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Item 1. Business

2021-03-19 compared with 2020-03-27 · 153 added, 266 removed, 302 unchanged (58% of the section changed)

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Through our wholly owned subsidiary, Red River Bank, a Louisiana state-chartered bank, we provide a fully integrated suite of banking products and services tailored to the needs of our commercial and retail customers.

We operate from a network of 25 banking centers throughout Louisiana.

Banking centers are located in the following Louisiana markets:

Central Louisiana, which includes the Alexandria MSA;

Northwest Louisiana, which includes the Shreveport-Bossier City MSA;

Southeast Louisiana, which includes the Baton Rouge MSA;

Southwest Louisiana, which includes the Lake Charles MSA, and the Northshore, which includes Covington.

As of December 31, 2019 , we were the seventh largest financial institution headquartered in Louisiana based on assets, with total assets of $1.99 billion , loans HFI of $1.44 billion , total deposits of $1.72 billion , and total stockholders’ equity of $251.9 million .

Our priority is to drive shareholder value through the establishment of a market-leading commercial banking franchise in Louisiana.

We provide superior service through highly qualified, relationship-oriented bankers who are committed to their customers and the communities in which we offer our products and services.

Our strategy is to expand geographically through the establishment of de novo banking centers in new markets and, to a lesser extent, through the acquisition of financial institutions with customer-oriented, compatible philosophies and in desirable geographic areas.

Our mission is to be the premier statewide banking organization in Louisiana.

We completed an IPO of our common stock in May 2019 as an emerging growth company under the JOBS Act.

Our common stock is listed on the Nasdaq Global Select Market under the symbol "RRBI."

OUR BANKING PHILOSOPHY AND BUSINESS STRATEGY

Our goal is to offer the best products and services delivered through a personal, customer-focused, integrity-centered culture.

Our culture is “top down,” emphasizing the importance of exceptional customer service and strong relationships at every level.

We are dedicated to the success and satisfaction of our customers and this commitment ensures our own continued success and allows us to deliver consistent performance to our shareholders.

We credit our twenty-one year track record of achievement to a disciplined implementation of this clear and focused banking philosophy.

Our mission is to be the premier statewide banking organization in Louisiana.

We strive to differentiate ourselves from our competitors by providing the best of “relationship-based” banking that is tailored to meet the needs of the small and medium-sized businesses operating within our banking markets, as well as the owners and employees of those businesses, and executives, professionals, and individuals with strong ties to our banking markets.

In our experience, these customers place a high value on the type of long-term, personal relationship with their bank and banker that we provide.

We grow our business one customer at a time through this relationship-driven approach.

In addition to being dedicated to service excellence, we are committed to the Louisiana communities we serve.

We believe our community connections help us maintain a level of brand recognition and a respected reputation, well beyond what would be typical for a bank of our size.

This commitment to our communities builds a loyal customer base, and this loyal customer base helps us achieve strong organic growth and sustained profitability.

We attribute our success to incorporating this customer-driven banking philosophy into our business strategy.

Commercial Banking

We are primarily a business-focused banking organization, delivering specialized services to our commercial customers.

We target privately-owned commercial and industrial operating companies for both credit and treasury management services, while also providing owners and key employees with the same customized, personal service for their individual financial needs.

We attribute our long history of superior asset quality to our credit culture, which is built on a foundation of lending to businesses and management teams with established, proven track records.

We offer these customers sophisticated products and services similar to those of much larger banks but delivered by bankers who can provide local and responsive decision-making, personal assistance, and an interest in the success of their businesses.

Real Estate Loans

Commercial Real Estate Loans (Owner Occupied) .

Given our strategy of focusing on the banking needs of established operating companies within our geographic footprint, 20.9% of loans HFI as of December 31, 2019 , consisted of owner occupied office and industrial real estate loans.

In addition to a proven management team and track record, we focus on businesses with a history of strong, recurring cash flows.

In particular, we target wholesale and professional service

companies, as well as businesses with unique strengths in niche markets.

Loans are conservatively underwritten and typically carry the personal guarantee of the business owners.

We believe this portfolio segment is well diversified by industry type.

Commercial Real Estate Loans (Non-Owner Occupied) .

Our pursuit of non-owner occupied commercial real estate properties is secondary and reserved primarily for developers and other persons or entities of influence in our local markets who present additional business and personal relationship opportunities.

This strategy is evidenced by our modest level of these loans relative to our capital, which has been consistent for many years.

We target property types with a greater ability to withstand changes in market forces.

Our underwriting criteria for non-owner occupied properties is even more conservative than our underwriting criteria for owner occupied properties due to the higher inherent risks generally associated with the former.

Our target rate of return is also higher for non-owner occupied commercial real estate loans.

As of December 31, 2019 , our non-owner occupied commercial real estate loans, construction and development loans, and non-real estate secured loans financing commercial real estate activities were 25.4% of loans HFI and represented 153.3% of the Bank’s total risk-based capital.

Commercial and Industrial Loans

We have expertise in meeting the financing needs of commercial operating companies.

This expertise is a key strength of ours, both in terms of our front-line bankers and our credit approval personnel and processes.

Our specialists in these areas understand the cash cycle, working capital, and the fixed asset acquisition needs of businesses, and this allows us to deliver customizable and effective financing solutions.

Leveraging the knowledge base and experience of our bankers and executives, we recommend and utilize sound commercial and industrial loan structures that limit our risks as a lender, while also helping to drive the success of our clients’ businesses.

Commercial and industrial loans comprised 18.6% of loans HFI as of December 31, 2019 .

Treasury Management Services

Many of our clients and prospective clients have sophisticated depository needs.

Our full array of commercial treasury services is designed to be competitive with banks of all sizes.

Treasury management services include ACH, sweep, balance reporting (including current day and previous day activity), transfers between accounts, and stop payments.

Cash management deposit products consist of remote deposit capture, merchant services, positive pay and reverse positive pay (automated fraud detection tools), account reconciliation services, zero balance accounts, and seep accounts, including loan sweep accounts.

We have a dedicated team of Treasury Management Officers (“TMOs”) who partner with our commercial and private bankers to meet those needs.

Our TMOs analyze clients’ account activity and cash utilization and then recommend and implement solutions that enhance our clients’ efficiency, mitigate risks to their businesses, and maximize their earnings on available liquidity.

Our treasury management offerings and technological sophistication are core strengths, especially when combined with our ability to troubleshoot and resolve customer issues.

Our TMOs provide in-person assistance with the initial setup of treasury services, as well as on-going client support post-implementation.

Personal Banking

Our personal banking business supports our commercial banking focus, provides attractive customer diversification, and enhances our growing base of core deposits.

Key components of our personal banking business include our retail banking network, private banking services, residential mortgage lending, and investment services.

Retail Banking Network

A strategically placed network of banking centers in our markets is a fundamental element of our personal banking strategy.

