Red River Bancshares, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. Red River Bancshares is a Louisiana bank holding company operating Red River Bank. This unaudited filing covers the quarter and nine months ended September 30, 2021; balance-sheet comparisons are primarily with December 31, 2020.
Financial performance and position
| Metric | Q3 / September 30, 2021 | Comparison |
|---|---|---|
| Net income | $8.1 million; diluted EPS $1.12 | Up 11.7% from Q3 2020; down 1.2% from Q2 2021 |
| Nine-month net income | $24.4 million; diluted EPS $3.34 | Up 17.0% from the first nine months of 2020 |
| Net interest income | $18.1 million for Q3; $52.9 million year to date | Q3 up 4.7% year over year; nine-month total up 5.2% |
| Net interest margin | Q3 GAAP 2.54%; FTE 2.60% | Q3 FTE was 3.02% a year earlier. Nine-month FTE was 2.63%, versus 3.17% |
| Assets and deposits | Assets $3.02 billion; deposits $2.70 billion | Up 14.3% and 15.6%, respectively, from year-end 2020 |
| Loans and liquidity | Loans held for investment $1.62 billion; cash and cash equivalents $730.6 million | Loans up 2.1%; cash up 63.4% from year-end 2020 |
| Credit quality | Nonperforming assets $2.4 million, or 0.08% of assets; allowance $19.2 million, or 1.18% of loans | NPA ratio was 0.16% at year-end 2020; allowance ratio was 1.13% |
| Capital and borrowings | Stockholders’ equity $298.7 million; Bank total risk-based capital ratio 17.60%. No borrowings outstanding | Equity up 4.6% from year-end 2020 |
| Cash flow, nine months | Operating +$50.1 million; investing −$126.4 million; financing +$359.7 million | Cash and cash equivalents increased $283.4 million |
Material changes and management commentary
- Deposit growth, attributed to stimulus funds, PPP proceeds, and customers maintaining higher balances, exceeded loan growth. Excess funds were held largely in bank deposits and securities, contributing to high liquidity and lower asset yields.
- Non-PPP loans were $1.58 billion, up 7.3% from year-end 2020 (a company-defined non-GAAP measure). Total loans grew more slowly partly because PPP balances declined as loans were forgiven.
- Year-to-date earnings growth reflected higher net interest income, lower loan-loss provision, and higher noninterest income, partly offset by higher operating expenses and taxes. Q3 year-over-year earnings also benefited from a lower provision, while mortgage income declined.
- The allowance for loan losses increased to $19.2 million. Provision expense was $150,000 in Q3 2021 versus $1.6 million in Q3 2020; management cited favorable asset-quality metrics. Net charge-offs were $533,000 for the first nine months.
- Available-for-sale securities had a $77,000 net unrealized loss at quarter-end, compared with an $8.8 million net unrealized gain at year-end 2020, mainly reflecting higher market rates. Management said the losses were temporary and it did not intend to sell the securities before recovery.
- The company opened a Lake Charles banking center in July, continued expansion plans in Acadiana, and announced a planned New Orleans production office, subject to regulatory approval. It also continued digital initiatives.
Outlook, risks, and contingencies
- Management expected Q4 2021 FTE net interest margin to be consistent with Q3. No numerical earnings or revenue guidance was provided.
- Management described the balance sheet as asset-sensitive. Its September 30 model projected net interest income up 15.1% under an instantaneous +100 bp rate shock, but down 1.0% under −100 bp and 2.4% under −200 bp. The modeled fair-value-of-equity decline under −200 bp was 27.7%, exceeding the Bank’s 25% policy limit; management said it would continue monitoring this exposure. Model outcomes depend on assumptions and are not forecasts.
- Key stated risks include COVID-19 and variants, Louisiana economic and weather conditions, interest-rate and liquidity changes, credit quality and collateral values, competition, cybersecurity, regulatory compliance, and the transition away from LIBOR. Hurricane Ida caused mortgage-closing delays, but the company reported no damage to its locations or significant employee issues; it continued assessing customer effects.
- A purported class action alleges improper multiple nonsufficient-funds fees. The Bank denies the allegations and is defending the case. At filing, management could not determine the probability of a materially adverse result or estimate potential exposure. Management did not expect ordinary-course legal matters overall to have a material adverse effect.
- Unfunded loan commitments were $337.3 million and standby letters of credit were $12.6 million. The Bank reported $749.8 million of combined borrowing capacity and no outstanding balances from those funding sources. The filing states that commitments may expire unused.
Important facts for investors to verify
- Whether deposit growth remains durable as stimulus and PPP-related balances run off, and whether the large cash position can be deployed at attractive yields.
- Whether margin trends, loan growth, PPP forgiveness income, and mortgage activity align with management’s Q4 margin expectation.
- Whether credit quality and the allowance remain adequate as non-PPP lending grows and economic conditions or disaster impacts evolve.
- How management addresses the modeled downside fair-value-of-equity exposure that exceeds policy limits in the −200 bp scenario.
- Developments in the nonsufficient-funds-fee class action and any change in the company’s assessment of potential exposure.