Ownership of our common stock involves a high degree of risk.
−Removed: You should carefully consider the risks described below, together with all other information included in this Annual Report on Form 10-K, including the disclosures in "Item 7.
+Added: You should carefully consider the risks described below, together with all other information included in this Report, including the disclosures in “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included in “Item 8.
−Removed: Financial Statements and Supplementary Data." We believe the risks described below are the risks that are material to us as of the date of this Annual Report on Form 10-K.
+Added: Financial Statements and Supplementary Data.” We believe the risks described below are the risks that are material to us as of the date of this Report.
Any of the following risks, as well as risks of which we are not now aware or currently deem immaterial, could materially and adversely affect our business, financial condition, and results of operations.
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Risks Related to the Ongoing COVID-19 Pandemic
−Removed: The COVID-19 pandemic is adversely affecting our business, financial condition, and results of operations, and the ultimate impact will depend on future developments which are uncertain and cannot be predicted.
+Added: The COVID-19 pandemic could adversely affect our business, financial condition, and results of operations, and the ultimate impact will depend on future developments which are uncertain and cannot be predicted.
The COVID-19 pandemic is creating extensive disruptions to the global economy and to the lives of individuals throughout the world.
−Removed: Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief.
−Removed: The pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, prompted decreases in interest rates, increased economic and market uncertainty, and disrupted trade and supply chains.
−Removed: If these implications continue for a prolonged period or result in sustained economic stress, many of the risk factors identified in this Annual Report on Form 10-K could be exacerbated and such effects could have a material adverse effect on us related to credit, collateral, interest rate risk, profitability, and operations as described in the following sections.
+Added: Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, fiscal stimulus, and legislation designed to deliver monetary aid and other relief.
+Added: The pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, prompted decreases in interest rates in 2020, increased economic and market uncertainty, and disrupted trade and supply chains.
+Added: If these implications continue or result in sustained economic stress, many of the risk factors identified in this Report could be exacerbated and such effects could have a material adverse effect on us related to credit, collateral, interest rate risk, profitability, and operations as described in the following sections.
• Credit and Collateral Risk .
−Removed: The spread of COVID-19 has caused, and may continue to cause, business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability.
+Added: The spread of COVID-19 has caused, and may continue to cause, business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, heightened inflationary pressures, increased unemployment and commercial property vacancy rates, reduced profitability and ability of property owners to make mortgage payments, and overall economic and financial market instability.
All of these factors could cause our customers to be unable to make scheduled loan payments.
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The effects of COVID-19 on economic activity could negatively affect collateral values and our ability to liquidate such collateral.
−Removed: Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making business decisions or may result in a delay in our taking certain remedial actions, such as foreclosure.
+Added: Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making business decisions or delay certain remedial actions, such as foreclosure.
All of these factors could cause the level of our nonperforming loans, charge-offs, and delinquencies to increase, potentially requiring significant future provisions for credit losses.
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• Profitability Risk .
−Removed: Our profitability has and could continue to be negatively affected by changes in interest rates as well as other aspects of the COVID-19 pandemic.
−Removed: In the second quarter of 2020, we temporarily reduced or eliminated (and could reduce or eliminate again) several of our normal customer service fees, which decreased our noninterest income, and in turn, our net income.
−Removed: We have also experienced (and could continue to experience) lower than normal demand for our non-PPP loans due to the economic downturn related to the COVID-19 pandemic.
+Added: Our profitability has been and could continue to be negatively affected by changes in interest rates as well as other aspects of the COVID-19 pandemic.
• Operational Risk .
−Removed: While we continue to take precautions related to COVID-19 in terms of physical separation of employees from each other and from customers, resuming all precautions implemented earlier in the pandemic could limit our ability to meet customer servicing expectations and have a material adverse effect on our operations.
−Removed: We rely on business processes and banking center activity that largely depend on people and technology, including access to information technology systems, as well as information, applications, payment
−Removed: systems, and other services provided by third parties.
−Removed: Technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices.
−Removed: Work-from-home measures and increased electronic interaction with our customers also introduces additional operational risk, including increased cybersecurity risk.
−Removed: These cyber risks include greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction or misuse of valuable information, and potential impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to risks of data or financial loss, litigation, and liability, and could seriously disrupt our operations and the operations of any affected customers.
+Added: While COVID-19 precautions in terms of physical separation have been reduced, if it becomes necessary to resume all or some of the precautions implemented earlier in the pandemic, our ability to meet customers’ expectations could be limited and have a material adverse effect on our operations.
Moreover, we rely on many third parties in our business operations, including appraisers of real property collateral;
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and local, state, and federal government agencies, offices, and courthouses.
−Removed: In light of the measures in responding to the pandemic, many of these entities have limited and may continue to limit the availability of and access to their services.
−Removed: Loan closings could be delayed related to reductions in available staff in recording offices or the closing of courthouses in certain parishes, which slows the process for title work, mortgage, and Uniform Commercial Code filings in those parishes.
−Removed: If the third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may materially and adversely affect our operations.
+Added: In responding to the pandemic, many of these entities limited, and may again limit, the availability of and access to their services.
Because there have been no recent global pandemics of comparable global impact, we do not yet know the full extent of COVID-19’s effects on our business, operations, or the global economy as a whole.
Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our social-distancing accommodation arrangements, third party providers’ ability to support our operations, and any actions taken by governmental authorities and other third parties in response to the pandemic.
−Removed: The uncertain future development of this crisis and the pandemic’s enhancement of the various risks described above could have a material adverse effect on our business, financial condition, and results of operations.
As a participating lender in the PPP, we are subject to risks related to the SBA program and related PPP loans.
−Removed: The CARES Act in March of 2020 and the Economic Aid Act in December of 2020 include a significant loan program administered through the SBA referred to as the PPP which includes the PPP Second Draw program.
−Removed: Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria.
−Removed: We are participating as a lender in the PPP.
+Added: The CARES Act in March of 2020 and the Economic Aid Act in December of 2020 included a significant loan program administered through the SBA referred to as the PPP.
+Added: Under the PPP, small businesses and other entities and individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enrolled in the program, subject to numerous limitations and eligibility criteria.
+Added: We participated as a lender in the PPP.
The PPP became available on April 3, 2020.
Due to how quickly each act was passed, there was and continues to be a significant amount of ambiguity and changes in the laws, rules, and guidance regarding requirements for eligibility, underwriting, origination, funding, and forgiveness of PPP loans.
−Removed: This ambiguity and changes and the speed which was necessary to implement the program expose us to regulatory and legal risks relating to noncompliance with the PPP.
+Added: Ambiguity, changes, and the speed that was necessary to implement the program expose us to regulatory and legal risks relating to noncompliance with the PPP.
PPP loans are also subject to regulatory requirements that require forbearance of loan payments for a specified time and limit our ability to pursue all available remedies in the event of a loan default.
If a borrower under a PPP loan fails to qualify for loan forgiveness, our risk is heightened because we hold these loans at unfavorable interest rates.
−Removed: We also have credit risk on PPP loans if the SBA determines that there is a deficiency in the manner in which the loan was originated, funded, or serviced by us, such as an issue with the eligibility of a borrower to receive a PPP loan.
−Removed: In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or seek recovery from us of any loss related to the deficiency.
+Added: We also have credit risk on PPP loans if the SBA determines that there is a deficiency in the manner the loan was originated, funded, or serviced by us, such as an issue with the eligibility of a borrower to receive a PPP loan.
+Added: In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner the PPP loan was originated, funded, or serviced by us, the SBA may deny its guaranty, reduce the amount of the guaranty, or seek recovery from us of any loss related to the deficiency.
