Red River Bancshares, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Red River Bancshares is a Louisiana bank holding company operating Red River Bank. Income-statement and cash-flow comparisons are against Q1 2020; balance-sheet comparisons are against December 31, 2020.
Financial performance and condition
| Metric | Q1 2021 / March 31, 2021 | Comparison |
|---|---|---|
| Net income; diluted EPS | $8.1 million; $1.10 | Net income rose 19.6% from $6.7 million; diluted EPS was $0.92 in Q1 2020 |
| Net interest income | $17.6 million | Up 9.3% from $16.1 million in Q1 2020 |
| Noninterest income | $6.8 million | Up 43.2% from $4.7 million, led by mortgage loan income |
| Provision for loan losses | $1.45 million | Up from $503,000 in Q1 2020; down from $2.7 million in Q4 2020 |
| Operating expenses | $13.2 million | Up 10.2% year over year |
| Net interest margin / FTE margin | 2.69% / 2.76% | FTE margin was 3.41% in Q1 2020 and 3.08% in Q4 2020 |
| Return on average assets / equity | 1.20% / 11.36% | 1.36% / 10.53% in Q1 2020 |
| Total assets | $2.82 billion | Up $178.0 million, or 6.7%, since year-end 2020 |
| Loans held for investment | $1.60 billion | Up 0.9% since year-end 2020; includes $119.4 million of PPP loans |
| Deposits | $2.52 billion | Up $174.9 million, or 7.5%, since year-end 2020 |
| Cash and cash equivalents | $603.0 million | Up $155.8 million since year-end 2020 |
| Allowance for loan losses | $19.4 million; 1.21% of loans | $18.0 million; 1.13% at year-end 2020 |
| Nonperforming assets | $3.6 million; 0.13% of assets | Down from $4.2 million; 0.16% at year-end 2020 |
| Stockholders’ equity | $284.9 million | Down $567,000 since year-end 2020 |
Q1 cash flows were $24.1 million from operating activities, negative $41.6 million from investing activities, and $173.4 million from financing activities. The financing inflow primarily reflected deposit growth. Cash increased $155.8 million during the quarter. The company reported no outstanding borrowings at March 31, 2021. Red River Bank’s total risk-based capital ratio was 17.48%, its common equity Tier 1 ratio was 16.27%, and its Tier 1 leverage ratio was 9.61%.
Material changes and drivers
- Net income reached a quarterly record, supported by higher noninterest income and net interest income. Mortgage loan income rose to $2.9 million from $889,000, reflecting strong mortgage activity; brokerage income also reached a quarterly record of $834,000.
- Net interest margin pressure continued. Management attributed the decline to low market rates, lower PPP income, and excess liquidity held in low-yielding short-term assets. PPP interest and fees contributed $2.1 million in Q1; excluding PPP income, net interest income was down 3.9% year over year, according to the company’s non-GAAP measure.
- Deposit growth was driven by government stimulus, PPP2 proceeds, and customers maintaining higher balances, partly offset by seasonal public-sector outflows. Management said additional liquidity was placed mainly in interest-bearing deposits at other banks and securities.
- Available-for-sale securities had a net unrealized loss of $419,000 at quarter-end, compared with a net unrealized gain of $8.8 million at year-end 2020. The decrease in fair value was attributed to rising market rates; the resulting after-tax decline in accumulated other comprehensive income was $7.3 million.
- The company repurchased 19,661 shares for $1.0 million and increased the quarterly dividend to $0.07 per share from $0.06. It had $1.86 million remaining under its $3.0 million repurchase authorization at March 31.
Outlook, risks, and contingencies
- Management expected FTE net interest margin to decline slightly in Q2 2021, citing elevated liquidity and the timing of PPP forgiveness payments.
- Management expected provision expense to return to pre-COVID-19 levels as economic recovery continued, but said future provisions depend on economic conditions, asset quality, portfolio growth, and other credit risks. This is an expectation, not a guarantee.
- COVID-19, interest-rate movements, deposit retention and liquidity, borrower and collateral performance, cybersecurity, regulatory changes, and Louisiana natural disasters are among the risks identified in the filing. The bank reported $9.7 million of non-PPP loans on active principal-only deferral at March 31, mostly in hospitality services.
- Unfunded loan commitments were $311.3 million and standby letters of credit totaled $11.8 million. Management noted that commitments may expire unused.
- A purported class action alleges improper multiple non-sufficient-funds fees. The company and bank denied the allegations. On May 10, 2021, the trial court ruled in the bank’s favor; the plaintiff could amend the petition or appeal. Potential exposure, if any, was not reasonably estimable.
- The filing reported no material changes to previously disclosed risk factors. It also noted executive and board changes, and a planned investment in a bank-technology fund announced in April 2021.
Important facts for investors to verify
- Whether deposit growth and excess liquidity persist, and how quickly that liquidity can be deployed without further margin dilution.
- PPP forgiveness timing, remaining PPP balances and fees, and the underlying trend in non-PPP loan growth and income.
- Credit quality in pandemic-sensitive sectors, active deferrals, allowance adequacy, and any changes in nonperforming or adversely classified loans.
- Whether the Q2 margin and provision expectations described by management were realized in subsequent filings.
- Changes in securities fair values and accumulated other comprehensive income as interest rates move, alongside the bank’s capital and liquidity position.
- Developments in the fee litigation, including any appeal or amended claims, and any changes to management or the announced technology-fund investment.