RED RIVER BANCSHARES INC 10-Q

Item 1. Financial Statements RED RIVER BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share amounts) June 30, 2021 December 31, 2020 ASSETS Cash and due from banks $ 33,728 $ 29,537 Interest-bearing deposits in other banks 633,744 417,664 Total Cash and Cash Equivalents 667,472 447,201 Securities available-for-sale 512,012 498,206 Equity securities 3,961 4,021 Nonmarketable equity securities 3,449 3,447 Loans held for sale 12,291 29,116 Loans held for investment 1,600,388 1,588,446 Allowance for loan losses ( 19,460 ) ( 17,951 ) Premises and equipment, net 47,414 46,924 Accrued interest receivable 6,039 6,880 Bank-owned life insurance 27,710 22,413 Intangible assets 1,546 1,546 Right-of-use assets 3,950 4,154 Other assets 11,704 8,231 Total Assets $ 2,878,476 $ 2,642,634 LIABILITIES Noninterest-bearing deposits $ 1,031,486 $ 943,615 Interest-bearing deposits 1,538,113 1,396,745 Total Deposits 2,569,599 2,340,360 Accrued interest payable 1,432 1,774 Lease liabilities 4,042 4,233 Accrued expenses and other liabilities 10,479 10,789 Total Liabilities 2,585,552 2,357,156 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 - 7,284,994 and 7,325,333 shares 65,934 68,055 Additional paid-in capital 1,692 1,545 Retained earnings 224,240 208,957 Accumulated other comprehensive income (loss) 1,058 6,921 Total Stockholders' Equity 292,924 285,478 Total Liabilities and Stockholders' Equity $ 2,878,476 $ 2,642,634 The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three Months Ended June 30, For the Six Months Ended June 30, (in thousands, except per share data) 2021 2020 2021 2020 INTEREST AND DIVIDEND INCOME Interest and fees on loans $ 16,351 $ 17,076 $ 33,517 $ 33,542 Interest on securities 2,138 1,876 4,027 3,667 Interest on federal funds sold 25 37 47 150 Interest on deposits in other banks 129 32 229 238 Dividends on stock 1 2 2 6 Total Interest and Dividend Income 18,644 19,023 37,822 37,603 INTEREST EXPENSE Interest on deposits 1,397 2,051 2,984 4,543 Interest on other borrowed funds — 16 — 16 Total Interest Expense 1,397 2,067 2,984 4,559 Net Interest Income 17,247 16,956 34,838 33,044 Provision for loan losses 150 1,525 1,600 2,028 Net Interest Income After Provision for Loan Losses 17,097 15,431 33,238 31,016 NONINTEREST INCOME Service charges on deposit accounts 1,140 718 2,199 1,946 Debit card income, net 1,204 896 2,250 1,651 Mortgage loan income 2,357 1,947 5,239 2,835 Brokerage income 806 395 1,640 1,139 Loan and deposit income 395 627 868 927 Bank-owned life insurance income 164 144 297 287 Gain (Loss) on equity securities 11 33 ( 59 ) 96 Gain (Loss) on sale and call of securities 34 840 193 1,223 SBIC income 239 190 480 368 Other income 53 33 71 82 Total Noninterest Income 6,403 5,823 13,178 10,554 OPERATING EXPENSES Personnel expenses 8,110 7,646 16,131 14,995 Occupancy and equipment expenses 1,329 1,235 2,608 2,419 Technology expenses 744 615 1,408 1,202 Advertising 226 215 409 476 Other business development expenses 307 256 607 551 Data processing expense 532 471 917 921 Other taxes 532 438 1,057 875 Loan and deposit expenses 193 273 448 519 Legal and professional expenses 368 605 737 1,100 Regulatory assessment expenses 213 139 414 164 Other operating expenses 838 976 1,819 1,597 Total Operating Expenses 13,392 12,869 26,555 24,819 Income Before Income Tax Expense 10,108 8,385 19,861 16,751 Income tax expense 1,869 1,531 3,557 3,152 Net Income $ 8,239 $ 6,854 $ 16,304 $ 13,599 EARNINGS PER SHARE Basic $ 1.13 $ 0.94 $ 2.23 $ 1.86 Diluted $ 1.13 $ 0.93 $ 2.22 $ 1.85 The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three Months Ended June 30, For the Six Months Ended June 30, (in thousands) 2021 2020 2021 2020 Net income $ 8,239 $ 6,854 $ 16,304 $ 13,599 Other comprehensive income (loss): Unrealized net gain (loss) on securities arising during period 1,792 1,386 ( 7,229 ) 9,126 Tax effect ( 377 ) ( 291 ) 1,518 ( 1,916 ) (Gain) loss on sale of securities included in net income ( 34 ) ( 840 ) ( 193 ) ( 1,223 ) Tax effect 8 177 41 257 Total other comprehensive income (loss) 1,389 432 ( 5,863 ) 6,244 Comprehensive Income $ 9,628 $ 7,286 $ 10,441 $ 19,843 The accompanying notes are an integral part of these unaudited consolidated financial statements. 