In addition, we have credit risk related to how forgiveness of PPP loans is handled and how the forgiveness amounts are determined.
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If any such litigation is initiated against us, it may result in significant financial liability, significant litigation costs, or adversely affect our reputation.
−Removed: Any of these legal, regulatory, and credit risks related to our participation in the PPP could have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to Our Credit Activities
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Our business depends on our ability to successfully measure and manage credit risk.
−Removed: As a lender, we are exposed to the risk that our borrowers will be unable to repay their loans according to their terms, and the collateral securing repayment of their loans, if any, may not be sufficient to ensure repayment.
−Removed: In addition, there are risks inherent in making any loan, including risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions, and risks inherent in dealing with individual borrowers.
+Added: As a lender, we are exposed to the risk that our borrowers will be unable to repay their loans according to their terms, and that the collateral securing repayment of their loans, if any, may not be sufficient to ensure repayment.
+Added: In addition, there are risks inherent in making any loan, including risks with respect to the period of time the loan may be repaid, risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions such as labor and material shortages and supply chain difficulties, and risks inherent in dealing with individual borrowers.
The creditworthiness of a borrower is affected by many factors including local market conditions and general economic conditions.
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A failure to effectively measure and limit our credit risk could result in loan defaults, foreclosures, and additional charge-offs.
−Removed: As a result, we may need to significantly increase our allowance for loan losses, which could adversely affect our net income.
−Removed: All of these consequences could, in turn, have a material adverse effect on our business, financial condition, and results of operations.
+Added: As a result, we may need to significantly increase our provision, which could adversely affect our net income.
A significant portion of our loan portfolio consists of real estate loans, which subjects us to potential impairment of the collateral securing the loan if the real estate economy experiences negative changes as well as costs and potential risks associated with the ownership of the real property if we are forced to foreclose.
−Removed: The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located.
−Removed: Real estate values in many Louisiana markets have experienced periods of fluctuation over the last several years.
+Added: The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area the real estate is located.
+Added: Real estate values in many Louisiana markets have experienced periods of
+Added: fluctuation over the last several years.
As of December 31, 2021, $1.25 billion, or 74.3%, of loans HFI were secured by real estate as the primary component of collateral.
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regulations and policies;
−Removed: and acts of nature, such as hurricanes and other natural disasters.
+Added: and acts of nature, such as hurricanes, flooding, and other natural disasters.
Adverse changes affecting real estate values and the liquidity of real estate in one or more of our markets could increase the credit risk associated with our loan portfolio, significantly impair the value of property pledged as collateral on loans, and affect our ability to sell the collateral upon foreclosure without a loss or additional losses.
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We may thereafter own and operate such property, in which case we would be exposed to the risks inherent in the ownership of real estate, including potential environmental liability due to contamination of a property either during ownership or after divesting of it.
−Removed: As of December 31, 2020, we held approximately $896,000 in OREO.
+Added: As of December 31, 2021, we held $660,000 in OREO.
This amount could increase in the future, depending upon the level of our real estate foreclosures and our ability to efficiently divest of the foreclosed OREO.
The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including, but not limited to, general or local economic conditions, environmental cleanup liability, assessments, interest rates, real estate tax rates, operating expenses of the mortgaged properties, ability to obtain and maintain adequate occupancy of the properties, zoning laws, governmental and regulatory rules, and natural disasters.
−Removed: Any of these events could have a material adverse effect on our business, financial condition, and results of operations.
Our commercial real estate loan portfolio exposes us to risks that may be greater than the risks related to other types of loans.
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Accordingly, charge-offs on non-owner occupied commercial real estate loans may be larger on an individual loan basis than those incurred with our residential or consumer loan portfolios.
−Removed: Unexpected deterioration in the credit quality of our
−Removed: commercial real estate loan portfolio would require us to increase our provision for loan losses, which would reduce our profitability.
−Removed: Any of these potential consequences could have a material adverse effect on our business, financial condition, and results of operations.
+Added: Unexpected deterioration in the credit quality of our commercial real estate loan portfolio would require us to increase our provision for loan losses, which would reduce our profitability.
Our business may be adversely affected by credit risk associated with residential property.
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In a declining interest rate environment, there may be an increase in prepayments on residential loans as borrowers refinance their loans at lower rates.
−Removed: Losses or declines in profitability as a result of these potential negative events could have a material adverse effect on our business, financial condition, and results of operations.
A significant portion of our loan portfolio is comprised of commercial and industrial loans secured by receivables, inventory, equipment, or other commercial collateral, the deterioration in value of which could expose us to credit losses.
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These types of collateral may decline in value more rapidly than we anticipate, exposing us to increased credit risk.
−Removed: In addition, a portion of our customer base, including customers in the energy and real estate business, may be exposed to volatile businesses or industries which are sensitive to commodity prices or market fluctuations, such as energy prices.
+Added: In addition, a portion of our customer base, including customers in the energy and real estate
+Added: business, may be exposed to volatile businesses or industries that are sensitive to commodity prices or market fluctuations, such as energy prices.
Accordingly, negative changes in commodity prices, real estate values, or liquidity could impair the value of the collateral securing these loans.
−Removed: Significant adverse changes in the economy or local market conditions in which our commercial lending customers operate could cause rapid declines in loan collectability and the values associated with general business assets resulting in inadequate collateral coverage.
−Removed: These events, in turn, may expose us to credit losses that could adversely affect our business, financial condition, and results of operations.
+Added: Significant adverse changes in the economy or local market conditions where our commercial lending customers operate could cause rapid declines in loan collectability and the values associated with general business assets resulting in inadequate collateral coverage.
Our allowance for loan losses may prove to be insufficient to absorb losses inherent in our loan portfolio.
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In addition, bank regulatory agencies will periodically review our allowance for loan losses and the value attributed to nonaccrual loans or to real estate acquired through foreclosure.
−Removed: Such regulatory agencies may require us to recognize future charge-offs, which could have a material adverse effect on our business, financial condition, and results of operations.
+Added: Such regulatory agencies may require us to recognize future charge-offs.
Finally, the measure of our allowance for loan losses will be subject to new accounting standards.
FASB has adopted a new accounting standard that will be effective for us on January 1, 2023, due to our classification as an SEC registrant with smaller reporting company filing status.
−Removed: This new standard, referred to as CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as
−Removed: allowances for loan losses.
−Removed: This will change the current method of providing allowances for loan losses that are probable, which could require us to increase our allowance for loan losses.
−Removed: CECL will also greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for loan losses.
−Removed: The CECL model could create more volatility in the level of our allowance for loan losses after it becomes applicable to us.
−Removed: Any increase in our allowance for loan losses or expenses incurred to determine the appropriate level of the allowance for loan losses could adversely affect our business, financial condition, and results of operations.
+Added: This new standard, referred to as CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses.
+Added: This will change the current method of providing allowances for loan losses that are probable, which could require us to increase our allowance for credit losses.
+Added: CECL will also greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for credit losses.
+Added: The CECL model could create more volatility in the level of our allowance for credit losses after it becomes applicable to us.
Appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property, OREO, and repossessed personal property may not accurately describe the net value of the asset.
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If any of these valuations are inaccurate, our combined and consolidated financial statements may not reflect the correct value of our OREO or personal property, and our allowance for loan losses may not reflect accurate loan impairments.
−Removed: These consequences could have a material adverse effect on our business, financial condition, and results of operations.
The amount of our nonperforming and classified assets may increase significantly, resulting in additional losses, costs, and expenses.
−Removed: As of December 31, 2020, we had nonperforming assets of $4.2 million, or 0.16% of total assets.