Our convenient network attracts customers, encouraging them to seek personal service and interact with our bankers, allowing us to deliver personal, relationship-based banking.

This also supports the continued growth of our core deposit base.

We are purposeful in choosing banking center locations and have sought out key locations in the Central, Northwest, Southeast, Southwest, and Northshore areas of Louisiana through de novo development, as well as through two whole-bank acquisitions.

We have a footprint of 25 banking centers in growing and stable communities.

Our banking centers strengthen our brand recognition and reputation across our markets.

As of December 31, 2020, we were the third largest financial institution headquartered in Louisiana based on assets, with total assets of $2.64 billion, loans HFI of $1.59 billion, total deposits of $2.34 billion, and total stockholders’ equity of $285.5 million.

We operate from a network of 25 banking centers throughout Louisiana and one combined loan and deposit production office in Lafayette, Louisiana.

Banking centers are located in the following Louisiana markets:

Central, which includes the Alexandria MSA;

Northwest, which includes the Shreveport-Bossier City MSA;

Capital, which includes the Baton Rouge MSA;

Southwest, which includes the Lake Charles MSA;

and the Northshore, which includes Covington.

We believe our markets offer us an attractive combination of growth opportunities and core deposit stability, as well as loan diversity.

We operate nine banking centers, including our main office, in the Central Louisiana market, which we define to include Rapides and Avoyelles Parishes.

We operate seven banking centers in our Northwest Louisiana market, which we define to include Caddo, Bossier, and DeSoto Parishes.

In our Capital market, which we define to include East Baton Rouge and Ascension Parishes, we operate six banking centers.

We also operate two banking centers in our Southwest Louisiana market, which we define to include Calcasieu Parish.

In our Northshore Louisiana market, which we define to include St.

Tammany Parish, we operate one banking center.

We operate one combined loan and deposit production office in our Acadiana market, which we define to include Lafayette Parish.

We believe our current markets provide ample opportunities for the continued growth of our customer base, loans, and deposits, as well as the expansion of our overall market share in each area.

Our goal is to replicate this growth in new markets as we continue to expand and implement our growth and expansion strategy.

Our current markets, which are in diverse parts of Louisiana, are economic centers that provide for natural credit diversification and a hedge against industry downturns.

We are purposeful in choosing banking center locations and have sought out key locations in Louisiana through de novo development, as well as through two whole-bank acquisitions.

Our emphasis on having a strategic network of banking centers, staffed by experienced bankers, differentiates us from our national and regional bank competitors, who are increasingly moving their customers to digital banking only platforms with limited personal service.

Private Banking

Private banking is a crucial part of our personal banking strategy.

Through our private banking group, we provide specialized deposit and loan products and services to high net worth individuals, business owners, and professionals.

Consistent with our overall business philosophy, we seek to develop long-term relationships with our private banking clients through an emphasis on personal service and products tailored to their specific needs.

From checking and savings products to sophisticated financing structures, we work to meet our clients’ changing needs with innovative solutions.

Our private bankers are highly accessible for their clients, offering flexible scheduling for business meetings and loan closings.

This level of flexibility and service is sought out and valued by our private banking clients, many of whom are busy professionals with inflexible or on-call schedules.

Our private banking group’s loan portfolio primarily consists of consumer home equity loans, portfolio mortgage loans, and commercial loans, and its deposit base primarily consists of consumer checking accounts, money market accounts, and time deposits.

Residential Mortgage Loans

Our mortgage lending group provides home mortgage loans that are sold on the secondary market.

Loan types include conventional, VA, FHA, and Rural Development.

In addition, the mortgage lending department plays a critical role in meeting our community reinvestment and fair lending goals.

The mortgage group has a community specialist in each market focused on low-income and first-time home buyers, and we participate in various down payment assistance and low-income home loan programs to ensure the needs of our entire banking community are satisfied.

We combine the power of local decision-making and in-house underwriting with the industry’s best mortgage lending products and services.

We believe this approach helps differentiate us from our competitors.

For the year ended December 31, 2019 , our mortgage group originated $135.8 million in home mortgage loans.

Investment Services

We offer a broad range of products and services designed to meet the investment needs of all of our customers through our investment group.

For the past 13 years, Cetera Investment Services LLC has served as our registered broker-dealer.

We have recently announced that during the second quarter of 2020, we will convert from Cetera Investment Services LLC to LPL Financial as our registered broker-dealer.

Our investment group executives, who are located in each of our markets and have an average of 20 years of industry experience, strive to fully understand each client’s unique financial situation, deliver a comprehensive plan, and provide the appropriate products to meet their needs.

Our investment products include stocks, bonds, mutual funds, alternative investments, annuities, and insurance products.

Through our partnership with SEC-registered investment advisors, our investment group also provides investment advisory services, financial planning services, and a comprehensive suite of retirement plans.

The amount of investment assets under management by our investment group has experienced sustained growth and was $633.1 million as of December 31, 2019 .

GROWTH AND EXPANSION STRATEGY

In order to accomplish our mission, we have concentrated our efforts on building our market presence in key metropolitan markets within the state of Louisiana where our target customers are underserved and well-suited for the commercial, retail, and private banking products and services that we provide.

We have concentrated our efforts on building our market presence in key metropolitan markets within the state of Louisiana where our target customers are underserved and well-suited for the commercial, retail, and private banking products and services that we provide.

We intend to leverage our competitive strengths to take advantage of what we believe are significant growth opportunities within our existing footprint and other strategic market areas that we believe complement our strategic plan.

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We then strengthen those relationships by offering personalized products and services.

We also attract new customers through personal outreach by our bankers, with targeted marketing campaigns, and by advertising in a variety of traditional media and in social media.

We also reach new customers by filling the void left by competitors who are closing banking offices.

Other outreach activities include helping our communities during times of need and by having a presence at community events, such as with our branded ice cream trucks that give out free frozen treats.

We encourage our bankers to take leadership roles in our communities, and we are well represented in a wide variety of non-profit, volunteer organizations in all our markets.

Identify and Recruit Talented Bankers

We believe that competition for customers starts with the competition for the best bankers.

Whether we expand our presence in our existing markets, enter new markets organically, or make opportunistic acquisitions, adding talented bankers with extensive in-market experience is one of our primary strategies for continued success.

In our experience, our brand of banking is attractive to motivated bankers from smaller institutions that lack the platform to engage in sophisticated transactions and also to bankers from larger institutions that lack our relationship-based approach to banking.

We are committed to the continual development of talent within our company through education and promotions.

We find that hiring committed, talented bankers and providing development and advancement opportunities leads to long-term continuity in our workforce, as well as a strong and talented employee base with which to fuel the long-term potential of our bank.

We attract new customers through personal outreach by our bankers, targeted marketing campaigns, advertising in a variety of traditional and social media, and by filling the void left by competitors who are closing banking offices.

Other outreach activities include helping our communities during times of need and having a presence at community events.