7 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (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, 2019 7,306,221 $ 68,082 $ 1,269 $ 182,571 $ ( 24 ) $ 251,898 Net income — — — 6,745 — 6,745 Stock incentive plan — — 64 — — 64 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 Cash dividend - $ 0.06 per common share — — — ( 439 ) — ( 439 ) Other comprehensive income (loss) — — — — 5,812 5,812 Balance as of March 31, 2020 7,322,532 $ 68,177 $ 1,333 $ 188,877 $ 5,788 $ 264,175 Net income — — — 6,854 — 6,854 Stock incentive plan — — 96 — — 96 Cash dividend - $ 0.06 per common share — — — ( 440 ) — ( 440 ) Other comprehensive income (loss) — — — — 432 432 Balance as of June 30, 2020 7,322,532 $ 68,177 $ 1,429 $ 195,291 $ 6,220 $ 271,117 Balance as of December 31, 2020 7,325,333 $ 68,055 $ 1,545 $ 208,957 $ 6,921 $ 285,478 Net income — — — 8,065 — 8,065 Stock incentive plan — — 93 — — 93 Issuance of shares of common stock as board compensation 1,075 56 — — — 56 Repurchase of common stock under stock repurchase program ( 19,661 ) ( 1,018 ) — — — ( 1,018 ) Cash dividend - $ 0.07 per common share — — — ( 511 ) — ( 511 ) Other comprehensive income (loss) — — — — ( 7,252 ) ( 7,252 ) Balance as of March 31, 2021 7,306,747 $ 67,093 $ 1,638 $ 216,511 $ ( 331 ) $ 284,911 Net income — — — 8,239 — 8,239 Stock incentive plan — — 54 — — 54 Forfeiture of restricted shares of common stock ( 100 ) — — — — — Repurchase of common stock under stock repurchase program ( 21,653 ) ( 1,159 ) — — — ( 1,159 ) Cash dividend - $ 0.07 per share — — — ( 510 ) — ( 510 ) Other comprehensive income (loss) — — — — 1,389 1,389 Balance as of June 30, 2021 7,284,994 $ 65,934 $ 1,692 $ 224,240 $ 1,058 $ 292,924 The accompanying notes are an integral part of these unaudited consolidated financial statements. 8 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, (in thousands) 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 16,304 $ 13,599 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 932 900 Amortization 317 260 Share-based compensation earned 147 160 Share-based board compensation earned 26 35 (Gain) Loss on other assets owned ( 22 ) 9 Net (accretion) amortization on securities AFS 1,407 1,293 (Gain) Loss on sale and call of securities ( 193 ) ( 1,223 ) Provision for loan losses 1,600 2,028 Deferred income tax (benefit) expense ( 1,119 ) ( 292 ) Net (increase) decrease in loans HFS 16,825 ( 9,489 ) Net (increase) decrease in accrued interest receivable 841 ( 1,241 ) Net (increase) decrease in BOLI ( 297 ) ( 286 ) Net increase (decrease) in accrued interest payable ( 342 ) ( 228 ) Net increase (decrease) in accrued income taxes payable ( 621 ) 3,108 Other operating activities, net ( 467 ) 1,819 Net cash provided by (used in) operating activities 35,338 10,452 CASH FLOWS FROM INVESTING ACTIVITIES Activity in securities AFS: Sales 111,535 86,925 Maturities, principal repayments, and calls 54,607 42,076 Purchases ( 188,583 ) ( 198,841 ) Purchase of nonmarketable equity securities ( 2 ) ( 2,091 ) Capital contribution in partnerships ( 40 ) — Net (increase) decrease in loans HFI ( 12,299 ) ( 177,480 ) Purchase of bank owned life insurance ( 5,000 ) — Proceeds from sales of foreclosed assets 96 302 Purchases of premises and equipment ( 1,422 ) ( 615 ) Net cash provided by (used in) investing activities ( 41,108 ) ( 249,724 ) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits 229,239 348,202 Proceeds from other borrowed funds — 50,000 Repayments of other borrowed funds — ( 50,000 ) Repurchase of common stock ( 2,177 ) — Proceeds from exercise of stock options — 8 Cash dividends ( 1,021 ) ( 879 ) Net cash provided by (used in) financing activities 226,041 347,331 Net change in cash and cash equivalents 220,271 108,059 Cash and cash equivalents - beginning of period 447,201 133,292 Cash and cash equivalents - end of period $ 667,472 $ 241,351 The accompanying notes are an integral part of these unaudited consolidated financial statements. 