RED RIVER BANCSHARES INC 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Red River Bancshares, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Red River Bancshares, Inc. and its subsidiaries (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Postlethwaite & Netterville We have served as the Company's auditor since 1998. Baton Rouge, Louisiana March 19, 2021 68 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) December 31, 2020 2019 ASSETS Cash and due from banks $ 29,537 $ 25,937 Interest-bearing deposits in other banks 417,664 107,355 Total Cash and Cash Equivalents 447,201 133,292 Securities available-for-sale 498,206 335,573 Equity securities 4,021 3,936 Nonmarketable equity securities 3,447 1,350 Loans held for sale 29,116 5,089 Loans held for investment 1,588,446 1,438,924 Allowance for loan losses ( 17,951 ) ( 13,937 ) Premises and equipment, net 46,924 41,744 Accrued interest receivable 6,880 5,251 Bank-owned life insurance 22,413 21,845 Intangible assets 1,546 1,546 Right-of-use assets 4,154 4,553 Other assets 8,231 9,059 Total Assets $ 2,642,634 $ 1,988,225 LIABILITIES Noninterest-bearing deposits $ 943,615 $ 584,915 Interest-bearing deposits 1,396,745 1,136,205 Total Deposits 2,340,360 1,721,120 Accrued interest payable 1,774 2,222 Lease liabilities 4,233 4,603 Accrued expenses and other liabilities 10,789 8,382 Total Liabilities 2,357,156 1,736,327 COMMITMENTS AND CONTINGENCIES — — STOCKHOLDERS' EQUITY Preferred stock, no par value: Authorized - 1,000,000 shares; None Issued and Outstanding — — Common stock, no par value: Authorized - 30,000,000 shares; Issued and Outstanding - 7,325,333 and 7,306,221 shares 68,055 68,082 Additional paid-in capital 1,545 1,269 Retained earnings 208,957 182,571 Accumulated other comprehensive income (loss) 6,921 ( 24 ) Total Stockholders' Equity 285,478 251,898 Total Liabilities and Stockholders' Equity $ 2,642,634 $ 1,988,225 The accompanying notes are an integral part of these consolidated financial statements. 69 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) Years Ended December 31, 2020 2019 INTEREST AND DIVIDEND INCOME Interest and fees on loans $ 69,228 $ 64,570 Interest on securities 7,601 7,241 Interest on federal funds sold 207 753 Interest on deposits in other banks 322 1,127 Dividends on stock 20 34 Total Interest and Dividend Income 77,378 73,725 INTEREST EXPENSE Interest on deposits 8,362 9,701 Interest on other borrowed funds 16 — Interest on junior subordinated debentures — 385 Total Interest Expense 8,378 10,086 Net Interest Income 69,000 63,639 Provision for loan losses 6,293 1,810 Net Interest Income After Provision for Loan Losses 62,707 61,829 NONINTEREST INCOME Service charges on deposit accounts 4,108 4,573 Debit card income, net 3,641 3,095 Mortgage loan income 8,398 3,002 Brokerage income 2,324 2,125 Loan and deposit income 1,701 1,521 Bank-owned life insurance income 568 544 Gain (Loss) on equity securities 85 115 Gain (Loss) on sale of securities 1,441 18 SBIC income 775 819 Other income 126 158 Total Noninterest Income 23,167 15,970 OPERATING EXPENSES Personnel expenses 31,160 27,800 Occupancy and equipment expenses 5,106 4,976 Technology expenses 2,542 2,293 Advertising 933 1,025 Other business development expenses 1,020 1,107 Data processing expense 1,905 1,882 Other taxes 1,733 1,579 Loan and deposit expenses 1,052 1,148 Legal and professional expenses 2,141 1,541 Regulatory assessment expenses 538 351 Other operating expenses 3,276 3,633 Total Operating Expenses 51,406 47,335 Income Before Income Tax Expense 34,468 30,464 Income tax expense 6,323 5,640 Net Income $ 28,145 $ 24,824 EARNINGS PER SHARE Basic $ 3.84 $ 3.51 Diluted $ 3.83 $ 3.49 The accompanying notes are an integral part of these consolidated financial statements. 70 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Years Ended December 31, 2020 2019 Net income $ 28,145 $ 24,824 Other comprehensive income (loss): Unrealized net gain (loss) on securities arising during period 10,232 9,489 Tax effect ( 2,149 ) ( 1,993 ) (Gain) loss on sale of securities included in net income ( 1,441 ) ( 18 ) Tax effect 303 4 Total change in other comprehensive income (loss) 6,945 7,482 Comprehensive Income $ 35,090 $ 32,306 The accompanying notes are an integral part of these consolidated financial statements. 71 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands, except share amounts) Common Shares Issued Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Balance as of December 31, 2018 6,627,358 $ 41,094 $ 1,042 $ 159,073 $ ( 7,506 ) $ 193,703 Net income — — — 24,824 — 24,824 Stock incentive plan — — 227 — — 227 Issuance of shares of common stock through IPO 663,320 26,812 — — — 26,812 Issuance of restricted shares of common stock through stock incentive plan, net 5,975 — — — — — Issuance of shares of common stock through exercise of stock options 7,200 80 — — — 80 Issuance of shares of common stock as board compensation 2,368 96 — — — 96 Cash dividend - $ 0.20 per share — — — ( 1,326 ) — ( 1,326 ) Other comprehensive income (loss) — — — — 7,482 7,482 Balance as of December 31, 2019 7,306,221 68,082 1,269 182,571 ( 24 ) 251,898 Net income — — — 28,145 — 28,145 Stock incentive plan — — 276 — — 276 Issuance of restricted shares of common stock through stock incentive plan, net 5,625 — — — — — Issuance of shares of common stock through exercise of stock options 14,720 8 — — — 8 Issuance of shares of common stock as board compensation 1,591 87 — — — 87 Purchase of common stock under stock repurchase program ( 2,824 ) ( 122 ) — — — ( 122 ) Cash dividend - $ 0.24 per share — — — ( 1,759 ) — ( 1,759 ) Other comprehensive income (loss) — — — — 6,945 6,945 Balance as of December 31, 2020 7,325,333 $ 68,055 $ 1,545 $ 208,957 $ 6,921 $ 285,478 The accompanying notes are an integral part of these consolidated financial statements. 72 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 28,145 $ 24,824 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 1,861 1,733 Amortization 553 619 Share-based compensation earned 276 227 Share-based board compensation earned 62 87 (Gain) Loss on other assets owned 22 ( 18 ) Net (accretion) amortization on securities AFS 3,144 1,380 Gain on sale of securities AFS ( 1,441 ) ( 18 ) Provision for loan losses 6,293 1,810 Deferred income tax (benefit) expense 130 ( 556 ) Net (increase) decrease in loans HFS ( 24,027 ) ( 2,185 ) Net (increase) decrease in accrued interest receivable ( 1,629 ) ( 238 ) Net (increase) decrease in BOLI ( 568 ) ( 544 ) Net increase (decrease) in accrued interest payable ( 448 ) 465 Net increase (decrease) in accrued income taxes payable ( 4 ) ( 114 ) Other operating activities, net 429 ( 1,029 ) Net cash provided by (used in) operating activities 12,798 26,443 CASH FLOWS FROM INVESTING ACTIVITIES Activity in securities AFS: Sales 151,253 58,859 Maturities, principal repayments, and calls 112,605 67,144 Purchases ( 419,403 ) ( 145,589 ) Purchase of nonmarketable equity securities ( 2,097 ) ( 51 ) Net (increase) decrease in loans HFI ( 151,909 ) ( 112,574 ) Proceeds from sales of foreclosed assets 330 1,164 Purchases of premises and equipment ( 7,035 ) ( 3,772 ) Net cash provided by (used in) investing activities ( 316,256 ) ( 134,819 ) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits 619,240 75,537 Proceeds from other borrowed funds 50,000 — Repayments of other borrowed funds ( 50,000 ) — Redemption of junior subordinated debentures — ( 11,341 ) Repurchase of common stock ( 122 ) — Proceeds from exercise of stock options 8 80 Proceeds from initial public offering, net — 26,812 Cash dividends ( 1,759 ) ( 1,326 ) Net cash provided by (used in) financing activities 617,367 89,762 Net change in cash and cash equivalents 313,909 ( 18,614 ) Cash and cash equivalents - beginning of year 133,292 151,906 Cash and cash equivalents - end of year $ 447,201 $ 133,292 The accompanying notes are an integral part of these consolidated financial statements. 73 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (in thousands) Years Ended December 31, 2020 2019 SUPPLEMENTAL DISCLOSURES Cash paid during the year for: Interest $ 8,826 $ 9,621 Income taxes 6,182 6,286 Initial measurement and recognition of operating lease assets in exchange for lease liabilities — 4,954 SUPPLEMENTAL INFORMATION FOR NON-CASH INVESTING AND FINANCING ACTIVITIES Assets acquired in settlement of loans 108 1,691 The accompanying notes are an integral part of these consolidated financial statements. 74 Table of Contents RED RIVER BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Business and Summary of Significant Accounting Policies The accounting and reporting policies of the Company conform to GAAP and the prevailing practices within the banking industry. A summary of significant accounting policies is as follows: Business The Company is a bank holding company headquartered in Alexandria, Louisiana. The Company's wholly owned bank subsidiary, Red River Bank, is a Louisiana state-chartered bank that provides a fully integrated suite of banking products and services tailored to the needs of commercial and retail customers. Red River Bank operates 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. Basis of Presentation The consolidated financial statements include the accounts of the Company and all other entities in which the Company has controlling interest. All significant intercompany accounts and transactions have been eliminated in consolidation. Non-Bank Subsidiaries The Company's consolidated financial statements include Red River Bank's wholly owned subsidiaries Rivermark Properties, LLC and Source BIDCO. The Bank dissolved Source BIDCO in the first quarter of 2020. The Company sponsored three trusts that were not consolidated. These trusts were utilized for the issuance of trust preferred securities. The three trusts were terminated during 2019. Operating Segments While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a company-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment. Use of Estimates The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. These estimates also affect the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Acquisition Accounting The Company accounts for its acquisitions under ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. Purchased assets, including loans, and assumed liabilities are recorded at their respective acquisition date fair values. Fair values are subject to refinement up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available. Loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in ASC Topic 820, Fair Value Measurements and Disclosures. The fair value estimates associated with acquired loans include estimates related to expected prepayments and the amount and timing of expected principal, interest, and other cash flows. Acquired loans, for which all contractual