Opportunistic New Market Expansion

When evaluating potential new market opportunities, our standard due diligence includes both an assessment of the local economy as well as an analysis of the local banking landscape.

In the past few years, we concluded that expansion opportunities existed in both Southwest Louisiana, which includes Lake Charles, and the Northshore, which includes Covington, for a community bank with the strength and scale of Red River Bank to carve out a meaningful market share position over the long term.

Lake Charles is the fastest-growing MSA in the state of Louisiana and one of the fastest growing in the southeastern U.S.

Much of this growth is industrial in nature and is driven by growth in the liquefied natural gas sector.

During the third quarter of 2017, we entered Lake Charles, and the Southwest Louisiana market, with a temporary LPO.

In April of 2018, after operating the LPO for approximately eight months, we closed it and opened a business-focused banking center.

This banking center is located in an office and retail development, and it utilizes a concierge-type service desk, rather than traditional teller lines and is the first of its kind for our company.

As part of our continued Southwest Louisiana market expansion, in the fourth quarter of 2019, we purchased an existing banking center location in Sulphur, Louisiana.

Sulphur encompasses the western portion of the Lake Charles MSA and is home to many major industrial projects either completed or under construction in Southwest Louisiana over the past several years.

On March 23, 2020, we opened a full-service banking center at the Sulphur location.

Also, we are actively evaluating the potential for a full s ervice banking center in Lake Charles.

This potential expansion would supplement our existing Lake Charles business-focused banking center, as well as the new Sulphur banking center.

As part of our new market expansion plan, we most recently entered the Northshore Louisiana market.

The Northshore market is located on the north shore of Lake Pontchartrain, near New Orleans, Louisiana.

The Northshore market includes the communities of Covington, Mandeville and Madisonville, all located in St.

Tammany Parish.

The area is characterized by an abundance of residential development;

many of the residents commute to New Orleans.

The Northshore economy has been one of the best performing markets in Louisiana over the past ten years and is a healthcare hub for the surrounding areas.

In the fourth quarter of 2018, we purchased an existing banking center location in Covington, Louisiana.

During the first quarter of 2019, we began renovations on the purchased banking center location and hired an experienced banker with extensive knowledge of the Northshore community as our area president.

In April 2019, we opened a temporary LPO in Covington which we operated until the third quarter of 2019.

At that time, we closed the temporary LPO and opened the remodeled location as the Red River Bank Northshore market headquarters building and full-service banking center.

When evaluating potential new market opportunities, our standard due diligence includes both an assessment of the local economy as well as analysis of the local banking landscape.

As part of our new market expansion plan, we expanded operations to three new markets between 2017 and 2020.

In 2017, we began operations in the Southwest Louisiana market, which includes the Lake Charles, Louisiana MSA.

During 2018 and 2019, we entered the Northshore market, located on the north shore of Lake Pontchartrain, near New Orleans, Louisiana.

We most recently entered the Acadiana Louisiana market, which includes the Lafayette, Louisiana MSA.

In 2020, we opened a combined loan and deposit production office in Lafayette and purchased banking center locations in Lafayette and Lake Charles, Louisiana.

Disciplined Acquisition Strategy

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These acquisitions provided us the opportunity to expand the delivery of our relationship-driven brand of banking.

The first acquisition in our bank’s history was the acquisition of Bank of Lecompte in 2003.

This acquisition allowed us to further strengthen our foothold in the Central Louisiana market by adding two banking centers, approximately $38.9 million in total assets, and $33.0 million in deposits.

Our second transaction in 2013, the acquisition of Fidelity Bancorp, Inc.

and Fidelity Bank in Baton Rouge, Louisiana, was the catalyst for our expansion into the Baton Rouge metropolitan area.

This acquisition provided us with five additional banking centers with approximately $120.5 million in total assets and $110.3 million in deposits.

We will continue to emphasize organic expansion going forward, and we are not currently a party to any formal or informal acquisition arrangements.

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BANKING SERVICES

Lending Activities

We offer a variety of loans, including commercial lines of credit;

working capital loans;

commercial real estate-backed loans (including loans secured by owner occupied commercial properties);

equipment financing;

acquisition, expansion, and development loans;

borrowing base loans;

real estate construction loans;

homebuilder loans;

letters of credit;

and other loan products to small and medium-sized businesses, real estate developers, mortgage lenders, manufacturing and industrial companies, and other businesses.

We also offer various consumer loans to individuals and professionals including residential real estate loans, home equity loans, installment loans, unsecured and secured personal lines of credit, and standby letters of credit.

We are primarily a business-focused banking organization, delivering specialized services to our customers.

Our personal banking business supports our commercial banking focus, provides attractive customer diversification, and enhances our growing base of core deposits.

We offer each of these customers sophisticated products and services similar to those of much larger banks but delivered by bankers who can provide local and responsive decision-making, personal assistance, and an interest in their personal goals and the success of their businesses.

Lending activities originate from the efforts of our bankers, with an emphasis on lending to individuals, professionals, small and medium-sized businesses, and commercial companies located in our market areas.

Although all lending involves a degree of risk, we believe that commercial business loans and

commercial real estate loans present greater risks than other types of loans in our portfolio.

We work to mitigate these risks through conservative underwriting policies and consistent monitoring of credit quality indicators.

Our loan portfolio as of the dates indicated was comprised as follows:

(in thousands)

Commercial real estate

One-to-four family residential

Construction and development

Commercial and industrial

Total loans HFI

Total loans HFS

Additionally, we have outstanding commitments to extend credit in the forms of lines of credit and standby letters of credit of approximately $268.1 million as of December 31, 2019 .

We use the same credit policies in making these commitments as we do for our other loans.

Commercial Real Estate Loans

We offer real estate loans for commercial property that is owner occupied as well as commercial property owned by real estate investors.

Commercial real estate loan terms are generally five years or less and amortization is generally limited to 20 years or less, although payments may be structured on a longer amortization basis in unusual cases.

The interest rates on our commercial real estate loans may be fixed or variable, although rates typically are not fixed for a period exceeding five years.

We generally charge an origination fee for our services.

We typically require personal guarantees from the principal owners of the business supported by a review of the principal owners’ personal financial statements and global debt service obligations.

Risks associated with commercial real estate loans include fluctuations in the value of real estate, the overall strength of the economy, new job creation trends, tenant vacancy rates, environmental contamination, and the quality of the borrower’s management.

We make efforts to limit our risk by analyzing borrowers’ cash flow and collateral value.

For acquisition, development, and construction loans, collateral value is dependent upon the completion of the project.

The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as owner occupied offices, warehouses, and production facilities;

office buildings;

and mixed-use residential/commercial, retail, and multifamily properties.

Our commercial real estate loan portfolio presents a higher risk profile than our consumer real estate and consumer loan portfolios.

Real Estate Loans

Commercial Real Estate Loans (Owner Occupied) .

Given our strategy of focusing on the banking needs of established operating companies within our geographic footprint, 20.1% of loans HFI as of December 31, 2020, consisted of owner occupied office and industrial real estate loans.