−Removed: Nonperforming assets adversely affect our net income in various ways.
+Added: As of December 31, 2021, we had NPAs of $979,000, or 0.03% of total assets.
+Added: NPAs adversely affect our net income in various ways.
We do not record interest income on OREO or on nonperforming loans, which adversely affects our income.
When we take collateral in foreclosures and similar proceedings, we are required to mark the related asset to market value of the collateral, which may ultimately result in a loss.
−Removed: An increase in the level of nonperforming assets also increases our risk profile, which may cause our regulators to require additional amounts of capital.
−Removed: Finally, nonperforming assets can take significant time and resources to resolve, causing the related costs of maintaining those assets to increase.
+Added: An increase in the level of NPAs also increases our risk profile, which may cause our regulators to require additional amounts of capital.
+Added: Finally, NPAs can take significant time and resources to resolve, causing the related costs of maintaining those assets to increase.
These effects may be particularly pronounced in a market of reduced real estate values and excess inventory.
−Removed: Such losses and expenses due to any increase in nonperforming assets could have a material adverse effect on our business, financial condition, and results of operations.
The small to medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair our borrowers’ ability to repay loans.
A significant portion of our business development and marketing strategy is focused on small to medium-sized businesses.
−Removed: Small to medium-sized businesses frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete, and may experience substantial volatility in operating results.
+Added: Small to medium-sized businesses frequently have smaller market shares than their competition, may be
+Added: more vulnerable to economic downturns, inflation, and labor market and supply chain constraints;
+Added: may often need substantial additional capital to expand or compete;
+Added: and may experience substantial volatility in operating results.
Any of these factors may impair a borrower’s ability to repay a loan.
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The death, disability, or resignation of one or more of these people could have an adverse impact on the business and its ability to repay loans.
−Removed: If our small to medium-sized business customers are negatively impacted by general economic conditions or other adverse business developments, this, in turn, could have a material adverse effect on our business, financial condition, and results of operations.
We could be subject to losses, regulatory action, or reputational harm due to fraudulent and negligent acts on the part of loan applicants, our employees, and other parties.
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The sources of the misrepresentations may also be difficult to locate, and we may be unable to recover any of the monetary losses we may suffer as a result.
−Removed: Any of these developments could have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to Interest Rates and Economic Conditions
−Removed: Interest rate shifts could reduce net interest income.
+Added: We are subject to risks due to changing interest rates.
The majority of our banking assets are monetary in nature and subject to risk from changes in interest rates.
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Consequently, we estimate our net interest income would decrease in a falling interest rate environment and increase in a rising interest rate environment.
−Removed: Interest rates are affected by many factors outside of our control, including governmental monetary policies, inflation, deflation, recession, changes in unemployment, the money supply, international disorder, and instability in domestic and foreign financial markets.
+Added: Interest rates are affected by many factors outside of our control, including governmental monetary policies, inflation, deflation, recessions, changes in unemployment, the money supply, international disorder, and instability in domestic and foreign financial markets.
Changes in the level of market interest rates affect our net yield on interest-earning assets, our cost of funds, and our loan origination volume.
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An increase in the general level of interest rates may, among other things, reduce the demand for loans and decrease loan repayment rates.
−Removed: In light of these considerations, a failure to effectively manage our interest rate risk could have a material adverse effect on our business, financial condition, or results of operations.
−Removed: The geographic concentration of our markets in Louisiana makes us sensitive to adverse changes in the local economy.
+Added: Increases could also adversely affect the ability of borrowers of floating rate loans to meet their higher payment obligations, which could in turn lead to an increase in NPAs and charge-offs.
+Added: Natural disasters, acts of war or terrorism, the impact of pandemics, civil unrest, and other external events could result in a disruption of our operations and increases in loan losses.
We are a community banking franchise concentrated in Louisiana.
+Added: A significant portion of our business is generated from Louisiana markets that have been, and may continue to be, damaged by major hurricanes, floods, tropical storms, tornadoes, ice storms, and other natural disasters.
As of December 31, 2021, 94.0% of loans HFI were made to borrowers who reside or conduct business in Louisiana, and substantially all of our real estate loans are secured by properties located in Louisiana.
+Added: Natural disasters can disrupt our operations, cause widespread property damage, and severely depress the local economies in which we operate.
A deterioration in local economic conditions or in the residential or commercial real estate markets could have an adverse effect on the quality of our loan portfolio, the demand for our products and services, the ability of borrowers to timely repay loans, and the value of the collateral securing loans.
If the population, employment, or income growth in any of our markets is negative or slower than projected, income levels, deposits, and real estate development could be adversely impacted.
−Removed: Any of these consequences could have a material adverse effect on our business, financial condition, and results of operations.
−Removed: Volatility in oil prices and downturns in the energy industry, particularly in Louisiana, could lead to increased credit losses in our loan portfolio.
−Removed: As of December 31, 2020, we had non-PPP energy loans of $20.4 million, or 1.4%, of non-PPP loans HFI (non-GAAP).
−Removed: For further information on non-GAAP financial measures, see "Item 7.
−Removed: Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures." We also may have indirect exposure to energy prices, as some of our non-energy customers’ businesses may be affected by volatility with the oil and gas industry and energy prices.
−Removed: Prolonged or further pricing pressure on oil and gas could lead to increased credit stress with respect to those borrowers.
−Removed: Such a decline or general uncertainty resulting from continued volatility could have other adverse impacts such as job losses in industries tied to energy, lower borrowing needs, higher transaction deposit balances, or a number of other effects that are difficult to isolate or quantify, particularly in states with significant dependence on the energy industry like Louisiana.
−Removed: All of these potential consequences could have a material adverse effect on our business, financial condition, and results of operations.
−Removed: Natural disasters, acts of war or terrorism, the impact of pandemics, civil unrest, and other external events could result in a disruption of our operations and increases in loan losses.
−Removed: A significant portion of our business is generated from Louisiana markets that have been, and may continue to be, damaged by major hurricanes, floods, tropical storms, tornadoes, and other natural disasters.
−Removed: Natural disasters can disrupt our operations, cause widespread property damage, and severely depress the local economies in which we operate.
−Removed: Moreover, the value of real estate or other collateral that secures our loans could be materially and adversely affected by a natural disaster.
−Removed: Additionally, our business could be adversely affected by the effects of civil unrest or a widespread outbreak of disease pandemics, including the ongoing pandemic caused by COVID-19.
+Added: Additionally, our business could be adversely affected by the effects of war and international conflict, civil unrest, inflation, labor market constraints, or a widespread outbreak of disease pandemics, including the ongoing pandemic caused by COVID-19.
+Added: We are monitoring the conflict between Russia and Ukraine.
+Added: While we do not expect that the conflict will be directly material to us, associated effects of the geopolitical instability, such as the imposition of sanctions against Russia and Russia’s response to such sanctions (including retaliatory acts like cyber-attacks and sanctions against other countries), could adversely affect the global economy or domestic markets, including ours.
If the economies in our primary markets experience an overall decline as a result of these types of external events, demand for loans and our other products and services could be reduced.
In addition, the rate of delinquencies, foreclosures, bankruptcies, and losses on loan portfolios may increase substantially, as uninsured property losses or sustained job interruption or loss may materially impair borrowers’ ability to repay their loans.
−Removed: Such external events could,
−Removed: therefore, result in decreased revenue and increased loan losses.
−Removed: All of these consequences could have a material adverse effect on our business, financial condition, and results of operations.
−Removed: As a business operating in the financial services industry, our business and operations may be adversely affected in numerous and complex ways by weak economic conditions.
+Added: Such external events could, therefore, result in decreased revenue and increased loan losses.