9 Table of Contents RED RIVER BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) (in thousands) For the Six Months Ended June 30, 2021 2020 SUPPLEMENTAL DISCLOSURES Cash paid during the year for: Interest $ 3,325 $ 4,788 Income taxes $ 5,311 $ 317 SUPPLEMENTAL INFORMATION FOR NON-CASH INVESTING AND FINANCING ACTIVITIES Assets acquired in settlement of loans $ 266 $ 23 The accompanying notes are an integral part of these unaudited consolidated financial statements. 10 Table of Contents RED RIVER BANCSHARES, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with GAAP for interim financial information, general practices within the financial services industry, and with instructions for Form 10-Q and Regulation S-X. Accordingly, these interim financial statements do not include all of the information or footnotes required by GAAP for annual financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the interim periods disclosed herein are not necessarily indicative of the results which may be expected for the entire fiscal year. These statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Certain prior period amounts have been reclassified to conform to the current period presentation. These changes in presentation did not have a material impact on the Company's financial condition or results of operations. Critical Accounting Policies and Estimates There were no material changes or developments during the reporting period with respect to methodologies the Company uses when applying critical accounting policies and developing critical accounting estimates as disclosed in Note 1 of the notes to the audited consolidated financial statements for the year ended December 31, 2020, that were included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the Company’s financial condition, results of operations, comprehensive income, changes in stockholders’ equity, and cash flows for the interim period presented. These adjustments are of a normal recurring nature and include appropriate estimated provisions. Recent Accounting Pronouncements 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 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 . 2. Securities Securities held for indefinite periods of time are classified as AFS and carried at estimated fair value. Investment activity for the six months ended June 30, 2021, included $ 188.6 million of securities purchased, partially offset by $ 111.5 million in sales and $ 54.6 million in maturities, principal repayments, and calls. The net unrealized gain on the securities AFS portfolio decreased $ 7.4 million for the six months ended June 30, 2021. 11 Table of Contents The amortized cost and estimated fair values of securities AFS are summarized in the following tables: June 30, 2021 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Securities AFS: Mortgage-backed securities $ 296,205 $ 1,913 $ ( 4,340 ) $ 293,778 Municipal bonds 207,413 4,142 ( 504 ) 211,051 U.S. agency securities 7,055 153 ( 25 ) 7,183 Total Securities AFS $ 510,673 $ 6,208 $ ( 4,869 ) $ 512,012 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 The amortized costs and estimated fair value of debt securities as of June 30, 2021, 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 $ 4,069 $ 4,077 After one year but within five years 30,116 30,758 After five years but within ten years 40,610 41,716 After ten years 435,878 435,461 Total $ 510,673 $ 512,012 Information pertaining to securities with gross unrealized losses as of June 30, 2021 and December 31, 2020, 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 June 30, 2021 Securities AFS: Mortgage-backed securities $ ( 4,340 ) $ 214,411 $ — $ — Municipal