cash flows are expected to be received, are accounted for under the accounting guidance found in ASC Topic 310-20, Receivables - Nonrefundable Fees and Other Costs. Acquired loans, with evidence of credit deterioration, are accounted for under the accounting guidance found in ASC Topic 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality. There is no carryover of related allowance for loan losses at the acquisition date as assumptions regarding credit risk are incorporated in the valuation process. However, subsequent to acquisition, the acquired loan portfolio is reviewed, and an allowance for loan losses is established for probable losses incurred after the acquisition date. 75 Table of Contents Interest-Bearing Deposits in Other Banks Interest-bearing deposits in other banks consist of money market and checking accounts and are carried at cost. Securities All debt securities of the Company as of December 31, 2020 and 2019, were classified as AFS and are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of tax. Realized gains and losses on the sale of securities are determined using the specific-identification method. Purchased premiums and discounts are recognized in interest income using the interest method over the term of the securities. Equity securities include a CRA mutual fund owned by the Company, which is carried at fair value with any periodic changes in value recorded through the statements of income. Declines in the fair value of HTM and AFS debt securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses to the extent the losses are credit related. FASB issued accounting guidance related to the recognition and presentation of OTTI. The accounting guidance specifies that if (a) a company does not have the intent to sell a debt security prior to recovery; and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not that the entity will not have to sell the security before recovery of its cost basis, the entity will recognize the credit component of an OTTI of a debt security in earnings and the remaining portion in other comprehensive income. For HTM debt securities, the amount of OTTI recorded in other comprehensive income for the noncredit portion of an OTTI should be amortized over the remaining life of the security based on the timing of its future estimated cash flows. Nonmarketable Equity Securities Nonmarketable equity securities, which include investments in the FHLB and First National Banker’s Bank, are carried at cost. Loans Held for Sale Residential mortgage loans originated and intended for sale are carried at the lower of cost or estimated fair value on an individual basis. These mortgage loans are pre-sold prior to funding. Loans Held for Investment Loans that management has the intent and ability to hold, for the foreseeable future or until maturity or payoff, are held for investment and carried at their principal amount outstanding, net of deferred loan fees. Interest income on loans is accrued on the principal amount outstanding except for those loans that are classified as nonaccrual. Loan origination fees, net of certain direct costs, are deferred and recognized over the estimated lives of the related loans as an adjustment to the loans’ effective yield. Loans are placed on nonaccrual when management determines that a borrower may be unable to meet future contractual payments as they become due or when such loans become 90 days past due, unless they are well secured and in the process of collection. When a loan is placed on nonaccrual, uncollected accrued interest is reversed, reducing interest income, and future income accrual is discontinued. Subsequent payments, if any, of interest and fees are applied as reductions to the loan’s outstanding principal balance. Once the principal balance of a loan placed on nonaccrual has been fully recovered, subsequent payments received are recognized as income on a cash basis. Loans are returned to accrual status when the principal and interest amounts contractually due are brought current and future payments are reasonably assured. A loan is charged-off to the allowance for loan losses in full when management is relatively certain that principal and interest will be uncollectible. Management may elect to partially charge-off a loan to adjust the principal balance to the net realizable value of the collateral that secures the loan. When a partial charge-off is made, the remaining balance of the loan is placed on nonaccrual. Recoveries of amounts previously charged-off, if any, are credited to the allowance for loan losses until the principal balance of the loan is fully recovered. Any subsequent payments are recognized as income. Allowance for Loan Losses The allowance for loan losses is established for known and inherent losses in the loan portfolio based upon management’s best assessment of the loan portfolio at each balance sheet date. It is maintained at a level estimated to be adequate to absorb potential losses through periodic changes to loan losses. 76 Table of Contents The allowance for loan losses consists of specific and general reserves. Specific reserves relate to loans classified as impaired. Loans are considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due in accordance with the contractual terms of the loan. Impaired loans include TDRs and performing and nonperforming loans. Impaired loans are reviewed individually, and a specific allowance is allocated, if necessary, based on evaluation of either the fair value of the collateral underlying the loan or the present value of future cash flows calculated using the loan’s existing interest rate. General reserves relate to the remainder of the loan portfolio, including overdrawn deposit accounts, and are based on evaluation of a number of factors, such as current economic conditions, the quality and composition of the loan portfolio, loss history, and other relevant factors. The Bank’s loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Bank has a diversified loan portfolio, a substantial portion of its borrowers’ ability to honor their contractual repayment obligations is dependent on changing economic conditions. Because of the uncertainties associated with economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of loan losses in the loan portfolio and the amount of the allowance needed may change in the future. The determination of the allowance for loan losses is, in a large part, based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In situations where the repayment of a loan is dependent on the value of the underlying collateral, an independent appraisal of the collateral’s current market value is customarily obtained and used in the determination of the allowance for loan losses. While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in economic conditions. Also, regulatory agencies, as an integral part of their examination process, periodically review management’s assessments of the adequacy of the allowance for loan losses. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination. Foreclosed Assets Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less estimated cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management, and the assets are carried at the lower of carrying amount or fair value less estimated cost to sell. Foreclosed assets are included in other assets on the consolidated balance sheets. The balance of foreclosed assets was $ 896,000 and $ 1.1 million as of December 31, 2020 and 2019, respectively. Credit Related Financial Information In the ordinary course of business, the Bank has entered into commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded. Premises and Equipment, Net Premises and equipment are stated at cost less accumulated depreciation, which is computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 39 years. Intangible Assets Intangible assets consist of goodwill. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. Goodwill is not amortized but rather evaluated for impairment annually. The Company performed its annual impairment test of goodwill for 2020 and 2019 as required by ASC 350, Intangibles - Goodwill and Other. The evaluation indicated no impairment of the Company’s goodwill. Stock-Based Compensation Plans The Company has adopted stock incentive plans that provide for the granting of stock-based payment arrangements for key employees and non-employee members of the Company’s Board of Directors. The Company accounts for the stock incentive plans in accordance with applicable accounting guidance. Under the fair value recognition provisions of this guidance, stock-based compensation cost is measured at the grant date based on the fair value of the award and recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. The options granted under these plans are to purchase common stock at an exercise price not less than the fair market value of the common stock at the date of the grant. The options vest and become exercisable in twenty percent increments over a five-year period. No options were outstanding as of December 31, 2020. The restricted stock granted under these plans provide common stock to recipients at the grant date. The restrictions vest in twenty percent increments over a five-year period. The Company recognizes forfeitures as they occur. The Company has a Director Compensation Program which allows directors the option of receiving payment for director fees in Company stock. Board compensation expense is recorded when board service is rendered. 