+Added: As a business operating in the financial services industry, our business and operations may be adversely affected in numerous and complex ways.
Our business and operations, which primarily consist of lending money to customers in the form of loans, borrowing money from customers in the form of deposits, and investing in securities, are sensitive to general business and economic conditions in the U.S.
−Removed: The business environment in which we operate can be impacted by uncertainty about the federal fiscal and monetary policymaking process.
+Added: Our business environment can be impacted by uncertainty about the federal fiscal and monetary policymaking process.
Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control.
+Added: Federal fiscal and monetary policymaking decisions could lead to changes in interest rates, inflation, or other economic impacts such as supply chain issues and labor market constraints.
+Added: The primary impact of inflation on our operations most likely will be reflected in increased operating costs.
The medium and long-term fiscal outlook of the federal government and U.S.
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Uncertainty regarding both short and long-term interest rates impacts our ability to attract deposits and manage net interest margin.
−Removed: Adverse economic conditions and government policy responses to such conditions could have a material adverse effect on our business, financial condition, and results of operations.
The borrowing needs of our customers may increase, especially during a challenging economic environment, which could result in increased borrowing against our contractual obligations to extend credit.
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This could adversely affect our liquidity, which could impair our ability to fund operations and meet obligations as they become due.
−Removed: Such an inability to satisfy our obligations could have a material adverse effect on our business, financial condition, and results of operations.
+Added: Volatility in oil prices and downturns in the energy industry, particularly in Louisiana, could lead to increased credit losses in our loan portfolio.
+Added: As of December 31, 2021, we had non-PPP energy loans of $19.8 million, or 1.2%, of non-PPP loans HFI (non-GAAP).
+Added: For further information on non-GAAP financial measures, see “Item 7.
+Added: Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures.” We also may have indirect exposure to energy prices, as some of our non-energy customers’ businesses may be affected by volatility with the oil and gas industry and the impact of inflation on energy prices.
+Added: General uncertainty resulting from continued volatility could have other adverse impacts such as job losses in industries tied to energy, lower borrowing needs, higher transaction deposit balances, or a number of other effects that are difficult to isolate or quantify, particularly in states with significant dependence on the energy industry like Louisiana.
Risks Related to Our Operations
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If we unexpectedly lose the services of one or more of our key personnel, we would also lose the benefit of their skills, knowledge of our primary markets, and years of industry experience.
−Removed: We may not be able to identify and hire qualified replacement personnel on terms acceptable to us, or at all, which could have a material adverse effect on our business, financial condition, and results of operations.
+Added: We may not be able to identify and hire qualified replacement personnel on terms acceptable to us, or at all, whether due to tightening labor conditions or otherwise.
+Added: We are subject to laws regarding the privacy, information security, and protection of personal information.
Unauthorized access, cyber-crime, and other threats to data security may require significant resources, harm our reputation, and otherwise cause harm to our business.
−Removed: In the ordinary course of our business, we necessarily collect, use, and hold personal and financial information concerning individuals and businesses with which we have a banking relationship.
+Added: In the ordinary course of our business, we necessarily collect, use, and retain, on various information systems that we maintain and in those maintained by third party data service providers, personal and financial information concerning individuals and businesses with which we have a banking relationship.
+Added: We also maintain important internal company data such as personally identifiable information about our employees and information about our operations.
Threats to data security such as unauthorized access and cyber-attacks emerge and change rapidly.
These threats may increase our costs for protection or remediation.
−Removed: They may also result in competing time constraints between applicable privacy and other requirements and our ability to secure data in accordance with customer expectations.
−Removed: It is difficult or impossible to defend against every risk posed by changing technologies and criminals intent on committing cyber-crime.
−Removed: Increasing sophistication of cyber-criminals and terrorists makes it increasingly difficult to prevent a security breach.
+Added: They may also result in competing time constraints between applicable privacy and other requirements and our ability to secure data in accordance with customer expectations and evolving laws and regulations governing the privacy and protection of personal information.
+Added: It is difficult or impossible to defend against every risk posed by changing technologies and cyber-crime.
+Added: Increasing sophistication of cyber-attacks makes it increasingly difficult to prevent a security breach.
Controls employed by our information technology department, our other employees, and our vendors could prove inadequate.
−Removed: We could also experience a breach due to circumstances such as intentional or negligent conduct on the part of employees or other internal sources, software bugs, or other technical malfunctions.
−Removed: Any of these threats may cause our customer accounts to become vulnerable to account takeover schemes or cyber-fraud.
−Removed: A breach of our security that results in unauthorized access to our data could expose us to disruption or challenges relating to our daily operations as well as to data loss, litigation, damages, fines, significant increases in compliance costs, and reputational damage.
−Removed: Any of these consequences could have a material adverse effect on our business, results of operations, and financial condition.
+Added: We, or any of our vendors or third-party providers, could also experience a breach due to circumstances such as intentional or negligent conduct on the part of employees or other internal and external sources, software bugs, or other technical malfunctions.
+Added: Any of these threats may cause our customer accounts and financial systems to become vulnerable to takeover schemes or cyber-fraud.
+Added: If personal, confidential, or proprietary information of customers, employees, or others were to be mishandled or misused by us or third parties with access to that information, we could be exposed to litigation or regulatory sanctions under personal information laws and regulations.
+Added: Cyber incidents could include actual or attempted unauthorized access, tampering, malware insertion, ransomware attacks or other system integrity events.
+Added: A breach of our security that results in unauthorized access to our data could expose us to disruption or challenges relating to our daily operations as well as to data loss, litigation, fines, penalties, damages, inquiries, examinations, investigations, significant increases in compliance costs, and reputational damage, which could cause us to lose customers or potential customers.
We rely on third parties to provide key components of our business infrastructure, and a failure of these parties to perform for any reason could disrupt our operations.
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Additionally, our operations could be interrupted if any of our third-party service providers experience financial difficulty, are inadvertently or intentionally negligent, are subject to cybersecurity breaches, terminate their services, or fail to comply with applicable banking regulations.
−Removed: Any of these consequences could have a material adverse effect on our business, financial condition, and results of operations.
+Added: We are subject to claims, litigation, and other proceedings that could result in legal liability.
+Added: From time to time, we are, or may be, involved in various legal matters arising in the ordinary course of business.
+Added: One or more unfavorable outcomes of these ordinary course claims or litigation against us could have a material adverse effect.
+Added: In addition, regardless of their merits, scope, validity, or ultimate outcomes, such matters are costly, time-consuming, may result in protracted litigation or otherwise divert management’s attention, and may materially and adversely affect our reputation, even if resolved favorably.
We have a continuing need for technological change, and we may not have the resources to effectively implement new technology, or we may experience operational challenges when implementing new technology.
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Accordingly, we may lose customers seeking technology-driven products and services that we are not able to provide.
−Removed: Our inability to overcome any of these technological challenges could, in turn, have a material adverse effect on our business, financial condition, and results of operations.
Our financial results depend on management’s selection of accounting methods and certain assumptions and estimates.
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Certain accounting policies are inherently based to a greater extent on estimates, assumptions, and judgments of management and, as such, have a greater possibility of producing results that could be materially different than originally estimated.
−Removed: These critical accounting policies include the allowance for loan losses, accounting for income taxes, the determination of fair value for financial instruments, and accounting for stock-based compensation.
+Added: These policies include the allowance for loan losses, accounting for income taxes, the determination of fair value for financial instruments, and accounting for stock-based compensation.
Management’s judgment and the data relied upon by management may be based on assumptions that prove to be inaccurate, particularly in times of market stress or other unforeseen circumstances.