Risks associated with owner occupied commercial real estate include fluctuations in the value of real estate, the overall strength of the economy, new job creation trends, environmental contamination, and the quality of the borrower's management.

In addition to a proven management team and track record, we focus on businesses with a history of strong, recurring cash flows.

In particular, we target wholesale and professional service companies, as well as businesses with unique strengths in niche markets.

Loans are conservatively underwritten and typically carry the personal guarantee of the business owners.

We believe this portfolio segment is well diversified by industry type.

Commercial Real Estate Loans (Non-Owner Occupied) .

Our pursuit of non-owner occupied commercial real estate properties is reserved primarily for developers and other persons or entities of influence in our local markets who present additional business and personal relationship opportunities.

This strategy is evidenced by our modest level of these loans relative to our capital, which has been consistent for many years.

Risks associated with non-owner occupied commercial real estate include fluctuations in the value of real estate, the overall strength of the economy, new job creation trends, tenant vacancy rates, environmental contamination, and the quality of the borrower's management.

We target property types with a greater ability to withstand changes in market forces.

Our target rate of return is also higher for non-owner occupied commercial real estate loans.

As of December 31, 2020, our non-owner occupied commercial real estate loans were 14.9% of loans HFI.

One-to-Four Family Residential Loans.

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Our retail consumer real estate lending products are offered primarily to consumer customers within our geographic markets.

We also originate for resale one-to-four family mortgage loans, and those loans are included as a part of our consumer real estate loan portfolio until sold to investors.

However, as of December 31, 2019 , we held only $5.1 million in mortgages for resale.

Although our consumer real estate loan portfolio presents lower levels of risk than our commercial and industrial, commercial real estate, and construction loan portfolios, we are exposed to risk based on fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness, or other personal hardship.

Although our consumer real estate loan portfolio presents lower levels of risk than our commercial and industrial, commercial real estate, and construction and development loan portfolios, we are exposed to risk based on fluctuations in the value of the real estate

collateral securing the loan, as well as changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness, or other personal hardship.

As of December 31, 2020, our one-to-four family residential loans were 27.9% of loans HFI.

Construction and Development Loans.

Our construction portfolio includes loans to small and medium-sized businesses to construct owner-user properties, loans to developers of commercial real estate investment properties and residential developments and, to a lesser extent, loans to individual clients for construction of single-family homes in our market areas.

Construction and development loans are generally made with a term of one to two years with interest paid monthly.

Our underwriting policy does allow for exceptions in which the term of a construction and development loan may be longer than two years;

however, the term must be realistic and consistent with the borrower’s documented ability to repay.

The ratio of the loan principal to the value of the collateral, as established by independent appraisal, typically will not exceed regulatory supervisory guidelines.

Loan proceeds are disbursed based on the percentage of completion and only after the project has been inspected by an

experienced construction lender or third-party inspector.

Our construction and development portfolio includes loans to small and medium-sized businesses to construct owner occupied facilities, loans to developers of commercial real estate investment properties and residential developments and, to a lesser extent, loans to individual clients for construction of single-family homes in our market areas.

Risks associated with construction loans include fluctuations in the value of real estate, project completion risk, and change in market trends.

We are also exposed to risk based on the ability of the construction loan borrower to finance the loan or sell the property upon completion of the project, which may be affected by changes in secondary market terms and criteria for permanent financing since the time that we funded the construction loan.

As of December 31, 2020, our construction and development loans were 8.0% of loans HFI.

Commercial and Industrial Loans

We make general commercial loans, including commercial lines of credit, working capital loans, term loans, equipment financing, asset acquisition, expansion and development loans, borrowing base loans, letters of credit, and other loan products, primarily in our target markets that are underwritten on the basis of the borrower’s ability to service the debt from income.

We typically take as collateral a lien on general business assets including, among other things, available real estate, accounts receivable, promissory notes, inventory, and equipment and generally obtain a personal guaranty of the borrower or principal.

Our commercial loans generally have terms that range from one to five years depending on factors such as the type and size of the loan, the financial strength of the borrower/guarantor, and the age, type, and value of the collateral.

Fixed rate commercial loan maturities are generally short-term, with one to five year maturities, or include periodic interest rate resets.

Our underwriting policy does allow for exceptions in which the term and amortization of a commercial and industrial loan may be longer than five years, however, the term and amortization must be consistent with the useful life and depreciation rates of the underlying collateral and an underwriting exception will be noted.

In general, commercial loans may involve increased credit risk and, therefore, typically yield a higher return.

The increased risk in commercial loans derives from the expectation that such loans generally are serviced principally from the operations of the business, and those operations may not be successful.

Any interruption or discontinuance of operating cash flows from the business, which may be influenced by events not under the control of the borrower such as economic events and changes in governmental regulations, could materially affect the ability of the borrower to repay the loan.

In addition, the collateral securing commercial loans generally includes movable property such as equipment and inventory, which may decline in value more rapidly than we anticipated, exposing us to increased credit risk.

As a result of these additional complexities, variables, and risks, commercial loans require extensive underwriting and servicing.

We have expertise in meeting the financing needs of commercial operating companies.

The risks associated with commercial and industrial loans are derived from the expectation that the loans are generally serviced from the operations of the business, and those operations may not be successful.

In addition, the collateral securing commercial and industrial loans generally includes movable property which may decline in value more rapidly than anticipated.

We recommend and utilize sound commercial and industrial loan structures that limit our risks as a lender, while also helping to drive the success of our clients’ businesses.

Commercial and industrial loans comprised 15.8% of loans HFI as of December 31, 2020.

SBA PPP Loans

SBA PPP loans are made to small businesses and other entities and individuals according to the criteria set forth by the CARES Act in March 2020.

These loans are guaranteed by the SBA, have a 24-month term at an interest rate of 1.0%, and are subject to forgiveness by the SBA dependent upon meeting eligibility requirements.

As of December 31, 2020, our SBA PPP loans were 7.5% of loans HFI.

Tax-Exempt Loans

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These loans undergo the same underwriting as any of our other loans and are typically secured by and paid for by ad valorem taxes.

As of December 31, 2020, our tax-exempt loans were 4.3% of loans HFI.

Consumer Loans

While our focus is on service to small and medium-sized businesses, we also make a variety of loans to individuals for personal, family, and household purposes, including secured and unsecured installment and term loans.

We also make a variety of loans to individuals for personal, family, and household purposes, including secured and unsecured installment and term loans.

We offer consumer loans as an accommodation to our existing customers and do not market consumer loans to persons who do not have a pre-existing relationship with us.

Our consumer loans, which are underwritten primarily based on the borrower’s financial condition and, in some cases, are unsecured credits, subject us to risk based on changes in the borrower’s financial condition, which could be affected by numerous factors, including divorce, job loss, illness or other personal hardship, and fluctuations in the value of the real estate or personal property securing the consumer loan, if any.

