Red River Bancshares, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparisons are primarily with 2019. Red River Bancshares is a Louisiana bank holding company operating Red River Bank, with 25 banking centers and a loan and deposit production office in Lafayette. The company reported record earnings and balance-sheet growth amid COVID-19, historically low interest rates, and two hurricanes affecting its markets.
Key financial results
| Metric | 2020 | 2019 |
|---|---|---|
| Total assets, year-end | $2.64 billion | $1.99 billion |
| Loans held for investment, year-end | $1.59 billion | $1.44 billion |
| Total deposits, year-end | $2.34 billion | $1.72 billion |
| Net interest income | $69.0 million | $63.6 million |
| Net income | $28.1 million | $24.8 million |
| Diluted earnings per share | $3.83 | $3.49 |
| Net interest margin, FTE | 3.14% | 3.52% |
| Return on average assets | 1.22% | 1.30% |
| Return on average equity | 10.39% | 10.86% |
| Efficiency ratio | 55.77% | 59.46% |
| Provision for loan losses | $6.3 million | $1.8 million |
Revenue and expenses: Net income rose 13.4%. Noninterest income increased 45.1% to $23.2 million, primarily from mortgage loan income, which rose to $8.4 million from $3.0 million, and a $1.4 million securities-sale gain. Operating expenses increased 8.6% to $51.4 million, including higher personnel, legal and professional, and technology costs. The effective tax rate was 18.3%, versus 18.5%.
Cash flow: Operating activities provided $12.8 million, compared with $26.4 million in 2019. Investing activities used $316.3 million, including $419.4 million of securities purchases and $151.9 million of net loan growth. Financing activities provided $617.4 million, mainly from a $619.2 million increase in deposits. Cash and cash equivalents increased $313.9 million to $447.2 million.
Liquidity and debt: Year-end deposits grew 36.0%, with noninterest-bearing deposits reaching 40.3% of deposits, up from 34.0%. The loans-to-deposits ratio fell to 67.87% from 83.60%, reflecting deposit growth exceeding loan growth. The company reported no borrowings at year-end and no outstanding long-term debt; available borrowing capacity was approximately $611.8 million. It temporarily borrowed $50 million from the FHLB in April 2020 and repaid it in May.
Credit and capital: The allowance for loan losses rose to $18.0 million, or 1.13% of loans HFI, from $13.9 million, or 0.97%. Net charge-offs increased to $2.3 million from $397,000, including $1.7 million of energy-loan charge-offs. Nonperforming assets improved to $4.2 million, or 0.16% of assets, from $6.5 million, or 0.33%. The Bank’s total risk-based capital ratio was 17.17%; its Tier 1 leverage ratio was 9.98%.
Material changes and notable developments
- Assets increased 32.9%; deposits rose $619.2 million, supported by stimulus-related inflows, PPP proceeds, new accounts, and customers holding larger balances.
- Loans HFI increased 10.4%. The Bank originated 1,384 PPP loans totaling $199.0 million; $118.4 million remained outstanding, net of deferred fees, at year-end. PPP income was $5.6 million, including amortized origination fees. Excluding PPP loans, year-end loans grew 2.2%.
- The Federal Reserve cut the federal funds target rate to 0.25%. Lower asset yields reduced the FTE net interest margin by 38 basis points, partly offset by lower deposit costs and higher balances.
- Mortgage production reached a record level, helping lift mortgage income. The Bank also restructured securities and recognized a $1.4 million gain.
- Stockholders’ equity increased to $285.5 million. The company paid $0.24 per share in dividends and repurchased 2,824 shares for $122,000; approximately $2.9 million remained under its $3.0 million repurchase authorization.
- The company expanded in Louisiana, including opening a Sulphur banking center and entering the Acadiana market. New Lake Charles and Lafayette banking centers were planned for 2021, subject to approvals.
Outlook, risks, and contingencies
The filing provides no specific earnings or financial guidance. Management said it was monitoring credit quality and would adjust the loan-loss provision as needed in 2021. Key uncertainties include the pandemic’s effects on borrowers, collateral values and economic activity; sustained low rates and margin pressure; PPP eligibility, forgiveness and compliance; Louisiana market concentration, energy exposure and severe weather; and cybersecurity and third-party operational risks. As of year-end, $12.5 million of non-PPP loans remained on active principal-payment deferral, concentrated in hospitality.
A purported class action filed in Louisiana in August 2020 alleges improper multiple nonsufficient-funds fees. The company and Bank deny the allegations; at the filing date, they could not estimate the likelihood or potential exposure. Management did not expect ordinary-course litigation, considered as a whole, to have a material adverse effect. The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Whether pandemic-related borrower stress, active deferrals, hospitality exposures, and energy-related credit losses lead to higher delinquencies, charge-offs, or provisions.
- How quickly PPP loans are forgiven and fees recognized, and the resulting effect on reported loan growth and net interest income.
- Whether unusually strong deposit balances persist, and how deposit pricing and low rates affect margins and liquidity.
- Progress and costs for planned branch openings, and whether the company sustains growth while managing expenses.
- Developments in the nonsufficient-funds fee litigation and any resulting financial or reputational exposure.
- Capital, dividend, and repurchase capacity under regulatory and economic conditions; the filing notes that dividends are discretionary and subject to restrictions.