Even if the relevant, factual assumptions are accurate, our decisions may prove to be inadequate or inaccurate because of other flaws in the design or use of analytical tools used by management.
−Removed: Any such failure in our process for producing accounting estimates and managing risks could have a material adverse effect on our business, financial condition, and results of operations.
We are dependent on the use of data and modeling in our management’s decision-making, and faulty data or modeling approaches could negatively impact our decision-making ability or subject us to regulatory scrutiny.
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While we are not currently subject to annual stress testing under the Dodd-Frank Act and the Federal Reserve’s Comprehensive Capital Analysis and Review submissions, we currently utilize stress testing for monitoring and managing interest rate risk and liquidity.
+Added: We also use a loan pricing model to help price loans, as well as an ALL model to evaluate the ALL.
While we believe the quantitative techniques and approaches of these models improve our decision-making, they also create the possibility that faulty data, flawed quantitative approaches, or misunderstanding or misuse of their outputs could negatively impact our decision-making ability or, if we become subject to regulatory stress-testing in the future, cause adverse regulatory scrutiny.
−Removed: Any of these items could have a material adverse effect on our business, financial condition, and results of operations.
−Removed: We are subject to claims, litigation, and other proceedings that could result in legal liability.
−Removed: From time to time, we, including our subsidiaries, are or may be involved in various legal matters arising in the ordinary course of business.
−Removed: One or more unfavorable outcomes of these ordinary course claims or litigation against us or our subsidiaries could have a material adverse effect for the period in which they are resolved.
−Removed: In addition, regardless of their merits or ultimate outcomes, such matters are costly, divert management’s attention, and may materially and adversely
−Removed: affect our reputation or that of our subsidiaries, even if resolved favorably.
−Removed: Regardless of the scope or validity of such matters, or the merits of any claims by potential or actual litigants, we may have to engage in protracted litigation.
−Removed: Such litigation is often expensive, time-consuming, disruptive to our operations, and distracting to management.
−Removed: If legal claims were resolved against us or settled, we could be required to make payments in amounts that could have a material adverse effect on our business, financial condition, and results of operations.
−Removed: We may be adversely affected by the condition or performance of our third-party brokerage partners.
+Added: We utilize third-party companies to support our investment group, and we may be adversely affected by the condition or performance of our third-party brokerage partners.
We are not registered with the SEC as an investment advisor or broker-dealer.
−Removed: To provide a broader range of financial and investment services to our customers, we partner with third-parties who are licensed and registered to serve in those capacities.
−Removed: The investment products and services provided to our customers by virtue of these third-party channels generally are not insured by the FDIC.
−Removed: To the extent our customers use those products and services, we may have exposure for illegal, negligent, fraudulent, or other acts of these investment advisors and brokers.
+Added: To provide a broader range of investment products and services to our customers through our investment group, we partner with third-parties who are licensed and registered to serve in those capacities.
+Added: The investment products and services provided to our customers through our investment group, by virtue of these third-party channels generally are not insured by the FDIC.
+Added: Therefore, we may have exposure for illegal, negligent, fraudulent, or other acts of these investment advisors and brokers.
Although we seek to limit this exposure through clear disclosure, ongoing oversight, and contractual provisions requiring indemnification, limitations of liability, insurance coverage, and other similar protections, those obligations may not always be enforceable, or our third-party service providers ultimately may not have sufficient financial strength to fully comply.
−Removed: Losses due to this exposure or our inability to effectively manage the related third-party risks may have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to Our Competition and Services
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Also, many of our non-bank competitors have fewer regulatory constraints and may have lower cost structures.
+Added: Credit unions have become more active in organic growth and growth through acquisitions, and their tax-exempt status may enable them to compete more effectively on rates.
We expect competition to continue to intensify due to financial institution consolidation;
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and the emergence of alternative sources for financial services, including fintech companies, which could cause us to lose some of our existing customers, and we may not be successful attracting new customers.
−Removed: Our failure to compete effectively in our primary markets could cause us to lose market share and could have a material adverse effect on our business, financial condition, and results of operations.
+Added: Our failure to compete effectively in our primary markets could cause us to lose market share.
We may not be able to implement our expansion strategy, which may adversely affect our ability to maintain our historical earnings trends.
−Removed: Our expansion strategy focuses on organic growth, supplemented by strategic acquisitions and expansion of the Bank’s banking center network, or de novo expansion.
+Added: Our strategy is to expand market share in existing markets and engage in opportunistic new market de novo expansion, supplemented by strategic acquisitions of financial institutions with customer-oriented, compatible philosophies and in desirable geographic areas.
De novo expansion carries with it certain potential risks, including possibly significant startup costs and anticipated initial operating losses;
an inability to gain regulatory approval;
−Removed: an inability to secure the services of qualified senior management to operate the de novo banking center and successfully integrate and promote our corporate culture;
+Added: an inability to secure the services of qualified senior management to operate the de novo banking center and successfully integrate and promote our corporate
poor market reception for de novo banking centers established in markets where we do not have a preexisting reputation;
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and additional strain on management resources and internal systems and controls.
−Removed: Failure to adequately manage these risks could have a material adverse effect on our business, financial condition, and results of operations.
+Added: Acquisitions typically involve the payment of a premium over book and market values;
+Added: therefore, some dilution of our tangible book value and earnings per common share may occur in connection with any future acquisition.
+Added: Specifically, acquisitions could result in higher than expected deposit attrition, loss of key employees, or other consequences that could adversely affect our business.
+Added: Further, the carrying amount of any goodwill that we currently maintain or may acquire may be subject to impairment in future periods.
+Added: Also, as consolidation of the financial services industry continues, the number of appropriate targets may decrease and the price for potential acquisitions may increase, which could reduce our potential returns and reduce the attractiveness of these opportunities to us.
+Added: In addition, we cannot provide assurance that we will be able to successfully consolidate any business or assets we acquire with our existing business.
+Added: The integration of acquired operations and assets may require substantial management time, effort, and resources and may divert management’s focus from other strategic opportunities and operational matters.
Further, we may not be able to execute on more general aspects of our expansion strategy, which may impair our ability to sustain our historical rate of growth or prevent us from growing at all.
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The success of our strategy also depends on our ability to effectively manage growth, which is dependent upon a number of factors, including our ability to adapt our credit, operational, technology, and governance infrastructure to accommodate expanded operations.
−Removed: Acquisitions typically involve the payment of a premium over book and market values;
−Removed: therefore, some dilution of our tangible book value and earnings per common share may occur in connection with any future acquisition.
−Removed: Further, the carrying amount of any goodwill that we currently maintain or may acquire may be subject to impairment in future periods.
−Removed: If we fail to implement one or more aspects of our expansion strategy, we may be unable to maintain our historical growth and earnings trends, which could have a material adverse effect on our business, financial condition, and results of operations.
+Added: If we fail to implement one or more aspects of our expansion strategy, we may be unable to maintain our historical growth and earnings trends.
New lines of business, products, product enhancements, or services may subject us to additional risks.
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Any new line of business, product, product enhancement, or service could also have a significant impact on the effectiveness of our system of internal controls.
−Removed: Consequently, our failure to successfully manage these types of development and implementation risks could have a material adverse effect on our business, financial condition, or results of operations.
We may be adversely affected by the soundness of other financial institutions.
−Removed: Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.
+Added: Our ability to engage in routine funding transactions could be adversely affected by the actions and soundness of other financial institutions.
Financial services companies are interrelated as a result of trading, clearing, counterparty, and other relationships.
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As a result, defaults by, declines in the financial condition of, or even rumors or questions about one or more financial institutions, financial service companies, or the financial services industry generally, may lead to market-wide liquidity, asset quality, or other problems and could lead to losses or defaults by us or by other institutions.