As of December 31, 2020, our consumer loans were 1.5% of loans HFI.

Loans Held for Sale

Our mortgage lending group originates home mortgage loans that are sold to investors on the secondary market.

Loan types include conventional, VA, FHA, and Rural Development.

In addition, the mortgage lending department plays a critical role in meeting our community reinvestment and fair lending goals.

Commitments to Extend Credit

We had outstanding commitments to extend credit in the forms of lines of credit and standby letters of credit of approximately $293.8 million as of December 31, 2020.

We use the same credit policies in making these commitments as we do for our other loans.

An important aspect of our business franchise is the ability to gather deposits.

As of December 31, 2019 , we held $1.72 billion of total deposits, an increase of 4.6% from December 31, 2018 .

As of December 31, 2019 , 94.7% of our total deposits were core deposits (defined as total deposits excluding time deposits greater than $250,000).

We offer a wide range of deposit products including checking, savings, money market accounts, and time deposits.

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We believe that the rates we offer for core deposits are competitive with those offered by other financial institutions in our market areas.

Other Sources of Funds

Secondary sources of funding include advances from the FHLB and other borrowings.

Other borrowings include the federal funds lines of credit that we have with our correspondent financial institutions.

These secondary sources enable us to borrow funds at rates and terms, which, at times, are more beneficial to us than increasing our deposit rates to meet a short-term funding need.

Treasury Management Services

Many of our clients and prospective clients have sophisticated depository needs.

Our full array of commercial treasury services is designed to be competitive with banks of all sizes.

Treasury management services include ACH, sweep, balance reporting, transfers between accounts, and stop payments.

Cash management deposit products consist of remote deposit capture, merchant services, positive pay and automated fraud detection tools, account reconciliation services, zero balance accounts, and sweep accounts, including loan sweep accounts.

We have a dedicated team of Treasury Management Officers (“TMOs”) who partner with our commercial and private bankers to meet those needs.

Our TMOs provide in-person assistance with the initial setup of treasury services, as well as on-going client support post-implementation.

Private Banking Services

Our private banking group provides specialized deposit and loan products and services to high net worth individuals, business owners, and professionals.

From checking and savings products to sophisticated financing structures, we work to meet our clients’ changing needs.

Brokerage Services

We offer a broad range of products and services designed to meet the investment needs of all of our customers through our investment group.

For the past 13 years, Cetera Investment Services LLC served as our registered broker-dealer.

During the second quarter of 2020, we converted from Cetera Investment Services LLC to LPL Financial LLC as our registered broker-dealer.

Our investment group executives, who are located in each of our markets, strive to fully understand each client’s unique financial situation, deliver a comprehensive plan, and provide the appropriate products to meet their needs.

Our investment products include stocks, bonds, mutual funds, alternative investments, annuities, and insurance products.

Through our partnership with registered investment advisors, our investment group also provides investment advisory services, financial planning services, and a comprehensive suite of retirement plans.

As of December 31, 2020, our investment group had $647.8 million of assets under management.

Other Banking Services

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We offer a full suite of online banking services including access to account balances, online transfers, online bill payment, and electronic delivery of customer statements.

In addition, we offer banking services through ATMs, drive-through facilities, night deposits, telephone, mail, and in person.

We also offer debit cards, credit cards, direct deposits, cashier’s checks, wire transfer services, and ACH services.

In addition, we offer banking services in person, through ATMs, drive-through facilities, night deposits, telephone, mail, mobile banking, and remote deposits.

We also offer debit cards, credit cards, direct deposits, cashier’s checks, and wire transfer services.

INFORMATION TECHNOLOGY SYSTEMS

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While we operate and manage our internal network infrastructure, we leverage the capabilities of third-party service providers to provide technical expertise around network design, architecture, and cybersecurity services required for us to operate as an effective and efficient organization.

We actively engage in business continuity and disaster recovery planning to effectively identify risks and understand business impacts, conduct tabletop exercises, and conduct annual recovery tests of critical systems to ensure the adequacy of contingency plans.

The majority of our systems used to conduct day-to-day banking operations are operated by a third-party service provider.

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These third-party providers provide the scalability, infrastructure, and disaster recovery capabilities to support our operating strategy.

Red River Bank currently conducts business through 25 banking centers located in Central, Northwest, Southeast, Southwest, and Northshore Louisiana.

We believe our markets offer us an attractive combination of growth opportunities and core deposit stability, as well as loan diversity.

We operate nine banking centers, including our main office, in the Central Louisiana market, which we define to include Rapides and Avoyelles Parishes.

We operate seven banking centers in our Northwest Louisiana market, which we define to include Caddo, Bossier, and DeSoto Parishes.

In our Southeast Louisiana market, which we define to include East Baton Rouge and Ascension Parishes, we operate six banking centers.

We also operate two banking centers in our Southwest Louisiana market, which we define to include Calcasieu Parish.

In our Northshore Louisiana market, which we define to include St.

Tammany Parish, we operate one banking center.

We believe our current markets provide ample opportunities for the continued growth of our customer base, loans, and deposits, as well as the expansion of our overall market share in each area.

Our goal is to replicate this growth in new markets as we continue to expand and implement our long-term development strategy.

Our current markets, which are in diverse parts of Louisiana, are economic centers that provide for natural credit diversification and a hedge against industry downturns.

The banking and financial services industry is highly competitive, and we compete with a wide range of financial institutions within our markets, including local, regional, and national commercial banks and credit unions.

We also compete with mortgage companies, brokerage firms, consumer finance companies, mutual funds, securities firms, insurance companies, third-party payment processors, fintech companies, and other financial intermediaries for certain products and services.

Some of our competitors are not subject to the regulatory restrictions and level of regulatory supervision applicable to us.

Interest rates on loans and deposits, as well as prices on fee-based services, are typically significant competitive factors within the banking and financial services industry.

Many of our competitors are much larger financial institutions that compete aggressively for market share.

These competitors attempt to gain market share through their financial product mix, pricing strategies, and banking center locations.

Other important competitive factors in our industry and markets include office locations and hours, quality of customer service, community reputation, continuity of personnel and services, capacity and willingness to extend credit, and ability to offer sophisticated banking products and services.

While we seek to remain competitive with respect to fees charged, interest rates, and pricing, we believe that our broad and sophisticated commercial banking product suite, our high-quality customer service culture, our positive reputation, and long-standing community relationships will enable us to compete successfully within our markets and enhance our ability to attract and retain customers.

As of December 31, 2020, we had 336 full-time equivalent employees.

We believe that we maintain employment and benefit programs which are appropriate with respect to position responsibilities, competitive with the external market, and capable of attracting, retaining, and motivating competent employees.

We seek to engage personnel at all levels by offering opportunities for learning, growth, and the achievement of career objectives, and we encourage our employees to volunteer in community service activities in the markets that we serve.

We are an Equal Opportunity Employer committed to workplace diversity and inclusion.