77 Table of Contents Income Tax The provision for income tax is based on taxes payable or receivable for the current year and deferred taxes on temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. The Company has adopted the provisions of accounting guidance related to accounting for uncertainty in income taxes. This interpretation clarifies that the benefit of a position taken or expected to be taken in a tax return should be recognized in a company’s financial statements when it is more likely than not that the position will be sustained based on technical merits. The Company recognizes interest and penalties on income taxes as a component of income tax expense. The effect on deferred tax assets of a change in tax rate is recognized in income as part of income tax expense for the period that includes the enactment date. Deferred tax assets and liabilities have been measured as of December 31, 2020 and 2019, using the 21.0% corporate tax rate. For more information, see "Note 8. Income Tax Expense." Earnings per Common Share Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, after giving retroactive effect to stock splits. Diluted EPS includes accrued but unissued shares relating to the Director Compensation Program, stock options, and restricted stock determined using the treasury stock method. A reconciliation of the weighted-average shares used in calculating basic EPS and diluted EPS for the reported periods is provided in "Note 16. Earnings Per Common Share." Treasury Stock On January 1, 2015, the Louisiana Business Corporation Act ("the LBCA") became effective. Under provisions of the LBCA, there is no concept of “Treasury Shares.” Rather, shares purchased by the Company constitute authorized but unissued shares. Accordingly, the Company’s consolidated balance sheets reflect the cost of shares purchased by the Company within common stock. Comprehensive Income Comprehensive income is the change in stockholders’ equity during the period from transactions and other events and circumstances from non-owner sources. Other comprehensive income includes net gains (losses), net of taxes, on AFS securities. Cash and Cash Equivalents Cash and cash equivalents consist of cash and due from banks and interest-bearing deposits in other banks. Advertising Costs Advertising costs are expensed as incurred. Revenue Recognition The Company has identified certain recurring revenue streams related to noninterest income which are within the scope of Topic 606, Revenue from Contracts with Customers . In-scope revenue streams are summarized based on the timing of revenue recognition as follows: • Revenue earned at a point in time - Fee income (including wire transfer, check ordering, and other transactional fees), NSF/OD Charges, ATM/Card Fee Income (including ATM transaction fees and credit and debit card interchange income), and brokerage transaction income. Revenue is recorded as transactions occur or services are provided to customers. Revenue recognized under these contracts totaled approximately $ 12.3 million and $ 12.5 million for the years ended December 31, 2020 and 2019, respectively. The Company is the principal in each of these contracts with the exception of credit and debit card interchange fees, online transaction interchange fees, sweep income, and brokerage services income, in which case the Company is acting as the agent and records revenue net of expenses paid. • Revenue earned over time (generally under a monthly contract) - Debit card agreement, safe deposit box fees, and brokerage agreement income. Revenue is recorded in the period transactions occur or services are rendered to the customer. The Company is the principal in each of these contracts. Revenue recognized under these contracts totaled approximately $ 542,000 and $ 319,000 for the period ended December 31, 2020 and 2019, respectively. 78 Table of Contents There are no significant judgments relating to the amount and timing of revenue recognition for revenue streams within the scope of Topic 606, Revenue from Contracts with Customers . Due to the nature of the services we provide to our customers, we do not incur costs to obtain contracts, and there are no material incremental costs to fulfill these contracts that should be capitalized. Additionally, there are no material contract assets or receivables as the Company does not typically enter into long-term revenue contracts with customers. During 2020, the Bank entered into a contract which resulted in an additional contract liability. As of December 31, 2020 and 2019, the Bank had $ 2.6 million and $ 845,000 , respectively, of contract liabilities which are reported in accrued expenses and other liabilities. During the years ended December 31, 2020 and 2019, the Bank recognized $ 390,000 and $ 175,000 , respectively, of revenue relating to these contract liabilities and expects to recognize the remaining liabilities as revenue ratably through June 2025. Accounting Standards Adopted in 2020 ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . This ASU simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in today’s two-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment based on that difference. The impairment will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the requirement to calculate a goodwill impairment using Step 2, which requires an entity to calculate any impairment by comparing the implied fair value of goodwill with its carrying amount. This standard was effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. ASU 2017-04 was adopted as of January 1, 2020, and did not have a material impact on the Company's financial statements . ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, adds, and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. This standard was effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. ASU 2018-13 was adopted as of January 1, 2020, and did not have a material impact on the Company's financial statements . ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance issued in this update simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition for deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted tax changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual periods beginning after December 15, 2020, with early adoption permitted. ASU 2019-12 was adopted as of December 31, 2020, and did not have a material impact on the Company's financial statements . ASU No. 2020-08, Codification Improvements (Subtopic 310-20): Receivables - Nonrefundable Fees and Other Costs. The amendments in this update clarify that an entity should reevaluate whether a callable debt security is within the scope of ASU 2017-08, Receivables Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities . ASU 2020-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. ASU 2020-08 was adopted as of December 31, 2020, and did not have a material impact on the Company's financial statements. ASU No. 2020-10, Codification Improvements. This ASU contains amendments that improve the consistency of the Accounting Standards Codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50) which is expected to reduce the likelihood that the disclosure requirement would be missed. It also contains various improvements to the codification. These amendments are not expected to change current practice. ASU 2020-10 is effective for annual periods beginning after December 15, 2020, with early adoption permitted. ASU 2020-10 was adopted as of December 31, 2020, and did not have a material impact on the Company's financial statements . Issued but Not Adopted Accounting Standards ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 sets forth the CECL model requiring the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses. In addition, the update amends the accounting for credit losses on AFS securities. As an SEC registrant with smaller reporting company filing status as determined on June 30, 2019, CECL is effective for the Company January 1, 2023. The Company continues to evaluate the impact of this ASU on the consolidated financial statements and disclosures. In that regard, the Company has formed a cross-functional working group and is currently 79 Table of Contents working through an implementation plan. The implementation plan includes an assessment of data, model development and documentation, documentation of processes, and implementation of a third-party vendor solution to assist in the adoption of ASU 2016-13 . Reclassification Certain amounts in the 2019 consolidated financial statements have been reclassified to conform to the 2020 presentation. These changes in presentation did not have a material impact on the Company's financial condition or results of operations. 2. Securities Securities held for indefinite periods of time are classified as AFS and carried at estimated fair value. Investment activity for the twelve months ended December 31, 2020, included $ 419.4 million of securities purchased, partially offset by $ 151.3 million in sales and $ 112.6 million in maturities, principal repayments, and calls. The net unrealized gain on the securities AFS portfolio increased $ 8.8 million for the twelve months ended December 31, 2020. The amortized cost and estimated fair values of securities AFS are summarized in the following tables: December 31, 2020 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities AFS: Mortgage-backed securities $ 271,709 $ 3,450 $ ( 332 ) $ 274,827 Municipal bonds 207,834 5,498 ( 51 ) 213,281 U.S. agency securities 9,902 200 ( 4 ) 10,098 Total Securities AFS $ 489,445 $ 9,148 $ ( 387 ) $ 498,206 December 31, 2019 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities AFS: Mortgage-backed securities $ 236,572 $ 299 $ ( 1,200 ) $ 235,671 Municipal bonds 91,929 1,108 ( 279 ) 92,758 U.S. agency securities 7,102 46 ( 4 ) 7,144 Total Securities AFS $ 335,603 $ 1,453 $ ( 1,483 ) $ 335,573 The amortized costs and estimated fair value of debt securities as of December 31, 2020, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers have the right to call or repay obligations with or without call or prepayment penalties. (in thousands) Amortized Cost Fair Value Within one year $ 5,353 $ 5,372 After one year but within five years 41,965 42,806 After five years but within ten years 51,485 53,125 After ten years 390,642 396,903 Total $ 489,445 $ 498,206 80 Table of Contents Information pertaining to securities with gross unrealized losses as of December 31, 2020 and December 31, 2019, aggregated by investment category and length of time that individual securities have been in a continuous loss position is described as follows: Less than twelve months Twelve months or more (in thousands) Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value December 31, 2020 Securities AFS: Mortgage-backed securities $ ( 332 ) $ 72,367 $ — $ — Municipal bonds ( 51 ) 9,466 — — U.S. agency securities ( 4 ) 4,996 — — Total Securities AFS $ ( 387 ) $ 86,829 $ — $ — December 31, 2019 Securities AFS: Mortgage-backed securities $ ( 474 ) $ 109,416 $ ( 726 ) $ 70,425 Municipal bonds ( 172 ) 18,735 ( 107 ) 9,323 U.S. agency securities ( 4 ) 1,020 — — Total Securities AFS $ ( 650 ) $ 129,171 $ ( 833 ) $ 79,748 As of December 31, 2020, the Company held 29 securities that were in continuous loss positions less than 12 months. The aggregate unrealized losses of these securities as of December 31, 2020, was 0.08 % of the amortized cost basis of the total securities AFS portfolio. Management and the Asset-Liability Management Committee continually monitor the securities portfolio and are able to effectively measure and monitor the unrealized loss positions on these securities. Management does not intend to sell these securities prior to recovery, and it is more likely than not that the Company will have the ability to hold them, primarily due to adequate liquidity, until each security has recovered its cost basis. The unrealized losses on these securities have been determined by management to be a function of the movement of interest rates since the time of purchase. Based on a review of available information, including recent changes in interest rates and credit rating information, management believes the decline in fair value of these securities is temporary. The Company does not consider these securities to have OTTI. Management evaluates securities for OTTI on at least a quarterly basis and more frequently if economic or market concerns merit such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost; (2) the financial condition and near-term prospects of the issuer; and (3) whether the Company intends to, and it is more likely than not that it will be able to, retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Additionally, the Company annually performs a detailed credit review of the municipal securities owned to identify any potential credit concerns. There were no OTTI losses on debt securities related to credit losses recognized during the years ended December 31, 2020 and December 31, 2019. The proceeds from sales of securities AFS and their gross gain (loss) for the years ended December 31, 2020 and 2019, are shown below: Years Ended December 31, (in thousands) 2020 2019 Proceeds (1) $ 151,253 $ 58,859 Gross gain 1,723 309 Gross loss ( 282 ) ( 291 ) (1) The proceeds include the gross gain and loss. Pledged Securities Securities with carrying values of approximately $ 105.1 million and $ 89.8 million were pledged to secure public entity deposits, as of December 31, 2020 and December 31, 2019, respectively. 