−Removed: These problems, losses, or defaults could have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to Our Financial Stability
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If we fail to maintain capital sufficient to meet regulatory requirements, we may not be able to withstand periods of financial stress and we could be subject to enforcement actions or other regulatory consequences.
−Removed: Any of these events could have a material adverse effect on our business, financial condition, and results of operations.
+Added: The fair value of our investment securities can fluctuate due to factors outside of our control.
+Added: Factors beyond our control can significantly influence the fair value of securities in our investment portfolio, potentially resulting in adverse changes to the portfolio’s fair value.
+Added: These factors include, but are not limited to, rating agency actions related to the securities, defaults by the issuer or with respect to the underlying collateral, and changes in market interest rates and instability in the capital markets.
+Added: Any of these factors, among others, could cause OTTI and realized or unrealized losses in future periods and declines in other comprehensive income, which could have a material adverse effect on our business, financial condition, and results of operations.
+Added: In addition, the process for determining whether impairment of a security is other-than-temporary often requires complex, subjective judgments about whether there has been a significant deterioration in the financial condition of the issuer, whether management has the intent or ability to hold a security for a period of time sufficient to allow for any anticipated recovery in fair value, the future financial performance and liquidity of the issuer and any underlying collateral, and other relevant factors.
+Added: We may be adversely affected by the transition from LIBOR.
+Added: In July 2017, the United Kingdom Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021.
+Added: Subsequently, on March 5, 2021, it was announced that certain USD-LIBOR rates would cease to be published after June 30, 2023.
+Added: The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR.
+Added: As of December 31, 2021, 3.6% of loans HFI were indexed to LIBOR with a setting that expires June 30, 2023.
+Added: These loans contain either provisions for the designation of an alternate benchmark rate or “fallback” provisions providing for alternative rate calculations in the event LIBOR is unavailable.
+Added: However, the existing provisions and/or recent modifications to our documents to address the transition may not adequately address the actual changes to LIBOR or the financial impact of successor benchmark rates.
+Added: Even with provisions allowing for designation of alternative benchmarks or “fallback” provisions, changes to or the discontinuance of LIBOR could result in customer uncertainty and disputes arising as a consequence of the transition from LIBOR.
A lack of liquidity could impair our ability to fund operations.
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As a secondary source of liquidity, we have the ability to borrow overnight funds from other financial institutions with whom we have a correspondent relationship.
−Removed: We also have the ability to borrow from the FHLB.
+Added: We also have the ability to borrow from the FHLB of Dallas.
Historically, we have not utilized brokered or internet deposits to meet liquidity needs.
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Our access to funding sources could also be affected by regulatory actions against us or by a decrease in the level of our business activity due to a downturn in the Louisiana economy or in economic conditions generally.
−Removed: A decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, or fulfill obligations such as
−Removed: meeting deposit withdrawal demands or repaying our borrowings.
−Removed: Any of these consequences could, in turn, have a material adverse effect on our business, financial condition, and results of operations.
−Removed: The fair value of our investment securities can fluctuate due to factors outside of our control.
−Removed: Factors beyond our control can significantly influence the fair value of securities in our investment portfolio, potentially resulting in adverse changes to the portfolio’s fair value.
−Removed: These factors include, but are not limited to, rating agency actions related to the securities, defaults by the issuer or with respect to the underlying collateral, and changes in market interest rates and instability in the capital markets.
−Removed: Any of these factors, among others, could cause OTTI and realized or unrealized losses in future periods and declines in other comprehensive income, which could have a material adverse effect on our business, financial condition, and results of operations.
−Removed: In addition, the process for determining whether impairment of a security is other-than-temporary often requires complex, subjective judgments about whether there has been a significant deterioration in the financial condition of the issuer, whether management has the intent or ability to hold a security for a period of time sufficient to allow for any anticipated recovery in fair value, the future financial performance and liquidity of the issuer and any underlying collateral, and other relevant factors.
−Removed: Our failure to correctly and timely assess any impairments or losses with respect to our securities could have a material adverse effect on our business, financial condition, and results of operations.
−Removed: We may be adversely affected by the transition from LIBOR.
−Removed: In July 2017, the United Kingdom Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021.
−Removed: The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR.
−Removed: As of December 31, 2020, 3.6% of loans HFI were indexed to LIBOR.
−Removed: While many of these loans contain either provisions for the designation of an alternate benchmark rate or “fallback” provisions providing for alternative rate calculations in the event LIBOR is unavailable, not all of our loans, derivatives, or financial instruments contain such provisions, and the existing provisions and/or recent modifications to our documents to address transition may not adequately address the actual changes to LIBOR or the financial impact of successor benchmark rates.
−Removed: We may not be able to successfully amend these loans, derivatives, and financial instruments to provide for alternative benchmarks or alternative rate calculations.
−Removed: Even with provisions allowing for designation of alternative benchmarks or “fallback” provisions, changes to or the discontinuance of LIBOR could result in customer uncertainty and disputes arising as a consequence of the transition from LIBOR.
−Removed: All of this could have a material adverse effect on our business, financial condition, and results of operations.
+Added: A decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, or fulfill obligations such as meeting deposit withdrawal demands or repaying our borrowings.
Risks Related to the Regulation of Our Industry
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We are subject to extensive regulation, supervision, and legal requirements that govern almost all aspects of our operations.
−Removed: These laws and regulations are not intended to protect our shareholders.
+Added: These laws and regulations are not intended to protect our shareholders or creditors.
Rather, these laws and regulations are intended to protect consumers, customers, depositors, the FDIC Deposit Insurance Fund, and the overall financial stability of the U.S.
−Removed: These laws and regulations, among other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage, limit the dividends or distributions that Red River Bank can pay to us and that we can pay to our shareholders, impose certain specific accounting requirements on us that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than GAAP would require, require us to have an effective anti-money laundering program, and prohibit discriminatory lending practices and unfair, deceptive, or abusive acts.
+Added: These laws and regulations, among other matters, prescribe minimum capital requirements,
+Added: impose limitations on the business activities in which we can engage, limit the dividends or distributions that Red River Bank can pay to us and that we can pay to our shareholders, impose certain specific accounting requirements on us that may be more restrictive and may result in greater or earlier charges to earnings or reductions in our capital than GAAP would require, require us to have an effective anti-money laundering program, and prohibit discriminatory lending practices and unfair, deceptive, or abusive acts.
Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs.
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Further, any new laws, rules, and regulations could make compliance more difficult or expensive.
−Removed: All of these laws and regulations, and the supervisory framework applicable to our industry, could have a material adverse effect on our business, financial condition, and results of operations.
+Added: For additional information regarding laws and regulation to which our business is subject, see “Item 1.
+Added: Business - Supervision and Regulation.
Legislative and regulatory actions taken now or in the future, may increase our costs.
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Congress that could substantially increase regulation of the financial services industry;
−Removed: impose restrictions on the operations and general ability of firms within the industry to conduct business
−Removed: consistent with historical practices, including in the areas of compensation, interest rates, financial product offerings, and disclosures;
+Added: impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices, including in the areas of compensation, interest rates, financial product offerings, and disclosures;
and have an effect on collection and bankruptcy proceedings with respect to consumer residential real estate mortgages, among other things.
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They also may require us to invest significant management attention and resources to make necessary operational changes to comply.
−Removed: All of these events could have a material adverse effect on our business, financial condition, and results of operations.
+Added: New activities and expansion require regulatory approvals, and failure to obtain them may restrict our growth.
+Added: As opportunities arise, we plan to continue establishing de novo banking centers as a part of our organic growth strategy.