bonds ( 504 ) 32,969 — — U.S. agency securities ( 25 ) 2,955 — — Total Securities AFS $ ( 4,869 ) $ 250,335 $ — $ — 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 $ — $ — 12 Table of Contents As of June 30, 2021, the Company held 97 securities that were in unrealized loss positions. The aggregate unrealized loss of these securities as of June 30, 2021, was 0.95 % 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 the 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 six months ended June 30, 2021, or the year ended December 31, 2020. The proceeds from sales and calls of securities AFS and their gross gain (loss) for the three and six months ended June 30, 2021 and 2020, are shown below: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2021 2020 2021 2020 Proceeds (1) $ 50,399 $ 55,765 $ 115,168 $ 86,925 Gross gain $ 408 $ 861 $ 850 $ 1,316 Gross loss $ ( 374 ) $ ( 21 ) $ ( 657 ) $ ( 93 ) (1) The proceeds include the gross gain and loss. Pledged Securities Securities with carrying values of approximately $ 114.3 million and $ 105.1 million were pledged to secure public entity deposits as of June 30, 2021 and December 31, 2020, respectively. 13 Table of Contents 3. Loans and Asset Quality Loans Loans HFI by category and loans HFS are summarized below: (in thousands) June 30, 2021 December 31, 2020 Real estate: Commercial real estate $ 578,005 $ 556,769 One-to-four family residential 462,611 442,889 Construction and development 101,073 127,321 Commercial and industrial 280,004 250,428 SBA PPP, net of deferred income 82,972 118,447 Tax-exempt 73,289 68,666 Consumer 22,434 23,926 Total loans HFI $ 1,600,388 $ 1,588,446 Total loans HFS $ 12,291 $ 29,116 Allowance for Loan Losses The following table summarizes the activity in the allowance for loan losses by category for the six months ended June 30, 2021: (in thousands) Beginning Balance December 31, 2020 Provision for Loan Losses Charge-offs Recoveries Ending Balance June 30, 2021 Real estate: Commercial real estate $ 5,798 $ 730 $ — $ — $ 6,528 One-to-four family residential 5,390 412 ( 10 ) 7 5,799 Construction and development 1,699 ( 326 ) — 1 1,374 Commercial and industrial 3,631 698 ( 40 ) 13 4,302 SBA PPP, net of deferred income 318 ( 91 ) — — 227 Tax-exempt 680 69 — — 749 Consumer 435 108 ( 163 ) 101 481 Total allowance for loan losses $ 17,951 $ 1,600 $ ( 213 ) $ 122 $ 19,460 The following table summarizes the activity in the allowance for loan losses by category for the twelve months ended December 31, 2020: (in thousands) Beginning Balance December 31, 2019 Provision for Loan Losses Charge-offs Recoveries Ending Balance December 31, 2020 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 14 Table of Contents The balance in the allowance for loan losses and the related recorded investment in loans by category as of June 30, 2021, 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 $ 614 $ 5,914 $ — $ 6,528 One-to-four family residential 11 5,788 — 5,799 Construction and development — 1,374 — 1,374 Commercial and industrial 10 4,292 — 4,302 SBA PPP, net of deferred income — 227 — 227 Tax-exempt — 749 — 749 Consumer 106 375 — 481 Total allowance for loan losses $ 741 $ 18,719 $ — $ 19,460 Loans: Real estate: Commercial real estate $ 3,610 $ 574,395 $ — $ 578,005 One-to-four family residential 401 462,210 — 462,611 Construction and development 750 100,323 — 101,073 Commercial and industrial 800 279,204 — 280,004 SBA PPP, net of deferred income — 82,972 — 82,972 Tax-exempt — 73,289 — 73,289 Consumer 106 22,328 — 22,434 Total loans HFI $ 5,667 $ 1,594,721 $ — $ 1,600,388 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 15 Table of Contents Past Due and Nonaccrual Loans A summary of current, past due, and nonaccrual loans as of June 30, 2021, 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 $ 577,258 $ — $ — $ 747 $ 578,005 One-to-four family residential 462,380 — — 231 462,611 Construction and development 100,824 — — 249 101,073 Commercial