81 Table of Contents 3. Loans and Asset Quality Loans Loans HFI by category and loans HFS are summarized below: December 31, (in thousands) 2020 2019 Real estate: Commercial real estate $ 556,769 $ 531,990 One-to-four family residential 442,889 420,020 Construction and development 127,321 132,461 Commercial and industrial 250,428 267,940 SBA PPP, net of deferred income 118,447 — Tax-exempt 68,666 56,494 Consumer 23,926 30,019 Total loans HFI $ 1,588,446 $ 1,438,924 Total loans HFS $ 29,116 $ 5,089 Deferred loan origination fees, including PPP loan fees, net of certain direct costs, were $ 3.1 million and $ 24,000 as of December 31, 2020 and 2019, respectively. Deferred PPP loan fees were $ 2.8 million as of December 31, 2020. Related Party Transactions In the ordinary course of business, certain officers, directors, and principal shareholders, as well as their immediate family members and affiliates in which they have 10% or more beneficial ownership (“related parties”), maintain a variety of banking relationships with the Company. An analysis of loan activity to these related parties is as follows: Years Ended December 31, (in thousands) 2020 2019 Balance - beginning of period $ 30,609 $ 40,311 New loans/changes in relationships 23,431 33,354 Repayments/changes in relationships ( 20,849 ) ( 43,056 ) Balance - end of period $ 33,191 $ 30,609 Concentrations of Credit Risk The majority of the Bank’s lending activity occurs within Louisiana, primarily in the Central, Capital, and Northwest market areas. The Bank maintains a diversified loan portfolio with a focus on commercial real estate, one-to-four family residential real estate, and commercial and industrial loans. Substantially all of the Bank’s real estate loans are secured by properties located within Louisiana. 82 Table of Contents Allowance for Loan Losses The following table summarizes the activity in the allowance for loan losses by category for the year ended December 31, 2020: (in thousands) Beginning Balance Provision for Loan Losses Loans Charged-off Recoveries Ending Balance Real estate: Commercial real estate $ 3,454 $ 2,344 $ — $ — $ 5,798 One-to-four family residential 3,323 2,057 — 10 5,390 Construction and development 1,211 501 ( 14 ) 1 1,699 Commercial and industrial 5,175 551 ( 2,184 ) 89 3,631 SBA PPP, net of deferred income — 318 — — 318 Tax-exempt 334 346 — — 680 Consumer 440 176 ( 355 ) 174 435 Total allowance for loan losses $ 13,937 $ 6,293 $ ( 2,553 ) $ 274 $ 17,951 The following table summarizes the activity in the allowance for loan losses by category for the year ended December 31, 2019: (in thousands) Beginning Balance Provision for Loan Losses Loans Charged-off Recoveries Ending Balance Real estate: Commercial real estate $ 3,081 $ 373 $ — $ — $ 3,454 One-to-four family residential 3,146 216 ( 44 ) 5 3,323 Construction and development 951 172 — 88 1,211 Commercial and industrial 4,604 850 ( 864 ) 585 5,175 SBA PPP, net of deferred income — — — — — Tax-exempt 372 ( 38 ) — — 334 Consumer 370 237 ( 311 ) 144 440 Total allowance for loan losses $ 12,524 $ 1,810 $ ( 1,219 ) $ 822 $ 13,937 83 Table of Contents The balance in the allowance for loan losses and the related recorded investment in loans by category as of December 31, 2020, are as follows: (in thousands) Individually Evaluated for Impairment Collectively Evaluated for Impairment Acquired with Deteriorated Credit Quality Total Allowance for loan losses: Real estate: Commercial real estate $ 268 $ 5,530 $ — $ 5,798 One-to-four family residential 45 5,345 — 5,390 Construction and development — 1,699 — 1,699 Commercial and industrial 540 3,091 — 3,631 SBA PPP, net of deferred income — 318 — 318 Tax-exempt — 680 — 680 Consumer 111 324 — 435 Total allowance for loan losses $ 964 $ 16,987 $ — $ 17,951 Loans: Real estate: Commercial real estate $ 3,617 $ 553,152 $ — $ 556,769 One-to-four family residential 1,126 441,763 — 442,889 Construction and development — 127,321 — 127,321 Commercial and industrial 3,979 246,449 — 250,428 SBA PPP, net of deferred income — 118,447 — 118,447 Tax-exempt — 68,666 — 68,666 Consumer 114 23,812 — 23,926 Total loans HFI $ 8,836 $ 1,579,610 $ — $ 1,588,446 The balance in the allowance for loan losses and the related recorded investment in loans by category as of December 31, 2019, are as follows: (in thousands) Individually Evaluated for Impairment Collectively Evaluated for Impairment Acquired with Deteriorated Credit Quality Total Allowance for loan losses: Real estate: Commercial real estate $ 260 $ 3,194 $ — $ 3,454 One-to-four family residential 31 3,292 — 3,323 Construction and development 10 1,201 — 1,211 Commercial and industrial 2,916 2,259 — 5,175 SBA PPP, net of deferred income — — — — Tax-exempt — 334 — 334 Consumer 71 369 — 440 Total allowance for loan losses $ 3,288 $ 10,649 $ — $ 13,937 Loans: Real estate: Commercial real estate $ 2,639 $ 529,351 $ — $ 531,990 One-to-four family residential 1,193 418,827 — 420,020 Construction and development 38 132,423 — 132,461 Commercial and industrial 8,797 259,143 — 267,940 SBA PPP, net of deferred income — — — — Tax-exempt — 56,494 — 56,494 Consumer 75 29,944 — 30,019 Total loans HFI $ 12,742 $ 1,426,182 $ — $ 1,438,924 84 Table of Contents Past Due and Nonaccrual Loans A summary of current, past due, and nonaccrual loans as of December 31, 2020, is as follows: Accruing (in thousands) Current 30-89 Days Past Due 90 Days or More Past Due Nonaccrual Total Loans Real estate: Commercial real estate $ 554,861 $ 62 $ — $ 1,846 $ 556,769 One-to-four family residential 442,096 219 — 574 442,889 Construction and development 127,258 63 — — 127,321 Commercial and industrial 249,453 93 — 882 250,428 SBA PPP, net of deferred income 118,447 — — — 118,447 Tax-exempt 68,666 — — — 68,666 Consumer 23,891 27 3 5 23,926 Total loans HFI $ 1,584,672 $ 464 $ 3 $ 3,307 $ 1,588,446 A summary of current, past due, and nonaccrual loans as of December 31, 2019, is as follows: Accruing (in thousands) Current 30-89 Days Past Due 90 Days or More Past Due Nonaccrual Total Loans Real estate: Commercial real estate $ 530,712 $ — $ — $ 1,278 $ 531,990 One-to-four family residential 419,229 184 — 607 420,020 Construction and development 132,423 — — 38 132,461 Commercial and industrial 264,427 143 — 3,370 267,940 SBA PPP, net of deferred income — — — — — Tax-exempt 56,494 — — — 56,494 Consumer 29,973 20 — 26 30,019 Total loans HFI $ 1,433,258 $ 347 $ — $ 5,319 $ 1,438,924 85 Table of Contents Impaired Loans Impaired loans include TDRs and performing and nonperforming loans. Information pertaining to impaired loans as of December 31, 2020, is as follows: (in thousands) Unpaid Principal Balance Recorded Investment Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance recorded: Real estate: Commercial real estate $ 1,459 $ 1,428 $ — $ 1,417 $ 68 One-to-four family residential 891 827 — 987 33 Construction and development — — — — — Commercial and industrial 92 92 — 1,173 5 SBA PPP, net of deferred income — — — — — Tax-exempt — — — — — Consumer 1 1 — 2 — Total with no related allowance 2,443 2,348 — 3,579 106 With allowance recorded: Real estate: Commercial real estate 2,402 2,189 268 1,533 26 One-to-four family residential 306 299 45 234 1 Construction and development — — — 8 — Commercial and industrial 4,854 3,887 540 6,521 139 SBA PPP, net of deferred income — — — — — Tax-exempt — — — — — Consumer 114 113 111 103 5 Total with related allowance 7,676 6,488 964 8,399 171 Total impaired loans $ 10,119 $ 8,836 $ 964 $ 11,978 $ 277 Information pertaining to impaired loans as of December 31, 2019, is as follows: (in thousands) Unpaid Principal Balance Recorded Investment Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance recorded: Real estate: Commercial real estate $ 1,560 $ 1,537 $ — $ 2,647 $ 74 One-to-four family residential 1,040 984 — 1,194 44 Construction and development — — — 76 — Commercial and industrial 1,805 1,474 — 3,685 3 SBA PPP, net of deferred income — — — — — Tax-exempt — — — — — Consumer 2 2 — 9 — Total with no related allowance 4,407 3,997 — 7,611 121 With allowance recorded: Real estate: Commercial real estate 1,263 1,102 260 1,076 — One-to-four family residential 216 209 31 339 — Construction and development 51 38 10 89 — Commercial and industrial 8,544 7,323 2,916 7,746 299 SBA PPP, net of deferred income — — — — — Tax-exempt — — — — — Consumer 76 73 71 76 4 Total with related allowance 10,150 8,745 3,288 9,326 303 Total impaired loans $ 14,557 $ 12,742 $ 3,288 $ 16,937 $ 424 86 Table of Contents Troubled Debt Restructurings The restructuring of a loan is considered a TDR if the borrower is experiencing financial difficulties and the bank has granted a concession. Concessions grant terms to the borrower that would not be offered for new debt with similar risk characteristics. Concessions typically include interest rate reductions or below market interest rates, revising amortization schedules to defer principal and interest payments, and other changes necessary to provide payment relief to the borrower and minimize the risk of loss. There were no unfunded commitments to extend credit related to these loans. A summary of current, past due, and nonaccrual TDR loans as of December 31, 2020, is as follows: (dollars in thousands) Current 30-89 Days Past Due 90 Days or More Past Due Nonaccrual Total TDRs Real estate: Commercial real estate $ 1,151 $ — $ — $ 1,212 $ 2,363 One-to-four family residential 303 — — — 303 Construction and development — — — — — Commercial and industrial — — — 