+Added: In addition, we may complement and expand our business by pursuing strategic acquisitions of financial institutions and other complementary businesses.
+Added: Generally, we must receive state and federal regulatory approval before we can acquire an FDIC-insured depository institution or related business.
+Added: Such regulatory approvals may not be granted on terms that are acceptable to us, or at all.
+Added: We may also be required to open or sell banking centers as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition.
+Added: De novo expansion and any acquisitions carry with them numerous risks, including the inability to obtain all required regulatory approvals.
Federal and state banking agencies periodically conduct examinations of our business, and our failure to comply with any supervisory actions as a result of such examinations could result in regulatory action or penalties.
−Removed: As part of the bank regulatory process, the FDIC, the Louisiana OFI, and the Federal Reserve periodically conduct examinations of our business, including our compliance with laws and regulations.
−Removed: If, as a result of an examination, a federal or state banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of any of our operations had become unsatisfactory, or that we or Red River Bank were in violation of any law or regulation, such agency may take a number of different remedial actions as it deems appropriate.
+Added: As part of the bank regulatory process, the FDIC, the OFI, and the Federal Reserve periodically conduct examinations of our business, including our compliance with laws and regulations.
+Added: If, as a result of an examination, a federal or state banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of any of our operations had become unsatisfactory, or that we or the Bank were in violation of any law or regulation, such agency may take a number of different remedial actions as it deems appropriate.
These actions include the power to stop any practices such agency found to be unsafe or unsound;
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to restrict our growth;
−Removed: to assess civil money penalties against us, Red River Bank, or our respective officers or directors;
+Added: to assess civil money penalties against us, the Bank, or our respective officers and directors;
to remove officers and directors;
−Removed: and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate Red River Bank’s deposit insurance and place it into receivership or conservatorship.
−Removed: Any such regulatory action could have a material adverse effect on our business, results of operations, and financial condition.
−Removed: We are subject to stringent capital requirements, which may result in lower returns on equity, require us to raise additional capital, limit growth opportunities, result in regulatory restrictions, or require us to commit capital resources to support Red River Bank.
−Removed: Because Red River Bank does not intend to utilize the simplified CBLR framework, it remains subject to rules designed to implement the recommendations with respect to regulatory capital standards, commonly known as Basel III.
−Removed: The rules establish a regulatory capital standard based on common equity Tier I, require the Bank to satisfy a minimum capital adequacy requirement, and impose a capital conservation buffer.
−Removed: Failure to meet the capital conservation buffer will result in certain limitations on dividends, capital repurchases, and discretionary bonus payments to executive officers.
+Added: and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the Bank’s deposit insurance and place it into receivership or conservatorship.
+Added: We are subject to capital requirements, which may result in lower returns on equity, require us to raise additional capital, limit growth opportunities, result in regulatory restrictions, or require us to commit capital resources to support the Bank.
+Added: Because the Bank does not intend to utilize the simplified CBLR framework, it remains subject to rules designed to implement the recommendations with respect to regulatory capital standards, commonly known as Basel III.
+Added: The rules establish a regulatory capital standard based on common equity Tier I, require the Bank to satisfy a minimum capital adequacy requirement, and impose a CCB.
+Added: Failure to meet the CCB will result in certain limitations on dividends, stock repurchases, and discretionary bonus payments to executive officers.
Our subsidiary, Red River Bank, is also subject to separate regulatory capital requirements imposed by the FDIC.
−Removed: If Red River Bank does not meet minimum capital requirements, it will be subject to prompt corrective action by the FDIC.
+Added: If the Bank does not meet minimum capital requirements, it will be subject to prompt corrective action by the FDIC.
Prompt corrective action can include progressively more restrictive constraints on operations, management, and capital distributions.
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For example, banking organizations experiencing significant internal growth or making acquisitions are often expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.
−Removed: In addition, the Federal Reserve may require us to commit capital resources to support Red River Bank.
+Added: In addition, the Federal Reserve may require us to commit capital resources to support the Bank.
The Federal Reserve requires a bank holding company to act as a source of financial and managerial strength to its subsidiary banks and to commit resources to support its subsidiary banks.
Under this “source of strength” doctrine, the Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank at times when the bank holding company may not be inclined to do so and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank.
−Removed: Accordingly, we could be required to make a capital injection to Red River Bank if it experiences financial distress.
+Added: Accordingly, we could be required to make a capital injection to the Bank if it experiences financial distress.
Such a capital injection may be required at a time when our resources are limited, and we may be required to borrow the funds or to raise additional equity capital to make the required capital injection.
−Removed: Any of these scenarios could have a material adverse effect on our business, financial condition, results of operations, and the value of our common stock.
−Removed: New activities and expansion require regulatory approvals, and failure to obtain them may restrict our growth.
−Removed: We may complement and expand our business by pursuing strategic acquisitions of financial institutions and other complementary businesses.
−Removed: Generally, we must receive state and federal regulatory approval before we can acquire an FDIC-insured depository institution or related business.
−Removed: Such regulatory approvals may not be granted on terms that are acceptable to us, or at all.
−Removed: We may also be required to open or sell banking centers as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition.
−Removed: In addition to the acquisition of existing financial institutions, as opportunities arise, we plan to continue establishing de novo banking centers as a part of our organic growth strategy.
−Removed: De novo expansion and any acquisitions carry with them numerous risks, including the inability to obtain all required regulatory approvals.
−Removed: The failure to obtain these regulatory approvals for potential future strategic acquisitions and de novo banking centers could have a material adverse effect on our business, financial condition, and results of operations.
Federal, state, and local consumer lending laws may restrict our ability to originate certain mortgage loans, increase our risk of liability with respect to such loans, increase the time and expense associated with the foreclosure process, or prevent us from foreclosing at all.
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Additionally, consumer protection initiatives or changes in state or federal law may substantially increase the time and expense associated with the foreclosure process or prevent us from foreclosing at all.
−Removed: If new state or federal laws or regulations are ultimately enacted that significantly raise the cost of foreclosure or raise outright barriers, such laws or regulations could have a material adverse effect on our business, financial condition, and results of operations.
We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance.
Deposits are insured by the FDIC up to legal limits and subject to the payment of FDIC deposit insurance assessments.
−Removed: The Bank’s regular assessments are determined by the level of its assessment base and its risk classification, which is based on its regulatory capital levels and the level of supervisory concern that it poses.
−Removed: The FDIC has the power to change deposit insurance assessment rates, the manner in which deposit insurance is calculated, and also to charge special assessments to FDIC-insured institutions.
+Added: The Bank’s regular assessments are determined by the level of its assessment base and its risk classification under an FDIC risk-based assessment system.
+Added: The FDIC has the power to change deposit insurance assessment rates, the manner deposit insurance is calculated, and also to charge special assessments to FDIC-insured institutions.
Any future additional assessments, increases, or required prepayments in FDIC insurance premiums could adversely impact our earnings.
−Removed: This, in turn, could have a material adverse effect on our business, financial condition, and results of operations.
−Removed: We are subject to laws regarding the privacy, information security, and protection of personal information and any violation of these laws or another incident involving personal, confidential, or proprietary information of individuals could damage our reputation and otherwise adversely affect our operations and financial condition.
−Removed: Our business requires the collection and retention of large volumes of customer data, including personally identifiable information in various information systems that we maintain and in those maintained by third party data service providers.
−Removed: We also maintain important internal company data such as personally identifiable information about our employees and information relating to our operations.
−Removed: We are subject to complex and evolving laws and regulations governing the privacy and protection of personal information of individuals (including customers, employees, suppliers, and other third parties).