and industrial 279,198 7 — 799 280,004 SBA PPP, net of deferred income 82,972 — — — 82,972 Tax-exempt 73,289 — — — 73,289 Consumer 22,396 37 1 — 22,434 Total loans HFI $ 1,598,317 $ 44 $ 1 $ 2,026 $ 1,600,388 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 16 Table of Contents Impaired Loans Impaired loans include TDRs and performing and nonperforming loans. Information pertaining to impaired loans as of June 30, 2021, is as follows: (in thousands) Unpaid Principal Balance Recorded Investment Related Allowance Average Recorded Investment With no related allowance recorded: Real estate: Commercial real estate $ 1,659 $ 1,656 $ — $ 1,488 One-to-four family residential 343 311 — 652 Construction and development 750 750 — 250 Commercial and industrial 1,730 786 — 323 SBA PPP, net of deferred income — — — — Tax-exempt — — — — Consumer — — — 1 Total with no related allowance 4,482 3,503 — 2,714 With allowance recorded: Real estate: Commercial real estate 1,958 1,954 614 1,947 One-to-four family residential 90 90 11 212 Construction and development — — — — Commercial and industrial 14 14 10 2,587 SBA PPP, net of deferred income — — — — Tax-exempt — — — — Consumer 106 106 106 109 Total with related allowance 2,168 2,164 741 4,855 Total impaired loans $ 6,650 $ 5,667 $ 741 $ 7,569 17 Table of Contents 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 With no related allowance recorded: Real estate: Commercial real estate $ 1,459 $ 1,428 $ — $ 1,417 One-to-four family residential 891 827 — 987 Construction and development — — — — Commercial and industrial 92 92 — 1,173 SBA PPP, net of deferred income — — — — Tax-exempt — — — — Consumer 1 1 — 2 Total with no related allowance 2,443 2,348 — 3,579 With allowance recorded: Real estate: Commercial real estate 2,402 2,189 268 1,533 One-to-four family residential 306 299 45 234 Construction and development — — — 8 Commercial and industrial 4,854 3,887 540 6,521 SBA PPP, net of deferred income — — — — Tax-exempt — — — — Consumer 114 113 111 103 Total with related allowance 7,676 6,488 964 8,399 Total impaired loans $ 10,119 $ 8,836 $ 964 $ 11,978 The interest income recognized on impaired loans for the three months ended June 30, 2021 and June 30, 2020, was $ 21,000 and $ 71,000 , respectively. The interest income recognized on impaired loans for the six months ended June 30, 2021 and June 30, 2020, was $ 86,000 and $ 162,000 , respectively. 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 as of June 30, 2021 or December 31, 2020. A summary of current, past due, and nonaccrual TDR loans as of June 30, 2021, 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 $ 1,782 $ — $ — $ — $ 1,782 One-to-four family residential 296 — — — 296 Construction and development — — — — — Commercial and industrial — — — — — SBA PPP, net of deferred income — — — — — Tax-exempt — — — — — Consumer — — — — — Total $ 2,078 $ — $ — $ — $ 2,078 Number of TDR loans 10 — — — 10 18 Table of Contents 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 There were no loans modified as TDRs during the six months ended June 30, 2021 and June 30, 2020. Additionally, there were no defaults on loans during the six months ended June 30, 2021 or June 30, 2020, that had been modified as a TDR during the prior twelve months. 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 June 30, 2021: (in thousands) Pass Special Mention Substandard Doubtful Loss Total Real estate: Commercial real estate $ 573,788 $ 521 $ 3,696 $ — $ — $ 578,005 One-to-four family residential 461,909 331 371 — — 462,611 Construction and development 100,466 — 607 — — 101,073 Commercial and industrial 274,360 2,016 3,628 — — 280,004 SBA PPP, net of deferred income 82,972 — — — — 82,972 Tax-exempt 73,289 — — — — 73,289 Consumer 22,327 — 107 — — 22,434 Total loans HFI $ 1,589,111 $ 2,868 $ 8,409 $ — $ — $ 1,600,388 19 Table of Contents 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 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 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 June 30, 2021, unfunded loan commitments totaled approximately $ 315.5 million. As of December 31, 2020, unfunded loan commitments totaled approximately $ 283.3 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 June 30, 2021, commitments under standby letters of credit totaled approximately $ 12.0 million. As of December 31, 2020, commitments under standby letters of credit totaled approximately $ 10.5 million. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. 4. Deposits Deposits were $ 2.57 billion and $ 2.34 billion as of June 30, 2021 and December 31, 2020, respectively. This increase was a result of customers receiving funds from government stimulus programs, customers depositing the proceeds from their PPP2 loans, and customers maintaining larger deposit balances. Deposits are summarized below: (in thousands) June 30, 2021 December 31, 2020 Noninterest-bearing deposits $ 1,031,486 $ 943,615 Interest-bearing deposits: NOW accounts 383,753 402,572 Money market accounts 637,845 506,902 Savings accounts 173,428 146,264 Time deposits < $100,000 110,105 108,982 Time deposits $100,000 to $250,000 137,879 138,683 Time deposits > $250,000 95,103 93,342 Total interest-bearing deposits 1,538,113 1,396,745 Total deposits $ 2,569,599 $ 2,340,360 5. 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. 20 Table of Contents 6. 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 cases, 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 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. 21 Table of Contents 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 June 30, 2021 Loans HFS $ 12,291 $ — $ 12,291 $ — Securities AFS: Mortgage-backed securities 293,778 — 293,778 — Municipal bonds 211,051 — 211,051 — U.S. agency securities 7,183 — 7,183 — Equity securities 3,961 3,961 — — 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 — — There were no transfers between Level 1, 2, or 3 for the six months ended June 30, 2021 and the year ended December 31, 2020. 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 include certain impaired 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: For the Six Months Ended (in thousands) June 30, 2021 June 30, 2020 Carrying value of impaired loans before allowance for loan losses $ 1,537 $ 585 Specific allowance for loan losses ( 10 ) ( 290 ) Fair value of impaired loans $ 1,527 $ 295 We did not have any financial liabilities measured at fair value on a nonrecurring basis for the six months ended June 30, 2021 and June 30, 2020. 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 the allowance for loan losses upon initial recognition as a foreclosed asset. Subsequent to their initial recognition, certain foreclosed assets are remeasured at fair value through an adjustment 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. 22 Table of Contents The following table presents foreclosed assets that were remeasured and reported at fair value during the reported periods: For the Six Months Ended (in thousands) June 30, 2021 June 30, 2020 Foreclosed assets remeasured at initial recognition: Carrying value of foreclosed assets prior to remeasurement $ 266 $ 23 Charge-offs — — Fair value of foreclosed assets $ 266 $ 23 There were no foreclosed assets that were remeasured subsequent to initial recognition for the six months ended June 30, 2021 or June 30, 2020. We did not have any nonfinancial liabilities measured at fair value on a nonrecurring basis for the six months ended June 30, 2021 and June 30, 2020. The unobservable inputs used for the Level 3 fair value measurements on a nonrecurring basis are as follows: (dollars in thousands) Fair Value Valuation Technique Unobservable Input Discount Ranges Weighted Average Discount June 30, 2021 Impaired loans $ 4,926 Discounted appraisals Collateral discounts and costs to sell 0 % - 100 % 13.08 % Foreclosed assets $ 1,059 Discounted appraisals Collateral discounts and costs