Red River Bancshares, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Red River Bancshares is a Louisiana bank holding company operating Red River Bank. Figures are unaudited; dollar amounts below are in millions unless otherwise stated.
Financial performance and condition
| Metric | Q2 2021 | Comparable period / change |
|---|---|---|
| Net income | $8.2 | Up 20.2% from Q2 2020; record quarterly result |
| Diluted EPS | $1.13 | $0.93 in Q2 2020 |
| Net interest income | $17.2 | Up $0.3 from Q2 2020 |
| Noninterest income | $6.4 | Up $0.6 from Q2 2020 |
| Net interest margin / FTE margin | 2.48% / 2.54% | 3.07% / 3.12% in Q2 2020 |
| Return on assets / equity | 1.15% / 11.41% | 1.20% / 10.30% in Q2 2020 |
For the six months, net income was $16.3 million, up 19.9%, and diluted EPS was $2.22 versus $1.85. Net interest income was $34.8 million, noninterest income $13.2 million, and FTE net interest margin 2.64% versus 3.26% in the first half of 2020. The six-month efficiency ratio improved to 55.30% from 56.93%.
At June 30, total assets were $2.88 billion, up 8.9% from December 31, 2020. Loans held for investment were $1.60 billion, up 0.8%; deposits were $2.57 billion, up 9.8%; and stockholders’ equity was $292.9 million, up 2.6%. Cash and cash equivalents were $667.5 million. The company reported no outstanding borrowings.
For the first six months, operating cash flow was $35.3 million, investing cash flow was negative $41.1 million, and financing cash flow was positive $226.0 million. Cash and cash equivalents increased $220.3 million to $667.5 million, principally alongside deposit growth.
The Bank’s June 30 capital ratios included 17.83% total risk-based capital, 16.63% Common Equity Tier 1, and 9.41% Tier 1 leverage; management said the Bank met applicable capital requirements. The allowance for loan losses was $19.5 million, or 1.22% of loans held for investment.
Material changes and operating drivers
- Q2 earnings growth reflected lower loan-loss provision expense, higher noninterest income, and modestly higher net interest income, partly offset by higher operating expenses and taxes. Q2 provision was $0.15 million versus $1.5 million in Q2 2020.
- Deposit growth—attributed to government stimulus, PPP proceeds, and customers holding larger balances—drove higher liquidity. Interest-bearing deposits in other banks rose 51.7% from year-end to $633.7 million; the loans-to-deposits ratio fell to 62.28% from 67.87%.
- Margin compression persisted: management attributed the lower margin to low-yielding short-term liquidity, lower market rates, and reduced PPP loan income. Q2 liquidity reduced FTE margin by an estimated 70 basis points.
- Non-PPP loans grew 3.2% from year-end to $1.52 billion, which management attributed to activity in newer markets. Total loans declined slightly in Q2 as PPP forgiveness exceeded new PPP2 originations.
- Noninterest income benefited from mortgage, debit-card, brokerage, and deposit service-charge growth. Securities sale gains were substantially lower than in Q2 2020. Operating expenses rose 4.1% year over year in Q2, including personnel and technology increases.
Outlook, risks, and unusual items
- Management expected Q3 2021 FTE net interest margin to be consistent with Q2; no broader quantified full-year earnings guidance is stated in the provided filing text.
- Management described Louisiana economic activity as improving as restrictions eased and vaccines became available, while noting renewed COVID-19 case increases and a temporary indoor mask mandate announced for August.
- The balance sheet was described as asset-sensitive in modeled rate scenarios. At June 30, the modeled fair-value-of-equity decline in a 100-basis-point rate decrease was 19.9%, near the Bank’s policy limit; a 200-basis-point decrease reached the 25.0% policy limit. Management said it would monitor these measures closely.
- Credit risks include potential deterioration in borrower finances, collateral values, local economic conditions, and COVID-affected sectors. Active COVID-related principal-only deferrals totaled $8.1 million, concentrated in hospitality services. The allowance may require additional provisions if credit conditions weaken.
- AFS securities’ net unrealized gain fell about $7.4 million in the first half as market rates rose; accumulated other comprehensive income also declined. Management considered loss positions temporary and reported no credit-related OTTI losses.
- A Louisiana putative class action alleges improper multiple nonsufficient-funds fees. The Bank denies the allegations and is defending the case; the company said probability of a materially adverse result and potential exposure could not then be determined.
- The company repurchased 41,314 shares for $2.2 million in the first half under a program authorized through August 27, 2021. The filing also notes a new Lake Charles banking center opened in early July and executive employment/change-in-control agreements entered into August 12, after quarter-end.
Important facts for investors to verify
- Whether deposit growth and elevated cash balances persist, and how liquidity is deployed without further margin pressure.
- Whether the stated Q3 margin expectation is achieved and how PPP forgiveness, loan pricing, and funding costs affect net interest income.
- Subsequent trends in non-PPP loan growth, asset quality, hospitality and energy exposures, and allowance adequacy.
- Interest-rate sensitivity and whether modeled equity-value exposure remains near or at policy limits.
- Developments in the fee litigation and any changes in the company’s estimate of potential exposure.
- Execution, cost, and expected benefits of market expansion and technology investments; the filing does not provide a clear quantified return or full-year outlook for these initiatives.