−Removed: Ensuring that our collection, use, transfer, and storage of personal information complies with all applicable laws and regulations can increase our costs.
−Removed: Furthermore, we may not be able to ensure that all of our clients, suppliers, counterparties, and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means.
−Removed: If personal, confidential, or proprietary information of customers or others were to be mishandled or misused, we could be exposed to litigation or regulatory sanctions under personal information laws and regulations.
−Removed: Concerns regarding the effectiveness of our measures to safeguard personal information, or even the perception that such measures are inadequate, could cause us to lose customers or potential customers for our products and services and thereby reduce our revenues.
−Removed: Accordingly, any failure or perceived failure to comply with applicable privacy or data protection laws and regulations may subject us to inquiries, examinations, and investigations that could result in requirements to modify or cease certain operations or practices or incur significant liabilities, fines, or penalties, and could damage our reputation and otherwise have a material adverse effect on our business, financial condition, and results of operations.
We may be adversely affected by changes in U.S.
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Future changes in tax laws may have an adverse effect on our income tax expense, deferred tax balances, and the amount of taxes payable.
−Removed: This, in turn, could reduce our profitability, and could have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to an Investment in Our Common Stock
The market price of our common stock may be subject to substantial fluctuations, which may make it difficult to sell shares at the volumes, prices, or times desired.
+Added: An investment in our common stock is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency and is subject to price fluctuations and risk of loss.
There are many factors that may impact the market price and trading volume of our common stock.
In particular, the realization of any of the risks described in this “Item 1A.
−Removed: Risk Factors” of this Annual Report on Form 10-K could have a material adverse effect on the market price of our common stock, causing the value of any investment to decline.
+Added: Risk Factors” of this Report could have a material adverse effect on the market price of our common stock, causing the price of our common stock to decline.
The stock market and, in particular, the market for financial institution stocks has experienced substantial fluctuations in recent years, which in many cases has been unrelated to the operating performance and prospects of particular companies.
In addition, significant fluctuations in the trading volume in our common stock may cause significant price variations to occur.
−Removed: Increased market volatility could have an adverse effect on the market price of our common stock, which could make it difficult for investors to sell shares at volumes, prices, or times desired.
+Added: Increased market volatility could have an adverse effect on the market price of our common stock, which could make it difficult for investors to sell shares at volumes, prices, or times desired and could result in a risk of loss.
Future sales or the availability for sale of substantial amounts of our equity securities in the public market could adversely affect the prevailing market price of our common stock and could impair our ability to raise capital through future sales of equity securities.
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The rights of our common shareholders may be subordinate to the holders of any debt securities or preferred stock that we may issue in the future.
−Removed: As of December 31, 2020, we do not have any outstanding long-term debt.
+Added: As of December 31, 2021, we did not have any outstanding long-term debt.
However, any future indebtedness that we may incur may be senior to our common stock.
As a result, we would make payments on our potential future indebtedness before any dividends could be paid on our common stock, and, in the event of our bankruptcy, dissolution, or liquidation, the holders of our potential future indebtedness would be satisfied in full before any distributions could be made to the holders of our common stock.
−Removed: Although we have not historically issued shares of preferred stock, our board of directors has the authority to issue in the aggregate up to 1,000,000 such shares, and to determine the terms of each issuance of preferred stock and any indebtedness, without shareholder approval.
−Removed: Accordingly, you should assume that any shares of preferred stock and any indebtedness that we may issue in the future will also be senior to our common stock.
+Added: Although we have not historically issued shares of preferred stock, our board of directors has the authority to issue in the aggregate up to 1,000,000 such shares, and to determine the terms of each issuance of preferred stock and any indebtedness, without shareholder approval, which may be senior to our common stock.
As a result, holders of our common stock bear the risk that our future issuances of debt or equity securities or our incurrence of other borrowings may negatively affect the market price of our common stock.
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These include, without limitation, an exemption from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced financial reporting requirements, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
−Removed: We will remain an emerging growth company until the earliest of (1) the end of the fiscal year during which we have total annual gross revenues of $1.07 billion or more, (2) the last day of the fiscal year following the fifth anniversary of the completion of our IPO on May 7, 2019, (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities, or (4) the date on which we are deemed to be a large accelerated filer under the Exchange Act.
+Added: We will remain an emerging growth company until the earliest of (1) the end of the fiscal year during which we have total annual gross revenues of $1.07 billion or more, (2) December 31, 2024, (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities, or (4) the date on which we are deemed to be a large accelerated filer under the Exchange Act.
Investors may find our common stock less attractive if we rely on these exemptions, which may result in a less active trading market and increased volatility in our stock price.
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Our ability to pay dividends may also be limited on account of any potential future outstanding indebtedness, as we generally would make payments on outstanding indebtedness before any dividends could be paid on our common stock.
−Removed: Also, because our primary earning asset is our investment in the capital stock of Red River Bank, we may become dependent upon dividends from the Bank to pay our operating expenses, satisfy our obligations, and pay dividends on our common stock.
−Removed: Red River Bank’s ability to pay dividends on its common stock will substantially depend upon its earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, and other factors deemed relevant by its board of directors.
−Removed: There are numerous laws and banking regulations and guidance that limit our and Red River Bank’s ability to pay dividends.
+Added: Also, because our primary earning asset is our investment in the capital stock of the Bank, we may become dependent upon dividends from the Bank to pay our operating expenses, satisfy our obligations, and pay dividends on our common stock.
+Added: The Bank’s ability to pay dividends on its common stock will substantially depend upon its earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, and other factors deemed relevant by its board of directors.
+Added: There are numerous laws and banking regulations and guidance that limit our and the Bank’s ability to pay dividends.
For more information on dividend regulations, see “Item 1.
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These provisions, and the corporate and banking laws and regulations applicable to us, enable our board of directors to issue additional shares of authorized, but unissued capital stock;
−Removed: do not provide preemptive rights to our shareholders;
−Removed: enable our board of directors to issue “blank check” preferred stock with such designations, rights, and preferences as may be determined from time to time by the board;
−Removed: enable our board of directors to increase the size of the board and fill the vacancies created by the increase;
−Removed: do not provide for cumulative voting in the election of directors;
−Removed: enable our board of directors to amend our bylaws without shareholder approval;
+Added: specify that our shareholders do not have preemptive rights;
+Added: issue “blank check” preferred stock with such designations, rights, and preferences as may be determined from time to time by the board;
+Added: increase the size of the board and fill the vacancies created by the increase;
+Added: not be elected by cumulative voting;
+Added: amend our bylaws without shareholder approval;
require the request of holders of at least 25.0% of the outstanding shares of our capital stock entitled to vote at a meeting to call a special shareholders’ meeting;
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These provisions may discourage potential acquisition proposals and could delay or prevent a change in control, including under circumstances in which our shareholders might otherwise receive a premium over the market price of our shares.
−Removed: An investment in our common stock is not an insured deposit and is subject to risk of loss.
−Removed: An investment in our common stock is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency.
−Removed: An investment in our common stock is subject to investment risk, and the entire investment may be lost.
Securities analysts may not continue coverage on us.
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Our stock repurchase program may not enhance long-term stockholder value, and stock repurchases, if any, could increase the volatility of the price of our common stock and will diminish our cash reserves.
−Removed: On August 27, 2020, our board of directors approved a stock repurchase program.
−Removed: The repurchase program authorizes us to purchase up to $3.0 million of our outstanding shares of common stock through August 27, 2021.
+Added: Since August 2020, we have maintained stock repurchase programs.
+Added: The repurchase programs authorize us to purchase up to a set amount of our outstanding shares of common stock between specific dates.
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.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.