to sell N/A N/A 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 % 23 Table of Contents Fair Value of Financial Instruments The carrying amounts and estimated fair values of financial instruments as of June 30, 2021 and December 31, 2020, were as follows: (in thousands) Carrying Amount Fair Value Level 1 Level 2 Level 3 June 30, 2021 Financial assets: Cash and due from banks $ 33,728 $ 33,728 $ 33,728 $ — $ — Interest-bearing deposits in other banks 633,744 633,744 633,744 — — Securities AFS 512,012 512,012 — 512,012 — Equity securities 3,961 3,961 3,961 — — Nonmarketable equity securities 3,449 3,449 — 3,449 — Loans HFS 12,291 12,291 — 12,291 — Loans HFI, net of allowance 1,580,928 1,588,641 — — 1,588,641 Accrued interest receivable 6,039 6,039 — — 6,039 Financial liabilities: Deposits 2,569,599 2,572,486 — 2,572,486 — Accrued interest payable 1,432 1,432 — 1,432 — 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 — 7. 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 its 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 June 30, 2021, 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. 24 Table of Contents Capital amounts and ratios for Red River Bank as of June 30, 2021 and December 31, 2020, are presented in the following table: Regulatory Requirements Actual Minimum Minimum Plus CCB (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio June 30, 2021 Total Risk-Based Capital $ 289,125 17.83 % $ 129,746 8.00 % $ 170,291 10.50 % Tier I Risk-Based Capital $ 269,665 16.63 % $ 97,309 6.00 % $ 137,855 8.50 % Common Equity Tier I Capital $ 269,665 16.63 % $ 72,982 4.50 % $ 113,527 7.00 % Tier I Leverage Capital $ 269,665 9.41 % $ 114,627 4.00 % $ 114,627 4.00 % 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 % 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 had less than $3.0 billion in assets as of June 30, 2020, the last applicable measurement date, it is not subject to capital adequacy guidelines on a consolidated basis. Although the minimum regulatory capital requirements are not 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 June 30, 2021 and December 31, 2020, are presented in the following table: Actual (dollars in thousands) Amount Ratio June 30, 2021 Total Risk-Based Capital $ 309,780 19.10 % Tier I Risk-Based Capital $ 290,320 17.90 % Common Equity Tier I Capital $ 290,320 17.90 % Tier I Leverage Capital $ 290,320 10.13 % 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 % 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 1 leverage ratio of greater than 9.00% (subsequently temporarily reduced to 8.00% for 2020 and 8.50% for 2021 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. 25 Table of Contents As of June 30, 2021, the Company and the Bank qualify for the CBLR framework. Management does not intend to utilize the CBLR framework. 8. 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 Amended and Restated 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: For the Three Months Ended June 30, For the Six Months Ended June 30, (in thousands, except per share amounts) 2021 2020 2021 2020 Numerator: Net income - basic $ 8,239 $ 6,854 $ 16,304 $ 13,599 Net income - diluted $ 8,239 $ 6,854 $ 16,304 $ 13,599 Denominator: Weighted average shares outstanding - basic 7,300,040 7,322,532 7,308,968 7,317,906 Plus: Effect of Director Compensation Program 283 869 514 800 Plus: Effect of stock options and restricted stock 19,028 25,371 19,028 32,204 Weighted average shares outstanding - diluted 7,319,351 7,348,772 7,328,510 7,350,910 Earnings per common share: Basic $ 1.13 $ 0.94 $ 2.23 $ 1.86 Diluted $ 1.13 $ 0.93 $ 2.22 $ 1.85 9. 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 three months ended June 30, 2021, the Company repurchased 21,653 shares of its common stock at an aggregate cost of $ 1.2 million. For the six months ended June 30, 2021, the Company repurchased 41,314 shares of its common stock at an aggregate cost of $ 2.2 million. 26 Table of Contents