We offer comprehensive compensation and benefits packages to our employees including a 401(k) Plan, healthcare and insurance benefits, health and childcare flexible spending accounts, and paid vacation and sick time.

We also offer stock-based compensation to key employees as a way to attract and retain talent.

For more information on our benefit plans and stock-based compensation, see "Item 8.

Financial Statements and Supplementary Data - Note 9.

Employee Benefits" and " - Note.

10 Stock-Based Compensation Plans," respectively, in this Annual Report on Form 10-K.

Beginning in March 2020, in response to the COVID-19 pandemic, we continued our commitment to the safety of our employees and the communities we serve by taking precautions to protect both employees and customers.

We continue to carefully monitor local health conditions and follow recommended health and safety protocols.

None of our employees are represented by any collective bargaining unit or are parties to a collective bargaining agreement.

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Financial Services Industry Reform

As final rules and regulations implementing the Dodd-Frank Act have been adopted, this law is changing the bank regulatory framework and affecting the lending, deposit, investment, trading, and operating activities of banks and their holding companies.

As final rules and regulations implementing the Dodd-Frank Act have been adopted, and may continue to be adopted, this law has changed the bank regulatory framework and has affected the lending, deposit, investment, trading, and operating activities of banks and their holding companies.

A number of the effects of the Dodd-Frank Act are described or otherwise accounted for in various parts of this “Supervision and Regulation” section.

In addition to those requirements, the Dodd-Frank Act addresses many investor protection, corporate governance, and executive compensation matters that will affect most U.S.

In addition to those requirements, the Dodd-Frank Act addresses many investor protection, corporate governance, and executive compensation matters that affect most U.S.

publicly traded companies.

The Dodd-Frank Act (1) requires publicly traded companies to give shareholders a non-binding vote on executive compensation and golden parachute payments;

The Dodd-Frank Act (1) requires certain publicly traded companies to give shareholders a non-binding vote on executive compensation and golden parachute payments;

(2) enhances independence requirements for compensation committee members;

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While much of the Dodd-Frank Act has been implemented in the form of final rules from the banking agencies, the full extent of its impact on our operations is not yet determined.

The current presidential administration, through certain executive orders, has added further uncertainty as to the implementation, scope, and timing of additional rules implementing the Dodd-Frank Act, and it is possible that existing rules may still be modified or repealed.

It is possible that existing rules may still be modified or repealed or that new rules may be implemented.

The Economic Growth Act, which was signed into law in May 2018, provides certain limited amendments to the Dodd-Frank Act, as well as certain targeted modifications to prior financial services reform regulatory requirements.

As a result of the Economic Growth Act, we expect to experience the rollback of some of the more burdensome requirements resulting from the Dodd-Frank Act.

Provisions in the Economic Growth Act generally address access to mortgage credit;

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One of the Economic Growth Act’s highlights with potential implications for us is its increase in the asset threshold under the Federal Reserve’s Small Bank Holding Company Policy Statement from $1.0 billion to $3.0 billion.

Another potentially significant provision is the Economic Growth Act’s directive that federal bank regulatory agencies adopt a threshold for a CBLR framework.

Another significant provision is the Economic Growth Act’s directive that federal bank regulatory agencies adopt a threshold for a CBLR framework.

The CBLR framework and its implications for us are discussed in more detail below under the heading " - Bank Regulation - Capital Adequacy Requirements."

At this time, it is difficult to anticipate the continued impact the above-described legislation will have on our business, our customers, and the financial industry generally.

At this time, it is difficult to anticipate the continued impact the above-described legislation may have on our business, our customers, and the financial industry generally.

Changes resulting from further implementation of, changes to, or repeal of the Dodd-Frank Act may impact the profitability of our business activities;

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Acquisitions by Bank Holding Companies

We must obtain the prior approval of the Federal Reserve before (1) acquiring more than five percent of the voting stock of any bank or other bank holding company, (2) acquiring all or substantially all of the assets of any bank or bank holding company, or (3) merging or consolidating with any other bank holding company.

We must obtain the prior approval of the Federal Reserve before (1) acquiring more than 5.0% of the voting stock of any bank or other bank holding company, (2) acquiring all or substantially all of the assets of any bank or bank holding company, or (3) merging or consolidating with any other bank holding company.

In evaluating applications with respect to these transactions, the Federal Reserve is required to consider, among other things, the effect of the acquisition on competition;

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As a bank holding company, we are subject to certain restrictions on dividends under applicable banking laws and regulations.

The Federal Reserve has issued a supervisory letter that provides that a bank holding company should not pay dividends unless:

(1) its net income over the last four quarters (net of dividends paid) has been sufficient to fully fund the dividends;

(2) the prospective rate of earnings retention is consistent with the capital needs, asset quality, and overall

financial condition of the bank holding company;

The Federal Reserve has issued a supervisory letter on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve's view that a bank holding company should pay cash dividends only to the extent that:

(1) the holding company's net income for the past four quarters, net of any dividends previously paid during that period, is sufficient to fully fund the dividends;

(2) the prospective rate of earnings retention is consistent with the bank holding company's capital needs, asset quality, and overall financial condition;

and (3) the bank holding company will continue to meet, and is not in danger of failing to meet, minimum regulatory capital adequacy ratios.

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We currently have no plans to make a financial holding company election, although we may make a financial holding company election in the future if we engage in any lines of business that are impermissible for bank holding companies but permissible for financial holding companies.

On December 10, 2013, five U.S.

financial regulators, including the Federal Reserve, adopted a final rule implementing the “Volcker Rule.” The Volcker Rule was created by Section 619 of the Dodd-Frank Act and prohibits “banking entities” from engaging in “proprietary trading.” Banking entities also are prohibited from sponsoring or investing in private equity or hedge funds, or extending credit to or engaging in other covered transactions with affiliated private equity or hedge funds.

The fundamental prohibitions of the Volcker Rule generally apply to banking entities of any size, including us, the Bank, and any other “affiliate” under the Bank Holding Company Act.

The Economic Growth Act amends Section 619 to exempt from the Volcker Rule any insured depository institution that has $10.0 billion or less in total consolidated assets and whose total trading assets and trading liabilities are 5.0% or less of total consolidated assets.

Section 13 of the Bank Holding Company Act of 1956, commonly known as the "Volcker Rule," has generally prohibited insured depository institutions and their affiliates from sponsoring or acquiring an ownership interest in certain investment funds, including hedge funds and private equity funds.

The Volcker Rule also places restrictions on proprietary trading.

The Economic Growth Act exempts insured depository institutions with $10.0 billion or less in total consolidated assets from the Volcker Rule, and the Federal Reserve has effectively extended the exemption to bank holding companies with $10.0 billion or less in total consolidated assets.

Safe and Sound Banking Practices

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In certain circumstances, the Federal Reserve could take the position that paying a dividend would constitute an unsafe or unsound banking practice.