5 5 SBA PPP, net of deferred income — — — — — Tax-exempt — — — — — Consumer — — — — — Total $ 1,454 $ — $ — $ 1,217 $ 2,671 Number of TDR loans 8 — — 4 12 A summary of current, past due, and nonaccrual TDR loans as of December 31, 2019, is as follows: (dollars in thousands) Current 30-89 Days Past Due 90 Days or More Past Due Nonaccrual Total TDRs Real estate: Commercial real estate $ 1,361 $ — $ — $ 1,278 $ 2,639 One-to-four family residential 252 — — — 252 Construction and development — — — 38 38 Commercial and industrial 36 — — 1,869 1,905 SBA PPP, net of deferred income — — — — — Tax-exempt — — — — — Consumer 46 — — — 46 Total $ 1,695 $ — $ — $ 3,185 $ 4,880 Number of TDR loans 12 — — 6 18 A summary of loans modified as TDRs that occurred during the years ended December 31, 2020 and 2019, is as follows: December 31, 2020 December 31, 2019 Recorded Investment Recorded Investment (dollars in thousands) Loan Count Pre Modification Post Modification Loan Count Pre Modification Post Modification Real estate: Commercial real estate — $ — $ — 1 $ 166 $ 166 One-to-four family residential 1 90 91 1 60 62 Construction and development — — — — — — Commercial and industrial — — — 1 4 4 SBA PPP, net of deferred income — — — — — — Tax-exempt — — — — — — Consumer — — — — — — Total 1 $ 90 $ 91 3 $ 230 $ 232 87 Table of Contents The TDRs described above increased the allowance for loan losses by $ 12,000 and $ 3,000 during the years ended December 31, 2020 and 2019, respectively. Additionally, there were no charge-offs of TDRs in 2020. There was a partial TDR charge-off of $ 250,000 in 2019. There were no TDRs that subsequently defaulted in 2020 or 2019. Short-term loan modifications on loans HFI were made to provide temporary relief to borrowers that have been adversely affected by the outbreak of COVID-19. In accordance with interagency regulatory guidance issued in March 2020 and revised in April 2020, these short-term deferrals are not deemed to be TDRs to the extent they meet the terms of such guidance. Credit Quality Indicators Loans are categorized based on the degree of risk inherent in the credit and the ability of the borrower to service the debt. A description of the general characteristics of the Bank’s risk rating grades follows: Pass - These loans are of satisfactory quality and do not require a more severe classification. Special Mention - This category includes loans with potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan. Substandard - Loans in this category have well defined weaknesses which jeopardize normal repayment of principal and interest. Doubtful - Loans in this category have well defined weaknesses that make full collection improbable. Loss - Loans classified in this category are considered uncollectible and charged-off to the allowance for loan losses. The following table summarizes loans by risk rating as of December 31, 2020: (in thousands) Pass Special Mention Substandard Doubtful Loss Total Real estate: Commercial real estate $ 551,954 $ 555 $ 4,260 $ — $ — $ 556,769 One-to-four family residential 441,374 486 1,029 — — 442,889 Construction and development 126,542 — 779 — — 127,321 Commercial and industrial 245,043 1,310 4,075 — — 250,428 SBA PPP, net of deferred income 118,447 — — — — 118,447 Tax-exempt 68,666 — — — — 68,666 Consumer 23,813 — 113 — — 23,926 Total loans HFI $ 1,575,839 $ 2,351 $ 10,256 $ — $ — $ 1,588,446 The following table summarizes loans by risk rating as of December 31, 2019: (in thousands) Pass Special Mention Substandard Doubtful Loss Total Real estate: Commercial real estate $ 515,926 $ 14,118 $ 1,946 $ — $ — $ 531,990 One-to-four family residential 416,884 2,021 1,115 — — 420,020 Construction and development 131,185 565 711 — — 132,461 Commercial and industrial 247,382 11,473 9,085 — — 267,940 SBA PPP, net of deferred income — — — — — — Tax-exempt 56,494 — — — — 56,494 Consumer 29,876 5 138 — — 30,019 Total loans HFI $ 1,397,747 $ 28,182 $ 12,995 $ — $ — $ 1,438,924 Commitments to Extend Credit Commitments to extend credit are agreements to lend to a customer if all conditions of the commitment have been met. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not 88 Table of Contents necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s evaluation of the customer’s ability to repay. As of December 31, 2020, unfunded loan commitments totaled approximately $ 283.3 million. As of December 31, 2019, unfunded loan commitments totaled approximately $ 257.0 million. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. As of December 31, 2020, commitments under standby letters of credit totaled approximately $ 10.5 million. As of December 31, 2019, commitments under standby letters of credit totaled approximately $ 11.1 million. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. 4. Premises and Equipment, Net Components of premises and equipment were as follows: December 31, (in thousands) 2020 2019 Land $ 16,331 $ 14,495 Buildings 29,854 28,478 Leasehold improvements 2,725 2,720 Furniture and equipment 12,541 12,002 Vehicles 377 341 Computer equipment 3,287 3,185 Projects in process 4,702 1,609 Total premises and equipment 69,817 62,830 Less: Accumulated depreciation ( 22,893 ) ( 21,086 ) Premises and equipment, net $ 46,924 $ 41,744 Depreciation expense amounted to approximately $ 1.9 million and $ 1.7 million for the years ended December 31, 2020 and 2019, respectively. 5. Deposits Deposits were $ 2.34 billion and $ 1.72 billion as of December 31, 2020 and December 31, 2019, respectively. This increase was a result of customers receiving funds from various government stimulus programs, customers depositing the proceeds from their PPP loans, strong deposit account opening activity, and customers maintaining larger deposit balances. Deposits are summarized below: December 31, (in thousands) 2020 2019 Noninterest-bearing demand deposits $ 943,615 $ 584,915 Interest-bearing deposits: NOW accounts 402,572 331,374 Money market accounts 506,902 367,689 Savings accounts 146,264 103,984 Time deposits < $100,000 108,982 110,636 Time deposits $100,000 to $250,000 138,683 131,957 Time deposits > $250,000 93,342 90,565 Total interest-bearing deposits $ 1,396,745 $ 1,136,205 Total deposits $ 2,340,360 $ 1,721,120 89 Table of Contents As of December 31, 2020, the scheduled maturities of all outstanding certificates of deposit were as follows: Years ending December 31, Amount (in thousands) 2021 $ 223,311 2022 55,714 2023 23,977 2024 12,607 2025 11,123 Thereafter 14,275 $ 341,007 As of December 31, 2020 and December 31, 2019, deposits from directors, executive officers, their immediate family members, and related companies totaled approximately $ 81.0 million and $ 30.7 million, respectively. 6. Other Borrowed Funds The Company has established various lines of credit with the FHLB and other correspondent banks to provide additional sources of operating funds. As of December 31, 2020, the Company had a borrowing capacity of $ 611.8 million under these combined agreements. As of December 31, 2020 and 2019, the Company had no borrowings under these agreements. On April 15, 2020, in order to fund PPP loans, the Company borrowed $ 50.0 million from the FHLB for 90 days at a rate of 0.35 % under its existing line of credit. The Company's FHLB line of credit is collateralized by eligible Red River Bank loans. Due to having adequate liquidity, the $ 50.0 million was paid off on May 19, 2020. 7. Leases The Company determines if an arrangement is a lease at inception of the contract and assesses the appropriate classification as operating or financing. Operating leases with terms greater than one year are included in right-of-use assets and lease liabilities on the Company's consolidated balance sheets. Agreements with both lease and non-lease components are accounted for separately, with only the lease component capitalized. Operating right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the term using the interest rate implicit in the contract, when available, or the Company's incremental collateralized borrowing rate with similar terms. The Company maintains six operating leases on land and buildings for banking center facilities under long-term leases. These operating leases contain renewal options for periods ranging from three to five years that expire at various dates through October 31, 2031, with no residual value guarantees. Future obligations relating to the exercise of renewal options is included in the measurement if, based on the judgment of management, the renewal option is reasonably certain to be exercised. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of the renewal rate compared to market rates, and the presence of factors that would cause a significant economic penalty to the Company if the option is not exercised. Management reasonably plans to exercise all options, and as such, all renewal options are included in the measurement of the right-of-use assets and operating lease liabilities. The Company elects to recognize the lease payments on leases with terms of one year or less in its consolidated statements of income on a straight-line basis over the lease term. For each of the years ended December 31, 2020 and 2019, operating lease expenses were $ 549,000 . Operating lease expenses are included as a component of occupancy and equipment expenses within the accompanying consolidated statements of income. Cash paid for amounts included in the measurement of lease liabilities for operating leases totaled $ 520,000 and $ 500,000 for the twelve months ended December 31, 2020 and 2019, respectively. 90 Table of Contents The table below summarizes other information related to the Company's operating leases as of and for the twelve months ended December 31, 2020: As of and for the Year Ended December 31, 2020 Weighted average remaining operating lease term 9.3 years Weighted average operating lease discount rate 3.4 % Future obligations over the primary and renewal option terms of the Company’s long-term operating leases as of December 31, 2020, were as follows: Years Ending December 31, Amount (in thousands) 2021 $ 529 2022 537 2023 539 2024 539 2025 563 Thereafter 2,252 Total lease payments 4,959 Less: Imputed interest ( 726 ) Present value of lease liabilities $ 4,233 The Company's obligations under financing leases are not material and have not been included in assets and liabilities in the financial statements. 