hold until maturity, are carried at amortized cost. As of September 30, 2023, the amortized cost of securities HTM was $143.4 million.
Investment activity for the nine months ended September 30, 2023, included $118.9 million in maturities, principal repayments, and calls, partially offset by $34.6 million of securities purchased. There were no sales of securities AFS, and there were no purchases or sales of securities HTM for the same period.
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The amortized cost and estimated fair value of securities AFS and securities HTM are summarized in the following tables:
September 30, 2023
(in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Securities AFS:
Mortgage-backed securities$249,746 $ $(36,893)$212,853 
Municipal bonds213,112  (41,169)171,943 
U.S. Treasury securities122,109  (3,247)118,862 
U.S. agency securities27,397 6 (2,015)25,388 
Total Securities AFS$612,364 $6 $(83,324)$529,046 
Securities HTM:
Mortgage-backed securities$142,501 $ $(26,070)$116,431 
U.S. agency securities919  (143)776 
Total Securities HTM$143,420 $ $(26,213)$117,207 
December 31, 2022
(in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Securities AFS:
Mortgage-backed securities$272,253 $ $(31,272)$240,981 
Municipal bonds219,305 6 (35,219)184,092 
U.S. Treasury securities176,380  (5,902)170,478 
U.S. agency securities20,601  (1,745)18,856 
Total Securities AFS$688,539 $6 $(74,138)$614,407 
Securities HTM:
Mortgage-backed securities$150,771 $ $(19,142)$131,629 
U.S. agency securities912  (134)778 
Total Securities HTM$151,683 $ $(19,276)$132,407 
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The amortized cost and estimated fair value of securities AFS and securities HTM as of September 30, 2023, 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.
September 30, 2023
(in thousands)Amortized
Cost
Fair
Value
Securities AFS:
Within one year$98,990 $97,219 
After one year but within five years62,186 58,778 
After five years but within ten years84,066 75,198 
After ten years367,122 297,851 
Total Securities AFS$612,364 $529,046 
Securities HTM:
Within one year$ $ 
After one year but within five years  
After five years but within ten years919 776 
After ten years142,501 116,431 
Total Securities HTM$143,420 $117,207 
Accounting for Credit Losses – Securities AFS and Securities HTM
The Company evaluates securities AFS for impairment when there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Due to the zero credit loss assumption and the considerations applied to the securities AFS, no ACL was recorded on January 1, 2023, and there was no ACL for securities AFS as of September 30, 2023. Also, as part of the Company’s evaluation of its intent and ability to hold investments for a period of time sufficient to allow for any anticipated recovery in the market, the Company considers its investment strategy, cash flow needs, liquidity position, capital adequacy, and interest rate risk position. 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.
Due to the zero credit loss assumption on the securities HTM portfolio, no ACL was recorded on January 1, 2023, and there was no ACL for securities HTM as of September 30, 2023.
Accrued interest receivable totaled $2.6 million and $3.0 million as of September 30, 2023 and December 31, 2022, respectively, for securities AFS and securities HTM and was reported in accrued interest receivable on the consolidated balance sheets.
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Information pertaining to securities AFS and securities HTM with gross unrealized losses as of September 30, 2023 and December 31, 2022, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is described as follows:
September 30, 2023
Less than twelve monthsTwelve months or more
(in thousands)Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Securities AFS:
Mortgage-backed securities$(94)$4,220 $(36,799)$208,564 
Municipal bonds(418)7,347 (40,751)164,596 
U.S. Treasury securities  (3,247)118,862 
U.S. agency securities(5)6,962 (2,010)16,398 
Total Securities AFS$(517)$18,529 $(82,807)$508,420 
Securities HTM:
Mortgage-backed securities$ $ $(26,070)$116,431 
U.S. agency securities  (143)776 
Total Securities HTM$ $ $(26,213)$117,207 
December 31, 2022
Less than twelve monthsTwelve months or more
(in thousands)Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Securities AFS:
Mortgage-backed securities$(10,214)$105,030 $(21,058)$135,607 
Municipal bonds(11,340)84,691 (23,879)98,607 
U.S. Treasury securities(3,852)131,107 (2,050)39,371 
U.S. agency securities(608)10,289 (1,137)8,564 
Total Securities AFS$(26,014)$331,117 $(48,124)$282,149 
Securities HTM:
Mortgage-backed securities$(19,142)$131,629 $ $ 
U.S. agency securities(134)778   
Total Securities HTM$(19,276)$132,407 $ $ 
As of September 30, 2023, the Company held 554 securities AFS and securities HTM that were in unrealized loss positions. The aggregate unrealized loss of these securities as of September 30, 2023, was 14.49% of the amortized cost basis of total debt securities.
The proceeds from sales and calls of debt securities and their gross gain (loss) for the three and nine months ended September 30, 2023 and 2022, are shown below:
Three Months Ended
September 30, 
Nine Months Ended
September 30, 
(in thousands)2023202220232022
Proceeds (1)
$ $731 $ $41,234 
Gross gain$ $16 $ $64 
Gross loss$ $ $ $(123)
(1)The proceeds include the gross gain and loss.
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Equity Securities
Equity securities are an investment in a CRA mutual fund, consisting primarily of bonds. Equity securities are carried at fair value on the consolidated balance sheets with periodic changes in value recorded through the consolidated statements of income. As of December 31, 2022, equity securities had a fair value of $10.0 million with a recognized loss of $468,000 for the year ended December 31, 2022. The loss on equity securities during 2022 was due to a significant increase in interest rates. During the nine months ended September 30, 2023, the Company sold $7.0 million of the mutual fund. As of September 30, 2023, equity securities had a fair value of $2.8 million with a recognized loss of $145,000 for the nine months ended September 30, 2023.
Pledged Securities
Securities with carrying values of approximately $232.7 million and $191.2 million were used as collateral as of September 30, 2023 and December 31, 2022, respectively.
3.    Loans and Asset Quality
Loans
Loans HFI by category and loans HFS are summarized below:
(in thousands)September 30, 2023December 31, 2022
Real estate:
Commercial real estate$829,836 $794,723 
One-to-four family residential579,023 543,511 
Construction and development119,647 157,364 
Commercial and industrial315,388 310,053 
SBA PPP, net of deferred income10 14 
Tax-exempt74,703 83,166 
Consumer29,999 27,436 
Total loans HFI$1,948,606 $1,916,267 
Total loans HFS$2,348 $518 
Accrued interest receivable on loans HFI totaled $6.0 million and $5.8 million as of September 30, 2023 and December 31, 2022, respectively, and was reported in accrued interest receivable on the accompanying consolidated balance sheets.
Allowance for Credit Losses
Effective January 1, 2023, the Company adopted the provisions of ASC 326 using the modified retrospective method. For reporting periods beginning on and after January 1, 2023, the Company maintains an ACL on all loans that reflects management’s estimate of expected credit losses for the full life of the loan portfolio.
The following table summarizes the activity in the ACL by category for the nine months ended September 30, 2023:
(in thousands)
Beginning Balance December 31, 2022
Impact of ASC 326 Adoption
Provision for Credit LossesCharge-offsRecoveries
Ending Balance September 30, 2023
Real Estate:
Commercial real estate$7,720 $876 $53 $ $ $8,649 
One-to-four family residential5,682 1,231 554  8 7,475 
Construction and development1,654 (444)32 (9) 1,233 
Commercial and industrial4,350 (822)(562)(51)25 2,940 
SBA PPP, net of deferred income      
Tax-exempt751 (427)255   579 
Consumer471 (136)153 (288)107 307 
Total allowance for credit losses$20,628 $278 $485 $(348)$