Red River Bancshares, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with 2020. Red River Bancshares is a Louisiana bank holding company operating Red River Bank, with 27 banking centers and two loan and deposit production offices across Louisiana. The audited consolidated financial statements received an unqualified opinion.
Financial performance and condition
| Metric | 2021 | 2020 |
|---|---|---|
| Net income | $33.0 million | $28.1 million |
| Diluted earnings per share | $4.51 | $3.83 |
| Net interest income | $71.7 million | $69.0 million |
| Net interest margin, FTE | 2.60% | 3.14% |
| Provision for loan losses | $1.9 million | $6.3 million |
| Noninterest income | $24.5 million | $23.2 million |
| Operating expenses | $54.3 million | $51.4 million |
| Return on average assets | 1.13% | 1.22% |
| Return on average equity | 11.21% | 10.39% |
| Efficiency ratio | 56.39% | 55.77% |
- Balance sheet: Assets grew 22.0% to $3.22 billion. Loans held for investment rose 6.0% to $1.68 billion; excluding PPP loans, they increased 13.4% to $1.67 billion. Deposits increased 24.4% to $2.91 billion.
- Funding and liquidity: Cash and cash equivalents were $784.9 million, up from $447.2 million. Average short-term liquid assets were $619.4 million, or 22.2% of average earning assets. Noninterest-bearing deposits were 39.5% of deposits. There were no borrowings outstanding; net FHLB borrowing capacity was $604.8 million, alongside $95.0 million of federal funds lines and a $6.0 million revolving line.
- Cash flows: Operating activities provided $62.3 million; investing activities used $284.7 million; financing activities provided $560.1 million. Cash and cash equivalents increased $337.7 million.
- Credit quality: Nonperforming assets fell to $979,000, or 0.03% of assets, from $4.2 million, or 0.16%. Net charge-offs were $675,000, or 0.04% of average loans. The allowance was $19.2 million, 1.14% of loans HFI.
- Capital and shareholder returns: Bank total risk-based capital was 17.06%; common equity Tier 1 was 15.99%. Stockholders’ equity was $298.2 million. The company paid $0.28 per share in dividends and repurchased 153,553 shares for $7.9 million. Year-end book value per share was $41.52.
Material changes versus 2020
- Net income increased 17.1%, mainly due to lower loan-loss provision expense, higher net interest income, and higher noninterest income; higher operating expenses partly offset these gains.
- Net interest margin FTE contracted 54 basis points. Management attributed the decline to low market rates and elevated low-yielding liquidity; excess short-term liquid assets alone reduced the margin by an estimated 70 basis points.
- Net interest income rose 3.9% as deposit pricing reductions lowered interest expense, despite slightly lower interest and dividend income. The average cost of deposits declined to 0.22% from 0.41%.
- Deposit growth outpaced loan growth, driving higher cash balances and securities. AFS securities increased to $659.2 million; their portfolio had a $4.8 million unrealized loss at year-end, versus an $8.8 million unrealized gain in 2020, primarily reflecting rising market rates.
- PPP loans declined to $17.6 million from $118.4 million as forgiveness payments exceeded new PPP2 originations. PPP income remained material at $5.8 million.
- Noninterest income increased 5.7%, supported by brokerage, debit card, deposit service charge, and mortgage income. Mortgage income reached $8.7 million. Operating expenses increased 5.5%, including higher personnel, technology, occupancy, and FDIC assessment costs.
Outlook, commentary, risks, and unusual items
- Management said the balance sheet is asset-sensitive and expected rising rates to benefit 2022 net interest income and margin, excluding PPP effects. This outlook depends on balance-sheet activity, rate movements, and deposit repricing assumptions; it is not formal earnings guidance.
- Management reported improved Louisiana economic activity and credit metrics in 2021, while noting continued supply-chain disruption and labor shortages. COVID-19 and the Omicron variant remained uncertain risks.
- Expansion continued: the Bank entered New Orleans with a production office in late 2021 and opened a full-service Lafayette banking center on January 26, 2022. Management’s primary growth focus remains organic expansion, with selective acquisitions considered.
- The company expected to exceed the $3.0 billion small-bank-holding-company asset threshold at the June 30, 2022 measurement date and anticipated losing related regulatory benefits beginning in 2023.
- Interest-rate exposure warrants attention: the modeled 200-basis-point rate-decrease scenario showed an estimated 32.8% decline in fair value of equity, exceeding the Bank’s stated policy threshold. Management said this would be reviewed and monitored.
- Key risks include Louisiana real-estate and commercial credit concentration, natural disasters, energy-sector volatility, inflation and labor constraints, deposit retention and liquidity, interest-rate changes, cybersecurity and third-party service-provider dependence, competition, regulation, and PPP compliance or forgiveness disputes.
- CECL, the expected-credit-loss standard, was scheduled to take effect for the company on January 1, 2023; management was preparing implementation and had not disclosed a clear quantified adoption impact.
- A putative class action concerning nonsufficient-funds fees was settled by agreement dated January 25, 2022, and dismissed March 15, 2022. Management said ordinary-course legal matters were not expected to have a material adverse effect.
- The company reported effective disclosure controls and internal control over financial reporting. The auditor did not attest to internal control effectiveness, citing the company’s emerging-growth-company transition exemption.
Important facts for investors to verify
- Whether deposit balances and noninterest-bearing funding remain stable as stimulus-related balances normalize, and how uninsured deposits (estimated at $1.22 billion) affect funding risk.
- Whether loan growth, credit quality, and the $19.2 million allowance remain adequate as PPP balances run off and CECL implementation approaches.
- How rising rates affect the net interest margin, deposit costs, securities values, and the modeled fair-value-of-equity exposure.
- Whether expansion into newer markets produces sufficient loan, deposit, and fee growth to offset added operating costs.
- The timing and consequences of crossing the $3.0 billion asset threshold, including the expected loss of regulatory benefits in 2023.
- Execution of the renewed $5.0 million share repurchase authorization and the sustainability of dividends, subject to bank-level capital and regulatory limits.