8. Income Tax Expense The components of income tax expense for the years ended December 31, 2020 and 2019, were as follows: Years Ended December 31, (in thousands) 2020 2019 Current tax expense $ 6,193 $ 6,196 Deferred tax expense (benefit) 130 ( 556 ) Income tax expense $ 6,323 $ 5,640 The source and tax effect of items reconciling income tax expense to the amount computed by applying the federal income tax rates in effect to income before income tax expense for the years ended December 31, 2020 and 2019, are as follows: December 31, 2020 2019 (dollars in thousands) Amount Percent Amount Percent Income before income tax expense $ 34,468 100.0 % $ 30,464 100.0 % U.S. federal income tax expense 7,238 21.0 % 6,397 21.0 % Nontaxable income ( 1,045 ) ( 3.0 ) % ( 803 ) ( 2.7 ) % Nondeductible expenses 45 0.1 % 22 0.1 % Other 85 0.2 % 24 0.1 % Income tax expense $ 6,323 18.3 % $ 5,640 18.5 % 91 Table of Contents The Company records deferred income taxes on the tax effect of changes in temporary differences. Deferred tax assets (liabilities) are subject to a valuation allowance unless their realization is more likely than not. The deferred tax assets (liabilities) were comprised of the following as of December 31, 2020 and 2019: December 31, (in thousands) 2020 2019 Depreciation $ ( 1,953 ) $ ( 1,467 ) Unrealized gain on securities ( 1,840 ) — FHLB stock dividends ( 19 ) ( 16 ) Gross deferred tax liability ( 3,812 ) ( 1,483 ) Allowance for loan losses 3,400 2,920 Allowance for operational losses 74 36 Health insurance self fund 211 208 Deferred compensation 570 762 Unrealized loss on securities — 6 Equity security valuation ( 5 ) 14 Advance payment 150 187 Accrued bonus 220 139 Other 139 152 Gross deferred tax asset 4,759 4,424 Net deferred tax asset (liability) $ 947 $ 2,941 9. Employee Benefits The Company adopted a contributory retirement plan for employees of Red River Bank effective March 1, 1999, and amended as of December 22, 2015. The plan covers all employees who meet the length of service and the number of hours worked requirements and elect to participate. Discretionary employer contributions during the years ended December 31, 2020 and 2019, totaled approximately $ 625,000 and $ 584,000 , respectively. The Bank has entered into nonqualified deferred compensation agreements with certain employees. These agreements are funded by life insurance policies. The Bank is the owner and beneficiary of all policy death benefits. The BOLI policies are recorded as a separate line item at their cash surrender value in the accompanying consolidated balance sheets. The agreements provide for transfer of a portion of the proceeds to certain employees. The related liability recorded was $ 2.3 million and $ 2.0 million as of December 31, 2020 and 2019, respectively. 10. Stock-Based Compensation Plans Equity Incentive Plans On April 17, 2008, the Company adopted its 2008 Equity Incentive Plan that provides for the granting of stock-based arrangements for key employees and non-employee members of the Company’s Board of Directors. The Compensation Committee of the Company’s Board of Directors administers the plan, makes determinations with respect to participation, and authorizes stock-based awards under the plan. To date, the Committee has awarded stock options and restricted stock awards as detailed further below. The 2008 plan expired on December 31, 2018, and no new awards were granted under this plan in 2019 or 2020. As of December 31, 2020, all granted stock options under the 2008 plan were exercised. On October 25, 2018, the Company adopted its 2018 Equity Incentive Plan, which was approved by the Company’s shareholders in April of 2019. The 2018 plan was adopted in anticipation of the expiration of the 2008 plan and provides for the granting of stock-based awards to key employees, directors, and consultants. Similar to the 2008 plan, the Compensation Committee of the Company’s Board of Directors administers the 2018 plan, makes determinations with respect to participation, and authorizes stock-based awards under the plan. The maximum number of shares of the 92 Table of Contents Company’s common stock available for issuance under the 2018 plan was 200,000 shares . The status of the Company's 2018 Equity Incentive Plan is presented below: 2018 Equity Incentive Plan Number of Shares Awards available for issuance- December 31, 2018 200,000 Awards granted ( 5,975 ) Awards available for issuance - December 31, 2019 194,025 Awards granted ( 5,625 ) Awards available for issuance - December 31, 2020 188,400 All disclosures for stock options and restricted stock shown below relate to outstanding awards under the 2008 and 2018 plans. Disclosures for stock options and restricted stock awards are shown separately due to their dissimilar characteristics. Stock Options In 2020, all outstanding options granted under the 2008 plan were exercised. The options granted under the 2008 plan were to purchase common stock at an exercise price not less than the fair market value of the common stock at the date of the grant. The granted options vested and became exercisable in twenty percent increments on the first through the fifth anniversaries of the date of the grant and would have expired and may not have been exercised later than ten years following the date of the grant. The options were set to expire on various dates through 2022. No options have been granted under the 2018 plan. The fair value of options granted was estimated as of the date granted using the Black Scholes model. No options were granted in 2019 or 2020. The Company funds the stock options from authorized, but unissued, shares. The status of the Company’s stock option plan is presented below: Stock Options Number of Shares Exercise Price Range Weighted Average Price Outstanding - December 31, 2018 28,000 $ 12.32 - $ 17.33 $ 14.85 Exercised (1) ( 7,500 ) $ 12.32 $ 12.32 Outstanding - December 31, 2019 20,500 $ 14.31 - $ 17.33 $ 15.78 Exercised (2) ( 20,500 ) $ 14.31 - $ 17.33 $ 15.78 Outstanding - December 31, 2020 — $ — (1) A total of 300 shares of the Company’s common stock were surrendered in lieu of payment of a portion of the cash exercise price for options exercised during 2019, resulting in the net issuance upon exercise of an aggregate of 7,200 shares of the Company’s common stock. (2) A total of 5,780 shares of the Company’s common stock were surrendered in lieu of payment of a portion of the cash exercise price for options exercised during 2020, resulting in the net issuance upon exercise of an aggregate of 14,720 shares of the Company’s common stock. As of December 31, 2020, all options were fully vested and exercised. There were no outstanding options as of December 31, 2020. As of December 31, 2019, 20,500 of the outstanding options were fully vested and exercisable with an intrinsic value of approximately $ 826,000 . The weighted average remaining term for vested options was 1.32 years. No shares vested during the year ended December 31, 2019. Restricted Stock Awards The restricted stock awards issued under the 2008 and 2018 plans provide common stock to recipients at the grant date. The restrictions vest in twenty percent increments on the first through fifth anniversaries of the grant date. Compensation expense for these grants is recognized ratably over the vesting period of the awards based on the fair value of the stock at the grant date. 93 Table of Contents During 2020, the Committee granted 5,625 restricted stock awards with a weighted average fair value of $ 42.35 . For the year ended December 31, 2020, the compensation expense for the vested restricted stock was $ 276,000 . As of December 31, 2020, there was approximately $ 604,000 of total unrecognized compensation cost related to restricted stock awards. That cost is expected to be recognized over a weighted average period of 4.5 years. During 2019, the Committee granted 5,975 restricted stock awards with a weighted average fair value of $ 48.15 . For the year ended December 31, 2019, the compensation expense for the vested restricted stock was $ 227,000 . As of December 31, 2019, there was approximately $ 641,000 of total unrecognized compensation cost related to restricted stock awards. That cost is expected to be recognized over a weighted average period of 4.5 years. The Company funds the restricted stock from authorized, but unissued, shares. The status of the Company's nonvested restricted stock is presented below: Nonvested Restricted Stock Number of Shares Weighted Average Grant Date Fair Value Nonvested - December 31, 2018 21,190 $ 32.10 Granted 5,975 $ 48.15 Vested ( 6,560 ) $ 30.26 Nonvested - December 31, 2019 20,605 $ 37.34 Granted 5,625 $ 42.35 Vested ( 8,575 ) $ 33.65 Nonvested - December 31, 2020 17,655 $ 40.73 Director Compensation Program The Company has a Director Compensation Program. This program allows directors the option of receiving a portion of their payment for director fees, for attendance at board meetings, in Company stock. Under the program, board fees are earned and expensed in one year and the related stock is issued the following year. The Director Compensation Program stock earned and the issuance of shares as board compensation for the years ended December 31, 2020 and 2019, are as follows: Years Ended December 31, (dollars in thousands) 2020 2019 Share-based board compensation earned $ 62 $ 87 Issuance of shares of common stock as board compensation: Number of shares issued 1,591 2,368 Equity impact of shares issued $ 87 $ 96 11. Self-Insurance The Company is self-insured for group health insurance. The Company’s liability is limited to the aggregate policy deductible of $ 125,000 per individual with a maximum of approximately $ 3.5 million for the group. The Company has reflected its estimated liability for known and incurred but not reported claims in the accompanying financial statements. 12. Off-Balance Sheet Contractual Obligations and Contingencies The Company is a party to financial instruments with off-balance sheet risk in the normal course of business. The contract or notional amounts of these instruments reflect the extent of the Company’s involvement in particular classes of financial instruments. The Company’s exposure is represented by the contractual amount of these commitments. Investment Commitment In 2014, the Company committed to an investment into an SBIC limited partnership. As of December 31, 2020, there was a $ 226,000 outstanding commitment to this partnership. 94 Table of Contents In 2020, the Company committed to an additional investment into an SBIC limited partnership. As of December 31, 2020, there was a $ 5.0 million outstanding commitment to this partnership. Contingencies The Company and the Bank are involved, from time to time, in various legal matters arising in the ordinary course of business. While the outcome of these claims or litigation cannot be determined at this time, in the opinion of management, neither the Company nor the Bank, are involved in such legal proceedings that the resolution is expected to have a material adverse effect on the consolidated results of operations, financial condition, or cash flows. 