The Federal Reserve has broad authority to prohibit activities of bank holding companies and their nonbanking subsidiaries

which represent unsafe and unsound banking practices, result in breaches of fiduciary duty, or which constitute violations of laws or regulations, and can assess civil money penalties or impose enforcement action for such activities.

The Federal Reserve has broad authority to prohibit activities of bank holding companies and their nonbanking subsidiaries which represent unsafe and unsound banking practices, result in breaches of fiduciary duty, or which constitute violations of laws or regulations, and can assess civil money penalties or impose enforcement action for such activities.

Bank Regulation

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Under the Basel III capital rules, Red River Bank is required to maintain four minimum capital standards:

(1) a leverage ratio of at least 4.0%, (2) a common equity Tier 1 risk-based capital ratio of 4.5%, (3) a Tier 1 risk-based capital ratio of at least 6.0%, and (4) a total risk-based capital ratio of at least 8.0%.

(1) a leverage ratio of at least 4.0%, (2) a common equity Tier I risk-based capital ratio of 4.5%, (3) a Tier I risk-based capital ratio of at least 6.0%, and (4) a total risk-based capital ratio of at least 8.0%.

The Basel III capital rules also require the Bank to establish a capital conservation buffer equal to 2.500% of total risk-weighted assets.

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Failure to meet capital guidelines could subject Red River Bank to a variety of enforcement remedies, including issuance of a capital directive, restrictions on business activities, and other measures under the FDIC’s prompt corrective action regulations.

On September 17, 2019, the FDIC and other federal bank regulatory agencies approved the CBLR framework.

This optional framework became effective January 1, 2020, and will be available to the Bank as an alternative to the Basel III risk-based capital framework.

In September 2019, the FDIC and other federal bank regulatory agencies approved the CBLR framework.

This optional framework became effective January 1, 2020, and is available to the Bank as an alternative to the Basel III risk-based capital framework.

The CBLR framework provides for a simple measure of capital adequacy for certain community banking organizations.

Specifically, depository institutions and depository institution holding companies that have less than $10.0 billion in total consolidated assets and meet other qualifying criteria, including a Tier 1 leverage ratio of greater than 9.00%, are considered qualifying community banking organizations and are eligible to opt into the CBLR framework and replace the applicable Basel III risk-based capital requirements.

Specifically, depository institutions and depository institution holding companies that have less than $10.0 billion in total consolidated assets and meet other qualifying criteria, including a Tier I leverage ratio of greater than 9.00% (subsequently temporarily reduced to 8.00% as a COVID-19 relief measure), are considered qualifying community banking organizations and are eligible to opt into the CBLR framework and replace the applicable Basel III risk-based capital requirements.

As of December 31, 2020, the Company and the Bank qualify for the CBLR framework.

Management does not intend to utilize the CBLR framework effective January 1, 2020.

Management does not intend to utilize the CBLR framework.

Corrective Measures for Capital Deficiencies

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“well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” A bank’s capital tier depends upon how its capital levels compare with various relevant capital measures and certain other factors, as established by regulation.

To be well capitalized, a bank must have a total risk-based capital ratio of at least 10.0%, a Tier 1 risk-based capital ratio of at least 8.0%, a common equity Tier 1 risk-based capital ratio of at least 6.5%, and a leverage ratio of at least 5.0%, and must not be subject to any written agreement, order, or directive requiring it to maintain a specific capital level for any capital measure.

As of December 31, 2019, Red River Bank met the requirements to be categorized as well capitalized under the prompt corrective action framework currently in effect.

Banks that are adequately, but not well, capitalized may not accept, renew, or rollover brokered deposits except with a waiver from the FDIC and are subject to restrictions on the interest rates that can be paid on deposits.

To be well capitalized, a bank must have a total risk-based capital ratio of at least 10.0%, a Tier I risk-based capital ratio of at least 8.0%, a common equity Tier I risk-based capital ratio of at least 6.5%, and a leverage ratio of at least 5.0%, and must not be subject to any written agreement, order, or directive requiring it to maintain a specific capital level for any capital measure.

The most recent notification from the FDIC (as of December 31, 2019) categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action.

Banks that are adequately, but not well, capitalized may not accept, renew, or rollover brokered deposits without a waiver from the FDIC and are subject to restrictions on the interest rates that can be paid on deposits.

The FDIC’s prompt corrective action regulations also generally prohibit a bank from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the bank would thereafter be undercapitalized.

Undercapitalized banks are also subject to growth limitations, may not accept, renew, or rollover brokered deposits, and are required to submit a capital restoration plan.

The FDIC may not accept such a plan without determining, among other

things, that the plan is based on realistic assumptions and is likely to succeed in restoring the bank’s capital.

The FDIC may not accept such a plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the bank’s capital.

Significantly undercapitalized banks may be subject to a number of requirements and restrictions, including orders to sell sufficient shares or obligations to become adequately capitalized, limitations on asset growth, and cessation of receipt of deposits from correspondent banks.

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Section 18(c) of the FDIA, known as the “Bank Merger Act,” requires the written approval of a bank’s primary federal regulator before the bank may (1) acquire through merger or consolidation, (2) purchase or otherwise acquire the assets of, or (3) assume the deposit liabilities of, another bank.

The Bank Merger Act prohibits the reviewing agency from approving any proposed merger transaction that would result in a monopoly, or would further a combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the U.S.

Similarly, the Bank Merger Act prohibits the reviewing agency from approving a proposed merger transaction, the effect of which in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade.

An exception may be made in the case of a merger transaction, the effect of which would be to substantially lessen competition, tend to create a monopoly, or otherwise restrain trade, if the reviewing agency finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.

In every proposed merger transaction, the reviewing agency must also consider the financial and managerial resources and future prospects of the existing and proposed institutions, the convenience and needs of the community to be served, and the effectiveness of each insured depository institution involved in the proposed merger transaction in combating money-laundering activities, including in overseas branches.

The Bank Merger Act prohibits the reviewing agency from approving any proposed merger transaction that would result in certain significant anti-competitive effects.

In every proposed merger transaction, the reviewing agency must also consider the financial and managerial resources and future prospects of the existing and proposed institutions, the convenience and needs of the community to be served, the bank's CRA performance, and the effectiveness of each insured depository institution involved in the proposed merger transaction in combating money-laundering activities.

Under Louisiana law, Red River Bank is permitted to establish additional branch offices within Louisiana, subject to the approval of the Louisiana OFI.

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Red River Bank is subject to certain restrictions on dividends under federal and state laws, regulations, and policies.

In general, Louisiana law provides that Red River Bank may not pay any dividends to us unless the Bank has surplus at least equal to 50.0% of its capital stock and such surplus will not be reduced below 50.0% following payment of the dividend.

In general, Louisiana law provides that Red River Bank may not pay any dividends to the Company unless the Bank has surplus at least equal to 50.0% of its capital stock and such surplus will not be reduced below 50.0% following payment of the dividend.

