RED RIVER BANCSHARES INC annual report, FY2023

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Red River Bancshares, Inc. — 2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023. The filing is an annual report, not a standalone fourth-quarter filing; fourth-quarter results are identified separately below. Red River Bancshares is a Louisiana bank holding company operating Red River Bank, with 27 banking centers and one loan production office in Louisiana.

Financial performance and condition

  • Earnings: Net income was $34.9 million, down 5.5% from $36.9 million in 2022. Diluted EPS was $4.86 versus $5.13. For fourth-quarter 2023, net income was $8.3 million and diluted EPS was $1.16, compared with $10.2 million and $1.42 in fourth-quarter 2022.
  • Revenue and margins: Net interest income was $86.4 million, approximately unchanged from 2022. Interest income rose $24.2 million, largely offset by a $24.4 million increase in interest expense. Net interest margin was 2.87% (2.91% on an FTE basis), versus 2.80% (2.86% FTE) in 2022. Noninterest income increased 12.6% to $21.1 million; operating expenses rose 8.9% to $63.9 million. The efficiency ratio increased to 59.39% from 56.60%.
  • Cash flow: Operating activities provided $40.1 million, compared with $45.9 million in 2022. Investing activities used $8.7 million, and financing activities used $4.3 million. Cash and cash equivalents increased $27.0 million to $305.4 million.
  • Loans, deposits and liquidity: Assets were $3.13 billion, up 1.5%; loans held for investment rose 4.0% to $1.99 billion. Deposits were essentially flat at $2.80 billion, but noninterest-bearing deposits declined 16.0% to $916.5 million and represented 32.71% of deposits, versus 38.96% a year earlier. The loans-to-deposits ratio increased to 71.13%. Management reported $305.4 million of cash and cash equivalents and $1.46 billion of accessible borrowing capacity. The Bank had no borrowings outstanding at year-end.
  • Credit and capital: Provision for credit losses was $735,000, down from $1.75 million. The allowance for credit losses was $21.3 million, or 1.07% of loans; nonperforming assets were $2.6 million, or 0.08% of assets. Total stockholders’ equity was $303.9 million. Company total risk-based capital was 18.28%; the Bank’s was 18.00%, and the Bank was reported as well-capitalized.
  • Securities: Total securities were $714.3 million, down 8.0%. The AFS portfolio had a $62.2 million net unrealized loss; HTM securities had an unrealized loss of $22.2 million. The AFS loss improved from $74.1 million in 2022, while the HTM loss increased from $19.3 million.

Material changes versus 2022

  • Higher loan yields and income from short-term assets were largely offset by sharply higher deposit costs. Average deposit cost rose to 1.18% from 0.27%; the cost of interest-bearing deposits rose to 1.86% from 0.46%.
  • Net income declined as operating expenses increased $5.2 million, partly offset by higher noninterest income and lower credit-loss provision. Personnel, regulatory assessment, occupancy, and legal and professional costs contributed to expense growth.
  • Loan growth was concentrated in commercial real estate and one-to-four-family residential loans; construction and development and tax-exempt loans declined. Noninterest-bearing deposits fell as customers shifted balances to higher-yielding accounts.
  • Equity increased $38.1 million, reflecting earnings and improved AOCI, partly offset by dividends, share repurchases, and the CECL transition adjustment. The company repurchased 101,298 shares for $5.0 million and paid $0.32 per share in dividends.

Outlook, commentary, risks and unusual items

  • Management described 2023 as challenging amid bank failures and changing interest rates, while reporting steady results. It anticipated slight improvement in FTE net interest margin in the first half of 2024, depending on balance-sheet activity and rates, and expected approximately $145 million of securities cash flows in 2024 to be redeployed into higher-yielding assets. This is commentary, not formal earnings guidance.
  • Key risks include deposit repricing and retention, interest-rate and securities-value sensitivity, credit deterioration, commercial real estate and Louisiana market concentration, severe weather, and reliance on third-party technology and service providers. Estimated uninsured deposits were $887.8 million, or 31.7% of deposits; excluding collateralized public deposits, the estimate was $643.6 million, or 23.0%.
  • The company disclosed that certain customer information was exposed through a 2023 MOVEit Transfer vulnerability affecting third-party vendors; it notified affected customers and stated the incident had not materially affected the company.
  • CECL adoption on January 1, 2023 resulted in a $720,000 adjustment to the allowance and unfunded-commitment reserve and a $569,000 after-tax reduction to retained earnings. The change in methodology makes direct comparison of credit-loss measures with prior periods less straightforward.
  • Subsequent event: on March 13, 2024, the company agreed to a privately negotiated repurchase of 200,000 shares for approximately $10.0 million, supplemental to its separate $5.0 million 2024 repurchase authorization.
  • The auditor issued an unqualified opinion on the 2023 financial statements and noted the accounting-method change for credit losses. The company remained an emerging growth company and did not include an auditor attestation on internal control over financial reporting.

Important facts for investors to verify

  • Whether deposit pricing, mix, and customer retention continue to pressure funding costs and net interest margin.
  • Credit trends and collateral quality in commercial real estate, residential, and other Louisiana-focused lending, alongside the adequacy of the CECL allowance.
  • The market-value and liquidity implications of securities unrealized losses, particularly the HTM portfolio, and the assumptions behind management’s ability to hold securities to recovery.
  • The composition and availability of reported liquidity and borrowing capacity, and how uninsured-deposit estimates and large depositor behavior evolve.
  • The sustainability of earnings contributions from the SBIC investment, which supported the 2023 increase in noninterest income, and the effects of higher operating costs.
  • The execution and funding implications of the additional $10.0 million March 2024 share repurchase, alongside dividends, capital needs, and the authorized 2024 repurchases.