13. Fair Value The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair Value Disclosure Securities AFS, loans HFS, and equity securities are recorded at fair value on a recurring basis. Additionally, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, foreclosed assets, and other certain assets. The nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. ASC 820, Fair Value Measurements and Disclosures indicates that assets and liabilities are recorded at fair value according to a fair value hierarchy comprised of three levels: Level 1 pricing represents quotes on the exact financial instrument that is traded in active markets. Quoted prices on actively traded equities, for example, are in this category. Level 2 pricing is derived from observable data including market spreads, current and projected rates, prepayment data, and credit quality. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 pricing is derived without the use of observable data. In such case, mark-to-model strategies are typically employed. Often, these types of instruments have no active market, possess unique characteristics, and are thinly traded. The Company used the following methods and significant assumptions to estimate fair value: Investment Securities and other Stocks: The fair values for marketable securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Loans HFS: Residential mortgage loans originated and held for sale are carried at the lower of cost or estimated fair value on an individual basis. The fair values of mortgage loans HFS are based on commitments on hand from investors within the secondary market for loans with similar characteristics. As such, the fair value adjustments for mortgage loans HFS are recurring Level 2. Loans HFI: The Company does not record loans HFI at fair value on a recurring basis. However, from time to time, a loan may be considered impaired and an allowance for loan losses may be established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using estimated fair value methodologies. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company considers the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company considers the impaired loan as nonrecurring Level 3. Foreclosed Assets: Foreclosed assets, consisting of properties obtained through foreclosure or in satisfaction of loans, are reported at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs (Level 2). However, foreclosed assets are considered Level 3 in the fair value hierarchy because management has qualitatively applied a discount due to the size, supply of inventory, and the incremental discounts applied to the appraisals. Management also considers other 95 Table of Contents factors, including changes in absorption rates, length of time the property has been on the market, and anticipated sales values, which have resulted in adjustments to the collateral value estimates indicated in certain appraisals. Fair Value of Assets Measured on a Recurring Basis The table below presents the recorded amount of assets measured at fair value on a recurring basis: (in thousands) Fair Value Level 1 Level 2 Level 3 December 31, 2020 Loans HFS $ 29,116 $ — $ 29,116 $ — Securities AFS: Mortgage-backed securities 274,827 — 274,827 — Municipal bonds 213,281 — 213,281 — U.S. agency securities 10,098 — 10,098 — Equity securities 4,021 4,021 — — December 31, 2019 Loans HFS $ 5,089 $ — $ 5,089 $ — Securities AFS: Mortgage-backed securities 235,671 — 235,671 — Municipal bonds 92,758 — 92,758 — U.S. agency securities 7,144 — 7,144 — Equity securities 3,936 3,936 — — There were no transfers between Level 1, 2, or 3 during the years ended December 31, 2020 or 2019. Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis Financial Assets and Financial Liabilities : Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances. Financial assets measured at fair value on a nonrecurring basis during the reported periods include certain collateral dependent loans reported at fair value of the underlying collateral if repayment is expected solely from the collateral. Prior to foreclosure of these loans, fair value of the collateral is estimated using Level 3 inputs based on customized discounting criteria. The table below presents certain impaired loans that were remeasured and reported at fair value through the allowance for loan losses based upon the fair value of the underlying collateral during the reported periods: Years Ended December 31, (in thousands) 2020 2019 Carrying value of impaired loans before allowance for loan losses $ 6,776 $ 656 Specific allowance for loan losses ( 856 ) ( 67 ) Fair value of impaired loans $ 5,920 $ 589 There were no financial liabilities measured at fair value on a nonrecurring basis. Nonfinancial Assets and Liabilities : Certain nonfinancial assets and nonfinancial liabilities are measured at fair value on a nonrecurring basis. These include certain foreclosed assets, which are remeasured and reported at fair value through a charge-off to allowance for loan losses upon initial recognition. Subsequent to their initial recognition, certain foreclosed assets are remeasured at fair value through a write-down included in other noninterest income. The fair value of foreclosed assets is estimated using Level 3 inputs based on customized discounting criteria less estimated selling costs. 96 Table of Contents The following table presents foreclosed assets that were remeasured and reported at fair value during the reported periods: Years Ended December 31, (in thousands) 2020 2019 Foreclosed assets remeasured at initial recognition: Carrying value of foreclosed assets prior to remeasurement $ 85 $ 969 Charge-offs — ( 29 ) Fair value of foreclosed assets $ 85 $ 940 The following table presents foreclosed assets that were remeasured subsequent to initial recognition and reported at fair value during the reported periods: Years Ended December 31, (in thousands) 2020 2019 Foreclosed assets remeasured subsequent to initial recognition: Carrying value of foreclosed assets prior to remeasurement $ 150 $ — Charge-offs ( 17 ) — Fair value of foreclosed assets $ 133 $ — There were no nonfinancial liabilities measured at fair value on a nonrecurring basis. The unobservable inputs used for the Level 3 fair value measurements on a nonrecurring basis were as follows: (dollars in thousands) Fair Value Valuation Technique Unobservable Input Discount Ranges Weighted Average Discount December 31, 2020 Impaired loans $ 7,872 Discounted appraisals Collateral discounts and costs to sell 0 % - 100 % 10.91 % Foreclosed assets $ 896 Discounted appraisals Collateral discounts and costs to sell 0 % - 13 % 1.86 % December 31, 2019 Impaired loans $ 9,454 Discounted appraisals Collateral discounts and costs to sell 0 % - 100 % 25.80 % Foreclosed assets $ 1,128 Discounted appraisals Collateral discounts and costs to sell 0 % - 36 % 2.60 % 97 Table of Contents Fair Value of Financial Instruments The carrying amounts and estimated fair values of financial instruments as of December 31, 2020 and 2019, were as follows: (in thousands) Carrying Amount Fair Value Level 1 Level 2 Level 3 December 31, 2020 Financial assets: Cash and due from banks $ 29,537 $ 29,537 $ 29,537 $ — $ — Interest-bearing deposits in other banks 417,664 417,664 417,664 — — Securities AFS 498,206 498,206 — 498,206 — Equity securities 4,021 4,021 4,021 — — Nonmarketable equity securities 3,447 3,447 — 3,447 — Loans HFS 29,116 29,116 — 29,116 — Loans HFI, net of allowance 1,570,495 1,578,398 — — 1,578,398 Accrued interest receivable 6,880 6,880 — — 6,880 Financial liabilities: Deposits 2,340,360 2,344,969 — 2,344,969 — Accrued interest payable 1,774 1,774 — 1,774 — December 31, 2019 Financial assets: Cash and due from banks $ 25,937 $ 25,937 $ 25,937 $ — $ — Interest-bearing deposits in other banks 107,355 107,355 107,355 — — Securities AFS 335,573 335,573 — 335,573 — Equity securities 3,936 3,936 3,936 — — Nonmarketable equity securities 1,350 1,350 — 1,350 — Loans HFS 5,089 5,089 — 5,089 — Loans HFI, net of allowance 1,424,987 1,426,163 — — 1,426,163 Accrued interest receivable 5,251 5,251 — — 5,251 Financial liabilities: Deposits 1,721,120 1,721,286 — 1,721,286 — Accrued interest payable 2,222 2,222 — 2,222 — 14. Regulatory Capital Requirements Red River Bank The Bank is subject to various regulatory capital requirements administered by the FDIC. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's and the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The Bank is subject to Basel III capital guidelines. Basel III requires the Bank to maintain certain minimum ratios to meet capital adequacy requirements. In addition, a capital conservation buffer was established above the minimum regulatory capital requirements. Effective January 1, 2019, the final capital conservation buffer was fully phased in at 2.500%. It is management’s belief that, as of December 31, 2020, the Bank met all capital adequacy requirements under Basel III. Management expects that the capital ratios for the Bank under Basel III will continue to exceed capital adequacy requirements. 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. 98 Table of Contents Capital amounts and ratios for Red River Bank as of December 31, 2020 and 2019, are presented in the following table: Regulatory Requirements Actual Minimum Minimum Plus CCB (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio December 31, 2020 Total Risk-Based Capital $ 271,061 17.17 % $ 126,307 8.00 % $ 165,778 10.50 % Tier I Risk-Based Capital $ 253,110 16.03 % $ 94,731 6.00 % $ 134,202 8.50 % Common Equity Tier I Capital $ 253,110 16.03 % $ 71,048 4.50 % $ 110,519 7.00 % Tier I Leverage Capital $ 253,110 9.98 % $ 101,495 4.00 % $ 101,495 4.00 % December 31, 2019 Total Risk-Based Capital $ 238,021 16.23 % $ 117,325 8.00 % $ 153,989 10.50 % Tier I Risk-Based Capital $ 224,084 15.28 % $ 87,994 6.00 % $ 124,658 8.50 % Common Equity Tier I Capital $ 224,084 15.28 % $ 65,995 4.50 % $ 102,660 7.00 % Tier I Leverage Capital $ 224,084 11.47 % $ 78,114 4.00 % $ 78,114 4.00 % Red River Bancshares, Inc. As a general matter, bank holding companies are subject to capital adequacy requirements under applicable Federal Reserve regulations. However, bank holding companies which qualify as "small bank holding companies" under the Federal Reserve's Small Bank Holding Company Policy Statement are exempt from the Federal Reserve's capital adequacy guidelines at the holding company level. In May 2018, the Economic Growth Act was enacted, and it increased the asset threshold for "small bank holding companies" from $1.0 billion to $3.0 billion. Because the Company has less than $3.0 billion in assets, it is no longer subject to capital adequacy guidelines on a consolidated basis. Although the minimum regulatory capital requirements are no longer applicable to the Company, the Company calculates these ratios for its own planning and monitoring purposes. Capital amounts and ratios for Red River Bancshares, Inc. as of December 31, 2020 and 2019, are presented in the following table: Actual (dollars in thousands) Amount Ratio December 31, 2020 Total Risk-Based Capital $ 294,962 18.68 % Tier I Risk-Based Capital $ 277,011 17.55 % Common Equity Tier I Capital $ 277,011 17.55 % Tier I Leverage Capital $ 277,011 10.92 % December 31, 2019 Total Risk-Based Capital $ 264,313 18.02 % Tier I Risk-Based Capital $ 250,376 17.07 % Common Equity Tier I Capital $ 250,376 17.07 % Tier I Leverage Capital $ 250,376 12.82 % Community Bank Leverage Ratio Framework As part of the directive under the Economic Growth Act, 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 is available 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 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. 