Prior approval of the Louisiana OFI is required for Red River Bank to pay any dividend that would exceed its net profits earned during the current year combined with its retained net profits of the immediately preceding year.

In addition, under federal law, Red River Bank may not pay any dividend to us if it is undercapitalized or the payment of the dividend would cause it to become undercapitalized.

In addition, under federal law, Red River Bank may not pay any dividend to the Company if it is undercapitalized or the payment of the dividend would cause it to become undercapitalized.

The FDIC may further restrict the payment of dividends by engaging in supervisory action to restrict dividends or by requiring the Bank to maintain a higher level of capital than would otherwise be required to be adequately capitalized for regulatory purposes.

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If there are additional bank or financial institution failures or if the FDIC otherwise determines to increase assessment rates, Red River Bank may be required to pay higher FDIC insurance premiums.

In addition, all FDIC-insured institutions have been required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation, an agency of the federal government established to recapitalize the predecessor to the Deposit Insurance Fund.

Since the last of the remaining bonds matured in 2019, Red River Bank paid the final assessment in the first quarter of 2019.

Financial Modernization

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Such actions or restrictions could include divestiture of the financial subsidiary or subsidiaries.

addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a CRA rating of Satisfactory of better.

In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a CRA rating of Satisfactory or better.

Concentrated Commercial Real Estate Lending Regulations

The federal banking regulatory agencies have promulgated guidance governing financial institutions with concentrations in commercial real estate lending.

The guidance provides that a bank may have a concentration in commercial real estate lending if (1) total reported loans for construction, land development, and other land represent 100.0% or more of total capital, or (2) total commercial real estate loans represent 300.0% or more of the bank’s total capital and the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50.0% or more during the prior 36 months.

The guidance provides that a bank may have a concentration in commercial real estate lending if (1) total reported loans for construction, land development, and other land represent 100.0% or more of total risk-based capital, or (2) total commercial real estate loans represent 300.0% or more of the bank’s total risk-based capital and the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50.0% or more during the prior 36 months.

If a concentration is present, the bank will be subject to further regulatory scrutiny with respect to its risk management practices for commercial real estate lending.

As of December 31, 2019 , Red River Bank’s total reported loans for construction, land development, and other land represented less than 100.0% of the Bank’s total capital, and its total commercial real estate loans represented less than 300.0% of the Bank’s total capital.

As of December 31, 2020, Red River Bank’s total reported loans for construction, land development, and other land represented less than 100.0% of the Bank’s total risk-based capital, and its total commercial real estate loans represented less than 300.0% of the Bank’s total risk-based capital.

Community Reinvestment Act

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An unsatisfactory CRA record could substantially delay approval or result in denial of an application.

In December 2019, the OCC and the FDIC issued a notice of proposed rulemaking intended to (1) clarify which activities qualify for CRA credit;

(2) update which areas are eligible for activity that qualifies for CRA credit;

(3) create a more transparent and objective method for measuring CRA performance;

and (4) provide for more transparent, consistent, and timely CRA-related data collection, recordkeeping, and reporting.

In May 2020, the OCC issued its final CRA rule, which became effective for national banks on October 1, 2020.

The FDIC has not yet finalized the corresponding revisions to its CRA rule that would apply to Red River Bank as a state-chartered institution.

Red River Bank received a “Satisfactory” rating in its most recent CRA examination in 2019.

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In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB, and state attorneys general are permitted to enforce certain consumer protection rules adopted by the CFPB against certain institutions.

The Economic Growth Act requires amendments generally intended to narrow the scope of the CFPB’s authority and required the CFPB to make changes to various regulations.

We are not currently able to determine how these changes may affect our business.

Mortgage Lending Rules

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The Dodd-Frank Act allows borrowers to raise certain defenses to foreclosure but provides a presumption or rebuttable presumption of compliance for loans that are “qualified mortgages.” The CFPB has also issued regulations that, among other things, specify the types of income and assets that may be considered in the ability-to-repay determination, the permissible sources for income verification, and the required methods of calculating the loan’s monthly payments.

These regulations extend the requirement that creditors verify and document a

borrower’s income and assets to include a requirement to verify all information that creditors rely on in determining repayment ability.

The rules also define “qualified mortgages” based on adherence to certain underwriting standards - for example, a borrower’s debt-to-income ratio may not exceed 43.0% - and certain restrictions on loan terms.

These regulations extend the requirement that creditors verify and document a borrower’s income and assets to include a requirement to verify all information that creditors rely on in determining repayment ability.

The rules also define “qualified mortgages” based on adherence to certain underwriting standards and certain restrictions on loan terms.

Points and fees are subject to a relatively stringent cap, and the terms include a wide array of payments that may be made in the course of closing a loan.

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In addition to applicable federal privacy regulations, Red River Bank is subject to certain state privacy laws.

Federal law and regulations also include certain information security guidelines that require a bank, under the supervision and ongoing oversight of its board of directors or an appropriate committee of the board, to develop, implement, and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, to protect against anticipated threats or hazards to the security or integrity of such information, and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.

Federal banking regulators regularly issue guidance regarding cybersecurity intended to enhance cybersecurity risk management.

A financial institution is expected to implement multiple lines of defense against cyber-attacks.

Federal Home Loan Bank System

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As a member of the Federal Home Loan Bank of Dallas, Red River Bank is required to acquire and hold shares of capital stock in the Federal Home Loan Bank of Dallas.

All loans, advances, and other extensions of credit made by the Federal Home Loan Bank of Dallas to Red River Bank are secured by a portion of the respective loan portfolio, as well as capital stock of the Federal Home Loan Bank of Dallas held by Red River Bank.

All loans, advances, letters of credit and other extensions of credit made by the Federal Home Loan Bank of Dallas to Red River Bank are secured by a portion of Red River Bank's loan portfolio, as well as capital stock of the Federal Home Loan Bank of Dallas held by Red River Bank.

Enforcement Powers

The bank regulatory agencies have broad enforcement powers, including the power to terminate deposit insurance and impose substantial fines and other civil and criminal penalties.

Failure to comply with applicable laws, regulations, and supervisory agreements, breaches of fiduciary duty, or the maintenance of unsafe and unsound conditions or practices,

could subject us or our subsidiaries, including Red River Bank, as well as their respective officers, directors, and other institution-affiliated parties, to administrative sanctions and potentially substantial civil money penalties.

Failure to comply with applicable laws, regulations, and supervisory agreements, breaches of fiduciary duty, or the maintenance of unsafe and unsound conditions or practices, could subject us or our subsidiaries, including Red River Bank, as well as their respective officers, directors, and other institution-affiliated parties, to administrative sanctions and potentially substantial civil money penalties.

FDIC Conservatorship or Receivership

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Future Legislation and Regulatory Reform

In light of current conditions and the market outlook, regulators have increased their focus on the regulation of financial institutions.

In light of current conditions and the market outlook, regulators may increase their focus on the regulation of financial institutions.

From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business