99 Table of Contents As of December 31, 2020, the Company and the Bank qualify for the CBLR framework. Management does not intend to utilize the CBLR framework . 15. Equity Events IPO The Company's common stock began trading on May 3, 2019, on the Nasdaq Global Select Market under the symbol "RRBI." On May 7, 2019, the Company completed an IPO of its common stock at a public offering price of $ 45.00 per share. A total of 690,000 shares of the Company's common stock were sold in the IPO, of which the Company sold 663,320 shares (including 90,000 shares sold pursuant to the exercise of the underwriters' option to purchase additional shares) and certain shareholders sold 26,680 shares. The Company received net proceeds of $ 26.8 million in the offering. Cash Dividends As a Louisiana corporation, the Company is subject to certain restrictions on dividends under the Louisiana Business Corporation Act. Generally, a Louisiana corporation may pay dividends to its shareholders unless, after giving effect to the dividend, either: (1) the corporation would not be able to pay its debts as they come due in the usual course of business; or (2) the corporation’s total assets would be less than the sum of its total liabilities and the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights of shareholders whose preferential rights are superior to those receiving the dividend. The Company's status as a bank holding company also affects its ability to pay dividends in two additional ways. First, since the Company is a holding company with no material business activities of its own, its ability to pay dividends could become dependent upon the ability of Red River Bank to transfer funds to it in the form of dividends, loans, and advances. The Bank’s ability to pay dividends and make other distributions and payments to the Company is itself subject to various legal, regulatory, and other restrictions, and the present and future dividend policy of Red River Bank is subject to the discretion of its board of directors. Second, as a bank holding company, the Company's payment of dividends must comply with the laws, regulations, and policies of the Federal Reserve. 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. The ability of Red River Bank to pay dividends on its common stock is restricted by Louisiana Banking Law, the FDIA, and by FDIC regulations. In general, the board of directors of a Louisiana state bank may, quarterly, semiannually, or annually, declare or pay dividends on its outstanding capital stock, provided that 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 Office of Financial Institutions is required for a Louisiana state 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 general terms, the FDIA and FDIC regulations restrict the payment of dividends when a bank is undercapitalized, when a bank has failed to pay insurance assessments, or when there are safety and soundness concerns regarding a bank. The Bank and the Company have internal policies regarding dividends. Neither entity would ordinarily pay dividends if following the payment, the entity would not meet minimum capital adequacy plus the CCB requirements. The exception to this policy is in situations where the payment of a dividend from the Bank to the Company is necessary for the Company to be able to meet its obligations, and as long as, after such payment the Bank would still meet minimum capital adequacy requirements. Also, the Company's internal policy requires that the Company maintain a common stockholders' equity to total assets ratio of greater than 7.0 % and that trust preferred securities are less than 25.0 % of capital. Taking into consideration the Company's performance and capital levels, dividends were paid in both 2019 and 2020. In February 2019, the Company paid an annual cash dividend of $ 0.20 per share. During 2020, a quarterly cash dividend of $ 0.06 per share was paid each quarter, resulting in $ 0.24 per share in cash dividends for the year ended December 31, 2020. Stock Repurchase Program On August 27, 2020, the Company's Board of Directors approved a stock repurchase program. The repurchase program authorizes the Company to purchase up to $ 3.0 million of its outstanding shares of common stock through August 27, 2021. Repurchases may be made from time to time in the open market at prevailing prices and based on market conditions, or in privately negotiated transactions. For the year ended December 31, 2020, the Company repurchased 2,824 shares, at an aggregate cost of $ 122,000 . 100 Table of Contents 16. Earnings Per Common Share Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, after giving retroactive effect to stock splits. Diluted EPS includes accrued but unissued shares relating to the Director Compensation Program, stock options, and restricted stock determined using the treasury stock method. The dilutive EPS calculation assumes all outstanding stock options to purchase common stock have been exercised at the beginning of the year and the pro forma proceeds from the exercised options and restricted stock are used to purchase common stock at the average fair market valuation price. The computations of basic and diluted earnings per common share for the Company were as follows: Years Ended December 31, (in thousands, except share amounts) 2020 2019 Numerator: Net income - basic $ 28,145 $ 24,824 Net income - diluted $ 28,145 $ 24,824 Denominator: Weighted average shares outstanding - basic 7,322,158 7,072,689 Plus: Effect of Director Compensation Program 1,259 1,554 Plus: Effect of stock options and restricted stock 21,628 41,271 Weighted average shares outstanding - diluted 7,345,045 7,115,514 Earnings per common share: Basic $ 3.84 $ 3.51 Diluted $ 3.83 $ 3.49 101 Table of Contents 17. Quarterly Results of Operations (Unaudited) The following tables present certain unaudited consolidated quarterly financial information regarding the Company's results of operations for each of the eight consecutive quarters in the fiscal years of 2020 and 2019. This information is derived from unaudited consolidated financial statements that include, in our opinion, all adjustments necessary for a fair presentation when read in conjunction with the Company's consolidated financial statements and notes thereto as of and for the years ended December 31, 2020 and 2019. 2020 (in thousands, except per share data) 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Interest and dividend income $ 20,526 $ 19,249 $ 19,023 $ 18,580 Interest expense 1,865 1,954 2,067 2,492 Net interest income 18,661 17,295 16,956 16,088 Provision for loan losses 2,675 1,590 1,525 503 Net interest income after provision for loan losses 15,986 15,705 15,431 15,585 Noninterest income 6,193 6,420 5,823 4,731 Operating expenses 13,336 13,251 12,869 11,950 Income tax expense 1,582 1,589 1,531 1,621 Net income $ 7,261 $ 7,285 $ 6,854 $ 6,745 Earnings per share Basic $ 0.99 $ 0.99 $ 0.94 $ 0.92 Diluted $ 0.99 $ 0.99 $ 0.93 $ 0.92 2019 (in thousands, except per share data) 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter Interest and dividend income $ 18,784 $ 18,781 $ 18,256 $ 17,904 Interest expense 2,441 2,587 2,605 2,452 Net interest income 16,343 16,194 15,651 15,452 Provision for loan losses 378 378 529 526 Net interest income after provision for loan losses 15,965 15,816 15,122 14,926 Noninterest income 4,189 4,386 4,099 3,296 Operating expenses 11,888 11,885 12,404 11,158 Income tax expense 1,523 1,470 1,279 1,368 Net income $ 6,743 $ 6,847 $ 5,538 $ 5,696 Earnings per share Basic $ 0.92 $ 0.94 $ 0.79 $ 0.86 Diluted $ 0.92 $ 0.93 $ 0.78 $ 0.85 102 Table of Contents 18. Parent Company Financial Statements PARENT COMPANY BALANCE SHEETS (dollars in thousands, except share amounts) December 31, 2020 2019 ASSETS Cash and cash equivalents $ 23,868 $ 26,264 Investment in subsidiary bank 261,577 225,606 Other assets 33 28 Total Assets $ 285,478 $ 251,898 LIABILITIES Total Liabilities $ — $ — STOCKHOLDERS' EQUITY Preferred stock, no par value: Authorized - 1,000,000 shares; None Issued and Outstanding — — Common stock, no par value: Authorized - 30,000,000 shares; Issued and Outstanding - 7,325,333 and 7,306,221 shares 68,055 68,082 Additional paid-in capital 1,545 1,269 Retained earnings 208,957 182,571 Accumulated other comprehensive income (loss) 6,921 ( 24 ) Total Stockholders' Equity 285,478 251,898 Total Liabilities and Stockholders' Equity $ 285,478 $ 251,898 103 Table of Contents PARENT COMPANY STATEMENTS OF INCOME (in thousands) Years ended December 31, 2020 2019 INCOME Interest and dividend income from subsidiaries $ — $ 428 Total income — 428 EXPENSES Interest on junior subordinated debentures — 385 Technology expenses 85 76 Legal and professional expenses 988 575 Other operating expenses 41 81 Total expenses 1,114 1,117 Income tax expense (benefit) ( 233 ) ( 145 ) Income (Loss) Before Equity in Undistributed Earnings of Subsidiaries ( 881 ) ( 544 ) Equity in undistributed earnings of subsidiaries 29,026 25,368 Net Income $ 28,145 $ 24,824 104 Table of Contents PARENT COMPANY STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 28,145 $ 24,824 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of debt issuance costs — 38 Undistributed earnings of subsidiaries ( 29,026 ) ( 25,368 ) Other operating activities, net 358 834 Net cash provided by (used in) operating activities ( 523 ) 328 CASH FLOWS FROM INVESTING ACTIVITIES (Increase) Decrease interest-bearing deposits in subsidiary bank — 8,000 Net cash provided by (used in) investing activities — 8,000 CASH FLOWS FROM FINANCING ACTIVITIES Redemption of junior subordinated debentures — ( 11,341 ) Repurchase of common stock ( 122 ) — Proceeds from exercise of stock options 8 80 Proceeds from initial public offering, net — 26,812 Cash dividends ( 1,759 ) ( 1,326 ) Net cash provided by (used in) financing activities ( 1,873 ) 14,225 Net change in cash and cash equivalents ( 2,396 ) 22,553 Cash and cash equivalents - beginning of year 26,264 3,711 Cash and cash equivalents - end of year $ 23,868 $ 26,264 105 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.